Contrary to myth, the USA is still a major manufacturing power. But the factory has changed radically, with the need for unskilled workers all but vanishing.

Last month’s Atlantic has a long feature highlighting the case of Standard Motor Products and two of the workers in its Greenville, South Carolina plant.

I had come to Greenville to better understand what, exactly, is happening to manufacturing in the United States, and what the future holds for people like Maddie—people who still make physical things for a living and, more broadly, people (as many as 40 million adults in the U.S.) who lack higher education, but are striving for a middle-class life. We do still make things here, even though many people don’t believe me when I tell them that. Depending on which stats you believe, the United States is either the No. 1 or No. 2 manufacturer in the world (China may have surpassed us in the past year or two). Whatever the country’s current rank, its manufacturing output continues to grow strongly; in the past decade alone, output from American factories, adjusted for inflation, has risen by a third.

Yet the success of American manufacturers has come at a cost. Factories have replaced millions of workers with machines.

That much, I knew. I was also vaguely aware of this: “far fewer people, far more high-tech machines, and entirely different demands on the workers who remain.” That is, I understood that American manufacturing was more machine-based and high tech; I didn’t understand how much the jobs of those people who remained had changed.

Why is anything made in the United States? Why would any manufacturing company pay American wages when it could hire someone in China or Mexico much more cheaply?

I came to understand this much better when I learned how Standard makes fuel injectors, the part that Maddie works on. Like so many parts of the modern car engine, the fuel injector seems mundane until you sit down with an engineer who can explain how amazing it truly is.

[A longish discussion about how complicated modern automotive fuel injectors are.]

Luke Hutchins is one of Standard’s newest skilled machinists. He is somewhat shy and talks quietly, but when you listen closely, you realize he’s constantly making wry, self-deprecating observations. He’s 27, skinny in his dark-blue jacket and jeans. When he was in his teens, his parents told him, for reasons he doesn’t remember, that he should become a dentist. He spent a semester and a half studying biology and chemistry in a four-year college and decided it wasn’t for him; he didn’t particularly care for teeth, and he wanted to do something that would earn him money right away. He transferred to Spartanburg Community College hoping to study radiography, like his mother, but that class was full. A friend of a friend told him that you could make more than $30 an hour if you knew how to run factory machines, so he enrolled in the Machine Tool Technology program.

At Spartanburg, he studied math—a lot of math. “I’m very good at math,” he says. “I’m not going to lie to you. I got formulas written down in my head.” He studied algebra, trigonometry, and calculus. “If you know calculus, you definitely can be a machine operator or programmer.” He was quite good at the programming language commonly used in manufacturing machines all over the country, and had a facility for three-dimensional visualization—seeing, in your mind, what’s happening inside the machine—a skill, probably innate, that is required for any great operator. It was a two-year program, but Luke was the only student with no factory experience or vocational school, so he spent two summers taking extra classes to catch up.

[...]

In many ways, Luke personifies the dramatic shift in the U.S. industrial labor market. Before the rise of computer-run machines, factories needed people at every step of production, from the most routine to the most complex. The Gildemeister, for example, automatically performs a series of operations that previously would have required several machines—each with its own operator. It’s relatively easy to train a newcomer to run a simple, single-step machine. Newcomers with no training could start out working the simplest and then gradually learn others. Eventually, with that on-the-job training, some workers could become higher-paid supervisors, overseeing the entire operation. This kind of knowledge could be acquired only on the job; few people went to school to learn how to work in a factory.

Today, the Gildemeisters and their ilk eliminate the need for many of those machines and, therefore, the workers who ran them. Skilled workers now are required only to do what computers can’t do (at least not yet): use their human judgment. This change is evident in the layout of a factory. In the pre-computer age, machines were laid out in long rows, each machine tended constantly by one worker who was considered skilled if he knew the temperament of his one, ornery ward. There was a quality-assurance department, typically in a lab off the factory floor, whose workers occasionally checked to make sure the machinists were doing things right. At Standard, today, as at most U.S. factories, machines are laid out in cells. One skilled operator, like Luke, oversees several machines, performing on-the-spot quality checks and making appropriate adjustments as needed.

The combination of skilled labor and complex machines gives American factories a big advantage in manufacturing not only precision products, but also those that are made in small batches, as is the case with many fuel injectors. Luke can quickly alter the program in a Gildemeister’s computer to switch from making one kind of injector to another. Standard makes injectors and other parts for thousands of different makes and models of car, fabricating and shipping in small batches; Luke sometimes needs to switch the type of product he’s making several times in a shift. Factories in China, by contrast, tend to focus on long runs of single products, with far less frequent changeovers.

It’s no surprise, then, that Standard makes injectors in the U.S. and employs high-skilled workers, like Luke. It seems fairly likely that Luke will have a job for a long time, and will continue to make a decent wage. People with advanced skills like Luke are more important than ever to American manufacturing.

But why does Maddie have a job? In fact, more than half of the workers on the factory floor in Greenville are, like Maddie, classified as unskilled. On average, they make about 10 times as much as their Chinese counterparts. What accounts for that?

[...]

“Unskilled worker,” [factory manager Tony Scalzitti] narrates, “can train in a short amount of time. The machine controls the quality of the part.”

“High-skill worker,” on the other hand, “can set up machines and make a variety of small adjustments; they use their judgment to assure product quality.”

To show me the difference between the two, Tony takes me from Luke’s station through an air lock and into Standard’s bright-white clean room—about a quarter the size of the dirtier, louder factory floor—where dozens of people in booties, hairnets, and smocks, most of them women, stand at a series of workstations.

[...]

Take Maddie’s station. She runs the laser welding machine, which sounds difficult and dangerous, but is neither. The laser welder is tiny, more like a cigarette lighter than like something you might aim at a Klingon. Maddie receives a tray of sealed injector interiors, and her job is to weld on a cap. The machine looks a little like a microscope; she puts the injector body in a hole in the base, and the cap in a clamp where the microscope lens would be. The entire machine—like most machines in the clean room—sits inside a large metal-and-plexiglass box with sensors to make sure that Maddie removes her hands from the machine before it runs. Once Maddie inserts the two parts and removes her hands, a protective screen comes down, and a computer program tells the machine to bring the cap and body together, fire its tiny beam, and rotate the part to create a perfect seal. The process takes a few seconds. Maddie then retrieves the part and puts it into another simple machine, which runs a test to make sure the weld created a full seal. If Maddie sees a green light, the part is sent on to the next station; if she sees a red or yellow light, the part failed and Maddie calls one of the skilled techs, who will troubleshoot and, if necessary, fix the welding machine

The last time I visited the factory, Maddie was training a new worker. Teaching her to operate the machine took just under two minutes. Maddie then spent about 25 minutes showing her the various instructions Standard engineers have prepared to make certain that the machine operator doesn’t need to use her own judgment. “Always check your sheets,” Maddie says.

By the end of the day, the trainee will be as proficient at the laser welder as Maddie. This is why all assembly workers have roughly the same pay grade—known as Level 1—and are seen by management as largely interchangeable and fairly easy to replace. A Level 1 worker makes about $13 an hour, which is a little more than the average wage in this part of the country. The next category, Level 2, is defined by Standard as a worker who knows the machines well enough to set up the equipment and adjust it when things go wrong. The skilled machinists like Luke are Level 2s, and make about 50 percent more than Maddie does.

For Maddie to achieve her dreams—to own her own home, to take her family on vacation to the coast, to have enough saved up so her children can go to college—she’d need to become one of the advanced Level 2s. A decade ago, a smart, hard-working Level 1 might have persuaded management to provide on-the-job training in Level-2 skills. But these days, the gap between a Level 1 and a 2 is so wide that it doesn’t make financial sense for Standard to spend years training someone who might not be able to pick up the skills or might take that training to a competing factory.

It feels cruel to point out all the Level-2 concepts Maddie doesn’t know, although Maddie is quite open about these shortcomings. She doesn’t know the computer-programming language that runs the machines she operates; in fact, she was surprised to learn they are run by a specialized computer language. She doesn’t know trigonometry or calculus, and she’s never studied the properties of cutting tools or metals. She doesn’t know how to maintain a tolerance of 0.25 microns, or what tolerance means in this context, or what a micron is.

As generous as that excerpt is, the story is much, much longer and worth reading.

