Thursday, September 15, 2011

Obama and Jobs: The Song Remains the Same

Last night I decided that instead of relying on what other pundits had to say about Obama's new jobs proposal I would read it myself, and boy did that suck (for those who have never actually read a bill and the horribly drawn out double speak involved you can check this one out here). The pundits are for the most part correct, there are 199 pages of the same old stuff. Nothing innovative, nothing new: rebuild schools and roads, keep teachers and police on the job, tax the evil rich and their corporate jets (seriously it is in there) and do it all green, union and American made. The last one is what got me initially thinking and bouncing around the internet today.
The bill, like everything the Federal government does, has "Buy American" provisions when it comes to the steel and the products to be used on projects. Now, it gets a little murky, the difference between "Buy America" in this and the previous stimulus bill and the everyday “Buy America" provisions of FHWA contracts, but the gist is essentially that if you are using Federal money then all the steel used on construction projects must come wholly from the U.S., soup to nuts, and there are only three exceptions (under "Buy American"): 1. applying subsection (a) would be inconsistent with the public interest; 2. iron, steel, and the relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or 3. inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent. The last one is pretty consistent with most Federal programs, and that really started to get me thinking. The logic seems sound, if you are spending taxpayer money, on American projects, then it should be spent on American products and jobs. But 25%? You really write that into law? How often does anyone think that bids from American steel companies come in at adding 25% to the overall project? And that is the important part here, the overall project. You are not saying the foreign steel has to be 25% cheaper to get a waiver, you are saying that the use of American steel over foreign would have to add 25% to the overall project cost. By that metric on many types of projects American steel can be three or four times more expensive than foreign and not meet that threshold, for steel might only account for 20 or 30% of an overall project. More importantly, and this is the bigger one, how often do they come in at say only 4% overage on the project? You have written into law this 25% provision that gives the American steel industry not only a competitive edge, but at the same time stifles any possible market pressures on the industry. They do not need to get better, or leaner or become more productive companies, so long as they can keep within this 25% buffer. While it is true that the American Steel industry faces many challenges we need to examine this effect in total. The American taxpayer, by the defined terms of these laws, must pay as much as they possibly can for any Federally funded construction project, so long as they don’t exceed a 25% overall project cost differential. Is this truly the best use of the money? If the percentage was lower or applied to the cost of the steel, isn’t it possible that those market pressures could induce the American steel industry to become more competitive? Would there be a loss of jobs and folding of outfits? Yes, you can’t get around that in the global economy, but in examining these laws we should be asking “long term” questions. With this 25% buffer there is an automatic incentive not to maximize labor or costs, but only do what is necessary to fall into this artificial bracket. This makes for an industry that becomes dependent on this buffer and reticent to do what is necessary to compete not only at home but globally. Protecting jobs is a nice notion, but it has very large consequences. Having some benchmark notion of how many individuals should be working in an industry and an accompanying government policy to ensure this outcome prevents firms from consolidating or automating to become more competitive. In all industries and endeavors technology and competition will eventually cost people jobs in said industry, government intervention in this regard only keeps people working longer in an essentially meaningless job, not adding a dollar value for their labor. When competitive pressures eventually outweigh government intervention you then see whole industries collapse because they have not been incrementally improving their operation, and the excess employment and lack of up-to-date technology and processes is far too much to overcome. Wouldn’t it be better to have the best possible steel industry market forces can provide, able to meet future challenges, or a bloated government supported industry that will eventually collapse under its own weight?
The other part of the jobs bill of course is the political dynamic of the whole affair. The President is traveling around the country trying to sell this bill. It is now becoming the center piece of his administration, and working into next years electioneering. According to this story the White House is over the moon with the prospect of the fight over this jobs bill, and they seem not to even care if it passes. If it passes they believe that jobs will come roaring back, unemployment will fall and the people will happily re-elect Obama after his brilliant management of the crisis. If the bill does not pass then the President can use that loss as his magic bullet to defeat all Republican comers, saying that “they” don’t believe in America and they want to see people suffer to serve their super-rich masters. It sets up a nice strategy to be sure: pass my bill because it is the only possible plan or stand against America. It is also fraught with problems. The administration somehow sees this as putting Republicans over a barrel, and they believe they can short-circuit debate over the efficacy or utility of these programs. The Republican response should be easy and straight forward though, pass the bill. All the Republicans need to do is take the entire bill, just as written and change two things to completely flip around the debate. Pass the bill without the Davis-Bacon prevailing wage section and change the Buy American provision to 25% of the cost of the item, not the overall project. Every dollar stays the same (what’s another $400 Billion between friends), all the projects and policies (but please leave out the ridiculous discriminating against the unemployed provision, so I suppose three tweaks), and even put the tax increase triggers in there, because you would see everything around this bill grind to a halt in the Senate and administration. After initially saying the whole bill had to pass “as is” the administration has changed it’s tone and said it would take it in pieces if it created jobs. Here the Republicans could give him the whole bill, with these two (three) tweaks and really throw a wrench in everybody’s plans. Removing/changing these two things would send the Democrats and their pundits into an apoplectic fit, but the Republican response should just be “jobs”. Say to all those who complain “do we want jobs for all Americans suffering in this economy, or jobs only for union members?” The administration has said it would not throw away a chance to employ a million people over their wish to employ 2 million, so respond by saying removing “prevailing wage” has the potential to employ even more people. Force the White House to stand by their Keynesian principles, make them defend why the maximum number of people who could be employed shouldn’t be employed. The response will be boilerplate, the need to create “good” jobs, which by definition for them is only union jobs, but for the vast majority of people who were not in a union before this crisis it should obviously ring hollow. Paint the administration as not being concerned about jobs and the economy, but only their donors and base. Simple fix to a complex problem. If the economy rebounds (which it really wouldn’t) everybody can take credit. If the bill dies the Republicans can claim they tried and the administration killed the bill to please their rent-seekers. And when the dust settles maybe they can all try and come up with a real plan, trying things that might actually work, and everyone can stop playing for the election. That of course is the least likely outcome, but it is nice to dream.


  1. Since we're dreaming here... I wonder what would happen if we simply appointed the most middle of the road kind of Guy with a great deal of common sense. Would that person have to pander to an extreme left/right base or just move forward with a plan that would benefit most US citizens and get our country to stop squabbling over the little things that are holding us back?

  2. While we're at it, could they just reduce the amount of reporting required for these projects? Again, they've created a system that requires ten approvals just to buy a pencil - talk about meaningless jobs that add nothing towards getting the job done!