Tuesday, May 22, 2012: Episode VI - Infrastructure

Episode VI - Infrastructure: I mentioned in Episode V that infrastructure is important to secure and grow manufacturing. In fact, it is essential. You must be able to transmit energy, move goods and services, and have access to water and internet and all kinds of things in order to have an efficient manufacturing process. Regardless of what you are producing, infrastructure is key. And, at the risk of adding to the overusage of this trite phrase, our infrastructure is crumbling. One needs only to drive one's car in Washington, DC or Los Angeles, California (as I do frequently) to feel that infrastructure crumbling beneath your tires. Our support systems in DC, LA, or wherever you live are in bad shape because the priorities for federal spending have shifted over the last 50 years. Social programs now eat up the bulk of government spending at the federal, state, and local levels. The cost of these social programs crowds out what used to be spent on infrastructure. In some cases, taxes or fees that were sold as "user fees" to pay for infrastructure have been diverted for social programs or used to try to maintain exorbitant government employee pensions. My home state of California has practically made this an art form. In other cases, funds generated by "user fees" are declining while the need for them has risen. The best example of this is the federal gas tax. As cars become more fuel efficient, revenues from this tax (collected in cents per gallon rather than a percentage of the price) are dropping on an absolute basis. However, as revenues shrink, the total number of miles being driven on our roads is actually rising - as is the cost of repairing, building and maintaining those roads.

I would love to tell you that we can divert tax revenue away from social programs, but we need to reduce the overall costs of those programs just to get the deficit down. And, when we say "infrastructure", we normally think of roads and bridges and sewers and such that need improvement or refurbishment. But in the 21st century, "infrastructure" may need to include some things we haven't even built yet, like a coast-to-coast wireless broadband system. How do we pay for all of this? I fear that it is politically and practically impossible to fund infrastructure out of general tax revenues any longer. So what to do?

We will need to continue to rely on user fees to help restore our infrastructure to its original splendor. The gas tax is one form of a user fee, as are parts of your water and electric bills. But, even these have their limitations. Some have been diverted, as I mentioned, and I doubt that many of you are chomping at the bit to see increased gas taxes. Furthermore, both the federal government and state governments have borrowed too much and have little borrowing capacity left.

So, I believe the solution is to utilize a structure in the tax code known as "Master Limited Partnerships"(MLP) to get private sector money to fund public infrastructure. There is not enough room here for me to get into the technical details of how the tax aspects of this work. I am also not interested in further highlighting my tax-geekness. But, suffice it to say that private capital can build a road (or bridge or electric transmission line or dam or whatever) and get favorable tax treatment for so doing. And, the MLP would be paid for by a user fee somewhere in the chain. This could be a toll on a toll road or an increment on an electric bill. When the MLP is paid off, the public then owns the road.

I wish that it was possible do this some other way. However, I fear that if we don’t implement this solution, we will just wait and wait to pay for repairs out of general tax revenues and our infrastructure will further deteriorate due to inaction. Plus, user fees are extremely equitable, of course. And, using private sector money means we can do this with no new government taxes, deficit or debt. Very importantly, the MLPs will ensure through contract that the user fees collected will not be diverted. And, the growth that would be generated directly by a surge in our infrastructure capabilities would be astounding. Part of that surge would be felt directly by means of repairs and new construction. But, most of the effects would be indirect as other businesses use the new infrastructure to facilitate risk taking and growth.

This could be pretty cool actually.

Thursday, May 17, 2012 - Episode V - Housing, Manufacturing

Episode V: For those of you who perhaps are new "subscribers" to this "Report from my Laptop to Yours", I have been writing a series on the things I think we need to do in order to bring about a new, extended period of substantial growth that offers prosperity to our people, refreshes our culture and preserves and extends our hegemony in world affairs.  This is Episode V. (You see how I cleverly use roman numerals in order to add a degree of erudition to these writings. My close proximity to the ways of Hollywood has not been completely without influence.) If you missed the first four Episodes, you can find them on my website HERE.

Now on to Episode 5.....I mean V. Regular readers of this missive will know that restoring growth to the housing market is one of my major priorities in Congress. This is not because I'm a housing guy. I'm not really. I'm a car guy. But, the fact is that the car business and the housing business have some similarities. Both are high cost items that consumers almost always need a loan to purchase. But more importantly, they are huge parts of the economy. We never go into recession without first experiencing a slump in cars and housing. As recent proof, think about the collapse of both of these markets in late 2008. But, we also never have had a robust recovery without cars and housing leading us out. The car business is actually doing pretty well, thanks to a lot of new exciting product and the simple fact that cars eventually wear out. But, housing is still stuck in neutral. Our recovery will never be strong until housing recovers. This is not just me talking. Fed Chairman Bernanke and many other noted economists have said this on numerous occasions.

