Sunday, December 28, 2008

Job Creation Math

Carol Baum with Bloomberg wrote a great piece on Friday. In short, government does not create jobs it can only enable the private sector to do so. That is done with less regulation and lower taxes. If government could create jobs, their would be zero unemployment. However, when everyone is "working" for the government no value is created. There is no profit to tax and the growth of government cannot be sustained.

It is only through productive investment in the private sector will real job growth occur. The government does not know what industries will be successful. If they did I am sure synfuels and ethanol would be huge today. Instead, they are both colossal failures.


Here are some highlights from Bloomberg:

If putting people to work is the goal, we could get rid of all the heavy earth-moving equipment and go back to digging ditches with shovels.

Why stop there? If it takes one man two days to dig a trench three feet deep and 30 feet long with a shovel, how long would it take 100 men using spoons?

You get the point. We can always create jobs by replacing capital with labor, by going backward. The entire history of civilization has been characterized by an effort to move in the opposite direction and become more productive, which is another way of saying produce more with less.

All Aboard

Automation and technological innovation have had the effect of replacing humans with machines. Yet the unemployment rate isn’t perpetually rising. As countries develop, they create new and better jobs, not more of the same old ones. The goal is to raise the standard of living, something that (all economists agree) can only be achieved through higher productivity growth.

That’s something the government can’t provide. It doesn’t “sell” its goods and services to discerning buyers. It isn’t driven by the prospective return on its investment.

Instead, the government requires us to pay taxes in exchange for goods and services -- transportation, education, homeland security -- that may or may not be worth the “cost.”

There’s nothing like a crisis to play on the public’s insecurity and expand the reach of government. There’s nothing like a serious financial crisis to get economists of all persuasions on board.


Tuesday, December 16, 2008

Saturday, December 13, 2008

Spend, Spend, Spend

B Hussein is getting advice from his economic team that he must run huge deficits and push enormous government spending programs to get the US on the road to economic recovery.

Many of these government programs involve the "greening" of industry and heavy spending on Federal buildings to make them more efficient. Of course Jimmy Carter tried this. He spent in the neighborhood of $15-20 Billion to find an alternative to oil and we taxpayers have nothing to show for it today. My guess is that B Hussein will spend many multiples of Carter's folly and have a similar result. Why? Because oil is cheap and oil is effective. Even at $143 per barrel, oil is the best energy bargain there is.

B Hussein is trying to force the economy where he wants it to go. In the meantime, he is suffocating business by employing scarce capital and resources into larger government instead of letting it find its way into productive businesses. Government does not create value, it only robs people of their money. Government programs are nothing more than paying people to dig holes and others to fill them in. They might be disguised as something else, but the results are the same. Expensive programs that add nothing to the wealth of society.

No on entity, not even the Federal Government, can force the economy into a direction it does not want to go. For that matter, the Russians could not even accomplish that feat with fear and intimidation. Market forces are unstoppable and the sooner B Hussein realizes that the sooner we will be on the road to actual recovery. This means companies must fail (and government must let them) and the government cannot run unlimited deficits.

Speculation is that B Hussein will propose over $1T in deficit spending when he takes control. This is money the government does not have. They will either raise taxes and/or borrow more money. If they raise taxes (on individuals or businesses), they send the signal that government knows how to use money more effectively that it citizens. If government decides to borrow more money, it robs the private sector of loans to finance expansions or improvements. After all, there is only so much investment capital to go around. What the government takes, private industry losses. Borrowing will much more expensive, as private sector is forced to compete for funds with the government, and return on investments lower since interests rates will be higher. Since returns will be lower, fewer projects will meet private sector hurdle rates thus fewer of them will be completed.

What needs to be done is to close Federal buildings instead of improving them so government can get even bigger. Government spending needs to be balanced with tax receipts, and the corporate tax rates need to be lowered to levels that are competitive against our economic competition around the globe. Lower government spending and lower corporate taxes mean the private sector will grow creating new jobs and industries. These jobs will make society better and new industries will employ workers in areas where there will be improvements in standard of living.

Bigger government means more bureaucracy and more waste. Bigger deficits mean our children and grandchildren will live in a more uncertain world where their economic security is at risk (as if more than 40% of the US Federal Budget to pay interest on debt was not enough today). A program that decreases the size of government, spends less, and lowers taxes will take incredible courage and there will be short-term despair. However, this is the process of economic pruning that will make society more prosperous in the future.

