Cashless and Thoughtless

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There has been a lot of push from international organizations to make poor societies around the world copy Western institutions, and recently to go cashless. Blind to differences in cultures, these international organizations have hugely over-estimated the organizational capabilities of people in the emerging markets — in the Middle East, South Asia, Central Asia, Africa, and Latin America.

Anyone who has spent a sensible amount of time in emerging markets — not in five-star settings but as a normal person — knows that in these countries, an organization of two people often has one person too many. It is also evident that the two tends to expand into dozens, hundreds, and thousands, either because of the local desire to subsidize more people or because of the need to instigate a Western-style bureaucracy to control the whole thing.

Erroneously assuming that we are all the same, that specific cultures do not matter, and that all that matters is training and incentives, there was a huge push for globalization.

In these culturally very different markets, companies and institutions — Western concepts, which do not transplant well without the underlying European culture and values — can never stay nimble. To maintain control, internal bureaucracies must grow to provide checks and balances, because workers fail in independent thinking, work ethics, honesty, and cooperation. Creativity stays conspicuous by its absence.

Despite seemingly low labor costs — as low as a couple of dollars a day in wages — the costs of keeping such organizations together grows exponentially with size. Growing bureaucracies require additional checks and balances. Without the cleaning mechanism of European values and the control systems they provide, these organizations invariably accumulate dead mass, which keeps growing cancerously until they crumble under their own weight. Organizations that do not have constant blood transfusions and external subsidies tend to disintegrate rather rapidly. The price of keeping them together is extremely high.

In a climate already characterized by political correctness, a certain wisdom that Europeans had accumulated about the colonized world had evaporated by the time the USSR era ended in the late 1980s. Erroneously assuming that we are all the same, that specific cultures do not matter, and that all that matters is training and incentives, there was a huge push for globalization.

German companies moved their factories to Eastern Europe, a region of relative cultural closeness to Germany. But many factories have since moved back. The anticipated cost savings turned out to be the exact opposite. All kinds of configurations of Western corporate investment in emerging markets were tried, with similar results.

The problem is that these emerging markets’ societies are tribal. In such cultures you need the glue of violence, subsidies, and massive bureaucracies to keep organizations in place. The experiments of the past 500 years with colonization and Western education show that it is not easy — when it is even possible — to wean societies away from tribalism. Bigger and bigger organizations were put in place in emerging markets, but they tended to remain poor and in strife. The intervention of Western economic methods created an unnatural gap between the poor and an entrenched elite, rendered more entrenched by the possession of whatever new wealth was produced.

Many factories have since moved back. The anticipated cost savings turned out to be the exact opposite.

There is only one solution: keep organizations in these emerging markets as small as possible, remembering that tribal instincts ironically propel them to make their organizations big. Never subsidize big organizations, for if you do, besides providing services that add value you create operations that are a massive drag on the economy, full of endeavors that consume wealth instead of producing it.

This brings us to the current drive to go cashless.

India has recently attempted to reduce the use of cash, ostensibly to reduce corruption but actually to further centralize the economy by creating a medium of exchange that the government can constantly monitor. Naturally, it is also creating a national ID card system. Both of these are in direct conflict with what India should do as a tribal, medieval society.

Let’s consider the sequence of steps required to operate an online bank account in India.

Start with slow internet connections and frequent interruptions in electricity. Add extremely unwieldy websites, websites that do not open properly. My browser often gets hung up on these sites. My password has a limited validity and must be renewed regularly by using the old password and a one-time password sent to my mobile phone; and a lot goes wrong during this “simple” process. Once inside the account, however, I may need another one-time password and an additional transaction password to complete my business.

Most people actually walk down to their bank branch to do the so-called online transaction — a clear instance of the fact that trying to modernize any system beyond its natural capacity in a tribal society increases the costs and makes it more difficult. This is the persistent irony of modernization.

My Indian banks charge me fees and commissions I never agreed on. They then top it up with taxes on “services” provided. Bank statements are ridden with so many charges that only the rare person has time or patience to sort them out, particularly when the banks are crowded, and getting someone to talk to you on the phone is extremely difficult. When you get through to an agent, he usually knows nothing.

The frustration of the people has been steadily increasing. Instead of easing their lives, the reduction of cash has added significantly to the burden.

It gets worse, especially if you are the so-called common man. I know my way around pretty well, but I frequently get stuck. And here is a country where 25% of the population is officially illiterate and where engineers and doctors choose to apply for jobs as janitors, mostly because their degrees are no more than paper. It is a country where a large proportion of those who claim to be literate struggle to sign their own names, let alone show themselves capable of reading a sentence. Imagine how they would deal with forced digitalization of the currency system. This will end in disaster.

Even now, in the last six months that India has been trying to reduce the usage of cash, the frustration of the people has been steadily increasing. Instead of easing their lives, it has added significantly to the burden.

Notably, however, none of this means that people have gone against the Indian prime minister, Narendra Modi. He is winning election after election, and most people simply love him. When not facing banking problems in real time, they are actively in support of Modi’s attempt to go cashless. One must remind himself that this is a tribal, irrational society. People often cannot connect simple dots that are right in front of them; not even the so-called educated ones can do that. They tend to do exactly more of what created the original problem, which in this case is irrational authority.

Any tribal society contains the impetus to make bigger, and more complex systems of authority. Tribal people want nannies. They feel secure in big structures, despite the fact that such structures actually make them less safe. Tribal people demand free stuff, without any feeling of gratitude to any real source of wealth. Governments meet that emotional need, while doing little else for their subjects.

Any rational leader would make an aggressive attempt to counter a tribal society’s willingness to increase the sizes of its institutions. But tribal societies do not easily produce rational leaders. They operate through expediency, not through rationality or objective moral thinking.

The IMF and the World Bank think that these emerging markets need better institutions. They think these countries need to reduce corruption, which is one of the reasons for the push towards going cashless. Locals in these countries agree. The irony is that these locals haven’t a clue about what corruption means — their tribal worldview means that they do not see corruption from a moral perspective. They merely look at the need to end corruption as a tool of expediency to improve their personal lives. They may think that everyone should stop asking for bribes, but they do not include themselves individually in that equation. Any sane, non-tribal person can see that this does not add up.

Tribal societies do not easily produce rational leaders. They operate through expediency, not through rationality or objective moral thinking.

Contrary to the view of many libertarians, even when privatization does happen, there can only be limited improvements. Indian companies — for they have tribal people as ingredients — are instinctively dishonest. They lack a work ethic and, unconstrained by morals, they rampantly abuse their clients. For example, I used an online Indian travel agency to buy an international ticket. After tens of attempts the money left my bank account — but I never got my ticket. The company said I never paid. No one knows whether it was the bank or the agent that was at fault. Eventually the agent refunded my money to the bank, but then the bank blocked that money. I had to run around the bank, which could not trace that blocked money. I shouted, screamed, and threatened, but in this entangled mess, I don’t really know who was the culprit. I do know that big organizations and forced-from-the-top digital money simply do not work.

Given the low-trust culture, Indians prefer immediate exchange of goods for money and vice versa. If you pay for a later delivery, you undertake huge risks that your goods might never arrive, and if they do arrive it is not unlikely that you might receive substandard goods. If you sell goods for payment at a later date, your money might never come. No wonder 95% of Indian consumer transactions happen in cash, with goods exchanging hands exactly at the same time that cash is paid.

India’s attempts to go cashless will end in a disaster. This will become obvious in a few months, not years. But India is merely an example. The situation with most of the emerging markets is exactly the same (with China, perhaps, as the only exception).

The lesson is that poor countries are poor for a reason, despite all kinds of tools of technology — particularly the internet — that are available to make their economies rapidly converge with that of the West. Western institutions worked in the ex-colonies as long as Europeans ran their institutions. With Europeans long gone and European values no longer underpinning them, the institutions have increasingly become hollow structures — what one sees everywhere in Africa, South Asia, and the Middle East, with the exception of a few small countries. An attempt to go cashless is a tribal attempt to centralize, exactly when their institutions, including the institution of the nation-state, another European import, are imploding.




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Cuba, Obama, and Change

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Although Republicans and, no doubt, the Castro brothers perceive President Obama’s visit to Cuba on March 20 as American kowtowing, the perception on the Cuban street is entirely different.

To Cubans, the visit is an honor ranking right up there with the Pope’s visit, and one not vouchsafed to the island since President Coolidge’s visit in 1928. El mulato, as he’s informally referred to in the Cuban fashion of conferring nicknames on everyone, and his historic visit, bring the promise of hope and change to the island more concretely than any pronouncement ever made by the Castros.

I know. Three days ago I returned from a 30-day bike journey across the island, from Baracoa in the east to Havana. American flags were everywhere — in cars, taxis, horse- and pedal-drawn taxis, even clothing — even before the visit was announced. Warned by guidebooks and savants to minimize exchanges with uniformed personnel, and never to photograph any, I found the admonition accurate. These were all serious, unfriendly, incorruptible, suspicious, and averse to any sign of curiosity. But once the visit was announced, I decided to test the premises. Passing soldiers, policemen and God-knows-what functionaries, I’d yell, “We’re not enemies anymore!” and I’d add some typical Cuban sassy wordplay non-sequitur as a true native would. I managed to get a few smiles and even some playful responses. Things are changing.

