Byrd, Brown Keys To Climate Fight; EPA Steps Up

Yesterday's release of the Kerry-Boxer climate bill found at least one surprising supporter - West Virginia Senator Robert Byrd.

Senator Byrd put out a statement making surprisingly supportive noises, saying he’s “glad” that Kerry and Boxer incorporated his suggestions and promising to keep working on the bill with them. A Kerry aide says Byrd’s comments came after Kerry lobbied Byrd’s staff extensively in one-on-one meetings.

Now, I'd rather have the Senator from West Virginia who is physically able to perform - Jay Rockefeller criticized the bill - praising the bill, but if Byrd is reachable, that does widen the list of reachable Senators. The Hill reports that Sherrod Brown of Ohio could be a key:

The Ohio liberal has been working diligently behind the scenes on behalf of manufacturers, seeking concessions from two Democrats who share his views on most other policy matters [...]

For starters, he thinks the Senate climate change bill needs to invest significantly more to help U.S. manufacturers, which face a competitive disadvantage with companies in China and other countries with less strict environmental rules.

Brown wants Boxer to increase the size of rebates to manufacturers that consume large amounts of energy, and give more assistance to small- and midsized manufacturers trying to retool their businesses to compete in the clean-energy economy.

Perhaps most controversially, Brown wants the Senate to consider imposing tariffs on foreign competitors operating in countries with lax rules for greenhouse gas emissions.

“Carbon dioxide emissions expand if a company closes down in Toledo, Ohio, and moves to Shanghai, where the emissions standards are weaker,” he said. Brown describes this phenomenon as “carbon leakage.”

Democrats such as Sens. Debbie Stabenow (Mich.), Carl Levin (Mich.) and Bob Casey Jr. (Pa.) say they have the same concerns as Brown and acknowledge that he has been a leading advocate for industrial states.

“His voice on manufacturing is really important,” said Stabenow of Brown.

I'm actually pleased that there is a voice for manufacturing in the Senate, though I don't necessarily agree with all of Brown's proposals, many of which are admittedly parochial. But I strongly support carbon adjustment tariffs. It's just a fact that greenhouse gas emissions should be factored into the price of goods, and such a tariff would be a way to do that. If Wal-Mart sells me a set of tube socks for $2, the cost to the environment and eventual cleanup is far higher.

The good news yesterday is that the Obama Administration stepped up. The EPA issued a new rule on regulating greenhouse gases emitted at stationary sources, and it could prove a motivator for Congress to get something done.

Appearing at a climate summit in Los Angeles today, Environmental Protection Agency Administrator Lisa Jackson will announce the administration’s plan to regulate industrial global warming pollution, with or without the support of Congress. In May, the Environmental Protection Agency proposed global warming standards for motor vehicles, applauded by the auto industry. Under the rules of the Clean Air Act, when these regulations go into effect in March 2010, all major greenhouse gas polluters — from coal-fired power plants and oil refiners to methane-emitting landfills — are automatically subject to regulation:

Under EPA’s current interpretation of PSD [Prevention of Significant Deterioration] and title V applicability requirements, promulgation of this motor vehicle rule will trigger the applicability of PSD and title V requirements for stationary sources that emit GHGs.

Today’s proposed rule — which allows public comment until December — technically is a “tailoring rule” to limit regulation of global warming pollution to emitters of 25,000 tons of carbon dioxide a year, instead of the automatic statutory amount of 250 tons. This 250-ton standard would cover about four million businesses and homes — the “glorious mess” President Bush used as an excuse for his inaction. The EPA plans to raise the pollution limit to 25,000 tons, so that only 14,000 industrial pollution sources nationwide would be covered by the regulations, 11,000 of which are currently covered by the Clean Air Act permitting requirements already.

Raising that pollution limit means that churches or schools, who emit over 250 tons, would not be targeted. But it does mean that thousands of power plants will get permits showing they are working to reduce carbon dioxide emissions. That sets a date - March 2010 - for the fight. And Congress can either provide their own counterpart legislation or get out of the way. That's helpful to Kerry and Boxer's efforts.

A Defense Of American Jobs

I remember when I was told on a daily basis that the President's greatest responsibility was to protect the American people. Well, this President just did that. He protected their jobs.

In a break with the trade policies of his predecessor, President Obama announced on Friday night that he would impose a 35 percent tariff on automobile and light-truck tires imported from China [...]

The decision signals the first time that the United States has invoked a special safeguard provision that was part of its agreement to support China’s entry into the World Trade Organization in 2001.

Under that safeguard provision, American companies or workers harmed by imports from China can ask the government for protection simply by demonstrating that American producers have suffered a “market disruption” or a “surge” in imports from China.

Unlike more traditional anti-dumping cases, the government does not need to determine that a country is competing unfairly or selling its products at less than their true cost.

