Building The New Economy

Peterson's Deficit "Budgetball": The Fountainhead Meets Death Race 2000

Richard Eskow — Fri, 14 May 2010 16:46:22 -0400

"Budgetball is an innovative sport that combines fiscal strategy and physical play."
- Budgetball Rulebook, "Pass the Ball - Not The Buck"

Billionaire Pete Peterson is funding an elaborate campaign to convince a nation with more than 15 million unemployed citizens that the most urgent crisis we face today is not unemployment ... or poverty, or inadequate healthcare, or the decimation of the middle class. He's already created a "news service" to propagate his ideas - the Washington Post outsourced its financial reporting to him - and hosted a "deficit summit" headlined by the same people that got us into the mess we're in today. (Greenspan? Rubin? That's not called a "summit." It's called "rounding up the usual suspects.")

Now Peterson's funding an "America Speaks" series of town halls with participation from President Obama's deficit commission. No matter who's in charge, money always talks. ("Money doesn't talk, it swears," said the folksinger.) In an especially peculiar use of his wealth, Peterson has also paid consultants to come up with the game of "budgetball." And in a Marie Antoinette-ish gesture, Peterson's deficit mavens will be playing this "game" on May 21, on the National Mall of a nation whose middle and lower classes are still racked by financial misery.

"To recap those revisions: women are still worth 10 points more than men in all age brackets, but teenagers now rack up 40 points, and toddlers under 12 now rate a big 70 points. The big score: anyone, any sex, over 75 years old has been upped to 100 points."
- Sports Announcer, Death Race 2000

In Death Race 2000, as Wikipedia reminds us, " the United States has been destroyed by a financial crisis and a military coup. Political parties have collapsed into a single Bipartisan Party, which also fulfills the religious functions of a unified church and state." Participants in the "death race" win points for killing pedestrians, and many people eagerly throw themselves before the cars bent on destroying them. (Think Tea Party.)

Observers might be forgiven for recalling this movie when they hear that Peterson is making a game out of deficit cuts that would strike at the most vulnerable among us. (Other current events may stir their memories, too.) Maybe Budgetball could take a leaf from the "death race" playbook and award extra points for "sacrifices" (a Budgetball term) that especially affect toddlers and the elderly.

"If any civilization is to survive, it is the morality of altruism that men have to reject."
- Ayn Rand

Conservatives consider Rand's novel The Fountainhead the story of a heroic man of integrity who refuses to participate in the shared community of altruistic-minded weaklings, as represented by the "lesser people" who believe in paying taxes and helping others. It's really something very different: it's the story of someone who was educated at public expense, kept healthy through government sanitation measures, protected from murder by police, and saved from enemy hordes by a government military -- and who refuses to help others when these services, his own talents, and a lot of good luck allow him to become wealthy.

Our financial and government system has been over-run by the extremist Randian ideology of rejecting altruism and encouraging billionaire selfishness. Alan Greenspan, who more than anyone single individual was the architect of our current economic catastrophe, was a dedicated follower of Randian fashion who never entirely changed his tune. (See his quote: " "). He was also a speaker at Peterson's "deficit summit."

Make no mistake: Peterson is waging an ideological battle. Randian self-interest for the wealthy has been broadly discredited as a political philosophy. The rightist revolution promoted by the GOP, and accommodated (or worse) by centrist Democrats, is in profound danger as people see the ruin it's made of our economy. Everything Peterson does, from skewing the news to promoting the "rehabilitation" of people like Greenspan and Rubin as wise elders, is designed to rebuild this ideology in the public eye.

Here's your proof: You'll hear a lot out of Peterson about cutting Social Security, slashing Medicare, and finding other ways to break the social contract with American workers and the general public. Here's what you won't hear about: Raising taxes on the wealthiest Americans to pre-Reagan levels. Withdrawing from unnecessary military adventures. Breaking up the big banks so we no longer have to rescue them, or forcing large banks to pay for any future bailouts.

For anyone who's really concerned about government deficits - a legitimate concern, if not our most urgent one - Peterson's exclusion of these possibilities is incomprehensible. Unless, of course, he's acting in pure Randian self-interest on behalf of himself and his peers among the most powerful and wealthy.

"Just be the ball, be the ball, be the ball."
- Ty, Caddyshack

Who will suffer if Peterson's ideas win political dominance? Americans who have worked a lifetime with the expectation of Social Security support will be at risk. So will people in poverty who depend on government support. Unemployed people who need help finding another job (which could stimulate the economy, creating more jobs and potentially even reducing the deficit). Poor children whose families need help providing them basic nutrition. All children who need an education.