The hustle, bustle, entrepreneurship, and raw energy that permeated every person was a far cry from the typical listless socialist citizen.

Back in March 2012, in a Liberty article entitled “The Metamorphosis,” I outlined the changes to the Cuban economy legislated by the Castro government (see also “Cuba: Change We Can Count On?”, Liberty, December 2010). The changes attempted to drop one-fifth of the workers from government jobs and make them self-employed — this in a country where everyone is employed by the government at pay scales of $1–2 per day. But the fine print indicated internal ideological conflicts. While dozens of job categories were authorized — from transportation to food, to lodging, to construction, to personal grooming (and many more) — permits, taxes, limits on employees and much red tape don’t make the goal easy to achieve.

Nonetheless, the hustle, bustle, entrepreneurship, and raw energy that permeated every person pursuing his hopes and dreams along miles of city streets and rural roads was a far cry from the typical listless socialist citizen. Ironically, even the poorest — those whom socialism is touted to help the most — were selling homemade sweets, cucuruchos, in the Sierra Maestra Mountains without permits! One told me he’d be fined $3,000 if caught. To a poor guajiro unable to pay such a fine, jail would await.

Seemingly everyone is trying to become independent of the government and develop self-employed income. One university economics grad student whose psychologist wife still works for the state now runs a B&B in Las Tunas, where I overnighted between Bayamo and Camagüey. Next year he plans on studying Milton Friedman and Frederick Hayek. I asked whether that was possible; he said definitely, in advanced academia. His study plan had already been approved.

Three blocks from the capitolio in Havana, along the Prado, I spotted a sandwich board advertising real estate. A university economics professor tended the spot. He had no office other than his board, his clipboard, and the built-in bench on the promenade. Though we’d seen many “For Sale” signs on many buildings, including the humblest of abodes, we saw no real estate offices. I excitedly elbowed my wife Tina, a realtor in Arizona, to engage her interest.

Bad move.

A middleman agent of finance — the epitome of freewheeling capitalism — just didn’t fit into her perception of a socialist economy. Either the man was deluded or he was a scammer (an unlikely scenario: the police are ruthless with physical and financial crimes). I insisted on us engaging the man. Immediately she blurted out, “How can you own property in Cuba when there are no property rights and the state can confiscate your property at any time for any reason?”

Seemingly everyone is trying to become independent of the government and develop self-employed income.

The poor man, without a vestige of the ingeniousness of an American used-car-salesman, took on a pained and thoughtful look. He didn’t know where to start, but he understood that Tina had zeroed in on the heart of the matter. Translating his response was an exercise in empathy. He told us of a building across the street from the capitolio whose residents had just been told by the government to move out: the government needed the space. He didn’t know whether compensation, alternative housing, or even a grace period had been granted. He was the first to admit that Cuba has no property rights and no judicial system to enforce them. Nonetheless, what was he to do? New laws, albeit extremely constricted, allowed for the buying and selling of cars and property. No mortgages are available; only cash transactions. Interest is still illegal. But someone was paying him four times the salary he’d made at the university. He had nothing but hope and an optimistic outlook: “This time the people will not let the changes be reversed.”

I reminded him of the roadside billboards that read, “The changes in progress are for MORE SOCIALISM” — a sure sign, he counterintuitively agreed, along with Obama’s visit, that the changes now have a better chance of sticking than any previous promises. Or as one informant put it, “Castro educated us; now we know what he’s up to.”




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Take This Climate Deal — Please!

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On December 12, 2015, climateers the world over celebrated as a new climate change accord, known as "the Paris Agreement," was approved. It was the culmination of four grueling years of behind-the-scenes negotiations designed to save the planet from catastrophic anthropogenic global warming (CAGW). At the stroke of the gavel marking its acceptance, the more than 40,000 climate change diplomats from 195 countries erupted into cheers, ovations, high-fives, champagne toasts, tearful embraces, and, of course, rampant backpatting.

“This is truly a historic moment,” proclaimed United Nations Secretary General Ban Ki-moon — the first "truly universal agreement on climate change." According to the New York Times, President Obama "strode triumphantly into the Cabinet Room of the White House to declare victory in his quest" for the ambitious deal. An ebullient John Kerry tweeted: "#COP21 agreement is the strongest, most ambitious global climate agreement ever negotiated." It is "the best chance to save the one planet we got," intoned Mr. Obama, perhaps too choked up for grammar. Or perhaps he noticed the Eiffel Tower illuminating the phrase "no Plan B," and the shuddering possibility that the deal — his vaunted legacy — could fall apart.

It is a progressive's dream: a profligate, utopian scheme that will fail, even if it achieves its goal.

Scaremongering climateers tell us that, unabated (i.e., absent the Paris climate change accord), mean global temperature will rise 3.7 °C by 2100, rendering earth uninhabitable. With the accord, the nations of the world pledge to reduce their greenhouse gas (GHG) emissions to levels intended to limit the rise to no more than 2.0 °C. But the decline in GHG emissions resulting from the Paris agreement is predicted to reduce the temperature rise by a vanishingly small 0.2 °C. That is, if the pledges of all 195 participating nations are carried out to a tee, including the expenditure of trillions of dollars on green technology, the mean global temperature will rise 3.5 °C by 2100, rendering earth uninhabitable.

While cameras inside the convention hall captured the joyous tears of climate diplomats as they celebrated fabricated success, they missed the angry tears of climate activists outside, as they rebuked the Paris agreement as an irresponsible, fraudulent charade, too diluted to be of any meaningful value. The soft-spoken Dr James Hansen, father of CAGW, referred to the deal as "a fake," "a fraud," "just worthless," and "just bullshit." But it will establish a colossal, intrusive UN climate bureaucracy that will haunt the world forever. It is a progressive's dream: a profligate, utopian scheme that will fail, even if it achieves its goal. Measured on a scale of maudlin self-congratulation (the auto-aggrandizometer), this is progressivism's finest achievement in central planning.

Although the agreement is not legally binding, climate change luminaries such as Obama, Kerry, and Ban Ki-moon assure us that the emission reduction goals will be met. Signatory nations must fulfill their pledge or face international ridicule through the agreement's clever "name-and-shame" mechanism. There is nothing like peer pressure to bring totalitarian police states such as China into compliance.

Similar pressure will be applied to support the Green Climate Fund — a coffer to be filled annually with $100 billion from rich nations for the purpose of cajoling poor nations into remaining poor.

Without the fund, none of the 130 nations of the developing world would have signed the agreement. With the fund — according to the delusions of progressives from the developed world — dictators, bureaucrats, and crony industrialists from impoverished countries will purchase exorbitantly expensive solar panels and windmills instead of extremely cheap coal, oil, and gas, and they will convince their citizenry that chronic disease and poverty can wait while 0.2 °C is shaved off the 2100 global temperature. (To the 1.3 billion people who have never experienced electricity, what's the rush?)

There is nothing like peer pressure to bring totalitarian police states such as China into compliance.

To ensure compliance, the Paris accord mandates that all nations shall report on their emissions reduction progress every five years — “a serious form of enforcement and compliance,” insists Mr. Kerry. Patting himself on the back, Kerry said that the voluntary pact (a 31-page cornucopia of vague commitment, toothless aspiration, and astounding deceit) would "prevent the worst most devastating consequences of climate change from ever happening." Who knows? With CAGW thought to be so solved, progressives may use the Paris agreement as a model to tackle other vexing problems, such as social injustice or income inequality. At this very moment, liberal thinktanks could be pondering the idea of bribing African or South Asian countries into pledging lower birth rates; or shaming Islamic terrorist organizations when their beheading reduction pledges are not met.

Returning to reality, the pledges of the landmark Paris accord (an agreement that will not work even if its pledges are met) will not be met — not even close. Rich countries will try; they will achieve some token, largely symbolic, degree of success. Poor countries won't bother; they have vastly more pressing challenges. No matter the size of the Green Climate Fund, the developing world will not be persuaded to replace cheap, reliable fossil fuels with expensive, unproven solar and wind technology — technologies that, after more than 30 years of development, still rely on subsidization for survival. These are also technologies that have become staggeringly more expensive after only five years of the enormous, unsubsidized strides in US fracking technology that have produced staggering declines in oil and gas prices. Oil prices, for example, which have been above $100 per barrel since 2011, have plummeted to below $40.

Media accounts credit Obama for the agreement's acceptance. They say that in pledging the US to draconian emission cuts, he leveraged the rest of the world to follow. But the US is in no position to make such a commitment, it is not legally bound to do so, and there is neither congressional nor popular support for it. Warned Senate Majority Leader Mitch McConnell, “Before his international partners pop the champagne, they should remember that this is an unattainable deal based on a domestic energy plan that is likely illegal, that half the states have sued to halt, and that Congress has already voted to reject.”

This lack of enthusiasm is produced, in no small part, by the economic stagnation that has plagued the US economy from the day Obama took office. With unprecedented, and growing, national debt, declining net worth, and labor participation at its lowest since the Carter years, where will the money come from?

Dictators, bureaucrats, and crony industrialists from impoverished countries will convince their citizenry that chronic disease and poverty can wait while 0.2 °C is shaved off the 2100 global temperature.

