A 21st Century Economic Strategy for America

President Obama's Weekly Address- June 25, 2011

Speaking from Carnegie Mellon University, President Obama discusses the vital role advanced manufacturing will have in strengthening our economy and creating good, middle-class jobs:

Globalization- Weekly Roundup, June 21, 2011

The G20 Summit for Agricultural Ministers is meeting in Paris today.  Luckily, on the East coast of the U.S. we are six hours behind Paris so there is already plenty of news.  Below are some highlights and key issues:

  • FOOD SECURITY.  The main reason for this meeting is to discuss ways to combat volatile food prices and rising levels of hunger.  According to recent U.N. statistics:
    • "...although the world would need to produce 70 per cent more food by 2050 to feed its population, agricultural production was expected to slow to 1.7 per cent a year in the decade to 2020."
  • The continued debate over using farmland for biofuels or crops; is it exacerbating rising food prices and thereby world hunger?  Or is it a necessary component of combating global warming that will actually stimulate food production by boosting agricultural investment?  This blog by Caroline Henshaw for the Wall Street Journal details the arguments on both sides.

 Some U.S. Industries on the 3FTAs:

The three free trade agreements with South Korea, Panama and Colombia are being vigorously opposed by the United Steelworkers.  Their letter to Congress can be found here.  Their position is:

"These three FTA’s will undermine our economic recovery, further decimate American manufacturing and jobs and deepen the economic insecurity and devastation faced by workers across the country."

On the other hand, major dairy groups support the measures.  The CEO of the National Corn Growers Association, Mr. Rick Tolman also spoke out in support of the FTAs, saying:

"Developing new markets for our country’s agricultural products will help our sector lead the nation in economic growth and international competitiveness.”

On globalization and health:

  • Yanzhong Huang recently published an article for the Council on Foreign Relations on the globalization of food safety issues, especially as it relates to China.  Continuing on the theme, the FDA fears that spending cuts will threaten its ability to ensure food safety.

Globalization, human rights, and business:

  • Ulrike Mast-Kirschning with Deutsche Welle interviewed John Ruggie, professor of international affairs at Harvard Law School and the UN secretary general’s special representative for business and human rights on his "guiding principles" for protecting human rights in a globalized economy, which the UN Human Rights Council recently endorsed.  The interview can be found here and the full text of Ruggie's guiding principles here.

According to Edward Glaeser's Bloomberg article, even in today's globalized internet age spatial proximity still matters, as evidenced by many companies moving back to the big cities despite all their electronic innovations that allow them to do so much remotely.  Glaeser's article explains why.

And finally, even baseball, long considered to be America's pastime is becoming more globalized as well.

Globalization- Weekly Roundup, June 15, 2011

The latest on "the rise of the rest": curbing inflation in India and China, the effort to keep IMF leadership in European hands, business ventures courting Latin American online audiences and Indonesia's globalization vision

There have recently been troublesome indications in some of the world's fastest-growing economies: rising inflation coupled with slowing growth in India and the central bank in China raising the reserve ratio for the 6th time this year to counter its own inflation problems...if there are two stories about it in the New York Times on the same day (the links to which are embedded above) it's probably worth keeping an eye on.

A new development in the race to suceed Dominique Strauss-Kahn as managing director of the IMF has further exemplified the European countries' willingness to try every tool at their disposal to keep management out of the hands of non-Europeans.  With the Bank of Israel governor and India's candidate now both removed from the running and the Mexican candidate as a self-described "long-shot candidate" behind the French favorite, it is likely that their efforts will be successful.

Portada, a leading source for Hispanic marketing and advertising news and resources, published an interesting analysis article on whether it makes sense to invest in ventures targeting global Latin American audiences. (Hint: their short answer is yes.)  For example, the rationale behind many companies' decisions to invest in such firms:

“the Hispanic and Latin American audience online has gotten to critical mass and continues to grow rapidly. It has substantial buying power but is underserved..."- Greg Sands, Managing Director of Sutter Hill Ventures, 2006


...Spain’s Grupo Prisa’s Paul Westhorpe, Managing Director Global Digital Sales & Strategy, assert[ed] that by 2015 Prisa expects 70% of its digital revenues to come from the U.S Hispanic market and Latin America.

