Free Markets, Free People


Are food prices higher? The answer is “yes”!

Although you have to do a little comparison of portion sizes to understand that.  It’s an old marketing trick the food industry has used in the past where prices remain about the same, but portion sizes get smaller and smaller.   It started with the recession of 2008. For example:

Unilever U.S. Inc. cut a jar of Skippy peanut butter from 18 ounces to 16.3 ounces in the first quarter of 2008, wrote Dean Mastrojohn, a company spokesman in New Jersey, responding via email to questions. Unilever was facing rising commodity costs – the “same environment as today,” he wrote.

Haagen-Dazs shrank its pint of ice cream from 16 to 14 ounces in early 2009, said Diane McIntyre, a spokeswoman for parent company Dreyer’s Grand Ice Cream Inc. in Oakland, Calif. Its expenses for dairy products, eggs, vanilla, raspberries and other ingredients had risen by an average of 25 percent, she said.

“We just aren’t going to compromise in what we put into the ice cream in terms of quality,” McIntyre said.

The company didn’t want to pass on a higher price to consumers, she added. “The economy was really bad then, and we just didn’t think it was the time to ask them to pay more.”

This month, with many product materials still expensive or rising, Haagen-Dazs did boost prices. The 14-ounce ice cream rose from $4.39 to $4.69, McIntyre said.

It is a pretty common practice, especially in times of rising prices for ingredients:

“You’re seeing it across the board,” said Ann Gurkin, a food, beverage and tobacco analyst for Davenport & Co. in Richmond.

“It’s one way to raise prices” that consumers don’t notice as much, she said. “You’ve seen both package changes and you’ve seen prices going up. I think it’s both.”

Manufacturers do this to combat rising costs, Gurkin said. They’re dealing with higher grain prices because of low harvests last year of corn, flour and soybeans – which go into baking products and snacks. They’re paying more for meat used for soups and frozen meals.

And, like the rest of the nation, they’re battling spikes in oil prices. Petroleum is used in packaging materials, and gasoline and diesel are required to transport goods.

So the reductions continue:

Cans of tuna fell from 6.5 ounces to 5 ounces, according to the commission. Evaporated milk dipped from a 14.5-ounce can to 12 ounces. … A carton of Tropicana orange juice squeezed down from 64 ounces, a full half-gallon, to 59 ounces. … A large box of Kleenex dropped from 280 tissues to 260. A pound of coffee, 16 ounces, dropped 25 percent to 12 ounces, and some brands have started to slim that further, down to 11-ounce bags.

The reasons are obvious:

Smaller packages are more palatable to consumers than price hikes, said Ken Bernhardt, a marketing professor at Georgia State University who specializes in consumer behavior. “It’s a lesser evil than having to pay more.”

The goal is to trim the package “to the point where it’s barely noticeable,” he said.

Indeed.  But the message is this – food prices have been and continue to go up.  At some point, the food industry isn’t going to be able to hide it in the packaging (check out the price per ounce most grocery stores have on the cost labels.  You’ll see what I’m talking about in terms of cost).

If you think gas prices ignite political fire storms, wait until it becomes more obvious that food prices are increasing rapidly (see reference to low harvests and oil prices).  At the point that food manufacturers can’t reduce the package size anymore and must increase pricing because of the increased cost of ingredients, transportation and distribution, you’re going to see real fireworks begin.

My guess?  About the end of this year or the first part of 2012.


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NLRB to Boeing – build 787 in union state or we sue

It is a battle between a business’s best interests and about its fundamental right to make decisions about how it conducts its business and the government’s "right" to interfere and dictate how and where it will do its business.

In what may be the strongest signal yet of the new pro-labor orientation of the National Labor Relations Board under President Obama, the agency filed a complaint Wednesday seeking to force Boeing to bring an airplane production line back to its unionized facilities in Washington State instead of moving the work to a nonunion plant in South Carolina.