Ironically, the most promising source of money is the energy bonanza that fracking has created — the very source of prosperity that progressives seek to ban, in their efforts to decarbonize the world's economies. Unleashing US energy production could swiftly stimulate the US economy, lift incomes and wages, expand the middle class, create new jobs, generate enormous tax revenues, and eradicate the debt. But with the 2016 election drawing near, Democrat candidate Hillary Clinton pledges to outdo Obama. She plans to build 500 million solar panels and promises that 33% of all US electricity will be generated from wind and solar by 2027. Not to be outpandered by Mrs. Clinton, rival candidate Bernie Sanders promises 80% by 2050; and Martin O’Malley promises 100%.

It is highly unlikely, however, that a beleaguered American public will allow a Democrat president to shutter its energy goldmine, thereby continuing economic stagnation. As to the prospect of a Republican president, McConnell says that Obama should not make "promises he can’t keep." Nor should he "take credit for an ‘agreement’ that is subject to being shredded in 13 months.”

The Paris deal has no chance of thwarting CAGW — if planet salvation was even an important consideration. For those who are astounded by Mr. Obama's claim of victory, or who are wondering how so much credit could be awarded for so little accomplished, his triumph has nothing to do with saving the planet. It is a purely political victory — one for which he does deserve credit, and the highest of praise from progressivism, considering the coming creation of the UN climate change behemoth.

It is this deceitful absurdity that has progressives doing cartwheels and patting themselves on the back. The agreement itself is irrelevant, serving only to set the stage for future global central planning. The four years taken to write it featured little more than a backroom search for language that would read like a treaty but would be watered down and rendered toothless enough to get 195 nations to sign it — of which, 130 had to be bribed with the Green Climate Fund. It is not legally binding; the emissions reduction pledges are voluntary and aspirational, enforced only by the palsied hand of a “name-and-shame” system of global peer pressure. As to contributions to the slush fund, rich countries are "strongly urged" to fulfill their commitments.

The watering down process persisted to the end, holding up the vote to adopt the agreement for two final hours. Fearing that the Obama administration might be required to seek Senate approval for a binding treaty, US diplomats insisted that the word "shall" be changed to "should" in a clause on meeting emissions targets. They might as well have found a place for "pretty please" or "just bullshit."




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I Hate When That Happens

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American manufacturing, once the principal source of American economic power, has become a pale shadow of the world-dominant competitor it was only 30 years ago. Although the productivity of American workers still vastly exceeds the worker productivity of all major manufacturing economies, America has become a laggard in the global marketplace. For decades many have bemoaned the descent of America's industrial power. Now they say that the decline has been the result of economic misfortune: globalization, technological advance, foreign competition, unions, and so forth.

The actual misfortune is that US economic policy has been formulated by feckless politicians in Washington DC. It's as if the nebbish Willie (from the “Willie and Frankie” sketches of Saturday Night Live fame) had been behind it all. Because Willie had no grasp of causality, his life was fraught with excruciating experiences, experiences of his own making. In one skit, he came up with a scheme to test mouse traps, only to discover that "the thing came down right on my tongue!" It was an accident, even though "after 40, 50 times, I . . . I . . . I couldn't even feel the cheese." With each painful incident (which included encounters with a meat thermometer, a ball-peen hammer, and a self-threading film projector), the baffled Willie sullenly whined, "I hate when that happens."

Since the turn of this century, 5.7 million American manufacturing jobs have been lost, and the US trade deficit has soared. According to a Council on Foreign Relations study, "between 2000 and 2012, the cumulative total of U.S. spending on imports of goods and services exceeded U.S. export earnings by $7.1 trillion dollars." For manufacturing workers and, for that matter, most Americans, there has been no recovery from the recession of 2008. Two of the Willies that deserve special thanks for this misfortune are former President Bill Clinton — for his role in causing the recession — and current President Barack Obama — for his role in causing the non-recovery.

Although the productivity of American workers still vastly exceeds the worker productivity of all major manufacturing economies, America has become a laggard in the global marketplace.

It's a safe bet that in none of the 542 speeches given since he left office (for which he has reaped $104.9 million) did Mr. Clinton mention how his policies caused the housing bubble and the financial crisis. These policies (deregulation of credit-default swaps, spurious use of the Community Reinvestment Act, and shenanigans with Fannie Mae, Freddie Mac, HUD, and other organizations, to name a few) were discussed here (“Sticking It To Wall Street”), and the following week, at Reason (“Clinton’s Legacy: The Financial and Housing Meltdown”). They set the stage for the recession that occurred seven years later, no doubt to Clinton's astonishment.

The Clinton legacy also included the unfortunate accidents that followed the North American Free Trade Agreement (NAFTA), passed in 1993, and permanent normal trade relations (PNTR) for China, granted in 2000. Clinton expected NAFTA to increase US exports and therefore jobs (one million in five years, he promised). Instead, according to a recent Public Citizen report, "millions have suffered job loss, wage stagnation, and economic instability from NAFTA." The export of manufactured products from the US dwindled and the trade deficit with Mexico and Canada shot from $27 billion in 1993 to $177.2 billion today. And the economic chaos that engulfed Mexico prompted "a new wave of migration from Mexico."

Granted, Public Citizen is an anti-NAFTA advocacy group, but its claims are substantiated bytrustworthy sources — namely the US International Trade Commission (for the NAFTA trade deficit data, p. 7 of the report) and the Economic Policy Institute (for the job loss and wage decrease data, p. 8). Ironically, the immigration spike was caused by one of the few US export benefits from NAFTA. With NAFTA, Mexico eliminated its corn subsidy, but the US did not. Asa result, “seventy-five thousand Iowa farmers grew twice as much corn as three million Mexican farmers at half the cost." As subsidized U.S. corn flooded into Mexico, displaced Mexican farmers flooded into the US, greatly contributing to the surge of illegalimmigrants, from 4.8 million in 1993 to 11.7 million by 2012 (p. 22).

For manufacturing workers and, for that matter, most Americans, there has been no recovery from the recession of 2008.

NAFTA has paid off well for US corn farmers. American workers who, in the wake of the immigrant influx, lost their jobs or saw their wages shrink, have come up a little short. As have American taxpayers, who foot the bill for the subsidies awarded to corn industry cronies. This should not be confused with the bill from their cousins, the ethanol industry cronies, for subsidizing the ethanol scam — the ongoingenvironment-friendly fuel program, whose accidents include increasedair pollution, water contamination, soil erosion, andgreenhouse gas emissions, as well as increased prices for gasoline, automobiles, farmland, and food.

Clinton had loftier expectations in his efforts to help China gain World Trade Organization (WTO) membership. But instead of wielding American economic power to establish a level playing field for US industry, Clinton followed the wishes of Wall Street power, which did not extend to protecting US manufacturers from the mercantilist antics of brutal, authoritarian states such as China. As Robert Kuttner explained in “Playing Ourselves for Fools”:

In 1999, when China was negotiating its entry into the WTO, it was a lot weaker economically and financially, and the stench of the Tiananmen massacre still lingered, the U.S. had far more diplomatic leverage than the rather pitiful show of humility befitting a debtor nation displayed on President Barack Obama's recent maiden trip to Beijing. But as the memoirs of both Robert Rubin and Joseph Stiglitz confirm, that leverage was used mainly to gain access for U.S. banks and insurance companies to Chinese markets, not to require China to modify its system of predatory industrial mercantilism.

Clinton promised that China's admission to the WTO would provide the US with a vital trading partner who would change its ways and "play by the rules"; trade with China would "increase U.S. jobs and reduce our trade deficit." All the experts agreed. Then presidential candidate and fellow Willie, George W. Bush, agreed. "It is primarily U.S. exporters who will benefit," echoed the Cato Institute. It would be “a win-win result for both countries,” said Clinton, that could only "grow substantially with the new access to the Chinese market."

Alas, the tremendous US-China trade that ensued has, to date, resulted in the loss of 3.2 million American jobs, a US trade deficit with China of almost $500 billion (that grew from $100 billion in 2001), and, according to the New York Times (“Come On, China, Buy Our Stuff!”), American exporters are still waiting for the payoff. The main reason: currency manipulation by China's Central Bank makes American products more expensive to Chinese consumers. Furthermore, our trade deficit, which enables such manipulation, allows China to use its surplus of US dollars to purchase US Treasury bonds, which, in turn, enables the US government to plunge itself more deeply into debt (now at more than $18 trillion), with US taxpayers paying interest for the privilege.

Instead of wielding American economic power to establish a level playing field for US industry, President Clinton followed the wishes of Wall Street power.

American consumers have benefited, but foreign competitiveness has suffered. As a percentage of GDP, US manufacturing has shrunk from 14% in 2000 to about 11% today. According to a recent Economic Policy Institute study, of the 3.2 million jobs shed by our trade with China, 2.4 million were manufacturing jobs. Moreover, trade with low-wage countries such as China "has driven down wages for workers in U.S. manufacturing and reduced the wages and bargaining power of similar, non-college-educated workers [a pool of 100 million workers] throughout the economy."

Under Clinton's version of free trade, the outsourcing of American production, jobs, and technical expertise has flourished. To participate in such trade, observed Kuttner, many US manufacturing companies engage in

deals to shift their research, technology, and production offshore, sometimes in exchange for explicit subsidies for land, factories, research and development, and the implicit subsidy of low-wage and powerless workers and weak environmental or safety requirements. At other times, the terms of the deal are more stick than carrot: If you want to sell here, the companies are told, you must manufacture here. Or even worse, you can manufacture here but only for re-export to your own domestic market and not for local sale.

