There are two parts to fixing the economy. PART I is to put in place a business welcoming environment that also tackles our acute X-M problem. PART II addresses one obvious area that can probably create the better part of a million jobs and repair a good portion of the trade deficit problem. This really is not difficult, unless all your ideas about business originated in the faculty lounge.

PART I

Pete Ferrara has a good piece in the Spectator about the perils of running an economic policy that is pretty much the precise opposite of Reaganomics. He thinks, as many people seem to these days, that some version of GD2.0 is maybe just around the corner. We certainly agree that punitive tax and regulatory schemes are killing the robustness that is normally in evidence by this point in a recession. But we think there is an additional step that needs to be highlighted today.

China is running an explicitly mercantilist set of policies that are assisting in the killing of US job creation. And it’s not just China — the oil exporters and others also have created a problem that we’ve ignored too long. The structural imbalances between the borrowers/consumers and the producers have finally gone too far, as we first warned in this space years ago. In order to grow the domestic economy again as we should, we need to go one step further than Reaganomics did 30 years ago. We need to take explicit and detailed steps to stop making offshoring US jobs the default best strategy for US businesses. We’d start with the energy industry, which is discussed in PART II.

We’re in a jobs crisis more serious than most think. Middle class, “breadwinner” jobs number currently about 54 million of the 130 million total jobs in the economy — 41.4% of total employment. These are particularly important since they are the industrial and service backbone of the US economy and average about $50,000 in pay. According to David Stockman’s analysis of the BLS numbers on CNBC, these jobs are in a crisis now, and have been very troubled for a decade.

Since the onset of the Great Recession over the last two years, the US has lost about seven million jobs — one in nine middle class breadwinner jobs. This is bad enough in itself, and something we have been raising the alarm about for at least the past year. But that’s not the whole story, nor in some ways the worst part of the story.

The chart below shows that even in the period of economic expansion during much of the decade, peak-to-peak the economy shed about a million jobs. Stockman says that while construction, technology, finance and service industries added jobs during this period, the economy shed 7-8 million manufacturing jobs. Many of these jobs were “offshored” to small and large enterprises in China, etc.

This simply cannot continue without gutting the middle class, and without gutting the US as a producer as well as consumer of goods and services. We have no hope of getting to reasonably full employment again without solving this problem. So-called “stimulus spending” won’t solve the problem, and neither will tax cuts by themselves. It is certain that ill-informed and defeatist attitudes by politicians that the “jobs won’t be coming back” is the exact opposite of what is needed.

We are not naive. We know that the buggy whip industry is dead, and so are a lot of other businesses. But as a CEO and business owner, we know that there are a lot of businesses that could be operated in the US, but are not — often because it’s so much easier and cheaper to do things elsewhere. We have observed some of the US’s largest companies moving certain operations to Singapore and China, first because of labor cost issues, but later because labor, regulatory and tax regimes incentivized the companies to locate higher value-added activities in those locales (versus punitive treatment back home).

This should not be a partisan issue, though it has partisan overtones, because taxes, regulations and litigation are all important issues. The CEO’s of diversified US multinationals are not going to lead the charge on this — they now have too many fish to fry in the BRIC countries and elsewhere to propose even a sub-rosa mercantilism of any sort. We see useful comments and contributions by Andy Grove and other Intel executives, but such statements are too rare. Mostly we see a gloomy outlook for the US when the question of where to expand capacity is raised.

Fixing the economy is not rocket science, as we’ve often said. But to do so requires a clear vision of what needs to be done, and a commitment and agreement at the highest levels of government to take a scythe to unnecessary and counterproductive accounting, legal, regulatory and other impediments to American businesses’ creating jobs at home. This isn’t just a set of policies, it’s a mindset — and it’s a mindset that mostly doesn’t exist either in the government or our large corporations.

PART II

We can create over a million jobs and conserve nearly a half a trillion dollars a year just by deciding to exploit our vast domestic energy resources.

We probably have 1000 trillion cubic feet of shale gas alone in the US. We consume about 25 trillion cubic feet of natural gas a year, so exploiting our own resources is a no brainer, and there’s substantial opportunity to do so with this clean fuel. And this resource will last quite a while, at least until we’re flying around in cars powered by hydrogen and good vibes.

By the way, 1000 trillion cubic feet of natural gas is the energy equivalent of around 167 billion barrels of oil (at a 6:1 ratio). Including ANWR, US oil and gas reserves total 130 billion barrels or so. So, even granting that all of the various objections to shale gas are true (here and here, for example), shale gas appears to double US petroleum resources or at least take them much farther into the future. It is the height of foolishness not to be exploiting this domestic resource as quickly as can be accomplished profitably.

There are many reasons to move quickly. We import 70% of our oil, and that’s unhealthy when so much of the world market flows through an unstable region. It is irresponsible to ignore this issue. The cost of importing 10 million barrels a day of oil is $365 billion at $100 a barrel. That’s almost $4 trillion over the course of a decade. It’s ridiculous to send all that money overseas, especially given the unsustainable trade imbalances of the United States.

But the final issue that makes this a no-brainer is the jobs crisis in America. Why are we exporting good paying oil and gas, oil service, and support industry jobs (like some steel production) to be done by foreign workers? Question: how dumb is that as a government policy, given a 20% unemployment rate in a key demographic? Answer: about as dumb as a 7-year moratorium on offshore drilling.

This entry was posted on Saturday, July 9th, 2011 at 4:50 am and is filed under business, Democrats, General, Republicans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.