Tag: Barack Obama

GE and Obama: A Betrothal at the Altar of Industrial Policy

The angry Left has been calling for President Obama to fire Jeffrey Immelt from his position as head of the President’s Council on Jobs and Competitiveness. I think that would be a good idea, but for different reasons.

Sen. Russ Feingold, Moveon.Org, and the regular scribes at the Huffington Post see Immelt, the chairman and CEO of General Electric, as unfit to advise the president because GE invests some of its resources abroad and, despite worldwide profits of $14.2 billion, paid no taxes in 2010. No illegalities are alleged, mind you; GE — like every other U.S. multinational — responds to incentives, including those resulting from tax policy and regulations concocted in Washington. 

But there are more substantive reasons for why Immelt is unfit to advise the president.  In particular, GE is a major player in several industries that President Obama has been promoting as part of his administration’s cocksure embrace of industrial policy. With over $100 billion in direct subsidies and tax credits already devoted to “green technology,” President Obama is convinced that America’s economic future depends on the ability of U.S. firms to compete and succeed in the solar panel, wind harnessing, battery, and other energy storage technologies. Concerning those industries, the president said: “Countries like China are moving even faster… I’m not going to settle for a situation where the United States comes in second place or third place or fourth place in what will be the most important economic engine of the future.”

Well, just yesterday GE announced plans to open the largest solar panel production facility in the United States, which nicely complements its role as the largest U.S. producer of wind turbines (and one of the largest in the world). The 2011 Economic Report of the President describes the taxpayer largesse devoted to subsidizing these green industries:

[T]he Recovery Act directed over $90 billion in public investment and tax incentives to increasing renewable energy sources such as wind and solar power, weatherizing homes, and boosting R&D for new technologies. Looking forward, the President has proposed a Federal Clean Energy Standard to double the share of electricity produced by clean sources to 80 percent by 2035, a substantial commitment to cleaner transportation infrastructure, and has increased investments in energy efficiency and clean energy R&D.

And Box 6.2 on page 129 of the 2011 ERP conveniently breaks out those subsidies by specific industry, most of which are spaces in which GE competes.

Tim Carney gave his impressions of this budding relationship between GE and the Obama administration in the DC Examiner last July:

First, there’s the policy overlap: Obama wants cap-and-trade, GE wants cap-and-trade. Obama subsidizes embryonic stem-cell research, GE launches an embryonic stem-cell business. Obama calls for rail subsidies, GE hires Linda Daschle [wife of former South Dakota Senator and Obama confidante Tom Dachle] as a rail lobbyist. Obama gives a speeeh, GE employee Chris Matthews feels a thrill up his leg. I could go on.

And Carney does go on in a December 2009 Examiner piece:

Look at any major Obama policy initiative — healthcare reform, climate-change regulation, embryonic stem-cell research, infrastructure stimulus, electrical transmission smart-grids — and you’ll find GE has set up shop, angling for a way to pocket government handouts, gain business through mandates, or profit from government regulation.

One month after President Obama proposed subsidizing high-speed rail because, in his words, ”everybody stands to benefit,” the head of GE’s Transportation division proclaimed, “GE has the know-how and the manufacturing base to develop the next generation of high-speed passenger locomotives. We are ready to partner with the federal government and Amtrak to make high-speed rail a reality.”

About the optics of these related events, Carney writes: “This was typical — an Obama policy pronouncement in close conjunction with a GE business initiative. It happens across all sectors of the economy and in all corners of GE’s sprawling enterprise.” And he goes on to list other examples.

Jeff Immelt should step down as head of the President’s Council on Jobs and Competitiveness because there is simply no avoiding a conflict of interest.  Even if he recommends courses of action to the president that don’t advance GE’s bottom line, it’s hard to see how that wouldn’t be an abrogation of his fiduciary responsibility to GE’s shareholders.

