Bravo To Congress’ Making It In America Push — What It Still Needs

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
House leaders deserve praise for fighting for working people by launching a “Make It In America” initiative which they officially unveiled today. The country still badly needs an immediate job-creation effort, but this is a very important longer-term initiative for reviving America’s manufacturing base and restoring our competitiveness in the world economy. Good work!
Manufacturing is the core of our country’s income. Making things that we sell is how we earn money to buy things that others make. This is why it is so important to restore America’s manufacturing base and the infrastructure that supports it. People want to go into a store and have a choice to buy things that are made here.
This week these important bills made it to the House floor: (click through for details)

  • National Manufacturing Strategy Act
  • Clean Energy Technology Manufacturing and Export Assistance Act
  • End the Trade Deficit Act
  • As the Congress rolls out this initiative here are important components it should include:

    Buy American
    Public money should be going to our people. This is what other countries, like China, are doing with domestic preferences and “indigenous innovation” policies.

  • Pass “Made in America” policies in every phase of any manufacturing plan, boosting domestic content requirements in federal procurement, (state and local government should do the same with their procurement policies).
  • Trade policies
    (Is “trade” even the right word for making the same things in other countries that we used to make here.)
    We are doing very little to combat the mercantilist nations, in particular China and Germany. China manipulates its currency and will not match its exports with imports. Germany is limiting domestic consumption — the resulting trade surplus is out of balance.

  • End tax incentives to move production overseas; create incentives to keep production at home. Current laws allow corporations to defer taxes on income earned overseas, which almost forces companies to develop schemes to make goods outside the country.
  • Require tariffs on goods from countries that manipulate currency, to overcome the pricing advantage this creates.
  • What about a “democracy tariff?” This is a tariff on imports to counter the advantages that come from moving factories to countries where the people don’t have the power or opportunity to insist on fair wages and worker and environmental protections.
  • Encourage the “Green Economy”
    Stimulate American manufacture of wind turbines, solar panels, biofuels, etc. This creates jobs and makes us competitive in the new green economy that will replace the carbon economy.

  • Create a domestic non-carbon energy market with a strong Renewable Energy Standard (RES) and a direct carbon tax (since the Senate has blocked cap-and-trade).
  • Use government procurement to help trigger this market. Phase in purchases of non-carbon energy, creating a strong market, triggering increased investment. Procurement should require American-made components. For example, wind-power purchases should require American-made turbines are used.
  • Infrastructure
    Our roads, bridges, rail, water and electrical systems, etc. are the backbone of a competitive economy. The infrastructure enables business to thrive. If it is not kept in good working order and up-to-date (and it has not been), businesses do not thrive (and they aren’t).

  • We need the Congress to create a National Infrastructure Investment Bank, capitalized with public money to lure private capital for investment in rebuilding key components of America’s infrastructure. Stop the obstruction – we need this!
  • Rebuild existing, crumbling infrastructure. This “spending” investment earns the money back many times over.
  • Pass the surface transportation reauthorization bill. This will boost American industry as while creating jobs, saving energy and incentivizing green development.
  • Build new infrastructure-for-the-future like high-speed internet and high-speed rail and a national electric “smart grid”.
  • Require companies to make the infrastructure components in America.
  • This is a brief outline of some of the needed components in a Make It In America strategy. These are things that Congress can do. Congress must not back away from bold reforms in the face of resistance from the right-wing monopolist business lobbyists, who speak for the job exporters, and their “free-trade ideologue” allies.
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    m4s0n501

    Reagan Revolution Home To Roost: America Is Crumbling

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
    The conservative argument of the last 30-40 years boils down to this: “Hey look at this big pile of seed corn. Let’s eat it!” Almost 30 years after the “Reagan Revolution” our infrastructure is crumbling around us. Since the Reagan-era tax cuts we have been deferring maintenance of (and never mind modernizing) our infrastructure, and as a result have become less competitive in the world economy.
    Meanwhile our economic competitors, countries like China and India, have been building infrastructure like crazy. Other countries are investing, educating, improving public services because they know these things make the economy explode later. A major component of China’s stimulus was infrastructure and public services – including public welfare – because of the economic benefits that come later.
    Now for those countries it is later, while for us it’s just becoming too late. Their investment is paying off while we’re having trouble paying off the accumulated Reagan/Bush tax-cut debt.
    How did we get here?
    Public infrastructure is the roads, courts, education, etc. that enable an economy to prosper. We got ourselves out of the Great Depression with a big investment in public infrastructure. The government taxed the wealthy and built or improved modern roads, bridges, post offices, courthouses, shipyards, schools and other public structures that enabled business to take off.
    And then business took off. The idea was, of course, that business would give back some of the returns to keep that process going. But instead the big companies and wealthy families funded a conservative propaganda machine that convinced people to let them just keep it. Look at this chart from 14 Ways A 90 Percent Top Tax Rate Fixes Our Economy And Our Country:

    krugman_chart

    You can clearly see that the money that should have been invested in maintaining and modernizing our infrastructure instead has gone to a few wealthy people at the top of the food chain. (We’re the food.) And of course, we all can clearly see the results of this in today’s economy. They ate the seed corn, America is crumbling.
    Now, here we are later and we are seeing the result of the Reagan Revolution. The American Society of Civil Engineers (ASCE) Infrastructure Report Card estimates that we are $2.2 trillion behind just on maintaining the existing infrastructure, never mind modernizing. Please click through and explore what ASCE is saying there. (Conservatives — there are lots of pictures!)
    What do we do?
    The answer is obvious. It is called public investment. Ask the big companies, the banks and the wealthy to pay back some of the incredible amounts of money they have been piling up as a result of the past investment that We, the People made in building that infrastructure that enabled the economy to boom. Use that money to invest in maintaining and modernizing the infrastructure so that the economy can again thrive for all of us.
    We can employ the unemployed and bring our infrastructure up to par at the same time. There is a lot of work that needs doing and we have a lot of people out of work.
    The payback will be enormous. The economy will explode. And we can build sustainability into the process this time.
    What is in the way?
    The problem now is that the corporate/conservative propaganda machine has gone way past talking people into cutting taxes for the rich and cutting back on public spending for infrastructure and our people. Now they have become very extreme, convincing a number of people that government spending – We, the People spending on the common good – and government itself – We, the People making the decisions for ourselves – is the wrong approach. They believe that any government at all is “socialism” — run for the benefit of all of us — and that all public services must be “privatized” — meaning run for the benefit of a few. They believe it is wrong, even immoral to have public schools, public transit, public health care, regulations that restrict what companies can do to consumers or the environment, etc.
    They have the megaphone because they have the money. We have to confront this head on.
    More to come!
    This is another story of a wealthy few selling off the country’s people and future. This is another story of gains for a few at the expense of the rest of us. These stories are becoming all too common. This is the Reagan Revolution coming home to roost, and I will continue to write about the terrible price we are paying and will be paying for a long time for the failed experiment in conservative ideology.
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    Create Real Jobs That Pay Off: Update Our 1970’S Infrastructure

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
    One legacy of the Reagan tax cuts is that we stopped maintaining – and never mind modernizing – our infrastructure. As a result there is a LOT of work that needs doing. And there are a very, very large number of unemployed people. Hmmm…
    There are so many more ways our economy suffers as the consequences of Reagan-era choices come home to roost. The current economic doldrums are in great part the result of Reagan-era choices:
    * The deferred infrastructure maintenance and modernization that resulted from the tax cuts mean that our economy is no longer world-class. Bob Herbert has been writing about this problem for a while. From his most recent,

    Schools, highways, the electric grid, water systems, ports, dams, levees — the list can seem endless — have to be maintained, upgraded, rebuilt or replaced if the U.S. is to remain a first-class nation with a first-class economy over the next several decades. And some entirely new infrastructure systems will have to be developed.

