President Obama’s Jobs Advisor Ships Jobs Overseas.

No wonder jobs aren’t being created.  The President listens closely to Jeffrey Immelt, the CEO of corporate welfare recipient large multinational General Electric about jobs policy.  So what’s GE doing about jobs?  Bloomberg reports:

General Electric Co.’s health-care unit, the world’s biggest maker of medical-imaging machines, is moving the headquarters of its 115-year-old X-ray business to Beijing to tap growth in China.

“A handful” of top managers will move to the Chinese capital and there won’t be any job cuts, Anne LeGrand, vice president and general manager of X-ray for GE Healthcare, said in an interview. The headquarters will move from Waukesha, Wisconsin, amid a broader parent-company plan to invest about $2 billion across China, including opening six “customer innovation” and development centers.

The move follows the introduction earlier this year of GE Healthcare’s “Spring Wind” initiative to develop and distribute medical products and services in China, GE said in a statement today. More than 20 percent of the X-ray unit’s new products will be developed in China, LeGrand said.

Read more: http://www.bloomberg.com/news/2011-07-25/ge-healthcare-moves-x-ray-base-to-china-no-job-cuts-planned.html#ixzz1UjwUi6Yu

I Don’t Think Corporate Taxes Are Too Low

Ok, just a quickie about taxes with two more startling graphs.  Another proposal that’s making the rounds in Washington is to cut the corporate income tax rate.  This proposal is originally coming from the Republicans, but it looks like Obama has drunk the kool-aid too.  The argument goes that corporations in the U.S. are taxed too much and that’s why corporations don’t invest in the U.S. and therefore don’t grow jobs here.  The “evidence” cited is the fact that the U.S. statutory income tax rate for corporations (at least any with substantial income) is 35%, one of the two highest in the developed, industrialized world.

But it’s a deceptive piece of evidence because what matters is what corporations actually pay, not the statutory rate.  As I’ve noted before, U.S. corporations, particularly multinationals pay little in income tax.  GE, especially,is a welfare queen that pays no taxes despite taking huge contracts from the government. So what’s the trend been for corporate taxes as part of our GDP? The CBPP obliges with a graph:

Um, that doesn’t look to me like a severely burdensome corporate tax rate.  In fact, back in the 1950’s and 1960’s, back when corporate managements were focused on making products and opening markets instead of focused on spreadsheet tricks to gimmick-up this quarter’s earnings, the corporate tax rate was higher.

General Electric Is A Welfare Queen

Ronald Reagan introduced the nation in 1976 to the concept and existence of welfare queens, private citizens that pay no taxes but manipulate the system to obtain large amounts of government money.  Sometimes welfare queens have very profitable but socially destructive businesses on the side and make even more profits.  If that’s true, then General Electric is a welfare queen. Most of their businesses depend on government funding such as military expenditures, medicare expenditures, or nuclear powerplants.  But they pay nothing, zip, zilch, nada in taxes.  But they get to keep large profits.  Do they use those profits to create U.S. jobs? Nope. When you’ve got pipeline to the inside of the government, it’s very profitable.  As I’ve said before, it’s good to advise the king.

From Political Irony:


© Jeff Danziger

General Electric had profits of over $14 billion in 2010 and yet paid no taxes. In fact, they received a tax benefit of $3.2 billion. Now that’s corporate welfare! How does GE do it? By hiring former treasury officials to work in their tax department, and by aggressive lobbying to get tax laws changed to their favor.

Fifty or so years ago, 30% of all federal revenue came from corporations. Now it is only 6.6% — far less than individuals pay. In fact, a majority of large corporations don’t pay any taxes at all. And yet Republicans still want to cut corporate taxes even more.

 

Corporate Influence – GE and Radioactive Fallout

This morning the news came that more than 2 weeks after the tsunami in Japan, 4 of the 6 nuclear reactors at Fukashima are still not stable.  Indeed, 1 or 2 of the reactors are suspected of having leaks from, at best, the pipes into and out of the core reactor containment housing, and, at worst, the reactor containment housing itself.  Numerous stories have already been run about how Tokyo Electric Power (TEPCO), the owner and operator of the Fukashima plant has had a checkered past with regard to safety and inspection compliance.  That’s to be expected when large corporations have unwarranted political influence and when an established industry “captures” the regulators. See here for more about regulatory capture.

