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.
Wednesday, March 28, 2012 - No More Political Gimmicks, Let's Fix the Deficit Problem
It's budget week here in Washington.
That means we are debating the budget for the upcoming fiscal year. There are proposals and amendments and such.
Below, I've included a 5 minute video clip of a response I gave to another (sigh) proposal to "tax the rich more". I received a number of accolades on this speech, including many from Democrats. I hope you enjoy it.
By the way, the amendment was defeated.
Tuesday, March 20, 2012 - Fix It, Episode II
Fix It, Episode II: In the second "episode" of our saga on fixing our problems and bringing America a new period of growth and optimism, I will address an issue that none of you will be surprised to see me tackle - the debt and deficit. Since I was first elected to the California State Assembly in 2000, trying to get government to tax, spend and waste less has been a major priority for me. As such, you have heard a lot from me on this issue. So, I will not repeat much of what I have said incessantly for years so that I don't become electronic Ambien for you.
Instead, let me put this problem/opportunity in the context of the larger issue we are talking about. Implementing a plan to gradually fix our deficits and reduce our debt is a necessary but not sufficient condition for growth. Fixing the deficit will not in and of itself free the economy for sustained prosperity. There are other things we have to do that I will write about in future episodes. Suffice it to say, fixing the deficit is not a sufficient condition. But, it is a necessary one. If we don't do it, we will certainly bring on a crisis which will plunge us into a long and deep recession. By definition, that means negative growth such that fixing health care and energy and other areas are unlikely to rescue us from the economic collapse of a debt crisis. I have described how and why this will occur in the past, but for a contemporary example one need only look at Greece.
The Greek example is instructive in another way. Because they waited until a crisis was upon them to deal with their deficits, they have had to fix a deficit the size of ours, in relative terms, in just one year. That required huge tax increases and spending cuts all at once. That shocked an already fragile economy and they now have a GDP contraction larger than anything we experienced even in 2008/2009. This is why trying to balance a budget deficit that has grown as large as ours too quickly is actually a bad idea and can retard growth rather than enable it. We need to immediately implement a plan to balance our budget, but that plan should do the balancing over 5 to 10 years. This will give markets the confidence that the problem is solved, but not shock the economy by pulling too much out of it too quickly.
Over the next 2 weeks, Republicans in the House will pass a budget that reduces the deficit from $1.2 trillion this year to $800 billion next year, and roughly $200 billion by the end of the decade. That should do the trick because economic growth (which cannot now be projected very high) will probably make up that other $200 billion and get us surpluses. The conservative Republican Study Committee will propose another budget which will balance even without more growth within 10 years. But unfortunately, the Republican budget will pass with few, if any, Democratic votes and will never be taken up in the Senate. And, the Study Committee budget will fail because all Democrats and a number of Republicans will oppose it.
Not only does the President's budget never balance, it actually worsens the deficit more than any budget proposed by anyone to date. The Senate Democrats have not even proposed a budget in 3 years and will not likely do so this year. The only bipartisan solution that is out there is the Simpson-Bowles report released in late 2010. That plan moves the budget towards balance at a slightly slower pace than the Republican budget and does so in a different fashion.
Whether it is the Republican budget (so-called Paul Ryan budget) or Simpson-Bowles, there are many ways to get this done over time. In my opinion, we need to start with one of these and build a bipartisan solution from there that will balance over 10 years, including growth. As unlikely as that may seem in today's political climate, it can be done both politically and economically. And, it must be done. I wish I could tell you that this can happen before the election, but we all know that is not true. However, the groundwork can be laid this year to get right on it after the election. You can be assured that this member of Congress will be laying some of that groundwork.
Unrelated Tidbit: During the writing I’m doing in our "Fix It" saga, the world moves on. I can't observe all of it without a comment or two. Here's one for this week. Isn't it interesting that President Obama has rejected the Keystone pipeline, oil in Alaska, shale oil in the Dakotas and California, Gulf of Mexico and other offshore oil - all the time saying that this additional supply will not really affect gasoline prices. But yet, last week, he made further comments that he might release the US Strategic Petroleum Reserve because the additional supply will lower gas prices. Huh? So, a temporary, one-time, small supply increase will lower prices, but a permanent, enormous and consistent supply increase will have no effect? Maybe Harvard College needs some new economics professors. Or, perhaps Mr. Obama was not paying attention in class that week........
Next week: Episode III. (Just pretend it's Mad Men or something)
Monday, March 5, 2012 - Fix It
Fix It: There are a lot of things messed up in America today. On this, there is pretty much universal agreement. We have no energy policy, no manufacturing policy and an antiquated tax code that is complicated and inefficient. We are facing crushing deficits and debt that will soon lead to a European-style collapse. The economy continues to be weak and fewer people are working today than over 3 years ago when Barack Obama was sworn in as president. So many people have become discouraged that the number of people working or trying to find work is the lowest percentage of the eligible workforce since back in the Jimmy Carter recession days. The critical housing market is stuck, gas prices are high and going higher and the costs of our health care system keep rising and reform is needed. The public's confidence in Congress and the President is low, perhaps even at an all-time low, and there is little trust out there for major institutions, be they public or private. We are mired in a seemingly endless conflict in Afghanistan even as we face new and changing threats all around the world.
