Free Markets, Free People

Business

Hacking Away At The Last Pillar

The siege against capitalism continues unabated. Yesterday, leaders of the 20 largest national economies reached a consensus that they needed to reel in unfettered free markets, which they all agreed was the cause of the world’s economic crisis. The medicine consists of further funding of the IMF (to the tune of an addition $1 Trillion) and an increased regulatory state.
crumbling-column

Setting aside differences in philosophy and national character, at least for now, the leaders agreed to make available more than $1 trillion in new lending to spur international growth. While leaving it to individual nations to enact, they promised tough new regulations aimed at banks and other financial institutions whose freewheeling activities sparked the crisis. And they vowed renewed support for trade and more help for the globe’s poorest countries.

“The world’s leaders have responded today with an unprecedented set of comprehensive and coordinated actions,” Obama said, in the spotlight on his first overseas trip as president. “Faced with similar global economic challenges in the past, the world was slow to act, and people paid an enormous price. . . . Today, we have learned the lessons of history.”

For some reason, the bulk of the reporting on the G-20 conference outcome is limited to describing how wonderful everyone feels about the loose agreements, and how industrious they all were to come to terms with one another. Very little press has been devoted to the actual agreements. The media seem to be under the collective impression that the most important aspect of these meetings is the conduct of the diplomacy. They could not be more wrong:

FINANCIAL market “cowboys” who wreaked havoc on the world economy will be brought undone by the G20 agreement, Prime Minister Kevin Rudd says.

Mr Rudd says the $US1 trillion ($A1.4 trillion) deal agreed on at the G20 summit in London, will benefit “tradies”, young people and small business with real commitments against real timelines.

“Today’s agreement begins to crack down on the sort of cowboys in global financial markets that have brought global markets undone with real impacts for jobs everywhere,” Mr Rudd told reporters at the conclusion of the summit overnight.

The summit has agreed to a restructure of the financial regulatory system, reform of and a trebling of funding for the International Monetary Fund (IMF) to $US750 billion ($A1.08 trillion), an extension until the end of next year of a ban on nations introducing trade protection measures, a curb of excessive executive payouts and agreement to co-ordinate further economic stimulus.

Make no mistake. What the G-20 leaders (as stated by PM Rudd above) are saying to world is that none of this would have happened if they had been in charge. “Financial market cowboys” (meaning US and UK bankers), the faces of capitalism, are entirely to blame for the woes of the world. If only there had been more government involvement, according to this theory, then the financial crisis would have been averted or severely curtailed. Accordingly, the G-20 have decided that the way to fix this mass is to assert greater control over the world economy. The immediate targets of this new world order? Tax havens of course:

Switzerland, Singapore, the Cayman Islands, Monaco, Luxembourg and Hong Kong are among 45 territories blacklisted on Thursday by the Organisation for Economic Co-operation and Development and now threatened with punitive financial retaliation for their banking secrecy.

Among the sanctions being considered by the G20 are the scrapping of tax treaty arrangements, imposing additional taxes on companies that operate in non-compliant countries, and tougher disclosure requirements for individuals and businesses that use shelters.

[…]

Illegal tax evasion through offshore shelters has been a long-standing irritation for Gordon Brown, President Barack Obama and French President Nicolas Sarkozy. An estimated $7 trillion of assets are held offshore and, according to pressure group Tax Justice Network, developed countries lose $180bn a year in evaded taxes.

Under the OECD definition, countries will be considered non-compliant if they have less than 12 bi-lateral agreements to exchange tax information with foreign governments on request. “Authorities should have access to the information to effectively crack down on tax evasion,” Andrew Watt, director at law firm Alvarez & Marsal Taxand, said.

Jeffrey Owens, director of the OECD’s centre for tax policy said: “This is the major breakthrough we have been trying to get for 13 years. If you intend to evade tax through offshore bases, you will think hard about it now you know tax authorities can trace you.”

[…]

Mr Sarkozy added: “Sixty percent of hedge funds are registered in tax havens. Putting hedge funds under supervision isn’t going to generate jobs in the textile industry. But we have to put behind us the madness of this time of total deregulation.”

The reactions of Owens and Sarkozy are like being annoyingly puzzled at why the whipping boy continues to move, seeking to avoid the lash.

