Free Markets, Free People

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The BFD – its first week

So, how is ObamaCare being greeted by the real world since it was signed into law Tuesday?  Well, pretty much as expected by those who were paying attention (and that wouldn’t include the unicorns and moon pony crowd).  For instance, employees at Verizon were greeted with a statement by the company explaining its interpretation of the law and what that would mean in terms of future coverage:

In an email titled “President Obama Signs Health Care Legislation” sent to all employees Tuesday night, the telecom giant warned that “we expect that Verizon’s costs will increase in the short term.” While executive vice president for human resources Marc Reed wrote that “it is difficult at this point to gauge the precise impact of this legislation,” and that ObamaCare does reflect some of the company’s policy priorities, the message to workers was clear: Expect changes for the worse to your health benefits as the direct result of this bill, and maybe as soon as this year.

You may recall that Caterpillar said that the bill would cost them $100 million more in health care coverage in the first year alone. That ought to make them highly competitive.

Verizon is also being punished for offering retirees health benefits:

Mr. Reed specifically cited a change in the tax treatment of retiree health benefits. When Congress created the Medicare prescription drug benefit in 2003, it included a modest tax subsidy to encourage employers to keep drug plans for retirees, rather than dumping them on the government. The Employee Benefit Research Institute says this exclusion—equal to 28% of the cost of a drug plan—will run taxpayers $665 per person next year, while the same Medicare coverage would cost $1,209.

In a $5.4 billion revenue grab, Democrats decided that this $665 fillip should be subject to the ordinary corporate income tax of 35%. Most consulting firms and independent analysts say the higher costs will induce some companies to drop drug coverage, which could affect about five million retirees and 3,500 businesses. Verizon and other large corporations warned about this outcome.

Or, instead of discouraging employers from dumping retirees on the government, the new plan encourages it and essentially punishes those who don’t. In fact, you could say that the entire bill encourages companies to dump employee coverage. If they’re of a certain size and don’t offer coverage, they are fined $750 per employee. Compare that to the thousands of dollars in cost for coverage plus the expense of administering an employee health insurance program. If you’re running a company in an economy mired in recession, what is one of the primary things you try to do? Cut costs. You have 50 employees and you’re spending $5,000 each on health insurance or $250,000 plus the cost of administration of the program. You can dump it all and pay a fine of $37,500. What would you do?

Oh, and there’s this little goodie to encourage companies to act quickly:

U.S. accounting laws also require businesses to immediately restate their earnings in light of the higher tax burden on their long-term retiree health liabilities. This will have a big effect on their 2010 earnings.

Of course it will. And that will have a significant impact on the economy and first quarter earnings.

Some companies, however, have an alternate plan:

Consumers Energy, a Michigan gas and electric company with 2.9 million customers, said it will not take a big first-quarter charge because, like most utility companies, it can try to recover the added costs from its customers through rate hikes.

The increased costs are going to be paid by someone – customer, taxpayers – it’s all the same in the end.

And that’s pretty much where the states are right now as well. South Carolina just tallied up its new unfunded mandate:

The expansion represents a 4.4 percent increase in the $20.9 billion the state would have spent on Medicaid during that nine-year period, adding roughly $100 million a year to the state’s costs.

The state is looking at a 1 billion dollar shortfall next year – the unfunded mandate adds $914 million to the shortfall over the next 10 years. Any guess who will end up paying for that?

It should be clear, given the Verizon info that the intent is to move people off employer based insurance and on to something else. I’ve always been a proponent of individual health insurance purchased by families individually in a free and competitive insurance market like we do any other insurance product. It immediately solves the portability problem and it drives cost down. What we’re seeing here is a manipulation of tax code pointed at effectively ending employer insurance programs but with a different aim in mind – single-payer government run insurance.

The intent to again offer legislation to establish an public option, voiced by Harry Reid and House Democrats makes that point rather clearly. Democrats will try to pass that before November – bet on it. Should they succeed, then all the parts would be in place to move in that desired direction. Meanwhile, unsurprisingly the promise of “if you like your plan and if you like your doctor you can keep them” appears to be a hollow one. The law incentivizes drastic changes in plans to avoid costs and taxes and in many cases, it is clearly smarter for a business to dump health care coverage altogether.

