American Elephants


President Obama Has Got Himself in a Bit of a Mess. by The Elephant's Child

President Obama is convinced that the rest of the world will wait around while he dithers and delays, but the world no longer finds him as important as he thinks he is. The question is still the Keystone XL pipeline decision that he wanted to put off until after the election. He is trapped between his union supporters — a who’s-who of Big Labor — and Big Green, highly paid liberal activists and their lawyers running groups like the Sierra Club and the Natural Resources Defense Council.

TransCanada has provided a detailed job breakdown for the pipeline and said it will create 13,000 union construction jobs, and 7,000 jobs for Americans in manufacturing — in response to critics from Big Green.  It is estimated that there are up to 250,000 jobs over the life of the pipeline. It is odd to see Big Labor and the Chamber of Commerce agreeing on anything, but both want the pipeline and its jobs. These are high-paying jobs. With as many as 14 million unemployed Americans, approving the pipeline should be a no-brainier. Putting thousands back to work would have a ripple effect throughout the economy.

Environmental objections are accompanied, as usual, with demands for a different route and threats of lawsuits not to mention campaign funding. They deny the job numbers, but pipeline people point out that they aren’t pipeline engineers and do not know what they’re talking about.  The route was approved by every appropriate agency, but TransCanada is willing to change the route. This is a major battle. The presidents’ intransigence in the light of so much unemployment is difficult to understand.

In the meantime, China is Canada’s second-largest trading partner, behind only the United States, and a key customer for Canadian natural resources and agricultural products. State-owned Chinese oil and gas companies have already invested billions of dollars in Alberta’s oilsands.  China’s appetite for energy is insatiable.  Refineries in Washington state and on the Canadian coast can also be reached by pipeline.

Canadian Prime Minister Stephen Harper announced this week that he is heading to China next month for his second official visit, as his government looks to boost bilateral trade and ship more energy products to the Asian powerhouse.  China has plenty of money to spend on buying up energy supplies and we all know where they get it.  Mr. Harper is plotting a pipeline route to the West Coast. He has indicated that he’s annoyed with Mr. Obama’s dithering.

Obama is slated to made a decision by February 21, a provision Republicans inserted in the law. So the decision looms. The president is caught between his reelection campaign, his Big Labor supporters — who provide not only campaign funding, but front-line door-to-door get out the vote workers; and Big Green — many big organizations with lots of money —the aforementioned Sierra Club, NRDC, Greenpeace, Tides Foundation and many more.  Add in TransCanada, China, Canada and Prime Minister Stephen Harper.

Can the president maneuver between all these rocks and shoals? Will he avoid making a decision? Will it be too late for American jobs? Will he irrevocably anger the participants? This would make a good soap opera. And it’s all his own damn fault.  Tune in tomorrow for the dramatic story of …

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President Obama Just Can’t Figure Out How to Create Jobs. by The Elephant's Child

Most of us are familiar with the idea that it’s small business that creates the jobs, but not too sure just what is meant. We’re all familiar with the financial terms “bull” and “bear” to indicate growing markets or declining markets, but another metaphor economists like to use is the term “gazelle”— referring to a small business that in known for being lean, swift, and fast-growing.

Gazelles are usually defined as young startup companies that are growing  by about 20% a year, meaning they are more than doubling their revenues over a four-year period. During good economic periods gazelles account for a surprising amount of job growth in America.  The Economist recently noted that from 1980 to 2005, firms less than five years old created 40 million new jobs, and represented almost 100% of private-sector job growth during that period. Big business remained about the same size while the gazelles hired. But that has changed. According to Investors:

As the Economist reveals, companies with a valuation of less than $50 million have gone from comprising 80% of IPOs in the 1990s to just 20% today. The federal government’s own IPO Task Force October report noted the average cost of achieving initial regulatory compliance is $2.5 million, followed by an ongoing average annual compliance cost of $1.5 million. That’s serious coin. (emphasis added)

Now couple these dismal statistics with the fact that 90% of the jobs in newly public gazelles are created after the IPO, and you get a lot fewer jobs.

A startling statistic for a country now in its fourth year of high unemployment and low job creation.
Small companies have three ways to get the capital they need to grow.  First, they can launch themselves on the stock market through an initial public offering (IPO). Second, they can pursue conventional funding from a commercial bank.  Or they can seek private equity from investors or venture capitalists.

Our federal government has chosen to make all of these three avenues to needed capital very difficult. After the Enron and WorldCom scandals Congress rushed to pass a bill that laid out very strict regulations for keeping  company’s financial records—Sarbanes-Oxley. Big business figured that the costs wouldn’t be too big a deal and would eliminate some of their hard-charging small competitors. Which it did.

And after the financial crisis, Congress enacted Dodd-Frank to regulate the big banks that were “too big to fail.” That bill did nothing at all about businesses too big to fail, but made life very difficult for the Main Street banks that tend to lend to small business. A recent Pepperdine University poll 61% of bankers said they had not made a loan they wanted to make because of fear of the feds and new regulation. The tax code has been pretty  harsh on deducting private investment losses, so much private investment in gazelles has dried-up.

President Obama brought to his weekly address on Saturday a padlock, a pair of boots, a candle and a pair of socks.  He wanted to make a big deal of products “Made in America.” “These products are part of a hopeful trend” he said. “they’re bringing back jobs from overseas.  You’ve heard of outsourcing — well this is insourcing.” That would indicate that all of those products were made overseas, and the manufacturer has shut down their overseas operations. So the president is proposing to reward companies that bring their overseas businesses back and raise taxes on those who outsource. This is either an indication that the president has no clue about international trade, or that he thinks the American people don’t and will welcome punishment for those who outsource. Take your pick.

The president also wants to unite all the departments that deal with business and trade, but he has no plans to actually shrink them, except by attrition over time as people retire.  On the other hand, there are many federal agencies that have job-training programs,with all sorts of duplication among them. The president has steadfastly refused to eliminate the duplication, so the claim that he wants to streamline and reform the Executive Branch is probably more directed at his campaign than at any serious reform effort. In the meantime, though, he is creating a new website —BusinessUSA — that “will serve as a one-stop shop with information for businesses small and large that want to start selling their stuff around the world.”

Maybe the federal government has all sorts of good information for companies wanting to sell their products overseas, but I would be vastly surprised if that is the case. I don’t expect this effort to create many  jobs either.

President Obama simply does not accept the idea that regulation has anything to do with business’ failure to hire. And that is a very big problem.



The Richest One Percent in the World by The Elephant's Child

                                                                                 (click to enlarge)

If you made as much as $34,000 last year, you are now part of the world’s richest 1%.

World Bank economist Branko Milanovic puts it all in perspective:

The true global middle class, falls far short of owning a home, having a car in a driveway, saving for retirement and sending their kids to college. In fact, people at the world’s true middle — as defined by median income — live on just $1,225 a year. (And, yes, Milanovic’s numbers are adjusted to account for different costs of living across the globe.)

In the grand scheme of things, even the poorest 5% of Americans are better off financially than two thirds of the entire world.

Each one of those little human figures represents one million people. Just something to think about.

(h/t: Neatorama)




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