Clearly the aim here is not at fixing anything other than the ability of wealthy nations to collect taxes. Small countries typically designated as “tax havens” tend to have one thing in common: they have no other means of competing in the world market place other than in the area of business taxation. If the economies of these countries were all dependent upon growing and selling corn, then the G-20 actions would be met with a much different response. Instead, companies that wish to minimize their tax burden, so that they may instead fund R&D, expand (create jobs), or re-invest, are treated as outlaws, unworthy of little more than scorn. And the small countries that have been willing to host these companies as a means of boosting their own economies, are labeled pariahs to be sanctioned by the wealthiest nations in the world. The message: “Don’t muscle in on our territory. That’s our tax money and we’re here to collect.”

In addition to punishing tax havens, the G-20 decided that the favorite whipping boys of statists needed to be better restrained so as to prevent their squirming:

Leaders agreed to craft tighter controls over hedge funds and establish more rigorous regulations to prevent the buildup of toxic assets that poisoned the U.S. financial system in and spread overseas.

[…]

The leaders agreed to set benchmarks for executive pay and make accounting standards more uniform across borders. Most would be drafted by a new Financial Stability Board, where central bankers, regulators and finance ministers from the more than 20 nations represented at the summit will eventually hash out the details.

Credit agencies — whose top-notch ratings of instruments linked to bad U.S. subprime mortgages gave false indications of their relatively safety — would be subjected to new oversight and regulations. But there was no call for a global regulator that could overrule decisions made by individual countries.

While I’m glad to see the ratings agencies (whom have inexplicably been absent from public criticism and ire) taking their turn at the post, everyone should be dismayed at what these sorts of agreements portend. The collective effort to rein in “cowboy capitalism” is little more than a barely disguised effort to place the European bit in the mouth of American (and, to a lesser extent, British) mouth. Business decisions are no longer to be made in the interests of the shareholders, but in favor of “public good.” What constitutes the “public good” will be determined by the special interests who exact the most influence upon, and best line the pockets of, the political forces in charge. In short, consumers no longer rule the market place; bureaucrats do.

Fallen pillar

Fallen pillar


As with all movements based on collective will, such as that which the G-20 has furthered, an unfettered free market is featured as the main culprit. America is widely considered to be an economic jungle where the capitalist beast roams freely, devouring the innocent and maiming cautious outsiders. Ironically, Leviathan himself has identified capitalism as an unrestrained beast in need of controlling. Yet, we have nothing like an uncontrolled free market here. It only appears that way because the remainder of the world has cloaked their industries in thick blankets of protectionism and shackled their businesses with an alarming array of bureaucratic chains. Comparatively, America does look like a free market jungle.

But therein lies the problem. As the Washington Post stated it:

Along with declarations of optimism came the recognition of at least a temporary shift in attitude away from two decades of intense reliance on free trade, deregulation and market-knows-best policies that fueled stunning growth across the planet.

Brown — the leader of a country closely associated with that philosophy — declared “the Washington Consensus” over, using a term that recognizes the American roots of an economic system seen by many in the world as unfair and unhealthy.

As far from a pure free market as we are, it is our relative distance from the nanny-statism of Europe and beyond that props up the economies of the world. That stunning growth was made possible precisely because of what the rest of the world refers to as “cowboy capitalism” and they were all happy to join in the ride. But now that woe times betide us, thanks primarily to government meddling (e.g. CRA, Fannie Mae, Freddie Mac, Fed policy, etc.), the world is ready to chop down the last pillar of capitalism, and assert government control over everything. With that final support gone, the capitalist beast will be brought to heel, confined to the zoo where it will live its remaining days as little more than a novelty. Unfortunately, it will take its wealth producing powers with it.

The Other Shoe Drops: Union Calls For Obama To Oust Bank CEO

I‘m sure some will find this surprising. Others will say, “yeah, baby!” It certainly is the logical extension of what happened to GM’s CEO. I, for one, still find it to be very disturbing:

On the heels of the resignation of General Motors CEO Rick Wagoner, the Service Employees International Union is urging President Barack Obama to oust Bank of America CEO Ken Lewis.

“It defies logic, common-sense, and responsible governance to punish the auto industry while letting financial institutions off the hook,” SEIU President Andy Stern said, announcing his call for Lewis’s job Tuesday.

The same could be said for letting the union leadership off the hook.

Aren’t they responsible for declining membership? Aren’t they as much a part of the problem as the management of the auto industry? Why isn’t the SEIU calling for union heads as well?

Of course I ask that facetiously. Obviously we’re now going to hear every whiner and complainer in the world will demand the government fire their boss. Hey, the precedent has been set with one of the worst decisions I’ve seen in a while. Now we begin to see the results of such a blatantly dumb move.

