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  • Releasing the Brakes and Advancing the Throttle Works Better Than Trying to Push the Train

    Posted by David Foster on November 1st, 2012 (All posts by )

    “Job creation” is of course a key issue in this campaign. Each of the candidates claim that he will outshine the other in this area.

    Simply creating jobs is easy. You can pay people to dig holes and fill them up again. You can ban the automatic operation of elevators. You could even eliminate ATMs. The proper measurement is not just “jobs,” but rather jobs that will contribute to overall long-term prosperity rather than subtract from it.

    Mitt Romney has argued for five points which he believes will create 12 million jobs. The plan has been predictably attacked as insufficient; for example, Noah Millman, in the publication called The American Conservative (founded by Pat Buchanan, among others) says that “the mismatch between the scale of the challenge and the proposed solution is almost laughable.” But it is Millman’s critique, in my view, that tells us what is wrong with so much current economic and political thinking.

    Romney’s first point is energy independence–by 2020. To which Millman says:

    Energy independence, if taken literally, would mean higher energy prices (if it was economically efficient for us to be independent, we would be). But what Romney really means is simply to roll back regulation against drilling and mining. More energy development will indeed create some jobs – it’s doing so in Western Pennsylvania, in North Dakota, for example. But it won’t make a big dent in a 12 million job goal.

    Energy independence would require higher prices if nothing else changed. But increases in domestic supply shift the curve. In the case of natural gas, higher domestic supplies have allowed us to remain independent of non-US supplies in this area—remember, just a few years ago it was believed we would have to *import* vast quantities of natural gas, via LNG ships–at the same time that prices have fallen. There is no economic reason why the same phenomenon could not occur with oil.

    And the argument that the employment in the expanded drilling/mining industries is insufficient to make a big contribution to the 12 million jobs target represents simplistic first-order thinking. In reality, lower energy prices, coupled with more certainty that these prices will not skyrocket in the future, have a huge impact on location decisions for a wide range of energy-intensive businesses…primarily in manufacturing, but also including data centers. And for companies in the process industries (plastics, chemicals, fertilizers, etc), the costs of feedstocks represent a significant portion of the total cost of goods produced, and the availability of cheap natural gas or oil has an especially direct impact on location decisions. See for example Fracking brings manufacturing back to rust belt and Europe left behind as shale shock drives America’s industrial resurgence.

    You can be quite sure that the competitive advantage that America gains from shale gas..and oil…will be far stronger with a President Romney than with the fossil-fuel-resenting Barack Obama.


    Millman cites Romney’s plan element, “Cut the deficit,” and says, “Cutting the deficit is a meaningless goal if you don’t say how you’re going to cut it…How the deficit is going to go down is a mystery. How, if it did, that would feed back into the job market is also a mystery.”

    How cutting the deficit would feed back into the job market is a mystery? Money which is spent by the government on economically-useless activities (by no means all government spending, but a significant part of it) is money which is not available for investment in productivity-and-growth-producing assets and activities…this is true regardless of whether the money comes from current taxation or deficit spending.

    Again, Millman seems to be using first-order thinking which ignores interactions and feedback loops. Someone who is hired by a drilling operation or a new process plant, enabled by a more friendly attitude toward fossil fuels, won’t require food stamps and other welfare benefits, contributing to a reduction in government spending levels and the deficit. This reduction in turn liberates funds for productive private investment.

    Point five of the plan is cited as “Cut regulations and taxes on small businesses, and repeal the ACA.” Millman says, “I’ll buy that actions to make our regulatory regime more efficient would have a positive economic impact. But a huge one? Big enough to pull us out of the biggest economic slump since the depression?”

    Extremism in regulation has in reality had a huge impact on businesses large and small…especially small businesses which cannot afford to hire lawyers and lobbyists to protect themselves. How many children’s apparel makers, science kit manufacturers, homecrafters, etc have been crippled or destroyed by the misguided “Consumer Product Safety Improvement Act”? What is the aggregate harm of fanatical EPA overreach, and how much of the difficulty facing American manufacturing is due to this overreach? In my post Drawing the Fires (about proposed new industrial boiler regulations), I noted that:

    Hephaestus, god of the forge, will not stay where he is not wanted, but will depart for more welcoming lands

    also

    For thousands of years, fire has been a symbol of civilization. Has our society simply become too effete to continue activities which center around the use of fire, whether as coal or gas fires for factory or powerplant boilers, or blast furnaces, or forge and foundry operations?

    You can certainly expect such effeteness to run wild if there is a second Obama administration, with entirely predictable consequences for American industry.

    A Romney administration will by no means abolish regulation–but is much more likely to conduct regulation on a rational economic and environmental basis, rather than an effectively theological basis, than a second Obama administration.

    Democratic politicians and intellectuals tend to see job creation, like all economic activity, as something that must be directed from the top down: we (the national leadership and their advisors) decide to create X hundred thousand jobs in, say, the electric vehicle manufacturing business, and establish regulations and incentives to cause this to happen. (I’m not sure to what degree Millman shares this view; he does, I believe, fail to understand some of the relevant economic dynamics, as noted above.) What the Dem view of the world fails to grasp is the degree to which the most important things in an economy tend to be those that are not centrally planned, or in some cases plan-able. Obama’s energy plan had a big role for solar and windmills; it didn’t have much to say about fracking–which turned out to be perhaps the most important single factor now keeping the economy from total ruin. A national plan for “job creation” in the computer industry, circa 1975, would have had a lot to say about mainframes, not much about personal computers.