Describing Clinton’s legacy, the Huffington Post called him the "Outsourcer-in Chief," saying that

Manufacturers never emerged from the 2001 recession, which coincided with China's entry into the World Trade Organization. Between 2001 and 2009 the U.S. lost 42,400 factories and manufacturing employment dropped to 11.7 million, a loss of 32 percent of all manufacturing jobs.

But things are booming in China, which, thanks to US investment in the expansion and modernization of its manufacturing sector, has now surpassed the US as the world's leading exporter, and in our federal government, which now employs twice as many people as the entire American manufacturing industry — an industry to which Clinton could say, "The thing [WTO deal] came down right on my tongue!"

If Bill Clinton was the Outsourcer-in-Chief, then Barack Obama is the Regulator-in-Chief. With annual federal regulatory compliance costs now at an astounding $1.9 trillion, no one has done more to increase the cost, and decrease the desirability, of doing business in America than Mr. Obama. His regulatory obsession has exceeded that of George Bush, who, in eight years, increased regulatory costs by $318 billion. Obama has increased it by $708 billion, in only six years.

Unhindered by a timid Congress that has consigned its legislative powers to regulators, there's no telling how high Obama can drive regulatory costs during his final two years. But American manufacturing is doubly harassed by existing regulatory overreach, paying a staggering $20,000 per employee in annual compliance costs, compared with $10,000 for the average US firm. The cost is $35,000 per employee for small manufacturers (<50 employees), who, if they can't feel the cheese, can smell the pungent odor of our federal government.

The stagnation that began creeping into the economy under Bush is in full stride under Obama, with GDP growth averaging little more than 2% since he took office. Unconventional oil and gas production (i.e., fracking of oil and gas deposits, mostly on non-federal land) has been the only bright spot. Without fracking, even this tepid GDP growth would have been impossible. With fracking, says the Cato Institute, oil and gas prices have plummeted, increasing disposable income by $1,500 per household, 2.5 million jobs have been created, and a tax windfall of $100 billion has been garnered by government.

No one has done more to increase the cost, and decrease the desirability, of doing business in America than President Obama.

After almost seven years of stagnation, the US economy — with its shrinking middle class and its growing cohort of 55 million jobless working age adults, all desperate for a meaningful recovery from the recession of 2008 — has enthusiastically welcomed the fracking revolution. Mr. Obama's greeting has been less ardent. After almost seven years of tightening drilling regulations, his response has been to tighten fracking regulations, followed by more plans to tighten fracking regulations.

Existing regulations "are more than 30 years old, and they simply have not kept pace with the technical complexities of today’s hydraulic fracturing operations,” explained Interior Secretary Sally Jewell. Nor has the 40-year-old crude oil export ban, which is no longer needed, now that the US is flush with oil and gas. Free trade in US energy would help reduce our trade deficit, our national debt, and our dependence on foreign energy. Surging US oil production has been responsible for plummeting global oil prices, thereby improving our national security with respect to countries and terrorist organizations whose bellicosity depends exclusively on oil revenues. Additional production, therefore, would further enhance US security and would likely reduce the frequency with which thugs such as Vladimir Putin and Ayatollah Ali Khamenei embarrass our president.

Crudely Put,” an article that explains the folly of this archaic ban, alludes to Putin's crushing energy grip on Europe and the reason for America’s reluctance to export more energy. Last February, Vaclav Bartuska, the Czech Republic’s energy envoy, pleaded with "American policymakers to liberalise energy exports . . . to safeguard allies under pressure from Russia," and asked, "if freeing crude exports makes America richer, its allies stronger, its foes weaker and the world safer, what stands in the way?" Willie Obama's colossal green mousetrap, of course.

This from the man who promised shovel-ready jobs, then green jobs, and now brags about the low-income jobs created under his stifling reign.

Perhaps American manufacturers will have better luck with Mr. Obama's new free trade brainchild, the Trans-Pacific Partnership, which gives him "fast-track" authority to negotiate trade deals with Pacific Rim countries. Covering the legislation's East Room signing ceremony, Politico's Sarah Wheaton noted its bipartisan support, usually a good sign. But the more telling sign, Wheaton indicated, may have been discerned by the pianist in the Grand Foyer, who played "understated renditions of the theme to ‘Charlie and the Chocolate Factory’ and ‘Puff the Magic Dragon,’ songs depicting fantasy worlds undone by cynicism and lost innocence."

Reminiscent of Clinton's trade deal confidence, Mr. Obama stated that he was "absolutely convinced that these pieces of legislation are ultimately good for American workers." This from the man who promised shovel-ready jobs, then green jobs, and now brags about the low-income jobs created under his stifling reign — while middle-income manufacturing jobs languish.

Last November, Mr. Clinton conjectured, "NAFTA is still controversial but people will thank me for it in 20 years." He might as well have bit his lower lip and said, "after 40, 50 years, we  . . . we . . . we will feel the cheese." It will take much longer for American manufacturing to thank him for hustling China into the WTO. And who knows how long it will "ultimately" take for manufacturing workers to thank Obama for the trade deals that he hopes to negotiate — deals with trading partners who cannot be controlled by the $2 trillion regulatory mousetrap that punishes American manufacturers. It is a mousetrap with a spring force that Obama has increased by $708 billion. And, as the thing comes right down on his tongue, he orders costly new climate change regulations — to be paid for by US manufacturers, and ignored by their foreign competitors.

Federal trade and regulatory policy, not foreign competition and unions, is responsible for the decline of American manufacturing. Free trade, whose banner is routinely hoisted to adorn trade negotiations, exists only in the delusional minds of our hapless political leaders. Indeed, that American manufacturers must conform to inordinately higher standards (of trade, finance, health, safety, environment, etc.) than their foreign competitors is considered an achievement by the causality-challenged Obama. Green ideology, not economics or trade, is his forte. Officious regulation, not sound industrial policy, is his goal. As to the unfortunate accidents — chronic economic stagnation, declining household income, growing income inequality, immense pubic debt, enormous trade deficits, shrinking geopolitical power, and waning foreign competitiveness — that have befallen his presidency, he hates when that happens.




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All the Wrong Moves

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In his 2015 State of the Union address, President Obama asserted that his economic policies are working. "The economy is growing and creating jobs at the fastest pace since 1999," he declared. "The shadow of crisis has passed." Later, in March, a giddy Obama took credit for the recovery, saying that unemployment had fallen to 5.5% and that 60 consecutive months of job growth had created over 12 million jobs.

The crisis has not passed. Nor has its shadow, which, almost seven years after Mr. Obama promised jobs, GDP growth, and a middle class revival, grows darker and broader. Under his stewardship, the economy remains chronically stagnant, despite profligate stimulus spending by the federal government (that has run up the public debt from $10 trillion to more than $18 trillion) and the Federal Reserve (that has run up its balance sheet from $850 billion to more than $4.5 trillion).

The bold policies of Obama’s first term (the Wall Street bailout, the Stimulus, Obamacare, Dodd-Frank financial reform, the Green Economy initiative, etc.) — praised by many, and often considered to be urgently needed — failed to revive the economy, even though the recession was already winding down, officially ending in June 2009. Ironically, all these efforts have stifled the recovery, except for the so-called 1% — the wealthiest Americans, whom Obama frequently excoriates; their share of the national income increased from 18%, when he took office, to 22% today. For everyone else, income share has fallen. They are not part of the Obama Recovery; for them, the recession has not passed.

The crisis has not passed. Nor has its shadow, which, almost seven years after Mr. Obama promised jobs, GDP growth, and a middle class revival, grows darker and broader.

These economic castaways — who have experienced flat, if not diminishing, economic improvement for more than seven years — have not been fooled by the falling (from 7.8%) unemployment rate, so often celebrated as success by the Obama administration. This rate, which measures only unemployed workers who have sought employment in the previous month, provides an incomplete and misleading picture of the US labor force. While it has dropped, so too has the labor participation rate. Today, 93 million working age adults do not participate in the labor force (have no job or have given up looking). Thirteen million of them have dropped out during Obama's tenure. Some of these are retirees, but not as many as one might think. More and more, the elderly have been forced to postpone retirement or return to the labor force. Since January 2000, the participation rate for the elderly has soared by 50%; for elderly women, by 69%.

And the equally celebrated jobs numbers are no less incomplete and misleading. The net jobs gained since Obama took office are barely six million, not 12 million, and most of them are low wage, low skill jobs. The only contribution to middle-class employment under the Obama administration has been the addition of about two million jobs in healthcare, education, and social services (aka the HES Complex). But these HES jobs were not generated by the natural forces of capitalism. According to former Reagan budget director David Stockman, they are a result of "the $1.5 trillion being spent on medical entitlements and another $1 trillion each on tax-subsidized employer health plans and tax-supported education at all levels, including the massive student grant and loan programs."

The April 2015 Bureau of Labor Statistics (BLS) “Employment Situation Summary” posted 109.2 million jobs, excluding HES Complex jobs. The corresponding number for December 2007 was 109.1 million, an increase of 0.1 million jobs. That is, not counting the taxpayer subsidized HES jobs, 7.5 years of economic recovery has produced a net gain of 0.1 million jobs.