As for 95% of us not seeing a dime in new taxes – that too was a load of nonsense as most of us knew. Unless you live in the 57th state where none of this has any impact, the new unfunded mandates promise increased taxes – states, unlike the federal government can’t print money and thus have to either cut spending or increase taxes. Since the increased spending is being mandated, it leaves them little choice, does it?

~McQ

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When Girl Scouts Attack

Some of you would no doubt love to be accosted by a bunch of girl scouts plying their wares (you know who you are), but you won’t be subject to such a harrowing experience in Seattle:

Tim Burgess’s move to outlaw “aggressive panhandling” may be an unconstitutional, attention-seeking bully tactic, but at least the Councilmember appears willing to apply the law equally to anyone asking for money on the streets. Even if they just want to sell you a box of thin mints.

The issue, such as it is, arose from a (possibly facetious) email exchange between a Seattle Councilmember and an alleged citizen complaining about what can only described as a channeling of a Mike Myers mock-horror scene:

Councilmember Burgess:

I was strongly opposed to your panhandling proposal until my experience on the streets of downtown West Seattle yesterday. Now I totally understand where you’re coming from.

Here’s what happened: on the way to the West Seattle Farmer’s Market, I encountered a band of Girl Scouts aggressively promoting cookie sales within spitting distance of a KeyBank ATM where I was withdrawing money. The situation was so extreme that I could actually hear their aggressive, repeated, high-pitched solicitations at the very moment I was entering my PIN. Then as my cash was dispensed and I nervously removed my receipt — trying to stay calm despite this invasion of my constitutional right to not be confronted by my relative class status — I saw two adult women. They were the ringleaders, I assume. They didn’t seem to be doing anything but watching over the whole scene and talking discreetly to each other about god knows what. All in all, a nerve-racking experience.

So there they were, asking for money, repeatedly, despite my lack of interest in what was on offer, all happening well within 15 feet of an ATM. Would this be banned by the your ordinance? I certainly hope so, because there’s a long history of applying laws like this inequitably, almost as an excuse to push poor people out of desirable areas instead of addressing the actual problem.

Thanks for any information you can offer.

My best guess is that this email comes from a rather disgruntled, yet somewhat clever, panhandler. The Councilmember’s response is both appropriate and obviously skeptical, but it does raise an interesting question: if the state is going to exercise it’s police powers judiciously, doesn’t that ensure that we miss out on opportunities that are neither a threat nor an offer of something we don’t really want? After all, what sort of hair-shirted aesthete do you have to be to not want girl scout cookies?

When it comes to local rules and regulations, I’m not one to quibble too much unless such restrictions impinge on fundamental rights. Setting up shop in a public way certainly deserves some treatment of police power since the sidewalks belong to the public. At the same time, if you are just standing around hawking your legal goods, I really don’t understand what it is we need to be protected from. Can it be annoying to walk through a gauntlet of capitalism? Sure. Maybe worse for some than others. But we don’t have any right to be free from annoyance, do we?

I mean, if that were the case, then why should I be bothered by ACORN morons marching up and down the street where I work? Nothing has ever been done about that. Once, I nearly came to blows with some idiot preaching about how we needed a new New Deal while I was trying to enjoy a leisurely stroll in downtown Alexandria, VA. Do I have the right to be free from that annoyance? Not bloody likely.

And the fact of the matter is that I shouldn’t be “free” from those annoyances, anymore than I should expect to be “free” from girl scouts selling cookies on a street corner, or a hippie selling dew rags in a city square. If one of them genuinely threatens my peace, then the appropriate authorities should be able to step in, but how often is that truly the case? That some panhandler was able to point out this hypocrisy in the enforcement of Seattle’s anti-public-space-economy laws (to coin a terrible phrase) only underscores how ridiculous the application of police power (local or otherwise) has become.

The bottom line is that, whether one is selling girl scout cookies or dew rags, why do I need the state’s protection? Keep the public ways clear for the public sure, but let’s not forget that commerce is what truly makes the world go ’round. Without it, that police protection doesn’t get paid for.

[HT: Tom Scott]

Will Proposed Bank Regulations Kill US Bank Competitiveness?

That is certainly what New York City Mayor Michael Bloomberg believes.  And, surprisingly, his position is supported by none other than the Secreatary of the Treasury, Timothy Geitner.

The proposed bank regulations, all driven by President Obama’s war on Wall Street, would limit big bank’s trading and size. Obama claims that the nation will never again be held hostage by institutions deemed “too big to fail”.