But more troubling is that Immelt and the president appear to be two peas in a pod when it comes to faith in government-directed industrial policy.  Immelt admires the German model of industrial policy because the Germans believe in “government and business working as a pack.”  He admires China’s “incredible unanimity of purpose from top to bottom.”  And days after Obama’s inauguration, Immelt wrote to shareholders:

[W]e are going through more than a cycle. The global economy, and capitalism, will be “reset” in several important ways. The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.

Citizens of a country that owes so much of its unmatched economic success to innovation and entrepreneurship and an absence of heavy-handed top-down mandates should be wary of the changes the presdient and Mr. Immelt are fostering.

Finally, a Breakthrough on the Colombia Trade Agreement

To no great surprise, the Obama administration announced today that it has cut a deal with the government of Colombia to address concerns about labor protections and to finally move toward enacting the long-stalled free-trade agreement between our two countries. This is welcome news for trade expansion and for strengthening our ties to a key Latin American ally.

Colombian President Juan Manuel Santos is expected to arrive later this week in Washington to cement the deal. In exchange for the agreement, Colombia has reportedly agreed to expand its efforts to protect union members from violence and to more vigorously prosecute those responsible.

As my Cato colleague Juan Carlos Hidalgo and I documented in a Cato study earlier this year, concerns about labor protections were never a valid reason for holding up this agreement. The overall murder rate in Colombia has declined dramatically in the past decade, and the murder rate against members of labor unions has declined even more rapidly. A union member in Colombia today is one-sixth as likely to be a victim of homicide as a fellow citizen who does not belong to a union. Meanwhile, the Colombia government has increased convictions for homicides against union members by eight-fold in the past three years.

As Democratic Senators John Kerry and Max Baucus pointed out in an op-ed this week that endorsed the agreement, the International Labor Organization has certified that Colombia is complying with its international labor agreements.

The obstacle of labor violence was just a political smokescreen that had been raised by labor-union leaders in the United States looking for any shred of an argument to oppose the agreement. Even the agreement announced this week is not going to win over the AFL-CIO. The Colombia government could have raised a hundred murdered union members from the dead, and organized labor in American would still chant that not enough was being done.

The breakthrough this week clears the path for Congress to approve, by what I predict will be comfortable bipartisan majorities, the pending trade agreements with Colombia, Panama, and South Korea.

The Trouble with Doctrines

Many presidential foreign policy doctrines ago, George Kennan figured out what was wrong with them. In my latest post for The Skeptics, I rely on his insight to try to stop pundits from inventing an Obama Doctrine.

The national effort to discern an Obama Doctrine from our attack on Libya is likely to be futile. If it succeeds, it will be harmful. No one can make foreign policy without some theory or strategy. But as Kennan’s lament about the Truman Doctrine points out, doctrines tend to be post-hoc rationales of actions that confuse policy later. If taken seriously, they typically encourage foolish wars.

Kennan attributed the American desire for doctrines to our love of law and rules. I see it more as a product of divided power, which heightens the need for sales. Doctrines have a pseudo-scientific air that helps legitimate policy. They endow the messy process of presidential decision-making with false order. They over-generalize.

The rest of the post briefly applies this formula to all our presidential doctrines, from Monroe to Bush. With the exception of Nixon’s, almost all arose to justify military action and thus tend to encourage war. While I can imagine doctrines, like Weinberger-Powell, that might marginally help keep us out of trouble, even that substitutes a formula for careful consideration of action based on theory.

So I propose the Kennan Doctrine, which says don’t have a doctrine.

Energy Error Continued

When Barack Obama emerged as a serious contender for the presidency, he offered a core menu of curing everything by increased federal intervention in health care, education, and energy. Whenever new problems arose that lessened the urgency of earlier concerns, Obama has crafted assertions that his original prescriptions will also resolve the new difficulties. In energy, this has involved extending his program to new, even more dubious projects. He also has a habit of incessantly repeating the same tired arguments in the vain hope that his skill at persuasion will win the day.

