July 7, 2012: We hear a lot these days by the two presidential candidates and their spokesmen about how many jobs have been created by the Obama Administration. The President claims his policies have caused the creation of over 4.4 million new jobs in the past 2.5 years. Just how does a President create jobs anyway? I suppose he can expand employment in his Administration and this he has done especially in the White House, or he can promote legistation requiring more government oversight at the State level. But all these jobs require tax revenue to fund these worker’s salaries and benefits. All job growth cannot come from the public sector. So how many private sector jobs were created? Obama claims over 500,000 of the new jobs have been created in manufacturing so I guess that must be private sector. I suppose the rest of the almost 4 Million jobs are in small sales, temporary work or some kind of specialty products and food service, etc., or perhaps in state and city services. One Obama plan is to subsidize the creation of “Green” jobs, but most of these creations tend to involve uneconomic businesses of manufacturing or assembling products like solar panels or wind machines or how about those giant mirrors in the Nevada Desert? I pass one of those plants when I drive to Southern California and I have yet to see an employee or even a watchman at the plant. Even with a low number of workers per dollar of revenue ratio the plant is not generating enough power to make it economic. Oh, the manufacture of these mirrors probably resulted in jobs but how many sun reflector manufacturing plants are there and is there really a big demand for this product? Are they able to convert the sun’s rays into enough heat to produce meaningful amounts of electric power at a cost that is competative with other less expensive power generation facilities? These sources of energy may make good political speak but their 20-25 year or longer pay-out is just barely short enough to enable them to achieve payback before they have to be replaced with the same 20 -25 year projection for capital payback again.
The President says industry should build Green energy plants but the bankruptcy of several Green industry manufacturers has shown how questionable this theory is. So how does the President create good and permanent jobs in the Green Industry? The President was sure that they would come from helping capitlize a company such as Solyndra, the solar panel company in California that received almost $500 million in a government guaranteed loan, but then became one of the biggest green industry failures to-date. The company shut its doors and thusly had to lay off 1,100 workers late last year. I wonder, does the President’s statistics on Job creation also include the numbers of job layoffs from the failure of companies for whom he has provided government guarenteed loans in the Green industry. He has been urging the public to invest in companies that were destined to fail and that resulted in Job destruction? We shouldn’t be upset with his good intentions I suppose but we should object and insist that the government not become a promoter of some seemingly beneficial business activity that has no general support by the professional investors of capital as reflected in our markets. After raising more than $1 billion from uninformed investors and securing that half billion dollar federal loan guarantee to build a state-of-the-art robotic factory that opened less than a year ago, Solyndra was unable to operate at a competitive level against smaller capitalized competitors off shore who were much more productive in producing these solar panels and the company had to file bankruptcy. So how does the President create jobs?
Another way the President sees himself as a job creator, or at least takes credit for being one, is to step in and take over the reorganization of a giant company like General Motors. The Obama administration has taken credit for saving GM from liquidation in a regular bankruptcy. What evidence or even hypothetical conclusion have they made that the GM Corporation would not be able to reorganize under chapter 11 bankruptcy and attract new private capital necessary to stay in business and regain its competitive position in the automotive industry? Oh they might have to sell off some of the plants to other auto manufacturers, maybe even one from off shore, but so what. One thing is for sure, the Government probably did more damage to the financial basis for investing capital in new companies as a result of its administration and lead investment position in this re-organization than anyone will know for many years. They did this by arbitrarily changing the priority of legal rights to assets in liquidation so as to enable the Administration to bail out the Auto Union at the expense of the holders of senior debt previously issued by the failed company. This single act may, in my opinion, be the primary reason that capital formation and the investment process is not creating more businesses and employment than it currently is. The order of a right to proceeds of the sale or transfer of assets available from the liquidation of a company in bankruptcy or its reorganization is by bankruptcy law, and should be, that those investors holding senior collateralized obligations of a company are the first to receive any cash proceeds or an appropriate interest in a successor entity as a result of its liquidation or re-organization. If the company is reorganized under the bankruptcy act of Chapter 11, the new private capital invested holds the preference position but next comes those who have a prior collateral position on the net remainiing assets of the bankrupt company. In the case of General Motors, these rights were owned by the holders of senior notes and other obligations of the General Motors Company but the Government, using it’s extraordinary leverage, arbitrarily set aside a portion of these senior positions and allocated it to a subordinated interest held by the United Auto Workers Union. In the arbitrary act of assigning interests in the successor company to the UAW union and the auto worker’s pension fund, the Administration violated one of the basic tenants of corporate bankruptcy law. This disregard of rights normally adhered to by a bankruptcy court was declared to be justified by the Administration as being in the best interest of all those involved, the investors, the union workers, the suppliers, and the people of the State of Michigan. It is clearly speculation that the firm we know as General Motors could not otherwise survive Chapter 11 reorganization by investors in the private sector and attract the infusion new private capital. Perhaps a few more jobs would have been eliminated but there is little question that once the huge burden of pension obligations and other employee worker contractural rights were rationalized by private capital investors, GM would be a much more efficient and financially more successful company than it is today ( in my opinion that is).
President Obama also believes that American workers will have great opportunity for job growth in other Green industry businesses so it has provided huge government guaranteed loans to all kinds of companies proposing to produce a product that will reduce the demand for imported oil. Little consideration is given to the simple fact that the largest consumer of imported oil is the automobile. Every person who has a car or is about to buy a car, is including the fact that certain mileage is available when they drive that vehicle. If we only had confidence in the power of the consumer to be the judge of what is marketable and what is not, the automobile manufacturers would create the product that the consumer demands. Instead, the Government has set standards for average mileage on Manufacturer’s vehicles, “CAFE standards”, assuming that the consumer is too dumb to make the decisions about what he can afford and what he cannot. Therefore the auto company must be forced to produce cars that meet a different standard than does the consumer who wants to buy it.
When the government intercedes in the natural forces and motivations that are operating in the free market, they create a disturbing disruption that changes the natural effect of human behavior. This is how President Obama believes the government should create jobs, by producing a distorting force in what would otherwise be a natural phenomenon. Complicit with him in this endeavor is the Federal Reserve and its Board that has promoted policies that are keeping interest rates below a level that would motivate investor interest in assuming risk opportunities. Less and less debt capital is made available by these policies as the relative risk attendent with its venture capital investment is not providing enough return.
I suffer from a having a high level of confidence in the actions and power of the individual consumer or investor operating within a free market environment to be able to determine the value to themselves relative to the price of a service or product they are considering purchasing.
There was a movie produced about twenty years ago called “Field of Dreams”. The story was about a farmer who had a crazy idea that he wanted to build a baseball field in his cornfield. He heard voices that said “If you build it, they will come.” That’s the ethereal message that inspires Iowa farmer Ray Kinsella (Kevin Costner) to construct a baseball diamond in his backyard or for an investor to step up and invest in his vision or in the future of his ideas. The story of course is a fantasy but it is also the basic principle of the Free Market, the real creator of jobs here in America. The President needs to understand that his only impact upon job creation is whether or not he is effective in nurturing policies that produce a bigger and better “field of dreams” in the minds of creative entrepreneurs and business investors.
One Man’s Opinion—Bud Brewer