The International Trade Commission had already determined that Chinese tire imports were disrupting the $1.7 billion market and recommended that the president impose the new tariffs. Members of the commission, an independent government agency, voted 4-2 on June 29 to recommend that President Obama impose tariffs on Chinese tires for three years. Mr. Obama had until this coming Thursday to make a decision.

China undercuts the global market through manipulating their currency and treating their workers like slaves. America can stand by and do nothing as jobs fly away and the manufacturing base gets obliterated, or they can act under their own trade laws to do something about it. The inconvenient fact is that we don't have free trade; every country acts to protect their interests. And so should we.

Very good move by the President. Dave Johnson has more.

Let The World Be Flat, Then

Here's something everyone can sink their teeth into - the White House enforcement of trade laws! Actually, it's more serious than it sounds. The Chinese are undercutting American manufacturers on price through actions of questionable legality, and the Obama Administration needs to make a choice on whether or not to enforce that.

By Sept. 17, Obama must decide whether to slap a 55 percent tariff on tires imported from China, as recommended by a federal trade panel, or leave the matter alone, as a phalanx of lobbyists representing manufacturers in China and U.S. companies that import from them are urging.

From 2004 to last year, the number of Chinese tires imported to the United States more than tripled, and their share of the U.S. market rose from 5 percent to 17 percent. Over the same period, the share of the U.S. market served by U.S. factories declined by a similar amount. More than 5,000 U.S. jobs were lost.

Opponents of the tariff say the U.S. industry's shrinkage is unrelated to the surge in Chinese imports. The U.S. manufacturers, they say, have strategically moved into pricier, more profitable tires, shifting production of cheaper tires overseas.

This is a measure designed to save American manufacturing jobs. The "world is flat" crowd tells us that we shouldn't bother so much with that, because globalization has provided cheap crap for us all and the world must freely trade. The answer to that is that all countries restrict their own markets. Toyota wouldn't exist without tariffs. A lot of major industries overseas wouldn't. In particular, Chinese industry receives government subsidies that violate international trade law, and they should face the consequences.

In one of the largest U.S.-China trade cases ever, the U.S. Commerce Department has issued a preliminary finding that Chinese steel pipe producers have received government subsidies in violation of trade law, helping them overrun the competition.

The volume of steel pipes imported from China more than tripled between 2006 and 2008, rising from $632 million to $2.6 billion, according to the Commerce Department.

The subsidies from the Chinese government allowed the firms to overwhelm their U.S. rivals, according to six U.S. companies that filed the complaint along with the United Steelworkers union. The companies alleged that their Chinese rivals received discounts on raw materials and loans from government-owned firms.

To even the playing field, the Commerce Department has ordered that tariffs ranging from an estimated 11 percent to 31 percent be imposed on the steel pipes from China.

The steel pipes at issue in the case are those used primarily by the oil and gas industry. They are known as "oil country tubular goods." By dollar volume of imports in the industry, the case represents the largest U.S.-China trade case ever, attorneys said.

If you want to argue for a level playing field, you have to be willing to call out both sides and seek one that's truly level. Good for the Obama Administration, so far, for making that case.

Wildly Successful Government Program To End Monday

The Cash For Clunkers program will wrap up on Monday, a couple weeks ahead of schedule, after fueling a buying boom worth close to $15 billion dollars in sales during late July and August, and leveraging a 5:1 stimulus effect into industrial and local economies, so much so that GM has started to hire back workers. Dealers are complaining that they haven't received their money yet, but that's simply a testament to an unexpectedly successful program.

Critics have complained of administrative confusion and haste in committing the money, and some dealers have expressed concern that they were not being reimbursed quickly enough.

But the White House argued that the speed with which the money has been committed is a measure of the program's popularity.

"This is actually a high-class problem to have -- that we're selling too many cars too quickly and there's some backlog in the application process," President Barack Obama said Thursday during an interview on a nationally syndicated radio show.

I'm sure the dealers liked it better when they went a week without anyone coming on their lots. I'm sure they were thrilled with the status quo of playing Minesweeper for 8 hours a day while trying to figure out how to pay the rent. Manufacturing actually rose in July, thanks to this program.

Government stimulus works. It's as simple as that.

They Call It Stimulus

The government institutes a program to encourage the sale of fuel-efficient cars, and factories have to build more fuel-efficient cars.

Higher sales from the government's Cash for Clunkers program have prompted General Motors Co. to boost production at several of its factories, according to company and union officials.

The increases include an extra day of work at the Lordstown, Ohio, assembly plant and increased hours at a factory in Orion Township, Mich., said the union officials, who asked not to be identified because the announcement, expected Tuesday afternoon, had not been made.

The Lordstown plant, which makes the Chevrolet Cobalt and Pontiac G5 small cars, is now running at one shift for 10 hours per day from Monday through Thursday, but the company will add the next two Fridays to the schedule, one union official said. Plant spokesman Tom Mock confirmed the increase.

