Feeds:
Posts
Comments

Archive for the ‘Economy’ Category

The Wall Street Journal ran an article yesterday based on a longer study by the Brooking Institute on the trend of the average age of businesses in America aging:

“Why it’s worrying that U.S. Companies are Getting Older”

“Older firms are increasingly controlling the largest market share in different sectors of the economy, according to a paper by the Brooking Institution’s Robert E. Litan and Ennsyte Economics’s Ian Hathaway. By 2011, the portion of U.S. businesses aged at least 16 years reached 34%, compared to 23% in 1992. Moreover, those mature companies went from employing only 60% of private-sector workers in 1992 to employing nearly three quarters of the private-sector labor force in 2011.

The report attributes this trend to declining entrepreneurship, among other reasons. The rate of new business creation in the U.S. has been constantly shrinking in the past three decades. “The decline in new firm formation rates had occurred in every U.S. state and nearly every metropolitan area, in each broad industry group, and in all firm size classes,” the authors explain.

Moreover, it has become more difficult for younger companies to survive and compete with the bigger ones. Business failures are more frequent and likely among start-ups, which may account for the fall in business creation after the 1990s. The economy has grown more advantageous for incumbent firms and less helpful for fledgling ones.

The authors argue that younger companies are crucial to attaining a healthier economy as they have had the largest contribution to past “disruptive and thus highly productivity enhancing innovations” across different sectors ranging from airplanes and automobiles to computers and internet search.

“If we want a vibrant, rapidly growing economy in the future, we must find ways to encourage and make room for the start-ups of the future that will commercialize similarly influential innovations,” said the authors.”

 The first chart shows that more businesses close than open, which includes start-ups which fail. Nearly 90 percent of all businesses fail within 10 years. The second chart shows a specific breakdown by industry.

 

 

 

This is not difficult to understand: new business face the inherent challenges of promoting a brand of a product or service in the face of well-established, existing brands. Why try something new when the old version works for you? Then you add in the high tax rates, high energy costs regulation compliance costs, all sorts of entry fees (examples include taxi medallions and occupational licenses), and new laws pushed by the old businesses, mainly larger firms, which drive out the smaller competitors who cannot keep up with the ever-increases taxes and regulations, and the result is that fewer and fewer people even consider starting up a new business, and those who do are more likely to keep the size small enough to handle the taxes and compliance requirements  manage rather than spend energy trying to grown the business or make it more profitable. This is a significant reason why most of the new start-ups are companies which do not need a lot of energy use or space, such as a tech start-up where one only needs a computer with the right programming and internet access and which can be done from an apartment or coffee shop. The problem is that not everyone knows how to, or is capable of, learning to code and managing a computer-based business. On the downside there are fewer start-ups in other sectors of the economy like construction and manufacturing which can offer good-paying jobs needed for many working Americans. Start-ups provide people with job opportunities and can create new ideas which make civilization’s progress better for more and more people. Just imagine a world with no light bulbs, automobiles, or commercial internet access, for example.

The short- and medium-term implications is that this is a disaster decades in the making. Fewer competitors in a particular sector means less choice, which inevitably leads to higher prices and a lower quality product or service because the incentive to be better disappears if either a) you do not have competition or b) if you can simply lobby the government’s elected and unelected officials to devise ways to limit or defeat the competition’s ability to challenge the “established” brands. The resulting weakness in economic growth then fuels the “need” for stimulus dollars, tax credits, and subsidies to keep certain businesses competitive, rather than allow the private marketplace to decide what is valuable and what is not. But even in this way we are only taking money from those who produce and redistributing the wealth to those who are well-connected or who are in the business those in charge of the money deem “sustainable business.”

This is what cronyism does to the economy: it will enrich the well-connected and wealthy while making prosperity harder and harder for an increasingly few people. We are past the debate as to whether cronyism harms economic growth; the question is if and when the majority of people will recognize the problem and stand with organizations like CRI in opposing cronyism and the devaluing of the dollar.

Read Full Post »

This week many people will be snowed in for Valentines Day (stay safe on the roads!), but we at CRI are pleased to announce our new Director of the Center for Economic Policy & Analysis (CEPA), Dr. Stacie Beck.

