As America’s Industrial Ag. megalith continues to pump out lousy food and toxic chemicals into our bodies, the natural response to use local farming is growing like there’s no tomorrow.

From a USA Today news article here.

“The “local” movement — buying and eating food produced locally rather than shipped from thousands of miles away — has been gaining steam with the steady growth of farmers markets and a phenomenon called community-supported agriculture. CSA members purchase shares of a farmer’s crop for the season. The government doesn’t track the numbers, but Local Harvest, a nationwide directory of small farms, farmers markets and other local food sources, estimates that tens of thousands of American families belong to CSAs, and supply trails demand. The number registered with Local Harvest alone indicates how quickly CSAs have multiplied over the past decade: The directory’s listing has increased from 374 farms in 2000 to 3,660 today.”

Additionally, the Farmer’s Market phenomenon where urban areas set up local farm bazaars, normally once a week, is also growing.  From the USDA this:

Historically, in the worst of our times strong leadership not only acknowledges the difficulties, they also talk of the opportunities.  Leaders who constantly and consistently remind the public of hope, of opportunities, can energize their citizens against unexpected setbacks. 

President Obama, whose last book was called “The Audacity of Hope,” needs to return to exactly what got him the Presidency.  It’s time he again remind America of hope, and of the tremendous opportunities before us now more than ever before.

With all the mis-steps in the economy right now, it may sound counter-intuitive to talk up hope and opportunities.  The truth is it’s not only the right thing to do, it’s a no-lose position politically.

The financial meltdown and severe recession, the British Petroleum deep water oil rig disaster, the nasty and divisive health care reform fight and other problems have pushed politicians into endless rounds of finger pointing and negativity.   No one talks of opportunity.  Hope has been banned to the locker room.

Now is precisely the time to talk of opportunities.  But where, exactly, should Obama focus these positive attitudes?

In a word, jobs.  Not just jobs for next Friday, but long term jobs that will pay well and be sustainable.  The nice reality is that there are many opportunities to accomplish these goals.  And most citizens understand these things don’t happen overnight.   This realization, if the discussion turns to hope and opportunity, helps take some pressure off the next election.  Adults understand that gratification may need to be postponed in order to make the big gains.  

It’s not just about “me,” and it’s not just about “now.”

So get back to talking about them.  Use some of the setbacks as foils to highlight hope and opportunity.  We can be cleaning up an accidental oil volcano and Wall Street while spotting the opportunities and working on them.  They aren’t mutually exclusive.  In fact, cleaning up the oil volcano and Wall Street are part and parcel of understanding where the opportunities are.

The oil accident can shed a spotlight on the sustainable energy opportunities.  It is a perfect foil for explaining how America can free itself from such disasters, and along the way create entire new industries.  Industries that leverage America’s world leading technology to create corporate profits, livable wages and stability. 

A bank system that is out of control blows up with tremendous negative consequences for an economy.  This everyone understands all too well.  Reining in speculation and unethical behaviour makes the markets more transparent and reduces volatility.  And most importantly, stability reduces the cost of doing business.  Uncertainty is very expensive.

What’s a Wall Street cleanup a foil for?  It’s a foil for returning the focus to investment in the opportunities instead of just casino like speculation.  A nation not distracted by turbulent financial markets is one that can better identify where the next generation of growth is likely to come from.

What about the deficits?  Where’s the opportunity there?  The opportunity is jobs.  If American leverages its natural optimism and identifies the opportunities, then the new jobs and wage gains will eliminate the deficits.  Having smarter government spending helps, but the main dynamic that balances budgets comes from innovation and job creation.

And above all it’s not about tax cuts.  It’s about new jobs.  Businesses don’t go out and buy new equipment and hire new workers because the government gives them a tax credit.  They buy new equipment and hire more people because there are new opportunities.

At bottom, this is why the focus on opportunity needs to be kept front and center, particularly when politics seems all about a lack of hope and no one seems capable of looking for opportunity.  

Whether it’s tackling new energy industries, or building new railroads, or building new cars, or improving our farm system to produce better food, just asserting we have all this work to do and we’d better get about it will be a self fulfilling prophecy.  

Time to stop whining.  Time to get back to work.  Talk about the opportunities, Mr. President.  People are forgetting how many are right in front of us.

In an interview on CNBC Friday, former President Bill Clinton advised that America needs to “..get back in the tomorrow business.”

Beezer agrees wholeheartedly.  

But doing well in the “tomorrow business” takes a willingness to change, said Clinton.  Change is difficult, particularly when the nation is trying to recover from a near death financial collapse.  A large debt bubble burst and that means balance sheets, both private and public, have suffered and need re-balancing.

