Free Markets, Free People

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What good is a union if it can’t deliver the goods?

That’s kind of the $64,000 dollar question (yes, I’m showing my age … bite me) isn’t it?

You’ve seen the news about the fast food walkouts and claims that food service people should be paid $15 an hour?  That what the United Food and Commercial Workers union claims workers in that industry should have.  But what do workers they actually represent in that industry actually get?  Not much over minimum wage and union dues to pay out of that:

An examination of UFCW contracts shows that even senior union members are not receiving the wages that ROC and Jobs for Justice demand.

Consider a department manager at Kroger’s union shop in Michigan. She earns a maximum rate of $13.80, even after over half a decade on the job. If this is the highest wage the UFCW can negotiate for skilled, experienced workers, how can the union provide entry-level, low-skilled workers with $15 an hour?

It is not possible for them to accomplish this. Yet, receiving media coverage for the protests they sponsor is an effective way to increase membership and dues collections. The wage they demand is more than twice what similarly skilled union members are paid, namely $7.40 an hour for an entry-level cashier.

Courtesy clerks are paid a starting rate of $7.40 an hour and can work their way to up a wage ceiling of $7.45, after 12 months on the job. Fuel clerks do not fare much better; they start at the same $7.40 and can earn $7.80 an hour after three years of experience, barely over half of the $15 an hour wage worker centers supported by the UFCW demand. Specialty clerks also start at $7.40 an hour, but can earn up to $9.35 after six years. This amount is still 25 percent below the $12.50 an hour “living wage” Jobs for Justice claims all entry level workers should be paid. Read the full union contract between Kroger and the UFCW here.

The take-home pay is even lower once dues—and federal and state taxes—are removed. Dues are mandatory and usually take between $19 and $60 a month from members’ paychecks.

A non-union member could negotiate that without even trying hard.  So, what good is the union really done for those those it represents?  Other than pay it’s union staff very well?

It is expensive to run a union. The average total compensation for those employed by the UFCW—rather than represented by the UFCW—is $88,224 a year. This income is almost six times what the union negotiated for cashiers at Kroger’s. Joseph Hansen, the International President of UFCW, earns in excess of $350,000 a year—over twenty times the earnings of many of the workers he represents. The Executive Vice President and National President both earn over $300,000. Are entry-level union workers receiving benefits from paying dues out of their $7.40 an hour paychecks to fund these salaries?

But you know, it’s “management” that’s the problem, right?  I mean how could a cashier negotiate a $7.40 an hour paycheck without the union – and then give the union its “dues” out of that same paycheck?  Hey, the president of the union has to have his perks, right?

I know, I know, don’t look at the paycheck, look at the other benefits … like a pension, right?

The UFCW has one of the worst records for funding of union pension plans. The Labor Department has informed the UFCW that nine of its pension plans have reached “critical status,” meaning they are less than 65 percent funded. Many of these funds have been underfunded for six years. They have low chances of regaining sustainable financing unless they can convince more new members to join and pay dues without receiving similar benefits.

Sigh.

And, of course, there’s the political side of things … it is important to help fund the union’s political activities, no?

Some portion of dues goes towards political contributions. The UFCW contributed $11.6 million during the 2012 election cycle, of which nearly 100 percent went to Democrats.

Well of course it went to Democrats.  Democrats have been in the union’s pocket (and vice versa) since time began, apparently.  Put $11.6 in the pension fund?  What are you, a Republican?

Yes, it’s a crying shame people aren’t represented by this union … said no libertarian, ever.

~McQ


Study: Government policy primarily the reason for sub-prime mortgage meltdown

Despite the attempt by government and particularly Democrats, to blame the financial meltdown we’ve endured on banks and unscrupulous investment companies, the buck stops with them according to a new study just released:

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, “Yes, it did. We find that adherence to that act led to riskier lending by banks.”

Added NBER: “There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts,” or predominantly low-income and minority areas.

As we’ve mentioned previously any number of times, government policies can set and enforce preverse incentives.  And that has nothing to do with a free market.  That’s at best a mixed market.  So no, the problem wasn’t a “market failure”, it was the usual result of government intruding and setting preverse incentives that are contrary to good business practices and would likely not survive or succeed in an actual free market.

Here’d the bottom line:

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.

CRA regulations are at the core of Fannie’s and Freddie’s so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

It passed a law requiring the government-backed agencies to “assist insured depository institutions to meet their obligations under the (CRA).” The goal was to help banks meet lending quotas by buying their CRA loans.

But they had to loosen underwriting standards to do it. And that’s what they did.