Forget "budgetball" and think chess. We're all pieces on Peterson's chessboard, and his success in driving the media narrative has been nothing short of spectacular.

"The press may not be successful much of the time in telling people what to think, but it is stunningly successful in telling its readers what to think about."
- Bernard Cohen, political scientist

The Post uses Peterson's "news bureau" as its exclusive source for financial "reporting." Multiple newspapers have run stories that include the opinions of Peterson and/or other groups he funds (his "bureau" has run them on the Post, without disclosing the ties), while excluding the views of those, including top economists, who believe our emphasis on the deficit is misplaced and/or ill-timed.

Here's what's not written in the "budgetball" rulebook, but should be: "Players may consider sacrificing the future of small children through education cutbacks, or bringing about the early death of elderly people through food stamps cutbacks, but may not give any thought to tax increases for the most wealthy, reduction in unnecessary wars, or asking banks to pay for their future bailouts."

There are things you can do. The Peterson "America Speaks" tour may be coming to a town near you. If it does, you can show up and (politely) tell them what you think. You can also organize a game of Budgetball if you like. If you're poor, or unemployed, or just hope to retire with some financial security someday, just remember: Be the ball, be the ball, be the ball.

Oh, wait ... you already are.

Microsoft Moves IT Research Jobs Offshore, Following Manufacturers

Natasha Chart — Tue, 10 Nov 2009 08:38:17 -0500

If you move the manufacturing away, research and development will eventually follow. This was the message of several speakers at the Building The New Economy conference, and the last week's news about Microsoft's Taiwanese cloud computing research center really stood out to me after being told that Taiwanese microchip manufacturers often have to come up with .

Note particularly the specific reason given:

"We need to keep our ability to really work with our ODM (original design manufacturing) and OEM (original equipment manufacturing) partners on what the devices will look like," [Microsoft Chief Executive Steve] Ballmer said.

Microsoft has never made hardware, so I'm not faulting them for the Taiwanese location of their equipment manufacturers. However, this has to be recognized as the inevitable result of moving production far away, one that white collar workers were generally unconcerned about before they realized that their jobs could leave, too.

As Carolyn Bartholomew, Vice Chairman of U.S.-China Economic and Security Review Commission, explained, if the manufacturing leaves they inevitably come to need on-site engineering support. It isn't too many steps from there to Taiwanese chip manufacturers coming up with everything from the design to the finished product, and apparently, the software to run on it.

You're never too educated or experienced or valuable an employee for the global economy to leave you behind.

Nonetheless, Americans are told that we're supposed to get a good education and better training so we can keep our opportunities open. How's that working out, again?

I wrote last time about how financial incentives have destroyed that dream for blue collar workers, yet as Prof. Suzanne Berger of MIT noted at the conference, the great industrial research centers of the past have been either shutting down or directing research solely towards narrow goals with a defined profit motive. Companies have been relying more on an open innovation'model, or crowdsourcing, the forces that gave us Wikipedia and Linux. Yet Berger said that nothing has adequately replaced the sustained blue sky research that fueled the tech boom of the 1990s before falling to the cost-cutting axes.

Berger also said that a good model of how research funding can act as a driver for jobs could be found surrounding MIT, where a briskly growing ecosystem of biotech startups can be found in the shadow of an institution that gets 85 percent of research funding from the government. The startups aren't there, she said, for the low wages or low taxes; they need to be near the center of innovation.

Point is, it works from both ends.

A government can support good jobs with a robust industrial strategy that will drive innovation from the production floor via demand creation, or they can support them through increasing the store of basic and applied knowledge that drives industry from the research center. But government can't support jobs by electing not to care about them and hoping it will all work itself out, which is basically what the United States is doing now.

How's that working out for us, again? Oh. Right.

U.S. Stimulus Helping Chinese, Spanish Wind Energy Industries

Natasha Chart — Tue, 03 Nov 2009 02:53:57 -0500

Wind energy is supposed to be able to create thousands of manufacturing jobs, but unfortunately the early wind energy manufacturing jobs financed by U.S. stimulus money have all gone to overseas manufacturers. There are at least three reasons why this happens, some easier to fix than others.

The Easier Problem

First is the problem of U.S. wind-turbine manufacturing capacity. It's tiny.

This could be improved by the adoption of a well-designed feed-in tariff. Feed-in tariffs are where the government sets mandates for renewable energy and supports the purchase of the resulting electricity at a rate that pays for the initial market entry.

Feed-in tariffs are why Spain is one of the countries whose wind turbines are being purchased for installation in the U.S. Also, many countries have preferential purchasing policies at the local level, which don't violate World Trade Organization rules.

