On the Failed Job Creation Front, Obama Has Completely Run Out of Ideas

Unemployment is the millstone around President Obama’s neck in the 2012 election campaign. Attentive voters understand he is offering excuses — a worse-than-expected economy, financial crises requiring longer recoveries, bad luck of tsunamis, droughts, and the Euro — not solutions. Obama cannot deliver solutions because a real jobs program contradicts his core principles, alienates his base, and infuriates his crony contributors. He can only promise more of the failed policies –stimulus and tinkering — of his first three and a half years
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Obama’s last foray into job creation was his American Jobs Act (AJA) submitted to Congress on September 12, 2011.  Labeled “Stimulus 2” by its critics, Obama’s shopworn list of remedies, promised to “put more people back to work and put more money in the pockets of working Americans….without adding a dime to the deficit.” The AJA’s temporary tax credits to businesses that hire, extension of the payroll tax holiday, and more money for teachers and infrastructure stalled in both Houses and had to be taken up piecemeal.  The payroll tax holiday extension passed Congress. Small businesses decided his tax credits for hiring were not worth the trouble.

A deafening silence followed.  Obama’s vaunted Jobs Task Force has not met for more than a half year. Obama is out of ideas. He can only offer excuses, criticize those offering new solutions, and divert attention from the worst recovery in history with chatter about the rich not paying their fair share and his opponent’s tax returns.

One year ago, on the eve of the President’s jobs address, I wrote Why Obama Cannot Support a Real Jobs Program.  In this piece, I showed what a real jobs program looks like and how it largely would have increased jobs, to use Obama’s AJA message, “without adding a dime to the deficit.” Here is the substance of what I wrote then as advice to the President:

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What If the Rich Really Gave Back as Obama Wants?

President Obama tells us that the rich should give back to society. He even knows many wealthy people who want to give back more. (I guess they can’t until their taxes are raised). We learn from him that the rich owe their success not to business acumen and risk taking but to public roads, schools, the courts, food stamps, disability payments, workplace regulation, and other government services. We even owe the first rumblings of the internet to DARPA, unfortunately the research arm of the military-industrial complex. (Or was it Al Gore?).  Obama feels it is only fair that the rich return what the government gave them. What business could survive without access by public road? Fair is fair, after all.

What would happen if we, like France’s socialist state, taxed away seventy five percent of earnings above one and a quarter million and  high-net-worth business executives with  $2.5 million in salary, dividends and rental property pay a marginal rate of 90.5 percent. At such rates, our rich would really be giving back to government what it is due, and perhaps more.  Fair is fair.

With so much “going back,” there is little reason to go forward. The “rich” should just cash in their chips, stop building their businesses or starting new ones, pay their high taxes, and live off their wealth, unless that is taxed away too. After all, the government can “invest” their money in Solyndras,  Volts, and entitlement programs. As Obama claims, government investment has higher returns than private investment.

If Steve Jobs had paid his fair share back to society after he made his first ten million, Apple today would today be a relatively small company worth less than a billion and employing a thousand or so. It would not be the world’s largest company in market cap, it would not employ 60,400 people worldwide, and we would not have the IPads, IPhones, Apps, and other innovative Jobs products, which improve the quality of lives and raise living standards. Apple shareholders would not hold shares worth a half trillion dollars.



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My Diminished Capacity to Understand Obama's Clean Energy Policy

It took President Obama’s Press Secretary Jay Carney to shock me to my senses. As someone who favors cutting government spending on clean energy and eliminating government subsidies in general, I was particularly distressed to learn (in Carney’s words) that “I am “aggressively and deliberately ignorant of the world economy not to know and understand that clean energy technologies are going to play a huge role in the 21st century.” Even worse, I learn that “I have a severely diminished capacity to understand what drives economic growth in industrialized countries in this century.”

And I had thought that if clean energy technologies were going to dominate the 21^st century, private enterprise would figure this out and develop them itself. In my ignorance, I thought that subsidies are dictated by and for special interests not by economic rationality. I also believed that Solyndra and SunPower were not aberrations but representative of what is going on in Secretary Chu’s and Obama’s energy department. What I fool I have been.

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Head of Chu Capital Testifies Before Congress on Job Losses

Nobel physicist turned venture capitalist, Steven Chu, testified before a House Sub Committee today to explain the loss of jobs in companies in which his company, Chu Capital, invested.

In questioning Chu, the Democratic representative from California was particularly critical of the loss of more than one thousand jobs in economically-depressed California at Chu Capital’s Solyndra plant.

Democratic representatives from Massachusetts and Nevada expressed similar concerns that companies in their states in which Chu Capital invested are either bankrupt or on the verge of bankruptcy.

In his testimony, Chu testified that companies fail when “the bottom of the market falls out.” That, he said, is what happened for reasons that could not be foreseen. In business start ups, no one has a crystal ball. Chu assured the committee that, at the time the investments were made, Chu Capital’s analysis “showed a low probability that any of the companies would go into default.”