Clearly this is the work of evil government to take over your lives by creating more jobs and boosting manufacturing production. Those miserable, miserable people.

If there in fact is a second stimulus, it all needs to go toward programs like this, with tangible benefits for consumers and workers. The initial stimulus is getting a bad reputation because the "nudge" of adding a few bucks into worker paychecks isn't reaching the consciousness of most workers. Give people something they can touch and feel.

CA-10: An Interview With Lt. Gov. John Garamendi

John Garamendi has been seeking votes in California for well over 30 years. He first took a run for the Governor's mansion in 1982, and was set to do so again in 2010 until the seat in CA-10 opened up, and he was inspired to return to Washington, where he served in the Clinton Administration in the Department of the Interior. He has the most diverse record of anybody in the race, with stints at the federal level, the state legislature, and in two statewide offices, as the Insurance Commissioner and now Lieutenant Governor. In our interview, we discussed health care, lessons learned from regulating insurance, No Child Left Behind, saving the NUMMI plant in Fremont (more on that from Garamendi here), and foreign policy in Iran. I found Garamendi to come at issues in a very comprehensive and thoughtful way, and you can see this for yourself below. A paraphrased transcript follows.

DD: Thanks for talking with me today.

John Garamendi: My pleasure.

DD: So how's it going out there on the campaign trail?

JG: It's going very well. Every day, I feel we're moving along well. You have everything being done that is normally done in these campaigns. We have a strong volunteer grassroots organization committed to getting out the vote. Phonebanking has started, we've hit about 30-40 thousand homes. We're walking in different communities. We just had a meeting in Rossmore, with 300 people turning out. So I think it's going very well.

DD: Your last several campaigns have been statewide, with district-level campaigning being more retail, how are you finding it?

JG: To me, it's exactly the same, only it's done in a smaller area. I've always believed strongly in retail politics. The only difference is that after the event's over, I don't have to get on a Southwest Airlines plane. We did an African-American church out in Fairfield over the weekend, same as any African-American church in Southern California or anywhere else. It's just easier for travel.

DD: OK, let's hit some issues. First off, health care. August is this time where everyone's making their feelings known about health care in their districts. What are you hearing in yours?

JG: I am hearing a strong element for single payer, or Medicare for All. As you may know, I've led that debate in this state for many, many years. I've always found it the most efficient, most cost-effective way you can possibly do this. Just send your premiums to the Medicare office.

So I hear a lot of individuals trending in that direction. And some of the unions, the California Nurses Association, are also trending in that direction. There is also a concern about the complexity of the legislation moving through Congress. And people want to see at the very least a public option to compete with the insurance companies. Also, with a lot of seniors, the drug issues concern them, both with fixing some of the issues with Medicare Part D and also maintaining what they like about Medicare. So that's the range.

DD: Would you vote for any bill that didn't have at the least a public option that's available from day one, without a trigger?

JG: Well, I've always been a strong voice for Medicare for All. The fallback position is the public option. That's already a compromise. And so the legislation had to have a public option, I can't go any further away from that. The other thing I want to express is that I understand insurance reform, which is a lot of this bill. I was the main regulator for insurance companies in the largest state in the union. So I bring a set of knowledge to this debate that not only doesn't exist among my competitors, but doesn't exist in Congress.

DD: Let's talk about that. Right now, insurance companies are regulated in the states, and so the regulations vary from one place to the next, and can be corrupted by local interests. Do you support a federal role in insurance regulation?

JG: This is something that we have to figure out with insurance reform and with respect to financial regulation. The regulatory mechanisms need some clarity. It simply won't work to write a law saying to the insurance companies, "Take all comers." They will not do it. So you need a police force. Someone to enforce that law. Will that be federal, or based where it is now, at the state level? That's the kind of detail that must be worked out. I mean, we've had auto insurance here in California that's supposed to take all comers, and they find numerous ways to avoid that. And of course, this is why I support Medicare for All. You don't have to worry about any of that. But as long as we're going with health insurance reform, I can add something to that process.

DD: What are the pluses and minuses of putting this in the hands of the Feds?

JG: If it's a federal process, you'd have to set up a massive new federal bureaucracy. In the positive sense. But you have to have a police force, because otherwise, the insurers won't do it. That's a major, expensive undertaking for the federal government. There's an advantage to the existing mechanism in that it already exists, like with Medicare or Medicaid. However, you mentioned some of the problems with how the regulation changes depending on the state. So both options have shortcomings. Either way, if we have a bill based on insurance reform, it has to be dealt with. And I've been dealing with these companies for eight years of my life. I know how to do this.

DD: Medicare for All will apparently get a vote now. Is that helpful?

