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Los Alamos cuts an opportunity for New Mexico

Paul J. Gessing

Paul J. Gessing

It is time for political leaders of all parties here in New Mexico to understand that economic development must be driven by the private sector.

The recent announcement of job cuts at the Los Alamos labs generated some interesting reactions from New Mexico’s political leaders. By and large, Democrats – even those representing the Los Alamos area – were supportive or understanding, while Gov. Martinez ripped the Obama Administration, calling the cuts a “by-product of the dysfunction in Washington, D.C., and the inability to appropriately prioritize national defense and national security in federal spending decisions.”

I chalk up these reactions to politics. Democrats don’t want to be seen as bashing the Obama Administration while Gov. Martinez will take any chance she can to do so. But neither side is really telling the full story.

The year-over-year cut to the Los Alamos Labs’ budget is $300 million out of a $2.2 billion budget. That is a cut of nearly 14 percent and is significant to the labs. However, in the grand scheme of the federal budget, which was $1.3 trillion in the red in FY 2012, it is a drop in the bucket.

The major components of the federal budget include military spending (20 percent), Social Security (20 percent), health-care spending such as Medicare, Medicaid and CHIP (21 percent), and interest on the debt (6 percent). Any federal budget plan that fails to dramatically-reform and reduce the size of these so-called “big three” programs is not a serious plan.

Falling into national defense as these cuts do, they could represent a move toward more substantive cuts.

Democrats, if they are really serious about cutting spending, need to push the Obama Administration to do a whole lot more cutting than he seems willing to do. It also means that Gov. Martinez and state and local politicians throughout New Mexico can and should get ready for more cuts in federal funds flowing to the state. After all, New Mexico receives approximately $3.35 from the feds for every $1 we pay in federal taxes. Some reduction in that ratio is inevitable.


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Time to make tough decisions

With that austere outlook, why would I dare say that the prospect of a massive reduction in federal spending is an opportunity for New Mexico? Simply put, it is time for political leaders of all parties here in New Mexico to understand that economic development must be driven by the private sector. Government (and oil and gas) have been driving the New Mexico economy for the better part of our 100 years of statehood.

If the federal government could pump enough money into our state to make us wealthy, we would have been wealthy decades ago. Instead, we are among the poorest states in the nation. In part, this is because our political leadership has not had to make the tough decisions to make our state more competitive.

It is also true that while the labs (both Sandia and Los Alamos) have “spun-off” various technologies to the private sector, the smartest people in our state have been working behind a wall of secrecy for the federal government, not in their garages (a la Bill Gates and Steve Jobs) to develop the latest and greatest home-grown technologies.

It is the Microsofts, Googles, and Apples of this world that generate prosperity. These companies grow, creating the need for new suppliers and inevitably spinoffs that may become major businesses on their own. This is not to discount what the Labs mean to New Mexico, but it is to address the facts – that the federal budget is broken and that private-sector growth can and must fill the gap.

What Martinez should have said

So, I’d like to have seen a press release from Gov. Martinez say something along these lines: “We in New Mexico have long been beneficiaries of federal largess. But, with the federal government in dire fiscal shape, we encourage Washington to get serious about cutting spending. We in New Mexico, at the same time, need to enact more free-market policies in order to become more prosperous.”

The answer to funding cuts at the labs and to other federal installations in the future is not to complain about the lack of seniority of our representatives. Rather, it is to remind ourselves that the laws of mathematics and economics cannot be repealed or altered for our benefit.

Paul J. Gessing is the president of New Mexico’s Rio Grande Foundation, an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

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10 comments so far. Scroll down to submit your own comment.

  1. Mr. Gessing is mostly right in his assessment of the ‘labs situation.’ We in New Mexico have been living on borrowed time for a long time with respect to our national labs footprint. It was inevitable that we would take some cuts, but that should make us stronger not weaker if we have the will to ‘reinvent ourselves’ and learn to push more technology out the lab doors, faster and with a clearer focus on just how it will be commercialized. While there may be nearly a billion dollars collectively in the hands of local venture capital companies here we need to create alliances with other states AND we need first tier venture capital companies that are not afraid to invest in our technology. It will not do much good to ‘invent it here’ and see it migrate out of state for lack of funds. We must also look for ways to partner more intelligently in general and not see government (or conversely the private sector) as a problem but an opportunity. Check out the State’s “Technology 21″ science and technology plan on the Economic Development Department’s website. With a little tweaking for current conditions we might find some gold in them thar hills.