Pianos and Cars

From the Mises Institute this week.

The End of the US Piano Industry

Today the highest-price good that people buy besides their houses is their car, and this reality leads people to believe that we can't possibly let the American car industry die. We couldn't possibly be a real country and a powerful nation without our beloved auto industry, which is so essential to our national well-being. In any case, this is what spokesmen for the big three say.

What about the time before the car? Look at the years between 1870 and 1930. As surprising as this may sound today, the biggest-ticket item on every household budget besides the house itself was its piano. Everyone had to have one. Those who didn't have one aspired to have one. It was a prize, an essential part of life, and they sold by the millions and millions.

That too was new. Americans before 1850 mostly imported their pianos. American manufacturing was nearly nonexistent. After 1850, that changed dramatically with the flowering of what would become a gigantic US piano industry. The Gilded Age saw a vast increase in its popularity. By 1890, Americans fed half the world market for pianos. Between 1890 and 1928, sales ranged from 172,000 to 364,000 per year. It was a case of relentless and astounding growth.

They were used in classrooms everywhere in times when music education was considered to be the foundation of a good education. They were the concert instruments in homes before recorded music and iPods. They were essential for all entertainment. American buyers couldn't get enough, and private enterprise responded.

New York, Boston, and Chicago were the homes of these companies. There was the great Chickering piano made by a company founded in 1823 and which later led the world in beauty and sound. There was Hallet and Davis in Boston, J. and C. Fischer in New York, as well as Strich and Ziedler, Hazelton, William Knabe, Baldwin, Weber, Mason and Hamlin, Decker and Sons, Wurlizer, Steck, Kimball in Chicago, and, finally, Steinway.

The American piano industry was the greatest in the world, not because the Americans came up with any new and great manufacturing techniques, though there were some innovations, but because the economic conditions made it most favorable to be manufactured here.

With the rise of this industry came a vast marketing apparatus. Piano ads were everywhere, as a tour of old magazines shows. It was widely believed that spending money on a piano wasn't really spending. It was an investment. The money you paid would be embedded right there in this beautiful and useful item. You can always sell it for more than you paid for it, and this was generally true. So people would make great sacrifices for these instruments.

With the growth of this manufacturing came an explosion of shops that served the piano market all up and down the industry. Piano tuning was a big-time profession. Retail shops with pianos opened everywhere, and the sheet-music business exploded with them. Ever notice how in big cities the music stores are typically family owned and established 40, 50, and even 100 years ago? This is a surviving remnant of our industrial past.

All of this changed again in 1930, which was the last great year of the American piano. Sales fell and continued to fall when times were tough. The companies that were beloved by all Americans fell on hard times and began to go belly up one by one. After World War II the trend continued, as ever more pianos began to be made overseas.

In 1960, we began to see the first major international challenge to what was left of the US market position. Japan was already manufacturing half as many pianos as the United States. By 1970, a revolution occurred as Japan's production outstripped the United States, and it has been straight down ever since. By 1980, Japan made twice as many as the United States. Then production shifted to Korea. Today China is the center of world piano production. You probably see them in your local hotel bar.

And what happened to the once-beloved and irreplaceable American piano industry? Steinway survives to make luxury instruments that few can afford (a reader notes that Baldwin is still around today too). Mason & Hamilin has made a great comeback in the high-end market. The rest moved overseas under new ownership or were completely wiped out.

Does anyone care that much? Not too many. Have we been devastated as a nation and a people because of it? Not at all. It was just a matter of the economic facts. The demand went down and production costs for the pianos that were wanted were much cheaper elsewhere.

Now, a piano aficionado reading this will say, buddy, you are crass. Listen to the sound of an older model Chickering and you can tell the difference. It was warm and wonderful, nearly symphonic. It is mellow and perfect for the best repertoire. By comparison, this new Chinese piano is sharp and angular and pointed. It sounds like a marimba. You can't play Schubert or Brahms on such junk. No one wants to hear that thing. Bring back the old days when pianos made sounds that sounded like real music!

Well, you can still get that old Chickering sound, even from a piano made in New York. You can buy a Steinway. Of course you have to pay $50,000 plus and even as much as $120,000, but they are there. You say that is unaffordable? Says you. It is all a matter of priorities. You can forego your house and live in a tiny apartment and still own the most gorgeous instrument money can buy. In any case, it makes no economic sense for you to demand a magnificent piano at a very low price when reality does not make that possible.