His March 30, 2011 energy speech and accompanying Blueprint are typical. About the only differences between these and his June 15, 2010 speech on energy were more bad ideas. He added to the panic-driven slowdown in offshore oil and gas drilling permits, now rationalized as a prudent response; a post-Japan crisis review of nuclear power; and another for new methods of producing natural gas. For no good reason, he argued that Brazilian oil development needed U.S. government support despite the long history that successful oil development in some of the most backward countries in the world has occurred without major U.S. government aid. (In fact, the aid offered was an Export-Import Bank loan and thus more an exercise in crony capitalism than a useful move.)

Otherwise Obama continued to display the central characteristic of his philosophy — that he and his advisers possess such superior insight that they can guide the average American to better decisions. This is precisely the Progressive error that has led to the present political mess and the cause of the dramatic 2010 shift in the composition of the U.S. House of Representatives. Whenever concerns arise that he has overreached, he claims that he was doing the sensible thing.

His Blueprint constitutes Exhibit A in the case against this interventionism. It is essentially a list of the many mandates that Obama has achieved or desires, ranging from high-speed rail to micromanaging the design of every new building in the United States. This list is dominated by the many provisions of the infamous stimulus bill that indiscriminately threw money at every favored area including energy. Obama seems to believe that seeing where the money went will counteract the outrage at ill-conceived, unnecessary, and counterproductive spending. At least to energy specialists, what actually appears is resounding proof that the voters were right — every idea is bad.

The speech also showcased Obama’s talent at making dubious assertions. Many have commented that he does not deserve the credit that he seems to claim for the rise in U.S. oil output. The very long lead times, which Democrats traditionally use to oppose expanded oil-and-gas leasing, imply that the rise was facilitated by actions in prior administrations. An even greater whopper was his intimation that the existence of many undeveloped leases suggests that no rush exists to lease and license more. The more obvious criticism is that his cumbersome licensing policy contributes to the inability to develop. Less apparent is the likelihood that many of those leases proved, after further examination, to be unattractive while more promising areas are being withheld from leasing.

He similarly selected the most misleading possible way to understate U.S. oil-production potential. He indicated correctly that the United States has only 2 percent of world “proved” reserves of oil. What he ignored is that proved reserves cover only already-known sources and wild methodological differences among countries in how this is calculated make cross-country comparisons dubious. (This situation was worsened by 1970s hysteria. The highly efficient existing U.S. system was replaced because it was run by the supposedly untrustworthy industry. The government created its own far more expensive and far less satisfactory system.) The more reliable measure of actual production shows an 8.5 percent U.S. share in 2009. Neither measure satisfactorily indicates what really matters — the potential efficiently to add production. Obama thus adds to his prior unjustifiable aim to reduce petroleum use by also misstating the petroleum potential. Substantial oil imports remain desirable for the U.S. because of the underlying economics. Nevertheless, the federal government has imposed undesirable restrictions on oil and gas production.

Friday Links

  • They passed the bill, and now we’re finding out what’s in it.
  • We’re finding out that the war in Libya could really be about protecting European interests.
  • In Atlas Shrugged, Ayn Rand described a world in which government both partly produced and partly subsidized goods; we’re finding out she wasn’t far off the mark.
  • We’re finding out that “American exceptionalism” is a cloak for military adventurism.
  • The longer America fights a war on drugs, the more we find out about how detrimental it is to our fiscal outlook:


What’s Wrong with Imported Oil?

In a speech today at Georgetown University, President Obama called for a goal of cutting America’s oil imports by one-third within a decade. Like all efforts to wean Americans from big, bad imports, such a policy will mean we will all pay more than we need to for the energy that helps to power our economy.

I’ll leave it to my able Cato colleagues to dissect the president’s proposal in terms of energy policy, but in terms of trade policy, this is about as bad as it gets.

