If You Talk the Talk...

On Wednesday, I examined a Monday post by James Maule. See The Tax and Spending Stalemate: Can It Destroy the Nation?, MauledAgain (Nov. 7, 2011).

Maule blamed Republicans for the legislative gridlock surrounding competing infrastructure proposals. The Democrats are pushing a $60 billion spending measure, "funded" by tax surcharges on "millionaires and billionaires." The Republicans are pushing a $40 billion spending measure, "funded" by unused outlays for other programs.

Maule was nominally venting about our crumbling infrastructure and jobs crisis. In substance, he was channeling the anxiety of the political left. If Maule were serious about infrastructure spending and economic stimulus, he would have lectured the Democrats for rejecting the $40 billion measure. A compromise starts with common ground. As between $60 billion and $40 billion in spending, $40 billion is the "common ground."

I'm sure that Maule is genuinely concerned about the current unemployment crisis. As such, I'm guessing that he'll be disturbed by a recent setback to energy infrastructure development.

On Thursday, Team Obama delayed the proposed Keystone XL oil pipeline until after the 2012 election.

The proposed Keystone XL Project (click here for map) consists of a 1,700-mile crude oil pipeline and related facilities that would primarily be used to transport [oil] from an oil supply hub in Alberta, Canada to delivery points in Oklahoma and Texas. The proposed Project would also be capable of transporting U.S. crude oil to those delivery points. The proposed project could transport up to 830,000 barrels per day and is estimated to cost $7 billion.

The announcement marked a sharp reversal by Team Obama. The State Department had previously supported the pipeline on national security grounds. Obviously, importing oil from Canada reduces our dependence on Middle Eastern oil imports. The $7 billion project would upgrade the nation's energy infrastructure; a Democratic priority until yesterday. It was expected to created tens of thousands of jobs during the midst of a national unemployment crisis. And it was funded with private capital, thus avoiding Congressional gridlock entirely.

Unfortunately, the end run around Congress ran into the brick wall of regulatory delay. Environmental activists were particularly hostile to the Keystone XL project, because the pipeline would transport oil from Canadian tar sands. (Never mind that Canada could route the oil from tar sands to the Pacific coast for export to Asia.) As noted by the LA Times, the decision exposes Team Obama "to the same criticism the White House has leveled at congressional Republicans regarding deficit reduction: delaying a tough call in hopes that the politics will be better after next November's election."

The building trade unions, whose members have been disproportionately hurt by the Great Recession, condemned the decision:

Terry O'Sullivan, general president of the Laborers' International Union of North America, said the move would "inflict a potentially fatal delay to a project that is not just a pipeline, but is a lifeline for thousands of desperate working men and women. The administration chose to support environmentalists over jobs—job-killers win, American workers lose."

Mr. O'Sullivan's comments are right on the mark. The political left talks the talk about infrastructure and jobs. But they don't walk the walk, as evidenced by the flip flop on the Keystone XL project. It boils down to a question of priorities. We're in the midst of a national unemployment crisis. Do we want a government that responds flexibly to balance environmental, labor and other considerations while fostering public and private infrastructure spending? Or do we want a government that prioritizes environmental or other regulatory considerations above infrastructure upgrades and job creation?

A cynic might take a hard look at the Keystone XL decision and allege that Team Obama is trying "to do everything they can to drag down this economy." But I'll leave that commentary to Harry Reid and left-wing academics.

Whitesnake Maule's Again

I spent a couple posts last week debunking Beale's Law (see here and here). On Monday, another tax professor jumped onto the factual manipulation bandwagon. This time, left-wing blogger James Maule put himself in the spotlight. [To demonstrate the echo chamber effect, Linda Beale promptly cheered Maule's post.]

As I said last Friday:

When it comes to data manipulation for political purposes, the right and the left are engaged in a long-running tug of war. They both abuse statistics* and economic common sense to influence public opinion in the short term. It's great sport for incumbent politicians, blogging left-wing academics and Washington lobbyists. Not so great for the country in the long run.

* Okay, I should have said "facts, statistics and economic common sense."

Why am I calling out Maule for factual manipulation?

On Monday, Maule linked to this report on the latest political volley between Senate Democrats and Republicans. Maule fumed over Republican opposition to a $60 billion infrastructure proposal from Team Obama. He then scolded Republicans for a proposal to allocate $40 billion to infrastructure spending from "unspent funding for other domestic programs." In Maule's view, the Republican proposal was a non-starter because it "included provisions intended to make the nation’s air quality worse than it is, under the pretext that less regulation means better lives for, oh wait, more money for those already with plenty of it."