But let’s ask who made the containment vessels and the reactor itself which has failed.  Why it’s none other than the U.S.’s own General Electric.  The very same firm that holds itself as “bringing good things to life” in this case is “bringing half-lives to things and people”.  Economic Policy Institute explains:

There can hardly be a more frightening person to be President Obama’s pet CEO than GE Chairman and CEO Jeffrey Immelt. Yet, that is exactly who has the President’s ear at the White House.

It is becoming apparent that GE, rather than “bringing good things to life”, has a unique ability to cozy up to government, massage regulations and bring dangerous toxins into our lives—and I mean seriously dangerous.

NYT now tells us about the containment vessels at the damaged nuclear power plants in Japan are manufactured by GE:
…the type of containment vessel and pressure suppression system used in the failing reactors at Japan’s Fukushima Daiichi plant — and in 23 American reactors at 16 plants — is physically less robust, and it has long been thought to be more susceptible to failure in an emergency than competing designs.

G.E. began making the Mark 1 boiling water reactors in the 1960s, marketing them as cheaper and easier to build — in part because they used a comparatively smaller and less expensive containment structure.

Feeling better about the value system and judgements of the people advising the President?  I’m not.

Beyond Regulation: Thorium As Safe Nuclear Power?

The disaster at the Japanese Fukashima nuclear reactor has, not surprisingly, re-opened debates about nuclear energy, it’s safety, and energy policy in general.  I’m not going to go into the whole debate or the merits of nuclear energy vs. coal-powered vs. solar, etc. here now. But what I do want to do is to talk about the role of government in any energy policy and safety debate.

There  is a clear regulatory role for government to promote safety regardless of the type of energy program.  Economic theory (at least beyond the simple one-liner slogan economics) and economic history both clearly show a needed role for government.  The dangers posed by any energy source (coal, nuke, etc) are either:  a) long-term developing as in slow creation of cancers from breathing polluted exhaust or slow radiation poisoning, or b) highly uncertain, perhaps improbable, but horrific should it happen (nuclear meltdown), or c) extremely difficult to detect and assess for untrained consumers/neighbors, or d) some combination of a, b, and c.  This means that a purely privately -owned energy generating firm faces incentives to cheat or skimp on safety measures in the near-term and to under-invest in safety.  No legal mechanism exists  (or is practical to create) to adequately ensure that  the producers of the harm, the energy company, pays in full for all damages.  Indeed, most producers or investors need some assurance that they won’t be fully legally liable for all potential damage they may do – that’s why corporations exist instead of partnerships. Since the risks and externalities are unavoidable for consumers, it falls to the government to regulate and mandate safe procedures.

But regulation has it’s limits. Regulators, especially highly-technical and/or long-standing regulators are prone to “capture”.  In other words, the people in the regulatory agency become too friendly, too gullible, and too cooperative with the firms being regulated.  After all, for most of the regulators, these firms are where they’re going to work after their government job. No sense making enemies. The highly technical nature of the task makes it difficult for others in government to understand or get good information from either the captured regulators or firms themselves.  What often happens in this scenario is an increasing series of accidents that are covered-up or handled to the firm’s benefit and not the environment’s or public’s benefit.  The BP oil spill is a good example. Unfortunately, it appears that at least the initial responses to the Fukashima disaster fall into this category as well.  (I had a good link for this but I can’t find it now).

But  beyond regulation government has another critical role in safety.  Government can fund the new discovery of new technologies that are safer but disruptive of the existing firms and system. The really early research and development work that is highly uncertain but yet yields both the new ideas and the proof of concepts from which new industries and new technologies emerge are nearly always funded by government.  Early R&D, particularly for highly disruptive new technologies, is simply too expensive, too uncertain in payout, and too long in paying out to attract private investment.  It has always been thus.  Canals? Government funded. Cotton gin? Telegraph? Electicity generation? Railroads? Internet? The Web? Relational Databases? Computers? All government funded in the early critical stages. It is here where government can play a truly significant role in developing cheap, safe, non-polluting energy.

