Gallup has a new indicator poll out that shows the nation’s national priorities according to its citizens. It’s interesting in many ways, but primarily because one of the highest calls for action is to address “corruption”.
(As an aside, notice the bottom two “priorities).
Notice carefully how the corruption question is phrased – “Reducing corruption in the federal government”. What sort of corruption? Well, one type, that most fair minded people would identify, is that which we call cronyism. As we listen to the uniformed continue to say we’ve been ravaged by the “free market” system, one can only shake their head in wonder that anyone would identify what we have as a “free market system”. Rarely, if ever, are markets allowed to function as they should in this country (or any others for that matter).
What we have is a system of cronyism (I’m removing “capitalist” from the description since there’s nothing “capitalist” about such a system) that is part of what is killing us economically. David Henderson gives us a good description of the system under which we must operate.
What is the difference between free markets and cronyism? In free markets, buyers and sellers are free to agree on price; no government agency restricts who can buy or sell, and no one is told how or what to produce. In contrast, under cronyism the government rigs the market for the benefit of government officials’ cronies. This takes various forms. Governments sometimes grant monopolies to one firm or limit the number of firms that can compete. For example, most U.S. municipalities allow only one cable company to operate in their area even though there is no technological reason more could not exist. The same is true for most other utilities.
Governments sometimes use quotas or tariffs to limit imports with the goal of protecting the wealth and jobs of domestic producers who compete with those imports. President George W. Bush did this in 2002, for example, when he imposed tariffs ranging from 8 to 30 percent on some types of imported steel. Governments sometimes subsidize favored producers, as the Obama administration did with the politically connected solar-energy firm Solyndra. Governments may use antitrust laws to prevent companies from cutting prices so that other, less-efficient companies can prosper: For example, beginning in 1958, the U.S. government prevented Safeway from cutting prices for a quarter of a century.
The entities governments help with special regulations or subsidies are not always businesses; sometimes they are unions. The federal government’s National Labor Relations Board’s (NLRB) complained against Boeing in April 2011, for example. In response to a complaint from the International Association of Machinists and Aerospace Workers (IAM), the NLRB sought to require Boeing to produce its 787 Dreamliner in Washington State rather than in Boeing’s chosen location of South Carolina. According to the NLRB, by saying that “it would remove or had removed work from the [Puget Sound and Portland] Unit because employees had struck” and by threatening that “the Unit would lose additional work in the event of future strikes,” Boeing was making “coercive” statements to its employees. As a matter of fact, it was not. Boeing was simply telling the employees some likely consequences of the union’s actions.
The Boeing-IAM case is not as simple as most of the press implied. It turns out there was a prior case of cronyism. The government of South Carolina promised Boeing “$900 million in tax relief and other incentives” in exchange for moving production to South Carolina. Such is the tangled world of cronyism.
As we discussed on the podcast last night, we have given, or at least allowed government to amass, power to do what it is doing. We have, over the years, allowed them to use tax exemptions and other favors, etc. to lure businesses to our states (and we’re then thankful for the jobs created) not understanding that by doing so, we empower politicians to be the decision makers in areas that should be the function of markets. And what does that foster? A culture that is incentivized to seek out politicians to grant such favors. To ask for, and receive, subsidies. To allow politicians to leverage that power into favoring businesses that fit their political agendas. They become the focus because we have given them the power necessary to grant those favors.
We see the same sort of game played at a national level as described by Henderson. That has nothing to do with capitalism folks. It has nothing at all to do with “free markets”. In fact, it is the antithesis of both.
Probably the most blatant and disturbing example of cronyism came in the auto bailout:
Of course, a much larger instance of cronyism under the Obama administration, one that makes the Solyndra case tiny by comparison, is the bailout of General Motors (GM) and Chrysler. Bush and Obama together diverted $77 billion in TARP funds to GM and Chrysler. In organizing their bailouts and bankruptcies, Obama violated the rights of Chrysler’s creditors and gave a sweetheart deal to the United Auto Workers union.
Law professor Todd Zywicki provides the details:
In the years leading up to the economic crisis, Chrysler had been unable to acquire routine financing and so had been forced to turn to so-called secured debt in order to fund its operations. Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the “absolute priority” rule— since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company’s secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers—unsecured creditors, but possessed of better political connections—received more than 40 cents on the dollar.
Pure cronyism. The bankruptcy rules were thrown out by government in order to pay a favored constituency – labor. Henderson explains:
Moreover, in a typical bankruptcy case in which a secured creditor is not paid in full, he is entitled to a “deficiency claim”—the terms of which keep the bankrupt company liable for a portion of the unpaid debt. In both the Chrysler and GM bankruptcies, however, no deficiency claims were awarded to the creditors. Were bankruptcy experts to comb through American history, they would be hard-pressed to identify any bankruptcy case with similar terms.20
Why did the Chrysler bondholders not object? Many did. But, Zywicki notes, the federal government (in this case, the U.S. treasury secretary) had enormous power over financial institutions through TARP, and these institutions owned much of Chrysler’s secured debt.