One of the reasons the South has thrived while the Rust Belt has, well, rusted, is companies have taken advantage of the “right to work” rules in most Southern states to locate there without fear of work stoppages at every turn.  That would seem to be a fundamental right that any business should enjoy, the right to locate their business where they feel their best interests are served.  What the government is saying is that’s not true – if you have union employees elsewhere.

In its complaint, the labor board said that Boeing’s decision to transfer a second production line for its new 787 Dreamliner passenger plane to South Carolina was motivated by an unlawful desire to retaliate against union workers for their past strikes in Washington and to discourage future strikes. The agency’s acting general counsel, Lafe Solomon, said it was illegal for companies to take actions in retaliation against workers for exercising the right to strike.

First, it’s not “retaliation” if the facts in the story are correct.  Boeing has hired 2,000 more employees – union employees – at the Washington state plant since the decision was made to add a second assembly line and do it in South Carolina.  So A) it’s not taking jobs away and B) the additional jobs since the decision hardly speak of “retaliation” in any sense a rational person would be able to discern.

Second, the “complaint” comes as the plant in South Carolina nears completion and 1,000 workers have been hired there. 

So, given those facts, this is a crap statement (that’s technical talk):

In a statement Wednesday, Mr. Solomon said: “A worker’s right to strike is a fundamental right guaranteed by the National Labor Relations Act. We also recognize the rights of employers to make business decisions based on their economic interests, but they must do so within the law.”

This is the usual duplicitous talk you get from this administration – acknowledge the right of the employer to make business decisions based on their economic decisions and then immediately deny what was just acknowledged.  This too is crap":

“Boeing’s decision to build a 787 assembly line in South Carolina sent a message that Boeing workers would suffer financial harm for exercising their collective bargaining rights,” said the union’s vice president, Rich Michalski.

No, they haven’t sent such a message.  What they’ve said is they have a backlog of orders and can’t afford (business interest) work stoppages every 3 years while unions negotiate a new contract. That is a legitimate concern.  And they want some sort of continuity built into the productions system that accounts for that probability.  No one is denying union workers their “rights” in Washington nor have any union employees been fired because of them – again, since the decision to locate in SC was made, 2,000 additional union employees have been hired there.

What’s is happening here is government has chosen to take sides and is attempting to intimidate Boeing.  The side it has picked – surprise – is the union side.  And it plans to use its power to attempt to force a company into doing something which is not in its best business interests, despite the lip service Solomon gives that “right”.  But there’s no “hostile business climate” here, is there?

Bottom line?

The company also said it had decided to expand in South Carolina in part to protect business continuity and to reduce the damage to its finances and reputation from future work stoppages.

And in a free country, Boeing would have every right to expect to be able to do that without interference.


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Capitalism 101–why profits are important and why government mandates against profits are bad news …

And why when government tells you how you must spend your money a certain, the unintended consequences are usually terrible:



Look, this isn’t rocket science, and the business owner in this video explains very well what happens when government dictates how you will spend any profits you make.  Take a moment and listen to what he has to say near the end of the vid especially.  He talks hard numbers and why, if forced to do what the government dictates, it will cost future jobs.

One of the things I’ve always said throughout this health care debate is health insurance should be something someone buys outside of employment.  If Congress would deregulate the industry to the point that buyers were able to shop across state lines for a competitive insurance policy to cover their family and be a part of a huge nation wide pool to boot, prices for insurance would come down.

What is being mandated here puts no pressure on insurance companies to be competitive but it does require companies who are presently unable to provide it to do so.  That will have an impact in employment.  Owners like the one featured here will figure the cost per employee and most likely reduce the employee pool at a point where he thinks he can manage the mandate and still make a profit.

Of course he most likely won’t make the profit he was and so more restaurants won’t be built and more people won’t be hired.

The solution for lower cost health insurance does not lie in more government control or mandates.  It is to be found in a real market that allows buyers the leverage they need to force health care insurance providers to field a competitive product.  Until that happens, none of the solutions tendered through ObamaCare will increase coverage and decrease cost.   It is an absolute impossibility the way that law is structured.