But the cases of Luke and Maddie really stuck out. Maddie, writer Adam Davidson acknowledges, is quite bright. She’s hard working and friendly. She graduated high school with honors and expected to go on to college and get a good job. Alas, she got pregnant as a high school senior. You know the rest: “The father and Maddie didn’t stay together after the birth, and Maddie couldn’t afford to pay for day care while she went to college, so she gave up on school and eventually got the best sort of job available to high-school graduates in the Greenville area: factory work.”

As a result, she’s in a job that, quite literally, a reasonably intelligent person can learn to do as well as it can be done in one eight hour shift. And the gap between her Level 1 job and Luke’s Level 2 job is so vast that it’s hard to imagine her ever bridging it. Oh: it will eventually be cheaper to have a robot do her job. And she knows it.

Tony explains that Maddie has a job for two reasons. First, when it comes to making fuel injectors, the company saves money and minimizes product damage by having both the precision and non-precision work done in the same place. Even if Mexican or Chinese workers could do Maddie’s job more cheaply, shipping fragile, half-finished parts to another country for processing would make no sense. Second, Maddie is cheaper than a machine. It would be easy to buy a robotic arm that could take injector bodies and caps from a tray and place them precisely in a laser welder. Yet Standard would have to invest about $100,000 on the arm and a conveyance machine to bring parts to the welder and send them on to the next station. As is common in factories, Standard invests only in machinery that will earn back its cost within two years. For Tony, it’s simple: Maddie makes less in two years than the machine would cost, so her job is safe—for now. If the robotic machines become a little cheaper, or if demand for fuel injectors goes up and Standard starts running three shifts, then investing in those robots might make sense.

“What worries people in factories is electronics, robots,” she tells me. “If you don’t know jack about computers and electronics, then you don’t have anything in this life anymore. One day, they’re not going to need people; the machines will take over. People like me, we’re not going to be around forever.”

This isn’t a matter of Tony and the high muckety-mucks at Standard screwing over their workers to keep a little extra for themselves. It’s just the brutal realities of a very competitive industry–supplying aftermarket car parts. If Standard doesn’t stay as efficient as possible, someone else will start undercutting their prices and put them out of business.

What’s even more interesting to me than the Maddies of the world–which, again, I at least understood as a vague reality–are the Lukes. He’s probably in the 95th percentile in mathematical smarts, has invested several years in acquiring skills, and will never stop having to acquire more highly complex knowledge. And he enjoys that fact, finding it challenging and rewarding. But despite all that, his job still sounds incredibly tedious and repetitive.

Every five minutes or so, Luke takes a finished part to the testing station—a small table with a dozen sets of calipers and other precision testing tools—to make sure the machine is cutting “on spec,” or matching the requirements of the run. Standard’s rules call for a random part check at least once an hour. “I don’t wait the whole hour before I check another part,” Luke says. “That’s stupid. You could be running scrap for the whole hour.”

Luke says that on a typical shift, he has to adjust the machine about 20 times to keep it on spec.

Because he’s conscientious, he’s actually working much harder than he’s expected to. Even so, he’s basically just measuring things. And making 20 minute adjustments over a 12-hour period. He works three of those a week, 6 pm to 6 am Friday, Saturday, and Sunday. At $20 an hour.

For the United States to rebuild a large, manufacturing based middle class, we’ll need a whole lot of Lukes. In all honestly, I don’t know how we’ll find or create them. Even if, say, a quarter of us are capable of becoming proficient in calculus–and I’d say that’s wildly high–what percentage of those with that capacity will have Luke’s tolerance for tedium and be self-driven to keep learning? Further, even if we could make a few dozen million more Lukes would we be able to create enough jobs for them? And why won’t the Indians and Chinese be able to create them faster and cheaper?

Manufacturing collage by Shutterstock.

Marion Nestle of Food Politics points to a sign of our times: “Pepsi cuts 8,700 jobs; 4th quarter profits rise.” He cites these numbers from a Reuters report:

Pepsi reports increases in:

• Annual dividends: 4%
• Expenditures on advertising: an additional $500 million
• Expenditures on display racks: an additional $100 million
• Fourth quarter profits: from $1.37 billion a year ago to $1.42 billion
• Earnings per share: from 85 cents a year ago to 89 cents
• Revenues: up 11% to $20.2 billion

Nestle rails at the juxtaposition of rising profits and “adding 8,700 out-of-work people to an already depressed job economy” and figures “public pressure and regulation” are in order.

Actually reading the linked report, however, presents a different picture.

PepsiCo outlined a plan on Thursday that included cutting thousands of jobs and increasing advertising in an effort to revive the company’s soft drink business in North America. The company’s chief executive, Indra Nooyi, said that it would have a larger-than-expected decline in near-term earnings.

PepsiCo, based in Purchase, N.Y., expects to cut 8,700 jobs, or 3 percent of its global work force, across 30 countries as part of a plan to save $1.5 billion over the next three years. It also plans to raise advertising and marketing spending by $500 million to $600 million this year, centering on 12 brands including Pepsi, Mountain Dew, Gatorade, Tropicana, Quaker and Doritos. It will spend an additional $100 million this year to improve delivery and display racks.

Ms. Nooyi, whose five-year tenure has been marred by the global financial crisis, recession and higher commodity costs, also took responsibility for a series of management missteps including underinvesting in some brands and overpromising Wall Street.

[...]

Ms. Nooyi has come under pressure from Wall Street for a stagnant stock price and a lagging North American beverage business. She has been criticized for taking her eye off the core business of sodas to expand into healthier products, such as hummus and drinkable oatmeal.

The company said its earnings in 2012 would decline 5 percent from 2011. It forecast an additional 3 percentage point decline from foreign exchange rates.

So, the 4% dividend boost is designed to bolster investor confidence and the company is actually down 5% from last year. And facing a 7% increase in commodity costs in the coming year. On the face of it, then, it’s perfectly reasonable that Wall Street would be putting pressure on the company to increase performance vis-a-vis its competitors (notably, of course, Coca-Cola) by getting rid of money losing distractions.

On the other hand:

PepsiCo reported a fourth-quarter profit of $1.42 billion, up from $1.37 billion. Earnings per share rose to 89 cents, from 85 cents a share in the same quarter a year earlier. Excluding items, PepsiCo earned $1.15 a share, topping analysts’ average estimate of $1.13 a share, according to Thomson Reuters. Revenue rose 11 percent to $20.2 billion.

So, while earnings for the year were down, earnings were up slightly from the same quarter. More interestingly, revenues were up fantastically even if profits aren’t. Presumably, that’s a function of the sales of such things as “hummus and drinkable oatmeal” bringing in a substantial amount of gross but netting very little or even losing money. Apparently, the money is in the established junk food brands “Pepsi, Mountain Dew, Gatorade, Tropicana, Quaker and Doritos.”

One of our recurring discussions on the late, lamented OTB Radio program was whether companies had an obligation, especially in tough economic times, to keep as many employees as revenues allowed. Should CEOs continue to seek maximum efficiency–cutting employees and marginally profitable departments and subsidiaries to wring out the last amount of profit? Or should they instead keep such things as a lagging drinkable oatmeal plant going so long as they can afford to?

Certainly, all the pressures on the CEO are in the direction of the former. That’s especially true of a huge corporation in a globalized economy, where the business really isn’t a part of the community in a meaningful way and has no sense of obligation to anyone other than the shareholder.

Story via John Personna. Business image via Shutterstock.

Erik Loomis points to a report of growing sales of Scotch whisky in Latin America as incomes rise, which leads him to reflect on the social class status of various alcoholic beverages.

Scotch is, presumably because of its cost and boutique diversity, a universal signifier of success. It’s simply much more expensive at comparable quality levels than other spirits, which serves as a huge barrier to entry. Also, the vast differences in flavor between Scotches of different regions–and even the individual distilleries within the same region–creates fierce loyalty, snobbery, and debate.

I haven’t detected a comparable fetishization of any of the other spirits.

I’ve recently become aware of boutique bourbons but Jim Beam still dominates the market and is probably what most people think of as the standard variety, with Maker’s Mark, Wild Turkey, and a couple others that to me are virtually indistinguishable.

Jack Daniels is by far the dominant brand of Tennessee whiskey, the other American varietal. And most think of it as a type of bourbon, Lincoln County Process or no.

There’s some byplay among the various Irish whiskys, mostly among Americans who think there’s some Protestant-Catholic divide among brands (there isn’t). Canadian whiskey gets all of the attention of anything else Canadian.

There are some very pricey high end rums and tequilas out there but, at least in the United States, there’s little prestige associated with those spirits.