Both feed-in tariffs and state or local government 'buy American' policies could be implemented in full keeping with our international trade obligations and we should do so at once.

The U.S. needs to support its own industries, particularly those with significant environmental benefits, without apology.

The Somewhat Harder Problem

The U.S. government has a bad attitude towards manufacturing and has favored the making of money over the making of things for a long time, the more complicated the scheme, the better. And conventional wisdom from the Commerce Department to all the serious business press has held that offshoring and outsourcing US jobs would cause no net changes in the job picture overall, even if there might be an unfortunate backlash tendency among the public.

Indeed, the policy elite seem baffled when people get upset that their mill or factory job disappears and they had to take work stocking shelves at a store that sells the imported version of what they used to make. Politicians appear confused when workers with degrees in computer science react badly to being told to get an education. But their confusion is surely an act.

It's been clear for a while now that many industries leave and don't come back. Manufacturing capacity and know-how is shipped off first, then the high value research and development jobs follow after them.

Retraining, a solution that politicians like to promote along with stern bromides about 'personal responsibility', is only a solution that works if there are comparable jobs to train for. It only works if the finance industry is willing to invest in businesses that hire skilled Americans, and if the tax code stops advantaging companies who keep jobs and profits overseas.

The reality more Americans live with all the time is that their job prospects have gotten worse over the years, with employers and investors increasingly unwilling to share profits with them.

Obama recognized this when he was campaigning and newly elected, saying that he'd stop offshoring tax breaks all the way through the summer. As of the middle of October, business leaders had convinced the president to shelve those plans.

You might hear politicians, business leaders, news anchors and various policy wonks say that outsourcing creates jobs and increases real wages for Americans. This is a lie unless you're referring specifically to the top 10 percent of U.S. income earners, though wage inequality is a problem all around the globe.

Those offshoring tax breaks need to be rescinded, and more, policy makers need to connect start connecting the dots between an economy that makes useful things and one in which ordinary consumers can afford to buy them. One hedge fund manage making a million dollars off an overseas business deal isn't going to generate the same level of beneficial economic activity as twenty manufacturing workers making $50,000* per year, each.

The Very Challenging Problem

This problem is the real sticker, because unlike adjusting our own policies, economy, or leaders' attitudes, this one involves Chinese policy.

Wind turbines require rare earth elements for their manufacture, which make good permanent magnets, and this is also true of many other green technologies. As Keith Bradsher pointed out, "China currently accounts for 93 percent of production of so-called rare earth elements — and more than 99 percent of the output for two of these elements, dysprosium and terbium," and they've been both more tightly restricting exports every year, as well as securing controlling interests in overseas mines.

The Chinese government is well aware that most wealth is created farther down the value chain than simple extraction, that the real money is in processing and fabrication. They would like their people to earn that profit. Considering that I'd like my government to take the same attitude, I can hardly fault the Chinese on that count.

I even hope the Chinese do continue to grow their alternative energy manufacturing for their own domestic market in particular. At present, they're sending over 95 percent of their solar panels to be exported, while opening a new coal plant every 7-10 days.

Yet it significantly disadvantages manufacturing in other countries that the Chinese government won't allow the materials to be sold on the open market like other commodities.

The Obama administration, acting in concert with the European Union, filed a June complaint with the WTO about Chinese export restrictions of raw materials that have driven prices up for the steel industry. It might be a while before we know how that's going to turn out in the end. Perhaps rare earth mineral exports will be a target of future actions, or perhaps more clean, high grade deposits (rare earths are often found in low concentrations and contaminated with radioactive elements) will come to light that the Chinese don't control.

Either way, something's got to give.

A flourishing US wind industry that does more than installation and maintenance will require steady supplies of permanent magnets. Otherwise, they'll end up over the same barrel as Toyota, whose Prius hybrids use 12 kg of rare earth materials per battery and more for the motor, and whose component manufacture they're now under pressure to move to China.

These issues are solvable, but it'll take quite the fire getting lit underneath the US political establishment to get them sorted out.

* Speaking of which, the median US household income in 2007 was $50,740, and it dropped 3.6% in 2008.

The National Security Supply Chain

Natasha Chart — Fri, 30 Oct 2009 14:50:53 -0400

Did you know that the Army can no longer purchase domestically produced Howitzer triggers? Yesterday at the Building the New Economy conference, Carolyn Bartholomew, chair of the U.S.-China Economic and Security Review Commission explained that she'd seen this news turn on lightbulbs in the minds of Republicans as to why it's important to preserve manufacturing capacity in America.

Gov. Ed Rendell of Pennsylvania touched on this theme in his address as well. He asked attendees to "imagine going to war without a steel industry." Rendell also noted the problem outsourcing posed for economic security, saying that should the time come when the US produces nothing, it will be only a second- or third-rate economic power.