JG: It's enormously helpful. It got pushed to the side of the debate for too long. Medicare provides about 60% of the care in dollar terms already in this country, and it's very popular. If you bring the rest of the population in, on a per-person basis, the cost would decline dramatically. The money in the private system is good enough to get this done and cover everybody. And the other important thing is that Medicare allows individual choice of provider. Whatever doctor you like, you can keep them. Of course, we know that private insurance restricts your choice of doctor. So this is the big lie in this debate, the idea that Medicare would have government telling you what doctor to pick. That's what happens right now.

DD: Let's move on. I noticed on your website you took a lot of time talking about the need to rebuild manufacturing. We're seeing this cash for clunkers program becoming very successful as an economic stimulus for the auto industry. Is that the kind of incentive-based programs that we can use to bring back manufacturing to America?

JG: Not exactly. The auto industry is not central, but it is important. That's why I'm trying to save the NUMMI plant. 1,200 businesses are direct suppliers to NUMMI. The auto supply industry is one of the largest in America. So cash for clunkers will help NUMMI. But what I'm talking about with respect to manufacturing is an economic theory that I developed in the 1980s. Basically, I figured that you need certain things to maintain the ability to lead as an economic power. You need a world-class education system and a commitment to research and development. Through both of those, you can create new things, with a high profit margin, whatever those things are, but new innovations that people find valuable. Eventually, those new things become a commodity, and once that happens, like all commodities, it seeks the lowest-wage place to be made. So those things get pushed off, and you have to create more new things, to keep feeding that engine. So that's what I'm talking about, high-end manufacturing.

DD: Couldn't the NUMMI plant be retooled to serve as a place to manufacture those new things, be they innovations in solar or wind technology or new batteries?

JG: Well, we tried this a few years back. I endorsed a bill in the legislature to provide a specific exemption for sales tax on manufacturing equipment to retool the NUMMI plant for hybrid vehicles. And that probably would have been enough to keep NUMMI open. But it didn't pass. Right now, what we're doing is putting together a package for NUMMI of incentives that will hopefully keep them in California. But it's more complex than that. This is like a divorce. You have GM and Toyota fighting over who owns what widget on the line. So there are legal issues in play now. I think we can get it done, because that's a very efficient plant, one of the most efficient in the country. But we have to manage this divorce.

DD: Education is another issue you talk about a lot. The Department of Education just put out this Race to the Top program to offer money to the states with good outcomes, but they are restricting the funds to states which incorporate student testing into teacher evaluations, and because California doesn't do that, they don't qualify. What are your thoughts on that, and this larger divide between education reformers and groups resisting their reforms?

JG: My question about it is basically, what is the equation between the test and teacher evaluations? Are we talking about just the test score? In that case, do I get to choose the students? Because the students and their backgrounds are a contributing factor to their performance. So it's a complex equation. There's a socioeconomic element to it. And it's very difficult to do to take everything into account. I don't think that testing should be the sole measure of a teacher evaluation. There are multiple factors. My daughter's a kindergarten teacher, and this year she got to school and there were a lot more kids in her class. So is that a factor? I think we need to evaluate teachers, but we must be fair.

DD: Do you support a reform like paying teachers more to go into poor-performing inner city areas?

JG: I've always supported reforms like that. I put up a bill in the 1980s to pay more to math and science teachers, to make sure we were attracting the best of them. And I support sending good teachers into the inner city. We have to pay our teachers better if we want to get the best outcomes.

DD: We are having such a tough time in California, what can the federal government do to alleviate some of the burden here where we are destroying our social safety net during a deep recession?

JG: Well, just to go back to education, one thing the federal government can do is fix No Child Left Behind. It was a great concept, but not good in detail. The reauthorization is coming up, and the Feds had better fund it. You can't place a burden like that on the states and expect them to deliver. So funding, and some reform of the law, has to get done. I don't think testing should be the only evaluation of students. There's a place for it, but we're building a nation of robots by teaching to the test. I have significant concerns about No Child Left Behind that need to be addressed.

DD: What about beyond that. Would you support a second stimulus focused on the states?

JG: I don't know whether there will be a second stimulus. But the problem is pretty elemental. California is the 7th, 8th-wealthiest place on Earth. We have made a decision, and it was a decision, not to invest in education. We have plenty of money to fund it, but we made the decision not to. The leadership has refused to use that wealth in the greatest resource we have, and that's our education system. It's clear to me that the federal government cannot substitute for the effort that California must make for themselves. We need investment, coupled with serious reform, to break the gridlock. Voting to tax students by raising college rates is just insanity. And the regents and trustees refused to support legislation for an oil severance tax to fund higher education. I brought it to them, and they wouldn't support it. We are the only oil producing state with no tax on the natural resources coming out of our ground. The oil companies have been able to take it for free for over a century. It's madness.