Vodka and gin are poor man’s booze, although plenty of it finds its way into rich people’s martini glasses. There’s been a trend in recent years towards higher end labels, with Grey Goose and Bombay Sapphire exemplars; but they’re still cheap compared to even a basic single malt Scotch.

There are all manner of other spirits out there (applejack, absinthe, etc.) but they’re novelty beverages, at least in my circles.

Then, of course, there’s wine snobbery and the recent advent of microbrew beers and the associated snobbery. But that’s a whole ‘nother topic.

Scotch and cigars image via Shutterstock

The commercial from last night’s Super Bowl that’s getting the most attention in the political world is the one that ran just minutes after the Giants and Patriots and returned to their locker rooms for halftime, and almost from the instant it started running it became subject of political debate:

A Chrysler commercial that aired during Sunday night’s Super Bowl has struck a chord in the political world. Narrated by actor Clint Eastwood, the ad drew a comparison between the championship football game and the state of the U.S. economy.

“It’s halftime. Both teams are in their locker rooms discussing what they can do to win this game in the second half. It’s halftime in America, too.” Eastwood says. “People are out of work and they’re hurting. And they’re all wondering what they’re gonna do to make a comeback.”

Pointing to improvement in the auto industry as a positive sign, the “Dirty Harry” star goes on, “Detroit’s showing us it can be done. …This country can’t be knocked out with one punch. We get right back up again and when we do, the world is going to hear the roar of our engines.”

Though the commercial didn’t mention any politicians by name, Twitter quickly lit up with speculation: Was Eastwood giving props to President Obama for bailing out the auto industry?  And was the ad a veiled endorsement of his re-election?

David Axelrod, a top campaign adviser to Obama, seemed quick to interpret it that way, calling the ad a “powerful spot.”

But Chrysler denies that the ad is pro-Obama. According to a company spokesman, CEO Sergio Marchionne told Detroit WJR’s Paul W. Smith on Monday: “The message is sufficiently universal and neutral that it should be appealing to everybody in this country and I sincerely hope that it doesn’t get utilized as political fodder in a debate.”

If you haven’t seen the ad yet, and I can’t imagine there are many people who haven’t at this point, here it is:

Personally, politics was the last thing that entered my mind when the ad was running. Even before the subject of the ad was clear, there was no mistaking Eastwood’s distinctive voice. The message itself struck me as something that was so sufficiently general that anyone would agree with it regardless of where you fall on the political spectrum. However, as I noted this weekend, we now live in a culture where everything eventually becomes politicized, and it didn’t take long for Twitter to fill up with commentary on the ad’s supposed political message. From the left, of course, the reaction was fairly similar to what Axelrod said in his Tweet, that the commercial was somehow an endorsement of the President even though neither politics nor the President are every even mentioned in the had. People on the right saw the same thing, except of course they complained about government money being used for that kind of message and Eastwood taking money to convey it.

That complaint is being picked up by pundits on the right today. Karl Rove said on Fox News this morning that he found the ad offensive;

“I was, frankly, offended by it,” said Karl Rove on Fox News Monday. “I’m a huge fan of Clint Eastwood, I thought it was an extremely well-done ad, but it is a sign of what happens when you have Chicago-style politics, and the president of the United States and his political minions are, in essence, using our tax dollars to buy corporate advertising.”

One columnist from the Atlanta-Journal Constitution agrees:

But the halftime Chrysler commercial starring Clint Eastwood, describing America as being in its own “halftime,” was just overtly politicized. After all, what else could “halftime” have meant, in the year 2012, than halfway through the eight years Barack Obama would be president if re-elected this fall? I’m fairly certain it wasn’t a prediction that the country will break up circa 2248 A.D.

Chrysler of course has a right to political speech. But it would be nice if the company wouldn’t be so brazen about its leanings while still owing the entire country — left, right and center — billions of dollars.

Now it’s perfectly fine to have opposed the auto industry bailouts. I did myself and Eastwood himself said he opposed the bailouts in a 2010 interview. It would have preferable if President Bush had listened to the will of Congress and the American people in December 2008 instead of giving billions of dollars of TARP money to General Motors and Chrysler. Had he done that then, the companies would have been forced into the only place they ever actually belonged, and the place where they ultimately ended up, United States Bankruptcy Court. The financial situation that they were in at the time were exactly what Chapter 11 was created for, and it would have been far better if they’d gone through the process sooner and before billions of dollars of taxpayer money were given away to protect the position of politically favored businesses and labor unions. That’s water under the bridge at this point, though, and it seems slightly absurd to me to argue that G.M. and Chrysler shouldn’t be advertising to promote their products. Presidents Bush and Obama made the foolish decision to engage in these bailouts, wouldn’t it be nice if these companies did what they needed to pay us back (not that I’m expecting most of that money to ever be paid back)?

But that’s not even what this argument is about, I think. Isn’t it possible to look at this commercial as doing something than other than confirming the political views of the viewer? Frankly, I just thought it was a well done commercial with a great veteran actor, and a welcome sight in a year when most of the Super Bowl ads frankly stunk. You don’t have to view everything through a political prisim and, to some degree, it strikes me that it’s unhealthy to do so.

Clint Eastwood made a cool commercial. Can’t we just leave it at? Because a political argument over a car commercial strikes me as kind of stupid.

Update: For what it’s worth, Dirty Harry himself has spoken and denies any political motive behind the ad:

Following the fall out over the controversial Chrysler Super Bowl halftime ad, Clint Eastwood spoke exclusively with O’Reilly Factor producer Ron Mitchell…

“I just want to say that the spin stops with you guys, and there is no spin in that ad. On this I am certain.

l am certainly not politically affiliated with Mr. Obama. It was meant to be a message about just about job growth and the spirit of America. I think all politicians will agree with it. I thought the spirit was OK.

I am not supporting any politician at this time.

Chrysler to their credit didn’t even have cars in the ad.

Anything they gave me for it went for charity.

If any Obama or any other politician wants to run with the spirit of that ad, go for it.”

So, there you have it.

Cory Doctorow passes along this story from The New York Times about the travails of a San Francisco woman to open an ice cream shop in the city:

The Ice Cream Bar opened Jan. 21 in the Cole Valley neighborhood — an homage to the classic parlors of the 1930s, complete with vintage soda fountain and lunch counter seating. It has become an immediate sensation, packed with both families and the foodie crowd, savoring upscale house-made ice creams and exotic sodas (flavorings include pink peppercorn and tobacco). The shop also employs 14 full- and part-time workers.

But getting it opened wasn’t easy.

“Many times it almost didn’t happen,” said Juliet Pries, the owner, with a cheerful laugh.

Ms. Pries said it took two years to open the restaurant, due largely to the city’s morass of permits, procedures and approvals required to start a small business. While waiting for permission to operate, she still had to pay rent and other costs, going deeper into debt each passing month without knowing for sure if she would ever be allowed to open.

“It’s just a huge risk,” she said, noting that the financing came from family and friends, not a bank. “At several points you wonder if you should just walk away and take the loss.”

Ms. Pries said she had to endure months of runaround and pay a lawyer to determine whether her location (a former grocery, vacant for years) was eligible to become a restaurant. There were permit fees of $20,000; a demand that she create a detailed map of all existing area businesses (the city didn’t have one); and an $11,000 charge just to turn on the water.

The ice cream shop’s travails are at odds with the frequent promises made by the mayor and many supervisors that small businesses and job creation are top priorities.

The matter has also alarmed some business leaders, who point out that few small ventures could survive such long delays.

“Someone of lesser fortitude would have left three months into it,” Ted Loewenberg, president of the Haight Ashbury Improvement Association, said of Ms. Pries. “Through these hard times we’ve heard all the rhetoric about streamlining the process, about one-stop shopping. It hasn’t happened.”

San Francisco is put one example, of course, of something that people looking to open news businesses nationwide run into on a daily basis. While the regulations are understandably more numerous in major cities, there is hardly a community in the country where someone seeking to open anything from an ice cream shop to a barber shop wouldn’t run into a whole host of rules, regulations, and requirements that end up making the process of getting into business for yourself, which used to be part of the American way of life, more and more difficult. There are city and county business permits, zoning ordinances, parking surveys, and use permits that must be obtained even before you can open your doors. Each of these costs money, not just in the fees that must be paid to local government authorities, but also the professional fees that you’ll have to pay to lawyers and other professionals in order to guide you through the process. If you’re “lucky” to be in one of those states that requires you to get a license to do something as simple as operating a flower shop, that’s another hoop you’ll have to jump through. Before it’s all over, the $33,000 that Ms. Pries paid to the City of San Francisco may end up being the least of your worries. And again, that’s all before you’ll end up even being able to open your doors for business and serve your first customers.