And it appears that in the nuclear arena, government is doing exactly that. Except it’s not the U.S. government or the French government (the French are really big in existing uranium-based nuclear).  It’s the Chinese and the Norwegians.  They are currently investing in development of thorium-based nuclear power instead of uranium chain-reaction nuclear power such as the U.S. and French and Japanese have relied on for decades. Now a disclaimer, I’m no nuclear physicist. I didn’t even sleep in a Holiday Inn Express last night. But I do understand something about systems.  Real safety comes from having a system that when something goes wrong, it naturally reverts to a default, inert state.  An example is a deadman’s switch on an industrial press. It takes two hands to press switches simultaneously to make the press work. That means as soon as a worker places or leaves a hand in the path of danger, one switch is uncovered and the machine stops.  Or another version means that as soon as the switch is released (reverts to an uncontrolled state), the machine stops.  A major problem with uranium-based nuclear power as I’ve come to understand it, is that this kind of safety isn’t possible. There’s no way to “stop” the process instantly.

Apparently [physicists are welcome to comment and correct], in uranium-based fission nuclear reactors the nuclear reaction is a chain reaction.  It keeps happening without an external input.  It takes an active external input to try to “stop” the reactor.  Yet even that, which happened at Fukashima correctly with the earthquake, doesn’t really stop things.  The fuel continues to react but gradually slows down.  It keeps generating heat for weeks, months, and even longer. This means an active system must be working properly to keep the system cooled and prevent disaster. That means back up systems and redundancies. But the tsunami overwhelmed the backup systems.  Any system that relies on increasing levels of redundant active systems to prevent disaster is a system that is playing probabilities.  It is relying on complexity for safety.  And complexity can never produce really safe systems. It is always limited by the incentives and imagination of the original engineers.

So I’m very excited to read about the existence and potential of thorium-based nuclear reactors.  Ambrose Evans-Pritchard in the U.K. Telegraph explains:

China’s Academy of Sciences said it had chosen a “thorium-based molten salt reactor system”. The liquid fuel idea was pioneered by US physicists at Oak Ridge National Lab in the 1960s, but the US has long since dropped the ball. Further evidence of Barack `Obama’s “Sputnik moment”, you could say.

Chinese scientists claim that hazardous waste will be a thousand times less than with uranium. The system is inherently less prone to disaster.

“The reactor has an amazing safety feature,” said Kirk Sorensen, a former NASA engineer at Teledyne Brown and a thorium expert.

“If it begins to overheat, a little plug melts and the salts drain into a pan. There is no need for computers, or the sort of electrical pumps that were crippled by the tsunami. The reactor saves itself,” he said.

“They operate at atmospheric pressure so you don’t have the sort of hydrogen explosions we’ve seen in Japan. One of these reactors would have come through the tsunami just fine. There would have been no radiation release.”

Thorium is a silvery metal named after the Norse god of thunder. The metal has its own “issues” but no thorium reactor could easily spin out of control in the manner of Three Mile Island, Chernobyl, or now Fukushima.

Professor Robert Cywinksi from Huddersfield University said thorium must be bombarded with neutrons to drive the fission process. “There is no chain reaction. Fission dies the moment you switch off the photon beam. There are not enough neutrons for it continue of its own accord,” he said.

Dr Cywinski, who anchors a UK-wide thorium team, said the residual heat left behind in a crisis would be “orders of magnitude less” than in a uranium reactor.