At every level, the US manufacturing sector is under threat of extinction. From basic materials fabrication, to machining, to high end electronics production. Combined with increased reliance on a finance sector that's only interested in the size of their bonuses and a political system intellectually handicapped by a cliche horror of interfering with the 'market's ability to pick winners and losers', we are gradually losing the ability as a nation to decide what's in our own best interests and act accordingly.

We used to act in our own interests unapologetically, and in other arenas besides declaring ridiculous pre-emptive wars that anger large majorities of the world's population. Consider our interstate highway system, which since its earliest incarnation as an idea was all about national defense. The interstate system has many economic benefits' as well, but it was mainly security concerns that ruled its creation. As the folks at GlobalSecurity describe the history of our highways:

When President Eisenhower went to Kansas to announce the interstate highway system, he announced it as "the National Defense Highway System." In 1956 President Eisenhower signed legislation establishing the National System of Interstate and Defense Highways (about 41,000 miles of roads). Since then, DOD has continued to identify and update defense-important highway routes. The National Defense Highway system was designed to move military equipment and personnel efficiently ...

Politicians used have an easier time saying that we were doing things for national security other than going to war, or violating the Constitution and Geneva Conventions, or provoking people we could be sitting down and negotiating with. Such a narrow interpretation of national security is actually dangerous where it isn't counterproductive.

The US does indisputably have enemies. The nation has taken huge hits in recent years to both moral authority and international goodwill. The US has also recently taken a large financial hit and the refusal of the federal government to rein in the irresponsible finance industry, as well as the potential that the dollar will lose reserve currency status and use as the common denominator of global fossil fuel exchanges, opens the possibility of steady erosions in relative economic power. Losing leverage over the supply chain and intellectual capital needed to maintain it means increased susceptibility to international pressure and retaliation via sanction, as well as a reduced ability to directly ensure the protection of that supply chain from terrorist attack.

We're opening ourselves up to problems that, even if they take a long time to materialize, can significantly restrain our freedom of action and increase our vulnerability to outside leverage.

In short, as someone who routinely disagrees with the hawk position and thinks of open warfare as a monumental failure of human intelligence, I worry that we're not properly defending ourselves from provocations to war. It's just stupid.

Also in other news, I come down strongly in favor of locking front doors and having a criminal justice system. Because pacifism is a different thing than being a masochist or having a death wish.

Making It In America: Building The New Economy

Eric Lotke — Wed, 28 Oct 2009 13:06:30 -0400

Key progressive leaders participating in the October 29, 2009 "Building the New Economy" conference in Washington address the issues raised in this report and discuss what it will take to ensure that the new economy that emerges from the wreckage of the old will provide Americans with good jobs.

Download and read the full report »

Executive Summary

We can’t pull out of the present downturn and return to the economy of the past—a high-consumption, low-wage economy based on asset bubbles and foreign borrowing. We need to look ahead. Our response to the current crisis must plant the seeds for the economy of the future.

The contours of the new economy are starting to take shape. Barack Obama set a different tone with an inaugural address that promised a “new foundation for growth.” Some of this is happening already: Construction crews are fixing bridges, filling potholes and laying new airport runways; work has started to improve our nation’s electric grid and create new, renewable sources of energy, and Congress is working on the biggest boon for college student financial aid in a generation, shifting $87 billion in subsidies from banks to students over the next decade.

Outside of government, we hear talk of sustainability, about returning to a real economy based on production, not consumption, and manufacturing, not finance. Celebration over cheap Chinese imports is giving way to alarm over the loss of jobs, currency manipulation, low environmental standards and dangerous workplaces that lower Chinese costs and give Chinese imports an unfair advantage.

But the opposition to reform is fierce. Wall Street is mobilizing against financial reform and regulation. Obama’s decision to impose tariffs on Chinese tires was called “economic vandalism," and modest “buy American” provisions in the Recovery Act met accusations ranging from “counterproductive” (U.S. Chamber of Commerce) to “the worst instincts of Congress” (The Wall Street Journal). And federal budget deficits generate concern across the political spectrum.

The next economy must be built on a solid platform. We need to rebuild our infrastructure, renew our manufacturing base and educate our people. America needs an industrial policy to help fit these pieces together. From workforce development to component manufacture, we need a strategic collaboration between the private sector and the government to reach our shared national goals. We need an opportunity for stakeholders to come together to remove obstacles, allocate resources, and create rules that work for everyone involved.

This report makes the case for that policy and explains what should be the key elements.