Impressive, no?

~McQ

Pres. Obama Fires CEO Wagoner?

I‘ve been following this story with numbed amazement at just how surreal it all is. No matter how many times I repeat this sentence in my head — The President of the United States has just fired the CEO of General Motors — I can’t quite convince myself that it’s true.

That’s not to say that I’m unsympathetic to the argument that the U.S. government, as lender, has every right to demand such a resignation if its going to be funding the company. Indeed, that’s a fairly common demand whenever a funding source enters the picture at dire times. And rightly so.

But let’s not forget that Obama is not the U.S. government. And, in reality, he’s not the lender. Congress holds that dubious distinction by being the keeper of the public purse. You’d think that Obama would have understood that and, y’know, at least told them about his plans for Rick Wagoner’s head. You’d be wrong, though [HT: Allahpundit]:

President Obama didn’t want any advice from Congress on the decision to ask GM CEO Rick Wagoner to resign, according to Carl Levin (D), Michigan’s senior senator.

“He didn’t ask us about it, he informed us,” Levin told reporters in a conference call Monday afternoon. “The president said he’d already decided.”

Levin said he and three other lawmakers were informed of the decision in a phone call Obama made from the Oval Office. Obama told the members of Congress that Wagoner needed to resign so that the administration could show the public it was making an effort at a fresh start with helping the auto industry, according to Levin.

I guess Congress isn’t about to argue with The One over this. Maybe they’re just upset that they didn’t think of it first. Nevertheless, is there any doubt that Obama has absolutely zero authority or power to make this decision?

Aside from the stupefying hubris driving Obama’s actions here, what real good is going to come of Wagoner’s ouster? He’ll walk away with about $20 Million in severance, and GM will still have around $6 Billion in legacy costs to deal with each year, on top of pay for its unionized workforce. And even if all those costs were brought into line, what exactly is the new (Obama picked?) CEO going to recover from the fact that GM is losing about $1 Billion per month? The sad answer is “probably nothing.” GM will proceed into bankruptcy, just like it should have from the start of all this mess, and it will take down several billion taxpayer dollars with it.

But all that pales in comparison to the precedent now set, without even a peep of objection from Congress, that the President of the United States considers it within his purview to fire the heads of companies when he sees fit. Lovely.

Did I miss some fine print in the election last year about voting for King of the United States?

I’d Like To Hear The Left’s Comments About The Expansion Of “Executive Power” Now …

I‘m still in rather stunned disbelief about the White House ousting GM’s CEO.  

It’s not about how good a CEO he was or whether I agreed with his plan, his leadership style or his results.  It’s about the White House going so far as to ask him to step aside.  And, according to Obama’s own statement today, his “team” will “working closely with GM to produce a better business plan”.

Why, that sounds like something we’ve seen pass this way before and firmly rejected:

Italian Fascism often involved corporatism, a political system in which economy is collectively managed by employers, workers and state officials by formal mechanisms at national level.

Now I’m sure there are those out there who will argue that this is hardly a “formal mechanism”. But of course that’s simply not true. It is formal enough that a CEO is gone. Someone believes it is a mechanism of some formality for that to happen. And, if you think about it, it is just one more mechanism among many that have been put forward lately. Timothy Geithner’s plan to have the government take over financial institutions and hedge funds if the government deems them a threat to the economy’s well-being, for instance.

After all the caterwauling by the left about “unprecedented executive branch power expansion” during the Bush years, they’re rather quiet about these. The market, however, has cast it’s vote. Down about 300 at 4pm.

And this is all based in a false premise – something I’ve noticed that Obama uses quite effectively:

“We cannot, we must not, and we will not let our auto industry simply vanish,” President Obama said at the White House.

Anyone – who would expect the domestic auto industry to ‘simply vanish’ if the companies were left to go the traditional route of bankruptcy?

Since when does bankruptcy equal “vanish”? Delta airlines seems to have survived it quite well, thank you very much. Their bankruptcy or the bankruptcy of other domestic airlines hasn’t seen the domestic airline industry “vanish”. Why would anyone believe it would happen if GM or Chrysler went bankrupt?

And that said, what did he suggest in his speech today?

The administration says a “surgical” structured bankruptcy may be the only way forward for GM and Chrysler, and President Obama held out that prospect Monday.

“I know that when people even hear the word ‘bankruptcy,’ it can be a bit unsettling, so let me explain what I mean,” he said. “What I am talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold.”