  2. Mr. Schneider, we HAVE been “stimulating” the economy for over a decade through a massive increase in federal spending and modest tax cuts. Under discredited Keynesian theory, our national economy should be booming. Problem is, Keynesianism doesn’t work and massive spending reductions are in order. After that, we can discuss what level of federal revenues and from what sources is appropriate.  

    BTW: I’m not “anti-Labs” or military spending, but rather recognize that if everyone in the nation says no to spending cuts in their back yard or to their preferred programs, nothing will happen and we’ll go off a cliff that will make what’s happening in Greece look benign.  

  3. ” … federal transfer payments to Los Alamos County … “
    .
    Um, I don’t think that word means what you think it means:
    “transfer payment 
    noun
    1.
    any payment made by a government for a purpose other than that of purchasing goods or services, as for welfare benefits.

    2.
    any money received that is neither a payment for goods or services nor investment income.”
    http://dictionary.reference.com/browse/Transfer+Payment
    .
    The money the federal government spends in Los Alamos isspent buying goods and services, mostly. It is spent on salaries, wages, building and maintaining facilities and labs, etc. Those are not transfer payments.
    .
    I suspect that there will be hell to pay as the 3/1 ratio of federal funds recieved vs paid heads back to closer to 1/1.
    .
    Why should it? Places like LA and Memphis will still benefit greatly from being able to tranship goods across NM on I40, so why shouldn’t they continue to contribute to paying for it?  National defense will still benefit from the nuclear weapons programs at Kirtland, Sandia and Los Alamos, why shouldn’t the rest of the country continue to pay for it? We can’t really move I40 to some other state, and I don’t see why we should either eliminate nuclear weapons maintenance and nuclear research or move it to some other state, or stop paying for it. We’ve already got a lot of the labs and facilities built here, we have the people here, why waste money moving them?

  4. For decades now, New Mexicans. and in particular Los Alamos County residents have benefited from the development of LANL.  But those days are over.  Our political leaders at the Federal level from both sides of the isle have worked the system to maxamize the funding for our Labs and other government operations.  I suspect that there will be hell to pay as the 3/1 ratio of federal funds recieved vs paid heads back to closer to 1/1.  Without a vibrant and growing private sector, we are headed for some real problems, the largest one being the dramatic reduction in federal transfer payments to Los Alamos County nad New Mexico.  Remember, Los Alamos has lots of millionaires.  Perhpas in the futhre not so many.  Unfortunately, we do not have a legislature capable of making needed changes to our regulatory system at this time.  Same in Washington only worse.  We will loose one of our national labs as consolidation occurs shortly.  What then?

  5. “… federal spending is going to fall. …  the reality is our current spending levels aren’t sustainable … ”
    .
    I believe that you are wrong. We are stuck in a liquidity trap at the zero bound, and in this situation the only rational policy is to increase, rather than decrease, federal deficit spending. The best use of that deficit spending is investing in infrasctucture and R&D such as is done at Los Alamos. Brad Delong, a real economist, makes the point fairly clearly (with numbers, even) in a recent post: http://delong.typepad.com/sdj/2012/03/under-these-circumstances-a-larger-national-debt-is-indeed-a-national-blessing.html  Paul Krugman, another real economist, is apparently making the same point in his forthcoming book:  http://krugman.blogs.nytimes.com/2012/02/27/stuff-i-have-been-doing/    We’ve got a long term problem with health care spending that’s too high, going up too fast, and not providing a commensurate level of health benefits – but that’s a different problem.
    .
    Government spending on infrastructure and R&D is a successful model that’s proved its value over centuries (I listed example previously) – and despite this, Mr. Gessing apparently believes that government spending is not a “successful economic development mode”. He’s wrong. He also apparently believes that Gates and Jobs are examples of new technology being developed in garages. He’s wrong about that.
    .
    Being wrong about the necessity of reducing federal spending, and being wrong about the economic value of federal spending, and being wrong about where technology breakthroughs come from, I’m reluctant to believe he’s right in saying that we need to “enact more free-market policies in order to become more prosperous”. The free market is fine in its place, but he hasn’t come anywhere close to making the case that we need less government or more free markets. I’m not saying we should eliminate market capitalism, but we should continue to recognize (as we have since at least the Sherman Anti-Trust Act in 1890) that government must set limits on free markets. We must also continue to recognize, as we have since we adopted a constitution giving the federal government the power to establish post offices and to coin money, that there is a necessary and proper role for government in promoting the general welfare.