    So here we are with a massive infrastructure deficit that is harming our ability to compete economically in the world. Just one example: China has 42 high-speed rail lines coming into operation connecting their major cities, and we are just starting our first one connecting … Tampa to Orlando?
    * The education cutbacks then are really hurting now.
    * Energy. Cancelling all of Carter’s efforts to solve our energy problems has left the economy dependent on last century’s expensive and polluting energy sources and the monopolistic giants that control them.
    * Debt. Tax cuts creating “structural deficits” have built up tremendous debt and the accompanying burden of paying interest on that debt and dependence on those who fund our borrowing habit.
    * Militarization. We spend more on military than every other country on earth combined. The big defense corporations keep us from doing anything about it. Historically this kind of military spending and the resulting debt has ruined empires and kingdoms, and here we are.
    * Government. Outsourcing/cutting/destroying/hating government and the commons has left us ill-equipped to catch up with China and others, and deal with monopolistic multinational corporate giants.
    Schools, highways, power grid, … everything. And all this work needs to be done on top of the need to retrofit all of our country’s buildings to be energy efficient. Or we will just continue to fall forther behind. There is so much work that needs to be done. I wonder how the cost compares to the amounts that have been transferred to the very rich since the tax cuts started.
    Hmmm… Let’s see … high unemployment … lots of work that needs doing … massive wealth accumulated at the very top … hmmm… dot. dot. dot. And on top of that, there is all that evidence that past investment in infrastructure leads to great prosperity in the years following the investment … dot. dot. dot. hmmm… Ideas are forming… connections are being made…
    I can hear the shrieking from the “free market” conservative bunch now, just for thinking such thoughts: “But … but .. that would be just WRONG to just … give people jobs doing what needs to be done!!! and taxing the RICH — the very beneficiaries of past infrastructure investment — to pay for it? How can you even dare suggest such a thing???!!!”
    Public works projects — infrastructure. Example: In the 1950s, with top tax rates at 90%, we started the massive public works project that is the Interstate Highway System. How did that investment work out for our economy? How many companies benefitted from the ability to deliver trucked goods across the country in a short time? How did those top taxpayers do economically as a result of such investments?
    Hmmm…

    Today’s Housing Bubble Post – Back To Issuing Warnings

    Oddly enough I find myself back in the position of warning that the housing market may be heading to a terrible crash in the near-future. The bubble mentality has not changed at all and appears to be restarting in the very places where the bubbles were the worst. This is probably because people got used to unaffordable prices and think that a drop from unaffordable to just really, really expensive is a buying opportunity. Meanwhile government and the real estate industry are trying to “reignite” the market — hoping that starting another bubble will put off the reckoning.
    People still think that what we are going through a temporary “correction” and that real estate prices are going to “go back up,” that houses are “cheap” now, that they should “snap them up” before they are “priced out.” They still think real estate is the path to wealth, instead of somewhat of a burden that should only be undertaken under certain circumstances. Namely, when you plan to live there for a long, long time, and you’ll pay less (including closing costs, taxes, insurance, maintenance, possible price depreciation, etc.) than rent.
    Here’s what I am talking about. Combine this,

    As of March 1, investors can now buy 10 homes (up from four) with Fannie Mae-backed mortgages. That’s also stimulating demand.

    With this, Some of Us Still Think They Can Get Rich Quick from the Real Estate Bubble,

    … the ad offered a mouthwatering menu of claims on “How to cash in on the biggest real estate liquidation sale in our entire United States history” and “how to maximize your profit with lucrative foreclosures.”

    And this:

    Option ARM rates are going to be recasting soon and in increasing numbers. That’s the magic moment when people can no longer make minimum payments, when they can longer make interest-only or neg-amortization payments.
    When that magic moment comes, all of those people are going to look at how high their now unaffordable mortgage payments are. Then they’ll look at how much their house is actually worth relative to how much though owe. Then, maybe, they’ll try one of the various initiatives to modify their mortgage terms. And then, quite likely, they’ll jut walk away. [. . .] as the chart tells us, hasn’t even really started yet.
    recast.png

    What that chart shows is that the foreclosure problem is about to get a lot worse. Two more huge waves of “resets” are coming. Many, many, many more homes are about to reach a point of unaffordability for a lot of their owners, one way or another those homes will also be for sale, on top of the huge inventory that already sits unsold, and this will drive prices down even further, which will trigger even more problems.
    Here is what I am saying: As long as a house is considered an “investment” instead of a place to live for a long time we will continue to be in a world of hurt. Real estate does not always go up.
    Here is why prices can’t go up any time soon: There is a huge inventory of unsold houses. The houses that were built in the last decade are too big for regular people to be able to afford to heat and cool — and energy prices are going up. The water for the lawns will cost more and more. The gas to get to the malls and any jobs that might exist (good luck) will cost more and more. The “boomers” are retiring and selling their houses. The median price in many areas is still way above affordability by a medium-income family. You won’t get sufficient “positive cash flow” over your payments from the rent you’ll receive if you are renting the house.
    The psychology of this is just like the stock market bubble. Things won’t get better until the bubble mentality of “it always goes up” is shaken out of people. Like I said the other day