Seems like that is precisely what all of us were telling them to do before they started throwing bucketfuls of imaginary dollars at the two companies, wasn’t it? And you can call it “surgical”, “structured” or whatever you want in an attempt to spin this as something other than fairly ordinary bankruptcy procedures, but that’s what they’re talking about.

One of the primary reasons they’ve attempted to keep these companies out of bankruptcy court can be described in three letters: UAW.

Their problem isn’t just “old debts” which need to be cleared away. Instead it is what is euphemistically called “legacy costs” which would go as well. And those “legacy costs” include the gold plated benefits the UAW now enjoys and doesn’t want to give up.

Administration officials on Sunday made it clear that an expedited and heavily supervised bankruptcy reorganization was still very much a possibility for both companies. One official, speaking of GM, compared such a proceeding with a “quick rinse” that could rid the company of much of its debt and contractual obligations.

The thing to watch out for is whether or not this “quick rinse” in a “heavily supervised bankruptcy reorganization” included “contractual obligations” to unions. If not, it will be a “quick rinse” of taxpayer’s wallets.

Among challenges the administration faced leading up to this weekend’s decision, foremost were the efforts to draw steep concessions from the United Auto Workers union and from the bondholders.

Attempts to solidify deals with the UAW and bondholders were slowed by disagreements by both parties over how exactly the other party needed to budge. The UAW, for instance, insists it already made health-care concessions in 2005 and 2007, and argues that the bondholders have never been asked to concede anything.

“I don’t see how the UAW will do anything until they see what the bondholders will give up,” one person involved in the negotiations on behalf of the UAW said Sunday.

Progress? Apparently both GM and Chrysler have been negotiating with both the bondholders and the UAW. But there’s not much to report there:

Both GM and Chrysler are negotiating with the UAW to accept a range of cost-cutting measures, including greatly reduced work forces, lower wages and a revamped health-care fund for retirees.

[…]

GM and representatives for its bondholders remained in talks over the weekend about a deal that would force these investors to turn in at least two-thirds of the value of the debt they hold in exchange for equity and new debt.

This arrangement would force GM to issue significantly more stock than what is currently being traded in the market. In addition, the government is being asked to guarantee the new debt with federal default insurance in order to entice bondholders who otherwise wouldn’t be interested in participating in the swap.

If GM can’t eventually forge a deal with the ad hoc committee representing the bondholders, the company may be forced to issue a debt-for-equity swap without the blessing of some of its biggest and most influential unsecured investors. This would heighten the possibility of the company eventually needing to file for Chapter 11 bankruptcy protection.

Or said another way, they’ll end up doing what we said they should have done in December, less umpteen billions of taxpayer money poured down a rathole. Of course, had they reorganized under Chapter 11 as we all said they should, the Obama administration wouldn’t have been able to make this unprecedented power grab, would it?

~McQ

GM = Government Motors

I thought I’d quickly steal that title from one of our commenters (Brown). It pretty much encapsulates the latest and rather significant change as apparently the CEO of General Motors stepped down at the behest of the White House. Apparently Obama is now in the car business.

The two following paragraphs are significant:

“We are anticipating an announcement soon from the Administration regarding the restructuring of the U.S. auto industry. We continue to work closely with members of the Task Force and it would not be appropriate for us to speculate on the content of any announcement,” the company said.

The surprise announcement about the classically iconic American corporation is perhaps the most vivid sign yet of the tectonic change in the relationship between business and government in this era of subsidies and bailouts.

The folks who run the post office and Amtrack are now stepping in to run the auto industry. That’s not to say the auto industry has done so well itself, but there’s a market result for poor leadership, and it isn’t to prop up the industry and let government run it.

I’m sorry but this pain avoidance scheme which is costing us trillions of dollars we don’t have has now spun off into the absurd. If you think the auto industry is ailing now, just wait until the “Administration” engages in “restructuring the US auto industry”.

~McQ

Hayek, Greenspan And The Designs Of Men

Alan Greenspan has a piece in the Wall Street Journal today which essentially casts him as the Pontius Pilate of the financial crisis.  Or, to sum it up rather sucinctly, “it wasn’t my fault”.  You’re welcome to read through it and agree or disagree.  However, the imporant point I think that should be taken from the Greenspan piece are the last two paragraphs:

Any new regulations should improve the ability of financial institutions to effectively direct a nation’s savings into the most productive capital investments. Much regulation fails that test, and is often costly and counterproductive. Adequate capital and collateral requirements can address the weaknesses that the crisis has unearthed. Such requirements will not be overly intrusive, and thus will not interfere unduly in private-sector business decisions. 