Contrast this with the way that local governments typically treat big business. Yes, they have to comply with the same rules as the small business owner but they’ve already got a huge pot of cash to cover that so the cost is negligible. Moreover, it’s quite often the case that local governments end up giving huge tax breaks and other subsidies to large companies in order to get them to locate a store, factory, or other facility in their area. The justification for these subsidies is typically the jobs that the employer brings to the area but, as with government-funded sports stadiums, the long-term benefit to the community of these subsidies (which can include major expenses like covering all or part of the cost of road construction for the near-exclusive use of the business) is doubtful at best. If these large companies are such a benefit to the communities that they move into, then shouldn’t they have to play be the same rules as everyone else?

Of course, the answer isn’t to hold everyone to a series of non-sensiscal bureacuratic rules that make opening a business more difficult and expensive than it needs to be, tha answer should be to make it easier for people to open new business and strengthen the local economy. It shouldn’t have taken Ms. Pries two years to open an ice cream shop, and you shouldn’t have to pass an exam to become a florist like Louisiana does. The Institute for Justice has spent years fighting these kinds of arbitrary and capricious licensing and permitting laws that serve little purpose other than protecting existing businesses and stifling competition. However, there’s far too little attention paid to this issue at the state and local level, even at a time when the economy is weak and The failure rates for a small business are already high, even in a good economy. It makes absolutely no sense to put a stranglehold on them in this manner, especially at the same time that localities are providing subsidies to large corporations.

H/T: Instapundit

The whole piece is worth a read, and the sentiment above underscores one of the major problems with the current GOP:  they are not only backwards looking in terms of where their ideas are coming from, they do no understand the the basic premises of what they are asserting.  Just evoking Reagan and calling for tax cuts as the sine qua non of policy is ultimately a wholly unserious approach to the complex and important job of actually governing.

Since August, the unemployment rate has dropped from 9.1% to, as of the last report in January, 8.5%. Good news, without question, although incomplete given the fact that several of those monthly drops occurred because the labor force participation rate fell as people dropped out of looking for work. Additionally, the monthly jobs reports weren’t really great news since the net jobs numbers was far below where it needs to be in order for the jobs market to really recover. You can’t say that this month, though, because the January jobs report is good news all around, and the best jobs report we’ve seen in more than three years:

The pace of job creation surged in January, with the US economy generating 243,000 new positions while the unemployment rate dropped to 8.3 percent, according to government data released Friday.

Both numbers were far better than consensus, which expected a growth of 150,000 jobs and a steady unemployment rate of 8.5 percent.

Stock market futures jumped on the report, indicating a positive opening on Wall Street. Treasury yields also moved sharply higher on the news.

The overall work week remained unchanged at 34.5 hours while wages rose an average of four cents an hour to $23.29.

Job gains have been concentrated primarily in the service sector, particularly in retail and the food and beverage industries. Warehousing, manufacturing, mining and health care also have participated.

True to form, services were responsible for 162,000 of the January swell, with manufacturing payrolls growing 50,000. Government cuts subtracted 14,000 from the total.

The total number of unemployed fell below 13 million for the first time since February 2009, while the total amount of employed Americans rose to 141.6 million, an increase of 847,000 from December.

The unemployment rate was last this low in February 2009 as well.

The BLS also revised previous month’s jobs reports upward. December’s number was revised upward slightly to 203,000 (a net increase of 3,000 jobs)  and November’s number increased by a net 57,000 jobs created. Additionally, the broadest measure of unemployment, U-6, fell against last month to 15.1%; at one point during that number was above 17%. This was also the month that the BLS makes its annual adjustments to underlying jobs data as well as the Household Survey and, while the numbers themselves won’t be adjusted, there was at least some marginally good news in that area as well:

With today’s jobs report, the government issued its annual benchmark update, aligning the data with corporate tax records covering the period from April 2010 to March 2011. The Labor Department added 165,000 to the job count over the period.

The report also included methodology changes to the household survey, incorporating new population data from the decennial census, according to the Labor Department.

It also included changes to the figures used to adjust the data for seasonal swings affecting numbers back to January 2007.

Most of these adjustments, however, are really only of interests to economic statisticians and historians and didn’t really impact the report for January. In fact, there’s very little to nit pick in this report at all. By every measure, this was a very good month all around. Hours worked are up, as is labor force participation. Private sector job growth is booming, and not just in the retail areas. We’re seeing job growth in the manufacturing, construction, and service sectors that, if sustained, could signal the beginning of a very good year for people who have spent the better part of the Obama Administration looking for steady work.

The political implications of this should be rather obvious. If this is a sign of jobs reports to come, then it’s largely good news for the Obama Administration (good news for all incumbents, actually) since it tends to take off the table the GOP’s biggest weapon against the President, the struggling economy. Earlier today before the jobs report came out, Nate Silver posted a detailed historical and statistical analysis suggesting that any jobs growth figure about 150,000 new jobs is good news for the President. Well, this number wasn’t that far from being twice that number — after revisions over the coming months it may well come even closer to being there — so there’s no doubt that they’ll be popping a few champagne corks in the West Wing and at Obama 2012 HQ in Chicago later today.

Of course, there’s still reason to be cautions. The CBO forecast from earlier this week is rather sobering, as are the forecasts for 2012 and onward that we’ve seen from other sources. Europe remains a problem all its own that could push the rest of the world over the brink. The possibility of rising tensions with Iran, with the inevitable increase in oil and gas prices, are a factor whose impact no economic forecaster can anticipate until it actually happens. There are plenty of possibilities that the economy could stumble just as it did in the early spring of 2011. Nonetheless, this is very good news and, hopefully, a sign that we’ve really turned a corner this time.

In the 1980s, Americans were bowling alone. Now, we’re living that way.

Fortune (“Solo nation: American consumers stay single“):

Americans are now within mere percentage points of being a majority single nation: Only 51% of adults today are married, according to census data. And 28% of all households now consist of just one person — the highest level in U.S. history. That second statistic may appear less dramatic than the first, but it’s actually changing much faster: The percentage of Americans living by themselves has doubled since 1960.

The extraordinary rise of living alone is among the greatest social changes since the baby boom. Until recently, no culture in human history had sustained large numbers of people in places of their own. Today more than 40% of households have just one occupant in cities such as Atlanta, Washington, D.C., Denver, St. Louis, and Seattle. In Manhattan, nearly 50% of households consist of a single occupant, a number that seems impossibly high until you discover that the rate is similar in London and Paris, and even higher — a staggering 60% — in Stockholm.

The article goes on to talk about the lifestyle and spending habits of the singletons, especially affluent white ones. But I find the phenomenon interesting in its own right.

While I lived alone for most of my adult life before getting married a few weeks shy of my 40th birthday, my life wasn’t the one described here:

Ironically, the 24/7 work culture, which has shattered the barriers between personal and professional life, makes living alone more attractive. After all, long work hours mean plenty of interaction at the office. Says one television producer: “I’m surrounded by a lot of people with similar interests. I do a lot of interacting, talking, e-mail, bopping down the hall to discuss a story or just shoot the shit.” His work friends are his most common companions.

Although pundits worry that singletons become socially isolated, for most the reverse is true. Young urban professionals struggle more with avoiding the distraction of social activity than with being disconnected. Surprisingly, the middle-age singletons I interviewed, most of whom are divorced, express similar concerns: They reported that living alone has become intensely social — not only because of the Internet and online dating, but also because they live in places filled with people in the same situation who are eager to be with each other.

This is, I suspect, true of only a small subset of the single: affluent folks living in major urban areas. Then again, these areas do have the highest concentration of singletons.

via Andrew Sullivan

Yesterday, the Congressional Budget Office released a rather grim forecast for the nation’s budget deficit and economic future:

The Congressional Budget Office on Tuesday predicted the deficit will rise to $1.08 trillion in 2012.

The office also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.

These are much dimmer forecasts than in CBO’s last report in August, when the office projected a $973 billion deficit. The report reflects weaker corporate tax revenue and the extension for two months of the payroll tax holiday.

A rising deficit and unemployment rate would hamper President Obama’s reelection effort, which in recent weeks has seemed to be on stronger footing.

