HOW MUCH GOVERNMENT?

How much government do we need? Well, maybe more than Somalia and less than Iran. But the rant and rave crowd says we have to much government which interferes with our freedom. But why are we able to complain over many communication outlets. I would like to look back in history and look at our federal and some states involvement.

Just twenty six years after the signing of the constitution in 1787, we made the Louisiana purchase.

In 1847 California joined the Union following Texas.

The land grant college written by Morrill was first vedoed by President Buchanan (Democrat) and resubmitted and signed by President Lincoln (Republican).

A few years later the civil war started and the slaves were freed in 1865.

After the civil war Federal Government gave land grants to the railroad company's to go west.

In the late 40's we had the GI bill which gave a advanced education to returning soldiers from WWII.

In the 1950's it was the interstate hiway system funded by tax dollars.

In the 70's to present, the rewards of the land grant college system and its expansion are a full book of achievements.

To mention just three,(1) Internet, (2) GPS, (3)Hybrid corn

Where I grew up Wisconsin in 1950 a good crop of corn was 50 bushels per acre. The 2009 harvest yielded a average of 200 bushels. The engineers and scientist educated at land grant colleges are the primary authors of the three achievements. Look at the preceding blog as a affect on jobs today.

The rant and rave far right tea party group of today would do non of the above.

Is government action always good? NO! That what our democracy does, it is the control we all have.

The rant and rave far right tea party group to day say the stimulus program is ineffective. A part of the stimulus is a 30% grant for new wind generation is a job producer, income producer and tax revenue producer. More about this later.

Ethanol Economic Impact

The blue highlighted below is a report on the economic impact of ethanol on Minnesota economy. Jobs and economics would be suffering if a few of us farmers hadn't took on the task of bringing ethanol to the state of Minnesota. As a former State Director of Minnesota Corn Growers Association (MCGA) and one of the strong advocates of ethanol in Minnesota, I am very proud of this.

Ethanol industry pumps $2.5 billion into state’s economy Minnesota's ethanol industry generated more than $2.5 billion in economic activity in 2009 and supported more than 6,800 jobs according to a new report from the Minnesota Department of Agriculture (MDA). Ethanol production in the state increased to 862 million gallons in 2009 from 550 million gallons five years ago. The MDA report estimates the industry is on tap to increase production to 1.1 billion gallons this year with a projected economic impact of $3.1 billion and approximately 1,500 additional jobs.

Minnesota Agriculture Commissioner Gene Hugoson says the rebound is good news for the state’s 21 ethanol plants, half of which remain farmer-owned cooperatives.

"The ethanol industry’s downturn in 2009 was felt on farms and in our rural communities,” said Hugoson. “This year is looking much better in terms of increased production, economic impact and employment.”

In 2009, Minnesota processed 308 million bushels of corn into ethanol or about 29 percent of the state's total corn crop. This year the industry is projected to process 400 million bushels of corn or about one-third of the state's crop.

Marketing

I have subscribed to Business Week for at least twenty years. I did not renew my subscription for several years, as it suffered in quality and after the 2008 Wall Street meltdown it seemed to loose more and more advertising revenue. In about 2009 Business Week was sold to Bloomberg Press. When Bloomberg Business Week appeared I subscribed.

In the gap between Business Week subscriptions I subscribed to the Economist. Bloomberg Business Week covers news of the United States. The Economist covers the world news! I have noticed many characteristics and styles from the Economist appear in Bloomberg Business Week.

But one thing did not change in Business Week, it was more anecdotal while the Economist was more quantitative. For example, the Economist has three to four pages of economic and business data. Business Week has none.

All this asks the question, how do you market to the readers of each magazine. This was no better illustrated than in this weeks (July 20, 2010) issues. There was a add in both magazines for the Ford Focus mid size car. The difference was the Economist featured the hybrid model stating in bold print that it gets 41MPG and runs on battery part of the time. In Bloomberg Business Week the ad said "We hold our value to a higher standard". Whatever that means.

The lesson in marketing is Ford places adds to the audience. It thinks the Economist readers are more analytical.

Tax Policy

Does tax policy have an affect on the economy? You bet it does, both positively and negatively. To clear all impressions, I don't like paying taxes. Thats one of the reasons why I drive a 50 MPG Prius. I pay about one third less gas tax than most people.

Just looking at the gasoline tax, we all benefit from good roads. My friend who drives a pickup truck averages 15 miles per gallon. He pays three times as much tax as I do per mile driven. At some point he will wise up and drive a vehicle that gets as good mileage as I do.