In the same way, many people will bemoan the loss of the US car industry and wax eloquent on the glory days of the 1957 Chevy or what have you. But we need to deal with the reality that all that is in the past. Economics demands forward motion, a conforming to the facts on the ground and a relentless and realistic assessment of the relationship between cost and price, supply and demand. We must learn to love these forces in society because they are the only things that keep rationality alive in the way we use resources. Without them, there would be nothing but waste and chaos, and eventual starvation and death. We simply cannot live outside economic reality.

Let's say that FDR had initiated a bailout of the piano industry and then even taken it over and nationalized it. The same firms would have made the same pianos for decades and decades. But that wouldn't have stopped the Japanese industry from taking off in the 1960s and '70s. Americans would have far preferred them because they would have been cheaper. American pianos, because they would be state owned, would fall in quality, lower and lower to the point that they would become like a Soviet car in the 1960s. Of course you could set up tariff barriers. That would have forced American pianos on us. Except for one thing: demand would still have collapsed. The pianos still have to have a market. But let's say you find a workaround for that problem by requiring everyone to own a piano. You still can't make people play them and value them.

In the end you have to ask, is it really worth trillions in subsidies, vast tariffs, impositions all around, just to keep what you declare to be an essential industry alive? Well, eventually, as we have learned in the case of pianos, this is not essential. Things come and things go. Such is the world. Such is the course of events. Such is the forward motion of history in a world of relentless progress generated by the free market. Thank goodness that FDR didn't bother saving the US piano industry! As a result, Americans can get a huge range of instruments from all countries in the world at any price they are willing to pay.

Today government is even more arrogant and absurd, and it actually believes that by passing legislation it can save the US car industry. It can subsidize and pay for uneconomic activities, and pay ever more every year. The government can also pay millions of people to make mud pies because mud pies are deemed to be an essential industry. You can do this, but at what cost and what would possibly be the point? Eventually, even the government will have to accord itself to the reality that economics reminds us of on a daily basis.

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Ad That Really Makes The Point

Tuesday, December 9, 2008

Another Great LTE

Editor, Baltimore Sun

Dear Editor:

Dan Neil wants to nationalize General Motors, in part because "without big subsidies, there is no way in the near term to build these [electric] vehicles and make a reasonable profit, because of the stubbornly high cost of advanced batteries" ("Let's nationalize GM," Dec. 8).

Neil makes several wrongheaded assumptions. For example, he assumes that the future benefits of such a battery would outweigh the current costs of using them. But there's no way he can know this to be true. These batteries cost a lot today because their production requires an extraordinary amount of resources today. Using these resources to produce an unprofitable battery means that we sacrifice, TODAY, a great deal of profitable outputs and investments in other industries. Perhaps resources artificially forced into advanced-battery development would otherwise have helped cure cancer, or encouraged development of more fuel-efficient jet engines, or deployed to keep millions of retired Americans more financially secure. Neither Neil nor Uncle Sam can know the value of what would never be created as a result of subsidizing unprofitable production in Detroit.

Sincerely,

Donald J. Boudreaux

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser

Letter To My Congressmen

Dear Senator,

I understand there will be a vote any day on the Big 3 bailout. As my Senator, I request that you reject this bailout as nothing more than rewarding failure. The management failed to negotiate profitable deals with unions and develop cars people actually wanted to buy. Unions failed by holding companies hostage in good times and running them into the ground in bad times. Government failed as it pushed ridiculous CAFE standards on carmakers that did nothing to curb gasoline consumption.

The entire domestic auto business, as it relates to the Big 3, is a failure and the money thrown at this problem will do nothing to get consumers to buy their products. Let them go bankrupt. There will be investors willing to buy the assets in bankruptcy and produce cars and trucks in these very same plants. Yes the unions will have to make huge concessions and I am sure new owners will change the management teams. This is a good thing and the only thing that will save Detroit.

Just as Pittsburg rebuilt itself after the bust in steel 20 years ago, Detroit will find it’s way too. Reject the bailout and focus on cutting government spending and waste. If the Big 3’s business plans were so good, investors would be buying bonds today. Government is no wiser than the markets and will certainly lose it all for the taxpayers.

Respectfully yours,

XXXXXXX

Saturday, December 6, 2008

Sowell Wisdom

Thomas Sowell has a great column in Townhall this week.