While this has been going on for quite some time, never has it been as blatant as with this administration. And that blatancy is what has pushed the corruption priority up the list to where it stands second to job creation in this horrific economy.
What can be done to remedy this cronyism “corruption”. Only one thing, and unfortunately, those enjoying the power are where the remedy must come:
There is only one way to end, or at least to reduce, the amount of cronyism, and that is to reduce government power. To reduce cronyism, we must abolish regulations and cut or abolish special government subsidies. That way, there is nothing to fight about. For example, the government should not bail out companies or give special subsidies and low-interest loans to companies like Solyndra that use technologies or produce products that the government favors. It should have unilateral free trade rather than tariffs, import quotas, and other restrictions on imports.
Will it happen? No. Those who tout the power of markets and demand they be given priority are now considered “radicals”. Just listen to President Obama talk about the former administration and try to convince you “we tried their way before and look where it led”. Spinning a regime prior to his that was as wrapped up in cronyism as is his and claiming it represented free markets is standard, disingenuous, leftist boilerplate with nary a leg to be found standing in reality. It is pure, fatuous BS.
The “corruption in the federal government” isn’t lobbyists. They’re a symptom of that corruption. The problem resides under the Capital dome and within the offices of the executive branch. They have the power that is sought by the lobbyists. No power and there would be no petitioners. Instead, we see the number of petitioners for favorable treatment by government (usually at the detriment to their competitors) continuing to expand.
So while the public has finally identified a major problem (thanks to the blatancy of this administration) it has a long way to go before it realizes the means by which it must be fixed. Stripping the federal government of its power to grant favors to its cronies is almost an impossible task, given we have the fox in charge of the hen house.
I see nothing in the future that says those who must fix this are willing to divest themselves of the power to grant favors (see recent farm bill, an orgy of subsidies and pay offs (earmarks), for a perfect example). Show me when they’ve ever divested themselves of any meaningful power they’ve accrued.
And so cronyism will continue and we will continue to circle the drain of economic collapse. Meanwhile, Coke and Pepsi will fight about the marginal nonsense that won’t make a significant difference and make all the usual promises about being the panacea for all our ills that voters have been pining for so long.
Or it is “kick the can down the road” politics as usual.
We’re talking Japan of “the lost decade” (now a couple of decades old). We harp about markets and government intrusions here and explain why they’re almost always “a bad thing”. Well, this is about market intrusion on a grand scale:
One of the consequences of all the stimulus and subsequent QE is that long time traders of our markets know they are screwed up. Consistent printing of money and 0% interest rates world wide have created their own economic imbalances. As the saying goes, there is no free lunch.
The government stimulus had a multiplier effect of 0. It did nothing for job growth or GDP growth in the US. Combine the inefficiency of US fiscal policy with the continued implosion of Europe, and you have a world wide malaise. In China, because of macro economic effects, wages are rising, costs to produce are increasing. Companies are also wary of both the poor property rights system and the lengthened supply chain. China is slowing down.
Remember all the talk about the multiplier effect of the stimulus? Yeah, disregard.
Meanwhile in the rest of the world the effects of all these market intrusions/manipulations are having their effect.
As the title says, we’re all Japan now.
The Wall Street Journal provides an interesting infographic which fairly well outlines what the market for college graduates is looking for. Or said another way, employers determine what majors they’ll hire, not college students.
So we have college recruiting picking up – a good sign – and we have a buyers market. Bottom left tells us all what they’re interested in and, more importantly, what they’re not interested in. Of course that’s of the 160 employers surveyed. That obviously doesn’t mean that the bottom five can’t and won’t find employment. It’s just likely they won’t find it with those 160 surveyed. They indicated, however, a trend we’ve talked about quite often. Hard skills or business related skills.
Bottom right shows us how the market for college graduates has changed in the last few years. Only 25% are hired while still in college, most, one would suppose, in those top 5 categories. The huge difference, however, comes in the last number for 2009-2011 graduates. 45% still have no “first full-time job”. That means some are going on 3 years. That adds more credence to the last chart on this post.
As for this year’s college grads, they face even tougher prospects when it comes to finding a job. They not only have to compete against their peers, but against the graduates from from previous years still seeking their “first full-time job”.
Which brings us to the politics of this situation. In 2008, Obama charmed the college age crowd who treated him like a combination of a rock-star and the second coming.
With the sort of situation the chart depicts now being the reality and with the youngest demographic (which includes these college age job seekers) the worst hit by the still staggering economy, one has to wonder whether or not he can pull them back into his orbit again in any significant numbers with the promise of saving them $7 a month on college loans.
I’m guessing the answer is “no”.
Economist Dr. Mark Perry has a series of posts at his blog Carpe Diem which makes the case that “speculators” play and key and positive role in commodities markets.
One of the more intriguing posts deals with onions and oil. Oh, and corn. Perry quotes a 2008 Fortune magazine article:
"Before the government starts scrutinizing the role that speculators may have played in driving up fuel and food prices, investigators may want to take a look at price swings in a commodity not in today’s news: onions.