If we are to retain a dynamic world economy capable of producing prosperity and future sustainable growth, we cannot rely on governments to intermediate saving and investment flows. Our challenge in the months ahead will be to install a regulatory regime that will ensure responsible risk management on the part of financial institutions, while encouraging them to continue taking the risks necessary and inherent in any successful market economy.

Those words reminded me of the quote I saw in business columnist Tom Oliver’s piece today in the Atlanta Journal Constitution: 

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” — F.A. Hayek

Any columnist who starts with a Hayek quote is guaranteed to get my attention. And I’ve come to enjoy Oliver’s columns. However, reviewing Greenspan’s advice and admonitions in those two paragraphs, juxtaposed against the simple and elegant truth of Hayek’s statement you find yourself back in the outback watching that big red kangaroo headed for a collision with the car. It is inevitable, there’s nothing you can do about it, they can’t or won’t hear your warnings and all you can do is watch – and cringe.

Frankly, as we watch the machinations of government and listen to their declarations, we have begun to understand that for the most part, those in charge of all of this haven’t a clue. As Oliver states:

Far from demonstrating the demise of free enterprise, this long-running, deepening recession is revealing the limitations of government.

Government, in its various yet powerful incarnations, has been offering one fix after another since August 2007.

The more the Fed and Treasury have tried, the less sure they seem and the more nervous the money makers have become.

It’s understandable that folks would look to the new administration for new ideas. So it’s harder than usual to acknowledge that the ideas are in fact pretty old and, having been tried, found wanting.

Whatever one may think about the so-called stimulus, it’s too easily deconstructed as pork and policy initiatives.

And if it’s still debatable whether to nationalize the financial industry, the move to nationalize health care, education and energy can hardly be disguised as economic recovery programs.

It is understandable that those who derive their power from government would use this recession as an excuse to further government’s reach. But they act as if government has been absent — as if they’ve been absent — from the role of regulator and legislator.

He’s precisely right – it wasn’t a problem with lack of regulation or lack of legislation. It was a lack of proper regulatory oversight and a willful decision by legislators to ignore the building crisis coupled with government distorting the market and actually incentivizing risk taking far beyond that which is prudent that led us here. And now that they have us in this position, all of them, Greenspan included, are engaged in a flurry of finger-pointing and name calling at every one but the right ones. This wasn’t a crisis which happened in just the last 6 months or 8 years. This one has been building for a while.

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” — F.A. Hayek

We had Democrats in charge and then we had Republicans. Again and again.

Both endorsed and encouraged the subprime sleight-of-hand. Both appointed heads of the regulatory agencies that could’ve stopped the poison seeping through our banks’ balance sheets. Both allowed gamblers to hedge and swap derivatives on top of derivatives that no one can explain and that are proving far more debilitating than the debacle they were insuring against.

Freddie Mac and Fannie Mae became toxic assets of the government while doing the bidding of congressmen who now act like the piano players in a brothel.

The Federal Reserve proved to be anything but reserved, instead stoking a fire that burned us all.

These were not the result of idle hands of government, but rather deliberate deeds that created false markets with inflated credit while turning a blind eye to those who finance election results.

Oliver’s characterizations are dead on – and he’s nailed both the fed and the Congress. The most irritating thing to me about this whole mess, other than the obvious huge loss of wealth, is the success those who were responsible for writing the rules, laying out the playing field and calling the game are escaping both blame and punishment for what they’ve brought about. That toad Barney Frank having the chutzpa to talk about prosecuting those who were guilty of getting us in this mess still astounds me. If anyone should be undergoing such prosecution right now, it is he and numerous other congressmen and women, both past and present.

Oliver concludes as follows and I can’t help but say a hearty “amen” to what he has to say:

We periodically recoil in horror at government’s failure to protect foster children or care for veterans or the mentally ill. But then we turn around and assume government will perform better in areas more complicated.

Why does the failure of government so often lead so many to believe we need more government?

Like the hair of the dog for the alcoholic, it may calm the trembling hands for a moment but it inevitably leads to another spree and another hangover.

Or worse.

We’re headed into a “or worse” moment. No one in government is going to listen to Alan Greenspan’s admonitions or believe Tom Oliver’s brief accounting of the history of this crisis. Instead we’re going to see precisely the opposite happen – more regulation, more strings, more intrusion, more control. And, as Hayek said, we’ll again see “how little [men] really know about what they imagine they can design.”