A Case Study in Global Imbalances

John Surma — Wed, 28 Oct 2009 11:22:22 -0400

The kind of global economic stress we are experiencing is bound to create tensions within the world trading system. Understandably, every company is working to improve its own position. But in countries and regions that are unconstrained by the due process requirements of the U.S. justice system, we have seen signs of trade actions that seriously undermine the global steel market. Nowhere are these destabilizing actions more apparent than in China.

China, of course, is by now the world’s largest steel producer, and market-driven companies like U. S. Steel are competing with what amounts to a coordinated, national enterprise. Because of its size, and its system, the Chinese steel industry has the potential to be very disruptive to our global industry.

As U. S. producers and the United Steelworkers allege in our pending anti-dumping and subsidy filings against tubular imports from China — we believe that the subsidized steel Chinese producers flooded into the U. S. last year severely damaged the market for this particular pipe and forced curtailment in production and employee layoffs.

China continues its actions to benefit its own steel industry. Not long ago -- in the midst of the global recession— the Chinese government again took action, this time by raising its Value Added Tax export rebates on a wide array of flat, long and tubular products. Since the U. S. has no system of VAT rebates to stimulate exports, and because we agreed to zero import duties on steel mill products in the Uruguay Round, American producers, in particular, stand to be harmed by these trade-distorting actions — which, by the way, China took characteristically without any transparency in process or policy. Over the summer, in a welcome step, the U.S. Trade representative initiated WTO action against China over export restrictions of certain raw materials, in clear contravention to its agreement upon accession to the world body.

The U. S. is not alone in our concern that unfairly-traded steel from China threatens the world market. Just in the last year, producers from Australia, Canada, the European Union, India and Russia filed trade actions against steel imports from China.

Make no mistake, as with any sovereign nation, China is free to develop its industrial capacity according to its economic plan and to set policies affecting pricing, volumes, capital investment, environmental regulations, labor standards and anything else. As long as the products produced by that system stay inside its planned economy, we have no basis to comment or object, and we wish China well in its long-term economic development plan. But when a product of that system enters the global market, we do have a basis to comment or object and we believe China must comply with the rules.

John Surma is chairman and chief executive officer of United States Steel Corporation.

It Matters Where Things Are Made

Richard Trumka — Wed, 28 Oct 2009 07:00:12 -0400

To our nation’s peril, the free trade orthodoxy continues to ignore a fundamental economic fact: It matters where things are made.

Over the past decade the U.S. industrial base has suffered an unprecedented decline. The loss of more than 5 million manufacturing jobs and the closure of more than 50,000 manufacturing facilities have undermined our nation’s technical capacity to innovate and to make things, while at the same time decimating our middle class.

Flawed trade and tax policies and a financial system focused on short-term profits drove good jobs offshore, led to record trade deficits, and left the economy in ruins. With the manufacturing share of gross domestic product withering to 12 percent (from 15.9 percent in 1995) and the financial sector growing to 22 percent, the structure of the U.S. economy looks more like Monaco than Germany. This growth model of asset bubbles, low wages, credit pyramids, toxic assets and unregulated out-of-control global capital has been a recipe for disaster.

Key progressive leaders participating in the October 29, 2009 "Building the New Economy" conference in Washington address what it will take to ensure that the new economy that emerges from the wreckage of the old will provide Americans with good jobs.

There is a reason every other developed and advanced developing nation has a manufacturing strategy. Most governments see manufacturing as key to long-term growth, and they target investment in industries and technology. In contrast, our government abandoned strategy to market forces and left workers and communities hanging without a safety net.

There was a time this nation thought big—investing in its people, infrastructure, technology and manufacturing. We must do so again, but we need to recognize that the world has changed. For example, the rest of the world leads in mass transit technology and the U.S. is home to only two of the 10 largest solar photovoltaic producers, one of the top 10 advanced battery manufacturers and two of the top 10 wind turbine producers. If we want to be world leaders in clean technology and have transportation systems to match then we must think strategically and at scale.

Over the next decade our nation is poised to invest $2 trillion in health care, infrastructure and a greener economy. The nation must take tough and strategic steps to create good jobs, fix our trade and tax laws and rebuild our productive capacity. Governments must restructure and regulate financial systems so that long-term investment is rewarded and gambling is not subsidized. We must use our financial resources to develop and deploy domestically produced technology and, if there is better technology overseas, use our financial leverage to get those production systems located here. We must think strategically and regionally about industry development so that we utilize existing pools of displaced skilled workers, engineering talent and idled plants.

And, finally, we must never again lose sight of the fact that it matters where things are made.