The bulbous root is the only commodity for which futures trading is banned. Back in 1958, onion growers convinced themselves that futures traders were responsible for falling onion prices, so they lobbied an up-and-coming Michigan Congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.
And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings."
The proof is in the charts. The first chart compares the volatility in the onion market, in which futures trading was banned, with that of the oil market.
Compare the mean and standard deviation differences in the two markets. Remember blue – no futures trading. Red – futures trading.
So, you say, comparing onions and oil is like, well, comparing onions and oil! OK, how about onions an corn. Again the same difference applies. No futures trading for onions but there is with corn.
Result? The same:
The point, of course, is those futures contracts help moderate a market. Or as Perry says:
The fact that the volatility of onion prices is so much greater than the volatility of corn prices lends further statistical support to the notion that markets with futures trading like corn have lower price volatility than markets without futures contracts like onions.
Bingo. So, the President’s war on “oil speculators” is an obvious distraction. But here’s the other side of that – if successful, you may end up seeing oil act like onions. Is that something most of us would prefer? Given these facts, it seems the height of folly to attempt to regulate or ban futures trading in oil, doesn’t it?
A few more charts to finish the point. First, futures trading in natural gas:
If oil speculation (or, as implied, greed) is the cause of rising oil prices, why aren’t natural gas prices rising as well in futures trades (not as “greedy”)?
In fact, it is because of “speculators” that we’ve seen the price of natural gas go down. So futures markets do what? They react to market signals on supply and demand. What this tells us is we most likely have an over abundance of natural gas.
So what does the market do? It adjusts the price to the reality of the supply v demand – in this case, the price goes down. And it also does things like this:
When natural gas price were up and oil prices down, more drilling rigs were allocated by those markets to natural gas. As oil prices have risen dramatically recently, while natural gas prices have fallen, there’s been just as dramatic a shift in the allocation of drilling rigs from natural gas to oil.
The success in the natural gas sector has driven supply up while demand has yet to increase proportionately. Meanwhile, we’d had an abundant supply of oil, which has now become very tight (geopolitics, folks – governments at work and war) driving up the price of crude. The market is reacting.
And as it reacts, guess what?
Crude futures are down as they obviously see future supply growing as the market adjusts and reacts. All driven by “speculators” who are, right now, in the middle of moderating the market.
So, as President Obama continues with his “blame the speculators” nonsense, you have a choice.
Onions or corn?
Markets or bureaucrats?
PS – if you’d like to read some academic pieces on why “speculators” are a key to a market economy, read this.
And it isn’t what they expected or hoped it would be:
A weak labor market already has left half of young college graduates either jobless or underemployed in positions that don’t fully use their skills and knowledge.
Young adults with bachelor’s degrees are increasingly scraping by in lower-wage jobs — waiter or waitress, bartender, retail clerk or receptionist, for example — and that’s confounding their hopes a degree would pay off despite higher tuition and mounting student loans.
An analysis of government data conducted for The Associated Press lays bare the highly uneven prospects for holders of bachelor’s degrees.
We continue to hear that we’re in a recovery, that we’re seeing better times, that all is now well.
Of course, it’s not. In fact, as we mentioned in the podcast last night, we’re not seeing anywhere near the growth necessary to shake this recession. Instead, we’ve found and are bouncing along the bottom (or at least what is the bottom for now – believe it or not, it could again get worse).
Unemployment numbers for the last two months have “unexpectedly” worse. And while the official rate is 8.2%, most realize the real unemployment rate is much higher and in double digits.
That is the world today’s college grads are facing. It is a buyers market, for those that are actually hiring college grads and so they are able to select among the best. Guess what majors are faring best?
While there’s strong demand in science, education and health fields, arts and humanities flounder.
Majors with immediate applicability in still growing fields of course. Meanwhile, there’s not much demand for the softer and less applicable fields. And even in the majors where demand is still high, entry level jobs are of a lower type:
Median wages for those with bachelor’s degrees are down from 2000, hit by technological changes that are eliminating midlevel jobs such as bank tellers. Most future job openings are projected to be in lower-skilled positions such as home health aides, who can provide personalized attention as the U.S. population ages.
This is one of those teachable moments. A sheepskin is no longer a guarantee to a high paying job. And that’s certainly true of those who indulge themselves in a humanities or art degree, etc.
College graduates who majored in zoology, anthropology, philosophy, art history and humanities were among the least likely to find jobs appropriate to their education level; those with nursing, teaching, accounting or computer science degrees were among the most likely.
While perhaps the brightest and best in those areas will indeed find good paying jobs coming out of the chute, the vast majority are going to be taking jobs, if they can find them, well outside their major field of study.
By the way, I use the term “indulge” above purposefully. It would be nice to indulge yourself in something you might enjoy in college and major in it. But then don’t whine when you find out that all of the companies you feel should have the benefit of your august presence aren’t as excited about your degree in gender studies as you are.