We Americans benefit tremendously from our relatively free trade in petroleum products. Like all forms of trade, the importation of oil produced abroad allows us to acquire it at a price far lower than we would pay if we had to rely more heavily on domestic oil supplies.

The money we save buying oil more cheaply on global markets allows our whole economy to operate more efficiently. Oil is the ultimate upstream input that virtually all U.S. producers use to make their final products, either in the product itself or for shipping. If U.S. manufacturers and other sectors are forced to pay sharply higher prices for petroleum products because of import restrictions, their final goods will cost more and will be less competitive in global markets. If households are forced to pay more for gasoline and heating oil, consumer will have less to spend on domestic goods and services.

The president talked in the speech about the goal of not being “dependent” on foreign suppliers, but most of our oil imports come from countries that are either friendly or at least not in any way an adversary. According to the U.S. Department of Commerce, one third of our oil imports in 2010 came from our two closest neighbors and NAFTA partners, Canada and Mexico. Another third came from the problematic providers in the Arab Middle East and Venezuela (none from Iran, less than one-third of 1 percent from Libya.) The rest came from places such as Nigeria, Angola, Colombia, Brazil, Russia, Ecuador and Great Britain.

Even if, by the force of government, we could reduce our imports by a third, there is no reason to expect that the reduction would be concentrated in the problematic providers. In fact, oil is generally cheaper to extract in the Middle East, so a blanket reduction would probably tilt our imports away from our friends and toward our real and potential adversaries.

In one speech, the president has managed to state a policy goal that is bad trade policy, bad security policy, and bad foreign policy.

Obama’s Little Evidence Problem

Last month I wrote a post on President Obama’s selective citation of evidence when debating which education programs to kill and which to keep. Well yesterday the administration struck again, issuing the following statement opposing a bill that would revive DC’s bleeding-out voucher program:

STATEMENT OF ADMINISTRATION POLICY

H.R. 471 – Scholarships for Opportunity and Results Act

(Rep. Boehner, R-Ohio, and 50 cosponsors)

While the Administration appreciates that H.R. 471 would provide Federal support for improving public schools in the District of Columbia (D.C.), including expanding and improving high-quality D.C. public charter schools, the Administration opposes the creation or expansion of private school voucher programs that are authorized by this bill.  The Federal Government should focus its attention and available resources on improving the quality of public schools for all students.  Private school vouchers are not an effective way to improve student achievement. The Administration strongly opposes expanding the D.C. Opportunity Scholarship Program and opening it to new students. Rigorous evaluation over several years demonstrates that the D.C. program has not yielded improved student achievement by its scholarship recipients compared to other students in D.C.  While the President’s FY 2012 Budget requests funding to improve D.C. public schools and expand high-quality public charter schools, the Administration opposes targeting resources to help a small number of individuals attend private schools rather than creating access to great public schools for every child.

So, as I wrote last month, while the Prez. has no problem calling for heaps of dollars for such proven failures as the 21st Century Community Learning Centers – $1.27 billion, to be exact – he won’t support $20 million for something that rigorous research actually works, quoting Andrew Coulson’s recent congressional testimony:

that students attending private schools thanks to this program have equal or better academic performance than their peers in the local public schools, and have significantly higher graduation rates. This, and very high levels of parental satisfaction, com[ing] at an average per pupil cost of around $7,000. By contrast, per pupil spending on k-12 public education in the nation’s capital was roughly $28,000 during the 2008-09 school year.

And such positive results, again in contrast to the President’s statement, are not an aberration for school choice. The highest-calibre research on choice has almost always found clear benefits stemming from it, and has never found negative outcomes.

Obviously I can’t read the President’s mind – he might oppose the voucher program but otherwise love big education spending for philosophical reasons, or he might just be appeasing teachers’ unions – but one thing I do know is that a fair examination of the evidence simply cannot support killing DC vouchers while spending lavishly everywhere else.