~McQ

Honduras And The Effects Of Raising The Minimum Wage

Honduras is going through a rather large spike in kidnappings. From 5 in 2005 to 121 in 2008. In an attempt to understand this rise in kidnappings, The Overseas Security Advisory Council (OSAC), part of the Bureau of Diplomatic Security of the U.S. Department of State, was sure that economic conditions had most likely driven the spike. But what specifically was likely to have caused it? Apparently an increase in the minimum wage:

In January, Honduran President Manuel Zelaya increased the minimum wage 60 percent, raising monthly wages from US$ 181 to $289. As a result, an estimated 15,000 people have been laid off in urban areas. This number is expected to steadily increase as businesses cannot afford the new mandatory wages. Remittances from Hondurans in the U.S. have also decreased throughout 2008.

Some analysts predict increased crime in Honduras due to citizens unable to find legitimate sources of income. Many unemployed Hondurans could look to kidnapping for ransom in order to obtain large sums of money for a small amount of planning and effort. As the disparity between economic classes continues, wealthy Hondurans or foreigners of affluent appearance conducting business in Honduras could continue to be targeted at a higher rate.

Of course everytime increases are argued against here, those in favor of them tend to wave off the point that raising the wage will cause unemployment among those who can least afford it. Obviously I’m not contending that if we do so here, those laid off will take up kidnapping, but to pretend such rises in minimum wage don’t have any detrimental effect is simply not true – and Honduras provides the case study.

~McQ

The Dead Tree Media And The Future

I think what is happening at the Seattle Post-Intelligencer and other newspapers is an indication of where that industry is headed:

 The Seattle Post-Intelligencer reports that its owner, Hearst Corp., has made offers to some staffers to participate in an online-only version of the newspaper.

The paper says an unspecified number of the P-I’s roughly 180 employees received “provisional offers” Wednesday and Thursday to work for the online venture, if the Web site is approved by Hearst’s senior management.

Hearst announced in January it would put the P-I up for sale and either close the paper or go to an online-only publication if it couldn’t find a buyer by March 10. There has been no word on a possible buyer.

These are very tough times for the print media. And, at least among the big dailies, they’re burning through money like GM with no bailout in sight. They’re stuck with a business model that no longer works. And it has happened in a very short time, relatively speaking.  The problem is, those who run the business have never faced times like this.  Already in trouble before the financial crisis, the trouble has now been accelerated beyond measure.

I’ve worked in and around the industry for almost 25 years. Newspapers had a tendency to make money despite themselves sometimes, and were always a profitable business. In effect, they held a pretty solid position as being one of the only outlets for news in a city, region or state. Sure television had some effect, but not at all the effect many in the business worried about. Detailed stories, not 30 second to a minute coverage found on TV, could only be found in newspapers.

Another critical aspect of newspaper revenue was classified ads. They were the go-to place for jobs, cars, real-estate, etc. It was that revenue and advertising revenue which kept them profitable. Subscriptions never were their primary source of revenue.
newspaper
Then Al Gore invented the internet. And newspaper big-wigs worried about the impact. The impact was subtle at first. But as the breadth and depth of the ‘net grew, newspapers finally figured out the ‘net was a serious threat to them. The problem was they believed they were in the printing business instead of the news delivery business. So we saw these attempts to jazz up newspapers with more color and snappier features. But none of that really matters when the news that’s delivered is a day old and available when it happens on line.  Stale news does not sell well.

Then production costs started to go up. Newsprint has gone through the roof. Aluminum costs (plates) have risen dramatically. All the while, ad revenues have steadily dribbled away as advertisers found newer, cheaper and vastly wider coverage on-line. Classified advertising began slowing as eBay and Craig’s List began siphoning away potential customers with their wider reach. Firms tying to fill jobs went on-line as well.

Page count dropped. Subscriptions no longer even covered the cost of the newsprint each edition required. Web widths were cut. Every economy that can be thought of was enacted. Production facilities have been shut down and consolidated. Automation has been used to replace headcount. Vendors have been squeezed for every penny that can be squeezed. But formerly profitable newspaper groups are now hemorrhaging money and frankly they don’t know how to stop it.