All these efforts have stifled the recovery, except for the so-called 1%; their share of the national income increased from 18%, when Obama took office, to 22% today.

Stanford economist John B. Taylor, attributes the slowness of the recovery to policies (monetary, fiscal, and regulatory) that, over the past 10 years, have become significantly "more discretionary, more interventionist, and less predictable." This policy shift no doubt contributed to the financial meltdown that caused the recession of 2008, but Obama's overbearing, anti-growth intrusion has stifled economic activity and made true recovery impossible. Normally, economic recovery proceeds rapidly, even from recessions associated with financial crises. As Taylor notes, the average annual growth rate from such recessions (we have had a total of eight in US recorded business cycle history) is 6%; for the Obama Recovery, it is barely 2%.

An annual capital injection of, say, a trillion dollars (for plant and equipment, research, new hires, etc.) should be more than enough to extricate a $17 trillion economy from its doldrums (indeed, doing so at a GDP growth rate of almost 6%). But American businessmen are paralyzed with fear about Obama's boneheaded, clumsy meddling. Although their profits have risen 35% during Obama's reign, investment in new plant and equipment has risen by a meager 2.6%, as corporations keep to themselves a $1.8 trillion cash hoard. Banks are sitting on $2 trillion, afraid to lend at artificially low interest rates. Another $2.1 trillion in the profits of multinational companies is stashed overseas to avoid taxes. It's not the economy, stupid. It's federal government policy.

Our own government, not unions and cheap foreign labor, is ruining the US manufacturing sector.

In addition to the confusing burden of fiscal and monetary policy, American business must contend with the crippling effects of regulatory policy. There is no greater middle class job killer than the stultifying morass of federal regulations that in recent years has grown with explosive speed. In his annual review of federal regulation (“Ten Thousand Commandments”), Wayne Crews of the Competitive Enterprise Institute calculates the annual regulatory compliance cost as $1.88 trillion, an amount that exceeds the combined total of corporate and individual income tax revenues. Such an astounding cost significantly reduces American competitiveness, innovation, and job creation, and punishes US households, who, in Crews’ estimation, are assessed "$14,976 annually on average in regulatory hidden tax."

Incapable of grasping the connection between excessive regulation and chronic stagnation, no one has done more with regulatory authority to destroy middle class jobs than Obama (“Regulator without Peer”). During its eight-year reign, the Bush administration increased the annual regulatory compliance cost by $318 billion. In only six years, the Obama administration has increased it by $708 billion. According to a recent study by the National Association of Manufacturers, the annual cost for the average US firm to comply with federal regulations is $9,991 per employee; for small companies, the engine of job growth during economic recovery periods, it is $11,724. Railing against the loss of middle class manufacturing jobs, Democrats blame companies that have outsourced to countries with cheap labor. Republicans blame labor unions. Yet the average US manufacturing firm must pay $19,564 per employee to comply with regulations; small manufacturing firms pay $34,671. Our own government, not unions and cheap foreign labor, is ruining the US manufacturing sector, and its unbridled fiscal, monetary, and regulatory "discretion" is destroying the middle class.

Unfortunately for the middle class, Mr. Obama's next move is to revive the middle class. According to the Washington Post, after six years of failure, "he's giving it one more try." His new plan is designed to reverse the decline of a beleaguered middle class that has been shrinking (in income, wages, savings, home ownership, stock ownership, pension ownership, and business ownership) since the day he took office. Its implementation once posed a "conundrum" for Obama, thinks the Post: "How to pitch policies aimed at a middle-class turnaround that his policies thus far have failed to deliver."

Such riddles are child's play for the clever Obama, who nimbly dubbed his new policies "Middle Class Economics" and, without taking the trouble even to define the concept, declared that "Middle-class economics works." He did, however, say what it is about: "lowering the taxes for working families by thousands of dollars, putting money back into their pockets so that they can have a little bit of cushion in their lives." Finally, the turnaround would be underway.

The 8.3 million jobs lost during the recession were mostly middle-class jobs. They have yet to return.

But a February Tax Policy Center report indicated otherwise. According to the New York Times, the Center’s analysis "found the president’s plan produced an average tax cut of just $12 for families in the middle quintile." The Obama Treasury Department shot back, insisting that "the average middle-income family would get a tax cut of about $150 under the president’s plan." No doubt this is intended to dispel any fear that the forgotten, shrinking middle class, which has lost thousands in annual income and tens of thousands in net worth over the last six years, will think it won’t get a big enough cushion.

American businessmen and entrepreneurs, intimidated and confused by fiscal and monetary policy, hoard trillions that could be injected into the American economy to create millions of good jobs. Oppressive regulations with dubious benefits continue piling up, diverting capital from, and stifling, industries such as manufacturing and energy — stalwarts of solid middle class occupations. Jobless working age adults also pile up, as fast as the federal government can borrow more money, or have it printed, creating a labor surplus that depresses the wages of those lucky enough to have a job. The 8.3 million jobs lost during the recession were mostly middle-class jobs. They have yet to return.

This is the Obama Recovery: a timid, sputtering burger-flipper economy, incapable of generating meaningful growth and high-paying jobs. The jobs that are being created are low-wage, low-skill jobs, appearing in monthly quantities large enough to fool Obama into thinking the crisis has passed. He flaunts this “growth” as evidence of a recovery, for which he then takes credit. To the low-wage cohort that is experiencing unprecedented growth under his policies, he offers an increase in the minimum wage. To the middle class, whose jobs are being replaced by the low wage jobs his policies generate, he offers a $150 tax break, calls it Middle Class economics, and pats himself on the back. He couldn’t even get the PR move right.




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On Dogs, Cats, and Carnal Knowledge

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Reading the Drudge Report just after the House of Representatives defeated a bill that would have given President Obama fast track authority (or “TPA,” for “trade-promotion authority”) to conclude free trade agreements, I remembered a line from the first Ghostbusters movie. The busters (Ray, Egon, Winston, and Peter) are explaining to the mayor that his city is headed for “a disaster of biblical proportions.” When the rather obtuse man asks what they mean by “biblical,” Ray says, “Real wrath of God type stuff.” Egon adds, “Forty years of darkness!” Winston chimes in with “the dead rising from the grave!” Whereupon the ever-arch Peter adds loudly, “Human sacrifice . . . dogs and cats living together . . . mass hysteria!”

What happened on June 12 was that a bill to grant Obama the same power (fast track authority) that almost every other president since World War II has been given went down to defeat in a procedural vote, primarily because Democratic members followed their leader Nancy Pelosi (D-CA) in opposing it. The maneuver was to join Republicans who oppose spending more money on work retraining programs — which are usually just boondoggles that don’t retrain anybody — in voting down a package deal that included the TPA and also increased retraining funds that had earlier passed the Senate.

Talk about a dog and a cat being intimate: arch-conservative Drudge lavishing affection upon arch-leftist Pelosi, the neosocialist harpy from Hell.

Fast track authority is the power Congress can (and almost always does) give any president to negotiate free trade agreements (FTAs) in confidence and without congressional meddling. If any FTA is concluded, it of course becomes law only if the Senate votes in favor of it. Naturally, the Senate can only vote the submitted FTA up or down — it cannot amend it, since amending it is renegotiating it, which the other side of the agreement would not accept. Without such power, you have 435 members of Congress playing president, making it impossible to get any treaty — free trade or otherwise — negotiated.

Despite Obama’s last-minute personal intervention, in which he tried to convince his own party members in the House to support his plan, or perhaps because of his intervention, the bill went down by a vote of 302–126. As one unnamed Democratic congressman put it, “She screwed this president.”

But a number of Republicans opposed the measure, too. Here we get to the dogs and cats getting it on together.

After the vote, Matt Drudge ran a large banner on his website. It screamed, “Brave Pelosi Says No!” Talk about a dog and a cat being intimate: arch-conservative Drudge lavishing affection upon arch-leftist Pelosi, the neosocialist harpy from Hell.

I won’t rehearse all the arguments about why free trade is economically beneficial. I have done so at length in these pages (“The Case for Free Trade,” Liberty, December 2010, pp. 33–41). And the case was made again, succinctly and well, in a recent piece by Larry Kudlow, Art Laffer, and Steve Moore. To economists, 90% of whom favor free trade, it is obvious that free trade is on balance economically good for countries engaging in it. Why is it that when 85% of climate scientists agree on anthropogenic global warming, it becomes “settled science,” but when 90% of economists agree that free trade increases wealth (the theory of comparative advantage), the matter is never considered settled?

The reason for Obama’s defeat is threefold.

First to be mentioned is the decline in free trade sentiment among Democrats. Coming out of the Great Depression and the devastating war it helped to spawn, Democrats agreed with Republicans that the protectionism associated with the Smoot-Hawley tariffs was and is economically counterproductive and geopolitically dangerous — for, as Frédéric Bastiat observed a century and a half ago, when goods cannot cross borders, soldiers will. That is why fast track authority has been given to all but one president since the end of the second world war.

While Obama is a piss-poor negotiator, any free trade agreement he negotiates will likely err on the side of suffocating regulations for both sides.