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Deciphering Paul Krugman’s latest message

Get your “Captain Krugman” decoder rings out and follow me through this Paul Krugman piece.

Today the line of attack on what he calls the “Obama-McConnell tax cut deal ” is to put forward the argument that the reason we’re in this mess to begin with is because of the debt carried by American families. Yes, that’s right – you did it, now shut up and take the medicine. Oh and the banks – yes, the banks because they “abandoned any notion of sound lending and because everyone assumed housing prices would never fall”.

Yeah, you guessed it  – not a thing about the Community Reinvestment Act, Congressional pressure on banks to lend to very marginal borrowers or Freddie Mac and Fannie Mae.  It was you, dear citizen … and the banks.  The government?  Sparkly clean by omission.

Anyway, because that debt is so high in relation to income and the families are in the middle of trying to deleverage that debt, they’re not spending much – or as much as is needed to kick start the economy, in Krugman’s opinion (they might if they had more but then that means even deeper tax cuts and Krugman ain’t going there).  And of course there’s that problem with high unemployment to factor in as well.

So, backing into this favorite theme of the past two years (Deficit?  Screw the deficit – spend, spend, spend), what or who should be spending to get the economy going?

Why yes Sparky, he means the government.

What the government should be doing in this situation is spending more while the private sector is spending less, supporting employment while those debts are paid down. And this government spending needs to be sustained: we’re not talking about a brief burst of aid; we’re talking about spending that lasts long enough for households to get their debts back under control. The original Obama stimulus wasn’t just too small; it was also much too short-lived, with much of the positive effect already gone.

It’s true that we’re making progress on deleveraging. Household debt is down to 118 percent of income, and a strong recovery would bring that number down further. But we’re still at least several years from the point at which households will be in good enough shape that the economy no longer needs government support.

But wouldn’t it be expensive to have the government support the economy for years to come? Yes, it would — which is why the stimulus should be done well, getting as much bang for the buck as possible.

Remember that last phrase because that’s the point of the post.  Now, with all of that background, Krugman says that this “Obama McConnell tax cut deal” will provide some stimulus but not the sustained stimulus Krugman says is needed from government.  And that first stimulus was too small – even though it was much larger than Krugman said was necessary at the time.  Nope  a massive stimulus is still needed no matter what we have to do to pump that money out there (even while the Fed is trying to sponge up the multi-trillion dollar spill of cash they tossed out there before):

The point is that while the deal will cost a lot — adding more to federal debt than the original Obama stimulus — it’s likely to get very little bang for the buck. Tax cuts for the wealthy will barely be spent at all; even middle-class tax cuts won’t add much to spending. And the business tax break will, I believe, do hardly anything to spur investment given the excess capacity businesses already have.

This is the point where cognitive dissonance smacks right into the Krugman “reasoning”.  A) he wants a new and much bigger stimulus – that’s no secret.  B) he claims this bit of stimulus (tax cut deal) will “cost” more (deficit) than it will deliver (bang for buck).  C) you can’t be trusted (shades of Clinton) to spend your own money the way the government would (perfectly, of course – properly, with no waste, and at exactly the right time and in the right place – having a coughing fit yet?).

For such a supposedly gifted economist it is like he missed Econ 101 in favor of Propaganda 101.  Either that or he really does believe, in the face of much evidence to the contrary, that a government spending money in a recession always returns “more bang for the buck” than does an individual (millions of individuals) in a market being allowed to keep and spend more of his money.  I am forever at a loss to explain that sort of thinking.

Pushing money out into an economy just to be getting it out there isn’t going to solve our economic problems.   In fact, if government has to be the big consumer of loan money to do so, guess what there’s less of for the private side of things?  Can you say “vicious circle”?And what does Krugman think a pure borrowing-based second stimulus plan is going to do to the debt?  Given the “bang for the buck” we received with the last stimulus, what makes Krugman think this one would be a better deal and superior to letting people keep more of their own money?