If the CBO estimate is correct, it would mean that the United States recorded a deficit of more than $1 trillion for every year of Obama’s first term.

CBO Director Doug Elmendorf told reporters that Congress will have to make important choices this year regarding the supercommittee trigger and tax policy that will have huge effects on the deficit.

While unable to recommend choices, Elmendorf said that addressing the deficit sooner rather than later is easier.

The deficit was $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.3 trillion in 2011. The largest deficit recorded before that was $458 billion in 2008.

CBO had forecast an 8.5 percent unemployment rate for the end of 2012 in its August report. It now expects the jobless rate to be higher and to still be at 7 percent in 2015.

The higher unemployment numbers are due to lower economic growth than previously estimated. Gross domestic product for 2011 is now estimated to have grown 1.6 percent in 2011, down from the 2.3 percent forecast in August. CBO a year ago had predicted 3.1 percent growth for 2011.

The outlook for 2012 has also worsened. GDP is forecast to grow only 2 percent this year, compared to a previous estimate of 2.7 percent.

Budget cuts from the August debt deal and projected tax increases set to kick in when the Bush tax rates expire at the end of the year, will “restrain economic growth this year and significantly restrain growth in 2013,” according to CBO. But it says the fiscal prudence will help growth in the out years.

Under the CBO’s projections, total Federal Debt would rise to $21.7 trillion under 2022. However, because of the assumption that the CBO operates under in making these types of projections, it’s likely that the actual debt will be significantly higher absent serious and large cuts in the size and scope of government. For example, the CBO assumes that all of the Bush Tax cuts will be allowed to expire on December 31, 2012 and will not be extended or renewed at any point thereafter. Politically, that is simply not going to happen. The Obama Administration has already said that it wants to extend the cuts for everyone earning less than $250,000/year while Republicans want to extend the entire package, however that dispute gets resolved it’s rather obvious that the cuts will be extended in some form. The CBO also assumes that Congress will not act yet again to pass the so-called “Doc Fix,” which prevents Medicare reimbursements to physicians by 30%. Congress has passed that fix every time it’s needed as a matter of course, and it’s unlikely that they are going to change that any time soon, or that they are going to risk large numbers physicians dropping out of Medicare. The report also assumes that Congress will not continue to makes at adjustments to the Alternative Minimum Tax to prevent it from applying to even more middle class taxpayers. Again, that’s a fix Congress has routinely passed and its not realistic to think it won’t happen again. Finally, the report assumes that Congress will not touch the sequestration cuts that were part of August’s debt ceiling deal, but there are already signs of bipartisan support for modifying the cuts to defense spending. In other words, the CBO’s deficit estimates are overly optimistic because it doesn’t factor political reality into the equation. If all of these mesuares are taken by Congress, the 2022 would inccrease to $29.2 trillion.

Peter Suderman expands on this point:

Now, it’s true that current law, and thus CBO’s “current law” baseline, calls for us to tax even more, and to cut some hundreds of billions in spending on physician payments out of Medicare: But that’s because current law assumes that we’ll cut payments to physicians by nearly 30 percent in a few months, despite years of both parties supporting overrides to such cuts. And it assumes that tax hikes, including allowing the Alternative Minimum Tax, which was originally designed to hit just 55 very wealthy earners, will eventually hit half the country (meaning much of the middle class)—something neither party is going to support.

As is now common, liberal wonks are pointing to the baseline scenario as evidence that we don’t really have a deficit problem. After all, Congress just has to follow current policy in order to keep revenues nearly in line with expenditures. But even forgetting about the country’s historical inability to raise tax levels substantially above 20 percent of GDP, there’s simply no plausible near-future political environment in which this happens. It’s a cute fantasy designed to comfort those who don’t want to cut federal spending.

And ultimately, it’s the increases in spending that kill us: “If that rising level of spending is coupled with revenues that are held close to the average share of GDP that they have represented for the past 40 years…”, the CBO says, “the resulting deficits will increase federal debt to unsupportable levels.”

The more worrisome part of the CBO forecast, though, are the GDP and unemployment numbers, which are largely in line with the forecasts we’ve seen from the Fed and private analysts. It portends a future of  a near-stagnant economy that would be in danger of being pushed into yet another recession by any number of possible events beyond the control of anyone in Washington, whether its an international crisis, more trouble in the Eurozone, or a spike in energy prices that sends shockwaves through the economy. With employment already near 9% and likely to stay there for two years or more, another recession would be disastrous, with unforeseeable political consequences. Thanks to our long term debt issues, there isn’t a whole lot that Washington can do in the way of direct stimulus — both massive new spending and a massive new tax cut (without spending cuts) seem out of the question right now.  The Federal Reserve has kept interest rates near zero for years now, and apparently plans to continue doing so through 2014. It’s hard to see what else there is left to do other than let things work themselves out. Of course, that’s never the answer politicians want to hear.

Employees of the US Federal Government earn substantially more in salary and benefits than their private sector comparables, according to the new Congressional Budget Office report “COMPARING THE COMPENSATION OF FEDERAL AND PRIVATE-SECTOR EMPLOYEES.”

Wages

Differences in wages between federal employees and similar private-sector employees in the 2005-2010 period varied widely depending on the employees’ level of education.

• Federal civilian workers with no more than a high school education earned about 21 percent more, on average, than similar workers in the private sector.
• Workers whose highest level of education was a bachelor’s degree earned roughly the same hourly wages, on average, in both the federal government and the private sector.
• Federal workers with a professional degree or doctorate earned about 23 percent less, on average, than their private-sector counterparts.

Overall, the federal government paid 2 percent more in total wages than it would have if average wages had been comparable with those in the private sector, after accounting for certain observable characteristics of workers.

Benefits

The cost of providing benefits—including health insurance, retirement benefits, and paid vacation—differed more for federal and private-sector employees than wages did, but measuring benefits was also more uncertain.

• Average benefits for federal workers with no more than a high school diploma were 72 percent higher than for their private-sector counterparts.
• Average benefits for federal workers whose education ended in a bachelor’s degree were 46 percent higher than for similar workers in the private sector.
• Workers with a professional degree or doctorate received roughly the same level of average benefits in both sectors.

On average, the benefits earned by federal civilian employees cost 48 percent more than the benefits earned by private-sector employees with certain similar observable characteristics.

Total Compensation

Differences in total compensation—the sum of wages and benefits—between federal and private-sector employees also varied according to workers’ education level.

• Federal civilian employees with no more than a high school education averaged 36 percent higher total compensation than similar private-sector employees.
• Federal workers whose education culminated in a bachelor’s degree averaged 15 percent higher total compensation than their private-sector counterparts.
• Federal employees with a professional degree or doctorate received 18 percent lower total compensation than their private-sector counterparts, on average.

Overall, the federal government paid 16 percent more in total compensation than it would have if average compensation had been comparable with that in the private sector, after accounting for certain observable characteristics of workers.

So, overall, federal employees earn only fractionally more than their civilian counterparts in terms of salary but significantly more when benefits are factored in. But the difference is mostly seen at the bottom of the education curve–and actually flips for those with graduate and professional degrees. Note that the survey excludes the uniformed military; otherwise, the skew would be even higher, as junior enlisted personnel make far higher salaries and receive phenomenally better benefits than their high school graduate peers.

Public sector employment is much closer to the progressive ideal than employment in the private sector. For one thing, it’s capped at the upper end. Even the president only makes $400,000 and no civil service employee makes more than the $179,700 ceiling. On the lower end, even the most junior person (a GS-1, Step 1) makes $17,803 a year–roughly $8.55 an hour. Further, the benefits are comparable across the board, so even those at the bottom of the scale get good health coverage, paid vacation, and retirement benefits.

Medical doctors and attorneys who work for the federal government make a decent living and have tremendous protections unavailable in the private sector. But most start as GS-12s making $60,274 a year; an entry level attorney at a top DC law firm makes as much as the president.  Then again, the study likely doesn’t factor in that many of the professionals working for the federal government got a free ride through very expensive schooling.

This inescapable, awkward truth has been rammed home to me in the past few months as I keep meeting bright people in their 20s and 30s desperate for a job in journalism – and for mine in particular. I fob them off with platitudes about what a difficult market journalism is, but no one is fooled. The real reason they can’t do my job is that I’m doing it myself.

The same is true for almost all professions. The young can’t advance because everywhere they find my complacent generation is in situ. Thus the only way of solving the problem is to make everyone of a certain age, say over 50, walk the plank.