The problem with housing is housing finance. Fannie Mae and Freddie Mac, which I will refer to as the GSEs, have failed. Yet, they, along with the FHA, are the bulk of the only housing finance system that is currently in place. 97% of all home loans in the U.S. are now made or guaranteed by these entities. A recent Fed study looked at people who both traditionally (over the last 40 years or so) have been able to get a 30-year home mortgage and who consistently made those payments. Despite the fact that history says they almost all will pay it back, the study found that 30% of these people cannot qualify for a home loan today. That's because we have a system under which a single federal agency is deciding who gets a loan and who doesn't. No competition. No real market at work. No new system to replace the zombie system that is still walking while dead.

To solve this problem, Congressman Gary Peters (D-MI) and I have introduced HR 1859, The Housing Finance Reform Act. It is beyond the scope of this report to get into the details of the bill. You can find those in a previous report I did HERE and on my website HERE.  Suffice it to say that the bill winds down Fannie and Freddie over 5 years, returns FHA to its traditional role of the lender of last resort, and creates a new system of housing finance. This system is built upon multiple private entities competing in the marketplace with the ability to purchase a government guarantee in order to ensure the continuation of the 30-year mortgage. In principle, the guarantee is similar to how FDIC insurance works for your bank account. Our bill would also ensure that a lot of private capital is put at risk ahead of any taxpayer exposure in order to avoid a repeat of 2008. Housing will not recover without fixing housing finance and the economy will not recover without housing. We must work together towards solutions like this.

Manufacturing: In Episode III, I gave you my views on energy policy and described the tenets of a policy I would endorse. The idea of having a national energy policy has been the subject of much discussion in Washington for years and is certainly not a news flash. The conversation is usually based on how to secure domestically-produced, cheap, clean energy. However, what is not often discussed is the idea of having a national manufacturing policy. We need one. The idea here would be to secure American manufacturing and American manufacturing jobs.

So, why should we do this? As great as our technology and information industries are and will continue to be, we should not be a country that doesn't build anything. In one sense, this is a major national security risk. We do not want to be dependent on some other country for planes, trains, automobiles and any number of other things in the event of war, economic crisis or major natural disaster. Secondly, it is a source of diversification for our increasingly information-based economy. And third, but definitely not last, manufacturing is a source of a lot of good middle class jobs for people with physical skill sets. Personally, I am a bit mechanically inept. I literally regularly mess up the rather pedestrian task of replacing a light bulb. If you don't believe me, just ask the captivating Mrs. Campbell who often performs such tasks at home for fear that I will burn the house down or hurt myself. Fortunately, God gave me a few other talents. But, I have tremendous respect for those to whom God gave the mechanical talents which frankly mystify me. We need jobs for people who build things, not just for people who think things.

And, in our hyper-globalized world, other countries have policies designed to attract and retain manufacturing. We should not go into that gun fight with a knife. We need our own policy. So what does that policy look like? It should have a number of parts. We should have rapid tax deductibility of equipment used in manufacturing policies, as well as for the buildings in which that equipment is used. We have to improve infrastructure for the movement of parts and inventory (this will be part of the subject of Episode VI). We should make changes to our extremely uncompetitive litigation system so that people can build things without half the cost of the product tied up in liability insurance. As discussed, we need to implement policies that facilitate cheap and reliable energy. And, we should restore manufacturing trade schools to a respected place in our education system in order to educate a new workforce in a skill with direct application to a manufacturing job. We also need sensible labor laws that afford manufacturers and workers flexibility. That, by the way, is the opposite of what the extremely anti-growth NLRB (National Labor Relations Board) is doing. It’s hard for me to count how many jobs that miserable board is costing Americans right now. And finally, we need tax systems that do not punish companies that do business internationally while locating their manufacturing here. Today, we do punish them and force what could otherwise be American jobs overseas.

We are not going to build plastic toys in America anymore, nor should we. Through advanced manufacturing, however, there are a lot of complex processes that we execute better and often cheaper than anyone else. We have the best, most skilled and most trustworthy labor force on earth. And yes, they are paid more and I want them to be paid more. But, they are also more productive, which more than offsets the higher wages. We also represent the world's largest market. If you really look at why manufacturing locates overseas, it is not because of wages. It is tax policy, labor rules, environmental regulation, litigation risk or infrastructure limitations that cause the problem. We can fix all of that. Now, please understand, I do not want China's environmental rules or labor laws or litigation system. Far from it. They are all awful. But, we can protect our workers, our environment and our consumers much more sensibly than we do today, and can do so without scaring away jobs and manufacturing technologies.

Drive fast and live free.