That gets down to the purpose of college to each person. Is it a means of achieving a job and a life style to which one aspires and a willingness to do what is necessary to accomplish that? Or is it a place one indulges themselves giving little or no thought to the reality that awaits them at graduation?
What we are seeing is the market for college grads making a very definitive statement. It is sending signals. It is telling everyone what type of degrees are being sought and which aren’t. And because of the tightness of the market, it is making decisions on merit, with the brightest and best capturing jobs and the also ran’s waiting tables.
"I don’t even know what I’m looking for," says Michael Bledsoe, who described months of fruitless job searches as he served customers at a Seattle coffeehouse. The 23-year-old graduated in 2010 with a creative writing degree.
Imagine that … creative writing degree. Wonderful stuff, but not to the market for those with college degrees. One would think that a person pursuing that sort of degree would have probably researched that and have a plan which might not include someone else hiring them first (i.e. selling their work on a freelance basis, etc. and knowing how to do that).
Had Mr. Bldsoe had a degree in physics or accounting or engineering, he’d stand a much better chance of being employed in his field of study. Then he could indulge himself in his creative writing passion. In fact, it would likely give him the means to do that.
Instead … “you want a tall or a grande?”
I still haven’t yet figured out why supposedly bright people can’t figure that little thing out. Markets are talking. Markets are sending signals. When you choose something as your major that these markets have no interest in, what do you suppose is going to happen unless you have a plan to go out on your own immediately?
They’re not going to hire you just because you feel your major is important. You’re going to hire someone if they feel the major is important and you have demonstrated competence in that field at a level they require.
This is the reality that, for the first time, many recent college grads are coming to grips with.
One thing this recession may finally do is drive home the idea that indulging yourself is a useless degree is not very bright or productive.
Want to study creative writing? Fine. They have minors as well in colleges. Make it your minor. But for heaven sake, take a clue and look at what is being demanded out there before declaring a major. Certainly it may not be your passion, but then unless you want to spend your days immediately after college waiting tables or hoping for a labor sellers market, where jobs are plentiful, you had better commit to a useful major.
I know, I know, that supply and demand thingy again. Gender studies majors aren’t into “markets” and “supply and demand” stuff. What’s wrong with me? They have a college degree, the world should be beating a pathway to their door, no?
Welcome to reality … and reality includes the immutable laws of economics whether one likes them or not. And right now, those with useless degrees find themselves on the wrong side of the demand curve.
Don’t like economics?
Then content yourself with making frappes.
Otherwise, it’s time to wise up, use that superior brain for what it was designed and “indulge” yourself in something the job market finds useful and valuable. Refusal to do that means a guaranteed rough transition into the real world, especially now.
The other day this sort of slipped under the media radar:
First Solar Inc. will lay off 2,000 workers and close its factory in Germany following a collapse in solar panel prices that has erased the industry’s profits and forced some smaller companies into bankruptcy.
America’s biggest solar manufacturer said the layoffs amount to 30 percent of its global workforce.
B..b..but why!? Green shoots, alternative energy, clean energy, what the frack?!
This is the future, the government says so! How did it all go so wrong? How in the world could solar panel prices “collapse”?
An influx of Chinese competitors has led to a rapid buildup in supply. At the same time governments in Europe, the biggest market for solar power, are reducing generous subsidy programs that had fueled demand. From March to December last year, solar panel prices dropped 50 percent, said Aaron Chew, an analyst with the Maxim Group.
That damn “supply and demand” thingy again, right?
So let me get this straight … cheap foreign product (subsidized by the Chinese government) flooded the market created by government subsidized demand, driving up supply while lowering the price. Meanwhile the false demand that had been supported by “generous [government] subsidy programs” ended (thus ending the “demand”). Consequently there is no demand for the current over supply and no one is buying the stuff?
Wow … who could have seen that coming?
And the current producer can’t make a profit and thus has to lay off people?
You know, when you’ve seen the same thing over and over and over again (see Einstein’s definition of insanity), sometimes you just have to resort to sarcasm.
By the way for the terminally slow – news flash – that supply and demand thingy also seems to work in the petroleum market as well.
Trying to justify the unjustifiable with a pep-rally like political speech to the UAW, Obama points to what he contends are the favorable results of his decision to intrude into the auto market and rearrange the bankruptcy process to favor his cronies.
I know our bet was a good one because I had seen it pay off firsthand. But here’s the thing. You don’t have to take my word for it. Ask the Chrysler workers near Kokomo — (applause) — who were brought on to make sure the newest high-tech transmissions and fuel-efficient engines are made in America. Or ask the GM workers in Spring Hill, Tennessee, whose jobs were saved from being sent abroad. (Applause.) Ask the Ford workers in Kansas City coming on to make the F-150 — America’s best-selling truck, a more fuel-efficient truck. (Applause.) And you ask all the suppliers who are expanding and hiring, and the communities that rely on them, if America’s investment in you was a good bet. They’ll tell you the right answer.