What I expect, instead, is that we’ll be having this same conversation all over again in 2012, with unemployment still high and the economy suffering as the good parts of the current deal go away.

The long and short of it is, this about isn’t economics, it’s about politics.  What Krugman wants is anything he can call economic improvement because he knows that Obama and the Democrats are in awful political shape.  His belief is if the Obama administration will quickly pass a huge stimulus and pump money into the economy, things will look somewhat better than they do now and he can make rosy predictions that should help carry the day for Obama’s re-election in 2012.  If it all collapses after that, who cares?  There will be plenty of time to make stuff up on the fly again and, of course variously blame the Republicans, the American people and, of course, the banks for any problems the economy may suffer.


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Unemployment rises to 9.8% – yeah, you read that right, rises …

Of course that’s the "official" number – as we’ve been pointing out for some time, the real number is well into double digits. But it again points out that markets are not at all happy with the business environment and consumers simply aren’t consuming at a level to push hiring even if it was settled.

In a significant setback to the recovery and market expectations, the United States economy added just 39,000 jobs in November, and the unemployment rate rose to 9.8 percent, the Department of Labor reported Friday. November’s numbers were far below the consensus forecast of close to 150,000 jobs added and an unemployment rate of 9.6 percent.

The increases tallied are mostly seasonal temporary work, meaning private companies aren’t creating many jobs at all (again, the economy has to generate around 125,000 new jobs a month just to stay even):

Private companies, which have been hiring since the beginning of the year, added 50,000 jobs in November. Most of those increases came from temporary help, where 40,000 jobs were added, and in health care, with an additional 19,000 jobs.

Retail jobs declined by 28,000 in November, while manufacturing, which had showed some strength earlier in the year, lost 13,000 jobs.

Government jobs dropped by 11,000 in the month.

Outlook? Bleak. Meanwhile the tax fight continues in the Congress. If you’re wondering why the business climate remains so unsettled, it is thinking like this which is typical of the majority party there:

Yeah, that’s right – this yahoo is claiming that small businessmen don’t ever make any decisions based on tax considerations. So they won’t mind a tax hike in the least.

How in the world does anyone take someone like that seriously? However, understanding that his thinking is most likely not uncommon there, it isn’t at all hard to imagine why Congress seems clueless as to how to stimulate the economy, is it?


Krugman’s latest pearls of wisdom

I noted yesterday that one of the more prolific hacks left off of Alex Pareene list (link in previous post) at Salon was Paul Krugman.

QandO has a long history of examining Krugman’s political thoughts and finding them mostly wanting.  That’s not to say he’s a bust at everything he does – when he just talked economics he had some interesting things to say.  But his venture into political advocacy has, shall we say, not helped his overall reputation in the least.  One of the reasons is he’s prone to saying things like this:

The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty.

Don’t “deserve” wealth or poverty according to whom and by what standard, Mr. Krugman? 

Who gets to decide what is or isn’t “deserved” if earned or obtained legally?  And how does one make the blanket statement that “the poor certainly don’t deserve their poverty?”  That, in many cases, is demonstrably false. 

If we agree we are the sum of our choices in life, and those who’ve made consistently bad choices (drop out of school, take up drug use, commit criminal acts) end up in poverty, how is it they don’t “deserve” what they now suffer?  Certainly I can think of examples of the poor who may be poor through no real fault of their own – the mentally deficient who haven’t the skills to earn high wages, etc.  But for the most part, if everyone is offered essentially the same opportunities as others and they choose not to take advantage of them, how does one relegate their descent into poverty as “undeserved”?  Especially when others in precisely the same circumstances make different decisions that raise them out of poverty?

What, in fact, that statement is meant to reflect is Krugman’s apparent belief that wealth is unequally distributed not because it is earned, but by an immoral and unfair system that needs to be fixed. 