Today’s world is all about speed and complexity.  We’re learning the hard way that our technology innovations are not an unalloyed benefit.   Unrestrained speed can race ahead of comprehension.  Complexity can do the same thing.  As we’ve all just seen the past two years, in combination, speed and complexity can blindside humanity.

The antidotes to speed and complexity are simplicity, clarity and understanding.  These are the changes we need to make in order to get back in the “tomorrow business.”

Take speed.  Technology has always been about tomorrow.  It’s brought us the internet, which has with blinding digital speed connected the globe in ways unimaginable twenty years ago.  Computational power, harnessed by science, has brought about tremendous advances in just about every aspect of our lives, and no doubt will continue to do so.

Science brings well understood disciplines that enforce speed limits.  That’s not the case in the realm of social man.  For example, the internet produces a flood of information that washes over us daily from all over the world.  But all this information can impede our ability to comprehend.  It arrives and leaves in a digital flash, long before any real understanding.   More is not always better.  Complexity and speed can overwhelm social man’s constructs.

The current difficulties with too much speed and complexity arrived from the financial industry.  Finance is a social construct, not a scientific one.  Financial “innovations” are not the same as scientific “innovations.”  A scientific innovation adds to understanding.  Financial innovation, as we’ve learned, may do precisely the opposite.

In a complex social world, financial products need to be stable and simple enough for social understanding.  We were fooled into thinking complex derivative securities–an “innovation” we were told–would enhance our well being.   In an interconnected financial world, the tools of finance need to be clear and transparent to everyone.  These tools, the common language of finance if you will, are not improved by complexity. 

Complexity is the enemy of finance.  It’s like driving a car with an opaque windshield.   Add to that speed and you’re bound to crash.  Or to continue the analogy of language, complexity turns finance into Babylon where many languages are used instead of one with widespread understanding.

So in finance the “change” needed is one of returning to a common language that uses common tools.  Complex derivatives need to be limited only to those with widespread understanding.  Only those derivatives that are transparent and whose price can be easily and safely ascertained on a public exchange should be allowed.   Remember these necessary social constructs; simplicity, clarity and understanding.

Unfortunately, when a problem is encountered in a social realm (for this post it’s finance, but we face the same problems in complexity and speed with energy, health care, agriculture and even our politics), the necessary changes will run into opposition by segments that benefit from the system that needs reform.

Nevertheless the changes have to be made.  We won’t get back in the business of “tomorrow” until they are.

Unemployment is about 9.7% (15 million people) and when you add underemployment it’s close to 17%.  Every one’s wringing their hands about this sorry state of the economy and scratching their heads about what to do to create more jobs:  Especially jobs that pay a living wage–the most disturbing statistic about our economy is that 47% of people who do have jobs, don’t make enough to pay, net, income taxes.

Conclusion: We need more jobs that pay better.

It’s easy to identify where we don’t need more jobs.  We don’t need more low paying hamburger flippers, for example.  We don’t need more low paying service jobs, such as maids for hotels. Adding WalMart greeters isn’t the answer either.  We have plenty of those already and they make up a good proportion of those 47% of working Americans who don’t make enough to pay any income taxes.

We’re not likely to get much relief from residential construction because that market has collapsed and traditionally recovery there takes five to ten years.  Commercial construction is smaller, but has been hard hit as well.  And like residential construction, it will take years for commercial construction to recover.

The simple truth is that the manufacturing sector and related suppliers in mining, technology, and transportation are where the better paying jobs exist.  The purchasers of what manufacturing produces also include many jobs that pay well.

Unfortunately, government policies for domestic manufacturers encourage exports–including the export of capital investment overseas.  Many manufacturers have closed domestic plants and relocated them, along with the jobs they represent, to foreign soil.   There are estimates that the NAFTA agreement alone has resulted in the loss of more than 600,000 well paying domestic manufacturing jobs.

To make matters worse, because of these policies the US imports more goods and services than it exports.  ”The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total February exports of $143.2 billion and imports of $182.9 billion resulted in a goods and services deficit of $39.7 billion, up from $37.0 billion in January, revised.  February exports were $0.3 billion more than January exports of $142.9 billion.  February imports were $3.0 billion more than January imports of $179.8 billion.”

Obviously, there are two basic components in domestic manufacturing that need to be addressed in order to boost the economy by boosting more domestic manufacturing.  One is to boost export manufacturing while holding down imports.  Two is to boost manufacturing for products consumed in the US. 