Referring to mandatory community service for young people:

Indeed, many of those who promote compulsory "community service" activities are bitterly opposed to even voluntary military training in high schools or colleges, though many other people regard military training as more of a contribution to society than feeding people who refuse to work.

In other words, people on the left want the right to impose their idea of what is good for society on others-- a right that they vehemently deny to those whose idea of what is good for society differs from their own.

The essence of bigotry is refusing to others the rights that you demand for yourself. Such bigotry is inherently incompatible with freedom, even though many on the left would be shocked to be considered opposed to freedom.

Great Letter

Great letter in Baltimore Sun this week:

Editor, Baltimore Sun

 

Dear Editor:

 

You opine that Detroit automakers "need to explain in detail to Congress how they intend to eliminate thousands of uneconomical dealerships, swiftly bring their labor costs closer to what Toyota pays its workers in this country, and quickly produce more energy-efficient cars that Americans will want to buy" ("Selling American cars," Dec. 4).

 

No. These companies deserve investment funds only if they're able to make cars that will sell AND can demonstrate this ability to private investors. Congress is manned by people who specialize in winning popularity contests called "elections." These are not people expert in judging business models, or at pondering the pros and cons of different retail-distribution methods, or equipped to accurately discern the nuances of consumer demands for automobiles, or even – judging from their track record – aware of the most elementary principles of finance and economics.

 

If, say, you're looking for someone to manage your 401(k), would you entrust that job to Sen. Mikulski or Rep. Hoyer? Of course not, for that's not what they do. So why entrust them and other politicians with the job of investing on a vastly larger scale?

 

Sincerely,

Donald J. Boudreaux

 

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.

 

Thursday, December 4, 2008

If the plan is so good, why not sell bonds?

With the Big 3 lobbying for a bailout with their new and improved business plans, one has to wonder why Congressmen would not buy bonds with their own money if they were so good?

Wall Streeters are not giving them money or issuing bonds, so I believe very smart finance people think the Big 3 are doomed to fail.

Good Posts:


Health Insurance

Great post at Carpe Diem this week.

Cell Phones and Cable or Health Care?

See it here.

Sunday, November 30, 2008

What the Chinese Don't Know

This story from AP makes it clear the China is not the threat we all make it out to be.

He are some parts:

Hu told members of the Communist Party's powerful Political Bureau that the financial meltdown posed critical challenges to a government that has staked its legitimacy in part on competent management of a rapidly developing society.

Whether the pressures can be turned into a driving force and the challenges turned to opportunities ... is a test of our ability to control a complex situation, and also a test of our party's governing ability," Hu said.

First, a government that stakes it's legitimacy on competent management is doomed to fail.  Government is made up of bureaucrats and politicians that have incentives to stay in power, not create value for society.  When the pace of change is as fast as it is in China, government cannot respond as fast as markets.  Hu is right on one front, the situation is complex.  It is so complex that no human, or group of governing humans, can expect to coral and control it.  Market forces work and are unstoppable.  They brought down the Soviet Union and they will bring down China as well.

He said greater effort should be made to raise living standards, use resources more efficiently and develop rural and urban areas, the report said.

Governments cannot choose how to use resources more efficiently.  Only markets can and after entrepreneurs that fail are allowed to go out of business and successful ones thrive.  The above statement says the government will always know how to best use resources and that is just not possible.  Products have to be created that people actually want and those products have to be created as inexpensively as possible.  Again, governments cannot do either of those things.  Governments create things like the Postal Service, Department of Motor Vehicles, and Medicare.  These are the best creations of our government where losses mount every year, are inefficient uses of citizens' time, and where waste, fraud and corruption run wild.

As long as the US is a free market and upholds the virtues of economic freedom, China will never be a threat to the US.

Thursday, November 27, 2008

Reason to Give Thanks

Don Boudreaux writes a great piece today on why we should really be thankful.

Wednesday, November 19, 2008

A Nation of Thieves

Walter Williams makes a good point this week.  Two-thirds of the US budget (over $2 Trillion) is now spent to serve other Americans.  It is robbing Peter to pay Paul who is robbed by Pat. Americans are running to the trough to get all they can.  An who can blame them.  We have a congress that thinks money grows on trees and they are more than willing to pay out to keep the public satisfied.

Walter Williams

Monday, November 17, 2008

Union of Socialist Americans (USA)?