The market, in Krugman’s world, arbitrarily picks winners and losers and rewards them at whim apparently.  Thus most of the rich and none of the poor “deserve” their financial status.

So this should come as not surprise:

Allow me to make a point: Economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished.

The market economy is a system for organizing activity — a pretty good system most of the time, though not always — but not according to any moral significance.

Really?  So nowhere in such an economy is honesty, fairness, good customer service rewarded with business over competitors who exhibit none of those virtues?  Instead, it’s just a “system for organizing” where consumers buy from which ever vendor they first come upon without ever once considering those virtues as a reason for buying?  Does the system punish those who act in what one could consider an “economically immoral” manner – i.e. in violation of the laws of economics” or screwing over customers?  Does it not mostly reward those who act in a manner that most pleases their customers and helps their reputation?

How is that not evidence of a moral code operating within a given market?

Well of course it is – but such a code is inconvenient to the Krugman’s of the world, because admitting that markets, unimpeded by government intrusion, would reward or punish those who transgress its laws would mean the argument for more government intrusion would fall flat.  And certainly, admitting that the rich “deserve” their riches as much as many in poverty “deserve” their poverty would again admit to a morality that precluded government making everything “fair” by it’s attempts to redistribute that “undeserved” wealth.

Those key premises are what Krugman and much of the left base their criticism of capitalism on, never once admitting that a) capitalism as it should exist doesn’t and  b) the reason the markets may not seem to be “working” is because of the amount of distortion they already suffer from government intrusion.

Of course, it is the age old cycle many of us have come to understand – government declares something to be a problem, declares it is the solution, exacerbates the problem and again declares only it can fix it with even more intrusion. 

“Morality” is, at a base level, “good and bad”.  We label what we deem “good” as moral.  The bad stuff is “immoral”.  How one can observe real markets at work, where the basic transaction is a voluntary exchange of goods for money between two people (entities) and not recognize the basic morality of such an act wouldn’t understand morality if it bit them on the leg.   Billions of those transactions will happen on this, Black Friday.  Consumers will go to stores they trust from experience, buy from vendors with good reputations and the best customer service and reward them with their business.  That decision is one based in morality in which the consumer weighs the options and picks the vendor who best exemplifies their moral ideal in the marketplace.  If they’ve been burned in the past by store X, that store most likely will not get their business – a decision based on the moral judgment of the consumer.

How a so-called economist doesn’t understand the basic morality of markets seems a bit beyond me.  Which is why I put Krugman in the hack category.  That morality, which is plainly evident to me, is inconvenient to Krugman’s thesis that government must intervene in the economy.  He can’t really point to any success stories (well he tries by saying, finally, that massive government spending for WWII brought us out of the Depression and that’s suspect), so he’s left trying to explain why it is government’s job to save us from the inherent unfairness of the market.

You have to leave a whole bunch of stuff out to do that.  And you have to establish nonsensical premises like “the rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty”, in order to advance your government intrusion thesis.

Thus the cycle repeats – government is again the only solution to the problem government created.  After all, the markets put us 14 trillion in debt, not the profligacy of government – or so I fully expect Krugman to explain in some future bit of nonsense in the New York Times.  It would make about as much sense as this nonsense.


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Stop the war on business

That’s the central theme of a Ken Langone op/ed in the Wall Street Journal. Langone is a co-founder of Home Depot who gives Obama a lecture he’s long deserved. He does a good job of summarizing the absurd rhetoric used by Obama and his administration and the attitude they project that has done nothing to help and everything to hurt the recovery:

Your insistence that your policies are necessary and beneficial to business is utterly at odds with what you and your administration are saying elsewhere. You pick a fight with the U.S. Chamber of Commerce, accusing it of using foreign money to influence congressional elections, something the chamber adamantly denies. Your U.S. attorney in New York, Preet Bahrara, compares investment firms to Mexican drug cartels and says he wants the power to wiretap Wall Street when he sees fit. And you drew guffaws of approving laughter with your car-wreck metaphor, recently telling a crowd that those who differ with your approach are "standing up on the road, sipping a Slurpee" while you are "shoving" and "sweating" to fix the broken-down jalopy of state.