In both cases, smart government policies combined with smart subsidies, focused tax incentives, and smarter trade policies and enforcement can accomplish the goal of increasing the number of well paying jobs for Americans.

Start with domestic manufacturing aimed at domestic markets.  We all realize we need to build up domestic energy capabilities.  That’s smart policy.  The most promising area appears to be natural gas.  Supplies are plentiful, and new drilling techniques have actually dropped the cost of natural gas.  Government tax subsidies to this industry will create jobs immediately.   Not only in the natural gas production and delivery industries, but also in the industries that use natural gas such as utilities and transportation.

We don’t need any more subsidies for Big Oil (we do $14 billion in annual subsidies currently), but allowing that industry new domestic opportunities for exploration and drilling would provide high paying jobs.  Nuclear energy falls into this category, as well.

But in the long run it’s the sustainable energy industries that will have the greatest positive economic impact.  The government should put a “floor” under sustainable energy prices through subsidies–such as those provided now for corn–a program that has had immense success in terms of boosting corn production.

Sustainable energy production will not only provide higher paying jobs, but it will at the same time create entire, new industries and new technologies.  It’s hard to assess the magnitude of what these new industries will accomplish, but it will certainly be huge because energy use ripples throughout every industry in any economy. 

With a subsidized “floor” under these fledgling, sustainable energy industries, private investment will flow in because the risk of loss will be reduced dramatically.  Compare this type of subsidy to the $3 trillion in direct and indirect subsidies the country has just made to the banking industry–hardly a new industry that creates new jobs.

From a Wall Street Journal article: “Many countries have adopted feed-in tariffs; some are as much as five times the wholesale price of power. The governments typically reduce the rate by a few percentage points yearly. But the cost of renewable energy is falling far more quickly than that; the lifetime cost of producing some types of solar power fell 50% during 2009; most other renewable technologies fell 10%, New Energy Finance says. Moreover, once a renewable-energy producer has locked in a rate for a particular project, it gets that rate for the full life of the subsidy.”

Critics of subsidies always use current oil prices in their models that say for every sustainable energy job you lose an oil based job.  But that’s a false assumption.  Fossil fuel prices are certain to increase over time, sometimes in dramatic, sudden fashion.  In contrast, clean energy prices are certain to decline over time. 

Ask yourself what $14 billion in annual sustainable energy subsidies would accomplish.  It would certainly create new jobs.  And it would create jobs that stay domestic, particularly if the government (taking a page from China) would require foreign companies wishing to locate in the US to take on a US partner and that the new facility would export half of its product: A double win because this would attack the trade deficit problem too. 

Transportation is a huge industry and a huge energy user.  Subsidies aimed at expanding the train infrastructure would save energy and reduce the cost of manufacturing, making manufacturers more competitive.   Government policies–including R&D subsidies–could encourage more fuel efficient cars and trucks, which would save energy and again reduce manufacturing costs.

Even farm subsidies could be better used.  We now subsidize corn and we have corn coming out the whazoo.  But more nutritious and more diversified foods would result if the $4-$7 billion in corn subsidies were directed instead to organic foods.  This would also multiply the number of farms.   Which would increase the demand for agricultural machinery .

Compare these costs to the cost of providing unemployment benefits.  Just the extension of benefits recently passed by Congress is estimated to cost $100 billion.  That’s just in one year.  Just the extension.

Better to spend this money subsidizing more jobs that pay living wages.  This is the best and quickest way to end that most dismal economic statistic:  47% of workers don’t make enough to pay income taxes.

Not to mention that we’d once again have a strong manufacturing base, cleaner more reliable energy and more diverse and nutritional foods.

Plus one other nice result.  Private corporations will book billions in profits.

Economics professor Robert Reich, Secretary of Labor under President Clinton, observes that our economy has become too dependent on “paper entrepreneurs” as opposed to “product entrepreneurs.”  We need both, Reich admits, but we’ve become unbalanced.

A new idea?  Hardly.  Reich made his observations 30 years ago.

“Paper entrepreneurs — trained in law, finance, accountancy — manipulate complex systems of rules and numbers. They innovate by using the systems in novel ways: establishing joint ventures, consortiums, holding companies, mutual funds; finding companies to acquire, “white knights” to be acquired by, commodity futures to invest in, tax shelters to hide in; engaging in proxy fights, tender offers, antitrust suits, stock splits, spinoffs, divestitures; buying and selling notes, bonds, convertible debentures, sinking-fund debentures; obtaining government subsidies, loan guarantees, tax breaks, contracts, licenses, quottas, price supports, bailouts; going private, going public, going bankrupt.