  6. Mike,
    I agree that research and infrastructure can be very good uses of taxpayer dollars, and free markets aren’t always up to the task of some long term investments.  The labs have done great work and I don’t think Mr. Guessing or anyone else wants them to go away.  But, I think the crux of Mr. Gessing’s article is that regardless, federal spending is going to fall.  Sure, practically speaking we want priority to go to certain programs, and in our state of course (and that’s what our congressional delegation is supposed to be doing).  However, the reality is our current spending levels aren’t sustainable, and unless you’re ready to defund defense, Medicare, or Social Securty completely - and even if we raised taxes – we’re still going to have to spread the pain around.  Only Pollyanna believes federal spending will increase over time sufficiently to allow our economy to really prosper.  No one wants to see jobs lost, but I think the opportunity Mr. Gessing refers to is the knowledge of the reality that we have to find other ways to prosper and have a productive economy beyond federal spending… and he’s right on that point, if I undersood it correctly.  Nothing focuses the mind like staring down the barrel of gun.  Just wait for the next BRAC cycle…

  7. economic development must be driven by the private sector
    I don’t think government is a successful economic development mode
    Government spending has done wondrous things for economic development. History is littered with examples of government spending that promoted economic growth: Erie canal, transcontinental railroad, dam and lock system on the big rivers, rural electrification, the post office, the federal and state highway systems, sanitary sewer systems, clean drinking water, ARPANET/DARPANET/Internet, RADAR, global positioning systems, telecommunication satellites, universal free public education, etc.  Without government spending we’d all be sitting in the dark wearing animal skins.
    … not in their garages (a la Bill Gates and Steve Jobs) to develop the latest and greatest home-grown technologies
    Neither Gates nor Jobs developed any great technologies, not if you take ‘develop’ to mean invented, created, discovered, or made possible.  Gates had a very clever business model, and Jobs was great with product design, but both got their technologies from elsewhere.
    Garages are very poor laboratories for majr technological breakthroughs:  I was THIS CLOSE to commercializing a new design for nuclear fusion based electrical generation in my garage. I turned on the gazillion gauss magnetic field, cranked up the bajillion watt lasers, and had just initiated fusion when the EMP blew all the flat screen TVs in my neighborhood. I mean, there’s a reason why the government does that sort of thing in bunkers and labs in Los Alamos, and individuals don’t do it in garages.

  8. Well said Mr. Gessing.  The unemployment rate last month was about 3% in LA County, and probably about 1% in LA proper, so this place is far from being destitute, and has the highest per capita income in the state by a large margin.  It has been the darling of every pork seeking politician since the ’40s, both parties, and has lived a charmed life in many ways.  I think they can do a little sacrificing too these days, the rest of us have been for some time, but it seems the recession never happened in LA anyway.

  9. I am not sure that I understand your point or if you are just being sarcastic, ZB. There is no “NM” in quotes. My family has roots in NM dating to the end of WWII, but that is irrelevant to this discussion. I’m certainly not “anti-labs,” but I don’t think government is a successful economic development model and cuts to the federal government are essential. 

  10. I was wondering if a “NM” Republican (“NM” is in quotes because something tells me that Mr. Guessing isn’t born and raised in NM) would actually come out and agree that cutting funding the NM’s labs was a good thing.  Republicans have been saying time and again, that the federal government needs to shrink, and now that the first hit to NM has come, Governor Martinez is blaming President Obama.  Why isn’t she fully in support of the the government getting smaller?  Hasn’t that been her mantra, as told to her by Jay McClesky?  Good for you Mr. Guessing!  I’m glad to see at least one “NM” Republican come out in favor of the cuts, and to agree that NM no longer needs such bloated labs of LANL and Sandia.

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