Not only that, they guaranteed the bad loans with your money.  Why do you think so much money has had to be pumped into those two institutions?

You see the market had determined that certain standards protected their investments.  The government decided to ignore reality and push a social agenda using “race” as the basis for throwing out those standards and using their coercive power to implement the social agenda they preferred.

The result was predictable.

And the coverup as well.

~McQ


Welcome to the law of unintended consequences

Or here’s what happens when you play the green card and drive up the cost of energy to the point that it is unaffordable:

When the mercury falls, the theft of wood in the country’s woodlands goes up as people turn to cheaper ways to heat their homes. With energy costs escalating, more Germans are turning to wood burning stoves for heat. That, though, has also led to a rise in tree theft in the country’s forests. The problem has been compounded this winter by rising energy costs. The Germany’s Renters Association estimates the heating costs will go up 22 percent this winter alone.

Brilliant!

How much carbon is being emitted by wood burning stoves?  How about the deforestation?

Gee, nukes don’t sound so bad now, do they?

~McQ


To give is to waste?

My friend George Scoville wrote a Black Friday-appropriate post on a problem with gift-giving, which touches on a broader point that libertarians should heed.

A microeconomics paper that’s bounced around econ-blogs for several years says gift-giving causes a huge deadweight loss: when someone else picks a gift for you, it may not be what you would have bought for yourself when you would have bought it, which normally implies that goods and services are being distributed inefficiently.

If that’s true, then Christmas is a tremendously wasteful institution, within an order of magnitude of the income tax, and we’d be better off giving each other cash gifts.

Humbug!

First, on a technical note, that paper was written in 1993, before Amazon wish lists and social media made it easier to detect people’s interests and needs, so perhaps we’re getting better at matching gifts with recipients.

More importantly, the paper fell short of meaningfully capturing deadweight loss, because it focused entirely on the value of the goods.  Gift economies mostly operate on another kind of supply and demand: the desire for social cohesion, meaning closer relationships with family, friends, and other peers.

This is no trivial matter: relationships with people we can count on make us happier, healthier, and more successful.  Anything that helps to build and cement those bonds is valuable, and while some academics and marketers try to quantify that value (it may be more than you’d think), the normal rule is that relationships of trust should not be fungible with cash.  All societies have some social taboo against trading off the sacred and the mundane, which sometimes leads to absurdly stupid conclusions, but also allows people to build trust without worrying that anything intimate or of an extremely hard-to-price value (what’s the rest of your life worth?) will be easily sold for any of the mundane things that can be bought with cash.

It’s awkward when people give each other cash as gifts even if the amount is equal, and gift exchanges in which only one side puts any thought into it show unequal empathy.  If you put a lot of thought into anticipating someone’s wants, and that person gives you a very generic gift, it’s like being put in the Friend Zone.

The point of gifts is to trip a hardwire in the brains of social mammals: cycles of giving and gratitude that go beyond simple reciprocity.  When you’re trading cash, everyone is acutely aware of the value of what’s been exchanged, and there’s no fudge factor in the brain for “the thought that counts.”

That’s something we disagreeable, rationalistic libertarians should keep in mind, because the gift economy is a powerful force in human relations that resists and resents the intrusion of market forces, even if markets efficiently bring us the gifts.


Government picks another loser

I don’t know how many times we have to point these out or how many ways we have to illustrate that government has no business trying to pick winners and losers, because usually, as with most centralized planning organizations, they get it wrong.  Why?  Because they’re absolutely blind to signals from the market.  Government’s picks are founded more in preference than reality:

Obama touted it in 2010 as evidence “manufacturing jobs are coming back to the United States,” but two years later, a Michigan hybrid battery plant built with $150 million in taxpayer funds is putting workers on furlough before a single battery has been produced.

Workers at the Compact Power manufacturing facilities in Holland, Mich., run by LG Chem, have been placed on rotating furloughs, working only three weeks per month based on lack of demand for lithium-ion cells.

The facility, which was opened in July 2010 with a groundbreaking attended by Obama, has yet to produce a single battery for the Chevrolet Volt, the troubled electric car from General Motors. The plant’s batteries also were intended to be used in Ford’s electric Focus.

Instead:

The 650,000-square-foot, $300 million facility was slated to produce 15,000 batteries per year, while creating hundreds of new jobs. But to date, only 200 workers are employed at the plant by by the South Korean company. Batteries for the Chevy Volts that have been produced have been made by an LG plant in South Korea.

Talk about outsourcing.

Workers are furloughed for one week every month.  And guess who pays for that week?