Makes you want to fill your bathtub with beer and go drown in it.
But, there is good news. Honest. As messed up as we are, the rest of the world is more messed up. And, we are the only country on earth that can solve all of our own problems by ourselves, without relying on any other nation. Those two indisputable facts mean that the United States is on the cusp of a huge window of opportunity that could usher in an extended new period of prosperity, security and hegemony for this country.
Permit me to give you a little more explanation of this good news and opportunity. Europe's problems are well-known to everyone by now. But, what is less well-known is that the European Union has massive structural problems that could take a decade to work through, even if you assume it does not collapse. Their experiment in increased socialism has failed (as has every such experiment before) and they will have to either unwind some of it or accept a lower standard of living for European people. China, for all the glowing reviews you read, has a number of deep economic and social challenges that are slowing growth there and will likely focus them inward for a while. The stock market in India fell 38% last year because they, and other BRIC countries (Brazil and Russia), have their share of problems. Widespread corruption in some of those countries has limited foreign investment and deepened the effects of other societal problems. Japan faces serious problems due to a strong yen that is forcing a lot of production out of that country. And, because they have always had almost no natural resources, they have a dependency on imports for virtually all of their energy (except for their substantial nuclear production), food and other products. The UK is doing relatively well, but is being dragged down by their proximity to and trade with a sinking Continental European economy. The best decision the UK made in recent years was to reject the urge to give up the pound and join the Euro.
It seems to be part of the American psyche of late to look at other countries and conclude that they are doing things better than we do. I remember during the 80s when the media said we just needed to be more like Japan. They were growing and buying many things in the US and we didn't understand how they could do what they were doing. We were told that they had a 100 year investment horizon, they were just better and smarter than we were and we should struggle to be more like them. But, Japan turned out to be in a bubble which burst - as all bubbles do. If it looks too good to be true and reasonable people think it makes no sense, it usually is not that we're missing something. It usually just doesn't make sense.
Anyway, it’s pretty clear now that we don't need to be more like China or Japan or Europe or Brazil. We need to be more like us.
The rest of the world's problems are deeper than ours. That is no credit to our leadership. That is credit to our system and our culture. Because America is such a great platform for governance and societal harmony, it is hard to screw up....although it seems we are trying. And, we have a better opportunity to fix our problems than do others. We have our own currency and still control most of our own debt. We have vast natural resources that can provide all of our own energy, food and other needs. We have the world's most productive and educated workforce and the strongest military and defense structure the world has ever known. And, although we love to export things to other countries, our economy is so huge that we are not dependent upon it.
In short, unlike every other country on the globe, we truly control our own destiny. This is a tremendous opportunity that we should seize. And by the way, if we fix our problems, we will help pull the rest of the world closer to a solution for theirs. Over the next few weeks, I will lay out for you the things I think we should do to take advantage of this opportunity, and specifically what I am doing to try and advance this mission. Frankly, the solutions are not that tough. From an academic or economic sense, it’s pretty clear what we should do. The greater challenge is a political one. I know that we Republicans hope to "run the table" in the 2012 elections and emerge with control of the White House, the Senate and the House. Democrats hope to do the same. But, the reality is that neither is likely to happen. And even if it does, neither side is going to get the 60 votes necessary in the Senate to pass legislation without some votes from the other side. So, the solution here must necessarily be something that can attract bipartisan support. That is the real problem given the polarized environment in Washington these days. But, as I will describe in the weeks ahead, there is reason for hope on that front.
So, stay tuned. This is the first in a series of "Laptop Reports" that will lay out not just where I think we should go, but the bipartisan sweet spot where I think we can go.
Next week, dealing with our biggest threat: The deficit.
Tuesday, February 21, 2012 - Disaster in Washington
Disaster in Washington: Last week was a disastrous one in Washington, DC. No, there was not a tsunami or a hurricane or another earthquake. But, the effects of last week will be felt much farther, longer and wider than would have been the case in any of those natural disasters. Everyone of every political stripe understands that our debt and deficits stand as the largest threat to the prosperity and hegemony of the United States in the years and decades ahead. But, in spite of this acknowledged reality, actions in Washington last week served to make this situation dramatically worse, not better. However, almost disturbing is how this happened. The same political dynamics that led to these deficits in the first place have been left unchanged and are currently causing the deficit to increase rather than shrink. Let me explain what happened, and more importantly, how and why it happened:
President's Budget: The President's campaign slogan of late is an "economy built to last". Well, this is a "budget built to collapse". It astoundingly increases spending, taxes and the deficit, both in the coming year and over the next 10 years, against every other budget or projection that's out there. You have that right. It increases all three: spending, taxes and deficit. It moves annual federal spending from about $3.8 trillion now to almost $6 trillion by 2021. It projects $11 trillion in NEW debt over that period, bringing the total debt to somewhere around $27 trillion. And, taxes go up, but not as much as spending does. It makes trillion dollar annual deficits the new norm and makes government spending as a percent of the economy stay constantly at levels previously only ever reached during the height of World War II.