From George Will today in the Washington Post:

The distribution of a trillion dollars by a political institution -- the federal government -- will be nonpolitical? How could it be? Either markets allocate resources, or government -- meaning politics -- allocates them. Now that distrust of markets is high, Americans are supposed to believe that the institution they trust least -- Congress -- will pony up $1 trillion and then passively recede, never putting its 10 thumbs, like a manic Jack Horner, into the pie? Surely Congress will direct the executive branch to show compassion for this, that and the other industry. And it will mandate "socially responsible" spending -- an infinitely elastic term -- by the favored companies.

McCain and Palin, plucky foes of spreading the wealth, must have known that such spreading is most of what Washington does. Here, the Constitution is an afterthought; the supreme law of the land is the principle of concentrated benefits and dispersed costs. Sugar import quotas cost the American people approximately $2 billion a year, but that sum is siphoned from 300 million consumers in small, hidden increments that are not noticed. The few thousand sugar producers on whom billions are thereby conferred do notice and are grateful to the government that bilks the many for the enrichment of the few.

Conservatives rightly think, or once did, that much, indeed most, government spreading of wealth is economically destructive and morally dubious -- destructive because, by directing capital to suboptimum uses, it slows wealth creation; morally dubious because the wealth being spread belongs to those who created it, not government. But if conservatives call all such spreading by government "socialism," that becomes a classification that no longer classifies: It includes almost everything, including the refundable tax credit on which McCain's health-care plan depended.


There entire column here.

Thursday, November 13, 2008

Good Reading

Some must reads from this week:

Stossel

Williams I

Williams II

Shlaes

WSJ Editorial

Save the Automakers?

Throughout the course of the last 300 years, manufacturers have always been susceptible to the force the economist Joseph Schumpeter called creative destruction. What Schumpeter was talking about was the idea that new and better methods replace old and worn out methods of production. Essentially someone figures how to build things better, faster and cheaper. Those companies that cannot adapt get clobbered by competition.

Creative destruction is great for society. Think of it as a cleansing forest fire. Methods that waste precious resources and capital are replaced by efficient means of production. Companies that create products that society no longer values are also victims of creative destruction. Shortly it will be impossible to get a CRT TV. Why? Because people no longer value that technology and prefer the flat screens of Plasma and LCD. Fortunately it also happen with the 8-track tape.

So the real question is then, are the Big 3 really victims of creative destruction? It looks to me like they are. They are manufacturing products that people do not seem to want like big SUVs and trucks. They have employed billions in capital to make those products that no longer have a market suitable to make a profit. Maybe its the wage structure (argued that it is way to high to make cheap, fuel efficient cars), maybe it is the product mix (poor management and strategy) or maybe it better competition that is driving the Big 3 out of business. What ever the cause, they are wasting capital. The solution is not to through more capital at them hoping they will get better. It won't. Saving the Big 3 is like saving the cathode ray tube television or the 8-track tape.

Certainly jobs will be lost in the areas where GM, Ford and Chrysler operate. However preserving those jobs means that other people will not get access to the capital that would create new industries and sectors where American companies can be competitive in the global market. Furthermore, bankruptcy might be the best thing for the already deployed capital in Detroit. Reorganiztion would allow someone else to buy those assets for a market price that just might mean they could make a profit. Bankruptcy does not make assets vaporize. Just look at the airline industry. They have gone bankrupt dozens of times and the planes are all still there.

Two must read blog posts:

Megan McCardle

Carpe Diem

Sunday, November 9, 2008

Youth Unemployment

A story in the NYT today highlights the unemployment rate of young people with few skills. Amazing that the writer leaves out the biggest cause of that unemployment, a hike in the Federal Miniumum Wage.

Unemployment began to creep up the moment it changed this summer. Maybe there was some coincidence with an economic down turn, but higher wages for the same productivity will result in a loss of jobs.

Higher minmum wagers are great for the people that have jobs and actually keep them, but really tough for people that cannot find employment in the first place.

Letter to the Left

Great letter written by economist Stephen Horwitz:

One of the biggest confusions in the current mess is the claim that it is the result of greed. The problem with that explanation is that greed is always a feature of human interaction. It always has been. Why, all of a sudden, has greed produced so much harm? And why only in one sector of the economy? After all, isn't there plenty of greed elsewhere? Firms are indeed profit seekers. And they will seek after profit where the institutional incentives are such that profit is available. In a free market, firms profit by providing the goods that consumers want at prices they are willing to pay. (My friends, don't stop reading there even if you disagree - now you know how I feel when you claim this mess is a failure of free markets - at least finish this paragraph.) However, regulations and policies and even the rhetoric of powerful political actors can change the incentives to profit. Regulations can make it harder for firms to minimize their risk by requiring that they make loans to marginal borrowers. Government institutions can encourage banks to take on extra risk by offering an implicit government guarantee if those risks fail. Policies can direct self-interest into activities that only serve corporate profits, not the public.