The Jakarta Globe wrote a very blunt article on Monday on why the globalization genie can't be put back in the bottle.  Below is the President of Indonesia's statement on how countries should be responding:

...the solution is for business leaders to work with government to  drive growth through innovation and push for greater economic openness.

He also expresses a need for Asian governments not to revert to short-term thinking and protectionist policies.

On modernizing policies to keep up with globalization: women's empowerment, ending protectionism, skill-building and worker protection programs

Arnab Chakraborty with India Blooms reports on U.S. Consul General Elizabeth A. Payne's belief that efforts towards women's empowerment are imperative to keep up with globalization and the challenges it brings.  Below is an excerpt from the article on the main areas of women's empowerment that she believes must be focused on:

...three prime areas demanding immediate attention as they are necessary requisites for empowering women in all spheres of society, namely – education, economic self-sufficiency and political voice.

Continuing the fight against protectionism: a new statement from India's Minister of Labour and Employment on why labor standards are no excuse for enacting protectionist trade policies (as well as India's plans for instituting programs on skill building and protection for workers)


REPORT: 70 percent of arms seized, traced in Mexico came from US

According to a recent ATF report 70 percent of guns seized in Mexico and submitted to a Bureau of Alcohol, Tobacco and Fire Arms gun tracking program came from the United States.

The Washington Post has the full story here:

Of the 29,284 firearms recovered by authorities in Mexico in 2009 and 2010, 20,504 came from the United States, according to figures provided to the senators by the Bureau of Alcohol, Tobacco, Firearms and Explosives.

Further breaking out the numbers:

  • Most of those weapons — 15,131 — were U.S. made, while another 5,373 were of foreign manufacture but had moved through the United States into Mexico.
  • The ATF said the remainder of the weapons total — 8,780 arms — were of “undetermined origin due to insufficient information provided.”
  • The figure of the number of guns arriving in Mexico from north of the border has been polemical ever since a June 2009 U.S. report covering earlier years said that 87 percent of guns seized in Mexico came from the United States.

Mexican President Felipe Calderon an outspoken critic of American guns in Mexico called for a reinstatement of the assault weapons ban:

“I accuse the U.S. weapons industry of (responsibility for) the deaths of thousands of people that are occurring in Mexico,” Calderon said. “It is for profit, for the profits that it makes for the weapons industry.”

Calderon endorsed calls for reinstating the ban on domestic sales of assault rifles, saying its expiration in 2004 may have played a roll in the increase of drug violence in Mexico.

The 2012 Election Implications of Mandatory National E-Verify And Florida

Questions of whether E-Verify, an immigration employment verification system, should be made mandatory have been getting a lot of coverage both nationally and in local papers. Local papers in Florida, a key battle ground state, in particular have been following the situation closely.

Florida has been at the center of a recent fight over mandatory E-Verify in the local legislature, which it sould be noted did not pass.  Congressional Republicans have announced that this week they will hold a hearing to discuss national mandatory E-Verify.

Marco Restrepo of the Florida Independent has been writing about E-Verify from a local Florida perspective, and has written an article detailing the politics of the legislation:

On Wednesday, a U.S. House subcommittee will discuss a bill filed by chair Lamar Smith, R-Texas, that would require the use of E-Verify, the federal program that verifies if a worker is authorized to work in the U.S. The House Subcommittee on Immigration and Policy Enforcement will address Smith’s “Legal Workforce Act,” which would amend the Immigration and Nationality Act to make the use of E-verify mandatory and permanent.

The article also does a great job of highlighting some of the problems inherent in the system:

Tyler Moran, policy director for the National Immigration Law Center, said: that if mandatory E-verify is implemented without broader immigration reform it will force some workers into the cash economy outside of our tax system, ship agricultural jobs overseas and force between 3 and 4 million American workers to stand in a government line to correct their records or lose their jobs, and that 770, 000 people will likely lose their jobs because of government database errors in E-Verify.

Craig J. Regelbrugge, vice president for government relations and research at the American Nursery & Landscape Association said: that mandatory E-Verify without broader solutions would have the largest impact on the agriculture and seasonal employment sectors of the economy, resulting in economic dislocation, production declines, fewer jobs and more imports.

Given Florida businesses utter rejection of E-Verify, it will be interesting to see how the politics of this play out in the coming eleciton cycle.