Now, I understand that this is an election-year, political document intended to appeal to the President's most liberal base. It would not get a single Republican vote and I expect that most Democrats in Congress would oppose it as well. So, it will not pass this year. But, I am disgusted that it does not even pretend to show an interest in controlling unsustainable deficits, debt and spending, and instead cavalierly worsens all three with an attitude that they don't matter. That is why it is hugely damaging. Some of us, on both sides of the aisle, have been working for years to get our colleagues to accept the severity and urgency of our problem and the necessity to take bold steps to fix it. We have been making progress. The President has just reversed that progress. It is even scarier to imagine that he would actually push this sort of budget forward next year if he were to be re-elected.
Social Security Tax Cut: Since I have been in office, I have witnessed the political dynamic that has led to our deficits. There is a constituency for every dollar of spending in the federal budget and for every tax deduction or credit in the tax code. Those constituencies are very vocal about protecting their turf. But, there was never a constituency for the deficit. So, when Republicans and Democrats had to reach a compromise on something, they would increase spending while lowering taxes. This way, everybody is happy and the only loser is the deficit - about which nobody screamed too loudly. The "tea parties" ostensibly became the constituency for the deficit in the last couple of years. They gave some voice to the debt and the deficit and helped create some progress of late.
However, the "payroll tax deal" struck last week shows that we have regressed to the old ways. In this horrible deal, Social Security taxes will be cut for 10 more months, but benefits will not decrease. This agreement provides both extended unemployment benefits for the rest of the year and a 37% increase, over the same time period, in reimbursements to doctors who take Medicare patients. Most of these costs will merely add to the deficit. The part that is "paid for" will be "paid for" by increasing fees, selling assets and having federal workers pay more for their pensions - over the next 10 years. So, we change things for 10 years in order to partially "pay for" 10 months of benefits. These asset sales and retirement savings are good things. But, they should be used to reduce the deficit, not pay for new spending. This is the same sort of "compromise" we have been making for years. Republicans get a tax cut and Democrats get more spending and the only loser is the deficit and the Social Security trust fund. This "deal" will increase the deficit in fiscal 2012 (this year) and fiscal 2013 (next year) by $141 billion. In other words, in one action, we have eclipsed all the savings made during last April's government shutdown standoff.
Republican Budget: As part of the "failure" of the Supercommittee and the "debt deal" last August, defense spending (and Medicare spending) was "sequestered" or cut by about $600 billion over the next 10 years. Many Republican "defense spending hawks" are displeased with that sequester. I disagree with them, but there are more of them than there are of me. Therefore, there is a move to repeal those defense cuts in the coming budget. This is coming less than 2 months after these cuts became law and 10 months before a single actual cut has been made. To be fair, they are talking about "replacing" those cuts with cuts somewhere else in the budget. But, if we can make cuts elsewhere in the budget, why don't we do those too and just reduce the deficit?
What do all three of these developments have in common? All will serve to increase the deficit and the debt. All propose to take items that could reduce our deficit and use them instead to support new spending. All seem to indicate that the prevailing view in Washington is that more spending, even if it leads to increased or sustained deficits, is a political winner.
Now, I understand that there are election-year politics in play here. But in America, the next election is always less than 2 years away. At some point, and soon, we are going to have to do the right thing and move these deficits in the other direction. The problems in Europe, China, India and other countries around the world have bought us time to fix our problems. Our debt is still attractive to buyers because our bad situation still looks better than the rest of the world at the moment. As has been said, we are the cleanest shirt in a dirty laundry bag. But, this will change at some point. And when it does, it may be too late for us to avoid extensive damage. Europe's problems are a direct result of their decision years ago to pay themselves the benefits of socialism while borrowing the costs thereof. Now, they are in a crisis and they must fix it right away. This means, for a time, the problem will get worse.
We do not have to follow the path of Europe. First of all, we can choose not to embrace the socialism that Europe has and that our President seems to desire (more about that in coming weeks). Instead, we can begin to fix our debt problems now, slowly, so that the negative impact on the economy will be nil. If we wait until a crisis, then we are going to be like Greece or Italy (or California) and we will have to take immediate and dramatic actions that hurt the economy for years in order to avoid a worse collapse.
But, the actions of last week were not encouraging. A few years back, a small band of us led by Jeff Flake (R-AZ) took on both the Democratic and Republican establishment in a mission to stop earmarks. It was a hard and lonely fight, but we won. This is a bigger fight. We have to win this one too.
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