But the Democrat party has moved ever more toward the extreme left — progressive liberalism, as Solzhenitsyn observed, ever evolving into socialism — and fewer and fewer Democrats are willing to support free trade. Really, Bill Clinton was the last president to push for it, when he signed NAFTA into law. One of the most important of the core Democrat constituencies, Big Labor, loathes free trade. In this most recent vote, for example, when Pelosi and her myrmidons went against fast track for the president of their own party, Big Labor Daddy Richard Trumka (King of the AFL-CIO) praised her mightily, proclaiming that “she stood up against corporate interests.”

Second, despite the best efforts of House Speaker Boehner and Senate Majority Leader McConnell’s to give Obama fast track authority, a portion of the Republican Party opposed the measure. The biggest reason is their distrust of Obama. That’s why websites such as Breitbart.com and the Drudge Report were bashing the bill mightily.

Now, as any more-than-casual reader of these pages knows, I have been unwavering in my opposition to and contempt for the Obama Regime. To put this simply, I regard Obama as the worst president in modern history. (When I said this not long back, one reader chastised me for not characterizing Obama as the worst president in all history, but I confess that my weakness on the history of 19th-century presidents restrains me from agreeing.) President Obama will have done more to harm this country in both domestic and foreign policy than any other modern president, and if we are lucky enough to elect a decent Republican president in 2016, he or she will have to spend most of a first administration reversing the damage.

But as the old saw has it, even a broken clock is right twice a day. More to the point, while Obama is a piss-poor negotiator, in fact really pathetic at it, any FTA he negotiates will likely err on the side of trying to saddle the other side with what he favors for our side too: suffocating regulations. While that is economically deleterious, I doubt that it will result in a net disadvantage to us. Moreover, any final agreement he negotiates must still be approved by Congress, so any grossly unequal deal — say, one that increases Japan’s access to our markets but protects its agricultural industry — can quite easily be voted down, forcing him back to the table.

A good leader has to be a good teacher, too, and explain the ways in which certain ideas are true and certain other ideas are false.

The third, and in my view the most important, reason for Obama’s loss is Obama himself. Let’s put aside the personality issue, which is that Obama is a patently arrogant, distant, snarky, intellectually mediocre narcissist who doesn’t work or play well with anyone except complete stooges. This doesn’t help him, but it isn’t the biggest problem about his free trade initiative. That problem is his history.

Obama has never gone on a tour, selling the need for a trade agreement with Asia and answering the obvious populist arguments against free trade. In this, ironically, he is like George Bush — who, while he negotiated and signed into law more FTAs than any other president, didn’t explain them, argue their importance, or refute the economically ignorant but passionately tribal populist objections to them. Obama doesn’t explain, you see; he merely shows contempt for differing opinions and expects everyone just to see his colossal greatness.

Worse, his history is one of buying the same populist claptrap arguments against free trade that he is being met with now. He bashed Hillary because her hubby signed NAFTA, which, he claimed (parroting the Trumka types), cost jobs; though this was obviously false, as must have been manifest even to an intellectual lightweight such as himself. When in office, he quickly started trade wars against both Mexico and Canada, wars that ceased only when those neighbors fought back and kicked his ass. He stalled the three FTAs left over from the Bush era, only signing them late into his second term, in the face of the worst economic recovery in American history. Now this guy — out of the blue — advocates free trade?

The average American, like the average person anywhere else on this planet, basically has his scientific and moral views set by history. The physics that the average person believes, for example, holds that objects are completely solid, and that they fall at different speeds; that space is completely empty and infinite in all directions, and that it has but three dimensions. Tradition doesn’t make such ideas true. The economics that the average person believes maintains that while labor deserves to be compensated, the lending of money doesn’t; that it is better if all people do all things for themselves, rather than dividing up the tasks among many people, possibly people in different countries; that saving rather than spending hurts jobs, but protecting home industries promotes jobs; and many other things. Tradition doesn’t make these notions true, either.

In short, a good leader has to be a good teacher, too, and explain the ways in which certain ideas are true and certain other ideas are false. But Obama can’t teach anyone about fallacious ideas. Indeed, he often simply accepts them himself — unless he was just lying (something he does with amazing frequency and ease) when he campaigned against Hillary. Either way, he’s not able to teach the public why hunter-gatherer myths are wrong.

Maybe the Republicans can save him from the anti-free-trade crowd, but it is unclear that they can. If not, the biggest loser will be the American public. But I believe in the precept that people get the government they deserve.

em




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Vanishing Volk

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As readers of this journal may recall, I have argued that immigration has historically been a great net benefit to this country, and continues to be. Two recent articles give me occasion to reflect upon this topic anew.

The first is a piece from the Telegraph of London. It reports that Germany’s birth rate has now dropped to the lowest level in the world, and its workforce will shrink even faster than Japan’s in a few years. Germany’s rate averaged 8.2 births per 1,000 population (or about 1.38 births per woman on average) over the years 2008 to 2013, even lower than that of demographically depressing Japan (with its 8.4 births per 1,000, or an average of 1.41 children per woman) over the same period.

At this rate, Germany’s population will drop from its present 81 million down to 67 million in 45 years. This decline is in spite of the large influx of migrant (i.e., temporary) workers. The prospect of such a heavy drop in population — nearly 20% — has led some small towns in Brandenburg, Pomerania and Saxony to begin formulating plans for eventual closure.

Germany and Japan are likely to drop almost 20% in per capita GDP by 2060, compared to about 10% in Britain and the US.

The report notes that Britain and France are both doing better demographically. Both countries averaged 12.5 births per 1,000 population (or an average 2.01 children per woman), again over the same period. (The US has dropped to an average of 1.88 children per woman, which is below replacement rate. We continue to grow in population only because of our relatively welcoming immigration policy.)

In the crucial working age group (20–65), the percentage of Germany’s population will drop from the current 61% down to 54% by 2030. At that point, there will be only 1.1 workers per retiree, which will likely make the pension system insolvent.

The economic and geopolitical impact of such shrinkages will be profound, to say the least.

Economically, from the young come the gales of creative destruction that cause economic progress. As the author of the piece out it, “While aging societies can enjoy a rise in per capita income for a while, they tend to do so by living off past productivity and intellectual capital. This reserve is exhausted over time. It becomes progressively harder for older countries to remain at the technology frontier.” From the young come also the gales of new purchases — of homes, for growing families, of cars, of diapers, of the newest electronic devices…

This shows up in GDP per capita. Germany (and Japan) are likely to drop almost 20% by 2060, compared to about 10% in Britain and the US. In fact, the IMF calculates that both Britain and France will overtake Germany in total GDP by 2040.

Geopolitically, this means that Germany and Japan will lose their regional dominance.

The cause of all this is compound, that is, has more than one contributory factor. The first factor is one common to all developed nations, including ours: a baby boom followed by a baby bust. After WWII, Canada, Japan, the US, and Western Europe all saw rapid explosions in population, as soldiers returned and started families. But the “baby boomers” had lower rates of childbirth, and their children have lower rates of childbirth. Birth-dearth squared, so to say.

As I mentioned earlier, all developed nations are facing this demographic challenge. But there is a second factor at play, one that I will call “Volkische communitarianism,” folkish communitarianism. This term refers to statist politico-economics wedded to ethnic or racial tribalism. This, I would suggest, is the real problem Germany and Japan face, one that does not afflict — at least to the same degree — Britain, France, Canada, or the US. The fact that Germany and Japan identify national identity in terms of ethnicity, shared blood, rather than shared culture and norms means that while Britain, France, Canada and the US have been able to assimilate immigrants more or less successfully (the Muslims in France and Britain rather more slowly than our immigrants), the Germans and Japanese find that very hard. Their immigrants (and Germany has a fair number of them — 800,000 migrants came in last year) have historically tended to remain apart from the rest of the community.

But another report suggests that German Chancellor Angela Merkel is trying to change the national mentality. In a recent talk at a conference on Germany’s current quality of life, she urged her fellow Germans to welcome the diversity of the new migrants, saying Germany is a “country of immigration.” She added, “There is something enriching if someone wants to come to us.” She added that these recent migrants need to feel at home.

At that point, there will be only 1.1 workers per retiree, which will likely make the pension system insolvent.

She is wrestling with some real problems. Past waves of migrant workers — such as the Turkish workers who came years ago — have faced difficulty in getting citizenship. Whether she will succeed in persuading her fellow citizens remains to be seen, of course. The anti-immigrant party Alternative für Deutschland party has been growing lately, as the number of immigrants has grown.

But one has to admire her attempt to deal with the issues, especially given Germany’s not too distant past of tribalist politics.




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Discovering the New American Dream

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Much has been written recently about the death of the American Dream. The collapse of the real estate market in 2008, followed by a worrisome three-year recession, a struggling job market, and the rising cost of college tuition have caused many to wonder: is the American Dream still alive? Can it be restored? Should it be laid to rest?

James Truslow Adams coined the phrase in 1931 when he wrote,

The American Dream is that dream of a land in which life should be better and richer and fuller for everyone. . . . It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position. (The Epic of America)

For over a century the American Dream was characterized as having a house in the suburbs with a white picket fence, two cars in the garage, 2.5 children in the house, a faithful dog in the yard — and a chicken in every pot. The twin equalizers of democracy and laissez faire promised social mobility, financial security, judicial equality, and prosperity through hard work. Next door to that house in the suburbs lived the Joneses, and keeping up with them was part of the dream too. Bolstering the dream was “an underlying belief that hard work pays off and that the next generation will have a better life than the previous generation” (Ari Shapiro, NPR).