You can visit our website link at www.caesarrodney.org or click on “our staff” in the “About” section on the top right of the page to view Dr. Beck’s complete bio. Dr. John Stapleford, currently a member of the advisory council, left his position as CEPA director in October. Dr. Beck will be responsible for continuing CRI’s economic policy & analysis work and keeping you up to date on the most recent and relevant studies of Delaware’s economic policies. Dr. Beck will be quite busy: with the potential for a 10 cents per gallon gas tax increase, revenue from the casinos drying up and a new revenue stream needed, and the prevailing wage law still in place, CRI will be busy advocating for policies which benefit Delawareans and keep the size of state government in check.

 

Read Full Post »

State Treasurer Flowers’ office has posted new economic numbers in the “Delaware mini economic index”as of this November. Here are some of the numbers:

The State’s economic climate over the last 60 days is rated as “Fair”, which is the middle rating. The national growth is listed as “weak”.

The weakness is being led by a slowing housing market. After all, one can only buy so many homes at artificially low interest rates, can we?

There was an increase of 50 Delawareans per week filing jobless claims. This number will likely change when the EVRAZ steel plant in Claymont and the Georgia-Pacific plant in Harrington shut down.

Delaware had 440,172 people in the labor force in August 2013 (Delaware Dept. of Labor). 32,116 were part time, the rest full time. There are 1,600 fewer Delawareans working in August than in July, and likely fewer now than in August when the new numbers come out. The U-3 unemployment rating went from 7.3% to 7.4%, which is about the national average. A few places like CarMax and Kraft Foods are adding some new jobs or expanding on existing ones, but the numbers are small.

Gas prices have been dropping slowly but steadily, to the point where some are wondering if $3 a gallon gas by New Year’s is possible.

When September and October numbers come out, we will post them for you. Overall: Delaware could be in worse shape, but we could be in better shape as well. CRI has been offering ideas and solutions to address our economic growth issues. Visit http://www.caesarrodney.org to learn more.

Read Full Post »

By now, many of you, especially those of you who live or work in New Castle County, are aware that Bloom Energy has been, over the last year or so, collecting fees from Delmarva Power ratepayers but not disclosing the cost to consumers; nowhere on people’s utility bills will you see any surcharge for Bloom Energy, though you have already been paying it. The cost? Over $1 BILLION in subisidies from both Delaware taxpayers and Delmarva Power ratepayers, combined. From the original article:

”      Delmarva and Bloom admitted electric ratepayers would be stuck paying above market prices for power. They said it would be worth it because of claimed economic development benefit of jobs at a new fuel cell factory, offsetting higher future electric prices for conventional power, the avoided cost of buying renewable energy credits, and environmental benefits. Two years down the road our predictions are coming true:

·         The cost will be at least three times expected and could go to a half billion dollars over the twenty year life of the project
·         Overall economic development potential will be one third expected and the Delaware solar industry has been decimated by the offsets in Solar Renewable Energy Credits
·         Environmental benefits would have been eight to ten times higher if a conventional natural gas power plant had been built and electric rates would have gone down instead of up”
Some are trying to argue that CRI and those who oppose the Bloom Energy deal are not giving the company time to develop its business model and hire the workers they promised to do. The problem is not just that they are behind; that would in of itself be the least of the problems. CRI has doubts there is any work going on at all in the plant, and an attempt by the News Journal’s Aaron Nathan to visit the site to inspect the plant was denied. Why would Bloom Energy not want Aaron to visit? It’s not like the facility was off-limits to outsiders. Secretary of DNREC Colin O’Mara was allowed to walk into the plant and announce that Bloom Energy was still on schedule to complete its stated objectives of operating their Delaware plant on schedule. Keep in mind the News Journal editorial board still supports the Bloom Energy deal, so it isn’t like Bloom is showing their facility to a hostile entity.
We hope our elected officials learn a lesson and realize that gambling with taxpayer money, even in the name of “investment in the future” “jobs” and “green energy” is not a smart idea. Had Bloom been required to have competed with other companies for the technology (Fuel Cell Inc. is suing Governor Markell and five members of the Public Service Commission for not giving other companies a chance to bid on the contract) and focused more money and time on building the facility and not lobbying, they may have been able to succeed. Instead, as CRI believes, Bloom will begin construction of their fuel cells in Delaware and then realizing the cost it would need to keep the operation going, will cease operations in Delaware and move them elsewhere.  As Dave wrote in “The Bloom Prophecy”:
“The first 6 megawatts of a 50 megawatt power supply contract with Delmarva Power can come from Bloom’s California manufacturing facility.  We expect Bloom will deliver the first 6 megawatts and then will pull out of the contract and abandon plans to manufacture in Delaware so the funds can be invested in India or elsewhere in Asia.  It makes no economic sense to build a manufacturing plant for one large order for fuel cells to be utilized by Delmarva Power.