Boileau pointed out the workers who are on furloughs one week a month are eligible to collect unemployment for that week, and he said the company covers the contributions to their individual benefits during the period.

Reality check commonly ignored when it comes to government:

“Had it been private investors rather than government bureaucrats making the decision, there either would have been a reality check about the industry, or only those who made individual decisions to invest would have lost their money, not taxpayers.”

Instead, government has “socialized” the loss.

The market has moved on – natural gas is cheap and plentiful.  It is the future, at least the near future.  That’s where everything is going.

Meanwhile, the government continues its near unbroken string of picking losers … not that anyone who knows a thing about economics and markets should be the least surprised.  Unlike many other things, this is not “unexpected”.

~McQ


Markets vs. central planners … learning the lessons all over again

Here’s how markets work.  From Toyota:

It said today it will not release its proposed mass-market mini e-car, the eQ. The reason: there’s no demand for it, not while battery technology is failing to provide comparable range to a tank of petrol. The natural gas boom in the US has seen prices of the fuel plummet, in turn reducing the cost of electricity generated by burning it. The Japanese car maker said today it will release 21 hybrid gas-electric models in its line-up by 2015.

Reality rules:

“The current capabilities of electric vehicles do not meet society’s needs, whether it may be the distance the cars can run, or the costs, or how it takes a long time to charge,” said, Uchiyamada, who spearheaded Toyota’s development of the Prius hybrid in the 1990s.

Here’s the market not working because of government intrusion (and ownership):

Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.

Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.

[...]

It currently costs GM “at least” $75,000 to build the Volt, including development costs, Munro said. That’s nearly twice the base price of the Volt before a $7,500 federal tax credit provided as part ofPresident Barack Obama‘s green energy policy.

A pity these things have to be continually pointed out.  But, of course, it won’t stop those who want government to decide what we should be driving instead of consumers and think subsidies will foster that desired behavior.

Two non-partisan government agencies — the Congressional Budget Office in Washington, D.C. and Parliament’s Select Transport Committee — conclude that during the next decade at least, the giveaways will have little impact on sales of plug-in hybrid and all-electric vehicles, or on gasoline consumption and greenhouse-gas emissions. Their main beneficiaries: affluent purchasers who’d buy the vehicles anyway.

“… during the next decade at least …?”  Love that caveat, don’t you?  They never work if it is something consumers don’t want. See current example for proof.  In the case of the market, it’s moved on … and much faster than government can react.  As usual, government has backed a loser.

The frenzy over shale gas deep under Ohio and other states has the makings of a different kind of rush on the nation’s highways. Businesses, cities, metropolitan transit systems and even school districts across the nation are edging toward a switch from diesel and gasoline to natural gas. Converting cars and light trucks to use either gasoline or natural gas is expensive. And heavy trucks designed specifically for natural gas also cost more than conventional diesels. But at current prices, engines that can run on natural gas cut fuel bills in half or better.

And GM has the Volt.  You have to laugh at the fact that the central planners invariably always get it wrong.

You’d have think we’d have learned that by now, wouldn’t you?

~McQ

Twitter: McQandO

Facebook: QandO


Quote of the Day: Pro-market edition

From Professor Luigi Zingales:

“There is not a well-understood distinction between being pro-business and being pro-market. Businessmen like free markets until they get into a market; once they are in it they want to block entry to others. Pro-marketeers want free markets at all times. The more conservative pro-marketeers are fearful of criticising business, because they assume they will be seen as criticising the free market. But we need to stand up and criticise business when business is not helping the cause of free markets.”

We talk a lot about crony capitalism.  Well what the good professor is talking about when he says that businessmen like free markets until they get in one and then they try to “block entry to others” is part of what we’re talking about.

One aspect of cronyism is where businesses attempt to use the power of government, if they can so influence it, to give their company sweetheart regulations, raise artificial barriers to entry and to otherwise impede competitors to the point that they have an advantage.  I’d like to say advantage in the “market”, but the market, at that point, no longer exists as a free one.  It is now a distorted market due to government cronyism.

That’s something that badly needs to stop.  Whether at this point that’s even possible and if it is, how we’d actually go about it are some interesting questions to discuss.

However, the primary point is being pro-business does not necessarily being pro-market and it certainly doesn’t mean you are necessarily for free markets.

We need to change the way we discuss this.  We nee to talk about free markets and roundly condemn any business that attempts to use the coercive power of government to it’s advantage in markets as well as condemning those in government who use its power for such things.