So the federal government cannot substitute for California. But I'll fight to bring money back to the state. First by funding No Child Left Behind. And also, there's the issue of medical services. The formula for state participation in Medicaid in California is 50-50, an even split between the Feds and the state. In other big states, that ratio is different. In Illinois, New York, it's more like 60-40, 70-30. Getting a better split in that formula represents a huge amount of money for California. And there are numerous formulas like that. So experience counts in understanding all that.

DD: OK, final question. On your website, I noticed very strong language supporting Israel, and also warning Iran not to continue with their alleged nuclear program. And you advocate for stopping shipments of refined oil to Iran if they refuse to cooperate. Now, I'm assuming that was written before the most recent uprising.

JG: It was, yes.

DD: Do you still believe, given the events over there, that it's a good idea to stop refined oil shipments, when it may hurt not the regime, but the very people in the streets who are resisting it?

JG: There's no doubt that the effect of an embargo would hit the economy and the people. That's what it's designed to do. I've thought long and hard about this, after watching the events take place, and I still believe in the concept. What you have over there is the current government's legitimacy being questioned. Does that mean they are more willing to negotiate on the nuclear program, to bring something tangible to the people? We don't know. So I think you have to pull together the interested groups, and that's Europe, and Russia, Pakistan, the Arab states, they might be more interested than us. And you create a larger coalition to change the behavior of the government. The uprising actually helps in that regard. And like in any negotiation, you have to have a big stick. So I would not drop the embargo possibility. And again, all of this is down the road a piece. Now another big stick would be bombing their facilities, and I think there are some unadvisable consequences to that. So I'd rather use the other stick.

DD: Thanks so much for talking to me today.

JG: Thank you.

Genetically Modified GM

In just a little over a month, a bankruptcy judge approved the sale of GM to essentially itself, which took effect in a record amount of time.

General Motors Corp. sped toward a record-short escape from bankruptcy protection Thursday when a judge's order approving the sale of most of its assets to a new company went into effect.

The order, delayed four days to allow time for appeals, became effective despite a last-minute appeal from plaintiffs in an Arizona product liability case against GM involving a Chevrolet Malibu.

GM spokeswoman Julie Gibson said U.S. Bankruptcy Judge Robert Gerber's order allowing the sale became effective at 12 p.m. EDT. GM lawyers are working on paperwork to close the sale as quickly as possible, after which GM would leave bankruptcy protection.

Once the world's largest and most powerful automaker, GM will become a leaner and greener company, cleansed of debts and burdensome contracts that nearly dragged it into liquidation.

But it faces brutal international competition and the worst auto sales market in more than 25 years.

Emerging from bankruptcy in 39 days, considering the size of the company and the nature of the tangle of debt, is pretty remarkable. Some predicted 6 months.

The question becomes, "Now what?" Nobody's buying cars, and GM still has some significant legacy costs, particularly in that little thing called health care, which we want to reform so American businesses can actually compete on a global stage. Sadly, keeping the employer-based system largely intact won't do much for GM. Sadly, I don't think Congress is taking into account the importance of how what we'll see on the other side of the health care debate can help businesses and manufacturing.

...the geniuses in Congress want to reverse the closing of thousands of auto dealerships, saddling GM and Chrysler with costs they cannot possibly manage and basically kissing billions of taxpayer dollars goodbye. Great move, guys!

Patriot Store

I flagged this when it happened but never wrote about it because I wanted more information. Tula Connell from the AFL-CIO got it.

We heard Bill O'Reilly is having trouble finding American-made T-shirts to sell in his Patriot Store. We know he's heartbroken because, after all, what good is a Patriot Store if its products are made in El Salvador or Haiti? (Especially if you're selling red, white and blue "American Patriot" T-shirts, like the one on the left.)

We heard he can't find made-in-the-USA T-shirts because O'Reilly said so himself (h/t to D-Day). In his "Mailbag" segment on May 22, O'Reilly took the following question from Stewart Hollins in Rio Rancho, N.M.:

Mr. O, great looking mugs. Terrific bold and fresh shirts. Where are the items made?

And O' Reilly responded:

Mugs are made in the USA, Stewart. The shirts in Central America. We cannot get the volume of shirts we need made in America, sadly.

Yes, he's selling Central American shirts in his Patriot Store.

It's going to take a while to find out the conditions at the factory where these shirts are being made, but I hope they do. As Connell notes, plenty of manufacturers in America can handle Mr. Patriot Store's volume. There's no question that this is a cost issue, and the workers get left holding the bag on that.

Shrinkage Of The US Auto Industry

It looks now like GM and Chrysler will avoid bankruptcy, by consolidating operations, giving stakeholders a haircut and basically shrinking the size of the American auto industry. Chrysler's biggest lenders reached a deal with the Treasury Department to accept about 28 cents on the dollar for the company's debt. Add this to their deal with the UAW forcing them to accept losses, and an imminent deal with Fiat, and the automaker will presumably meet the requirements to borrow another $6 billion in federal assistance.