Of course Chrysler is now owned by a foreign auto company, courtesy of the Obama administration, Ford took no federal money and, had normal bankruptcy proceeded, taxpayers wouldn’t be out $80 billion dollars (still unpaid despite claims to the contrary) and a leaner, more competitive GM would be in existence. Those suppliers would still be supplying and after the shakeout a more viable corporation would have come into existence.
Speaking of those GM workers in Spring Hill, TN, Kaus lays out another reality that the president doesn’t present:
Toyota and Honda are coming back online after the tsunami and Southeast Asia floods crippled production. VW is building roomy American-style cars in Tennessee using $14.50/hour non-union workers instead of $28/hour UAW workers. Hyundai is expanding rapidly. Competition is going to be vicious–it’s widely believed there’s still overcapacity in the industry. A new oil price spike could crimp sales of high-profit trucks. Will GM still be making money in 5 years? Or, I should say, will GM still be making money building cars in the U.S. (as opposed to importing them from China) in 5 years? I’m skeptical. I don’t think deficient corporate cultures change that easily. Normally we rely on the market to simply kill them off.
The two points to be made here are important. One, GM’s current “success” is a result of huge infusion of taxpayer money. Its problem was/is its corporate culture and its unions. Neither problem have been addressed or fixed. Instead, like Solyndra, they’ve simply been given an extension via the taxpayer that will eventually run out. Secondly, as competing auto companies using non-union labor continue to locate in right to work states and pay a competitive wage (but not the high end union wage), they will continue to take market share from GM, who is still stuck with that toxic corporate culture and grasping unions.
But, of course, Obama won’t care because he’ll be out of office. This is the usual short term vote buying, just on a grander scale than we’ve ever seen it before. Crony capitalism at its worst.
Long term viability?
Who cares? Certainly not President Obama.
It appears so. CBS News’ Sharyl Attkisson (yes the same Ms. Attkisson who has been the only reporter following up on Fast and Furious) has checked and it seems Solyndra was just one of many “green companies” which the Obama administration attempted to pick as “winners” by “investing” your money via loan guarantees:
Take Beacon Power — a green energy storage company. We were surprised to learn exactly what the Energy Department knew before committing $43 million of your tax dollars.
Documents obtained by CBS News show Standard and Poor’s had confidentially given the project a dismal outlook of "CCC-plus."
Asked whether he’d put his personal money into Beacon, economist Peter Morici replied, "Not on purpose."
"It’s, it is a junk bond," Morici said. "But it’s not even a good junk bond. It’s well below investment grade."
Was the Energy Department investing tax dollars in something that’s not even a good junk bond? Morici says yes.
"This level of bond has about a 70 percent chance of failing in the long term," he said.
In fact, Beacon did go bankrupt two months ago and it’s unclear whether taxpayers will get all their money back. And the feds made other loans when public documents indicate they should have known they could be throwing good money after bad.
That’s one. But there are more:
Others are also struggling with potential problems. Nevada Geothermal — a home state project personally endorsed by Senate Majority Leader Harry Reid – warns of multiple potential defaults in new SEC filings reviewed by CBS News. It was already having trouble paying the bills when it received $98.5 million in Energy Department loan guarantees.
SunPower landed a deal linked to a $1.2 billion loan guarantee last fall, after a French oil company took it over. On its last financial statement, SunPower owed more than it was worth. On its last financial statement, SunPower owed more than it was worth. SunPower’s role is to design, build and initially operate and maintain the California Valley Solar Ranch Project that’s the subject of the loan guarantee.
First Solar was the biggest S&P 500 loser in 2011 and its CEO was cut loose – even as taxpayers were forced to back a whopping $3 billion in company loans.
Anyone – does the Constitution have a “venture capitalist” clause in it that we somehow missed? Is it the job of our government to pick winners and losers in a market using taxpayer dollars?
Well according to the brilliant Steven Chu, Secretary of Energy, no politics were involved in any of this. But:
Nobody from the Energy Department would agree to an interview. Last November at a hearing on Solyndra, Energy Secretary Steven Chu strongly defended the government’s attempts to bolster America’s clean energy prospects. "In the coming decades, the clean energy sector is expected to grow by hundreds of billions of dollars," Chu said. "We are in a fierce global race to capture this market."
The government is blowing it big time. Why? Because, despite Chu’s claim, it is all about politics. And ideology.
In fact this administration has no trust in markets to develop the technology they desire so they’re sold on the idea that the central government should be used to facilitate their ideology. And that is precisely what this is all about. Solyndra, Beacon Power, Nevada Geothermal, SunPower and First Solar are just failed indicators of the bankruptcy of their approach. Given a treasury and the ability to spend money almost unchecked, they’ve committed to implementing their ideology on the back of taxpayers. And, unsurprisingly, they’re failing miserably.
But we’re assumed to be so dumb we can’t see through their political scheme.
Unfortunately, as it has been for quite some time, no one will be held accountable for this fiasco that has cost us billions in money we simply don’t have. If anyone ever wanted a case study of how out-of-control and outside the Constitutional box government has become, the failed “green energy” sector loan program provides the perfect scenario.
