Questions and Observations

Free Markets, Free People

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.

/sarc

~McQ

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Fidel Castro – Socialism doesn’t work

We could have told him that 50 years ago:

Fidel Castro told a visiting American journalist that Cuba’s communist economic model doesn’t work, a rare comment on domestic affairs from a man who has conspicuously steered clear of local issues since stepping down four years ago.

[…]

Jeffrey Goldberg, a national correspondent for The Atlantic magazine, asked if Cuba’s economic system was still worth exporting to other countries, and Castro replied: "The Cuban model doesn’t even work for us anymore" Goldberg wrote Wednesday in a post on his Atlantic blog.

[…]

The state controls well over 90 percent of the economy, paying workers salaries of about $20 a month in return for free health care and education, and nearly free transportation and housing. At least a portion of every citizen’s food needs are sold to them through ration books at heavily subsidized prices.

Of course the "Cuban model" only “worked” while the USSR existed. It was essentially based in heavy subsidies paid Cuba by the USSR for being its main proxy in the Americas. And the USSR’s woes most firmly underlined the problems with a centralized demand economy run by the state. Even so, Cuba continued on along that vein even after their greatest benefactor and financial supporter collapsed like a wet paper box. Now, finally, after pushing Cuba into poverty, Castro admits socialism is a bust.

China, while still totalitarian, recognized the economic problems soon enough to avert a similar disaster by loosening up economically. Cuba and North Korea, though, have continued to use the disastrous economic model and are basket cases (Cuba has instituted some modest economic changes, but not enough to break the dependency on the state the government of Cuba had ingrained on multiple generations of its population).

Of course Castro’s admission comes to late for the people of Venezuela who’ve been roped into a Cuba-style socialist government by strong man Hugo Chavez. Predictably, the Venezuelan economy is in shambles.

You have to wonder how many more ruined economies it will take before the socialists of the world (or wannabes) recognize that their brand of government and economics is a disaster and has probably ruined more lives than any other economic system in history.

~McQ

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A phone call to Barbara Lisa Murkowski

“Hello, Barbara Lisa Murkowski here.”

“Yo, Babs. I hear you lookin for some DC smack.”

“What? How did you get this number?”

“Oh, a friend of yours gave it to me. He says you ain’t feelin too good. Had your usual fix taken away a couple of weeks ago. Got the monkey on your back, he says.”

“Hey, I’m fine. I’m just trying to find a way to serve the people of Alaska through one more term.”

“Heh, heh. Sure. Look, you want to hear what I got or not?”

“Well, it won’t hurt to listen, I suppose.”

“Well, the LPers are open to reason. I think I can get you a ballot spot.”

“Those guys? First, they don’t seem to want to talk to me. Second, it’s a long shot that I can win by running under their ticket.”

“Well, sure, it ain’t as high quality as what you’re used to. But it’ll keep the withdrawal pangs away for a few months. I bet right now you’re feelin like that’s enough. Eh?”

“Look, I can stand it if I have too. I have dignity, you know. I could always take a job as a lobbyist.”

“Sure you can, sure you can. I’m just sayin, I think I can arrange a deal to get you that fix, uh, I mean nomination. I mean, I’d hate to see you walkin K Street.”

“How much will it cost me?”

“No more than you got. Hey, I want to help. I hate to see a lady suffer. And from what I hear, you got the DC habit pretty bad.”

“Well, it would certainly be hard to turn my back on the people of Alaska. I’ve done so much to bring home the bacon for them. It just feels so good to get the goodies for them, you know?”

“Sure, sure, you and me in the same business, giving people stuff that makes em feel good.”

“Well, seeing as how we’re both so public-spirited, I think we can definitely work together.”

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Obama puts politics above the economy

From The New York Times:

President Obama on Wednesday will make clear that he opposes any compromise that would extend the Bush-era tax cuts for the wealthy beyond this year, officials said, adding a populist twist to an election-season economic package that is otherwise designed to entice support from big businesses and their Republican allies.

Mr. Obama’s opposition to allowing the high-end tax cuts to remain in place for even another year or two would be the signal many Congressional Democrats have been awaiting as they prepare for a showdown with Republicans on the issue and ends speculation that the White House might be open to an extension. Democrats say only the president can rally wavering lawmakers who, amid the party’s weakened poll numbers, feel increasingly vulnerable to Republican attacks if they let the top rates lapse at the end of this year as scheduled.