For starters, Fannie Mae and Freddie Mac are "government sponsored enterprises". Though technically privately owned, they have particular privileges granted by the government, they are overseen by Congress, and, most importantly, they have operated with a clear promise that if they failed, they would be bailed out. Hardly a "free market." All the players in the mortgage market knew this from early on. In the early 1990s, Congress eased Fannie and Freddie's lending requirements (
to 1/4th the capital required by regular commercial banks) so as to increase their ability to lend to poor areas. Congress also created a regulatory agency to oversee them, but this agency also had to reapply to Congress for its budget each year (no other financial regulator must do so), assuring that it would tell Congress exactly what it wanted to hear: "things are fine." In 1995, Fannie and Freddie were given permission to enter the subprime market and regulators began to crack down on banks who were not lending enough to distressed areas. Several attempts were made to rein in Fannie and Freddie, but Congress didn't have the votes to do so, especially with both organizations making significant campaign contributions to members of both parties. Even the New York Times as far back as 1999 saw exactly what might happen thanks to this very unfree market, warning of a need to bailout Fannie and Freddie if the housing market dropped.

What I ask of you my friends on the left is to not only continue to work with us to oppose this or any similar bailout, but to consider carefully whether you really want to entrust the same entity who is the predominant cause of this crisis with the power to attempt to cure it. New regulatory powers may look like the solution, but that's what people said when the CRA was passed, or when Fannie and Freddie were given new mandates. And the very firms who are going to be regulated will be first in line to determine how those regulations get written and enforced. You can bet which way that game is going to get rigged.


Letter To My Senators

Dear Senator,

I am very concerned by two issues. One is the proposed bailout of Detroit automakers and the second is the return to Minority Leader by Sen. Mitch McConnell.

Detroit Automaker deserve no bailout and taxpayer supported relief. For one, these business need to be allowed to fail so they can renegotiate toxic labor agreements that will forever put the Big Three at a competitive disadvantage. The labor monopoly that the UAW has in Detroit will never allow GM, Ford or Chrysler compete globally. In 1998 when Detroit was actually making money selling SUVs, the UAW decided to strike GM costing the company over $2 Billion. GM had not choice but to cave into the wildly insane demands of the union. Caving made Detroit wages over $30/hr higher than the Japanese. Unfortunately Detroit autoworkers are not $30/hr more productive than the Japanese.

Second, Management at the Big Three has failed multiple times over the last 40 years to make good strategic decisions. They missed the small car revolution in the 1970’s and again failed to prepare for fuel the efficient models customers wanted when gasoline prices shot to over $4/gallon. In addition, management teams that failed to pursue value-creating strategies are still in place today.

Finally, government needs to stay out of the car business. The CAFE standards that the US Congress has approved over the years have done little to drive fuel conservation. Putting the onus on automakers to improve efficiency is not going to solve the “problem.” If Congress is serious about fuel economy, raise the gasoline tax. Consumers will demand and buy more fuel-sipping vehicles rather than SUVs.

The additional $50 Billion that Detroit is requesting is an insane figure. That amount of money is over seven times the existing market capitalization of Ford and GM as of Friday. This Government would be better off buying the companies and liquidating them to the highest bidder. Plus, there is no need for a Big Three. Chrysler should have been allowed to fail 25 years ago and if it would have failed, GM and Ford might not be in the perilous situation they are today. To put this number in perspective, you could give every employee of both Ford and GM over $100,000 with $50 Billion. This will cost each American household over $500.

Please allow the market to work through this situation in Detroit. Bankruptcy is a good thing in this case. Some entity will buy these distressed assets and turn the companies around and make them competitive once again. Resist the temptation to do anything and watch what great things will happen.

Finally, I request that you reject Mitch McConnell as Senate Minority Leader. The Republican Party has failed us for the last 8 years. Poor leadership from people like Sen. McConnell transformed the Republican majority into big spending, big government Democrats. Not the fiscally conservative Republicans that most of us support. Poor leadership not only hurt the Republican Party, but America as well as we know have the most liberal member of the US Senate as our President-Elect.