A Manufacturing Industry To Be Proud Of

Natasha Chart — Wed, 28 Oct 2009 03:29:55 -0400

The American manufacturing industry and its employees are constantly told that they need to be better competitors in the global market, that they must increase the value they add. How are they doing on that?

Something that jumps out from data about the share of global manufacturing had by the United States, China and five other industrialized nations, is that the US is about even with China. As of 2008 and according to UN figures, China's manufacturing accounts for 17.3 percent of world output in dollars (though this number is slightly inflated), while the US' share is 17.7 percent. All else is rarely equal, so this is about as close as you'll get in the real world.

From a Bureau of Labor Statistics report described here, "By the end of 2006, China's manufacturing employment had increased once again to 112.63 million, nearly eight times the level of manufacturing employment in the United States (14.16 million)." The numbers have surely changed since then, but probably not by an order of magnitude.

Those figures could imply many things, but what they seem immediately to suggest is that American workers are extremely productive. They can produce both a high volume and high value of goods, and they have done so without getting a real raise since 1974.

Yet US manufacturing workers face higher unemployment rates than the national average, and often have to accept lower paying work when their plants close down, which should be no surprise. At the advice of the finance industry, wages and benefits have been driven down, policy makers were encouraged not to worry about the decline of the industrial base, and the whole thing was papered over with a massive consumer credit bubble.

Though it seems to me that any 14 million people who can give any 112 million other people a run for their money are valuable and they should have good jobs. They've proven their worth. Preserving the capacity to usefully employ them is just good sense and a worthwhile hedge against supply chain interruptions.

In any war or serious national security emergency, our extended supply chain might become a bigger deal than it's comfortable to think about. For example, as John Markoff wrote this week in the New York Times, the "Pentagon now manufactures in secure facilities run by American companies only about 2 percent of the more than $3.5 billion of integrated circuits bought annually for use in military gear." (Alternate link.) He says there's concern in the military and intelligence communities about Trojan horses being placed in the circuits, raising the possibility of failures in times of crisis.

That could sound paranoid, but the US itself has used such Trojan horses against other countries, either to tamper with military hardware or steal information. In other words, it's been thought of, done and printed in the paper for everyone to read about a long time since.

There are things that a country should ideally make for itself.

Next are the pollution issues. Many of the developing nations whose lower labor casts initially attract US companies have very low pollution standards.

Links to this photograph series entitled, "Pollution in China", has been making their horrifying rounds lately. The 40 images document not only the signs on the landscape, but the damage to China's people; the adults and children with cancer, the birth defects, disabilities, festering sores, faces and bodies permanently caked with coal dust.

Pollution controls may be so poor even on newly constructed or expanded facilities that they pose blatant and immediate threats to local residents. The region of Sichuan still recovering from last year's deadly quake is now being poisoned by an expanded aluminum production facility, its permanent rain of white dust is killing crops and irritating the skin of its workers. In central China's Henan province, more lead smelters have been found releasing so much pollution that nearby children had excessive blood levels of lead, 178 of them requiring hospitalization. Steel manufacturing in China comprises a third of world steel production, but half of all steel industry CO2 pollution.

At least part of China's environmental destruction is due to poor enforcement, with multinational and Chinese firms openly flouting pollution disclosure requirements instituted in 2008.

So as China's global share of pollution increases and shipping pollution becomes a bigger issues, both the House and Senate support for border tariffs is the sensible thing to do if your concern is either cutting emissions or protecting US jobs. Even if it may irritate trading partners.

American workers are capable and productive. They're an asset to their country and to a world that's looking to the United States to take responsibility for our share of global pollution.

Congressional leaders who told us all it was an imperative to save the banking industry, which caused our current recession, should remember the US workers struggling to survive it when they craft a solution to our climate challenges.

The New Red-Ink Scare

Robert Borosage — Wed, 28 Oct 2009 02:27:52 -0400

We've got a new red scare. Forget Glenn Beck; the fear isn't that America is going red, it's that it is in the red. Conservatives in both parties are raising alarms about deficits and government spending. Well, get over it. If we are going to generate growth and shared prosperity out of the mess we are in, expanded public investment must be a centerpiece of the new economy.

In today's Washington, this verges on heresy. The chattering classes are raising a clamor about Obama's deficits. The growing fixation, fanned by conservatives in both parties, may well cripple any short-term recovery. Worse, the wrong-headed debate could well undermine the reforms vital to the new economy we need to build out of the ruins of the old.

Both parties still pay tribute to false idols that should have been discarded in the recent economic collapse. Republicans rail against everything Obama, chanting, "Where are the jobs?" while calling for rolling back the stimulus, abandoning health care reform, cutting spending and, no surprise, more tax cuts. They seem to have learned nothing from the crisis. Sure, they claim that they have put aside their fiscally wastrel ways, blaming it all on Bush, and have become born-again fiscal conservatives.