Monday, April 30, 2012 - Fix It: Episode IV

Fix It - Episode IV: Health Care is an important topic. Not just because of the obvious fact that we all need it and it directly relates to the continuity and quality of human life. But, also because it represents a major segment of our economy. And, the economic impact doesn't just extend to medical care providers. It also affects employers, through whom most Americans obtain their health insurance if they are under 65 years of age, and the economy at large.

It will be no surprise to readers of this missive that I think ObamaCare is an unmitigated disaster. But, even if you think it was a good thing, the problems surrounding its implementation have injected even more government-created uncertainty into a major element of the economy. Uncertainty retards growth because it freezes capital, labor and decision makers. The uncertainty here is not just a result of the pending Supreme Court decision. It began long before that as it quickly became apparent that major elements of ObamaCare just don't work. Even the White House has admitted this. Even more problematic, the provisions that the White House has already agreed not to implement have now put other parts of the law in question as these parts were dependent on those withdrawn.

There was universal agreement that our health care system needed reform before the passage of ObamaCare. It is pretty clear now that the system today is worse as a result, not better.

But, when we say that we need reform in health care, it isn't that we have bad care as a society. Arguably, we have the best medical care in the world. People stream here from countries across the globe to access the best American doctors and procedures. And, our problem is not access either. We often hear talking heads call for "universal care". I would argue that we have universal care already. No one is turned away from an emergency room. Sick people are not roaming the streets without access to doctors. Now, that doesn't mean that everyone has equal care. That will never happen because doctors are human beings and they are different and hospitals will be different and so forth. But, we do already have universal care. Our problem is that we are paying for it in an inefficient and inequitable manner. Therein lies the challenge.

In this "Fix It" series, I have endeavored to provide you with solutions that I think can attract bipartisan support. Health Care may be the area where this is the most difficult. That is because ObamaCare is directionally opposite from where I, and all Republicans, think the solution should go. ObamaCare moves more control and decision making to the government and your employer. I believe that we should be doing precisely the reverse. We should be freeing individuals from dependency on either their employment or a government bureaucrat for their health care. You should own your policy and it shouldn’t depend on what job you have or if that job changes. Pre-existing conditions should not affect your ability to change health care providers. Not because of some government mandate, but because we all should pay into a pool to cover ourselves in the event we fall into that category some day. A premium support program (just as exists and works in Medicare Part D today) can provide increasing support for those who can't afford the coverage or are enrolled in Medicare. And, if you don't like your coverage, you should be able to easily change it. And, if you want to have a bigger deductible and pay less, you should be able to do that, too. And, if you think your provider doesn't cover everything you want covered, you should be able to switch and determine if the benefit is worth any additional cost.

That's the way human economics works. It works for something as essential as food. It can work for health care, too.

In this short piece, I can obviously not do an exhaustive explanation of this very complex subject. But, I think you get the point. Finding a bipartisan solution here will not be easy. But, fixing the way we pay for health care can free businesses to hire more workers without fear of unknown, future health care liabilities. It can free health care professionals to go back to actually providing care, instead of managing through a labyrinth of confusing and changing regulations. We can get billions of dollars of unnecessary costs and procedures out of the system. And, we can save federal dollars in support programs as well.

It will never be perfect, but we can be much closer than we are.

I'm going to call my doctor now because I feel better already!

Monday, April 2, 2012 - Fix It: Episode III

Fix It: Episode III - The episodic thing makes me feel like I am writing the next Harry Potter or something. OK, enough fantasizing. On to the real stuff.

Energy: The "fix" for our energy problems is actually one of the simpler ones. And, the reason it is simple is not because of any action of Congress or the President. It is not even because of our founding fathers. It comes from God.

This country is blessed with enormous natural resources. We have more coal than any other country on earth. We can make electricity from coal. We also have enough natural gas, by some estimates, to last us for a century. We make electricity from natural gas. We have a number of nuclear plants that generate electricity and we can build more. And, we have rivers to create hydroelectric power which can be harnessed to create more power should we need it. I have just described four sources that currently create more than 90% of all the electricity in this country. And, we can expand them all if we want or need to without importing anything from any other country.

But, you say, you haven't mentioned anything about our primary transportation fuel: oil. Currently, we import about half of all the oil used in the United States. But, we don't have to.

Last year, the National Petroleum Council (NPC) released a study showing that there are now enough proven oil reserves in the U.S., Canada and Mexico to meet all the projected oil use in those 3 countries for the next 30 years, at least. That means we can use all the oil we need without importing a drop from Saudi Arabia, Russia or anyplace else outside of North America. Now, some of you will assume that NPC is some front organization for evil oil companies. Sorry. It was formed by the U.S. Department of Energy to keep the Energy Secretary informed about petroleum reserves in the country and its membership includes several environmental groups. And, NPC is not the only organization reaching this conclusion.