Respectfully submitted,

B Hussein's Cabinet

I could not helped but be alarmed by some of the choices B Hussein seems to be floating around regarding Cabinet posts. Most alarming to me is Gov. Kathleen Sebelius of Kansas for Energy Secretary.

Gov. Sebelius is against coal burning power plants. In fact, she has vetoed two bills that would have allowed two new clean, coal fired plants in Western Kansas. These plants would have provide cheap, clean power for thousands of American families. The plants would have created thousands of new jobs and used abundant American coal.

Gov. Sebelius was also one of the first to jump on the bandwagon to bash big oil companies for higher gas prices. She was quoted in one meeting saying to oil executives "oh, you are one of those supply and demand people." She has yet to issue any public apology that I have seen since gas prices dropped under $2/gal here in Kansas. I guess the greedy oil companies decided to be less greedy all of a sudden.

Gov. Sebelius has absolutely no experience with energy. Her experience is in insurance, not energy. This kind of consideration is further evidence that B Hussein is not fit for executive branch service. Judgement like this will surely lead our great nation in the wrong direction.

Saturday, November 8, 2008

Bail Out Mania

First banks, then insurance companies. Now we are onto car makers. What could be next, fast food restaurants, maybe Internet companies? This bail out mania has to stop and before any bail out of the auto industry.

Bankruptcy would allow the car companies (two out of the three) to restructure debt, redo labor deals and set them up for a successful future. Government aid will just prolong the inevitable. After all, we already bailed out Chrysler once. If Chrysler would have been allowed to fail, Ford and GM might not be having the trouble they do today.

Labor unions are killing GM and Ford. When the were actually making money in 1998, the unions decided to strike at GM costing the company $2 Billion and leaving GM with labor costs that were $30/hr higher than the Japanese. The trouble is the GM workers were not $30/hr more productive than the Japanese. Therefore, GM could not compete long-term and we have the problem of today.

Of course management is not completely blameless. There strategy of larger cars and SUVs was fine with gas less than $1.50/gal. However, at $4 people began to buy other, smaller cars from the Japanese and park the SUVs (like we did). Detroit was not prepared for the abrupt turn in the market and should be penalized for bad strategy.

Finally, government is not blameless either. The ridiculous CAFE regulations for fuel economy are a joke. If the Government really wanted to encourage higher mileage cars, they should have taxed gasoline like the Europeans do. $7-$8/gal gas makes everyone economize, unlike CAFE standards. Washington was too busy getting fat off $0.35/gal in Federal gas tax with SUVs guzzling 15 MPG to want to do anything to stifle consumption.

So here we are with the Feds committing $25B for some electric car subsidy that is sure to be a complete waste and Detroit asking for another $50B in low interest loans. All this so Washington can save overpaid union jobs that will eventually bankrupt these companies any way. If it is so important to save these jobs, why not let the State of Michigan pay for it. Tax any union salary over $20/hr at 50% keep this problem up north.

$50B is over 8 times the market capitalization of Ford and GM today. A better idea might be to give each of the employees at both companies a couple hundred thousand and call it good. It would cost the exact same amount of money.

From AP today.

What Happened?

Friday, November 7, 2008

Pic of the Day

From David Letterman

I got this in a chain mail. I have no idea if Letterman actually wrote it, but I like the jist...

'As most of you know I am not a President Bush fan, nor have I ever been, but this is not about Bush, it is about us, as Americans, and it seems to hit the mark.'
'The other day I was reading Newsweek magazine and came across some Poll data I found rather hard to believe. It must be true given the source, right?
The Newsweek poll alleges that 67 percent of Americans are unhappy with the direction the country is headed and 69 percent of the country is unhappy with the performance of the President.. In essence 2/3 of the citizenry just ain't happy and want a change. So being the knuckle dragger I am, I started thinking, 'What are we so unhappy about?'

A. Is it that we have electricity and running water 24 hours a day, 7 Days a week?

B. Is our unhappiness the result of having air conditioning in the summer and heating in the winter?
C. Could it be that 95.4 percent of these unhappy folks have a job?

D. Maybe it is the ability to walk into a grocery store at any time and see more food in moments than Darfur has seen in the last year?