So back to the question of government role.  When an existing industry such as nuclear power generation exists, dominated by only 1-2 manufacturers of equipment (such as GE) and a small number of very large, very entrenched producers, the utilities themselves, there is enormous resistance and active hostility to change. New technologies are not seen by the existing industry as opportunities. They are only threats. The immediate profit-maximizing “rational” action is to invest not in the new technology, but to in government lobbying efforts to block the development of the new technology. Since nuclear power is an established, well-regulated industry with big bucks behind it, it’s well positioned to stop the new technology, at least in the U.S.   According to Evans-Pritchard, that’s what’s happening in the U.S. and France.  The U.S., which actually first developed the idea of thorium reactors, has dropped the ball. (apparently thorium can’t be used for a-bombs) France, another established uranium player, has actively lobbied against EU research funding of thorium.  And the short-sighted UK government has cut funding for it. Fortunately, there’s a different view in China and Norway where no entrenched uranium-based companies currently exist.

… a few weeks before the tsunami struck Fukushima’s uranium reactors and shattered public faith in nuclear power, China revealed that it was launching a rival technology to build a safer, cleaner, and ultimately cheaper network of reactors based on thorium.

This passed unnoticed –except by a small of band of thorium enthusiasts – but it may mark the passage of strategic leadership in energy policy from an inert and status-quo West to a rising technological power willing to break the mould.

If China’s dash for thorium power succeeds, it will vastly alter the global energy landscape and may avert a calamitous conflict over resources as Asia’s industrial revolutions clash head-on with the West’s entrenched consumption.

China’s Academy of Sciences said it had chosen a “thorium-based molten salt reactor system”. The liquid fuel idea was pioneered by US physicists at Oak Ridge National Lab in the 1960s, but the US has long since dropped the ball. Further evidence of Barack `Obama’s “Sputnik moment”, you could say….

… France’s nuclear industry killed proposals for funding from Brussels, though a French group is now working on thorium in Grenoble.

This is the kind of research and development that could be provide a dramatic spark to the U.S. economy through spin-off effects. But I wouldn’t hold my breath.  Jeffrey Immelt is Obama’s chosen economic advisor from the private sector (at least non-bank private sector). Immelt is CEO of GE. And GE has a huge investment in uranium-based nuclear power, including those reactors and cooling ponds that are melting at Fukashima.

It’s Nice to Advise the King

Follow-up to my post Fox, Hen House, Economic Advisors on appointing GE boss Jeff Immelt to advise President Obama. So Obama begins enforcing new environmental rules, but GE gets an exemption.  How convenient. As Mel Brooks used to say, It’s good to be the king. I think it’s pretty nice to just be the king’s advisor.

Last month, the Obama EPA began enforcing new rules regulating the greenhouse gas emissions from any new or expanded power plants.

This week, the EPA issued its first exemption, Environment & Energy News reports:

The Obama administration will spare a stalled power plant project in California from the newest federal limits on greenhouse gases and conventional air pollution, U.S. EPA says in a new court filing that marks a policy shift in the face of industry groups and Republicans accusing the agency of holding up construction of large industrial facilities.

According to a declaration by air chief Gina McCarthy, officials reviewed EPA policies and decided it was appropriate to “grandfather” projects such as the Avenal Power Center, a proposed 600-megawatt power plant in the San Joaquin Valley, so they are exempted from rules such as new air quality standards for smog-forming nitrogen dioxide (NO2).

There’s something interesting about the Avenal Power Center:

The proposed Avenal Energy project will be a combined-cycle generating plant consisting of two natural gas-fired General Electric 7FA Gas Turbines with Heat Recovery Steam Generators (HRSG) and one General Electric Steam Turbine.

Maybe GE CEO Jeff Immelt’s closeness to President Obama, and his broad support for Obama’s agenda, had nothing to do with this exemption. But we have no way of knowing that, and given the administration’s record of regularly misleading Americans regarding lobbyists, frankly, I wouldn’t trust the White House if they told me there was no connection.

On the upside, at least Job Czar Immelt is creating jobs!

Fox, Hen House, Economic Advisors

President Obama, in his never ending desperate quest to be accepted by Congressional Republicans as being just like them, even if it means abandoning the changes he was elected to lead, has changed his lead economic advisors.  Simon Johnson in the NY Times observes:

President Obama is embarked on a major charm offensive with the business sector, as seen, for example, in the appointments of William M. Daley (formerly of JPMorgan Chase, now White House chief of staff) and Jeffrey R. Immelt (chairman and chief executive of General Electric and now also the president’s top outside economic adviser).