Meanwhile, in Canada:
Canada is now looking to Asian countries to market its abundance of oil, natural gas and minerals as plans to build the proposed Keystone XL pipeline have stalled with the U.S. administration.
Prime Minister Stephen Harper will travel to China next month to discuss selling Canada’s bounty to the rapidly growing nation.
The preferred initial plan was to build the $7 billion Keystone pipeline to deliver Alberta’s oilsands crude to refineries in Texas on the Gulf of Mexico.
Harper reasoned that the U.S. government would prefer to deal with a friendly neighbor to help meet its energy needs while creating thousands of jobs.
With widespread opposition by U.S. environmentalists, the Obama administration has delayed its decision on whether to approve the project proposed by energy giant TransCanada Pipelines.
The new plan would market to China and Asian countries through the proposed Northern Gateway pipeline that would transport Alberta’s oil and natural gas to British Columbia for shipment by tankers.
Yup, no politics at all.
One is domestic and the other is international. On the domestic front we’re again confronted with “good intentions” being horribly and oppressively executed via a bad law.
Wending its way through Congress right now is legislation called the “Stop Online Piracy Act” or SOPA. The intention is obviously laudable. As “piracy” is usually defined, i.e. the theft of copyrighted material, it is certainly a function of government to attempt stop and or prosecute theft.
The problem isn’t found in the intent of the law, as I said. It’s in how it would be executed – the regulations it must spawn to meet the law’s requirements.
Stephen DeMaura and David Segal write about the effect it would have on political campaigns (their particular focus), but it certainly doesn’t take much to translate that effect onto blogs and many other types of websites. Read through the scenario they outline that demonstrates a possible effect on a political campaign and then think blogs:
Here’s a plausible campaign scenario under SOPA. Imagine you are running for Congress in a competitive House district. You give a strong interview to a local morning news show and your campaign posts the clip on your website. When your opponent’s campaign sees the video, it decides to play hardball and sends a notice to your Internet service provider alerting them to what it deems “infringing content.” It doesn’t matter if the content is actually pirated. The ISP has five days to pull down your website and the offending clip or be sued. If you don’t take the video down, even if you believe that the content is protected under fair use, your website goes dark.
The ability of any entity to file an infringement notice is one of SOPA’s biggest problems. It creates an unprecedented “private right of action” that would allow a private party, without any involvement by a court, to effectively shut down a website. For a campaign, this would mean shouldering legal responsibility for all user-generated posts. As more issue-based and political campaigns utilize social media to spread their message and engage supporters, a site could be targeted not only for the campaign’s own posts but also for well-meaning comments from supporters.
It doesn’t take a particularly bright person to see how this sort of a law could be used in a broader sense to kill freedom of speech via frivolous attacks on a site’s content. If QandO embarks on a campaign against a particular politician, for instance, and uses content that it deems to be “fair use” (and may indeed be fair use in a legal sense as well), all it takes is one person anywhere, whether they have a real interest or standing in the case, to file a complaint about “infringing content” and we’re gone unless we remove it. Whether justified or not, the ISP is left in a position of having to enforce removal or face the cost of a lawsuit (whether a lawsuit is ever intended over the claim or not). They will obviously move to protect their interests and that means dropping the so-called offender like a hot rock.
It would effectively chill free speech.
As DeMaura and Segal note, there’s an alternative bill sponsored by Rep. Darrell Issa:
The Online Protection & Enforcement of Digital Trade Act would create a process for rights holders to protect their property that wouldn’t shut down entire sites over a small amount of copyrighted material. This legislation helps to solve copyright infringement while protecting the vitality of the U.S.-based Internet sector — an industry that has contributed 23 percent of the growth in world gross domestic product and has revolutionized the way we live.
Attack real on-line piracy? Yes. Do it with terrible law? No. SOPA should not see the legislative light of day.
Problem two? The UN and other countries around the world want to have the ability to more directly control more of the internet. Robert McDowell of the FCC lays it out:
The 193-member International Telecommunications Union (ITU), a U.N.agency, will meet in Dubai next December to renegotiate the 24-year-old treaty that deals with international oversight of the Internet. A growing number of countries are pushing greater governmental control and management of the Web’s availability, financial model and infrastructure.
They believe the current model is “dominated” by the U.S., and want to “take that control and power away,” Mr. McDowell said. China and Russia support the effort, but so do non-Western U.S. allies such as Brazil, South Africa and India.
“Thus far, those who are pushing for new intergovernmental powers over the Internet are far more energized and organized than those who favor the Internet freedom and prosperity,” he said.
The reason, of course, is fairly straight forward – cash and control:
While growth of the Internet has exploded under a minimal regulatory model over the past two decades, “significant government and civil society support is developing for a different policy outlook,” according to an analysis by lawyers David Gross and M. Ethan Lucarelli on the legal intelligence website www.lexology.com.
“Driven largely by the global financial troubles of recent years, together with persistent concerns about the implications of the growth of the Internet for national economies, social structures and cultures, some governments and others are now actively reconsidering the continuing viability of liberalization and competition-based policies,” they wrote.