Well, here’s a clue – the only ones who claimed they were too big to fail and threw all that money at them are the same ones now trying to regulate them into noncompetitiveness. You’d almost think this was part of a plan if you didn’t believe they weren’t smart enough or quick enough to do such a thing. But, as they’ve claimed, they won’t let a crisis go to waste.

In fact, this is another battle in the long class war against the rich. Nothing symbolizes the “rich” like Wall Street. And nothing serves Democrats in trouble better than a populist cause (or at least one they deem to be populist). So while voters continue to send messages to the Democrats via VA, NJ and MA, health care reform implodes and the President’s job approval rating tanks, he’s warring on the institutions which are critical to the economic recovery of the nation.

How freakin’ tone deaf can one be?

Mayor Bloomberg has some immediate local issues that concern him – possible layoffs and the erosion of the tax base. But he also recognizes that handicapping US banks when no such handicaps exist for foreign banks, hurts their long term competitiveness and will therefore have negative long term consequences.

Obama’s proposals would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.

He called for a new cap on the size of banks in relation to the overall financial sector that would take into account not only bank deposits, which are already capped, but also liabilities and other non-deposit funding sources.

The proposed rules also would bar institutions from proprietary trading operations that are for their own profit and unrelated to serving customers

According to sources, Geithner says the proposed regulations “do not necessarily get at the root of the problems and excesses that fueled the recent financial meltdown.”

He’s not alone in that criticism:

Lawrence White, a professor at New York University’s Stern School of Business and a former regulator, said Obama’s proposals were “a solution to the wrong problem.”

“They have this rhetoric that it was proprietary trading that was the problem,” White said. “That’s wrong.”

Of course the Obama war on Wall Street is certainly having an effect – bank shares have declined as has the dollar against other currencies.

If you don’t get the idea that this is mostly an ideologically driven “war” trying to cash in on populist anger at a time when nothing is going well for the administration, you’re not paying attention. It also points to an “war of choice” based in a very poor understanding of economics and the fact that we’re engaged in a global economy where competitiveness is critical. If these regulations pass and when the recovery falters because banks are hobbled and noncompetitive, I’m sure that somehow the White House will again play the “greed” card out in a effort to hide the effects of their own short-sighted and ideologically driven economic malpractice.

~McQ

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Warren Buffet – Bank Levy Makes No Sense

Barack Obama was quite fond of quoting Buffet during the campaign. My guess is he’ll not be as willing to quote Buffet about his opposition to the President’s proposed bank tax:

“I don’t see any reason why they should be paying a special tax,” said Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., in an interview on Bloomberg Television today. Supporters of the plan to tax the banks “are trying to punish people,” he said. “I don’t see the rationale for it.”

What he’s talking about, of course, is the tax Obama has proposed ostensibly to recover the losses incurred in the TARP program. Obama has targeted about 50 banks to make this repayment.

The levy would apply to firms with more than $50 billion in assets, including Wells Fargo and Goldman Sachs, two companies that Berkshire has investments in. It would exclude Fannie Mae and Freddie Mac, the government-sponsored mortgage lenders taken over by the U.S.

Look at the damage Fannie and Freddie caused, and they were run by the Congress,” said Buffett. “Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so.”

Of course Buffet throws out a point, which I’ve put it bold, that the administration, Democrats in general and the media have studiously avoided. That’s the role that the two quasi-governmental organizations, Freddie Mac and Fannie Mae, played in the financial meltdown (and how much of the TARP money they sucked down). In fact, the tax is as much about recovering the money they required as anything. But pointing that out would be detrimental to the narrative the administration has been building about the “greed of Wall Street” and their unilateral culpability. According to Bloomberg data, Freddie and Fanny owe about $110 billion. Buffet, of course, is not so easily fooled:

The levy would apply to firms with more than $50 billion in assets, including Wells Fargo and Goldman Sachs, two companies that Berkshire has investments in. It would exclude Fannie Mae and Freddie Mac, the government-sponsored mortgage lenders taken over by the U.S.

“Most of the banks didn’t need to be saved,” Buffett said. “Including Wells Fargo.”

The bank tax would raise $90 billion over 10 years and, of course, be paid for by the banks customers. Also note that the sum of $90 billion is very close to the amount owed by Freddie and Fanny.

Obama is correct – “we want out money back”. But we want it back from the institutions which wasted it. Of course that’s impossible since taxing Freddie and Fanny is taxing ourselves. Of course, so is taxing banks. However, it is much more useful to demonize them, play the greed card and pretend the government is blameless than to tell the truth, isn’t it?

