Tom Power Commentary: “Exporting Natural Gas: Undermining Energy Security and Econonomic Well-Being”

Increased supplies of natural gas, combined with the slow economic recovery from the Great Recession, have dramatically reduced natural gas prices in the United States. Competition from that cheaper natural gas also has put downward pressure on domestic coal use by electric generators, leading to reduced coal prices and the layoff of workers at many mines including those in Montana and Wyoming.
Oil production in the United States, including that associated with the Bakken oil fields in North Dakota and Montana, has also dramatically increased, boosting U.S. oil production to levels not seen for over two decades and turning around a relentless decline in U.S. oil production that began 40 years ago after peak production in 1970. But oil and gasoline prices have remained stubbornly high. Something seems wrong with the working of supply and demand when that increased domestic oil production doesn’t put downward pressure on the price we have to pay for oil and gasoline too.
But if we step back a bit, these divergent price paths for oil and natural gas make some sense. The natural gas we produce is largely landlocked because it is costly, and, some would say, dangerous, to liquefy that natural gas and load it on huge tankers to ship to Asia or Europe. The price that natural gas could fetch in Japan or Germany would be four times what it sells for in the U.S. But first it has to get there, and the U.S. doesn’t really have the gas liquefaction and port capacity in place to try to take advantage of those very high international price differences.

It is not surprising that American natural gas producers want to break out of their landlocked situation and ship their gas overseas to enjoy the higher prices there. In fact, the oil producers in the Bakken oil fields want the Keystone Pipeline for the same reason: The Bakken oil is being produced far from the markets that can use it. It represents a large local supply of oil that can drive down the price buyers are willing to pay because of the high costs of getting that oil to market. The Keystone Pipeline would allow Bakken oil to be shipped straight to oil refineries on the Gulf coast where it can then flow into international markets and claim a price that fully reflect world oil prices.
That brings us back to why oil and gasoline prices have not come down despite dramatic increases in U.S. oil production. The infrastructure for the shipping of petroleum from isolated locations like Saudi Arabia or the North Slope of Alaska to the rest of the world has been in place for a long time. There is a worldwide oil market off of which we as a nation have lived for a long time. That worldwide oil trade sets the value of oil in the U.S. as well as elsewhere in the world. We have no choice but to pay that world price if we want to import that oil and our oil producers can also use that world price to set the price they demand for domestic production.
We have all grumbled at times about being “over the barrel” (pun intended) when it comes to oil and gasoline prices and having to pay whatever the world demanded of us so that we could continue to feed our oil habit. But now, strangely, our political and business leaders are telling us that we should also commit ourselves to a worldwide market for natural gas. Those “leaders” repeatedly tell us about all of the jobs that will be created by building the infrastructure so that we can move that natural gas to port cities for export. They also remind us of the higher prices our domestic natural gas producers will be able to get if we facilitate that export.
What they do not tell us is that what is good for natural gas producers is not good for the rest of us. We currently have the benefits of natural gas at a relatively low price. That reduces the costs of operating our households. It is also attracting manufacturing activity back to the U.S. because that plentiful natural gas supply at a very low price gives us a competitive advantage.
Natural gas is also a relatively low carbon fuel. As a result, the increased production of natural gas in the U.S. could provide us with a transition fuel as we seek to maintain our economy while reducing our greenhouse gas emissions. Purposely linking the price of natural gas in the U.S. to the higher prices people elsewhere around the world have to pay for natural gas is a strategy to undermine the American economy and sabotage even further any hope of our getting our massive greenhouse gas emissions under control.
There is something strange going on here. The natural gas industry previously argued that expanding natural gas exploration and development to almost every acre of land in the nation where natural gas might be found would help us rebuild our energy independence and boost our energy security. Now they are urging us to ship these resources away and embrace higher natural gas prices in the U.S., leaving us exposed to the same market forces that most of us cursed when oil prices were sky-rocketing.
There appears to be no limit to the economic, social, and environmental damage that some folks seem to think is justified because a tiny minority can make a financial killing off of it. It is time to push back against the cynical use of “jobs” to justify almost anything and everything without regard for what it actually does to our nation.