But the problem is that raising taxes in a recession is considered by all objective thinkers to be folly.  In fact, the President said so himself as I reminded you recently:

Normally you don’t raise taxes in a recession, which is why we haven’t and why we’ve instead cut taxes. So I guess what I’d say to Scott is—his economics are right. You don’t raise taxes in a recession. We haven’t raised taxes in a recession.”

But they are going to raise them in a recession now.  “Scott”, by the way, was a person who submitted a question at an Obama townhall through MSNBC’s Chuck Todd.  Obama admitted that it was the wrong thing to do in a recession.  And folks, we’re still in a recessionary period whether or not the spin artists with the administration prefer “recovery summer” (another flop) or not.

The NYT goes on:

It is not clear that Mr. Obama can prevail given his own diminished popularity, the tepid economic recovery and the divisions within his party. But by proposing to extend the rates for the 98 percent of households with income below $250,000 for couples and $200,000 for individuals — and insisting that federal income tax rates in 2011 go back to their pre-2001 levels for income above those cutoffs — he intends to cast the issue as a choice between supporting the middle class or giving breaks to the wealthy.

Of course, he’s presenting a false choice.  There’s a third choice – keep the tax cuts for all and cut spending.  But, you can’t stir up class warfare and spend more money unless you demonize the rich and claim you’ll be spending their money for the benefit of the “middle class”.

Any American that falls for the sort of populist class envy nonsense is most likely fine with the government we have and any silver pieces they can siphon off as a result.

That said, the NYT’s first sentence in that paragraph says a lot.  Does Obama have the heft to carry this off.  We all know the GOP will be the whipping boy for any failure, but unless every Democrat in both chambers of Congress stand up and vote for it, it will be a difficult thing to sell to a skeptical electorate who’ve heard all this nonsense before.

Politically, however, the president is, in effect, daring Republicans to oppose the plan, in that way proving Democrats’ contention that they will block even their own ideas to deny Mr. Obama any victories. And by proposing business tax breaks that, according to nonpartisan analyses, would do more to stimulate the economy than extending the Bush tax rates for the wealthy, Mr. Obama hopes to buttress Democrats’ opposition to extending those rates.

Let him dare the Republicans.  If they’re smart (and that’s always debatable) they’ll use the President’s own words against him.  That would be their most effective tool.  And that would also put Democrats in marginal districts on notice that if they vote not to extend the cuts, they’re doing what their President once admitted was a terrible  idea in bad economic times.  And, they should understand, they can count on hearing that repeated in ads in their districts along with how they voted.

~McQ

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A pox on both parties

Gallup’s latest poll shows that at least in the universe of those polled, neither the GOP or the Democratic party are held in very high esteem.  It’s something that I and Billy Hollis have been trying to get across for some time. 

What you’re seeing out there among the teeming masses isn’t necessarily a movement (I’m talking the Tea Party, etc) that wants to put the GOP in power.  It is a movement that is sick and tired of the way the country has been run and at the moment Republicans are considered to be slightly better because of their fiscal principles.

But, as Lisa Murkowski can tell you, not even all of them are acceptable.

I’m not speaking for the Tea Party, I’m not sure anyone can, but it appears to me to be mostly driven by a desire for fiscal conservatism and a return to Constitutional/limited government.  I don’t think it is much more complex than that, although with any mass movement you’ll see other minor movements with different causes try to attach themselves and claim to be mainstream in that movement.

But for the most part fiscal conservatism and limited government best characterize the Tea Party in my eyes.  And I’ve spoken frequently about how the “wrong track” poll – i.e. the fact that a huge majority of Americans, in the 60 percentile range, think the country is on the wrong track and have thought so for at least the last two administrations – speaks to the fact that they’re not happy with either party.

Gallup’s poll simply validates that point:

Americans’ frustration with Congress is directed at both sides of the aisle — with job approval ratings of 33% for the Democrats in Congress and 32% for the Republicans in Congress.

Interestingly those ratings are considerably higher than Congress’s approval rating (somewhere down around 11%) which I attribute to this specific Congress.   Americans don’t like the way Congress as a whole this session has done business and blame the Democrats for that, since they’re the majority party.  But in general, and for some time, they’ve not at all happy with the two parties (in fact, the cited poll numbers probably reflect approval by mostly partisan members of each party).