Back in the 1920s, as more and more cars were being built, President Calvin Coolidge wrestled with the predictions that the world would run out of oil in 1935. But, technological improvements found more and more oil. My father was a petroleum geologist working in Kern County, California in those days, and he used the latest innovations of the time to find that oil. This same scenario is playing out again. New technologies have developed new ways to economically extract oil that previously either could not be found or could not be extracted. We have new proven reserves in the Dakotas, in Pennsylvania, West Virginia and many other states, including even California and New York. We have the ability as a country to be completely energy independent. This is a tremendous national asset. The Germans can't do this. The Japanese can't. Even the Chinese can't. We are the only country on earth that has energy resources that we are choosing not to use, opting to import that energy instead. Why?

Unfortunately, various groups with political influence use "environmental" reasons to block U.S. energy development. But, the "environmental" arguments are just a smoke screen for people who are against any growth in human activity at all. I can refute every supposed environmental argument to the development of our own U.S. energy resources, but it would take the next 4 episodes of this epistle to do so. Suffice it to say, for example, that developing all the available oil in Alaska would impact only the land equivalent to a postage stamp on a football field. Slant drilling will enable the extraction of much of our offshore oil without ever penetrating the ocean floor. And even if this were not the case, is it better to buy the oil from foreign countries whose environmental regulations contain none of the protections that ours do?

But, let's assume that I am wrong and that there are environmental impacts. Those must be weighed against the benefits of developing our own oil. Let's assess what those benefits are: (1) Jobs - The states with the lowest unemployment in the country today are generally the energy producing states like Oklahoma and Texas. We can have a lot more of those. And, the jobs produced are good paying jobs and often union jobs. (2) Trade Deficit - We can vastly reduce the trade deficit if we don't have to import so much oil. (3) Security - Some of you probably believe that we entered the Persian Gulf War to protect Kuwait as a source of oil. If we didn't have to import oil from there, (or other non-North American countries), our foreign policy towards such countries could be completely different. And, I think it is unlikely we will be attacking Canada any time soon. (4) Price - There is a world price of oil. But, we can have a great deal more control over what we pay at the pump if we are domestically sourcing our own oil. So, what are we giving up in exchange for the weak environmental arguments? Jobs, lower deficits, security and lower prices against.......no real argument at all.

So, you ask, where is the bipartisanship here? When we have voted to complete the Keystone pipeline, nearly one third of Democrats in the House joined every Republican in support, in spite of heavy, heavy pressure from the White House on Democrats to oppose. Without that pressure, an overwhelming majority of both the House and the Senate will support an initiative to develop all of our domestic energy. Unfortunately, President Obama has become a captive of a small, fringe element of his support base that opposes all growth. That is not where most Democrats are. That is not where most people are. No other country on earth has the ability to be energy independent and chooses to import it instead.

You may also ask why I have not talked about the oft-discussed wind and solar options. I have nothing against wind and solar. But, they can never be anything but supplemental for any number of reasons because the wind does not always blow and the sun does not always shine. Solar might be more effective in the future if there is a breakthrough technology. But, the interests promoting wind and solar are doing so precisely because they know that reliance on these sources will make energy scarce and expensive. In the end, that is what they want because it will stifle growth. I think about this when I drive past the windmill farms near Palm Springs. How can that huge blight on an otherwise beautiful desert landscape that produces so little energy can be considered environmentally sound? With much less environmental impact, for less money and without potentially killing birds, we can produce so much more energy in so many other ways. I think wind is one of our least environmentally-friendly energy sources.

As far as I am concerned, this discussion is not about using more oil or burning more gas. The car I drive most of the time in California is an electric car (more about that and electric cars in general in a future laptop). We have a number of energy choices to power our future and we should let technology and the market decide which energy source is best. But whatever that source is, we can make it here. We don't have to import it from outside our continent or be dependent on some unstable or unfriendly government to get it. And, we can add a lot of jobs, economic growth and, yes, tax revenue along the way. This is truly a no-brainer element of fixing the American economy.

Random Thought of the Day: Last week, we voted on several alternative budgets to the Paul Ryan budget, which was the budget we ultimately passed. One of them was President Obama's budget. The President's budget failed by a vote of 0 - 414. You read that correctly. Not one member of the House of Representatives, Republican or Democrat, could bring themselves to vote for the Obama budget. Is that some indication of just how bad the Obama budget is? Just as this vote was finished up on the House floor, I heard another congressman quip, "Well, Obama said he was going to bring us all together and unite us. And, he has finally done that!"

Until Episode IV, have a Happy Easter and Blessed Passover.