I mean, if they told the truth, they’d have to implicate Congressional Democrats like Barney Frank, wouldn’t they – and that would never do.

~McQ

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Why, You Ask, Are Businesses Not Hiring? The EPA For One Reason…

As regular readers know, we’ve been talking about why businesses are sitting on the sidelines and not hiring at the moment.  Businesses don’t like unsettled questions about the arena in which they must operate.  Health care legislation will effect the cost of doing business.  Until that is settled, there’s little incentive to take a chance and hire or expand their business.   If it costs more to do so after the legislation is passed – and it seems it will, they’ll wait to see the eventual outcome (and cost) and adjust accordingly.  Same with cap-and-trade.

However, in that regard, the EPA seems ready to proceed on it’s own schedule and businesses are not liking what they’re hearing:

Officials gather in Copenhagen this week for an international climate summit, but business leaders are focusing even more on Washington, where the Obama administration is expected as early as Monday to formally declare carbon dioxide a dangerous pollutant.

An “endangerment” finding by the Environmental Protection Agency could pave the way for the government to require businesses that emit carbon dioxide and five other greenhouse gases to make costly changes in machinery to reduce emissions — even if Congress doesn’t pass pending climate-change legislation. EPA action to regulate emissions could affect the U.S. economy more directly, and more quickly, than any global deal inked in the Danish capital, where no binding agreement is expected.

Bottom line – if the administration can’t get it done legislatively, they’ll just assume the authority and implement what they wish to do to restrict emissions and require “changes in machinery” unilaterally.

An EPA endangerment finding “could result in a top-down command-and-control regime that will choke off growth by adding new mandates to virtually every major construction and renovation project,” U.S. Chamber of Commerce President Thomas Donohue said in a statement. “The devil will be in the details, and we look forward to working with the government to ensure we don’t stifle our economic recovery,” he said, noting that the group supports federal legislation.

Can you imagine a more pervasive “emission” or arbitrarily applied set of mandates? Start asking yourself who the favored and unfavored industries are out there? Do you suppose coal fired power plants might be target one? And I’d guess that refiners would be in the same boat – unless they make ethanol.

The point of course is this is a perfect way to target and increase the cost of operating businesses that the EPA decides are the worst CO2 polluters. They’ll just write regulations that require costly renovations and changes. The net outcome, of course, is increased cost to consumers – most likely in their electricity bills, the cost of goods (transportation) and just about every other aspect of life you can imagine.

An endangerment finding would allow the EPA to use the federal Clean Air Act to regulate carbon-dioxide emissions, which are produced whenever fossil fuel is burned. Under that law, the EPA could require emitters of as little as 250 tons of carbon dioxide per year to install new technology to curb their emissions starting as soon as 2012.

The EPA has said it will only require permits from big emitters — facilities that put out 25,000 tons of carbon dioxide a year. But that effort to tailor the regulations to avoid slamming small businesses with new costs is expected to be challenged in court.

Legislators are aware that polls show the public appetite for action that would raise energy prices to protect the environment has fallen precipitously amid the recession.

Understanding that the public appetite for such action is very low, legislators are perfectly happy to let cap-and-trade languish. So the bureaucracy is being empowered to go where no elected politician dares at the moment. And if you’re a business, that means you’re still not clear what that means to you at the moment.

And so, you don’t hire. You don’t expand. You’re barely competitive in the global market as it is and now they’re talking about adding more cost? Yeah, that settles everything, doesn’t it? They’ll start hiring tomorrow.

~McQ

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Action : Reaction

Gee, I wonder who would have guessed that this would happen:

In a London preview of Wall Street’s bonus nightmare, more than 1,000 investment bankers have quit Royal Bank of Scotland to work at rivals due to curbs on their paychecks, according to people familiar with the situation.

Wall Street banks fear top talent would flee en masse for greener pastures if Uncle Sam’s pay czar, Ken Feinberg, and Congress try to put more ceilings on bonuses and pay at financial firms.

In the UK, the rules are modeled after US actions to curb pay at firms bailed out by the government.

[…]

The protest exodus at RBS — first reported on the Web edition of the Times of London — involved less than 5 percent of its banking professionals.

Some headhunters see more bankers jumping ship in the coming year as the controversy deepens over pay freezes and curbs.