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Tom Power Commentary: “The Public Relations Misuse of the Language of Economics”

Almost all of us are impacted by tax laws, government regulations, and public subsidies. That is true of individuals pursuing their own interests, profit-oriented commercial businesses, non-profit organizations seeking to follow their own visions of a better world or government agencies of one sort or another.
Given that such taxes, regulations, or subsidies can directly impact the success or, even, viability of a broad range of individuals’ and organizations’ objectives, it is not surprising that a lot of effort is put into influencing the decisions that governments make. Public relations professionals are hired to positively influence the public’s perception of the size and importance of the contribution different organizations make to our individual and collective well-being. Lobbyists are hired to try influence the decisions of legislators and regulators in order to make those government decisions more supportive or, at least, less damaging to their organizations’ activities and objectives.
One popular public relations gimmick that is regularly used is the so-called “economic impact analysis.” Recently we have seen such impact analyses used to try to influence the public’s view of the Colstrip electric power plants, the activities of Montana artists, new Montana coal mining proposals, the Montana’s University system, and the expansion of the Medicaid health insurance program, to name just a few.
Given that we tend to perceive economic hard times as either just around the corner or currently upon us, this feeling of economic vulnerability is an attractive pressure point for those that seek to protect or enhance their private interests by wrapping them in our collective public interest in a stable and prosperous economy. That is, private interests are disguised in the public interest by suggesting that almost all citizens have a direct economic interest in the success of those private interests.
This use of economic language to magically transform almost any private interest into the public interest has to be recognized for the public relations gimmick that it is. This purposeful confusion and masquerade would simply be insulting or laughable, like any other advertisement, if it were not for the distortion and corruption of economics that such so-called “economic impact analyses” depend upon.
Economics, as a social science, studies how individuals and societies cope with scarcity. It also develops guidelines for the optimal use of scarce resources. Central to economics is the unavoidable need to make tradeoffs or choices that involve weighing benefits against costs in the pursuit of net benefits or avoidance of net losses.
In real world settings, it is rare to find situations where there are only benefits to reap and no costs that have to be considered. As economists often remind us, “There is no such thing as a free lunch.”
But “economic impact analyses” shrug off this central economic tenet that costs and benefits need to weighed. These very peculiar “economic” analyses typically describe economic ventures as having only benefits and no costs for the local community. But the corruption of the basic insights of economics goes even further, and transforms things that both businesses and economists would usually label costs and simply re-labels them as benefits. In these “impact analyses”, no economic choices or tradeoffs need to be made. The “analyst” simply presents an array of pure benefits to the community and implicitly suggests that it would be irrational not to embrace and approve such a free lunch. With only benefits and no costs, whatever is being proposed becomes an offer that is simply too good for the public or government to burden with taxes or regulations, not to mention the absurd possibility of actual rejection.
It should be clear that something is missing from this type of public-relations-based impact analysis, namely the weighing of benefits and costs in the process of making rational choices. If there were only benefits and no costs associated with a proposed project, there would usually be no controversy at all about that proposal. It is because there are perceived costs (as well as benefits) that public controversy emerges. In that setting any economic analysis worthy of that label should attempt to weigh both the benefits and the costs so as to contribute to a rational public decision. But in the world of public relations, the motivation is the often the opposite: To overstate the benefits and suggest that there are no costs.
This is not to say that real economic impact analysis has no important uses. If, for instance, a very large project is proposed that may significantly boost the population, placing stress on public services such as schools, police and fire protection, and the local road and highway system, a real economic impact analysis might provide warning of these potential disruptive and costly impacts so that mitigation measures and their funding can be planned for. It is important to note that in this setting, particular costs associated with the project are explicitly investigated rather than just laying out pure benefits.
Environmental impact analyses, of course, also have the purpose of carefully and completely laying out the full range of benefits and costs so that the public and public decision-makers can, in a classic application of economics, compare and weigh both so that an informed and, hopefully, more rational and productive decision can be made.
The next time you hear a commercial group or anyone else bragging about the gigantic positive economic impacts it has or will have on the well-being of the community, treat it as a paid advertisement that almost certainly has repeatedly violated all of the basic rules of economic logic. That impact analysis is highly likely to simply be a gimmick to trick the public into providing private business interests with special treatment at significant cost to the public interest.