But this leaves them in the bizarre posture of arguing that "deficits don't matter" when the economy is growing, but are unacceptable when the economy is sinking. Step on the gas when the economy is already racing and on the brake when it is sputtering. The perpetually tanned leader of House Republicans, John Boehner, clearly believes that Americans have neither memory nor common sense. The continued high disregard that most Americans have for Republican legislators suggests otherwise.

But conservative Democrats of various ilk—the corporate New Dems, the old-boy Blue Dogs—echo the Republican fears, using the recession-driven deficits to revive their efforts to force cuts in "entitlements" (read: Social Security and Medicare). This is both bad policy and bad politics.

In reality, the world has changed. In the old economy, Americans took on more and more personal debt, and America ran up more and more global indebtedness, as we served as the world's consumer. That era was based on growing household debt and stagnant incomes, Gilded Age inequality, and inflating asset bubbles—first the dot-coms and then housing. It's over. Sure the banks, bolstered by literally trillions in subsidies from the Federal Reserve and Treasury, are setting up the casino again. But Americans, sobered by trillions lost in the value of their homes and savings, aren't binging anymore.

In the short term, as consumers cut back, businesses are laying off workers, foreclosures are continuing, bankruptcies are up. States and localities are cutting services and workers, and face staggering deficits again next year. Fifteen million Americans are unemployed—and the number keeps rising. Only federal deficit spending and the unprecedented monetary policies of the Fed have staved off a deeper depression.

The problem with Obama's stimulus is that it is too small, not too big. We'd be wise to spend more to forestall layoffs at the state and local level, to put people directly to work in urban corps and green corps, to add to public construction projects, to extend unemployment benefits, food stamps and other income supports.

Instead the deficit mania seems likely to force a stealth stimulus at best, done piecemeal and half-assed. The Congress will hopefully extend unemployment compensation in the hardest hit states. Some spending will be boosted in annual appropriations. To quiet conservative yapping, various tax breaks are increasingly bruited about—$250 for every Social Security recipient, the unproductive tax credit for first-time home buyers, and worst of all, the goofy jobs tax credit for businesses (two-thirds of which will subsidize businesses for jobs that would have been created anyway and most of the rest will go to those who game the system).

But the most destructive effect of the red-ink scare could be on our long-term growth strategy. With consumers cutting back and businesses understandably reluctant to invest without increasing demand, expanded public investment is vital to generate demand, growth and jobs. (For a more detailed version of this argument, see economist Thomas Palley here.)

We need to rebuild America. For too long, we've starved investment in the areas vital to our future -- in 21st-century infrastructure, in research and development, and in education and training. Vastly expanded investment in modernizing the electric grid, extending and accelerating broadband, building fast trains, replacing collapsing water systems, doing just the basics in education from pre-K to sophisticated worker training would generate jobs, fuel growth and produce a far more productive private economy. The American Society of Engineers tallies up over $2 trillion in investment needed just to bring our core infrastructure up to passable levels. That says nothing of building the next generation base essential to a high-wage society in a global economy.

Moreover, public investment is central to moving from a policy unleashing Wall Street speculation to one rebuilding Main Street manufacturing. Less of public investment tends to leak abroad. We can use our purchasing power to encourage companies to bring the best technology here, and help bring the supply chains with them. With the energy and environmental costs of transport rising, buying and supplying locally already has momentum. And with a concerted investment agenda in new energy, we can insure that America is a leader in the new green industrial revolution. All of this in turn can help us move to a more balanced trade policy, even as we engage China and the other mercantilist nations in multilateral efforts to re-balance the global economy.

Much of this investment sensibly should be financed, whether through public investment banks or by deficit funding. The investments will bring returns over time and the benefits will be enjoyed by rising generations, so it is sensible they share the costs. Just as there's a difference between borrowing for a good education and running up credit card debts on Caribbean vacations, there's a difference between investing in areas vital to our future and running up deficits with top end tax cuts, military adventures and obscene drug company subsidies.

Obama's record deficit this year is the product of the economic collapse. Once the economy starts growing and people go back to work, the deficit will come down. And that need not get in the way of committing to the investments we need, so long as we're willing to pay for them over the long run.

But what of the staggering long-term deficits—running publicly held debt up to nearly three times the size of our gross domestic product by 2050, as decried by the Peterson Institute and others? There is one core reality of these fantastic projections. The great bulk of the deteriorating long-term projections come from out-of-control costs of health care. Hold health care costs down to sensible levels and there is no problem. Fail to solve soaring health care costs and there is no solution. We can neither tax enough nor cut enough spending to pay for the projected costs of health care.

