Free Markets, Free People

Daily Archives: September 9, 2010


Chart of the day – tell me again why we need another “stimulus”?

Because as I read this chart, what is being proposed by the Obama administration is about what remains unspent from “Porkulus I”, er, the first stimulus bill:

chart-of-the-day-stimulus-sept-2010

 

We already know this hasn’t worked.  That’s the implied reason for the second stimulus (although unstated, of course).  So there’s no reason to assume the second stimulus – mostly a smaller repeat of what failed in the previous rendition – is going to do any good either.

Here, I have an idea – go ahead with the $65 billion in remaining tax cuts, combine them with the tax cuts in the new stimulus and cancel all spending left in the first and that proposed in the second.

And watch Paul Krugman melt down.   Yeah, that’s the ticket.

~McQ


Government mandates and the law of unintended consequences

Your “Econ 101” lesson for the day is a lesson politicians never seem to grasp, although they do love to harp on is “greedy corporations” outsourcing “American jobs”.  In effect, they play off of free market decisions necessary to maintain competitiveness in order to characterize corporations as the bad guys (and, naturally, they and government as the white knights).

Of course the market decision I’m speaking of concerns doing what is necessary to remain competitive in highly competitive markets. And, one of the highest costs of production is headcount or the workers.  So in a free market, competitive industries are going to seek the lowest cost possible for labor to remain competitive. 

That may mean moving to a new country for labor intensive industries where labor costs are lower.

But sometimes it isn’t “greedy corporations” that drive American jobs offshore.  Sometimes it is the US Government.  Take light bulbs for instance:

The last major GE factory making ordinary incandescent light bulbs in the United States is closing this month, marking a small, sad exit for a product and company that can trace their roots to Thomas Alva Edison’s innovations in the 1870s.

Wait, you say, there’s still a demand for light bulbs!  Of course there is – but thanks to government intrusion, that demand, by law, is only for a particular kind – not the incandescent types that we actually manufactured here.  Instead of letting the market decide which type of light bulb it wanted, the government decided to mandate it. And what you are now allowed to “demand” is a compact fluorescent, or CFL.

What made the plant here vulnerable is, in part, a 2007 energy conservation measure passed by Congress that set standards essentially banning ordinary incandescents by 2014. The law will force millions of American households to switch to more efficient bulbs.

The resulting savings in energy and greenhouse-gas emissions are expected to be immense. But the move also had unintended consequences.

Rather than setting off a boom in the U.S. manufacture of replacement lights, the leading replacement lights are compact fluorescents, or CFLs, which are made almost entirely overseas, mostly in China.

Consisting of glass tubes twisted into a spiral, they require more hand labor, which is cheaper there. So though they were first developed by American engineers in the 1970s, none of the major brands make CFLs in the United States.

CFLs, as noted, are more labor intensive to manufacture than are incandescent bulbs.

China’s labor costs are far less than the US’s.  Therefore, the US government’s mandate ending the use of incandesents by 2014 and mandating CFLs be purchased in their place drove the domestic lighting industry – and the jobs it produced – off shore.  And all based on dubious science and the apparent belief that energy production is finite and waning.

Oh, and “how about those green jobs?”  Another promise shipped off to China.

When you screw that CFL in some family in China will thank you.  And when you pay your taxes some of which go toward unemployment benefits for former light bulb manufacturers here – make sure you thank the politicians for the job well done.  I’m sure those former GE workers will.

/sarc

~McQ


Fidel Castro – Socialism doesn’t work

We could have told him that 50 years ago:

Fidel Castro told a visiting American journalist that Cuba’s communist economic model doesn’t work, a rare comment on domestic affairs from a man who has conspicuously steered clear of local issues since stepping down four years ago.

[...]

Jeffrey Goldberg, a national correspondent for The Atlantic magazine, asked if Cuba’s economic system was still worth exporting to other countries, and Castro replied: "The Cuban model doesn’t even work for us anymore" Goldberg wrote Wednesday in a post on his Atlantic blog.

[...]

The state controls well over 90 percent of the economy, paying workers salaries of about $20 a month in return for free health care and education, and nearly free transportation and housing. At least a portion of every citizen’s food needs are sold to them through ration books at heavily subsidized prices.

Of course the "Cuban model" only “worked” while the USSR existed. It was essentially based in heavy subsidies paid Cuba by the USSR for being its main proxy in the Americas. And the USSR’s woes most firmly underlined the problems with a centralized demand economy run by the state. Even so, Cuba continued on along that vein even after their greatest benefactor and financial supporter collapsed like a wet paper box. Now, finally, after pushing Cuba into poverty, Castro admits socialism is a bust.

China, while still totalitarian, recognized the economic problems soon enough to avert a similar disaster by loosening up economically. Cuba and North Korea, though, have continued to use the disastrous economic model and are basket cases (Cuba has instituted some modest economic changes, but not enough to break the dependency on the state the government of Cuba had ingrained on multiple generations of its population).

Of course Castro’s admission comes to late for the people of Venezuela who’ve been roped into a Cuba-style socialist government by strong man Hugo Chavez. Predictably, the Venezuelan economy is in shambles.

You have to wonder how many more ruined economies it will take before the socialists of the world (or wannabes) recognize that their brand of government and economics is a disaster and has probably ruined more lives than any other economic system in history.

~McQ