That’s not to say all newspapers are in that sort of trouble. Interestingly the small town newspapers seem to be doing okay. They’re not raking in the money they used too, for sure. But they seem to be surviving. One of the reasons is they are in a unique position which large town and city newspapers don’t enjoy anymore. In many cases they are the sole source of news for that community. Some have local TV stations that cover news as well, but the in-depth coverage over many weeks that local stories sometimes require can only be found in the paper. Additionally many of these small town papers have a production facility that is bare bones but has been printing other business for years – neighboring weekly papers, commercial work, etc. So their production facility is at least paying for itself. And while they have an on-line presence, it is more of a business an archive site. They don’t deal much in national and international news. They’re focused almost exclusively on the community they serve and the news it generates. If you want national or international news, go to CNN – they know you do that anyway.

With the closing of the Rocky Mountain News, the possible closure of the San Francisco Chronicle and the Seattle P-I’s decision to go on-line only, you can see the larger newspapers are still struggling to find a business model that works. I’m of the opinion, and have been for a while, that the small town model, adapted for the larger communities, is the way to go – with an tight focus on covering the community they serve, an on-line presence that adds instead of detracting from the print edition and a plan for the future which takes the operation on-line through devices like the Kindle 2, provided as a part of the subcription for a certain subscription length.

Of course that means that the production end of it, which has been my bread-and-butter for many, many years, will go the route of the dinosaurs, at least among the larger newspapers. But I think that is the future. Small town papers will hold out for a while longer and continue to print, but the economies of scale won’t be there which enable paper companies to offer low prices on newsprint. My guess is, unless they have a tremendous base of commercial printing (other than newspaper printing), they’ll eventually come to a point where print production is cost prohibitive as well.

All of this, of course, means a much leaner staff for future newspapers. It will also mean a different way of billing -for subscriptions, advertising, etc. Single issue billing, subscription billing, even particular articles can be billed. And without the cost of production factored in, the pricing should be reasonable. In order for that to be attractive to potential buyers, the papers are going to have to deliver and necessary and attractive product that news consumers want.

That is the problem they are presently wrestling with. What is that product and how do we produce it and get paid to produce it?

I have no idea how this will shake out, but unlike many, I certainly don’t want to see newspapers go away. I think they’re a critical part of our nation’s democratic voice. But they are going to have to change and change radically to survive. It is going to be interesting to watch this over the next few years as the newspaper business goes through what the fed refuses to let the auto industry go through. My guess is, after all the bankruptcies, consolidations and mergers take place, a leaner, more focused and profitable business model will emerge. Whether they’ll be called “newspapers” is anyone’s guess, but they’ll still be with us in some form or fashion.

~McQ

The Coming Tax On Everything

Over the past few days, I’ve been highlighting the fact that the promise of tax cuts for 95% of Americans is illusory at best. If your bottom line is net spendable income, then despite the Obama promise, you’re going to have less of it when all his plans for your income are passed into law. Or, as I’ve been pointing out, while he’ll make a big deal of the tax cut for the 95% on the one hand, he’ll be taking what he’s cut back and more with the other.

The Detroit News editorial board seems to have figured that out:

President Barack Obama’s proposed cap-and-trade system on greenhouse gas emissions is a giant economic dagger aimed at the nation’s heartland — particularly Michigan. It is a multibillion-dollar tax hike on everything that Michigan does, including making things, driving cars and burning coal.

Tell me – who is it that has been whining for years about losing manufacturing jobs to overseas competitors? Who has thumped the podium about “outsourcing”? Who has claimed to be the champion of the working man?

The same crew that wants to enact draconian taxes which will affect the very companies and jobs they claim they want to save or create. And while the companies will do all they can to pass on the cost to the consumer (thereby negating any tax cut), they will have to absorb some of the cost to stay competitive.

Doing so will drive up the cost of nearly everything and will amount to a major tax increase for American consumers.

Or companies can go to countries who don’t have cap-and-trade laws such as China and India and set up there. Of course if they do, they’ll be called “unpatriotic” and the government who forced the issue will declare them the problem.

And the net result?

The proposed tax would take effect in 2012 and has the very real potential to throw the nation back into recession, if indeed the expected recovery has arrived by then. It’s impossible to raise costs for such basics as manufacturing and energy production by more than half a trillion dollars over a decade and not have the effects felt across the economy.

Economic common sense. But you see, the 2012 effective date is a result of political calculation. If we are seen to be climbing out of the recession by 2011, most likely the Obama administration will get a second term. After that they couldn’t care less how they or their policies are viewed. And it is far enough from 2016 that they think it may be politically survivable for the Democrats.

However it also means that if the GOP starts hammering on this now and making the same sense the Detroit News editorial board is making, there’s a chance they can use it as an issue to try to recapture power. That assumes, of course, they have the smarts and the spine to stand up, make the consequences known and ensure they frame the argument instead of letting the Democrats spin it away.