Tom Power Commentary: “From One Manufactured Fiscal Crisis to Another”

Many of the nation’s newspaper cartoonists have done a good job of making fun of the sighs of relief we are all supposed to have breathed when Congress and the President settled the “fiscal cliff” crisis on New Year’s Day.
Given that the “fiscal cliff” was manufactured by Congress as part of a temporary fix in the earlier 2011 stalemate over raising the federal debt ceiling, it was obvious that the same fiscal crisis was going to reemerge in early 2013 when that debt ceiling would have to be raised again.
If the House Republicans cannot get their way in the upcoming repeat performance of the debt ceiling battle, they again plan a suicide-bomber-approach to fiscal policy, namely threatening to force a purposeful but completely unnecessary default by the United States on its financial obligations. Given that the U.S. dollar and U.S. Treasury securities are the financial securities of choice that the rest of the world uses to store its wealth, what the Republicans are threatening is nothing short of a worldwide financial collapse.
What is important to understand is that the American dollar and U.S. Treasury bonds are threatened by no one but the Republicans in the House of Representatives. Despite the fact that the Great Recession originated in the United States, as it spread around the world, investors turned to the dollar and U.S. Treasury bonds for financial security. That was the safest place in the world for them to put their money.
The U.S. Constitution is crystal clear that Congress controls the “purse strings” of the federal government. It is only Congress that can mandate federal spending and federal taxation. The President and the rest of the executive branch of the federal government constitutionally then are supposed to implement those spending and taxing mandates.
The Congressional debt ceiling, however, creates a conundrum of conflicting mandates: What is the President supposed to do when Congress orders spending levels that are not covered by mandated taxes. Given that it is Congress that sets the level of spending and the level of taxation, one would think that Congress in establishing that federal budget had quite explicitly authorized whatever deficit or surplus resulted and was also authorizing the U.S. Treasury to facilitate those Congressional spending decisions.
But Congress has added a conflicting mandate: It has ordered the Executive Branch to spend and tax in a way that creates a deficit but has also ordered the Treasury to not facilitate that spending by either expanding the money supply or borrowing money. Thus the Executive Branch has to choose which of these Congressional mandates it should violate since it cannot spend the way Congress has ordered and manage the nation’s currency and debt as Congress has ordered. The President would have to violate one Congressional mandate or another no matter what he decided to do.
Such contradictory legislation might appear to make no sense. But there is political sense to it: It is a political maneuver that seeks to cut federal spending without Congress taking responsibility for specifying what spending should be cut. That allows members of Congress to avoid going on record cutting specific popular spending programs while trying, instead, to force the President to do exactly that.
We are back to the fiscal cliff of steep government spending cuts that may undermine our slow economic recovery from the Great Recession or, alternatively, force the U.S. Treasury to default on U.S. financial obligations for the first time in the nation’s history, possibly triggering a worldwide financial panic and collapse.
What the Republicans hope to get out of holding the American and world economies hostage in this blackmail scheme is what they call “entitlement reform” but is more accurately an explicit attack on Social Security, Medicare, Medicaid, Food Stamps, and Unemployment Compensation. The Republicans either do not have the votes or do not have the political guts to propose and pass specific reductions in these social safety net programs as well as drastic cuts in almost everyone’s favorite federal program. Given that they cannot accomplish what they want using the democratic legislative process, they have turned, again, to hostage-taking and blackmail.
This is outrageous, dangerous, and unnecessary extra-legal behavior by House Republicans. Since 1960 Congress has acted 78 times to adjust the federal debt limit to allow the U.S. Treasury to meet America’s financial obligations. Most of those adjustments of the debt ceiling were under Republican presidents although 37 percent of them were under Democratic presidents. This is routine government business that has always been approved so that the credit worthiness of the U.S. government was not in question. It should not be in question now either, but House Republicans want to purposely undermine our credit worthiness by keeping the U.S Treasury from meeting the nation’s existing financial obligations. This comes close to threatening the financial sabotage of the U.S. government and the American economy.
Enough is enough. We cannot make progress on any of our nation’s problems while stumbling from one manufactured financial crisis to another. Our economic hostage takers and blackmailers have to be legislatively disarmed so that we can get on with doing America’s business.