As for GM, they're essentially shrinking their output, cutting brands like Hummer, Pontiac, Saab and Saturn, and closing up to 1,000 dealerships (though that's on top of what could be another 1,600). That's likely to put 130,000 people out of work at least.

Emptywheel has this to say about the GM restructuring:

That said, today's plan finally gets around to cutting the number of dealers that GM will need to cut to turn itself around--they're talking of closing 2,600 of their 6,200 dealers across the country (did I say tons more job losses?).

On a conference call with GM CEO Ray Young, I asked how they were going to pull this off--was the government going to help them get out of their contracts? As a later questioner noted, the elimination of the Oldsmobile dealers was a very costly process. Young basically said that GM now could use the Oldsmobile process as a lesson in how not to do things.

That said, Young wasn't prepared to explain how GM plans to get out of 2,600 dealer contracts without billions in costs. The government is not going to help--so this is still an area where bankruptcy would offer an advantage to GM over this restructuring. Young said the impacted dealers would be approached over the month of May, and dealers would be wound down over 2009 and 2010. One of the reasons for the big factory idling, he explaned, was to help dealers sell down stock before they closed up shop (which means dealers may be able to pay off their debt before closing their business.

I'll again point out that it makes perfect sense to shrink the part of the American auto industry that makes AUTOMOBILES, but not to shrink the companies that could make other useful durable goods; namely, wind turbines, high speed rail cars, and other factory-produced items. Why can't GM and Chrysler get in on those contracts? Why would we build up new factories instead of retooling the ones we have?

Test Of Mettle

As part of the federal stimulus package, President Obama will green the federal fleet of vehicles, which makes economic and environmental sense. He's leading by example in that arena, and it's a good thing. Ultimately, however, while 17,600 fuel-efficient vehicle purchases for American-made cars will help in the short-term, the Administration can truly get the backs of the Big Three by cramming down the bondholders, many of whom are big banks who took TARP money.

General Motors is working on a new debt-exchange plan for its bondholders, one that would most likely offer only equity instead of cash or new debt, a person briefed on the proposal said on Thursday.

The new exchange offer, which is being drafted in consultation with the Obama administration’s auto task force, may be announced next week. To succeed, G.M. must reach an agreement with bondholders by June 1, when some of its bonds are due [...]

The task force, led by Steven Rattner, has demanded that G.M. bondholders take a steep discount to the value of their debt holdings. The presidential team has signaled that it would not allow taxpayer money to be used as interest payments for G.M.’s bonds.

Advisers to an unofficial bondholders committee have argued that they are being forced to accept a bigger sacrifice than other creditors. They have also complained that they have met with the presidential auto task force only once, on March 5.

This is where Obama will truly reveal whether he has the interests of manufacturing or the financial behemoth at heart. The bondholders want to force GM and Chrysler into bankruptcy because they figure they can get a better deal in front of a judge. It will take a supreme effort for Obama's Administration to force them to accept a debt-for-equity swap. For all that the US taxpayer has done for the banks, and given all the leverage that Obama actually has but is not using, there is no reason to accept the bondholder demands. We will know where the President stands soon enough.

Still Falling Off A Cliff

Another terrible jobs number for March.

Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment rate rose from 8.1 to 8.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Since the recession began in December 2007, 5.1 million jobs have been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last 5 months. In March, job losses were large and widespread across the major industry sectors.

Almost half of the jobs were lost in the manufacturing and construction sectors. We're becoming more of a service-sector McJob economy as a result of this Great Recession. Meanwhile China wants to become the leader in electric vehicles.

We're screwed.

How Long Must We Sing This Song?

This GM report really doesn't offer a lot of hope that they can survive. They're borrowing money to pay their bills. It's impossible to become profitable once you start down that road. We can react in one of two ways. We can pump money into them to prop them up, or we can structure a bankruptcy that isn't really called bankruptcy, which might take down a lot of suppliers in the process since they'll see less revenue from outstanding bills with GM. Chrysler is probably in worse shape, by the way.

I just don't know if enough consumer demand for automobiles is going to ever return to the degree it would need to bail GM out. And just because we're propping up zombie banks and it's wrong, that's not a good enough argument to say that we have to prop up the automakers too. I'm genuinely conflicted by this. The consequences of the failure of the auto industry are massive and could unspool the entire manufacturing economy. Yet their viability is severely threatened and it's unclear if even an AIG-like series of bailouts will make a difference. Clearly, if the government would stop giving the banksters every dime they want, there would be some more capital to work with. But it's all China's money, anyway.

This is just a really frightening time.