And the tax debate will start. How do we create highway infrastructure with sixty six percent less tax revenue if we all drive cars that get 50 MPG. We would have to raise taxes. (Actually my buying the 2010 Prius had another negative impact on tax revenues. It was designed and built in Japan, not by American engineers and auto workers who pay taxes.)

Cutting taxes can improve tax income to government. A case in point, as part of the stimulus a special tax credit was given for a lithium ion battery factory in Michigan. This factory will sell 80% of its production to power the new battery powered Volt car from GM. The employees will pay taxes and income spent in Michigan will raising the economy and will more than offset the reduced taxes.

We need to have a comprehensive discussion that goes beyond the present tax cut politics. We must talk about investment, like the battery factory in Michigan.

Fifteen Percent Ethanol

Recently the EPA stopped moving forward on approval of a fifteen percent Ethanol blend. This would be an increase in deficit spending. The increase in ethanol blend could increase deficit by 300 billion per year with the 50 cent blend credit paid to oil companies. For example, British Petroleum was paid a blend credit of 600 million dollars. If they would have blended 15%, they would have received 900 million dollars.

The question does payment of a blend credit create enough jobs and tax revenues from those jobs to offset the expenditure. I can find no published papers that would say this is a investment. It is only an expense to the taxpayer.

To make matters worse, a recent supreme court ruling allows BP to take the taxpayer money and buy legislators.

I think we should cease the blend credit, raise the blend of ethanol to 15% and corn growers and ethanol industry should launch a major promotion program with emphasis on clean air and jobs.

Investing.

This week as I read my two news magazines, it occurred to me the absence of a word that has been important to me. The word is investment.

Bloomberg Newsweek had a article on unemployment and reported about factories that were being proposed to be built in Michigan and New York, but were finally built in China. Why? China offered incentives removing much of the risk to the investor(s). While the Obama administration has proposed significant incentives, it is being opposed by politicians who label it a socialist activity. Purpose, To defeat Obama and supporters of Obama.

My own experience with investment was when I was in college at the University of Wisconsin. I quickly learned that buying a book and taking a course in thermodynamics (4 credits of a 19 credit semester load) was a investment. Going to the Hasty Tasty and buying a 128 oz pitcher of beer was an expense.

Without doubt the greatest investment I have made was my education. And I believe it is with many people. But today we view education as a expense. It has been demonized because it is paid for by taxes. And public schools fall in the category as a example of socialism.

If the United States is to continue to be great we must encourage and make investments. And we should understand the difference between an investment and expense.

The two factories I started this blog with were growth industries. The one in Michigan was going to make Lithium Ion batteries. {Addition: I have learned this is reference to a second factory to make batteries. A factory is being built using stimulus funds. This factory has contracts with GM for the Volt.} The factory in New York would have made LED lights. Both of these are component for a growth industry. China and the anti investment, anti Obama people won.

Supply side economics

In early 90's there was surplus of corn. Some people thought we had to reduce supply to meet cost of production. Then some progressives got together and formed a coop to convert corn to sweetener. (A coop is a organization where each member has one vote regardless of investment made vrs a capitalist company where votes is based on value of ownership.) Soon that market was saturated and corn piled up and price dropped. I remember corn below one dollar at harvest.

Then some one remembered, Henry Ford built the Model T to run on ethanol. Corn made good ethanol. A few farmers (producers) got together and formed a organization to promote ethanol. This immediately raised the ire of the importers of energy and the shrinking gathers of domestic mobile energy and they turned loose the ranting crowd (publicist, talk radio and political lobbyist) trying to convince the consuming public that the use of ethanol would destroy their car. And what did this producer group do? They applied political pressure to the State of Minnesota to mandate ethanol in gasoline. They mandated demand. Corn growers got more for their corn and hired publicist and lobbyist to promote the use of ethanol. Other states saw the success in Minnesota and promoted ethanol in their states. Because of the surplus of corn in the 90's more research (read jobs) was done to improve the production of corn. The taxpayers of Minnesota even paid subsidies for producers to make ethanol. And because producers made more money and hired people to build and run ethanol plants who all paid taxes, for each penny invested by Minnesota taxpayers, at least three cents was paid by the new ethanol industry and its workers And even as less acres are planted more corn is produced. Today corn is selling at $3.70 CBOT.

So this story begs the question. Should we promote supply or demand side economics?

This is my second blog enterey. Originally I promised myself to enter some thing every day, and now am learning how to use as I watch and listen "Standing in the Shadows of Motown" Later today I will publish my political views which will change tomorrow.