    I’ve previously cited the words of a Russian peasant leader to Rose Wilder Lane when the latter (circa early 1920s) was still under the spell of Communism and was arguing for the benefits of comprehensive central planning:

    It is too big – he said – too big. At the top, it is too small. It will not work. In Moscow there are only men, and man is not God. A man has only a man’s head, and one hundred heads together do not make one great big head. No. Only God can know Russia.

    We don’t need a “jobs plan” involving detailed analysis of how many jobs will be “created” in which industries by which government programs. (Where might the automotive industry have appeared on such a plan in 1910?) What we need is to take the brakes off and let hundreds of thousands of creative and courageous individuals move the economy forward.

    With a second Obama term, brakes would always be set on most of the cars of the train. Desperate lobbying or favoritism might result in the release of an occasional brake on a particular car, and the train might lurch forward a few feet, with much shock and frequent breaking of couplings, but there would be no real continued movement.

    No matter how many detailed analyses of “job creation programs” are produced by the President’s “experts,” a second Obama term would be a time of economic stasis and decline.

    Here is the summary of the Romney economic/jobs plan on the campaign website, and here is a detailed exposition and analysis by economists Glenn Hubbard, Greg Mankiw,John Taylor, and Kevin Hassett

     

    5 Responses to “Releasing the Brakes and Advancing the Throttle Works Better Than Trying to Push the Train”

    1. Whitehall Says:

      On the nuclear side, I was surprised to learn that America’s yellowcake needs (raw uranium concentrates) are 95% imported with only 5% domestic production.

      Yet the Secretary of Interior under Obama restricted future uranium mining on a million acres of the Colorado Plateau towards the Grand Canyon for 20 years. This area is our country’s leading uranium mining district. This ruling prevents the opening of an estimate 30 NEW mines.

      So the Obama Administration’s attitudes against domestic energy production don’t stop with oil, gas, and coal.

    2. Jim Miller Says:

      I believe Romney usually qualifies “energy independence” with “North American” — which makes a huge difference.

      And explains his support of the Keystone pipeline, and other projects.

    3. veryretired Says:

      Energy production is the key to everything else in the economy being able to grow, and expand employment.

      Even if Romney didn’t do much of anything else, which I doubt would be the case, given their pointedly differing attitudes toward business and economic activity, if he opened up energy production in all areas and approved a fast-track for the Keystone pipeling, that would be enough reason to support him.

      The current regime is not only economically illiterate, but, as true progressives, actively hostile toward the concept of economic expansion.

    4. Michael Kennedy Says:

      One reason we are in this fix is that Republican politicians were little less ignorant about economics and business than their Democrat colleagues. We had a chance to do something permanent with a REpublican Congress and George W Bush, the “MBA president.” In fairness to Bush, he had 9/11 to deal with but he never got control of the spenders in Congress. Once frustration with Iraq boiled over in 2006, and a lot of us who supported him on Iraq were so frustrated with the GOP Congress that enthusiasm was down, the path was taken that resulted in Obama. If we don’t win this election, the future is going to be grim, 1938 grim. In 1938, the year I was born, the US still had large gold reserves and little debt. We could not afford to fight World War II now. The strangling of all energy production would keep us from making anything like the effort of 1940.

      I was just talking to my sister on the phone and she said she hadn’t seen many of these political ads. Well, she lives in Chicago. If Obama and Romney were running them in California or Illinois, Obama would be in even worse trouble. In 2000, I voted for Bush but would not have been upset if Gore had won. I thought he was more sensible than Clinton. I think Gore went crazy after losing that election but, at the time, I wasn’t worried about him like I worry about Obama.

      We will see our future next week. I worry about my kids but three of mine and one of my sister’s are voting for Obama. As HL Mencken once said, people should get what they vote for but they should get it good and hard. The actual quote is “Democracy is the theory that the common people know what they want, and deserve to get it good and hard. “

    5. David Foster Says:

      A good post at Ace of Spades…some excerpts:

      “There are a lot of people who just do not appreciate the wonders of a modern technological civilization. They romance primitivism. They talk about cutting our energy usage while running their TV’s 8 hours a day and tapping into their internet-linked computers 16 hours a day.

      Electricity and heat, they seem to think, are simply magic. They are Summoned, like friendly demons, when a switch is thrown.

      They do not– will not — understand that this energy comes from someplace. Big-shouldered men dig it up from the earth. Clever-fingered men control its movements in enormous electric grids.

      They also don’t understand the thin Electric Blue Line that separates civilization from barbarism”

      and

      “I suppose it’s wrong to politicize this but I have long thought Barack Obama represents the triumph of decadence. He just doesn’t see the connection between coal mines in Ohio and power in Staten Island. He’s been so insulated in his bubble of privilege he’s never even had occasion to wonder what it is, exactly, that makes his TV glow when he turns it on.”

      Read the whole thing.

      http://minx.cc/?post=334547