Before I go any further, I ought to make one thing clear. This is not a resignation letter – I intend to hang on for dear life. It is just that I can’t resist pointing out the obvious, even though it is not in my interests to do so. Forcibly breaking the logjam would not only do much for youth unemployment, it would also serve a lot of other ends.

The choice boils down to whether it’s better for people to have a decade at the beginning or at the end of their careers where they are demoralised and underemployed. The answer is easy: surely it is better to be more active at the beginning.

To have people idle at a time when they are full of energy and their grey-cell count is at a maximum is a shocking waste. And in any case, my generation has had it very good for much too long. We bought houses when they were still just about affordable. We had free education and pensions. It’s all been jolly nice, and I’ve enjoyed it a lot. Now is the time to start to pay.

One of the beauties of the young is that they are cheap. Shifting from old to young would bring down wages and would also solve the executive pay problem in one shot. Almost all the people earning grotesque amounts are over 50 – getting rid of them would mean CEO pay would come thumping down.

Now, this is presumably at least a bit tongue-in-cheek. But there’s quite a bit of truth here. To be sure, with age comes experience. But there comes a point at which the experience tends to calcify and, combined with a diminution of energy and enthusiasm, leads to diminishing returns.

Of course, the ideal solution would be to figure out a way to keep the middle- and past-middle-aged folks gainfully employed while also hiring the shiny youngsters.

The Wall Street Journal’s James Freeman explains why:

Billionaire Berkshire Hathaway CEO Warren Buffett is once again thrilling the political class by volunteering other people to pay higher taxes. Long-time observers recall his opposition to former President George W. Bush’s efforts to reduce the tax rate on dividends. Since Berkshire pays no dividends, Mr. Buffett had little at stake but enjoyed the opportunity to pose as if he were a rich guy eager to cough up more dough to Washington.

In the current debate, President Obama is pushing the “Buffett Rule” to ensure that high-income earners pay higher tax rates. But even if it’s enacted, don’t expect the Buffett Rule to have much impact on Mr. Buffett. By an amazing coincidence, the sage of Omaha is already positioned to shield most of his rising wealth from such a tax.

(…)

This brings us to the Buffett Rule, which at its heart is a way to raise taxes on dividends and capital gains. Berkshire still doesn’t pay a dividend, and as for capital gains taxes, well, Mr. Buffett has already made clear that he’ll largely avoid them by transferring his fortune to the Gates Foundation and to charitable trusts controlled by his family. In fact, at the 2010 Berkshire annual shareholders meeting, according to Dow Jones Newswires, Mr. Buffett urged attendees to “follow my tax dodging example” and give away their wealth. Democrats in Washington may enjoy using Mr. Buffett as cover to raise taxes, just as long as they understand that he won’t necessarily be paying them.

Of course, giving away one’s wealth to a charitable foundation isn’t necessarily a bad thing. Frankly, it’s likely a better use of those resources than putting them in them in the hands of the government. Nonetheless, it’s worth noting that Buffett isn’t necessarily inclined to practice what he preaches here. Not that I blame him, only an idiot would want to pay more taxes.

H/T: TaxProf Blog

The whole episode, swiftly amplified worldwide through Twitter itself, offered a telling glimpse into what happens when a scrappy Internet start-up tries to become a multinational business.

“Thank you for the #censorship, #twitter, with love from the governments of #Syria, #Bahrain, #Iran, #Turkey, #China, #Saudi and friends,” wrote Björn Nilsson, a user in Sweden.

Bianca Jagger asked, almost existentially, “How are we going to boycott #TWITTER?”

Zeynep Tufekci, an assistant professor at the University of North Carolina at Chapel Hill, took the other side. “I’m defending Twitter’s policy because it is the one I hope others adopt: transparent, minimally compliant w/ law, user-empowering,” she wrote.

Twitter, like other Internet companies, has always had to remove content that is illegal in one country or another, whether it is a copyright violation, child pornography or something else. What is different about Twitter’s announcement is that it plans to redact messages only in those countries where they are illegal, and only if the authorities there make a valid request.

So if someone posts a message that insults the monarchy of Thailand, which is punishable by a jail term, it will be blocked and unavailable to Twitter users in that country, but still visible elsewhere. What is more, Twitter users in Thailand will be put on notice that something was removed: A gray box will show up in its place, with a clear note: “Tweet withheld,” it will read. “This tweet from @username has been withheld in: Thailand.”

Think of it as the digital equivalent of a newspaper responding to old-fashioned government censorship with a blank front page.

“We have always had the obligation to remove illegal content. This is a way to keep it up in places where we can,” said Alex Macgillivray, general counsel at Twitter. “We have been working on this awhile. We needed to figure out how to deal with this as a company.”

The majority of Twitter’s 100 million users are overseas and it has several offices abroad working to expand its business and drum up local advertising. Twitter’s president, Jack Dorsey, said this week that it would open an office in Germany, which prohibits Nazi material online and offline.

The announcement signals the choice that a service like Twitter has to make about its own existence: Should it be more of a free-speech tool that can be used in defiance of governments, as happened during the Arab Spring protests, or a commercial venture that necessarily must obey the laws of the lands where it seeks to attract customers and eventually make money?

Tim Wu, a professor at Columbia Law School and author of “The Master Switch,” said the changes could undermine the usefulness of Twitter in authoritarian countries.

“I don’t fault them for wanting to run a normal business,” he said. “It does suggest someone or something else needs to take Twitter’s place as a political tool.”

Professor Wu urged the company to use discretion: “Twitter needs to be careful not to be in a position where it’s no longer helpful to a rebellion against oppressive governments. It needs to remain its old self in some circumstances.”

Twitter’s policy of allowing its users to adopt pseudonyms made it particularly useful to many protest organizers in the Arab world, and its chief executive went so far as to call it “the free-speech wing of the free-speech party.”

But Professor Wu wondered aloud if the new policy would have allowed Egyptians to organize protests using the service.

Interestingly, this list of complaints to Twitter seems to indicate that most if not all of the Complaints that they’ve gotten regarding content have been regarding copyright violations, not complaints by foreign governments regarding violations of their law. Additionally, if people in a country like Egypt are using the Internet in the manner Wu describes, it’s more likely that the government in question will simply respond the way that Egypt did when it shut down access to the Internet, not to mention the ability to make international phone calls, during the height of the Tahrir Square protests. It seems unlikely that a country facing protests is going to take the time to make a complaint to a company in California.

Nonetheless, Twitter users in the United States and other countries where government are unlikely to ever take any punitive action against the service seem to have adopted this as their Outrage Of The Day. Many are apparently engaging in some kind of Twitter Blackout protest today, not using the service at all in response to a policy that will never really impact them. What that accomplishes, I’m not entirely sure. Yes, this policy does have the ring of some of the concessions that Google and other countries have made to nations like China in recent years. However, this isn’t quite so simple an issue and the Electronic Frontier Foundation’s Jillian York notes on her personal blog that everyone really just needs to calm down about this:

Let’s be clear: This is censorship. There’s no way around that. But alas, Twitter is not above the law.  Just about every company hosting user-generated content has, at one point or another, gotten an order or government request to take down content.  Google lays out its orders in its Transparency Report.  Other companies are less forthright.  In any case, Twitter has two options in the event of a request: Fail to comply, and risk being blocked by the government in question, or comply (read: censor).  And if they have “boots on the ground”, so to speak, in the country in question?  No choice.

(…)

I understand why people are angry, but this does not, in my view, represent a sea change in Twitter’s policies.  Twitter has previously taken down content-for DMCA requests, at least-and will no doubt continue to face requests in the future.  I believe that the company is doing its best in a tough situation…and I’ll be the first to raise hell if they screw up.

This strikes me as the most reasonable way of looking at things. If we lived in a world where every nation had as much respect for freedom of speech as the United States, this wouldn’t be a problem. We don’t, however, and the Internet is now a worldwide phenomenon. Something that’s perfectly legal in the United States could be a serious crime elsewhere. For example, it’s a crime in Thailand to insult the King. Just last month, an American of Thai decent was sentenced to 30 months in prison for insulting the King of Thailand in an Internet post he authored while living in the United States. If Twitter, or Facebook, is threatened with legal liability for allowing people in Thailand to view such material how are they supposed to respond? The same question applies if, say, neo-Nazi content is posted and the government of Germany, where such content is against the law, demands that it be taken down. What’s the proper response? These are companies with hundreds of employees and, in Facebook’s case in the very near future, soon to be thousands of shareholders. Endangering the corporation’s interests for the sake of principles simply isn’t realistic.

