Trade Deficit Narrows while Labor Force Participation Drops To Levels Not Seen Since 1979!

Two pieces of economic data stood out this week.  On a favorable note, the United States trade deficit narrowed by 3.4% from January, to $43 billion, with exports climbing to near record levels.  Exports rose to  $186 billion, with strong exports of energy products and automobiles.  Imports were little changed, with crude oil imports at their lowest levels since March, 1996.

Energy plays a central role contributing to the reduction in the deficit, with energy exports increasing on one hand, and energy imports at their lowest level in 17 years.  The reduction in crude oil imports is occurring for several reasons.  As referenced in an earlier blog on transportation, the number of vehicle miles driven has been reducing for several years, at the same time that vehicle efficiency has been going up.  In addition to reduced oil consumption for transportation, the United States has been incrementally increasing our own production of oil domestically.  These two factors have contributed to dampen and reduce the need and demand for crude oil imports.  

Another piece of economic news which stood out this week is the continued reduction in the overall labor force participation rate, explaining for the corresponding reduction in the nation's unemployment rate.  The labor force participation hit 63.3% in March this year, a level not seen since 1979.  Labor force participation peaked in 2000 at 67.3%, and has been declining ever since.

There is some uncertainty as to the cause of the reduction, with some referring to baby boomers leaving the work force, while others are giving up on being active in the job market, choosing to return to school, or stay on the labor force sidelines.  A structural shift appears to be taking place in the economy relative to the labor force.  The types of jobs being offered have transitioned to lower wage jobs and part time jobs.  Many who are unemployed are dragging their feet in taking  less attractive or part time positions.  We have seen higher wage manufacturing jobs being replaced with lower wage service sector jobs.  In addition, we have been seeing governments at the national, state and local levels reducing their employment levels.

There is another factor impacting the labor force.  Corporations, in order to maintain or improve profits with increased costs for energy, are turning to counterbalancing labor force reductions, substituting capital investment in improved productivity while simultaneously outsourcing lower margin activities.  These moves have allowed corporations to maintain or improve earning under scenarios with increased energy costs, leaving the labor force behind.    

The Economic Wisdom of Clean Energy

Clean energy offers the best chance we have in this country to take back our future, to create jobs, improve our economy, while enhancing our national security and permanently improving our environment.  The role of government is primarily to secure the national defense, to uniquely act in the collective national interest.  Similarly, the federal government plays a role in numerous other situations where the individual rights need to be protected, or standards of well being need to be upheld, such as economic well being or health.  In times of collective economic woe, the government has a responsibility to do what it can to protect the national well being.  This is one of those times and clean energy is the best vehicles to sustain and enhance our collective well being.

Each dollar invested in clean energy creates jobs, stabilizes and reduces our energy costs, increases productivity, reduces our foreign dependance on energy, creates exportable products and services, enhances our balance of trade, and significantly improves our environment.  The key differentiation with clean energy investments is the significant economic leverage achieved compared to any other investment, known in economic circles as velocity.  In aggregate, any dollar invested by the government usually has one dollar less of velocity as compared to a similar investment by the private sector.  Government begins in a disadvantaged position, caused by the tax effect on money.  Any investment on the part of government, therefore, must really bring unique advantage and not be duplicated in the private sector.  Clean energy fits that paradigm.

This country's clean energy strategy will focus on solutions that are economic, have a large impact, create jobs, increase productivity, improve our balance of trade, and enhance our environment.  The core elements of the three step clean energy strategy include:

1. Electricity - Accelerate proportion of economic renewable electricity, with a principal focus on enabling wind power.
2. Transportation - Accelerate the domestic development of very high mileage plug-in hybrids. 
3. Buildings - Accelerate the adoption of high efficiency end-use central systems, appliances and end-uses, including combined heat and power systems and geothermal heat pumps. 

The first role of government is to reduce the barriers to adoption, by eliminating regulation which discourages or hampers the development of these clean energy sources.  The second role of government is to encourage regulation that enables the development, deployment and adoption of these resources.  This would include tax breaks for developing and deploying these sources of energy.  The third step for government would be to provide financial incentives that directly reduce initial costs, such as tax incentives, rebates and grants.  It is important that the government share of these expenditures be kept low, so as to ensure only the most economic projects are built and that private capital is put to work, leveraging fundamentally scarce public resources.