~McQ

Twitter: @McQandO

Facebook: QandO


Democratic Senator Ron Wyden tries to delink himself from Ryan Medicare plan

To date it’s been an attempt that mostly gets fussy about word usage, but my guess is it will get more pointed:

Gov. Romney is talking nonsense. Bipartisanship requires that you not make up the facts. I did not ‘co-lead a piece of legislation.’ I wrote a policy paper on options for Medicare. Several months after the paper came out I spoke and voted against the Medicare provisions in the Ryan budget. Governor Romney needs to learn you don’t protect seniors by makings things up, and his comments today sure won’t help promote real bipartisanship.

That’s obviously in reaction to a statement by Romney in which he talked about legislation, not a policy paper.

So Wyden is right, the quote is incorrect.

But Wyden is being a bit disingenuous too.  You don’t vote for parts of a budget so claiming you voted “against the Medicare provisions” of a budget are a bit of nonsense as well.  Democrats voted against the entire Ryan budget, the Medicare provisions being only  a part of that.

Even Think Progress has some problems with the attempted delinking driven by the inconvenient politics of having a Democratic Senator’s name on a plan that Democrats have chosen to mischaracterize and demonize:

The plan Sen. Wyden co-authored with Ryan does bear a striking resemblance to the proposed Medicare changes in Ryan’s latest budget for the House GOP. Both keep traditional Medicare as a kind of public option, in an exchange where it would compete with private plans offering insurance to seniors. The government would give seniors support for purchasing these plans, and that support would be benchmarked to the cost of the second-least expensive plan. The plans would also be prohibited from discriminating based on pre-existing conditions.

Where they begin to differ is Paul supports more market based solutions while Wyden wants government based solutions.

But this sort of linkage is inconvenient when you’re claiming the GOP ticket is “trying to end Medicare as we know it” (even though it is ObamaCare which is pulling $700+ billion out of Medicare).  Avik Roy has the “bottom line” on that meme:

The bottom line: if Romney and Ryan leave you the option to remain in the 1965-vintage, fee-for-service, traditional Medicare program, and you claim that Medicare has “ended as we know it,” what you’ve really ended is the English language as we know it.

Pretty much. 

The point?  Ron Wyden did indeed “co-author” a Medicare plan with Paul Ryan.  There’s no question about that.  And it was indeed a bipartisan plan, by definition.  In fact the paper is entitled “Bipartisan Options for the Future” and lists both Wyden and Ryan as the authors.

Finally, their plan contains this paragraph:

We are a Democrat and Republican; a Senator and a Representative; senior members of our respective Budget Committees; and members of the committees that have jurisdiction over Medicare and health care costs. As budgeteers, we understand the difficulty presented by demographic changes over the next several decades. As members with policy oversight, we recognize and encourage the potential for innovation to improve care and hold down costs. And most important, as representatives of hardworking Americans in Oregon and Southern Wisconsin, we realize our absolute responsibility to preserve the Medicare guarantee of affordable, accessible health care for every one of the nation’s seniors for decades to come.

Sounds like a pretty bipartisan effort to me.

Here’s the problem for the Democrats.  They need badly to demonize Paul Ryan as an extremist who is out to push granny over the Medicare cliff and end Medicare as we know it.  That’s because “Medicscaring” seniors is a tried and true method of gaining votes, and Democrats know it.  They’ve deployed it many times in the past.

And bipartisan cooperation?  No way, no how, can’t let that sort of thing become public knowledge when you have an active campaign beginning to label Ryan as an extremist ideologue.

But the facts don’t support that sort of branding campaign.  Not only has Ryan not attempted in any form or fashion to end Medicare, he’s teamed up with a liberal Senator to put forward a plan to actually save it (even while the loudest critic is pulling that $700+ billion from the program via ObamaCare) and make it sustainable.

How inconvenient. 

That is why Wyden is trying his best to delink from Ryan. And you can imagine from whence the pressure to do so is coming.  But it’s a hard sale to make when his name is clearly associated with Ryan’s on a plan he claimed will “preserve the Medicare guarantee of affordable, accessible health care for every one of the nation’s seniors for decades to come”, isn’t it?

Not that it will stop them from trying.

~McQ

Twitter: @McQandO

Facebook: QandO


Capitalism, cronyism and corruption

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”. 

 

corruption poll

 

(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.[1] 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.[2] 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.[3]

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,”[4] 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.[5] 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.

Happy Monday.

~McQ

Twitter: @McQandO


Economically, the whole world has become Japan

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.

Economists such as Taylor, Cochrane, Zingales, Rajan and Murphy have said as much over the past four years. Turns out, they were right and the Keynesians are wrong.

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.

Thanks, government(s).

~McQ

Twitter: @McQandO

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