Product entrepreneurs — engineers, inventors, production managers, marketers, owners of small businesses — produce goods and services people want. They innovate by creating better products at less cost……

If we are to increase the economic pie, we will need to redress the balance of entrepreneurial effort. Which strategies will stimulate more paper, and which more product?”

Good question.  How do we re-balance?

Finance regulatory reform is a help.  Wall Street represents one of those “paper entrepreneurs.”  It grew exponentially, so much so that it went from about 7% of national Gross Domestic Product to a high of more than 20% of GDP just prior to its collapse in 2007.  Regulatory diligence, as opposed to laissez faire “look the other way” non-regulation, will pull back this particular imbalance.  It should, because this lopsided growth of what is a service provider, is a perfect example of malinvestment.

Health care reform is another example.  It too has grown exponentially and a great percentage of this growth has come, not in product innovation (there has been some of that, certainly), but in the “paper entrepreneur” part of the health care system:  In the service and administrative part as opposed to the part that actually delivers the service.   Like finance on steroids, health administrative and legal cost growth is another perfect example of malinvestment.

Rethinking what “fair trade” means.  Taking a tougher negotiating position with our trading partners would help immensely.  Warren Buffett likes the idea of having “import certificates” where partners could import to us only up to what they buy from us.   Whether this is a practical idea or not, the underlying attitude is that we should not be running huge foreign account deficits.  We’re learning that one negative impact of running those deficits moves our “product entrepreneurs” overseas.  And that aggravates the imbalance Reich describes.

Target tax cuts and subsidies to industries offering future, productive, growth.  Even a blind man can see where we’re all headed here.  We need to transfer more of our power needs to the sustainable, clean energy industries.  Obama’s $50 million matching grant to Celgard in North Carolina is an excellent example.  Celgard makes membranes for lithium ion batteries, a critical component for our transition to hybrid, and eventually all electric transportation.  This industry is already starting to explode and Obama has a goal of the US supplying 40% of these batteries worldwide in two years.  That’s an example of supporting “product entrepreneurs.”

Keeping America’s auto industry alive in the meantime, is another effort to support “product entrepreneurs.”  Chrysler and General Motors were forced to go through bankruptcy, assisted by the taxpayer, and are now producing competitive products worldwide.   American made cars and trucks running on American made lithium ion batteries are two related and worthwhile goals. 

There are many such examples of what needs to be done to redress the malinvestment made the past 30 years.  Here’s another.  We subsidize corn to the tune of between $4 billion to $7 billion annually.  It’s been marvelously successful at producing cheap corn, and as a result of the corn being fed to cattle, hogs and chickens, it has produced cheap meat protein in abundance.  Problem is this has crowded out many, many diversified farms.  Fewer people work in agriculture than did before.  A less diverse product selection is another negative result.  And finally, the product itself is turning out to be unhealthy for Americans.  It is severely damaging the nutritional value of our diets.

So subsidize healthy food instead.  If the effect of corn subsidies is any example, subsidizing healthy foods should be a boon to the entire nation.  And food definitely isn’t “paper entrepreneur.”  It’s all product.

Energy transformation.  Environmental transformation.  Transportation transformation.  Industrial agriculture transformation.  The simple truth is that targeted tax breaks and/or subsidies can help produce “product entrepreneurs” all over the country.  And produce billions in private industry profits along the way.

Who can complain about that?  Apparently Republicans can.

One facet of understanding markets, and economies, is to understand how much cash is sloshing around “out there.”

During the low interest rate Greenspan era after the 2000 recession, corporation profits and cash holdings built up to historic levels.  So did the cash holdings of the wealthiest cohort of Americans.

Cash has to go somewhere, particularly if interest rates are low.  As we know now, a good portion of the cash went into housing and into financial innovation securities like credit default swaps.  And into the stock market.

The bubble built and burst far beyond the housing market itself because the housing bubble was mirrored on Wall Street by the swap market bubble.  The second bubble was the one that cratered the financial industry throughout Europe and the US primarily.

The underlying problem is that investors can’t find enough productive investments.  In an ideal world there would be industries and innovations sufficient to handle the money created from corporate profits.  In an ideal world these types of investment opportunities would create new jobs and income growth.  But the private markets haven’t been able to create, net, any new jobs for the past 10 years. 

And so the cash horde is building up again.  Right now the cash sitting on corporate balance sheets is about 12% of total assets.  That’s more than double the historic average.  Outside of corporations, the amount of cash sitting in money market funds is also at historic highs.