Transforming The Domestic Economy

The rage over the "Buy American" provisions in the economic recovery package are symptomatic of the entire reason why we're surging toward economic disaster. Let's go over this again: provisions like this are CURRENT LAW for federal procurement. When the federal government purchases, they purchase American goods. Just like every other country does. China is building a huge railroad with their initial stimulus package made entirely out of Chinese products. Every country does this. It's not controversial in the least.

Yet, it's only controversial when America, who has been selling out their industrial and manufacturing base for so long that multinationals expect nothing less, tries to implement the exact same policy they and the rest of the world have been doing for decades. This is ridiculous.

Last week the House of Representatives version of the bill stirred alarm in the EU and Canada by demanding that all iron and steel bought to rebuild the country’s crumbling infrastructure has to be American made.

Anxious lobbying by the EU has fallen on deaf ears as explicitly protectionist language was added to the Senate bill leaving it open to legal challenge under the rules of the World Trade Organisation (bullshit, federal procurement has never been and will never be subject to these trade agreements -ed) [...]

Big multinational corporations, including Caterpillar and General Electric which depend on foreign manufacturing plants, have launched a rearguard attempt to remove the Buy American provisions from the bill. The Emergency Committee for American Trade, another lobby group, is sending out shrill alarms that the stimulus bill could trigger a trade war that would ultimately damage American interests.

“Protectionism is the crackcocaine of economics. It may provide a high. It’s addictive and it leads to economic death,” said Richard Fisher, president of the Dallas Federal.

The Smoot-Hawley Tariff Act was put into place by corporate execs who wanted their companies to profit from the Depression. This measure is being opposed by the ancestors of those corporate execs who want to profit again. Any parallel between the two is completely absurd. It's the inverse.

Which is why even the free-traders in the Obama Administration are zipping their lips about these provisions.

Free-traders on President Obama’s economic team are suppressing concerns over Buy American provisions in the stimulus, derided as protectionist by corporate lobbyists.

Treasury Secretary Timothy Geithner and Obama’s top economic adviser, Lawrence Summers, have raised no objections to tough provisions in the House stimulus bill intended to ensure that U.S. iron and steel are used in any infrastructure projects, such as the construction of highways and bridges, even if they add to the project’s cost.

Nor have they complained about a provision in the Senate bill that would go much further by calling for the use of U.S. iron, steel and other manufactured goods in infrastructure spending in the stimulus.

Some interests have also called for language to ensure that any spending on health technology in the stimulus goes to U.S. firms, and not those in India.

Support in both chambers means the iron and steel provisions, at a minimum, seem likely to be included in the bill sent to President Obama’s desk, despite an outcry from business groups and foreign governments that argue they could set off a new trade war.

Seriously, tough crap. The bottom line is that creating American manufacturing jobs multiplies the stimulus, and goes a long way to transforming what's so sick about this economy. We can leap from bubble to bubble forever, creating enormous pain and suffering in the down times, or we can build an economy that works, based on making things, and selling things that you make because people want to buy them, and because they can afford them because they have a job with a living wage. More from John Judis, who is absolutely correct that this would finally spur our huge global trade deficit that has been killing the economy for years.

American Made

I thought the most hollow rhetoric of the Presidential campaign was President Obama's vow to "stop tax breaks for companies that ship jobs overseas." It was a direct appropriation of a John Kerry line from 2004, and it had no oomph to it, no flourish, nothing beyond the boilerplate. In fact, this was symptomatic of all of Obama's rhetoric on trade. I always thought he believed at least nominally in the Washington consensus, that neoliberal trade was part of the globalized world and there was no way out of it. The fight over the "buy American" provisions in the stimulus plan are starting to confirm this belief.

The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.

A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.

Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.

And today the Telegraph of London reports that Obama will work to gut the proposal.

The White House has promised to review the protectionist proposals, passed last week by Democratic allies in the House of Representatives, which would ban the use of non-American steel in the $800 billion of construction projects.

Privately, diplomats are withering about the "excitable" US rhetoric in support of the Buy America proposals...Europe is being helped by lobbyists on behalf of American companies like Caterpillar and General Electric...

They are hoping that free trade sympathisers in the Senate commerce committee will strike out clauses that would violate America's obligations to EU nations under World Trade Organisation rules. America has similar obligations to Canada and Mexico as part of Nafta, the North American Free Trade Area.

This is nothing more than American industry and foreign suppliers conspiring to maintain the status quo that has destroyed American manufacturing for 50 years. It's a legitimate concern that stimulus money, designed to spur American economic activity, would "leak out" of the US economy without benefiting US workers and taxpayers. The Buy America Act of 1982 already stipulates that recipients of federal money would use domestic suppliers in a variety of contracts, so this provision would simply extend existing law to the stimulus, and would not be subject to trade agreements. As David Sirota explains, Obama campaigned on this, and now he's looking to the Senate Commerce Committee to bail him out of his lukewarm commitments.