“This company (Solyndra) and several others got caught in a very, very bad tsunami.” New plants to manufacture solar panels started up in China and elsewhere, while the market for the panels was softening because of economic troubles in Europe. Prices dropped 70 percent in two and a half years.

Democratic representatives remained skeptical: Two of the first three deals supported by Chu Capital “have now blown up and filed for bankruptcy, and you admit no fault whatsoever. You just say: “Hey, sometimes things don’t work out.’ ”

The Times of New York comments that the failures of Chu Capital investments will surely harm any future  ambitions of Chu for higher political office.

Satire based DOE Secretary Chu’s Solyndra testimony before Congress.  http://www.nytimes.com/2011/11/18/business/energy-environment/energy-secretary-defends-solyndra-loan.html and http://www.youtube.com/watch?v=NbUu6CrWkmY

Advice to Obama's DOE From a Former Soviet Planner

To: Jonathan Silver
Head of Department of Energy Loan Program Office
From: Alexander Vaibakov
Former Head Technology Planning, USSR State Planning Commission (Gosplan)
October 10, 2011
Dear Mr. Silver:
I see from the New York Times article “Market Risks Are Seen in Energy Innovations” that you could benefit from my over thirty years of experience with Gosplan (The USSR State Planning Commission). Apparently, Congress has given you the job of the central planning of new green new technologies. I cite your testimony: “Congress directed us to identify technologies that could be brought to market in an effort to leapfrog the United States forward and re-establish innovation leadership. Our job is to identify those technologies and build them out.” I appreciate your command of jargon and buzzwords. We were masters of that in Gosplan. With the Solyndra case heating up, you need to be able to speak so that no one understands you.

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The Most Charitable Interpretation of Solyndra: Obama Is Clueless

Any rookie business student knows what it means when a company’s outside  auditor  raises “substantial doubt about its ability to continue as a going concern.”  A negative “going concern” verdict means that the auditing firm has concluded, after examining the company’s assets, liabilities, and net income that it is unlikely the company will survive.

Such a ruling warns potential investors to stay clear of the company.

Apparently, one of the few who did not understand this accounting message was President Barack Obama. Instead of staying clear, he made a televised visit to  Solyndra in Freemont, California in May of 2010. There he stated before the assembled employees, press, and TV crews that: "It is here that companies like Solyndra are leading the way toward a brighter, more prosperous future."

Solyndra declared bankruptcy and laid off  its workers on August 31.   

This was a strange upbeat message for a President to deliver about a company that received a negative “going concern” verdict from PriceWaterhouseCoopers two months earlier.  The PriceWaterhouseCoopers auditor found cumulated losses of $558 million and negative cash flows. (By the way, these cumulated losses are suspiciously close to the federal loan guarantee).

The negative audit, by the way, was no secret. It was reported by Reuters and on GreenTech websites on April 2, 2010. It would seem that some one in the Department of Energy or on Obama’s staff would have seen these accounts. If not, that is a scandal in itself.

The audit report would not have been the only sign of trouble, but it alone was enough. The numerous visits of Solyndra executives to the White House must have been about getting more bailout money. There must have been a large number of red flags we will never know about.

Obama’s visit to Solyndra was not a casual drop-by. It constituted an integral part of the selling of his top-priority green technology program. Solyndra was the first company to get a stimulus green-technology loan guarantee. Obama’s staff carefully choreographed the event and made sure it got extensive press coverage. 

How are we to explain how a U.S. President can  publicly back a company whose own auditors correctly conclude it will not survive?  None of the possible explanations inspire confidence.

One possibility is that Obama’s time horizon is so short that he was prepared to risk long-term embarrassment and scandal for short-term political gain. He could even have thought that his personal presence would cause investors to throw their money down the Solyndra pit. Who knows on this.

A second interpretation is that Obama believes his naïve view of the world –we need solar power, hence a Solyndra must be viable – trumps everything else including the fact that Solyndra was spending huge amounts of money and earning no revenues. In this case, a religious belief in green technology outweighed hard economic facts.  

A third possibility is that he is clueless when it comes to business matters. Obama could argue that no one on his staff told him – that he was kept in the dark. If we accept this argument, then we must conclude that Obama has a totally incompetent staff and administration. Obama should be reminded of  Harry Truman’s “the buck stops here.”

Of the three possibilities, the clueless argument is the most charitable.

The Solyndra affair casts doubt on the competence of the President. It also reveals the dark underbelly of state industrial policy. World experience shows that governments make poor investment bankers. The mistakes of Japan’s once-acclaimed industrial policy contributed to its three decades malaise. Mahathir’s decision to build jumbo jets in Malaysia at least was stopped before it bankrupted the country. China’s government banks throw money at political projects. Solyndra joins this  band. Let’s hope a lesson was learned.