    In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.
    Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

    Unemployment in my area is 11.2% and people are “snapping up” houses that are “cheap” at $580,000 because they were at $850,000 a year or two ago. But the median income here can’t support that. It couldn’t even support $350,000 before unemployment went up.
    Here’s the thing. After the stock market crash the Fed intentionally created the housing bubble to prop up the economy for a few more years. Now the consequences have arrived. If you are thinking of buying a house as an “investment” ask yourself who is going to buy it from you at a higher price, and how they are going to get that money. Will that housing demand come from a healthy job market in which people are getting raises?
    Don’t bet on it.

    Today’s Housing Bubble Post — When Will Prices Stabilize?

    I’m hearing a lot of talk about plans to “stabilize” or “prop up” housing prices. Plans include cutting interest rates, providing tax credits, etc. in order to “keep prices from dropping too far.”
    Here is a news flash: after a speculative bubble prices always revert to the mean. You can’t stabilize prices any other way except by letting them fall until they are back where they should be again.
    Housing prices will “reach a bottom” and “stabilize” when the following occur:
    Prices will revert to the mean. After a speculative bubble prices always revert to the mean. This is another way of saying they go back to where they should be. When there was a bubble in tulip bulbs prices went back to where they should be, which was not much above zero. Remember “dot com” stocks? They fell to reflect the actual value of the companies. Many of those companies weren’t worth anything.
    Prices will stabilize when supply does not exceed demand. Currently there is a HUGE inventory of unsold, foreclosed, newly-built, unfinished or whatever houses on the market. There are speculators still sitting on two, three and more houses. And there is another supply of people waiting for a “better time” to sell. At the same time there is almost no demand, because people understand that prices are falling, and they will lose their future if they buy a house at these inflated prices. AND lenders are starting to want to know if the buyer can pay back the loan, which means fewer loans for buying houses. (Especially if they start getting honest appraisals again!)
    Prices will stabilize when the price of a house reflects the local rents people are paying. That is when it makes sense for a landlord to buy a property. when they can make money on the rent.
    Prices will stabilize when the average-priced house in the area is affordable by the average-income person in the area.
    Prices will fall to the point where houses are worth what they are worth when purchased for what they are meant for. This means that a psychological change has to occur and people stop thinking of a house as an “investment” or a savings account, and merely as a place to live.
    A house is a place to live. That is what a house is. When everyone involved comes to understand a house as a place to live housing prices will stabilize. Part of that understanding involves understanding that people should never pay more than 25-28% of their income on housing expenses. (That’s mortgage payment, insurance and property taxes added together. In some regions you should add heating and cooling costs to that.)
    The bad news is that this means prices in many areas still have a long, long way to fall. In the San Francisco Bay Area, for example, two bedroom houses in bad neighborhoods are still being offered for $500,000. This means a $100,000 down payment, and monthly payments of $2400 PLUS insurance PLUS maybe $500 a month in property taxes. This means you have to have $100,000 in the bank and an income of more than $12,000 a MONTH to be able to buy a two bedroom house in a bad neighborhood. And this means that prices have a long, long way to fall.

    Today’s Housing Bubble Post

    This is the beginning of the housing crash. It is JUST starting to hit the mailstream news that sales are slowing. Sure, it’s old news to you and me but “regular people” are only now going to start hearing about it.
    Since it’s early in the cycle, we’re still hearing that buyers are “waiting on the sidelines to jump in.” These are people who still think that “real estate always goes up.” (Remember the people who believed that stocks always go up?) When those last few “always goes up” people are shaken out of the market things will really start happening.
    And, since it’s just the beginning of the downturn, we’re now hearing comforting, calm words about a “soft landing” and that “this is a healthy thing,” etc.
    Here’s the thing. Sales slowing and rising inventories necessarily mean that prices will start to drop soon. And just wait until THAT starts hitting the news. That’s the tipping point. That’s when people’s expectations change. Once people stop seeing house prices rising, everything will change. And when they realize that prices are dropping, everything will really change.

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