This isn't exactly radical stuff. This week in Washington, the Campaign for America's Future, which I co-direct, will host a conference featuring Ohio Senator Sherrod Brown and Pennsylvania Governor Ed Rendell from America's battered manufacturing heartlands, the CEO of US Steel and Rich Trumka, the new president of the AFL-CIO, leading economists and legislators to make this case, and lay out an agenda for action. (To follow the conference go to here.)

But Democrats are now said to be worried that the red-ink scare will take its toll in the 2010 elections. Take another look. A recent poll for the Economic Policy Institute by Hart Research shows most Americans are more sensible than ideological. Over half of Americans think unemployment is the largest problem facing the country, as opposed to less than one fourth who say the federal budget deficit is. Even a majority of Republicans agrees on that. Two-thirds of the country say the recovery plan has helped, but 81 percent believe Obama needs to do more to address the jobs problem.

Over 60 percent of those polled think the focus should be on creating jobs and investing, while only 36 percent would focus on cutting federal spending. Now Americans don't like taxes, and think, sensibly enough, that government wastes their money. But they are looking for policies that will generate jobs and growth and make sense. That's why public investment in new energy consistently polls off the charts.

In 2010, candidates will be running with unemployment over 10 percent and deficits near record levels. Surely the election will turn on who is fighting the hardest to put people to work and get the economy going, not who is best at cutting the deficit.

Eventually, if we are going to have a strategy that works, we've got to make and win the case for expanded public investment over the long term, financed in part and in part paid for, once people start going back to work again, by top-end tax hikes and new priorities.

We've done the whole small government, low taxes, deregulation number. We got top-end tax cuts, declining wages, collapsing sewers and gridlock, a ruinous financial casino and global indebtedness through corporate trade policies. The result was growing inequality, a sinking middle class, over a fourth of America's children in poverty, increasingly destructive climate change, and a harsh financial collapse and recession. It is time to go another way.

Building a Smart Grid, Smartly

Eric Lotke — Tue, 27 Oct 2009 13:04:42 -0400

President Barack Obama announced today $3.4 billion in government grants to help build a "smart" electric grid. Like many Obama initiatives, it’s a smart first step. But much more is needed and one piece is rarely mentioned at all.

Start with the problem. America’s electric grid is aging and not keeping up with demand. Electricity demand has increased by 25% since 1990 while construction of transmission facilities decreased by about 30 percent. The results are higher costs and more blackouts. Carol Browner, the president's top adviser on energy and climate change, called the grid “outdated” and “dilapidated."

Our discussion of energy is dominated by wind farms and solar panels. They’re important, of course. But they leave open the question of moving the energy from the where it’s made (offshore wind farms or sunny deserts) to where it’s used (cities and factories). That’s the grid. It’s called smart because it can re-route electricity in accordance with demand or around trouble spots.

In the end, we want it all. Wind farms, solar panels and a smart grid to bring the energy from point A to point B. That’s our clean energy future.

But we want something else with consequences we don’t always recognize. We want to be self-sufficient. We don’t want to replace our dependence on foreign oil with a dependence on foreign manufacturing. And we want those clean energy jobs to be located at home. Especially if we’re funding them with our own tax dollars. As Campaign for America's Future co-director Robert Borosage puts it:

“Not simply a timid buy America policy satisfied with the final assembly of parts and technologies made elsewhere, but moving entire supply chains so that our workers and engineers and entrepreneurs are familiar with cutting edge technologies that our inventors can soon surpass.”

Right now, half of our wind turbines are imported from overseas. Ninety percent of our solar cells are manufactured in China — which requires that its own solar installations use domestic (Chinese) content.

This isn’t about protectionism or neanderthal rejection of global trade. It’s about thriving in a competitive global economy. America needs to think strategically. Move away from asset bubbles and debt-driven consumer spending. Rebuild our real economy of production and manufacture.

Public investment in infrastructure is a crucial step in that direction. It creates jobs now and increases our competitiveness in the future. A new smart grid is part of it — and it’s even smarter if the transformers aren’t imported from China.

If you’re near DC, please come to our conference Thursday October 29, building the new economy. It’s free, and Senator Sherrod Brown (D-Ohio) will share his ideas over lunch. It’s time to pop the bubble economy.

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UPDATE: After this post was published, the White House released additional detail. Most important: The smart grid program includes $25 million to expand the necessary manufacturing base. It's a small amount and nowhere near the top of the release -- but the White House calls it "a significant and growing export opportunity for our country and new jobs for American workers." It's nice to see details trending in that direction.