Pay people less than they think they can earn elsewhere, then “elsewhere” is where you will find them.

Some will say that these ship-jumpers can’t be worth too much if their companies had to be bailed out, but that gets it exactly backwards. For the most part, it’s those who are responsible for the floundering that will be left working for the rotting (and now government owned) corpse, while those most capable find positions in more stable firms.

There’s nothing particularly bad about this sort of slough off, except that with the bailouts thrown into the mix, it’s the public that’s left holding the bag. Absent the government takeovers, the same sort of thing would have happened, only in a quicker, more orderly way (see, e.g. the fallout from the collapse of Arthur Anderson, or the bankruptcy of BearingPoint).

Moreover, the demonization of Wall Street types accomplishes nothing constructive, and may very well convince otherwise enterprising young B-school grads (or potential grads) to employ their intellectual talents in other fields that may not fully capture their potential or interest. All that does is deprive the rest of us of smart, young and industrious business people who might make our world better, and instead treats us to a glut of some other professionals that we likely don’t need (i.e. lawyers). And we really don’t want that now, do we?

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Jobs – White House Summits Aren’t The Answer

If you’re among the 15 or so in this country that believe this White House job summit will actually end up creating policies that produce jobs, I think Evan Newmark’s WSJ piece might dissuade you from that belief:

Now, I’ve never been to a White House summit, so I can’t say exactly what will happen on Thursday. But as a past Davos World Economic Forum participant, I’m pretty familiar with these kinds of VIP schmooze and snoozefests.

And here’s how it will likely play out. A senior White House official — perhaps the president — will give a welcome pep talk to the 130 gathered “summiteers.” He’ll ply them with thanks and stirring patriotic words.

But then he’ll urge them to not waste the day in conference fuzzy talk. Instead, the summiteers should turn words into actions and actions into jobs. After all, it is a “jobs” summit.

And then the summiteers will shuffle off to one of six working groups — where of course they’ll end up wasting the day in conference fuzzy talk.

It’s inevitable. Prepared remarks, banal anecdotes and empty debates are the stuff of these mushy forums. I can count on one hand the number of memorable moments from the dozens of my Davos sessions on technology super-revolutions, entrepreneurial innovation and world peace.

That’s because the VIPs at these things aren’t there to say or do anything unexpected.

Do you think that FedEx CEO Fred Smith and United Steelworkers President Leo Girard will somehow reach agreement that the best way to create jobs is to kill the union-card check?

Do you think that Randi Weingarten, President of the American Federation of Teachers, will suddenly serve up innovative ideas for trade unions to assist small businesses?

It seems unlikely.

And so the jobs summit will fail for the same reason Obamanomics is failing: The White House mistakenly believes economic growth and new jobs are created by society’s stakeholders — business, labor and government — cooperatively working together.

Like most of these events, this is a political stage show. It is a visual representation meant to convey the idea that a) the government is interested in your problems and, most importantly, b) it is here to help.

But the key to the failure of this summit, even if they were serious about creating jobs, is found in Newmark’s last sentence. The key to economic growth and new jobs aren’t the product of summits among “society’s stakeholders”. They never have been.

In fact, it’s pretty simple as he notes:

But that’s not the way capitalism works. It doesn’t take a village to create a new job. It takes a businessman trying to make another buck.

So why aren’t the businessmen out there trying to “make another buck”? While business is all about risk, the risks they take are rational.  Businessmen aren’t at all inclined to take risks that can ruin them, especially in unsettled markets. Right now economy is very unsettled and government has huge tax laden legislative bills pending which will directly effect these businesses in a very negative way. And of course, there’s new and increased financial regulation pending which may effect their ability to get funds to expand their businesses and hire new workers.  Thus they’ve concluded it would be entirely irrational to expand their business or hire in such an atmosphere.

Instead, they’ll hold off on hiring or expanding until the economy and markets are much more settled and they’ve had the opportunity to gauge the cost to them of all of this new legislation and regulation.

That said, the simple answer on how ease economic uncertainty and thereby create more jobs is kill health care, kill cap-and-trade and back off the increased regulation. Additionally, a corporate tax cut might help as well. All of that would certainly settle market down and give businesses an incentive to both expand and hire.  But this job summit? Newmark nails it. Fuzzy talk aimed at the wrong solution. The best thing the government can do is back off and let the market get back to work. Unfortunately, that won’t be the solution the “summit” proposes nor will it be the policy the White House will adopt.