Read Full Post »

Today we will focus on three articles from three different newspapers to explain where the economy is and what to make of news of our recent resurgence. The first article, Article One, is from the Delaware State News, “Chips are down, Dover Downs executives say” (http://bit.ly/15votif).  Delaware’s casinos have suffered heavy losses due to two main factors: high casino taxes at 43.5% (along with 11% for the horsemen at the racetrack and 7% to vendors) and, required by law, high payouts to slot-players.

“With $60 million in debt, declining share prices and consistently lower quarterly revenues, the casino can no longer produce enough income to weather state taxes, Dover Downs Gaming & Entertainment Inc. President and CEO Denis McGlynn said.

Mr. McGlynn said the casino has had 150 layoffs over the past four years, frozen pension plans, pushed more medical benefit costs onto employees and lost its ability to pay dividends to shareholders.

“We’re left with nowhere else to cut,” Mr. McGlynn said. “You get in a death spiral where you can’t recover.”

In 2012, $118.9 million in gaming revenue went to the state, leaving Dover Downs with $74.4 million.

However, after net expenses for payroll and payout to stakeholders, Mr. McGlynn said the casino garnered only $4.8 million for capital improvements.”

Delaware’s economy will suffer if the casinos reduce services or shut down completely. Harrington Raceway in particular, which is smaller than Delaware Park and Dover Downs, is particularly vulnerable. Competition from other states has hurt business, but the main reason the casinos are struggling is directly due to government meddling. The problem is, the state spends so much money they cannot afford for the short-term to allow for tax cuts, and so Markell’s office has been on record stating they do not intend to touch the tax rate right now. Assuming nothing is done before June 30, that means if the casinos are being forthcoming about their losses, they may be forced to lay off more workers, reduce tables or slot machines, or cut hours, or do other things to reduce costs.

OK, so if employees get laid off, they can qualify for unemployment insurance from the state until they find work, right?

Not so simple. This brings us to Article Two, from the News Journal, “1-week waiting period, higher taxes proposed in jobless benefits reform” (http://delonline.us/ZomTxO)

The state of Delaware took on a a lot of debt to give checks to unemployed workers in the state over the past few years, running up a deficit of about $70 million by borrowing money from the Federal government, which now needs to be paid. Seeing as how the Feds and many states are either broke, going insolvent, or running deficits (Delaware does, even if they insist by law they must balance the budget), Delaware is going to need to get the money from somewhere. Turns out it will be businesses and the unemployed who will pay. A bill will be circulated this week to increase taxes on businesses, and to ask the unemployed to wait 1 week before collecting benefits. The intent is to pay the bill before 2015, when higher Federal taxes would kick in to make up the pay. Although Delaware’s official unemployment is 7.2%, a study of DE’s employed in Delaware Today showed that 15% of workers are public sector, and another 15% work in health and social services, heavily reliant on public funds. There are now only 26,000 manufacturing jobs reported in the state.

OK, so working in Delaware is a toss-up, but not bad. At least housing is affordable, right? Well yes and no; Delaware has more affordable housing for residents, but the current resurgence in home prices may be a false alarm. Moving to Article Three Heidi Moore, a U.S. finance editor at The Guardian newspaper in the U.K., believes the current housing “comeback” is really a sham predicated on just seeing housing prices go up. (http://yhoo.it/14oD24G) and (http://bit.ly/1aykQZQ)

Basically what has happened is that the Federal Reserve is holding interest rates to record lows by printing money to subsidize purchases on things like cars, homes, student loans, and personal loans, all of which have seen an increase in volume moved over the last 3 years (this includes the fact that the government has bought many of these items with taxpayer money), that does not mean people have more money necessarily. What it means in housing, for example, is that “house-flippers” (those who buy homes, fix ‘em up, and sell ‘em quickly for profit) are driving up the cost as their bids become more and more ridiculous. Who is buying homes? The banks, using fresh money hot off the printing presses (literally) to buy homes to make even more money off future sales, and also who are collecting on foreclosed homes.