Tom Power Commentary: “Creating an Economic Crisis for Political Purposes”

All eyes but few brains are focused on Washington, DC, where we are told the two political parties are again engaged in a dangerous game of chicken as we hurdle toward what has been described as a “fiscal cliff” that is now just 30 days away.
There are lots of ways of describing our current fiscal predicament, but it is certainly not some dangerous cliff. More accurate descriptive phrases might be “economic blackmail” or “political theater,” or the latest conservative attack on the legacy of FDR’s New Deal.
First, but not most important, we have to realize that there is no “cliff” over which we are about to tumble into economic destruction. As many observers have said, what we actually face is an economic “slope” that is not very steep. Tax rates might temporarily go up; cuts in spending might temporarily be made. All of that is reversible if we do not get purposely panicked, which, after all, is the political intent of those who created and maintain that imaginary “fiscal cliff.”
More important is the fact that the supposed fiscal crisis in which we find ourselves was purposely created as part of an extended economic blackmail aimed at eliminating most of the social programs created in response to the Great Depression eighty years ago. Those programs, including Social Security, later expanded to include Medicare, have been incredibly popular, for good reason: They, along with workplace pensions and medical insurance, lifted our seniors out of a concentrated pool of poverty into a modest middle class lifestyle.
“Free Marketeers,” of course, object to such public programs, no matter how successfully they have been. But, given their popularity, critics have found it difficult to launch an effective attack on them. The anti-government rightwing thinks it has created one now: namely the simple and powerful assertion that we cannot afford these social programs any longer. Social Security and Medicare, to critics, are not social insurance programs that people pay for across their lifetimes. Instead, they have been relabeled “entitlements,” implying that they are just foolish government giveaways.
But how does one convince Americans that we cannot afford the very same social programs all of the rest of the world’s developed nations have adopted?
A sense of impending crisis had to be created to dramatize our supposed poverty as a nation. The tool that was used was one of the routine votes that are taken every year to raise the total amount of public debt the federal government is allowed to incur. Congress has done this routinely for the entire 220 years we have operated under our Constitution. During war and peace, during depression and prosperity, our nation, like most businesses and households, has borrowed money to make investments, fight wars, and carry citizens through economic downtimes. This was not a corrupting or debilitating action. As our nation grew into the most durable, successful, and powerful economy on the planet, the federal government’s debt grew too.
That federal debt was not creating a crisis of any sort. During the world-wide Great Recession, even as our economy tittered on the edge of financial collapse because of reckless risk-taking on the part of Wall Street gamblers, investors, multi-national corporations, and other governments around the world chose the American dollar and U.S. Treasury bonds as the safest place to store their wealth.
But anti-government fanatics in our Congress decided to create a crisis by threatening not to allow the federal debt ceiling to be raised, effectively threatening to block the refinancing of existing federal debt or the issuing of new federal debt to fund the ongoing operations of the federal government, including its activities to support our citizens and businesses through the recession.
It was that political choice by anti-government ideologues that created a financial crisis where there was none. The government was having no trouble borrowing money. Interest rates were incredibly low. The rest of the world saw our federal debt as the most reliable investment available. But under our Constitution, Congress has to approve all federal borrowing. This created the perfect opportunity for economic blackmail: If you do not give us what we want, we will force the federal government into financial default even though there is no financial reason for such a default. The strategy was simple politically contrived economic blackmail.
The current supposed “fiscal cliff” came out of that political extortion. In return for raising the federal debt ceiling, the anti-government fringe demanded drastic cuts in the federal deficit. Those were written into the law that will take effect January 2nd. That is, the so-called fiscal cliff is a political artifact based on that earlier politically contrived stalemate over raising the federal debt ceiling.
Rather than being greeted with outraged at their irresponsible game of economic chicken that effectively holds the entire American economy hostage to the demands of a right-wing minority, there is a reasonable chance that the hostage-takers may succeed. All of the talk of a “Grand Bargain” to avoid going over the imaginary cliff, actually amounts to giving the anti-government ideologues what they most want: agreement that we can no longer afford Social Security and Medicare. Next up on the chopping block will be spending on education, unemployment insurance, federal environmental protection, regulation of Wall Street, union rights, etc.
This whole framing of our actual fiscal and economic situation is a fraud. The very policies that have undermined the middle class, brought the Great Recession down on us, and ballooned the federal deficit are now offered to us, without even a smirk or a smile, as the cure for what fiscally and economically ails us.
Rather than succumbing to the “Stockholm Syndrome” where hostages begin to identify with the hostage-takers, it is time for us to face our economic blackmailers and call their bluff.
There is no “fiscal cliff” and there is no need for any “grand bargain”. It is time, again, to politically just say “no.”