~McQ

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The AGW Payoff For Al Gore

His supporters call him a visionary. His detractors call him a con artist.  One thing is certain though, the hype of AGW is making Al Gore a very rich man. And that alone should make people very skeptical of his “cause”.

Few people have been as vocal about the urgency of global warming and the need to reinvent the way the world produces and consumes energy. And few have put as much money behind their advocacy as Mr. Gore and are as well positioned to profit from this green transformation, if and when it comes.

Critics, mostly on the political right and among global warming skeptics, say Mr. Gore is poised to become the world’s first “carbon billionaire,” profiteering from government policies he supports that would direct billions of dollars to the business ventures he has invested in.

And, in fact, the NYT describes just such a venture that will now pay off for Gore and his partners. You remember those “smart grid” grants handed out a week or so ago?

The company, Silver Spring Networks, produces hardware and software to make the electricity grid more efficient. It came to Mr. Gore’s firm, Kleiner Perkins Caufield & Byers, one of Silicon Valley’s top venture capital providers, looking for $75 million to expand its partnerships with utilities seeking to install millions of so-called smart meters in homes and businesses.

Mr. Gore and his partners decided to back the company, and in gratitude Silver Spring retained him and John Doerr, another Kleiner Perkins partner, as unpaid corporate advisers.

The deal appeared to pay off in a big way last week, when the Energy Department announced $3.4 billion in smart grid grants. Of the total, more than $560 million went to utilities with which Silver Spring has contracts. Kleiner Perkins and its partners, including Mr. Gore, could recoup their investment many times over in coming years.

How very, uh, convenient. Anyone who doesn’t believe Gore’s connections inside government at very high levels isn’t paying off just isn’t paying attention. Gore has pushed AGW vigorously for years and until recently when the science he based his pitch on has been found seriously wanting, he’s pretty much had it his way. Governments around the globe swallowed it whole and the movement has grown into a veritable religion.

Gore’s reaction to the skepticism about his profiting off what many, myself included, consider a gigantic scam?

Mr. Gore says that he is simply putting his money where his mouth is.

“Do you think there is something wrong with being active in business in this country?” Mr. Gore said. “I am proud of it. I am proud of it.”

There’s absolutely nothing wrong with being active in business in this country, Mr. Gore – unless of course it’s the coal business or the lumber business or the nuclear energy business, or the oil business. Or for that matter the pharmaceutical business, health insurance business or financial sector. Then there’s the car business …

Well you get the idea. What Mr. Gore is actually proud of is creating a business that’s a politically popular one and stands to suck in untold piles of money based on a scam that would make Bernie Madoff green with envy. Because Al Gore has created and is engaged in a “legal” ripoff the size of which the world has never seen. Of course he’s “proud of it”.

~McQ

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Poor Joe …

Michael Moore has a post on his blog from someone named John Gray entitled, “A Day In The Life Of Joe Middle-Class Republican” in which Gray attempts to make the point that all good things we enjoy in life flow from government and liberals. It begins like this:

Joe gets up at 6:00am to prepare his morning coffee. He fills his pot full of good clean drinking water because some liberal fought for minimum water quality standards. He takes his daily medication with his first swallow of coffee. His medications are safe to take because some liberal fought to insure their safety and work as advertised.

All but $10.00 of his medications are paid for by his employers medical plan because some liberal union workers fought their employers for paid medical insurance, now Joe gets it too. He prepares his morning breakfast, bacon and eggs this day. Joe’s bacon is safe to eat because some liberal fought for laws to regulate the meat packing industry.

And so on. Gil Guillory answers Gray’s assertions in a comment at the Mises blog:

Joe gets up at 6:00am to prepare his morning coffee. He makes it with a machine he could not possibly have made himself. He does not know where it was made, or how it works, and may not care. He does not know the people that planted, cultivated, harvested, dried, roasted, packaged, freighted, warehoused, distributed, marketed, or retailed his coffee, and may not care. The company that insures the manufacturer of the coffee machine required that it meet certain safety guidelines, as established by the private insurance-company-funded Underwriters Laboratory. Joe has seen the UL mark, but is not really sure what it’s for or how it protects him. He doesn’t clearly understand why greedy businessmen might be interested in a safe product. All of this was made possible by libertarians who fought for and won the legal right to free trade.

He fills his pot full of good clean drinking water which he bought from Ozarka, because the local government monopoly of water supply bears the comforting designation of “accepted” and also tastes funny.