So here we are on the eve of  a mid-term with the GOP poised to make a return to power, at least in the House, and it is clear that they are nothing more than a “lesser of two evils” pick because, unfortunately, there are only two viable parties.

That is part of the frustration Americans are going through right now.  Movements like the Tea Party are trying to shape that a bit with its support of candidates that are much closer to the ideal they prefer.  And they’re having some success.

Of course the point is that the GOP shouldn’t think that there’s been a sudden mass acceptance of their brand or that they suddenly have some sort of mandate (the mistake the Democrats made and the result of that will be seen this November).  Instead they should understand that they’re grudgingly being given another chance to prove themselves, that the people that are supporting them have been very clear what they want, and if they don’t perform, they now have a movement that can find  – and back – someone who will. 

That’s quite a change from previous years, and who knows, if the Tea Party survives in some manner or form, it might be something that can indeed help us back along the road to fiscal conservancy and limited government.

~McQ

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Krugman – wow, just "wow".

I really don’t know how to actually characterize my reaction to this nonsense from Paul Krugman except to say if you thought he was in bizarro land before, check this out. The irony is he calls others stupid and invokes "Economics 101" when it’s clear … well you take a look. Here he’s talking about the proposed $50 billion "stimulus" focused on infrastructure. And he begins to pontificate:

Beyond all that, the new initiative is a chance for me to air one of my pet peeves: the stupidity of the claim, which you hear all the time — and you’ll hear again now — that it’s always better to provide stimulus in the form of tax cuts, because individuals know better than the government what to do with their money.

Why is this claim stupid? Because Econ 101 tells us that there are some things the government must provide, namely public goods whose benefits can’t be internalized by the market.

I had a friend who would accuse people like Krugman of being like a goose and waking up in a new world everyday. Apparently in today’s new world Krugman has forgotten that we just spent most of a trillion borrowed dollars on infrastructure stimulus. And then there was TARP, cash for clunkers, home buyers tax credit, mortgage payment relief and unending unemployment benefits. But it’s all too small now and it’s the fault of the usual suspects.

What Krugman doesn’t want you to remember, of course is his own recommendation on the size of the stimulus package:

All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.

In fact, the administration added 30% to his number and now, suddenly, it’s all too small. Not only that, it failed miserably.  And, when you add it all up, it’s about 3 trillion in spending for “public goods” over two years added to the federal debt. 

Result? 14.9 Americans unemployed, the economy in a shambles and consumers afraid to spend.  And Krugman, in his new world today, demands more spending and has the temerity to call those opposing it stupid and his approach “econ 101”.

To add to the Krugman madness, we have him essentially pining for the good old days of spending like we did during WWII.   Despite the fact that it all but destroyed the world and did destroy about 80 million lives, that’s the level of spending he now thinks is needed. 

From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.

Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.

But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits.

This is possibly the most blinkered and absurd bit of revisionist history I’ve read in a long time. There’s a "rest of the story" that makes this so much word salad that Krugman obviously studiously ignores in order to attempt this absurd plea to what, spend the equivalent of 30 trillion in deficit dollars (or to drive home the point that 3 trillion isn’t nearly enough)?

Victor Davis Hanson handily disassembles Krugman’s “work” and shows it up for the dishonesty that it is:

As WWII ended and the clean-up began, there was an enormous amount of pent-up global demand for goods. Given the wreckage in Europe, Japan, and Russia and the underdevelopment of India, Asia, and South America, we were about the only ones with the industrial and commercial wherewithal to supply the world rebound — often receiving cheap oil, gas, minerals, and interest in exchange, which supplemented our own vast supplies of comparatively cheap and easily recoverable resources. Nor should we forget the psychological element: Americans, after winning two wars, were enormously confident about their newfound international stature and influence.

At home, four years of consumer deprivation during the war and the weak demography of the 1930s had combined to create huge demand, all while society was increasingly leaving the farm for good and becoming suburbanized. The result was that in the late 1940s and 1950s, the birth rate soared and consumers enthusiastically made first-time purchases of washers, dryers, fridges, cars, etc. Thus, the American economy grew by leaps and bounds.