Tom Power Commentary: “Political Opportunism and Economic Illiteracy: The Closing of the Corette Power Plant”

Republicans are hot on the attack against Democratic candidates in the upcoming election over the recent announcement that Montana’s oldest coal-fired electric generator will be mothballed in three years. The Republicans are blaming that closure decision on the refusal of Democrats in Congress to block EPA’s court-ordered application of the Clean Air Act to older, dirtier electric generators.
Under pressure from the coal and electric utility industries, EPA had chosen not to apply the 1990 amendments to the Clean Air Act to older power plants. This provided an incentive to utilities to keep those plants operating indefinitely rather than retiring them and building new, more efficient, and cleaner electric generators. The older plants were repeatedly rebuilt from the inside out so that they could last forever, exempt from the air pollution rules passed by Congress. The same poisons all other industries were forbidden from dumping into the air that we and our children breath could continue to pour forth from these old power plants. In 2008 federal courts declared EPA’s refusal to enforce the Clean Air Act on these older, dirty plants illegal and ordered EPA to adopt new rules enforcing the air pollution laws that Congress had passed almost twenty years earlier.
It is more than a little ironic to find Montana coal boosters complaining about EPA air quality regulations. After all it was the Clean Air Act that largely created a national market for Montana and Wyoming Powder River Basin coal. That coal is low quality in terms of energy content, making it costly to ship, and lies in the middle of nowhere, one or two thousand miles from large population and industrial centers. The Clean Air Act’s restrictions on sulfur emissions, however, gave that coal a distinct advantage: Its sulfur content was unusually low. If it were burned instead of higher sulfur eastern coal, the pollution controls that had to be installed were much less costly. In that sense the Clean Air Act and EPA created a national market for Montana and Wyoming coal allowing it to be marketed across almost all of the United States. Powder River Basin coal became the dominant coal supply to American domestic markets thanks to the Clean Air Act and EPA regulations. If we want to keep selling coal to the rest of the nation, we should be careful about advocating the repeal of the Clean Air Act and the abolishment of EPA.
There is another irony in the Republican criticism of EPA and the supposed “war on coal” that Obama is said to be waging. These folks claim that they believe that we should depend on market forces and private business activities to guide our economy and society. Yet, in their near hysteria over the closing of a very old and very small electric generator, they completely ignore the powerful market forces that explain that closure.
The Corette Power Plant is one of dozens and dozens of small older coal-fired power plants that are being retired nationwide. Those plants will be replaced by natural gas-fired electric generators. If this is a war on coal, it is a war being conducted by market forces. The expansion of North American natural gas supplies has driven the cost of natural gas to very low levels. That has allowed natural gas to successfully compete head-on with coal as a fuel for electric generation.
This decline in natural gas prices was just the latest market pressure on our past reliance on coal. Technological improvements in the design of natural gas-fired electric generation have increased the fuel efficiency and reliability of gas-fired plants and reduced the upfront investment cost of building them. They also can be built in smaller modular units to match demand growth without losing economies of scale. In addition they take much less time to permit and build. Finally, natural gas burns cleaner than coal in terms of greenhouse gases, sulfur, mercury, particulate, and other health-threatening emissions. This reduces pollution control costs and the risks associated with stricter air quality regulations of coal combustion in the future. As a result of these straightforward cost advantages, electric utilities have focused almost exclusively on building natural gas-fired electric generators over the last decade, even when natural gas prices were much higher.
That led to the building of a whole new fleet of natural gas-fired electric generators. As natural gas prices have tumbled downward, these generators have been operated more often during the year because they are the cheaper source of electricity. This has also reduced the market price of electricity on wholesale markets. Utilities can avoid operating their higher cost plants and instead purchase electricity more cheaply on the market.
In fact, it was this later reality that led the owners of the Corette Power Plant to decide that that facility, which will be almost 50 years old when it is retired, would not be a competitive source of power in this new market setting.
There is no “war on coal” being conducted by our political leaders. Those objecting to the mothballing of a dirty and inefficient electric generator that is far beyond its planned economic life are really objecting to natural gas prices being low and technological improvements allowing us to produce electricity more cheaply and cleanly. That is, they are objecting to economic improvements and improvements in the well-being of most Americans. That does not seem like a very viable political platform to stand on.

