Monthly Archives: May 2012

Fracking risks in Alabama

A national treasure that provides delight to many Alabamians and a habitat for wildlife is at risk.
On June 14, the U.S. Bureau of Land Management will auction off oil and gas excavation rights to 43,000 acres of Talladega National Forest. If the auction winners determine the land beneath the virgin forests contains petroleum or gas, the likely method of extracting it will be hydraulic fracturing, or fracking.
The fracking process injects millions of gallons of sand, water and chemicals into the ground, sometimes contaminating groundwater. The massive amount of waste chemicals are pumped into deep wells, creating seismic pressures.
The state of Ohio determined that fracking caused about a dozen earthquakes near an excavation site. Vermont has outlawed the practice and numerous states — not including Alabama — restrict it.
The lack of legislation in Alabama means that residents would have no way of determining what chemicals are being injected into the ground, information that companies try to keep secret.
Some weak bills opposing the Talladega auction were proposed in the Alabama Legislature in the most recent session, but none received a vote.
The national forest is home to Alabama’s highest point, Cheaha Mountain. The dense forests and spectacular vistas are home to white-tailed deer, quail, turkeys, rabbits and bald eagles. It is a popular destination for hunters, fishers, hikers and campers.
The pristine beauty of Talladega National Forest should never be sacrificed to drilling operations. Certainly the auction of 43,000 acres should be delayed until those who visit and who live near the national forest have a better understanding of the risks involved in fracking.

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Filed under Energy, Environment

Congrats to Romney

Mitt Romney on Tuesday surpassed 1,144 delegates, essentially clinching the GOP presidential nomination.
The candidate deserves congratulations for enduring a brutal primary. His Republican opponents were aggressive, questioning not just his ability to win the election but his ability to lead.
Romney and President Barack Obama are strikingly different candidates, but they share a vulnerability as they seek to secure loyalty within their parties. The rhetoric of each is heavy on ideology, but both candidates have been decidedly pragmatic when faced with the challenges of leadership.
For the extremes of both parties, that’s a negative. We suspect most Americans, however, prefer leaders who focus on results rather than dogma.

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Filed under Election 2012

Decatur GE is a stimulus success

In May 2008, General Electric announced the bad news.
The company was going to try to auction off its 35-year-old Decatur facility.
That was bad enough, but the news got progressively worse in the weeks that followed. There were no interested buyers. With the recession suppressing demand for GE’s refrigerators and a global credit freeze making even good investments impossible, the 1,390 GE employees faced likely unemployment. With the loss of its second largest employer, Decatur faced a disastrous drop in tax revenue. The many businesses that relied on GE contracts or on business from its employees had a bleak future.
It was part of a downward economic spiral that gripped the nation. While everyone knew that consumers would eventually purchase refrigerators again, the private sector was unwilling to invest or sustain continued losses while waiting for demand to return.
The federal government’s response was the one prescribed by economists: increase spending. That was the best way to avoid a repeat of the Great Depression.
Some of that stimulus money went to GE. The prudent catch was that GE could only use that money for investment in new technologies that reduced greenhouse emissions. The main goal was just to get GE to invest in something. By requiring that it use tax dollars for a technology that benefited the environment, the stimulus program accomplished two things. One, it gave taxpayers an environmental return on their dollars. Two, it helped GE enter a growing market.
While many Americans dismiss the warning of scientists on climate change, the people of most developed nations take the threat seriously. By reducing greenhouse emissions, GE was able to increase the global acceptance of its products.
With some prodding and $6.5 million in financial assistance from taxpayers, GE not only kept its Decatur plant open, it invested almost $60 million into high-tech production.
The first refrigerators built with the new process came off the line last week. Because the federal government listened to the economists, consumer demand has increased from those bleak days of 2008. It will sell those refrigerators to other people who would not have jobs if the recession of 2008 had turned into a depression.
It may be ideologically painful to acknowledge that the government has an appropriate role in spending money to reverse a severe recession, but GE’s Decatur plant is evidence that the economists were right.