According to Maule:

[1] Team Obama's infrastructure proposal ($60 billion) kills two birds with one stone. It begins to address our massive deficit in infrastructure spending. And it pumps needed federal outlays into the economy, where they will support construction jobs.

[2] Republicans oppose the $60 billion spending measure for several reasons. First, it is "funded" with a surcharge on millionaires. ("Boo hoo for the wealthy," says Maule.) Second, it is too large of a government commitment. Senate Republicans have given us a middle finger, telling us that we don't deserve quality highways and bridges. (Probably a fat middle finger, swaddled in expensive rings.)

[3] Harry Reid correctly identified that the Republicans intend "to do everything they can to drag down this economy."

[4] Democrats properly rejected the $40 billion spending measure, because Republicans were just using it as a vehicle to further undermine our nation's impossibly toxic air quality. (I know that I cannot run outside on the trails of northern California without several gas masks and tanks of oxygen.)

[5] Republican partisan politics, as obvious from the above reprimand, are reprehensible. Democratic partisan politics, as obvious from the Harry Reid quote, are a necessary counterweight against those damned partisan Republicans.

Let's review how Maule's key points hold up against a dash of facts and a pinch of logic.

[1] Maule is correct that we need more long-term investment in public infrastructure. However, as I've previously discussed, infrastructure is not a holy grail of short-term job creation. Meaningful infrastructure projects require several years of development. Neither the Democratic proposal ($60 billion) nor the Republican proposal ($40 billion) would have an immediate stimulative impact on the construction industry.

The Department of Transportation has a $70 billion annual budget (rough numbers). States and municipalities spend many billions more on transport infrastructure annually. Public utilities spend many billions more on energy infrastructure annually. We don't need to spend money on infrastructure just for the sake of spending money. We should be focused on developing high-quality infrastructure using the slack in the labor market to get the highest "bang for the buck" on construction expenditures.

[2] Maule wants to increase taxes on the "wealthy," so no surprise that he favors the Democratic proposal ($60 billion in spending "funded" by a surcharge on millionaires). However, if we're going to increase taxes on the wealthy, why not use those revenues to address the existing budget deficit? The Republican proposal was also "funded" by "unused" outlays to other programs. Both sides are engaging, to some extent, in accounting gimmicks. But the Republican proposal is more fiscally responsible (although gimmicky).

Maule accuses the Republicans of espousing that we "don't deserve quality highways and bridges." He completely ignores the $40 billion Republican proposal. Or perhaps Maule believes the $20 billion difference between two measures would provide us with "quality highways and bridges."

[3] Maule criticizes Republican allegations that Democrats were pursuing a tactical agenda focused on 2012 elections. He praises Harry Reid for comments that Republicans are attempting to damage the economy.

How much more biased can someone possibly get? Let me be clear. The political left and the political right are both playing this game with an eye towards 2012. If the Democrats were serious about infrastructure spending, they could have worked with Republicans on the $40 billion measure.

[4] In point [1], Maule argues that the $60 billion Democratic proposal could address our under-investment in infrastructure and provide stimulus the construction industry. He criticizes Republicans for arguing that $60 billion is "too big" a number. Then he criticizes Republicans for a $40 billion spending measure (presumably "too small" for Maule).

But if infrastructure spending is good for the economy, shouldn't the Democrats be working with the Republicans on a bipartisan $40 billion package? Why should they resist all spending just because they want to spend a higher number? Maule reminds me of schoolkids on the playground. Apparently, if the Democrats don't get their way, they should pack up their toys and go home.

Maule gripes about the regulatory conditions affixed to the Republican bill. I'm highly confident that he hasn't perused the actual bill (S.1786). The Republicans were mainly trying to streamline the regulatory process applicable to the very same infrastructure projects that are funded by the bill.

[5] Yes, partisan politics are obnoxious. As a political independent, nothing is more frustrating than empty posturing over budgetary gimmicks and class warfare tax policies. However, the political left has no monopoly on virtue. When you start quoting Harry Reid, you confirm that you are a card-carrying cheerleader for Team Obama.