Today’s dreamer, however, keeps the dog on the bed, not in the yard, and children are likely to be delayed into the mid-30s, if they come at all. Bicycles stand next to the hybrid or electric car in the garage, and the house is controlled remotely by smart phones. The chicken in that pot must be free-range, antibiotic-free, and served with locally grown vegetables.

The average student leaves college saddled with more than $30,000 in student loans. Debt is a prison they dream of escaping.

Unlike the Joneses next door, the new dreamers are less materialistic and more likely to be getting rid of stuff than accumulating it. Bigger is no longer considered better, and tiny houses are the latest fad. The new dreamers eschew self-interest and care about connectedness and global awareness. Buzzwords like “sustainability,” “social responsibility,” and “green” drive their dream. They want to live in downtown urban areas and prefer apartments or multi-family dwellings where they can share amenities and reduce their carbon footprint. Ellen Dunham-Jones, a professor of architecture and urban design at Georgia Tech, says, “this generation is more interested in the amenities of the city itself: great public spaces, walkability, diverse people and activities with which they can participate.”

But even this smaller, more earth-friendly dream seems remote to many. The new dreamer no longer believes that hard work: necessarily pays off and worries that, for the first time in our history, the next generation will not be better off than its parents. In fact, according to columnist Adam Levin, being debt-free is a key factor in the new American Dream. According to his study, only 18.2% of Americans today see homeownership as part of the American dream, while 27.9% cite having enough money to retire at 65 as their goal and 23% of young people today simply dream of being debt-free. This is not surprising, when the average student leaves college saddled with more than $30,000 in student loans. Debt is a prison they dream of escaping.

Contrary to media pundits and government analysts who push the idea that consumer spending drives the economy; any move toward saving and fiscal responsibility is good for the economy, and thus good for the American Dream. In fact, the Bureau of Economic Analysis recently acknowledged the distortion of focusing so much on consumer spending and recently began issuing GO (gross output) statistics that include the production sectors of the economy.

Meanwhile, welfare and unemployment are dragging down the American dream. Not only is welfare expensive in terms of how much transfer payments cost, but also in how much is lost from the lack of productivity from those who aren’t working and contributing to the economy. The Personal Responsibility and Work Opportunity Act of 1996 made progress toward ending lifelong welfare, but today, 35.4% of Americans are living on welfare of some sort, according to the Census Bureau. This nightmare has to be changed if the dream is to stay alive.

Throughout the 20th century, home ownership was encouraged as a way to stabilize and improve communities, because people who own their homes are more likely to stay put, take care of their property, get involved in local politics, and remain employed. Millennials, however, avoid home ownership for those very reasons. They don’t want to “stay put” but value spontaneity, mobility, and the freedom to accept unexpected opportunities without having to worry about selling a house. Home ownership has, in fact, been declining since 2004. In a survey conducted last year, only 61% said they would buy a house if they had to move (New York Times, Feb. 8, 2015). In the words of Thoreau, “our houses are such unwieldy property that we are often imprisoned rather than housed in them” (Walden).

Today’s dreamer keeps the dog on the bed, not in the yard, and children are likely to be delayed into the mid-30s, if they come at all.

Don’t make the mistake of assuming that today’s generation is lazy, however. Most work hard, but they work, or want to work, at doing things they love. Many are turning from corporate America to entrepreneurial America and rely more on developing a horizontal social network than on climbing a vertical corporate ladder. And, while it is fashionable to hate capitalism, many are capitalists by default, creating businesses and often working from home. The new American sells advertising to support blogspots and engages in crowd-funding campaigns to raise capital for projects.

In short, the New American Dream is more about finding happiness and sustaining the planet than about achieving financial prosperity — although we are happy to accept prosperity if it finds its way to our door. Personal satisfaction is more important than keeping up with the Joneses, and making time for oneself — to work out at the gym, go to a concert, read a book, post a blog, or create a work of art — is more important than putting in overtime at the office.

Is the American Dream alive? It is, but it’s changed. And it isn’t just for Americans ant more. What’s your dream? And how are you making it come true?




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Their Gamble, Our Win

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A recent news piece in the Wall Street Journal caught my attention. Entitled “Germany’s Expensive Energy Gamble,” it reports on that country’s new grand energy plan, the “Energiewende” (“Energy Revolution”). This is now at the top of Chancellor Angela Merkel’s domestic agenda.

Under this plan, Germany will spend a projected trillion euros — and we all know how government projections tend greatly to understate final costs — laying out a massive new network of high-tension lines to carry power from wind plants in the North Sea to the country’s heavily industrialized southern region. Merkel’s government is gambling that this titanic investment will pay off with cheap, inexhaustible energy.

So far, the dream of renewables replacing fossil fuels and nuclear power has delivered only nightmarish results.

While the EU has a set of rules requiring its member states to achieve a goal of 35% of their electricity from so-called renewables by 2025, Germany has set its goal to hit 40–45% by then and to exceed 80% by 2050. Again, this is without using nuclear power.

If achieving this does cost the German economy a trillion euros (about $1.4 trillion), that would equal about half the country’s annual GDP.

So far, the dream of renewables replacing fossil fuels and nuclear power has delivered only nightmarish results. Despite Germany’s history of no major problems with nuclear power, Merkel virtually shut down the nation’s nuclear industry after the Fukushima disaster. Today, only nine nukes remain open, and they are due to be shut down in about seven years.

The result is that over the past five years, electricity prices in Germany have skyrocketed 60%, because the subsidies for the highly inefficient wind farms are passed on to the consumer. German electricity is now over twice as expensive as America’s.

Even riskier for the German economy is the strain this is placing on the manufacturing sector, one of its key components.

As Kurt Bock, CEO of BASF — the world’s biggest chemical company and one of Germany’s biggest companies of any kind — put it, “German industry is going to gradually lose its competitiveness if this [energy revolution] isn’t reversed soon.

BASF, by the way, has every right to be frightened by Merkel’s energy scheme. The company’s main plant employs 50,000 people in Germany, and consumes as much power as all of Denmark. And Bock is not alone in his concerns. A recent survey by the Federation of German Industry and PricewaterhouseCoopers showed that three-fourths of executives at small- and medium-sized industries feel that the rising energy costs threaten German productivity. A survey by the US Chamber of Commerce showed that a similar percentage of American company executives with operations in Germany felt that the Energiewende made Germany less attractive as a place to do business.

While the unfavorable opinions of the manufacturers, either German-based or with German operations, should worry the German government, even more worrisome are the attendant industry actions.

BASF has announced plans to cut investment in Germany by 8.3% of its world total, shifting it elsewhere. SGL Carbon, another German manufacturer, has decided to triple its $100 million investment in its Washington state plant rather than expand its domestic operations, for the reason that electricity costs only one-third as much in Washington state as it does in Germany. And basi Schöberl GmbH will turn to France rather than Germany as the site of its new plant. (France, note well, has kept its nuclear power plants at full strength.)

As Daniel Yergin has put it, the Germans enthusiastically embraced so-called renewable power, viewing themselves as trailblazers, “But now the Germans look back and see there aren’t many people behind them.”

Meanwhile, as another WSJ piece documents, our own energy revolution continues to flourish — even in the face of an administration downright hostile to it — because ours is based on fossil fuels.

The article notes that while naysayers wrote off our fracking revolution under the theory that shale wells don’t produce for long and must be replaced with ever more wells, the fracking revolution enters its tenth year in fine shape. Shale wells have become far more productive.

For example, in 2013 the most fecund shale well produced, at its peak, 5.9 million cubic feet of natural gas per day. But last year — a mere decade later — the best shale well delivered an amazing 30.3 million cubic feet a day — a fivefold increase! And fracking oil wells have seen similar productivity increases over the last decade.

We have a grotesquely obtuse president, so we will no doubt squander this opportunity to get our manufacturing base to the heights it could reach.

In fact, the focus of the American oil and natural gas industry — which has become the world’s largest energy producer — is now on finding ways to get more from existing wells, as opposed to looking for new shale fields. So while the number of wells has remained roughly constant, the production has jumped.

All this has kept American natural gas prices at historic lows.

This would suggest to a shrewd president — if we only had one! — a national strategy for renewing our industrial sector.

The strategy would be to embrace the American energy renaissance. Take back the regulatory agencies, as well as the Department of the Interior, from the environmentalist activists. Return to issuing leases to develop resources, both offshore and on land, leases dramatically curtailed by the Obama administration. Return to selling public lands — the federal government still owns 28% of the 2.27 billion acres that comprise our national territory. And allow our oil and gas to be exported freely. At the same time, reinvigorate our nuclear energy power industry.

In other words, aim explicitly at allowing the market to drive our energy prices, both the price of fuel and the price of electricity. This would create a cornucopia of benefits.

It would add a massive number of new jobs, first in the energy sector, then, as that wealth spread, in every other sector as well. It would drive down the amount of money that vicious dictators such as Putin and terrorists such as ISIS use to maim and murder free people around the world. That would lessen the probability that young Americans will die to protect our interests.

But we have a grotesquely obtuse president, so we will no doubt squander this opportunity to get our manufacturing base to the heights it could reach.

Elections have consequences — alas! But people get the government they deserve.