That short-sighted wavering—between condescending encouragement one day and hostile disparagement the next—creates uncertainty that, as any investor could tell you, causes economic paralysis. That’s because no one can tell what to expect next.

Again we confront the difference between a politician in a permanent campaign and a leader.  And we see the result.

Obama seems mystified by the role of the president.  He seems not to understand that leaders don’t use the old, divisive and politically charged rhetoric of the campaign trail, but instead have the job of doing (and saying) what is necessary to move things in a positive direction.  That has not been something Obama has done at all when it comes to business.

There’s another point Langone made that is worth featuring:

A little more than 30 years ago, Bernie Marcus, Arthur Blank, Pat Farrah and I got together and founded The Home Depot. Our dream was to create (memo to DNC activists: that’s build, not take or coerce) a new kind of home-improvement center catering to do-it-yourselfers. The concept was to have a wide assortment, a high level of service, and the lowest pricing possible.

We opened the front door in 1979, also a time of severe economic slowdown. Yet today, Home Depot is staffed by more than 325,000 dedicated, well-trained, and highly motivated people offering outstanding service and knowledge to millions of consumers.

If we tried to start Home Depot today, under the kind of onerous regulatory controls that you have advocated, it’s a stone cold certainty that our business would never get off the ground, much less thrive. Rules against providing stock options would have prevented us from incentivizing worthy employees in the start-up phase—never mind the incredibly high cost of regulatory compliance overall and mandatory health insurance. Still worse are the ever-rapacious trial lawyers.

Regulations, taxes, compliance and mandates cost businesses billions each year.  That’s billions that aren’t spent on employees, customers, expansion or growth.  And it is especially stupid to increase all of those in a recession – yet that’s precisely what is going on now.  And it keeps the market unsettled and at least defers or may in fact kill any possible action by businesses which may benefit the overall economy.

Obama’s actions and rhetoric are a case study of someone who doesn’t understand his job, doesn’t understand the power of the words he utters (because he doesn’t understand his job) and has been very irresponsible with his rhetoric at a time when the damage that rhetoric can do are compounded by the situation (recession).

OJT is not something a president should be doing – especially in a recession.  And for the supposed “smartest guy in the room”, he sure seems like a slow learner when it comes to his job and the requirements of leadership.


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Barney Frank wants another chance to destroy the housing market

If you live in Frank’s district, this is the only reason you need to vote for Sean Bielat, his GOP opponent.  I.e. Frank is about to remake Fannie Mae and Freddie Mac in his own image.  That after the two institutions that he fought so hard to support with your tax dollars and attempted to keep Congressional oversight to a minimum, tanked and almost took the economy with them.

The Washington Post has a mostly sympathetic piece (poor Barney, he only wanted to use your money to help the poor put a roof over their heads) which, if you read carefully between the lines, at least hints at most of the story.  And the rest of the story ends with us pumping $160 billion and counting into the two institutions after the government took them over.

Back when it all started, Frank identified cash cows in the two institutions which would allow him to fulfill his personal agenda:

Fannie and Freddie were in the business of buying and guaranteeing mortgage loans from private lenders, which in turn could take the money and make even more loans to prospective homebuyers or developers looking to build apartment buildings.

Democrats, led by one of Frank’s closest allies, Rep. Henry B. Gonzalez (D-Tex.), wanted to require the two companies to spend a specific percentage of their funds on affordable housing. Under the proposed legislation, the companies were to buy home loans made to lower- and middle-class people and loans going to fund development of affordable rental housing.

This represented a rich new vein of money.

But even as Democrats were looking to expand Fannie and Freddie’s mission, a small group of Republicans, led by Rep. Jim Leach of Iowa, urged the government to pay more attention to the dangers posed by the firms.