Tom Power Commentary: “The Economic Glass Is both Half-Full and Half-Empty”

As the first presidential debate made clear, it is quite easy to describe the current American economy in dramatically different terms and come either to the conclusion that the economy is stalled and making little progress towards recovery or conclude that the economy has been moving steadily through an impressive recovery from a very serious collapse.
Depending on which of those perspectives you take, you might conclude that President Obama’s economic policies have been a complete bust or that they have moved the economy slowly but surely out of the worst economic downturn since the Great Depression.
Obama and his supporters look back to where the economy was when he took office. In the last year of President Bush’s term, job losses in the private sectors of the economy rose from losing about 100,000 jobs a month to 400,000 job losses and then about 800,000 jobs losses a month for his last four months in office.
Job losses, of course, did not abruptly stop just because Obama took the oath of office. The losses continued at that high level for another two months. Then the hemorrhaging of jobs dramatically fell to half the previous level, around 400,000 lost jobs a month until a year after Obama took office when the job losses ended and job growth began. There now have been 31 continuous months of private sector job growth that added 5.2 million jobs back to the economy. That has brought the unemployment rate back to where it was when Obama first took office.
The number of people laid off last month was at the lowest level every reported, bringing new unemployment insurance claims down to pre-recession levels. These incremental improvements have, apparently, been felt by the citizenry as consumer confidence has climbed back to where it was before the recession began. In Obama’s first full month in office the consumer confidence index was at 25. Last month it had risen to 70.
Of course Obama and his supporters believe that the economic recovery policies adopted by his Administration immediately after taking office had something to do with staunching the flood of job losses and reversing it into substantial job gains.
That is the economic glass half full and still filling point of view. Note that it goes back to the worst days of the financial crisis when it looked like the economy might collapse into a decade-long Great Depression, and it measures progress from that terrible low point.
Obama’s critics, including Governor Romney, do not use the previous low point as the reference but rather use the previous levels of prosperity and full employment that we have had in the past. Obama starts with the cracked glass out of which the water was gushing as the reference point. Romney chooses the full and over-flowing glass from prosperous years past as his reference point and sneers at Obama’s half-full glass as unworthy of Americans.
This assures distorted and exaggerated political dialogue about the economy as each side tries to get voters to take either a pessimistic or an optimistic view of the half-filled economic glass. So the crazy political ads will continue until somebody invents a device that automatically substitutes music videos, comedy central, or cartoons of our own choosing every time a political ad tries to come onto our TV.
But there are also important economic considerations associated with the glass half-full or half-empty contrast. Unemployment is still quite high. Many of our productive resources are currently unemployed or under-employed. It would be a mistake to adopt public economic policies now that, while perfectly appropriate for periods of full employment, would currently damage job recovery when we are still struggling to get the job creation rate high enough to create jobs for the still unemployed as well as the new entrants into the workforce. In particular, to call for austerity measures that in the name of cutting the deficit slash government spending across the board, could potentially add millions to the unemployment rolls while undermining our public safety, educational institutions, and basic social services, undermining further the overall productivity of our economy. Such austerity measures would also choke off consumer spending just as businesses have begun to expand again.
A big chunk of our deficit has little to do with government overspending. It is associated with the economic collapse and slow recovery that choked off tax payments just as the government was expanding its support to the families of the unemployed and trying to support new job creation. Until we put our under-employed resources back to work in productive economic activity, we will remain poorer than we need to be and we will find it hard to fund basic public services. We know we can do better. All of us are eager to make our contribution to a full national economic recovery. We are slowly regaining our confidence that we can collectively rebuild a shared prosperity.
Now is not the time purposely crack the half-full and slowly filling economic glass and begin to drain it again, all in the name of austerity and ideological purity. Anger and frustration and anti-government rage may make that path look attractive as a way of venting frustration and getting some immediate emotional satisfaction. But that will just push us back into the economic hole out of which we have been systematically climbing.