Zeynep Tufekci argues that the new policy is actually meant to protect freedom of speech:

In my opinion, with this policy, Twitter is fighting to protect free speech on Twitter as best it possibly can. (It also fits with its business model so I am not going to argue they are uniquely angelic, but Twitter does have a good track record. Twitter was the only company which first fought the US government to protect user information in the Wikileaks cas,e and then informed the users when it lost the fight. In fact, Twitter’s transparency is the only reason we even know of this; other companies, it appears, silently caved and complied.)

Twitter’s latest policy is purposefully designed to allow Twitter to exist as a platform as broadly as possible while making it as hard as possible for governments to censor content, either tweet by tweet or more, all the while giving free-speech advocates a lot of tools to fight censorship.

(…)

Twitter can’t fight all free speech battles by itself; and it can’t change laws or governments around the world, nor can it ignore issues of jurisdiction. In particular, if faced with a court order that requires Twitter to identify dissidents in a country where torture or severe repression is in place, I hope Twitter first makes this as public as possible, and then choses to pull out of that country rather than comply (as Yahoo did in the shameful case of Wang Xiaoning and others in China – and some these people remain in prison after almost a decade).

There is a lot more to be said about the dangers of centralization, the emergence of corporate platforms as larger and larger portions of our political and social commons, and the conflicts between control, profit motives, and free and civic speech these recent developments raise. I don’t want to sound like I am happy to trust a few corporations and that’s it. On the contrary, I’ve repeatedly tried to warn against these dangers. All that said, I don’t think it is helpful if we don’t recognize a good policy when we see one.

Those last points are the most important, perhaps. Businesses in the United States cannot be held responsible for the laws of China, or Thailand, or any other nation, and they have to do the best they can to exist in the world as it exists, not the world as we’d like it to be.

There’s another point, of course. All of these companies are private entities and none of us are compelled to use their services. If you don’t like the policies that they’ve adopted, you can take your business elsewhere. In the end, this isn’t censorship, it’s a perfectly valid business decision.

As I noted yesterday, it’s been difficult over the past several months to determine exactly what President Obama means when he talks about the so-called “Buffett Rule,” or how he proposes that it be implemented. His State Of The Union Address certainly didn’t provide much detail, and neither did the five state barnstorming trip he completed yesterday. Senator Whitehouse of Rhode Island has one idea, but it’s unclear if that would have the support of the majority of the Democratic Caucus in the Senate, not to mention the President himself.  More importantly, though, there seems to be very little discussion from the White House about what the actual impact of the so-called “Buffett Rule” would be:

President Barack Obama has left unanswered a major question about his Buffett Rule tax on millionaires: Just how much money would it raise?

Administration officials are not releasing projected revenues from the much-hyped plan named after billionaire investor Warren Buffett. During the State of the Union address, Obama tied his proposal — which would tax those earning $1 million at a minimum of 30 percent — to cutting a deficit estimated to top $1.1 trillion for the fourth straight year.

But for the moment, the White House wants to keep the attention focused on Obama’s argument that it’s unfair to tax Buffett’s secretary at a higher rate than her boss.

“I’m not going to give you a schedule of how broad individual tax reform would break down and what impact it would have,” White House press secretary Jay Carney said at the Wednesday briefing. “The president simply believes that as a matter of principle that unfairness ought to be changed.”

Republican lawmakers — noting the absence of real numbers — attacked the plan as a political charade, an attempt to score points in the November election instead of a serious policy to reduce federal debt. One outside analysis by the non-partisan Tax Foundation indicates the rule would generate another $36.7 billion a year in revenue — far from enough to make a serious dent in a national debt of $15 trillion.

“It’s a smokescreen,” Rep. Steve Scalise (R-La.) told POLITICO. “Barack Obama just wants to pit one group against another so he can raise more money to spend on a bloated government.”

Along with Sen. John Thune (R-S.D.), Scalise unveiled an alternative to the Buffett Rule in October, sponsoring a measure that would let the wealthiest Americans volunteer to pay more in taxes to specifically lower the deficit.

In the State of the Union, Obama pitted the Buffett Rule against being forced to carve up government funding for education, medical research and the military, saying it was choice between tax cuts for the wealthiest Americans and “investments in everything else.

“If we’re serious about paying down our debt, we can’t do both,” the president said.

The President is right on this particular point, of course. I’ve said numerous times here that serious deficit reduction has to include spending cuts, entitlement reform, and comprehensive tax reform. That tax reform may well mean changes that lead to someone like a Warren Buffett paying a higher percentage of their income in taxes, but it shouldn’t just be done by grafting yet another Alternative Minimum Tax scheme like the one that Senator Whitehouse proposes, or some change to the way Capital Gains are treated for people at differeing income levels that leads to the addition of a few hundred pages to the Tax Code. Or at least that’s how things should work.

Leaving aside the “class warfare” arguments that Republicans will assuredly make, there are other unintended consequences that could result from simply grafting a new rule on top of an already overly complicated, loophole-filled Tax Code, and how much it would actually contribute to deficit reduction:

On a broad level, the Buffett Rule on its own would only contribute to the complexity of the U.S. tax code, says Roberton Williams of the Tax Policy Center, a D.C.-based think tank.”The problem with the Buffett Rule is essentially [it's] saying we don’t like the outcome of our basic tax system … So let’s make parts of it we don’t like better.”

Lawmakers have long enacted fixes like this in order to level the playing field between classes, says Williams, pointing to the Alternative Minimum Tax for an example. The result is a byzantine tax code that tries to do far more than just raise revenue. A tax code overhaul, while requiring a strenuous effort on the part of lawmakers, could likely be a better use of their time than enacting another add-on.

If a larger tax reform policy were to be enacted, could the Buffett Rule then be effective? If revenue-raising is the primary goal of the Obama administration’s new tax policies, it does make logical sense to aim for the rich. While the U.S. median income has fallen in recent years, the rich are making more and more money, as the CBO pointed out in an October report.

Williams says at a certain point, there are diminishing returns on levying tax increases on the wealthy. Even the rich don’t have unlimited wealth, and Williams adds that, “to close the budget deficit by half, you’d have to raise top rate to about 90 percent from current 35″—a politically untenable rate, to put it mildly.

(…)

Of course, it is difficult to tell at this point exactly what effects the rule might have, or even what it might entail. It could make some headway toward “fairness” in high-income tax rates, but when it comes to deficits, the gains would be modest.

Logan adds, for example, that the tax deductions the White House has said it would eliminate for millionaires in areas like housing, healthcare, retirement, and childcare are “extremely minimal” for people making over $1 million. All told, he estimates the Buffett Rule would raise about $36.7 billion in revenue in its first year. That’s roughly 3.8 percent of the estimated federal deficit for 2012.

Another estimate, by the admittedly left-leaning Center For Tax Justice estimates that the “Buffett Rule” would garner an addition $50 billion in revenue per year, slightly higher than Logan’s estimate, but still just a miniscule percentage of both the Budget Deficit, not to mention the $3.6 Trillion in total outlays in the Fiscal Year 2012 Budget.  On it’s own, it’s perhaps a start, but hardly sufficient to address the magnitude of the fiscal problems that we face and, in the long run, unlikely to really accomplish much of anything. Does anyone really believe, for example, that the additional $50 Billion (let’s go with the CTJ’s estimate just for the sake of argument) that this new tax would supposedly bring into Federal coffers would go toward deficit reduction? It wouldn’t, of course. The President and Congress, regardless of which party they belong to, would look at it as “new money,” and would find something new to spend it on. Absent a comprehensive deficit reduction package that includes all of the elements I outlined above, the “Buffett Rule,” or any other stopgap measure, isn’t going to accomplish much of anything in either the short or the long term.

In fact, all we have to do is look at history to see what is likely to happen:

The Buffett Rule would not be the first time the government demanded the well-heeled pony up their fair share. Congress passed the Alternative Minimum Tax in 1969, after then Treasury Secretary Joseph Barr testified that 155 Americans earned more than $1.2 million in today’s dollars and didn’t owe the government a dime in income taxes.

The AMT’s pull weakened with each edit of the tax code. Some have jokingly called it the “Bethesda tax,” since it now hits the upper middle class living places like the D.C. suburbs instead of those with extreme wealth.