So the plan, apparently, is to wrest control from the US via this treaty:
A bad treaty – which would need the support of only a bare majority of U.N.members to pass and which the United States could not veto – could bring “a whole parade of problems,” Mr. McDowell said.
The U.S. and other Western democracies would likely “opt out” of the treaty, he predicted, leading to a “Balkanization” of the global information network. Governments under the treaty would have greater authority to regulate rates and local access, and such critical emerging issues as cybersecurity and data privacy standards would be subject to international control.
Mr. McDowell said the treaty could open the door to allowing revenue-hungry national governments to charge Internet giants such as Google, Facebook and Amazon for their data traffic on a “per click” basis. The more website visitors those companies get, the more they pay.
And, as we’ve watched so many times, a vital and growing market would suffer government intrusion and probable decline:
In 1988, when the treaty was signed, fewer than 100,000 people used the Internet, Mr. McDowell said. Shortly after it was privatized in 1995, that number jumped to 16 million users. As of this year, it is up to 2 billion users, with another 500,000 joining every day.
“This phenomenal growth was the direct result of governments keeping their hands off the Internet sphere and relying instead on a private-sector, multi-stakeholder Internet governance model to keep it thriving,” he said.
Mr. McDowell attributed the massive growth of the Internet to freedom.
“So the whole point is, the more it migrated away from government control, the more it blossomed,” he said.
Freedom? Blossoming? Growth? Can’t have that. It must have government control and, by the way, contribute much more in revenue than it is now. Massive growth without significant contributions to government is just unacceptable in this day and time. And freedom? Anathema to the cult of government.
The servant has become the master and masters instinctively try to gather more and more power to themselves.
This is just another in a long line of examples. The result, of course, will be to cripple something that has been one of the few growth sectors in the global economy. Government greed and the belief of elites that they must control everything via government will eventually kill this proverbial golden goose. Instead of trying to enable more growth, they’re embarked on a campaign to limit and control any growth such that it provides increased revenue for government. Whether it is best for the citizens or economy of the countries so inclined is apparently irrelevant to the quest for more control and cash.
Freedom should be on the march, but instead, we continually see examples of it on the decline. The UN is one of the main culprits in that decline. It is a global organization in search of more power. Under the guise of global democracy, it is involved in killing freedom as it attempts to gather more and more power to itself. It is as obvious as the nose on your face that global governance is its ultimate goal. It can’t do that without exercising more control through willing members and generating more income from which it can demand a share.
To the control freaks and authoritarians out there, the internet is a horrifically dangerous thing. It provides much too much freedom for those they would control. Consequently they seek to wrest that control away. The UN is the perfect vehicle to provide the cover of legitimacy for such a power grab.
Again, here’s a treaty that has no business seeing the light of day. However, if I had to guess, it will pass. And freedom will take another giant step backward.
Brian Dimitrovic, writing in Forbes, is another who takes a shot at Obama’s speech in Kansas (this is almost becoming a series considering the number of people ripping the speech on its economic ignorance) and posits that it is an example of abysmally incorrect economic history. The most obvious reason for the rewriting of that history by President Obama is centered in his ideology. If the history doesn’t prove what he says, President Obama doesn’t have a case. Dimitrovic, using the actual history of the periods Obama cites, shows Obama’s grasp of the history of those eras is as poor as the ideology he touts. Here’s the passage from the speech that Dimitrovic cites. We’ve cited it in previous posts, but Dimitrovic’s demolition of the premise is important:
[T]oday, we are a richer nation and a stronger democracy because of what [Teddy Roosevelt] fought for in his last campaign [of 1912]: [including] political reform and a progressive income tax.
Now, just as there was in Teddy Roosevelt’s time, there is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune….If we just cut more regulations and cut more taxes – especially for the wealthy – our economy will grow stronger….
Now, it’s a simple theory. And we have to admit, it’s one that speaks to our rugged individualism and our healthy skepticism of too much government….And that theory fits well on a bumper sticker. But here’s the problem: It doesn’t work. It has never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible postwar booms of the ’50s and ’60s. And it didn’t work when we tried it during the last decade. I mean, understand, it’s not as if we haven’t tried this theory.
Now there are lots of opinions about economics, but like it or not, facts are facts. Those facts are readily available to those who seek them. By the way, Dimitrovic is a Harvard PhD and an economic historian, so this is right in his wheelhouse.
First is his contention that Roosevelt’s “progressive” ideas are what essentially saved the nation. That the intrusion it represented was necessary. Dimitrovic pretty much says that’s nonsense. In fact, he says, what happened then may be the reason we’re suffering now.
Let’s look at the past as it actually was.
There is one major inflection point in U.S. economic history. Before this point, growth was high, at about 4% per year for a century. Also in this period, there was remarkable price stability and so little unemployment that the nation had to import tens of millions of workers from abroad.
After this point, growth was moderate, at about 3% per year for the long term, with variations in the form of major depressions and recessions and a 23-fold inflation which had no like in the previous epoch.
