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?
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”.
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.
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.”
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.
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.
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.
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.
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.”
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.
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.
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.
Chrysler said the only reason it was back asking for more money so soon was that the car market was worse than it had expected two months ago.
This cavalier approach to the public purse raises a very big question. If Chrysler is really on track for a turnaround and all it needs is some financing to get over a bad patch in sales and debt markets, why doesn’t Cerberus Capital Management, which owns 80 percent of the company, put up the money itself? Why should taxpayers have to take the risk? That’s what private equity funds like Cerberus are supposed to do.
Cerberus and Daimler, which retained a stake in Chrysler, have promised to convert $2 billion in loans to Chrysler into equity, which should help reduce its debt. But Cerberus said giving fresh money would violate its fiduciary duty to investors, breaking company rules limiting how much it can commit to any given investment.
We suspect these rules would be more pliant if Cerberus deemed Chrysler to be a good deal.
It seems the secretive private-equity fund is willing to gamble on Chrysler’s survival with the taxpayer’s dime, but not its own.
The real question is, if it is violative of Cerberus management’s fiduciary duty to bail out its own company, why is it fiscally responsible for the federal government to do so?
And what does it say when the leader of liberal opinion has more qualms about a bailout than the federal government? Nothing good I would think.
We here at QandO are big fans of the free market. But there are lots of enemies of the free market and they’re not just ideologies or governments. Sometimes – no, many times – corporations or associations go into cahoots with government to use the power of government to limit competition. Here’s an example of that:
A lot of focus has been directed toward the destruction of the world’s forests during the past few decades. The truth is that deforestation is happening with alarming frequency. Millions of acres of forest land are harvested illegally throughout the world every year, which contributes significantly to global warming and the destruction of wildlife habitat. Because this activity adversely affects our environment, the National Wood Flooring Association worked diligently with several key organizations to promote the illegal logging ban with Congress. The ban was passed this past summer as an amendment to the US Lacey Act, which originally was mandated more than 100 years ago to prohibit the illegal trafficking of wildlife. This new amendment has expanded the Lacey Act to include wood and wood products. Specifically, the ban prohibits the import, sale or trade in the US of wood and other forest products that are harvested through illegal means.
This legislation is significant for a number of reasons. First, and most importantly, it protects our world’s forests from irrecoverable loss of trees and wildlife habitat. Second, it protects lumber buyers who verify the origin of lumber when importing wood into the United States from other countries. Third, it eliminates the influx into the US of low-cost, low-quality wood flooring produced from illegally harvested forests.
The penalties for noncompliance with this new legislation are severe. Penalties can include the forfeiture of the illegally harvested material, fines of up to $500,000, and jail time of up to five years. From a consumer’s perspective, however, the ban helps you have confidence that the wood you are buying is not depleting our world’s forests.
This is classic stuff. Let’s look at their three “benefits”, shall we? First this ban no more “protects our world’s forests from irrecoverable loss of trees and wildlife habitat” than a gun ban keeps guns out of the hands of criminals. That’s because those who do actually engage in what this association would label “illegal logging” will simply sell to someone else. It’s not like wood isn’t in huge demand throughout the world or something.
The second “benefit” is a “join our club or pay the price” benefit at best. The obvious implication is if buyers don’t “verify the origin” to the satisfaction of the association (and the law), they’re open to accusations that what they’re bringing in are “illegal” whether true or not.
And, of course, in reality it all boils down to the last “benefit”. In fact it is a benefit only for the industry at the heart of writing this legislation. You the consumer, on the other hand, won’t get what the NWFA considers to be “low-cost, low-quality wood flooring” because, well, they’ve decided it just isn’t a decision which should be left up to you.
This is what passes for a “free market” these days. In this case, restricting the flow of goods to you in the name of a greater good, when, in fact, the greater good is just an excuse not to have to compete in the market place. It places the consumer’s right of access to such goods in second place to the association’s desire to “benefit” from special legislation which restricts that right.
When the price of that flooring you have been planning to buy goes through the roof, you’ll now know why.
I suppose this too will somehow come as a surprise the left:
General Motors Corp., nearing a federally imposed deadline to present a restructuring plan, will offer the government two costly alternatives: commit billions more in bailout money to fund the company’s operations, or provide financial backing as part of a bankruptcy filing, said people familiar with GM’s thinking.
The competing choices, which highlight GM’s rapidly deteriorating operations, present a dilemma for Congress and the Obama administration. If they refuse to provide additional aid to GM on top of the $13.4 billion already committed they risk seeing an industrial icon fall into bankruptcy.
Tired of throwing money at a company which has a failing business model? Not interested in throwing good money after bad?
Well, then let them seek protection under the bankruptcy laws, reorganize (which means getting out from the labor contract the UAW refuses to renegotiate) and let them stand a company back up that’s able to compete. Heck, this is as good a time as any – they’re not selling any cars anyway.
Oh, and as an afterthought, if bank execs have to have salary caps, how about auto execs and labor leaders? No I’m not for any of that, but it does provide a vivid example of how arbitrary the rules Congress imposes are, doesn’t it?