How likely is that?

Oh, and just for the record:

A similar program in Europe hasn’t worked. European automakers complained about carbon dioxide limits the European Union proposed in 2007 as damaging to the economy.

Ya think?

~McQ

To The Left – Don’t Get Too Giddy

A lot of high-fives on the left concerning a portion of the budget dealing with energy.  The Center For American Progress, in a post entitled “Energy Budget Is Sunlight After Eight Years of Darkness” says:

The most significant energy proposal in this budget is the inclusion of revenue in 2012 from the auction of all greenhouse gas emission allowances to major polluters under a cap-and-trade system. The budget assumes that this program will raise $646 billion between 2012 and 2019. Some of these funds would create jobs via a $120 billion investment in clean energy technologies over the same period. The auction revenue would pay for a “global warming tax cut” for working families with $526 billion. It would fund Making Work Pay, which provides a refundable income-tax credit for low-income working families. Any remaining funds would go to other families and businesses to offset higher energy prices.

In other words, CAP believes that adding huge additional costs onto the already high cost of producing goods, services and energy will “create jobs” to offset those lost apparently. And the money collected will be redistributed to make things fair.

As so-called members of the “reality based community”, you have to wonder if they’ve ever bothered taking off the rose colored glasses and glanced around the real world.

Alan Wood in Australia asks:

CAN the Senate save Kevin Rudd and Penny Wong from their global warming folly? It can, and it might, if it rejects the Government’s attempts to prematurely lock Australia into a flawed carbon trading scheme. Ask yourself, do you believe that the worst global recession since the Depression, with job losses accelerating, is the time for Australia to introduce a carbon trading scheme that will squeeze growth, jobs and investment? Business certainly doesn’t.

Is there anyone in the Congress who can do the same for Barack Obama? Probably not.  Do they understand that the carbon trading schemes in place around the world are literally melting down?  Again, probably not.

And jobs?  Well right here at home we can learn from the impact of the draconian regulations and resultant costs imposed on industry by such schemes  and what that means.  California, as usual, provides the case study:

California regulators Thursday adopted the world’s first mandatory measures to control highly potent greenhouse gases emitted by the computer manufacturing industry. “The financial impact is going to be severe,” Gus Ballis, a spokesman for chip maker NEC Electronics America Inc., a subsidiary of NEC Electronics Corp. in Japan, told the board. Ballis warned, “We’re potentially on the chopping block — whether they are going to keep us or pull our production back to Japan.” 

And elsewhere:

The painful loss of 1850 jobs at Pacific Brands in NSW, Victoria and Queensland is more than a byproduct of the global recession. The main reason for shifting to China, chief executive Sue Morphet said on Wednesday, is that manufacturing in Australia “is no longer a competitive advantage” to the company. The Prime Minister owes it to businesses large and small, as well as to Labor’s core constituency, workers, to re-evaluate the impact on employment of his emissions trading scheme, especially in mining, where Australia has such a strong comparative advantage.

Biofuels? Fail:

The German biofuels industry is facing bankruptcy according to their industry association, despite millions of state-sponsored subsidies in recent years. “It is five to twelve, but few politicians understand,” said the chairman of the Association of German Biofuel Industry (VDB), Kurt Stoffel. “The biodiesel market for trucks has come to a complete halt,” said Stoffel.

Reality? Dawning:

Britain said on Thursday it backed the building of new coal plants and would make a decision soon on whether these must have expensive, climate-friendly technologies fitted called carbon capture and storage (CCS). “We will need new fossil fuel plants including coal if we are going to maintain diversity in energy mix and energy security….”,

Yet here we are getting ready to implement a scheme that is already seen to be worsening the economic conditions around the world (and being abandoned by those realing the losses).  Unsurprisingly our implementation would most likely occur just as we are beginning to see an end to the recession.

The administration certainly seems to be aware of the cost of such legislation but still plans on pursuing it:

Steven Chu, President Barack Obama’s new Secretary of Energy, told The New York Times earlier this month that reaching agreement on emissions trading legislation would be difficult in the present recession because any scheme to regulate greenhouse gas emissions would probably cause energy prices to rise and drive manufacturing jobs to countries where energy was cheaper.

Yet, with blinders fully in place, and giddy at the prospect of sticking it to evil corporations while redistributing their ill-gotten gains, the left applauds a plan which will cripple our economy for decades to come.

If ever there were budget proposals poised to send us into darkness, it is this plan put forward by the Obama administration.

~McQ