After the State of the Union, Linda M. Beale, a tax law professor at Wayne State University in Michigan, blogged about that the Buffett Rule sounded familiar.

“Funny,” she wrote, “that is what the original Alternative Minimum Tax (for individuals, and one for corporations) was supposed to achieve.”

Of course, it’s rather apparent that the “Buffett Rule” has much more to do with 2012 election politics than it does with putting forward a responsible plan to fix our fiscal problems:

The White House, however, maintains that to focus purely on Buffett revenue is to miss the point. White House press secretary Jay Carney stressed to reporters on Wednesday that there are “millionaires and billionaires who pay taxes at a substantially lower rate” than poorer Americans. “The President simply believes that as a matter of principle, that unfairness ought to be changed.”

This may be smart politics. The polls would seem to indicate that it is. However, it’s not necessarily smart fiscal policy.

Photo via White House Flickr Feed

The Commerce Department released its first estimate of economic growth in the final quarter of 2011 and, while the economic continued to expand, the pace at which it did so wasn’t very impressive:

The American economy picked up a little steam last quarter, with output growing at an annualized rate of 2.8 percent, the Commerce Department reported Friday.

The pace of growth was faster than in the third quarter, when gross domestic product expanded at an annual rate of 1.8 percent.

Even so, both  figures were below the average speed of economic expansion in the United States since World War II. And it would take above-average growth to recover the ground lost during the Great Recession.

“At this rate, we’ll never reduce unemployment,” said Justin Wolfers, an economist at the University of Pennsylvania. “The recovery has been postponed, again.”

Still, the 2.8 percent rate is likely to be seen by many as something of a relief, given that just last summer many economists were predicting the country would soon dip back into recession. Few analysts are still forecasting a double-dip in the near term, but they say the recovery is likely to remain disappointingly sluggish.

Growth in the fourth quarter, after all, was driven mostly by companies rebuilding their stockroom inventories, and not by consumers who were shopping more or foreign businesses buying more American-made products. And companies are likely to have only so much appetite for refilling their backroom shelves if consumers are still unwilling to buy those products.

Consumer spending rose at an annual pace of 2 percent, slightly better than the 1.7 percent in the previous quarter, Friday’s report showed. But based on early data, it looks as if consumer spending deteriorated toward the end of the year. This may be because of unseasonably warm December weather, which probably lowered families’ household electricity and gas bills, said Jay Feldman, an economist at Credit Suisse.

Consumers also benefited from lower gasoline prices, but that was not enough to offset consumers’ concerns about their stagnant incomes.

“We did have some relief on gasoline prices in the fourth quarter, but that didn’t cause people to go out and spend more vigorously,” said Nigel Gault, chief United States economist at IHS Global Insight. “It just means they didn’t have to dip into savings.”

One of the biggest drags on growth in the last quarter was government spending cuts at the federal, state and local levels, according to the Commerce Department report. National defense spending fell a whopping 12.5 percent, for example, an unusually large dip that economists do not expect to see repeated in the beginning of 2012. Strapped state and local governments are likely to continue cutting back in 2012, as they have done nearly every quarter for the last several years.

At the federal level, Congress has not decided whether to renew a temporary payroll tax cut and extended unemployment benefits past February, when both are scheduled to expire. Allowing these policies die as planned would shave a percentage point from gross domestic product growth this year, said Ian Shepherdson, chief United States economist at High Frequency Economics.

One of the more positive surprises in the report was in housing. Investments in sectors like home construction and repairs rose 10.9 percent last quarter. The housing sector is so small now, though, that it didn’t provide much oomph.

Based on the retail sales report for December that we saw earlier this month, it’s pretty clear that consumer spending did slow during the final month of the year. Something that is very atypical for a month that includes the biggest shopping season of the year. Therefore, it’s not surprising to see the consumer side of the economy contributing to a less than expected GDP report. Additionally, as Reuters notes, a large part of the growth in the 4th Quarter came from business building up inventories:

The economy in the fourth quarter got a temporary boost from the rebuilding of business inventories, which logged the biggest increase since the third quarter of 2010. The buildup followed a third quarter decline that was the first since late 2009.

Excluding inventories, the economy grew at a tepid 0.8 percent rate, a sharp step-down from the prior period’s 3.2 percent pace and a sign of weak domestic demand.

(…)

Inventories increased $56.0 billion, adding 1.94 percentage points to GDP growth. Excluding inventories, the economy grew at a tepid 0.8 percent rate, a sharp step-down from the prior period’s 3.2 percent pace.

The robust stock accumulation suggest the recovery will lose a step in early 2012.

In other words, inventory growth, which is not something likely to occur again in the current quarter unless consumer activity picks up, accounted for two thirds of the increase in economic output in the 4th Quarter. It helps boost the number up for one quarter, but it’s not a sign of sustained economic growth. And that’s what we need.

Moreover, it turns out that the economy only grew at a pathetic 1.7% rate for the entirety of 2011. As Brad Plumer notes, this is far from sufficient to lead to the kind of  economic growth we need to get back to full employment:

Ever since the financial crisis hit, “real GDP” (what the economy is actually producing) has been lagging way below “potential GDP” (what the economy could be producing, given our existing workforce and resources). That means the country needs some catch-up growth to get back to full employment. Dave Altig, senior vice president and research director at the Atlanta Fed, drew up a chart showing how much growth we’d need to get back to close the output gap. If the United States grows at just a 3 percent rate, it will take until 2020 to get back to full employment.

Here’s the chart that Plumer is referencing:

Cuts in government spending are also a factor slowing down economic growth, but its worth noting that this is part of a vicious cycle created by a slow economy. Especially for state and local governments that must balance their budgets, slow economic growth means less tax tax revenue, which means that something will need to be cut somewhere. That’s a reality that every state government has had to face over the past several years, and even Democratic Governors like Jerry Brown and Andrew Cuomo have been forced to pare state budgets bloated by years of generosity. Furthermore, real economic growth is only going to come when manufacturing, industrial production, and consumer spending are moving forward and there’s very little government can do about that.

This number will, obviously, be revised at least twice more over the coming months. If the past is any indication, we’re more likely to see a downward revision than an upward one  so, it may turn out in two months that actual 4th quarter growth was closer to 2.5%. Good, maybe, but not good enough.  We’re far from being out of the woods yet, folks.

Update: As far as future economic growth goes, I believe the best indication of just how anemic it is likely to be came in the Federal Reserve’s announcement earlier this week that it does not plan to raise interest rates for at least the next three years:

WASHINGTON — The Federal Reserve, declaring that the economy would need help for years to come, said Wednesday it would extend by 18 months the period that it plans to hold down interest rates in an effort to spur growth.

The Fed said that it now planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began as shock therapy in the winter of 2008 into a six-year campaign to increase spending by rewarding borrowers and punishing savers.

The economy expanded “moderately” in recent weeks, the Fed said in a statement released after a two-day meeting of its policy-making committee, but jobs were still scarce, the housing sector remained deeply depressed and Europe’s flirtation with crisis could undermine the nascent domestic recovery.

The Fed forecast growth of up to 2.7 percent this year, up to 3.2 percent next year and up to 4 percent in 2014, but at the end of that period, the central bank projected that the recovery would still be incomplete. Workers would still be looking for jobs, and businesses would still be looking for customers.

“What did we learn today? Things are bad, and they’re not improving at the rate that they want them to improve,” said Kevin Logan, chief United States economist at HSBC. “That’s what they concluded — ‘We’ve eased policy a lot, but we haven’t eased it enough.’ ”

The economic impact of the low-interest rate extension, however, is likely to be modest. Many businesses and consumers can’t qualify for loans, a problem the Fed’s efforts do not address. Moreover, long-term rates already are at record low levels and, like pushing on a spring, the going gets harder as it nears the floor. Finally, the Fed already was widely expected by investors to hold rates near zero well into 2014, limiting the benefits of a formal announcement.

“I wouldn’t overstate the Fed’s ability to massively change expectations through its statements,” the Fed’s chairman, Ben S. Bernanke, said at a press conference Wednesday after the announcement. “It’s important for us to say what we think and it’s important for us to provide the right amount of stimulus to help the economy recover from its currently underutilized condition.”

This forecast, of course, assumes that there won’t be any outside factors such as an international crisis or a resumption of Europe’s Soverign Debt problems, that end up retarding economic growth in the coming years. There’s reason for optimism, but also caution. And there’s really nothing to celebrate right now.