What's with the title of this post? I realized that I've spent the past several posts debunking Linda Beale and James Maule. My friends on the political left are probably thinking, "here he goes again." So I dedicate this one to you:

Here I go again on my own
Going down the only road I've ever known
Like a drifter, I was born to walk alone
And I've made up my mind
I ain't wasting no more time

Get Serious about Jobs Creation

As I've previously discussed, President Obama launched his 2012 campaign by proposing a $447 billion stimulus proposal, the "American Jobs Act." He may not be able to bring the unemployment rate below 9%, but his main priority is to shift blame for the sticky unemployment rate to "obstructionist" Republicans. If he can't persuade Congress to "spread the wealth around," maybe he can persuade voters to "spread the blame around" and vote Team Obama.

The new stimulus proposal is heavy on payroll tax cuts ($240 billion total) and unemployment benefits ($62 billion). It also includes $140 billion in funding for state teachers ($30 billion) and first-responders ($5 billion), school modernization ($30 billion), road construction ($50 billion), an infrastructure bank ($10 billion) and neighborhood stabilization ($15 billion).

When talking about the ways to tackle the unemployment crisis, Obama loves to pull out the "infrastructure" card. If you took him at face value, you'd think the federal government could allocate funds to "infrastructure," load the funds into an enormous Jobs Vending Machine, and order up a few hundred thousand jobs over the next 12 months. Please deposit $1 billion and punch A1 for jobs in Alabama, A2 for jobs in Alaska, A3 for jobs in Arizona...

Unfortunately, infrastructure spending does not occur with the snap of a president's fingers. Major infrastructure projects involve years of lead time and millions of dollars in up-front costs. Project managers cannot get "shovels in the ground" until they have surmounted an exhaustive list of hurdles. To name a few: developing budgets and time lines; arranging engineering studies; procuring licenses, easements, land rights; procuring other state and local permits; environmental reviews; obtaining RFPs from prime contractors and/or subcontractors; resolving potential litigation and environmental remediation; navigating state, local and federal labor regulations; arranging committed financing; and paying legal and consulting fees for each step forward in the regulatory labyrinth.

The ugly truth is that local, state and federal regulatory hurdles significantly delay the infrastructure development process. When it comes to federal spending on infrastructure, President Obama talks a good game, but hasn't backed that up with meaningful legislative or regulatory proposals to accelerate investment in public or private infrastructure. A $10 billion "infrastructure bank" is a silly drop in the bucket. Moreover, banks and other financial institutions have plenty of capital. We don't need a new government bank to fund infrastructure development.

So how can President Obama get serious about jobs creation?

First, scrap the $447 billion stimulus proposal. It's another round of political gamesmanship that distracts from the problem at hand. In the real world, we're suffering from a slow-burning unemployment crisis. President Obama and his advisers should have trouble sleeping at night, because the unemployment crisis has largely unfolded on their watch. They should wake up every morning and get worked up into a slather over fresh ideas to improve the conditions for investment, development and job creation.

Second, the crux of my proposal. The Obama administration should use its platform to blast the following message to the private sector:

Private sector businesses and developers, we want to help you accelerate the development of your capital-intensive projects.

We will be shifting all resources necessary from other administrative functions into development-support functions until we have measurably decreased the unemployment rate.

Our goal is to accelerate $250 billion [or $500 billion, stretching for the biggest number realistically possible] in capital spending into the next two years.

You bring us a credible development plan for a project involving capital investment of $250 million or more. We will twist arms and use all executive powers available to ensure that your project is "shovel ready" no later than year end 2012. We will provide federal overrides of state and local red tape, relax environmental regulations for projects that do not pose an imminent danger to human life, and mediate settlements with litigants who seek to delay the start of construction.

We acknowledge that jobs creation is driven by private investment and private enterprise. Government regulation and frivolous litigation has been an impediment to jobs creation for too long. For now, we need to address the unemployment crisis. We can revisit the overall regulatory environment after we put millions of Americans back to work.

Here's the interesting thing. Although I've been noodling on this idea for some time, someone within the administration shares my perspective. The administration recently announced that it would "fast track" 14 infrastructure projects to accelerate jobs creation. My question for administration officials is: why limit this to 14 public infrastructure projects? You have just conceded that red tape delays public infrastructure development and jobs creation. Why not extend the "fast track" principle to private development projects (infrastructure, technology capex, industrial capex, utility capex, etc.)? Sure, it's a tacit admission that liberal regulatory objectives can impede economic growth. But we're in the middle of a crisis, so let's deal with the political blowback at a later date.