Today’s situation is not comparable: We are in hock to foreign creditors for trillions and have not been a net creditor since the 1980s. A China, Brazil, South Korea, Taiwan, or India is as or more likely to supply recovering demand for food, steel, or electronics. One can read Krugman-like arguments in Greek newspapers today — that only more massive borrowing can stimulate Greek demand, provide jobs, and grow Greece out of its recession. As if present-day deficits and aggregate debt with soon-to-be-rising interest payments don’t really matter.

It is always an indication that you probably shouldn’t pay much attention to a certain economist when it takes an expert in history to tell the economist his business.

But then that’s to be expected if you wake up in a new world everyday as it appears Paul Krugman does.

~McQ

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Orszag – keep Bush tax cuts for now

Obama’s former Budget Director has landed a job at the NY Times as a columnist, and for his first column, essentially says that plans to end the Bush era tax cuts at this time are, well, stupid.

Apparently, finally being able to breath the air outside the beltway has reinvigorated the “common sense” node in his brain

In the face of the dueling deficits [jobs and budget –ed.], the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.

Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable. Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned.

Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt.

Instead, what we got today from the administration was more of the same – a proposal for $50 billion in infrastructure spending over 6 years.  Not only that, dear friends, but within that proposal is one for a new government run “infrastructure bank”   After our glowing successes with Freddie and Fanny, this is the perfect answer.  And, if you’re as cynical as I am, you’ll probably assume the only jobs that will come out of this are those in the new “infrastructure bank” and those who will still be doing the environmental impact studies in 6 years time on the projects Obama wants to fund through the bank.

Back to Orszag though.  While he is right about the tax cuts, he then says this:

Despite a dire fiscal outlook, many progressives want to make the tax cuts permanent for all but the very highest earners. Many conservatives are even worse: they’d make the tax cuts permanent for the likes of Warren Buffett, even though he’d prefer they didn’t. Making all the tax cuts permanent would expand the deficit by more than $3 trillion over the next decade.

Anyone – what hasn’t been calculated in all of this?   That’s right, cut spending by that amount over the next decade.  That’s 300 billion a year. 

And, note carefully what Orszag is saying here.  He’s talking about ending all the Bush era tax cuts, not just those for the “rich”..  Per the CBO, leaving those cuts for the very highest earners in place will only cost $700 billion over 10 years. The $3 trillion number includes the middle class.

Orszag, as expected of a former budget director, goes on to analyze the future budgets.  He notes that by 2015 – a mere 5 years from now – the deficit will comprise 4 to 5 percent of the GDP.  His analysis is below:

How much savings is plausible on the spending side? Medicare, Medicaid and Social Security will account for almost half of spending by 2015. Even if we reform Social Security, which we should, any plausible plan would phase in benefit changes to avoid harming current beneficiaries — and so would generate little savings over the next five years. The health reform act included substantial savings in Medicare and Medicaid, so there aren’t further big reductions available there in our time frame.

The other half of the budget is mostly net interest (which is not negotiable unless we renege on our debt) and discretionary spending. Discretionary spending is split roughly equally between defense and non-defense spending. The defense component already assumes a phase-down in both Iraq and Afghanistan; saving an additional 5 percent of the Pentagon’s base budget would be a substantial accomplishment and would yield about 0.2 percent of G.D.P. Cutting 5 percent out of non-defense discretionary spending, a stretch politically, would save about as much.

It would be tough, then, to squeeze more than a half percent of G.D.P. from spending by 2015. Additional revenue — in the range of 0.5 to 1.5 percent of the economy — will therefore be necessary to reduce the deficit to sustainable levels.

Summary – cut defense spending … a lot.  Not going to happen with Republicans poised to sweep into the House and possibly take it over.   Cut non-defense discretionary spending – most likely not going to happen regardless of who is in control of the government or the legislature … at least not the the level Orszag thinks is necessary.  “Additional revenue”, a code phrase for “raise taxes”.

Don’t believe me?  The first thing out of his pen after his analysis is this:

One possibility would be to establish a new source of revenue, perhaps through revenue-increasing tax reform, and possibly including a modest value-added tax (that is, a V.A.T. of 5 percent to 6 percent). This approach has many potential benefits, including the opportunity to improve our tax code by cutting back on loopholes and shifting toward a consumption-based tax system. It is also politically impossible, at least in the era of the 60-vote Senate. Those who fear a V.A.T. have little reason to worry — the votes aren’t there.