Further the Economic Policy Institute shows the crucial nature of this provision.

Multinational companies such as General Electric and Caterpillar, and their allies in the Chamber of Commerce, are attacking “Buy American” provisions included in the economic recovery bill passed by the House on January 28th. They claim that these provisions will provoke a “trade war” with foreign governments, but foreign governments have long histories of supporting their own domestic companies. These companies are self-interested, simply wanting unlimited access to imports, many of which are illegally subsidized and unfairly traded. U.S. and foreign multinational companies (MNCs) were responsible for nearly two-thirds of all U.S. imports in 2006, as shown in the chart below. U.S. firms led the way with $678 billion in imports, 36.4% of all U.S. goods imports.

Companies like Caterpillar, which will benefit from billions of dollars of infrastructure spending in the stimulus package, want unfettered access to cheap steel from countries like China, which poured more than $15 billion into energy subsidies into that sector in 2007 alone. Chinese steel imports more than doubled between January and November, while U.S. steel production fell nearly 40%. The Chamber of Commerce, which also opposes further “Buy American” provisions, represents the interests of U.S. companies like Caterpillar and IBM as well as foreign multinationals like Toyota and Siemens, all represented on its board of directors. Congress has finally realized that what’s good for big business is not always good for America, and that new rules are needed to rein in runaway corporations. That’s real progress.

Simply put, domestic suppliers exist on an unlevel playing field. Toyota wouldn't exist without generous subsidies from the Japanese government. Our multinationals that are allegedly based in the United States make up for that by racing to the very bottom for their materials and undercutting American workers. It ought to stop.

The LP Ad

I think the McCain campaign successfully mau-mau'd the media into calling last night's Obama production an infomercial, which has a negative connotation. But I prefer to call it an LP ad. Here it is, directed by "An Inconvenient Truth" auteur Davis Guggenheim:



Basically, the spot was a mirror of Barack Obama's closing argument speech, and a longer version of his closing argument ads that have begun to run today. Hope over fear, unity over division, change over the status quo. The large contours of Obama's argument to the electorate really have never changed. The coherence of message is pretty remarkable for a nearly two year-long political campaign.

But in the specifics, we see an Obama that is a progressive populist, ready to work on the major problems of the day - the financial meltdown, extreme income inequality, health care costs spiraling out of control, catastrophic climate change - with a vision that is unabashedly in the liberal mainstream. There were a number of set pieces in the ad, stories of regular Americans (narrated by Obama in an interesting touch) struggling in the Bush economy. I imagine that a lot of people saw themselves in those stories. And Obama's solution to these problems include middle class tax relief to make the income tax more progressive. It includes investment in clean energy and infrastructure. It includes a health care system that is more accessible and more affordable. It includes a rescue package for the middle class. It includes early childhood education and making college accessible in exchange for community service. These are solutions which could be more progressive, but they come from a very good place and a very good philosophy - that we need to grow jobs, wages and incomes for the broad majority of Americans if we want to continue to have a sustainable economy, rather than hoping that everything trickles down. That's a fundamentally progressive worldview.

My favorite segment was with the Ford factory worker in Louisville, Kentucky. Because here Obama displayed the frankest talk of the entire campaign. There's a long passage about how good manufacturing jobs - good union jobs - drove the economic engine of the country during the mid-century prosperity. How the rise of the middle class lifted the entire nation up. This is the key to restoring America's promise and progress. It was wonderful to see that in there. This is the policy prescription for that issue, from his closing argument speech:

When it comes to jobs, the choice in this election is not between putting up a wall around America or allowing every job to disappear overseas. The truth is, we won't be able to bring back every job that we've lost, but that doesn't mean we should follow John McCain's plan to keep giving tax breaks to corporations that send American jobs overseas. I will end those breaks as President, and I will give American businesses a $3,000 tax credit for every job they create right here in the United States of America. I'll eliminate capital gains taxes for small businesses and start-up companies that are the engine of job creation in this country. We'll create two million new jobs by rebuilding our crumbling roads, and bridges, and schools, and by laying broadband lines to reach every corner of the country. And I will invest $15 billion a year in renewable sources of energy to create five million new energy jobs over the next decade - jobs that pay well and can't be outsourced; jobs building solar panels and wind turbines and a new electricity grid; jobs building the fuel-efficient cars of tomorrow, not in Japan or South Korea but here in the United States of America; jobs that will help us eliminate the oil we import from the Middle East in ten years and help save the planet in the bargain. That's how America can lead again.

Going beyond that, the central argument is that as a society we have to build things that the world desires to make us viable economically again. Pushing paper won't do it. Manufacturing will.

Overall, this was an excellent summary of the main points of Obama's campaign, and it's getting great reviews. I hope he can hold off the politics of fear for just five more days and make history on November 4th.