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Leo Hindery, Jr.

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Re: Jobs, Pick the Big Low-Hanging Fruit -- and Stop the Niggling

Posted: 09/06/11 10:31 AM ET

But before we go picking this fruit, let's do some old fashioned, CNN-type "Point-Counterpoint," in order to better appreciate the massive jobs-creation predicament in which the middle class and workers are currently mired and the completely contradictory economic and political environment in which our nation is similarly mired.

POINT #1
President Obama told an audience on the final day of his recent bus tour through the Midwest, "My basic argument to [Congress] is this: We should not have to choose between getting our fiscal house in order, and jobs and growth. My attitude is, get it done. And if they don't get it done, then we'll be running against a Congress that's not doing anything for the American people, and the choice will be very stark and will be very clear." (New York Times, 8-17-11)

BACK-STORY
Yet it was President Obama who praised Congress directly for its passage of the deficit reduction Bill and himself indirectly for his own shepherding of the Bill through Congress. A 'Bill' that at once effectively foreclosed Congress from raising any new tax revenues to pay for the initiatives he now wants to advance. And a 'shepherding' based on the same sort of unbalanced negotiating style which last December extended the Bush tax cuts for the extremely wealthy even after he swore this was a fault line he would never cross.

On August 6, Drew Westen wrote an analysis of President Obama ("What Happened to Obama?", New York Times). Let me quote him here:

Like most Americans, at this point, I have no idea what Barack Obama - and by extension the Party he leads - believes on virtually any issue. The President tells us he prefers a 'balanced' approach to deficit reduction, one that weds 'revenue enhancements' (a weak way of describing popular taxes on the rich and big corporations that are evading them) with 'entitlement cuts' (an equally poor choice of words that implies that people who've worked their whole lives are looking for handouts). But the law he just signed includes only the cuts.

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POINT #2
White House adviser David Plouffe believes that the unemployment rate won't hurt President Obama's re-election chances. He says: "The average American does not view the economy through the prism of GDP or unemployment rates or even monthly jobs numbers. People won't vote based on the unemployment rate, they're going to vote based on: How do I feel about my own situation? Do I believe the President makes decisions based on me and my family?" (Bloomberg, 7-07-11)

BACK-STORY
Yet at the end of August, there were, in real terms, 29.3 million unemployed Americans, including 14.0 million "officially" counted by BLS, plus -- all uncounted -- 8.8 million who were "part-time-of-necessity", 2.6 million who were "marginally attached" because they haven't searched for a job in at least four weeks, and 3.9 million who were "discouraged" and have removed themselves from the labor force. This total number has increased by 4.7 million lost jobs just since the January 2009 Inauguration.

Mr. Plouffe, I for one wouldn't make the bet you're making on behalf of our President that these 29.3 million voters 'won't hurt his election chances'. Right now, only 37% of voters overall approve of how he's dealing with unemployment (CNN/ORC International Poll, 8-24-11), which is pretty darn low.

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POINT #3
By a margin of 67% to 29%, voters prefer that Washington focus on job creation rather than deficit reduction. "Creating manufacturing jobs in the U.S." and "strengthening manufacturing in this country" are the top voter priorities for President Obama. However, only 50% of voters believe that he's working to create manufacturing jobs; just 41% of voters believe Democrats in Congress are working to create jobs; and only 32% believe the GOP is doing so. (The Mellman Group and Ayres, McHenry & Associates, 7-28-11)


BACK-STORY
Of course compounding the tension between the President's rhetoric and his dealings with Congress is the recent memorandum to House Republicans from Eric Cantor, the Majority Leader, which said that the Republican agenda must include "stopping the discussions of new stimulus spending with money that we simply do not have." Senator Mitch McConnell, the Republican Minority Leader, simultaneously criticized "job-killing tax increases." (New York Times, 8-17-11)

So, Senator McConnell and Representative Cantor, if you are so obsessed with denying any fuel to the economy's drivers, how do you expect to even start the job-creation engines, much less keep them running?

And President Obama, speeches aside, when will we see a replacement for the extremely able Ron Bloom, who just stepped down as your Assistant for Manufacturing Policy? If and when there is a successor, will he have the standing and authority which were so obviously withheld from Bloom?

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POINT #4
"Economists generally judge [President Obama's] 2009-10 stimulus program to have helped, but to have been insufficient to overcome the deep downturn" (Ibid.). The proof of this 'insufficiency' is obvious in the dismal real unemployment and GDP figures -- and the needed response is just as obvious, which is more and better stimulus.

BACK-STORY
Yet with Congress and the administration only cutting government expenditures and not adding any new tax revenue, no less an acknowledged expert than Mohamed El-Erian, the CEO of the major bond firm Pimco, says that: "Unemployment will [now] be higher than it would have been otherwise, and growth will be lower. Withdrawing even more spending at this stage will make [the economy] ever weaker" (New York Times, 7-31-11). As to how much "ever weaker", a conservative estimate of the number of existing jobs which will be eliminated by the actions of the deficit reduction bill and of the upcoming associated special Congressional committee is 1.8 million.