Tom Power Commentary: ” ‘Job Creators’ Old and New”

George Orwell tried to warn us about political “doublespeak:” the continued abuse of language for manipulative purposes by unscrupulous politicians.
In this political season, in which the airwaves are a continuous flood of partisan political advertising, there is no escaping from such doublespeak.
One of the most ingenious examples of that in this political season has been the renaming of the very rich among us as our “job creators.” This verbal contortionism turns what in a democracy might otherwise be a somewhat troubling curiosity that could evoke envy or hostility, namely the rich, into a central economic player without whom all of the rest of us would be unemployed and poor. That verbal jujitsu also simultaneously explains why some folks are very rich: Their wealth was the appropriate reward for providing all of the rest of us (or at least 92 percent of us) with jobs.
This ingenious doublespeak came just in time for the presidential candidacy of multi-millionaire Mitt Romney. His wealth is offered as a sign that he knows the ins and outs of the economy and is one of the nation’s leading “job creators.” In the midst of the lingering Great Recession, with unemployment hovering around 8 percent, who else but one of these “job creators” would we want at the nation’s helm?
One of the reasons that this particular example of doublespeak has passed the laugh test is that in our nation’s past some of the largest and most enduring fortunes were associated with industrial ventures that did create tens of thousands of jobs: Ford produced cars; Carnegie, steel; the Rockefellers, oil; the Edison companies electrified the nation, and so on.
But beginning in the 1970s, our economy began a dramatic shift away from building the basic manufacturing infrastructure that produced goods and the business organizations that delivered services to satisfy our needs and desires. Instead, more and more of our skill and talent and productive energy turned to the buying and selling of ownership interests in existing productive capacity rather than building new capacity. We turned increasingly to buying and selling financial instruments: stock shares, industrial bonds, mortgages, currency, commodities futures, and the like. The financial sector of our economy exploded as more and more complex and risky financial maneuvers were marketed at great profit.
One popular financial maneuver was the leveraged buyout where a group pooled a small amount of their own money and then borrowed a much larger amount of money to purchase controlling interest in an existing company. Once under the control of the new investors, the company then took on that new debt and the investors took out their new equity in lump sum dividends or by tapping the company’s cash flow over the next several years. The company was then left to fend for itself, burdened by substantial interest payments on the newly acquired debt. Those who engineered the leveraged buyout made enormous returns on the small amount of their own money they had invested. The target company, however, might or might not survive the raid on its wealth.
Note the difference here between a small group of investors putting their own equity into a new company that aims to produce a new product or produce an existing product at a lower cost or of higher quality. Such equity investors are adding to the nation’s productive capacity. In contrast, leveraged buyouts often are corporate raids aimed at looting the wealth and cash flow of existing productive companies, often leaving them worse off.
One could dramatize the differences in American capitalism in the middle of the 20th century and that of today by focusing on the business experience of Mitt Romney and that of his father, George Romney. Both made a lot of money, both went on to serve as Republican governors of important states, Massachusetts and Michigan, and both launched presidential campaign bids.
But they made their money in different ways. Mitt’s father, George, became president and chairman of American Motors Company in the early 1950s. At the time, American Motors Company was the smaller stepchild of the U.S. “big three” automakers and ultimately was absorbed by Chrysler. American Motors was the first Detroit automaker to market fuel efficient compact cars. George Romney famously mocked the Big Three automakers as “gas-guzzling dinosaurs.” George Romney manufactured automobiles while paying workers a middle-class wage that allowed auto workers to actually buy the cars they produced. Those jobs and that pay both helped build our prosperity and kept the level of inequality in United States relatively low.
Mitt Romney, on the other hand, made his money helping run Bain Capital which focused on buying and selling existing companies. Bain often made use of the leveraged buyout tools that allowed Bain to both earn very large fees and use company debt to finance the payment of dividends to Bain Capital. Mitt’s experience was entirely in the financial sector of the economy that wheels and deals in the ownership of existing assets.
Of course, the implicit criticism or unease in these two descriptions of an earlier and our current capitalist economy may simply represent nostalgia and difficulty in understanding the modern financial economy. On the other hand, no one understood the modern financial economy enough to keep us from almost driving over the financial cliff in 2008 at a huge cost to the American economy, workers, and tax payers. It is also true that no one has shown that they understand that modern financial economy sufficiently to help us climb out of the huge hole the financial meltdown put us in.
Although there are still many drunks out there who think that “a nip from the dog that bit you” is the way to recover from a hangover, I would not recommend that approach when choosing a leader for this county come November.