This should not be an uphill struggle – much of the corporate sector, particularly bigger and more global businesses, is doing well in terms of profits and presumably, at the highest levels, compensation. But when exactly will this approach deliver jobs and reduce unemployment? And does it increase risks for the future?

Republican rhetoric over the last two years was relentless in its assertion that the Obama administration was antibusiness. Supposedly, this White House attitude undermined private sector confidence and limited investment.

Simon also points out that corporate profits, and the financial, banking and multi-nationals in particular, have recovered quite nicely from the recession. Indeed, profits for them not only returned to record levels but recovered from the recession in record time. According to the President, our challenge is create jobs. I would certainly have to agree, as I’ve noted here and here. But these appointments don’t appear to help.  These guys have been part of the problem. They’re not part of the solution.  Catherine Rampell of the NY Times agrees:

In the wake of Jeffrey Immelt’s ascent to the chairmanship of President Obama’s jobs council, some commentators have questioned whether the leader of General Electric, a company that has sharply reduced its United States payrolls over the years, is the best person to be orchestrating a jobs revival.

Among executives of multinational companies, Mr. Immelt is hardly alone in having presided over a major reduction in domestic jobs amid a major increase in foreign jobs. Witness the following chart, which shows changes in domestic and foreign employment at American multinational companies from 1998 through 2008 (that is, the decade leading up to the financial crisis):

The chart is taken from testimony by Martin Sullivan, an economist and contributing editor with Tax Analysts, in a discussion of how international tax rules favor foreign, rather than domestic, job creation, especially by United States multinationals.

So the CEO of one of the largest multinationals on the planet is now advising the President on jobs creation.  The same guy who led that company to move thousands of jobs out of the U.S. and create new ones in other countries.But it’s not enough that Immelt’s the wrong guy to ask about how to create jobs.  The President is asking the fox for advise about protecting the hens.

Rampell also points out how one of Immelt’s pet proposal that he’s been pushing for a long time is for a “tax holiday” that allows U.S. based multinationals to repatriate foreign profits to the U.S. without paying tax.  In many cases the “foreign profits” of these multinationals are actually U.S.-earned profits that have been laundered through foreign subsidiaries using a variety of tax dodges and artificial internal transfer prices (see Dutch Sandwich for one example of how Google got it’s U.S. tax rate down to 2.4%).  So at a time when we are supposedly concerned about the deficit, the President is turning to one of the biggest tax dodgers around: GE.

To add further injury, let’s consider the inherent conflicts of interest.  GE, despite it’s recognizable brand name among consumers and it’s heritage as Thomas Edison’s creation, is not a the entreneurial industrial competitor it once was generations ago.  GE doesn’t  really compete in capitalistic free markets for consumers’ attention to make it’s money. GE works the government.  One of GE’s largest subsidiaries is also one of the largest military contractors dependent on the pentagon military budget. Up next is the power generation division is dependent on subsidies for the promotion of clean and renewable energy. Another huge subsidiary is the medical devices  unit which sells primarily to hospitals and doctors who in turn bill Medicare and health insurers – and healthcare spending is driving the fed government spending. The NBC subsidiary depends on the FCC for favorable decisions and protection from competition. And finally, the last major subsidiary is the financial services unit which benefitted from the bank bailouts.  Let’s face it, GE is a giant that depends primarily on the federal government for support. Yet, not only is Immelt, the GE CEO in a position to have the President’s ear on economic and budget issues, he’s doing it without resigning from GE. Can we all say “conflict of interest” folks?

The other appointee, William M. Daley, is resigning (for now) his position as a senior executive with JPMorgan Chase, the monster bank that the Feds bailed out and then they fought financial reform.  Let’s be real. Daley’s job lasts at most 2 years. Then he needs another job. He knows that. He also knows JP Morgan Chase will likely hire him back at a much increased salary – if he gives advice to the President favorable to JP Morgan Chase.

This isn’t representative democracy.  This isn’t even rule by some technocratic advisors.  This is crony capitalism, rule by an oligarchy.