While TX Gov. Rick Perry Talks About Tougher Business Immigration Enforcement But Does Nothing President Obama Acts

Texas Governor Rick Perry has been an outspoken critic of President Obama's immigration strategy yet when it comes to truly cracking down on businesses who hire undocumented immigrants, the President is actually doing far more.

Rick Casey of the Houston Chronicle does an excellent job of contrasting what Governor Perry Says with what he actually does:

In his state of the state speech in February, Gov. Rick Perry declared, "We must establish criminal penalties for employers who knowingly hire workers who are here in violation of immigration law." Tough words, but said with a wink and a nod. The nod was to the virulent anti-immigrant sentiments of much of Perry's constituency, but the wink was to his business backers. Perry's only immigration legislative push was for a weak "anti-sanctuary city" bill that he declared an "emergency" despite the fact that he wouldn't identify any actual sanctuary cities in the state.

This strategy of talking tough but doing very little on immigration enforcement is endemic of most Anti-Immigrant Governors. Lets be clear, the federal government enforcing immigration laws is a good thing. The federal government enforcing immigration laws in a smart manner is even better. It is true that these laws need to be reformed, but the rule of law still must be enforced.

Having said all of that, the contrast between the Presidents words and his actions on the issue of employer verification laws are a little more in line:

Meanwhile, the Obama administration is stepping up criminal prosecution of employers. According to a New York Times story Sunday, whereas the Bush administration threw workers in prison and let the employers off light, the Obama administration is doing just the opposite. The politics are fairly obvious. A Republican administration, backed by big business, busted the illegal workers. The current Democratic administration, backed by unions, is busting employers. But there is a policy issue as well.

Now this paragraph above is interesting, as it conflates the Obama Administration as being in cahoots with the Labor Unions on enforcing immigration audits on businesses. When ICE Audits a work place, it creates complications for workers and employers alike.  Unions are not happy about the increased audits. Not because they dont want the law to be enforced but rather because the process is burdensome for businesess and Union's alike.

While there are challenges, the current Administration is not backing down from enforcing the law:

In Tucson, the owners of a chain of Mexican restaurants and their accountants were charged with felonies in April after raids of 14 restaurants in Arizona and California. Each could theoretically receive more than 80 years in prison, although sentencing guidelines will be for less. Of 42 illegal workers swept up, one was charged with an unrelated crime, 13 detained or deported for civil immigration violations and the rest remained as witnesses or as possibly eligible to gain legal status, reported the Times. The owners were charged with keeping two sets of books and cheating workers out of overtime pay and the government out of taxes on more than $400,000 in wages.Last year 119 employers were convicted of crimes, including a Dallas ex-FBI agent.

To these eyes this looks a lot more substantive then what Governor Perry is doing in his state. Which is actually not hard, when he isnt doing anything but blowing hot air.

Private Capital, Meet the Next Economy

Last week the NBER announced the recession ended in June, 2009.  The good news is we have been in a recovery for 15 months though we may not always have felt it.  The bad news is not only that the jobs have been slow to return but that policy makers have used an unprecedented amount of powder.  On the monetary side, the fed cut rates to zero and also added to its formerly pristine balance sheet over a trillion of distressed securities.  On the fiscal front, the US deficit as a percent of GDP, at 10%, is far above what most economists consider sustainable.  Over time we need to return to historic norms but withdrawing stimulus too quickly could trigger another recession.  If only there was another source of capital to drive the recovery forward!  Fortunately there is: trillions of private capital sitting on the sidelines.  If we can coax it out of hiding, not only can we support the current economy but we can begin to build the next one.

Fifteen months into the current recovery one of its most notable features is how much it resembles the old one.   The two pillars of the Bush economy, banking and housing (with some help from the government) are still at the core of our economy and policy focus  Social networking has emerged as a new growth avenue for the Internet but technology stalwarts like Microsoft and Google have watched their growth slow.  Despite much talk about a clean economic revolution by me, President Obama and many others, clean jobs have been slow to materialize and regulated utilities and traditional energy companies still dominate the energy landscape.  While we have seen glimpses here and there of the next economy in IPOs from Tesla Motors and A123 Batteries, their products have yet to go mainstream.  In short, we are waiting for the Next Economy.