This inflection point was 1913 – the very year which the reforms TR plumped for in his last campaign, the income tax and the Federal Reserve, came into being. 1913 marks the one secular shift in American economic history toward lower growth and more economic unpleasantness in the form of unemployment, inflation, and serial recession.
Had this nation grown at the 4%-rate achieved in the pre-1913 period, we would be twice as well-off today. As for inequality, unemployment and inflation are scourges to the working class, but not so much to the rich, and these are 20th– and 21st– century innovations.
That’s the actual history coupled with the economy’s real performance. The economy here worked pretty darn well before 1913 and we saw consistent growth that continued to lift all boats. After 1913, not as much. An entire percentage point of growth was, on average, was lost. The only real and significant difference – income tax and the Federal Reserve. What does economic history show happened after this inflection point where government intruded significantly?
As Dimitrovic points out, “lower growth and more economic unpleasantness in the form of unemployment, inflation, and serial recession.” And again, this isn’t a claim that government has no role in the economy as Mr. Black and White would like to claim. This is to point out that what he is attempting to sell with his rhetoric and in support of his premise that it is capitalism that has failed (and thus government is the answer) has no basis in fact. In fact, it appears the opposite is probably true.
Dimitrovic then turns to the 20th and 21st centuries and their history:
Now about that 20th-century, the only reason its record came in even respectably is that at certain junctures, decided efforts were taken to withdraw the impress of the institutions of 1913, the Federal Reserve and the income tax.
He lists a number of facts that contradict Obama’s contentions about the market. In fact, as Dimitrovic says, it was decidedly anti-progressive ideas which saved the 20th Century, for example:
The President says, “It didn’t work when it was tried in the decade before the Great Depression.” These would be the years 1921-1929, when on account of a tax cut put together in 1921, the economy boomed at 4.8% per year as unemployment and inflation (the latter recently on a 100% run) both collapsed. How does a president, in a major, prepared speech make such an indefensible factual error?
Next: “It’s not what led to the incredible postwar booms of the ’50s and ’60s.” No? The trough of the recession at the end of World War II was 1947, when the Republican majority in Congress conspired to win a tax cut over President Truman’s veto. Result: a 6-year run of 4.8% growth.
Note the question Dimitrovic asks in the last sentence off the first example. This isn’t something that would be difficult to find for a research staff. These numbers and facts exist and are out there. But they don’t fit the ideology. You either have to assume they didn’t research the claims or that they rejected the facts because the were inconvenient to the premise. It is hard to believe the didn’t research the claims, isn’t it? They’re pretty definitive claims. One would assume, listening to a President of the United States, they’re anchored in fact. Obviously they’re not. The question is whether this is true economic historical ignorance or willful economic historical revisionism?
Dimitrovic also includes an example of where tax cuts were resisted, and the result, and where they were instituted afterward and that result. Again, the facts seem to refute the President’s premise:
In 1953, when recession came, President Eisenhower resisted calls for another tax cut, and recessions came again and again such that Eisenhower left office in 1960 with a record of 2.4% annual growth on his watch. John F. Kennedy followed, as every schoolchild should know, with another big tax cut. The great 1960s boom ensued, with 4.9% growth from 1961 to 1969.
Also interesting are the parties of the presidents. The numbers, however, aren’t controversial at all. This has been a fact with which almost all of those who’ve followed politics for any length of time and have been interested in the effect of tax cuts on our economy are familiar. These aren’t obscure, little known facts. But they certainly have been facts that one side of the ideological spectrum have tended to ignore when trying to spin more government and not less. That is precisely what President Obama’s object was in his Kansas speech.
The reason for Dimitrovic’s rebuttal of the contentions and claims made in the speech is fairly easy to discern:
Two years ago, I happened to publish a book, Econoclasts, canvassing all this history. I also happen to know that the White House library has a copy.
It also explains his disbelief in what was said:
I have to wonder what historical scholarship the president and his speechwriters are consulting as they come up with their strange counter-narrative of American economic history. I truly don’t know what the books could be.
After all, when the major library bibliographical service, Choice, reviewed Econoclasts, it said the book “fills a gaping hole in the literature.” Has there been some new revisionist history of the effects of tax cuts since 1913 that validates the president’s new narrative? If so, no one’s ever heard of it.
Then again, you can find the stuff the President reiterated in Kansas here and there in left wing redoubts, Berkeley, California and the like – on bumper stickers.
But not in the history of the actual eras in question. In fact, precisely the opposite of the claims made by the President seem to be true. Government intrusion is what has dampened our economic growth. You can see the percentage amounts for yourself. The cycles of recession, unemployment and inflation are a result of more government, not the failure of the market. In fact, per Dimitrovic’s examples, every contention made by the President, which Dimitrovic highlighted, are demonstrably wrong.
The reason for the claims is obvious, however. The ideology of market failure and the demand for more government requires that history, whether it is accurate or not.
We have an old word for that – propaganda. The dishonesty being employed ought to make the current purveyor of that propaganda ashamed of himself. But there is certainly no sign of that being the case.