Yet this is happening while unemployment rises to 10% (16% in the US if you count the people who quit looking for jobs or are otherwise underemployed), more than 5$ trillion in US private wealth disappears and sovereign nations build up deficits as their revenues shrink.

So why is there a lack of productive investment opportunities–the kind of opportunities where money goes into new jobs, new machines and life enhancing innovations?

Because right now all the real opportunities, the really big ones, need government help.  And in the Democratic, developed countries governments haven’t done a very good job of identifying the right policies and the right government funding to get things kick started.

So what might these really big opportunities be?

• Energy.  Everyone knows that, inevitably, fossil fuel energy is going to become more and more expensive.  It won’t go straight up, of course.  Nothing does that.  But the fundamentals, and the trends in pricing, are as clear as the nose on your face.  Governments should adopt a multi-faceted set of policies that together would spur innovation and development in alternative energy.  Natural gas and nuclear might be good energy sources to “bridge”  into the era of truly clean and sustainable energy.  They would buy private markets time and security for risk taking–particularly if the government put subsidy floors under the new industries allowing them to attract private investment.  The so-called “green revolution” would take off with the right policies and subsidies.  And the promise of job and income growth would take off at the same time.
• Transportation.  You now hear that the automobile industry is going to eventually disappear.  Possibly.  But more likely it will evolve into an industry where more and more efficient cars are designed and built.  In 10 years I wouldn’t be surprised if there are very few gas stations.  There may be stations where you can “charge” your car.  But the days of selling gas may be the real industry that won’t survive.  On the flip side are trains.  That industry is likely to grow because it will have to–particularly in the area of commodity transportation.  Governments who adopt policies encouraging expansion of rail infrastructure will not only create private jobs and income growth, but will make other industries more competitive by controlling transportation costs.
• Agriculture.  This is another broad area where growth may come because it has to.  And it’s an excellent example of displaying the power of government subsidies.  Unfortunately, the subsidies were to the wrong companies.  The US subsidizes corn to the tune of $4 billion annually.  It’s been a stunning success in some regards.  We’ve basically become a corn dependent nation.  The corn is artificially cheap which means our beef and chicken, even farm raised fish, are cheaper than they would otherwise be.  Unfortunately, the food that’s cheaply produced isn’t very healthy.  And non corn food prices have gone up sharply.  So we’ve lost our food diversity too.  What if we changed our policy and started subsidizing the production of healthy foods?  What if we subsidized an increase in food diversity instead of one that concentrates fewer and fewer jobs into fewer and fewer corporations that make money on corn and corn derivative production?  Such policies would not only make us more healthy (thus reducing obesity and diabetes for starters) but would save the nation billions of dollars in medical costs.   Plus, there would be more farms and thus more farm employees and farm equipment.

These are just three major areas where productive investment opportunities will arise with the right government policies and subsidies.  They are huge areas offering the potential to create millions of jobs and billions in profit and income.

Repairing poor policies comes along with this package.  For every new subsidy aimed at the right target, there are other subsidies that should be stopped.  The corn subsidy is one striking example of what should be eliminated.

Financial regulation reform is another example.  Under the current regulatory regime, the policy is that we will always bail out “too big to fail” bank holding companies.  This is a huge subsidy, without question.  And it cost the nation dearly.  In the trillions of dollars.  If these banks can’t compete without this subsidy, then we need a new banking system from the ground up.  Done properly, financial reform will greatly improve the stability of our financial system, and that, all by itself, will give the overall economy a boost.

Health care reform is much like financial reform.  The policy has been to subsidize health insurance companies, to support medical professional wages overall, and to protect drug and medical device innovation.  The health reform package just passed is a step in the right direction.  But it has deep flaws that won’t do much to withdraw the subsidies of the previous policies.  To the degree that it is improved and thus reins in out-of-control price hikes all along the health care chain, the new policies will ”save” tax dollars that could be re-directed towards more growth oriented industries.

Better international trade policies are needed, as well.  Our laissez faire approach to international trade, similar to our laissez faire approach to financial regulation, has kept a lid on domestic job and income growth.  If our policies are able to protect domestic industry and labor’s income,  they will also support domestic demand for product.  And robust demand is a good force for job and income growth. 

The health care reform effort and the financial regulation reform effort represent only one kind of policy change:  The one trying to repair damage caused by poor policies.

What we also need is the development of policies aimed at spurring private investment directly into specific areas such as those mentioned before.  Targeted, coordinated government efforts at creating sustainable improvement in our economy.  If we can manage to implement these types of aggressive, forward looking, policies the nation will prosper.