This endurance of the old and tardiness of the new is noteworthy given the depth and breadth of the Great Recession.  The 1982 recession dramatically deindustrialized the US economy, leveling steel companies and manufacturers alike, but paved the way for the services heavy, technology driven economy that took its place.  The 2001-2002 recession leveled a huge swath of the telecom and dot com sectors but paved the way for healthy growth once the industry consolidated.  Reforms of the banking system combined with financial engineering paved the way for the housing boom of the 2000s even if that boom proved unsustainable.  Yet the far deeper 2008-2009 recession while triggering numerous foreclusures and some closure of banks has not yet ushered in a successor.

Enter private capital.  For the next economy to really take shape, we need not government but private capital and companies to begin investing.  Private companies and investors have the money.  The top three banks are currently sitting on a half trillion in unused cash according to banking analyst Richard X. Bove.  And the Fortune 500, having survived the recesssion in most cases (in contrast to earlier recessions) are sitting pretty with non cash firms holding about one trillion in cash in their treasuries.  Institutional investors have even greater sums stashed in cash that they could be using to buy corporate bonds or equities to fund investment in new plant and equipment. And trillions more in money lie offshore where it could be tempted by the right economic opportunities in the United States.  This combined powder is much greater than anything Congress or even the Fed could deploy.  The question is, what is holding it back?

A number of things:

First, tight banking supervision.  Banks, Bove explains, are currently constrained by regulators and stringent standards from making loans.  The recent downturn took its toll on credit scores, length of employment, assets and other credit indicators.  Supervisors and banks must agree on a middle ground that is tighter than in 2007 but realistic given today's different economic reality.

Second, excessive energy regulation.  The major sectors and regions to boom over the last half century have unifomrly been those that benefited from thoughtful liberalization.  Liberalization can be carried too far as it was in banking in the last decade.  However, the examples of Eastern Europe, China, Japan, Latin America as well as sectors in the west from banking in the 1980s in Lond to telecom in the 1990s in the United States are conclusive.  The highly regulated electricity sector is a bar to innovation today and only by creating a modern 21st century architecture can we usher in a clean economy (the focus of NDN's Electricity 2.0 initiative.)

Third, legal uncertainty.  The Obama Administration needs to commit itself to stable regulatory policies.  The extralegal nature of measures taking during the crisis for example, necessary as they may have been, are a long term deterrent to investment of capital.  More broadly, the Administration and Congress should lay out a long term agenda to provide regulatory certainty and visibility to investors.

Fourth, risk.  The government can help manage risk in a way the private sector cannot.  The Administration is correct in seeking to use comparatively limited quantities of public funding to leverage far greater quantities of private funds.  Its infrastructure bank proposal, for example, far from being a vehicle for government spending, as portrayed by oppontents, is in fact a way to leverage private funds.  Similarly, a green bank structured to provide a government guarantee to money advanced by the private sector, would give a huge boost to capital intensive clean economy investments

Finally, fear.  The Administration as it enters its third year needs to reassure the public that normalcy is returning to the economy.  Congress should do the same.  Policymakers will have more opportunities to advance good ideas with a healthy economy than they will ever have in the midst of crisis.  Accordingly, the Administration and Congress need to put the crisis behind it in their rhetoric and articulate an economic plan and message that is both forward looking and above all positive.

The US faces longer term challenges that require a variety of long term measures but in the short term the challenge is clear. 

The private capital is out there and the Next Economy is waiting.  It is only a matter of connecting the two.

Simon on Fox News re Fiscal Policy

Last week Simon went on Fox News to talk about fiscal policy with Neil Cavuto. He brought a refreshingly nuanced view to the debate over whether to let the Bush tax cuts for the wealthy expire.

Simon on CNBC: Should There Be A Bank Tax?

Simon went on CNBC's The Call this morning to talk about the various forms of bank taxes that have been proposed since this December. Whether the idea was a windfall tax on bank bonuses around the new year, or the more recent $19-billion tax on large banks and hedge funds that was cut from the financial regulations bill, many Americans are convinced that bankers need to be made to pay. For Simon, the main question is whether these taxes can help us to create the dynamic economy we need in the 21st century.

Simon Rosenberg on CNBC re Unemployment Benefits, Deficit Reduction, Job Growth

Simon went on CNBC this morning to talk with Larry Kudlow and company. The conversation revolved about Republican attempts to block unemployment benefits in the Senate, whether the talking-points about the deficit stand up to scrutiny, and how to achieve economic growth once again.


Syndicate content