Let’s see – “rich vein of money” or oversight and caution?  “Rich vein of money” of course.  So Leach’s warning were pushed aside:

The companies had been growing ever larger. Yet compared with their rivals in the banking industry, they were putting aside relatively little capital to cover potential losses. Leach proposed a tough new regulator that would restrain Fannie and Freddie.

Nah.  So onward we went, huge sums of money flowing out the door, very little oversight, with a political agenda driving the bus instead of financial sanity.  That was in 1992.  In 2003, the warnings were still coming and getting louder:

By late 2003, the firms had taken on more than $4 trillion in debt, rivaling that of the entire federal government. Yet Frank, who had by then become the top Democrat on the influential House Financial Services Committee, still wasn’t focused on the risks. He had his sights set on what else they could do to promote for affordable housing, particularly low-cost rental housing.

At a hearing called by Republicans, who controlled the committee, Frank made clear that he was reluctant to tighten oversight because it could limit the ability of Fannie and Freddie to help people get a roof over their heads.

The companies, he urged colleagues, "are two of the very important tools that we have" and had to do what "the market in and of itself will not do. "They were "not endangering the fiscal health of this country," he continued.

But, of course, they were and did endanger the fiscal health of the country.  Denial was his only weapon and he used it constantly – because his personal political agenda was apparently worth the risk – at least to him.  He even said once he wanted to “roll the dice” a little more, perfectly willing to risk the fiscal future of the country to push his political agenda.

And you all know the rest of the story. 

Fannie and Freddie proceeded to load up on securities backed by risky mortgages, such as subprime loans and no-document loans. The firms asserted that they were aggressively fulfilling their affordable housing mission, and some risky mortgages were indeed going to borrowers who couldn’t otherwise afford a home.

But many of the loans were going to people who could have afforded traditional mortgages, and the companies were bulking up on the risky loans purely in pursuit of even larger profits.

When the housing market crashed, the unprecedented surge in mortgage defaults blew a hole in the firms’ finances.

The Democrats and Frank want to deny this part of the story or pretend it is an insignificant part of it or that what happened to Freddie and Fannie were a result of Wall Street’s shenanigans. 

Not really.  The prime buyer and bundler of the sub-prime mortgages were those two institutions.   And, as the article notes, Freddie and Fannie believed they were “aggressively fulfilling their affordable housing mission” as legislatively enabled by Barney Frank and Congress.

And what has he managed to get for his effort?

For all his efforts, Frank readily acknowledges that there are more people needing decent housing than there were when he started in Congress. And with millions of others losing their homes to foreclosure, Frank asks to be judged by how much worse things would have been without him.

"In the political world, you get measured on the ultimate results," he said. "I think we’ve prevented things from getting as bad as they otherwise might have been."

Really?  Have you looked around you Mr. Frank?  This ranks right up there with the unmeasurable “saved jobs” nonsense pushed by the administration in the midst of 9.6% unemployment.  And now Frank is going to get another chance to shape the housing market’s future?

Time to put him into retirement before he can again try to do what he did last time.  Another reality of the “political world” is you should only get one chance and if you screw it up as badly as Frank did, you should join the ranks of the unemployed.


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Quote of the day – health care version

Got a huge chuckle out of Steven Levitt’s opening sentence at the Freakanomics blog:

Many economists view the health-care bill passed in the U.S. earlier this year as falling somewhere between “a complete waste of time” and “actually making the situation worse.”

Indeed.  In fact, I’d have to go with the “actually making the situation worse” determination, given what we’ve seen this past couple of weeks as more and more companies react to the impact of the legislation.

The context of Levitt’s remark is a story by Delia Lloyd talking about the UK going in precisely the opposite way.  Yes, a country which has had socialized medicine for over 60 years is looking at taking steps for a more market-based health care system, with the belief it will improve the British system.

Markets?  Pricing signals?  Competition? 

Nah, our Congress just rejected all of that – couldn’t be a good thing.


Why are we always 60 years late and a dollar short?


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Government mandates and the law of unintended consequences

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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