But the desire sure is.  And, like health care, this is going to be on the left’s agenda from now on.  Orszag just throws it out there as the panacea for capturing the revenue necessary to help “pay down” the deficit.  They may have spent all the money, but it is up to you to pay it back. 

Orszag finishes it up with this:

Some may complain that higher marginal tax rates, even if deferred until 2013, will cripple small businesses and economic activity. It’s hard to believe, however, that effectively returning the tax code to its 1990s form would lead to economic catastrophe, especially when many leading Republican economists — including Alan Greenspan and Martin Feldstein — agree that we can’t afford to continue the tax cuts forever. More troubling, middle-class and lower-class families would be saddled with higher taxes. That’s a legitimate concern, but also a largely unavoidable one if we are to tackle the medium-term fiscal problem.

In fact, if I’m not mistaken, what Greenspan and Feldstein have said is the tax cuts can’t continue forever without commensurate spending cuts.  That’s a much different point than the one Orszag is making.  Frankly, most Americans, at least right now, want to see those spending cuts before they see any additional taxes.  And they’re going to remain angry and uncooperative (or as the Dems like to say, ‘ungovernable’) until they actually see government serious about addressing the deficit with spending cuts.

Got that, Mr. Orszag – spending cuts are the key to deficit reduction, not new taxes.  Put that in your economic model and crank out a new plan, will ya?

~McQ

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Book Review – Poorer Richard’s America

Have you ever wished it was possible to spend some time with any of those we call our Founding Fathers and ask them about the country they founded and the country it has become?

Would they be astounded?  Shocked?  Disappointed?  Of course, no one knows because such a wish can never come true … until now.

I just finished a very good book entitled “Poorer Richard’s America”, subtitled “What would Ben say”.  The “Ben” in question is Benjamin Franklin and the author, Tom Blair, perfectly – at least in my opinion – captures Franklin’s voice.  He also captures the common sense and logic which made Poor Richard’s Almanac such a hit during Franklin’s time.

So, given the intriguing premise that Ben Franklin was going to discuss our America, the book was irresistible.  From culture to politics to philosophy, this series of short essays captured in 39 chapters discusses most of the burning political issues of today with brilliant discussion of both the past and the present.  In fact, it is the use of the past while pointing out the present problems that makes the book so compelling. 

For instance, a simple example grounded in our US history helps explain our problems in seeding democracy in places like Iraq and Afghanistan.  And why was Iraq actually easier than Afghanistan.  Blair’s Franklin harkens us back to the founding of the country and Jamestown as well.  Jamestown, some 150 years before our Constitution was ratified, was our first settlement in the “New World”.  They almost starved to death and died out.   Franklin wonders where on the priority list of Jamestown the establishment of democracy would have ranked.  He supposes not very high.  In fact, until the priorities of food, shelter and security were satisfied,  and a modicum of prosperity established, “democracy as a form of self-governance” probably wouldn’t even gain a passing thought.

In Iraq it was much easier, in relative terms, to satisfy those basic priorities than it is in Afghanistan, where they still haven’t been satisfied.  Of course there are other cultural problems as well, but I think the basic point makes sense.  And it is that sort of easily understood “sense” that makes the book so compelling.

One other observation I’ll pass you way that resonated with me had to do, of all things, with reality TV.  I find it to be a horrific form of entertainment.  Blair’s Franklin agrees:

“Since I opened this diminutive essay by referencing television, let me return to the great giver of light and noise.  For many Americans, television has become both a pacifier and a false voice of self-worth. I came, after much hesitancy, to this conclusion while considering the great Colosseum in Rome.  A Colosseum where, for the morbid enjoyment of the masses, humanity was discarded and humans were first degraded, then slain.  Many reality TV programs shown today on America’s networks likewise degrade humans for the enjoyment of the masses; but, unlike Rome, the Colosseum is brought to each American’s house – no need to exercise by walking to a great amphitheater.”

A perfect capture of that bit of culture in my estimation.  Grab the book folks – you’ll be glad you did.