Do I think that President Obama is ready to get serious about jobs creation? All evidence suggests that he is not. So I'm not holding my breath, but I'd love to be wrong on this one.

One Job Saved?

Obama's much-hyped speech outlining the "American Jobs Act" did not seem to resonate with anyone except this guy and this guy on YouTube. His cheerleaders on the political left questioned why Obama would rely so heavily on tax cuts, given the "obstructionist" bent of Congressional Republicans. His critics on the political right questioned why another round of temporary stimulus proposals would translate into net, long-term employment gains.

Various observers suggested that Obama's speech was primarily intended to launch his 2012 election campaign. He framed the stimulus proposal as a "silver bullet" that would create millions of jobs and reduce unemployment. A cynic would argue that he is mainly trying to save one job: his own.

The total cost of the new stimulus proposals is estimated to be $447 billion. How would that get "spread around"?

[1] The proposal would pump $175 billion into the private economy by cutting employee payroll taxes in half in 2012. This measure should be politically popular, because most working Americans will benefit, temporarily, from the payroll tax holiday. But we've been down this path before. Like a night of hard drinking, a temporary stimulus might be fun while it lasts. But the next day, or the next year, we'll wake up with a hangover. One "temporary" stimulus leads to the next (the "hair of the dog") and the next, and the next. President Obama (the politician) is perfectly happy to kick the can down the road. The rest of us see a looming budget crisis and desire a permanent improvement in the conditions to economic growth.

[2] The proposal has $62 billion in targeted spending intended to help the long-term unemployed. Most of that ($54 billion) involves a series of fuzzy changes to the unemployment insurance system, including a $5 billion "pathways back to work fund." Although not broken out, I'm guessing that a big chunk of the other $49 billion simply represents an extension of unemployment assistance.

The $62 billion also includes a tax credit of up to $4,000 for hiring workers who have been looking for a job over six months (projected cost of $8 billion). Although the price tag is low, this type of credit is frustrating tax policy at its worst. Very few (if any) managers or business owners would hire new employees for a $4,000 (or smaller) credit. The credit would primarily be a windfall to businesses that were otherwise intending to hire employees (so no stimulative impact). It would create an additional audit burden for the IRS, which is already overwhelmed by new responsibilities enforcing social programs. As such, it virtually invites fraud and abuse (which plagues all these ill-conceived stimulus efforts). Perversely, it does not reward employers that have struggled to retain employees during the Great Recession.

[3] The proposal includes $140 billion in "stimulus" measures, including $35 billion for "teacher rehiring" ($30 billion) and "first responders" ($5 billion), $30 billion for "modernizing schools," $50 billion for "immediate surface transportation," a $10 billion "national infrastructure bank" and $15 billion for "neighborhood stabilization."

The $50 billion in transportation spending is infrastructure spending that should be part of the regular Congressional budgeting process. We need first-class infrastructure if we are to remain a first-class global economic competitor. The funding mechanism should be part of the regular Congressional budgeting process.

The state grants for "rehiring" and "modernizing schools" represents a bail out for undisciplined state governments. State governments do not need federal funding to address local education and security objectives. They need to prioritize state and local spending on education and security over other spending measures. For example, if a state legislature cannot adequately fund teaching salaries, the state could impose cuts on other state employees (or other spending programs) and allocate the "savings" to the teachers.

[4] Finally, the proposal involves $65 billion in payroll tax cuts for employers (and $5 billion to extend 100% bonus depreciation into 2012). The main thrust of the proposal involves: a cut in the "employer portion" of the payroll tax from 6.2% to 3.1% in 2012; and a full payroll tax holiday for any expansion of payroll up to $50 million above the prior year. These proposals suffer from the same defects as the employee payroll tax cut and the $4,000 hiring tax credit. They are short-term in nature, are unlikely to "stimulate" hiring, and would primarily result in windfalls for businesses in growth mode.

President Obama's stimulus plan (ahem, "jobs bill") may save one job and get him re-elected. But its mix of short-term incentives and bad tax policy measures has failed before. Our political leaders should be focused on regulatory and tax reforms that will encourage private business investment and result in long-term employment opportunities. Short-term stimuli may appeal to a sitting President, but the rest of us will have to live with the hangover.