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POINT #5
90% of voters support Buy American policies "to ensure that taxpayer funded government projects use only U.S.-made goods and supplies wherever possible." (The Mellman Group and Ayres, McHenry & Associates, 7-28-11)

BACK-STORY
Yet of the G-20 nations, the only one without an encompassing buy-domestic program for its top-of-government is the United States. And the reason is that our nation's multinational corporations, for their own self interests and very much at the urging of China, have persuaded Congress to ignore this imperative. This despite the fact that no single measure would do more to help resuscitate U.S. employment, particularly in manufacturing, than a buy-domestic government procurement requirement. Inexplicably, President Obama is himself opposed to buy-domestic requirements, because, according to a source, he thinks they "slow things down."

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POINT #6
59% of voters say that we need to "get tough with China and use every possible means to stop their unfair trade practices" (Ibid.). And the reason we need to get tough is because we now know that 90% or so of the cost differential between a good manufactured in the U.S. and its Chinese counterpart is due to Chinese subsidies -- often illegal -- in the form of low-cost plant locations, capital grants, below-market financings, tax holidays and, of course, massive manipulation of the Chinese renminbi. Two recent examples drive this home:
i. China to take shot at aircraft duopoly (Financial Times, 8-04-11)
"China will make aircraft manufacturing a cornerstone of its 'new strategic industry' plan...that will lock in long-term government support for the nation's fledgling rivals to Boeing and Airbus. Beijing is close to announcing new rules to help its domestic aircraft manufacturers so that they can provide a big slice of the 4,000 aircraft -- worth $480 billion -- that China is expected to buy over the next 20 years."
ii. Solar Company That Got Federal Loan Shuts Down (New York Times, 8-31-11)
"A California solar-panel manufacturer once touted by President Obama as a beneficiary of his administration's economic policies -- and the recipient of a $535 million federal loan as part of the 2009 stimulus package -- is laying off 1,100 workers and filing for bankruptcy....Solyndra LLC is the third solar company to seek bankruptcy protection this year....The price for solar panels has tanked in the last year largely because of heavy competition from Chinese firms."

BACK-STORY
As long as whoever is Treasury Secretary is seemingly determining our trade policies with China -- first Bob Rubin, later Hank Paulson and now Tim Geithner -- it's hard to be optimistic about ever seeing fair free trade with China, particularly in high-value goods. But maybe, just maybe, the Barack Obama who promised the United Steelworkers on July 2, 2008 that "Change is knowing that for trade to work for America, it has to work for all Americans; that we have to stand up to countries that are manipulating their currency or flooding our markets with subsidized goods" will show up soon, take back control of his administration and give us such "change".

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If all this doesn't give you agita -- and maybe even a sense of hopelessness -- then very little will. Nonetheless, there are four significant low-hanging initiatives that would, if the White House and Congress would only pick them, quickly create millions of new jobs.

1. The special Congressional committee should right now commit to $1.00 in reduced tax expenditures for the wealthy and closed loopholes for every $1.00 in further spending cuts.

2. With a new leveraged National Infrastructure Bank as the funding source and a Buy American requirement in place, commit to at least $2 trillion of infrastructure spending over the next decade. And make sure that at least $10 billion is immediately obligated in the pending legislation for the initial capitalization of the Bank so as to leverage upwards of $600 billion in private funds, to get investments rolling.

3. Adopt incentives to accelerate commercial bank lending to small and medium sized enterprises.

4. Enact the pending "Currency Reform for Fair Trade Act of 2011." Stop the U.S. government from entering into a bilateral investment treaty with China until China makes WTO-compliant its Indigenous Innovation Production Accreditation Program. Go after all of China's illegal subsidies, not just its currency manipulation. And put a halt to China's persistent theft of America's valuable intellectual property, which the U.S. International Trade Commission estimated recently would create up to 2.1 million new direct private-sector jobs.

By contrast, President Obama's prime-time 'jobs' speech this Thursday is expected to include only (i) extending the cut in employees' payroll taxes and unemployment compensation and (ii) enacting a job-creation tax credit, more targeted tax breaks for hiring from specific groups (such as the long-term unemployed), and a new jobs training program. He'll also for sure propose renewed tax write-offs for businesses' capital investments and an overhaul of patent law to spur innovation, and demand passage of the three pending free trade agreements with South Korea, Colombia and Panama. And he may propose block grants to repair schools.

The problem, however, is simple economic arithmetic: we need to create more than twenty million jobs ASAP. Yet traditional jobs programs of the sort being proposed - whether training or tax breaks and credits -- can never create more than thousands of jobs, and certainly not millions. And the pitifully unbalanced South Korea free trade agreement, for one, will indisputably kill off even more high-quality American jobs, not create them ("These Three Free Trade Agreements Are Clunkers -- And They Need Some Courage", Huffington Post, 7-12-11). Only the initiative to repair schools -- the 2011 version, apparently, of "shovel ready" -- could be meaningful, and that depends on how much is actually committed to the program.

Again, the four initiatives listed above would materially jump start job creation in the short term. Notably, they would also give corporate CEOs the confidence they need to start spending, on new investments and hiring, some of the $2 trillion now sitting in their treasuries. And it is that eventual spending which will sustain long-term job creation.

Then the public and private engines of growth -- together -- will start to turn over and really roar.

Leo Hindery Jr. is chair of the Smart Globalization Initiative at the New America Foundation and an investor in media companies. He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. and Liberty Media.

 

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