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Filed under Environment, Recession, stimulus, Subsidies

Immigration laws and unemployment

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The typical rationalization for state immigration laws is that they reduce unemployment. The data suggests otherwise.
The graph above shows unemployment rates for Alabama, Arizona, Georgia and South Carolina. All imposed harsh laws against undocumented immigrants at different dates. Alabama’s law had an effective date of Sept. 2011; South Carolina’s took effect in Jan. 2009. Georgia’s law had an effective date of July 2007. Arizona’s went into effect in Sept. 2010.
The actual effective dates varied significantly from those the legislatures’ mandated, due to court rulings. The point, though, is that the effective dates varied.
The dates on which the unemployment rates fluctuated, however, did not vary among the states. Unemployment rose and fell in lockstep, notwithstanding the status of their immigration laws. The changes also corresponded with fluctuations throughout the South.
Conclusion: the immigration laws of the various states had no appreciable impact on unemployment rates.
There are two possible explanations. One is simply that the laws, harsh as they are, simply did not work; not many immigrants left. Anecdotally, I find this explanation unlikely. I know of many immigrants who left the state in response to the law.
The other explanation, which I find more likely, is that immigrants left but employers did not replace them. There was considerable anecdotal evidence that this was the case with farm labor, where non-immigrants could not handle or did not want the jobs. This explanation suggests that the only impact of the law was to create an artificial labor shortage in various sectors. In other words, the legislatures damaged the economy without obtaining the reduction in unemployment they claimed was their goal.

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Stimulus helped US

President Barack Obama deserves no great credit for reacting to the worst economic downturn since the Great Depression with stimulus spending, but he certainly deserves no blame.
Economists have long preached that fiscal stimulus was a necessary governmental role in combating recessions.
The recession of 2008 will earn a new chapter in economics textbooks because it so clearly demonstrated the accuracy of the stimulus models. European countries that adopted austerity to combat recession are reeling, belatedly recognizing that their poorly timed thrift is intensifying the recession and — due to decreased tax revenue — ballooning their deficits.
The U.S. economy, which implemented a smaller stimulus than most economists recommended, at least went in the right direction. The result is a slow recovery.
This is no coup for Obama. All he did was follow the advice of economists and the strategy successfully followed by his predecessors of both parties.
Blaming him for a slight increase in spending, though, makes little sense. We need only look to Europe to see that austerity is the worst response to a recession.

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Filed under Conservatism, Election 2012, stimulus