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Green Jobs

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The Internet is awash with websites promoting green jobs. Unlike regular jobs, green jobs are socially and environmentally responsible. And they are more rewarding and fulfilling. They give the green-collar worker a sense of belonging to something greater than himself. As a candidate in 2008, Barack Obama promised five million high paying green jobs. To green advocates, these jobs have helped implement the green recovery from the "Great Recession." Many tens of millions more will be created to build a new Green Economy that will bring social justice, environmental harmony, and sustainable prosperity to America.

As the Green Economy emerges, our entire infrastructure must be modernized, to bring our systems of agriculture, transportation, manufacturing, education, housing, and so forth into a mellifluous alignment with nature. According to Bright Green Talent, one of numerous companies established to help the green collar crowd, "we have to change everything — the way we live, the way we work, the way we eat, the way we travel, the way we make things." For those eager to begin green careers, it's "a wonderful time to get a green job or become a green entrepreneur." There's no time like the present to prepare for challenges ahead, such as "species extinction, deforestation, sea pollution, desertification, topsoil reduction, and freshwater depletion." And what could be more rewarding and fulfilling than a pat on the back from humanity for staving off "ecological collapse, major conflict, famine, drought, and economic depression"?

Under the new BLS definition, many coal miners, loggers, bus drivers, iron workers, bike-repair shop clerks, and used-record store employees have green jobs.

But back in the real world, there is a problem. Despite a few years of rapid growth in wind-and solar-generated electricity, there is no demand for green jobs. The ambitious, profligate schemes to create a green economy have gone awry. Sustainability is stagnation, even in the green world.

In his 2012 reelection bid, President Obama boasted about his record of creating 2.7 million green jobs, with many more on the way — ostensibly the result of his $90 billion clean-energy stimulus. In reality, it was the result of the Bureau of Labor Statistics (BLS) redefining a green job as any employment with an environmental benefit. Under the new BLS definition, many coal miners, loggers, bus drivers, iron workers, bike-repair shop clerks, and used-record store employees have green jobs.

Based on direct-employment data, however, only 140,000 actual green jobs existed when Mr. Obama was touting 2.7 million. This paltry number included the 910 direct jobs in the solar and wind energy industries that were created by the stimulus program (at a cost to taxpayers of $9.8 million per job). But it also included green jobs that existed before Obama took office. That is, even 140,000 was a gross overstatement. In examining the president's shamelessly deceptive claims, Reason magazine discovered both the paucity and the vapidity of green jobs, and provided a more accurate characterization of our emerging Green Economy:

Surprisingly, the top sector for clean jobs was not installing sleek new solar panels or manufacturing electric cars, but “waste management and treatment” (386,000 jobs). In other words, trash collectors. Rounding out the rest of the top four were “mass public transit” (350,000 jobs), conservation (315,000), and “regulation and compliance,” i.e., government employees (141,000). Should the 21st Century economy really depend on hiring more trash collectors, bus drivers, and bureaucrats?

The growth in legitimate green jobs was embarrassingly grim, even in industries such as solar and wind that had experienced significant growth in installation capacity. According to the Wall Street Journal, in 2012, after two years of a "ninefold increase in solar power . . . solar employment had increased just 28%." In 2008, the wind industry employed about 85,000; by 2012, it employed about 81,000 — a decline of almost 5%.

Today, millions of Americans would be thrilled to land a job producing planet-healers such as solar panels, windmills, or batteries. Unfortunately, most of those jobs have moved to places such as China, where the cost of labor for producing the products is $1.74 per hour — compared to $35.53 per hour for American manufacturers. Thanks to green economists, who didn't think that an enormous labor cost differential would matter, American taxpayers blew $90 billion to create a green manufacturing boom in China, and now pay subsidies to homeowners and businesses to buy China's green products — green sustainability to the geniuses in Washington DC.

True, the present glut of cheap foreign solar panels has benefited many American consumers, as have the generous tax-funded subsidies. And, in recent years, solar panel installation jobs have increased by 20% annually. These jobs, however, pay on average less than $38,000 a year — compared with $52,400 a year, the average pay for manufacturing jobs. On the bright side, installers can think of the $14,400 difference as psychic income, derived from their being socially and environmentally responsible.

Thanks to green economists, who didn't think that an enormous labor cost differential would matter, American taxpayers blew $90 billion to create a green manufacturing boom in China.

Central planners have pushed the green revolution to new heights of crony capitalism — and irony. America's subsidized solar-panel manufacturing industry is unhappy with China's subsidized solar-panel manufacturing industry. Consequently, the US division of solar-panel maker SolarWorld AG, a German-owned firm, is lobbying Congress for protection. But America's subsidized installation industry is happy with cheap Chinese solar panels. In this skirmish, notes a recent Slate article, “The World’s Dumbest Trade War: "one side is wearing an American flag over a German flag, and the other has an American flag draped over a Chinese flag."

Immense subsidies to bring us together in a cause greater than ourselves have, instead, brought the world’s top economic powers to "the brink of a trade war that could cripple a promising industry in both countries, kill jobs, and hurt the environment all at once. It’s a terrible trade-policy trifecta." So much for environmental harmony.

And where's the environmental harmony for our birds and tortoises? Birds crashing into solar panels (or plummeting to their deaths after having their wings "reduced to a web of charred spines" by solar mirrors) are not good for the green image. Nor are dead desert tortoises, whose habitat has been disrupted by tediously sprawling solar farms. And gangly wind farms are worse, swatting more than a half million birds to death annually, including the iconic bald eagle.

After almost six years of throwing billions of taxpayer money at anything green, the excitement is over. Large-scale renewable energy has slowed to a feeble crawl, if not a morbid decline. Of the 365 federal applications for solar facilities since 2009, only twenty are on track to be built; only three large-scale plants are operational. Solar companies are going broke, and projects are being cancelled. Solar energy remains uncompetitive and, for all of the hoopla, contributes less than one half of 1% to the nation's power supply. Declining subsidies (the current 30% investment tax credit, for example, will drop to 10% in 2016) and increasing environmental costs (consider, for instance, the BrightSource Energy solar farm in California's Ivanpah Valley, which has already spent over $56 million relocating tortoises) are driving investors away. The wholesale blade-kill slaughter of birds has jeopardized the wind energy industry's annual subsidy ($12 billion in 2013).

Some green job promoters may be thinking, "Well, at least things can't get any worse." If so, they are wrong. The lawsuits are starting. There's nothing like a lawsuit to increase project costs, scare off financial backers, and kill green jobs. Recently, the Justice Department (taking time from its hectic fossil fuel lawsuit schedule) brought charges against a Wyoming wind farm that had been killing golden eagles, and won. The victory was small (a puny $1 million fine) but ominous. On its heels, the American Bird Conservancy announced plans to sue the Interior Department over eagle-kill permits that authorize windmill companies to "kill and harm bald and golden eagles for up to 30 years without penalty." This is bad news for green job seekers, and for bird hunters, who could apparently get a 30-year permit instead of an annual license. Bird hunter to Fish and Wildlife clerk: "Yeah, I'll have one of those eagle-kill permits, you know, for my windmill."

Five years of "sustainability" have brought stagnation, even to the green economy.

The EPA has spent over $50 million on 237 green job training programs. Of the 12,800 people trained, 9,100 obtained green jobs — at a cost to taxpayers of $5,500 per job. The Department of Energy has spent $26 billion on green energy loan programs that created 2,308 permanent jobs — at a cost to taxpayers of $11.25 million per job. Evidently, none of the employees works on the 20 million acres of federal land that the Obama administration has made available to renewable developers. Last October, in the first auction of this land for solar development, not a single bid was made. However, some of them may work on the millions of acres that Obama has denied to fossil fuel developers, where they search for reasons to suppress fracking. Yet fracking (on private lands) has created 360,000 jobs, at a cost to taxpayers of $0 per job, while reducing America's energy costs by $100 billion and carbon emissions by 300 million tons.

By 2012, fewer than 140,000 (of the five million promised) green jobs had been created, and these at an enormous cost to taxpayers. The number of legitimate new green jobs available today is anyone's guess. But green job seekers might want to dust off their brown resumes. A search at Bright Green Talent returned 14 green jobs — in the entire country. Damn that “talent” requirement! A similar search at Great Green Careers was more promising, returning 196 openings. But only four of them were full-time positions — in the entire country. Perhaps the other 192 companies were using the 29.5 hour work week Obamacare work-around.

Today, five years after the Great Recession, the general economy continues to stagnate. Economic growth has been stifled by feckless healthcare, energy, and financial reform policies. Despite incessant claims of job growth, jobs have been lost. The labor participation rate (the percent of the working-age population that is working) — the most accurate, and the only unambiguous, measure of employment — has dropped from 66 to 63% during the so-called recovery. And, despite equally incessant claims that we need more of them, there is no demand for green jobs. Five years of "sustainability" have brought stagnation, even to the green economy: shrinking profits, decreasing subsidies, project delays and cancellations, lawsuits, an imminent trade war, and widespread tortoise and bird carnage.

Nevertheless, earlier this month, at a California Walmart, President Obama proclaimed, "We’re going to support training programs at community colleges across the country that will help 50,000 workers earn the skills that solar companies are looking for right now.” That would be bird carcass removers and tortoise herders.




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