“Poorer Richard’s America: What would Ben say?” – by Tom Blair.  Skyhorse Publishing (www.skyhorsepublishing.com), 2010  [Amazon link]

~McQ

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“We are altering the deal. Pray we do not alter it further.”

Over at Instapundit, I see a hard line from a government worker threatened by all this talk of cuts that might be necessary for underfunded pensions:

I’ve been reading your blog for years and I appreciate your nuanced brand of conservatism. But lately, your attack on public pensions has me concerned. Look at it from my perspective:

When I graduated from law school and applied for a job at a Federal agency almost 30 years ago, the deal was simple: “We won’t pay you as much as you might make in the private sector, but you’ll get reasonable pay, great benefits including a generous retirement system, and a reasonable work life.” I took the deal.

{insert various moaning about the sacrifices he has supposedly made here, including such onerous burdens as working at metal desks…}

Apparently though, some people, in and out of government, are no longer happy with the deal. Complaints and warnings about government pensions and pensioners abound. Typically, the narrative is something along the lines of: “Greedy Retired Bureaucrats Still Feeding at the Public Trough as Taxpayers Suffer!”

Well, if you’re concerned about unfunded government liabilities, I agree with you. If you think that government employee pensions are too generous, I’ll listen to what you have to say. But if you just don’t like the deal the government made 30 years ago and want out, I’ll see you in court.

Legally speaking, this guy probably has a point. However, he appears to be missing a much bigger point. The legal right to collect money from a party means nothing if the party simply cannot pay. Both states and the federal government have made promises that they almost certainly can’t pay.

It sounds as though this guy, like many who haven’t thought very deeply about the matter, just assumed that he could find a way to banish such risks from his career. He bought into the fantasy that somehow, some way, government is different.

In the long run, it’s not. Every organization has limits on how it can spend money and the promises it can keep.

Private companies find out pretty quickly when they have reached those limits. For government entities, their monopoly on force and the resultant range of options to collect more money lengthens the feedback cycle, so it takes them longer to realize their mistakes. That just means they get in bigger trouble before the crisis comes.

Employees have been getting shafted by organizations that lost the ability to keep their promises for hundreds of years. I’d like to see this guy tell some Enron folks about his troubles. I don’t think he would get a lot of sympathy.

Yes, legislators have made stupid, stupid promises. In theory, that’s the citizens’ fault because they elected the stupid, short-sighted legislators. However, the citizens are not likely to accept that abstract responsibility. They are going to look at the high tax rates and poor government services in bankrupt states and decide to go elsewhere, as many in California and Michigan have done in recent years.

Almost everybody is going to lose in the debt crisis to come. I’m sorry that someone like Insty’s correspondent, who chose job security over adding value in the more risky free market, now finds out that the security is illusory. That’s life. Those of us in the private sector have always known it. It’s about time government workers understood that you can’t take risk out of life, and that sometimes life isn’t fair.

They also need to prepare themselves for a backlash that’s been building for decades. Government workers, in my experience, work hard and perceive what they do as valuable. This guy seems to be clearly in that camp. However, private citizens have a completely different perception. There’s a reason we have the cliche “good enough for government work”.

When you’ve had a cushy thirty year career with no worries about losing your job, don’t expect a lot of sympathy about your woes from people beset with job insecurity and burdened by high taxes and meddling bureaucrats. Especially when they don’t see what you do as particularly valuable. Drafting and defending new regulations may be hard work, but it doesn’t necessarily add value to society.

This divide in viewpoints is going to come to a head in many places and many ways in the next couple of decades. I know many government workers feel entitled; heck, that kind of entitlement psychology is what leads a lot of them to government work in the first place. However, believing in that entitlement so strongly that you are prepared to thrown your fellow citizens under the bus isn’t going to make the coming conflicts easier.

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Recession cafe: today serving Obama economic hash

CNN has a story about a bike store owner who has retrenched and is weathering the recession. Contained in the story is the kernel of the economics of the problem we face and how the administration still doesn’t get it.

Here’s the quote:

Both then and now, D’Amour said the chief problem for small business owners is access to financing. And lawmakers want small businesses to know this complaint is reaching Washington.

President Obama urged Congress last week to move forward on a bill designed to help small businesses, including a $30 billion lending fund to loosen credit lines and $12 billion in tax breaks.

That will help but it won’t solve the problem, said Anne Mathias, director of policy research at Concept Captial.