Private equity not evil

Private equity firms are not evil, a fact well known to the many in Decatur who are benefiting from them.
Democrats are walking a fine line in their attacks on GOP presidential candidate Mitt Romney.
Romney, as everyone knows, ran the private equity firm Bain Capital. He apparently did a good job, as he and his investors made lots of money.
Most Democrats have enough sense not to criticize someone for making money. The desire for money motivates all of us and it drives our capitalist economy. Romney gave his opponents an opening, though, by touting his record as a “job creator.” He did create jobs through Bain Capital. He also laid plenty of workers off. If his goal had been to create jobs, as opposed to generating profit for investors, he would have been booted from the firm and Democrats would be talking about his poor work record.
Unfortunately, the Democratic critique of Romney’s job-creation claims is quickly morphing into a rant against private equity.
Long before the recession hit, Decatur Mall was dying. In 2007, its owner was facing bankruptcy and the roof was leaking. Tenants were in a rush for the exits.
Today construction is ongoing on a major expansion of Belks. A builder last week obtained a permit for the $5.4 million construction of a high-tech movie theater. Tenants, once anxious for their leases to expire, are now enjoying increased traffic.
There is no evidence that pre-recession consumer demand was any weaker than it is now. If anything, continued high unemployment is suppressing demand.
So what happened to cause the mall’s resurgence?
Garrison Investment, a private equity firm, happened.
The simplistic view of capitalism is that where there is demand, supply will follow. The more complete view must incorporate the central role of accumulated capital. Depending on the product, the amount of capital needed to meet demand can be immense.
The last several owners of the mall were in the same geographic market as Garrison with roughly the same demographics and the same level of consumer demand. What they lacked was the capital needed to meet that demand and the expertise to use the capital effectively.
Garrison’s capital allows it to do things that the previous owners couldn’t do. It can patch the roof and paint the exterior. It can absorb a short-term loss to attract a valuable tenant that will increase consumer traffic. It also can hire managers with the skill both to gauge demand and to meet it.
Understand, Garrison is not investing in the mall to create jobs or to help Decatur. It is doing so for one reason: to make a profit. Everything else is incidental. A sole proprietor or family business can occasionally afford the luxury of allowing goals other than profit to dominate, but a corporate entity has a fiduciary duty to its shareholders and investors. They want a return on their investment. At the helm of Bain Capital, Romney had no obligation — and indeed, no right — to pursue goals that did not maximize the return on investment. Sometimes that meant cutting costs with layoffs. Sometimes it meant increasing production through hiring.
When Ralston Purina had to sell its Decatur pet-food plant in 2003, a private equity firm — The Cypress Group — bought it. Because the firm had plenty of capital and some brilliant managers, it figured out a way to turn a low-priced commodity into a high-priced product, Meow Mix, that any responsible cat owner was anxious to buy. Remember the lyrical “meow meow” ads?
Cypress did not invest its money with the goal of creating jobs, although that followed from increased production. It did not even have any long-term commitment to Decatur, as demonstrated by the fact that less than three years later it sold the plant — for a significant profit — to Del Monte.
Garrison may well be in it for the short term, too. Bain Capital often was. Their goal in that short term, though, is to add value.
It is fair for Democrats to complain about Romney’s self-promotion of his job-creation skills. It is a mistake, however, to label private-equity firms as evil or to bash the profit motive.
If there are abuses by private-equity firms — such as taking a profit while dumping pension obligations on taxpayers — then it is the job of the government to impose regulations. Within the constraints of the law, the private equity firm’s only goal is profit.
Unrestrained capitalism causes dramatic societal problems. Properly limited through smart regulations, though, capitalism is brilliant at allocating resources efficiently. Private equity firms are neither evil nor angelic. They are merely effective tools for employing large amounts of capital to the production of goods that consumers want.
Contact Eric Fleischauer at http://www.mile304.com or eric@decaturdaily.com.

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Filed under Capitalism, Election 2012

More laws mean less teaching

In one of his final school board meetings before his June 30 retirement, outgoing Decatur City Schools Superintendent Sam Houston once again was placed in the position of protecting education from the lawmakers who should be its allies.
The issue on Tuesday was a school calendar forced on every school district in the state by legislators who have no experience in education. On a personal level many teachers welcome the longer summer break, but they know that the extended break and the reduced mid-year breaks will hamper student achievement.
The law – designed to boost tourism revenues on the Alabama coast – received support from several local legislators. These avowed supporters of limited state government substituted their judgment for that of elected school board members in the interest of a theoretical boost in sales on the opposite side of the state.
Hovering in the background is another law passed this session in which legislators again concluded they knew better. The state will implement a grading system for schools that depends on, among other factors, student performance on standardized test scores.
Each school will be assigned a letter grade. This state mandate joins a host of federal mandates that already grade schools on their performance and publicize the results. Like the federal grading systems, the state version will force educators to teach to the test.
This law received support from most area legislators.
With the school-calendar law the Legislature hampered efforts to improve student achievement, and with the grading system it penalizes schools that do not demonstrate student achievement through high scores on standardized tests.
One of the out-of-state candidates for the superintendent position said her primary role would be to guard the schoolhouse door to protect the classroom from outside distractions. What she could not have known is that, in Alabama, one of the major distractions comes from legislators.

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Filed under Alabama politics, education