Sam Bostap also answers the post:

Joe gets up at 6 a.m. and fills his coffeepot with bottled water because he knows that the municipal water system supplies water that occasionally has e coli and other natural organisms that will make him ill–after all his mother died from drinking water that was polluted by sewage after a heavy rain. Joe tried to sue, but was told that the city had sovereign immunity from such suits as a result of state law. If the water he pours from the bottle he bought at Safeway is polluted, he knows he can sue the manufacturer and collect big, so he feels pretty sure that it’s clean.

Joe grinds his coffee beans carefully because they’re very expensive as a result of the U.S. government-enforced international coffee cartel that exists to protect the jobs of coffee importers–heavy campaign contributers to Congress. He’s also careful about how much sugar he puts in his coffee because it costs seven times the world price of sugar as a result of the U.S. government imposed import restrictions on sugar to protect the domestic sugar beet and sugar cane industry.

I don’t think you’d have to guess very hard to know who I think wins this little battle of the Joes. But I don’t think all the bases have been covered in the two parodies of Gray’s original post.

Your additions to the reasons for Joe’s quality of life are solicited.

~McQ

Against Obama’s Global Tax Hike

I’m not keen on many taxes to begin with, but as a practical matter, some are more destructive than others. Some are so bad that they’re a train wreck even by their proponents’ stated standards.

President Obama has proposed a package of tax hikes on the overseas operations of American firms. The supposed benefits sound like political winners: over the next decade the feds get $210 billion to shovel into the yawning budget hole, and at the same time discourage those companies from outsourcing jobs. Congressmen who promise more jobs but are wary of mounting deficits might think they’re hitting two birds with one stone.

But there are more appetizing birds than the goose that laid the golden egg.

See, there are just a few things that offer relief from the fact that the US is one of the few countries to tax its companies’ operations all over the globe. One is “deferral” – companies don’t pay taxes on most earnings until the money is returned to the US parent company, so they can delay getting slapped with the double tax by reinvesting their foreign earnings in foreign operations.

Another big relief is being able to claim credits on the taxes they pay to foreign governments.

Obama is proposing, among other things, to place new limits on deferral and clamp down on tax credits. These changes won’t work as advertised: they won’t reduce outsourcing (they may increase it) and won’t raise nearly as much revenue as originally claimed.

First, most American companies that expand overseas do it to get around trade barriers and get close to their customers. When a new KFC opens up in China, that’s not an outsourced American job; that’s an American business getting to expand into a growing market. The vast majority of sales made by foreign affiliates – think 90 to 94 percent – were to foreigners, not exports back to the US.

Second, the roughly 2,200 US-based corporations with overseas operations either employ or support the employment of 22 million Americans, and those companies create half of all American exports. Jobs here rely on providing direction to foreign workers (managers, engineers) and producing goods for affiliates to sell in foreign markets.

The growth of US foreign affiliates is “consistently accompanied(PDF) by the growth of their parent companies, the opposite of what you would expect from a zero-sum perspective on “outsourcing”. More expansion abroad means more jobs, compensation and investment at home.

So making American firms uncompetitive abroad not only threatens jobs at home but even encourages businesses to headquarter themselves outside the US.

And as a result of that, the policy changes won’t raise nearly as much revenue as Obama claimed.

  1. The global downturn has been worse than Obama suspected back when that $210 billion figure was calculated.
  2. We’ve tried cutting back deferral before: in 1986, the government repealed deferral for the shipping industry, and consequently we lost half of our shipping capacity, taking a bunch of jobs and tax revenues with it.
  3. Even still, never underestimate the creativity and industriousness of tax lawyers.

That last part might not be such a problem if Obama’s proposals simplified the tax code, like he claims. But they make things worse on that score, not better.

As a note to my fellow Virginians: these companies with overseas operations are responsible for over half of the private sector jobs in the commonwealth (PDF source), and they tend to be the better-paying jobs (averaging over $70k compensation) like computer systems design and telecommunications. Is that going to sit well with the likes of Sen. Warner?

Bills that hurt this many people are loaded with political liabilities, yet I got word a few days ago that a bill with Obama’s proposals may come up for consideration in the House in September.

Get the word out. The more people know what this is going to cost them, the harder it will be to sell. By all rights, Obama’s Globo-Hike should fail politically before it has a chance to fail as policy.