The point is, when the media tells you home prices are surging, the implication is that housing has recovered and people are finally looking forward to buying a nice home or property. In reality, the same sharks who made money off the last housing bubble are the ones who are making money off this one, set to burst at any time.

________________________________________________________________________

Later, we’ll address health care law and what you need to know. Stay tuned.

 

 

Read Full Post »

2013 is already upon us, and three days in things are headed downhill. Congress just passed a bill to respond to the so-called “fiscal cliff” by increasing EVERYONE’S taxes at least a little bit, and a lot if you have a high income (note: if your money comes from investments and assets, such as Warren Buffett, your taxes will be unchanged). More battles will come up on the debt ceiling, automatic defense cuts, and future budget deals (if any come), and no doubt the partisanship will continue.

Delaware has its own problems to deal with: unfunded pension liabilities, out of control Medicaid spending, bad deals with Fisker and Bloom Energy, education performances moving sideways and not up, and taxes such as the gross receipts taxes which harm business growth. These are just a sample of the issues facing the state. While CRI would like to resolve every major issue within the state, that is not very likely.

Therefore CRI will spend 2013 focusing on three elements: improving education standards, discouraging corporate subsidies, and preventing the state from passing any legislation which pushes single-payer healthcare by abolishing private healthcare insurance.

Education reform will be CRI’s top priority in 2013. There is general consensus that the education system as currently structured is not serving the students well, particularly those in areas like Wilmington and Dover, where parents usually do not have the  financial means to send their children off to private schools, and who cannot be guaranteed a slot in the charter schools due to bureaucratic processes. CRI is calling for legislative actions to allow the money to “follow the student”, where parents have options such as Education Savings Accounts (ESA) that give parents the financial opportunity to choose where they want to educate their child. We hope to inform and engage the public and the legislators into some serious action this year that will give students a big victory for their future.

Our second goal is to reduce, if not eliminate, subsidies for preferred businesses and special interest friends of the government. Bloom Energy and Fisker Automotive are two prime examples of the government handing over “subsidies” for “investment” in these companies, meaning hundreds of millions in tax dollars to give to these companies, money we will in reality never receive payback for. There is no industry in Delaware receiving taxpayer money that can be said to be worth the corporate welfare. Our aim is to educate the public and legislators, and push Delaware to either reduce/eliminate current government subsidies to preferred parties, or else to agree to prohibit future government subsidies via “corporate welfare”.

Our third goal will be to discourage the Legislature from passing any bill which bans private health insurance in favor of “single payer” government. While CRI acknowledges the issues in containing healthcare costs, such as Tort reform, allowing insurance to be purchased across state lines, and using means-tested methods to determine who qualifies for Medicare or Medicaid as opposed to just handing it out to anyone who asks, there is no way the government can raise all the taxes needed to pay for this without destroying job opportunities or sending them out of state. Plus, the government will not be able to manage the insurance aspects of healthcare policy without setting up a massive, inefficient bureaucracy, just like they do with everything else.

What do you think? Are there any goals CRI should work for that are no mentioned above?

Read Full Post »

from the Caesar Rodney Institute:

 

Lawsuit against the Bloom Energy Deal to be Heard Next Week

Wilmington- The lawsuit against the Bloom Energy deal approved by Governor Jack Markell and five members of the Public Service Commission will be heard at the US District Court on Wednesday, November 14, at 2 PM. The hearing will be in Courtroom 6C on 844 North King Street in front of Judge Christopher J. Burke. The hearing is open to the public, and all are encouraged to attend.

The plaintiffs are John Nichols and Fuel Cell Energy of Connecticut. Mr. Nichols is a citizen who believes his rights as a taxpayer and local resident are being violated as a result of a government-backed deal to provide over $600 million in taxpayer stimulus. Fuel Cell Energy believes they were unable to sell their products in Delaware because Bloom Energy had already been chosen to take the deal offered by the government.

The plaintiffs are being represented by Cause of Action, a non-profit which works to protect the public and taxpayer interests in favor of government accountability and transparency. The Caesar Rodney Institute provided expert testimony in Mr. Nichols’ hearing at the Coastal Zone Industrial Control Board on June 13 of this year. CRI’s testimony and research data on the Bloom Energy deal will be considered as part of the lawsuit.

Please contact:

Barrett Kidner

Chairman and CEO

(302) 734-4935

bek@caesarrodney.org

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 291 other followers