"It’s not going to bring a rush of people into stores to buy whatever it is these different small businesses have to offer, but it will help," she said. "It’ll help kind of at the back end."

Republicans say the bill won’t have much effect and are urging the president to extend the Bush administration’s tax cuts.

Todd McCracken, the president of the National Small Business Association disagrees.

"Putting money in the pockets of both consumers and small business people so they can take advantage of the opportunities when they come along is crucial," McCracken said Sunday morning on State of the Union with Candy Crowley.

Access to financing, although important, isn’t the base problem. Consumption is – or the lack thereof. Additionally, payroll taxes will be going up for everyone in January (a little known part of allowing the Bush tax cuts to expire).

Question: if you are charged – both short term and long term – with getting the economy moving by implementing policies/laws at a national level, how would you go about it?

Well, in the short term you can provide businesses with all the financing in the world, but unless consumption steps up, it doesn’t do anything useful.  Until buyers are buying, businesses won’t be hiring.

So what’s the best way to quickly boost consumption?  Obviously it is to put more money in the hands of consumers.  And one such way to do that is to cut payroll taxes, or, as has been suggested, have a payroll tax holiday.

That, of course, has been rejected by the Obama administration which feels it would “cost” the government to much money.  They’d rather government “cost” the consumer too much money and the consumer stay home as a result one supposes. 

Instead, the administration is proposing a $100 billion “research and development” credit for businesses.  A couple of observations – that’s not a short term fix and not all businesses engage in R&D. 

The point, of course, is the administration is more concerned about the government revenue stream than the economy and it is, as John McCain has said, just “flailing around”.  It is much more concerned with the “cost” incurred by government necessary to actually have some impact on the economy than it is the “cost” it will impose on the tax payer for it’s future multi-year deficit fueled budgets. 

It refuses the other side of tax cuts – spending cuts.  Instead, it simply intends to shift the burden of its profligacy to you.  And these tax cuts are for show only – a way of claiming to do what the GOP wants without really doing much of anything.  When this tiny and piece meal approach fails to get the dead weight of the economy moving, the left will claim to have tried the right’s prescription and that tax cuts didn’t work.

Anyway, the administration plans to “pay” for this tax credit (oh, so now PAYGO is important) by increasing taxes through closing “tax loopholes” for multinational corporations and some energy companies. This, dear friends, is simply another much desired wolf from the liberal agenda in sheep’s clothing.

The National Tax Payer Union points out that those taxes being proposed as “closing loopholes” will actually make our domestic oil and gas business uncompetitive.   It will, for instance, tax all the revenue Chevron earns (both here and overseas) because Chevron is an American based company but won’t do the same to BP (or Venezuela or China) because BP isn’t an American based company.  Unilateral nonsense like that will put Chevron in an unenviable competitive situation.

Make sense?  Especially in times of recession? Can anyone guess what a Chevron may decide to do (hello Toronto, any office space to lease up there?).  And, of course, the taxes in question will be passed along to the hard pressed consumer with increased prices.  That’ll spur increased consumption, won’t it?

The rest of the proposed economic package is the usual failed stuff – increased infrastructure spending.  The only laudable portion of the package is the proposed extension of the middle class portion of the Bush tax cuts.  But again – that doesn’t put more cash in the pockets of consumers, it simply maintains the status quo.

But the “rich” – tough noogies.  You may have seen administration flunkies out pushing the canard that the tax will only effect 3% of the small businesses out there.   The Wall Street Journal blows that bit of spin out of the water – first by explaining the smoke and mirrors the administration used to produce that number and then pointing out what the number really is:

According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007.

So, the proposal by the administration to get the economy moving is maintain the status quo taxes on the middle class (no immediate impact), provide a limited benefit (at best a long term impact) cut to some business in the area of research and development, more infrastructure spending (long term because of the government project process), an increase in taxes on American oil and gas companies (immediate negative impact) and an increase in taxes for 48% of the small businesses in America (immediate negative impact).

If that’s not a bad tasting hash of ideas, I’m not sure what to call it.  And yeah, you can bet your bottom dollar it will get the economy moving.

Excuse my sarcasm, but obviously this is “rocket science” to the administration, and they’re totally baffled by it.  Someone, anyone, tell me why the GOP should support this?

~McQ

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