E. Maybe it is the ability to drive our cars and trucks from the Pacific Ocean to the Atlantic Ocean without having to present identification papers as we move through each state.
F. Or possibly the hundreds of clean and safe motels we would find along the way that can provide temporary shelter?

G. I guess having thousands of restaurants with varying cuisine from around the world is just not good enough either.

H. Or could it be that when we wreck our car, emergency workers show up and provide services to help all and even send a helicopter to take you to the hospital.

I. Perhaps you are one of the 70 percent of Americans who own a home.
J. You may be upset with knowing that in the unfortunate case of a fire, a group of trained firefighters will appear in moments and use top notch equipment to extinguish the flames thus saving you, your family, and your belongings.

K. Or if, while at home watching one of your many flat screen TVs, a burglar or prowler intrudes, an officer equipped with a gun and a bullet-proof vest will come to defend you and your family against attack or loss.

L. This all in the backdrop of a neighborhood free of bombs or militias raping and pillaging the residents. Neighborhoods where 90% of teenagers own cell phones and computers.

M. How about the complete religious, social and political freedoms we enjoy that are the envy of everyone in the world?

Maybe that is what has 67% of you folks unhappy.

Fact is, we are the largest group of ungrateful, spoiled brats the world has ever seen. No wonder the world loves the US. , yet has a great disdain for its citizens. They see us for what we are. The most blessed people in the world who do nothing but complain about what we don't have, and what we hate about the country instead of thanking the good Lord we live here.

I know, I know. What about the president who took us into war and has no plan to get us out? The president who has a measly 31 percent approval rating? Is this the same president who guided the nation in the dark days after 9/11? The president that cut taxes to bring an economy out of recession? Could this be the same guy who has been called every name in the book for succeeding in keeping all the spoiled ungrateful brats safe from terrorist attacks? The commander in chief of an all-volunteer army that is out there defending you and me?
Did you hear how bad the President is on the news or talk show? Did this news affect you so much, make you so unhappy you couldn't take a look around for yourself and see all the good things and be glad? Think about it......are you upset at the President because he actually caused you personal pain OR is it because the 'Media' told you he was failing to kiss your sorry ungrateful behind every day.
Make no mistake about it. The troops in Iraq and Afghanistan have volunteered to serve, and in many cases may have died for your freedom. There is currently no draft in this country. They didn't have to go. They are able to refuse to go and end up with either a ''general'' discharge, an 'other than honorable'' discharge or, worst case scenario, a ''dishonorable' discharge after a few days in the brig.

So why then the flat-out discontentment in the minds of 69 percent of Americans?

Say what you want, but I blame it on the media. If it bleeds it leads and they specialize in bad news. Everybody will watch a car crash with blood and guts. How many will watch kids selling lemonade at the corner? The media knows this and media outlets are for-profit corporations. They offer what sells, and when criticized, try to defend their actions by 'justifying' them in one way or another. Just ask why they tried to allow a murderer like O.J. Simpson to write a book about how he didn't kill his wife, but if he did he would have done it this way......Insane!

Turn off the TV, burn Newsweek, and use the New York Times for the bottom of your bird cage. Then start being grateful for all we have as a country. There is exponentially more good than bad. We are among the most blessed people on Earth and should thank God several times a day, or at least be thankful and appreciative.' 'With hurricanes, tornados, fires out of control, mud slides, flooding, severe thunderstorms tearing up the country from one end to another, and with the threat of bird flu and terrorist attacks, 'Are we sure this is a good time to take God out of the Pledge of Allegiance?'
-David Letterman

Wednesday, November 5, 2008

In Light of B Hussein's Win..

"Politicians have immense power to do harm to the economy. But they have very little power to do good," -Walter Williams.

Monday, November 3, 2008

Friday, October 31, 2008

Open Letter To B Hussein

This Letter was sent as an open invitation to B Hussein to meet with a small business owner and understand the impact his policies may have on society. While it is long, it is very good and worth the read.

Here are some excerpts:

Your ascension to power from obscurity has come by three means: (1) refined oratory skills, (2) pandering to the middle class with arguments based totally on emotion, and (3) demonizing a very important element of society -- successful working class business owners, the rich and those aspiring “to be” rich, who do not openly defend themselves because they have been falsely taught to feel guilty about their noble values and conservatism. They should not now or ever bear any guilt.

I believe the extreme leftist wing of the Democrat Party which you lead will destroy some very important elements of our economy - notably the working class business owners like me and the millions of small closely-held businesses which are the nation’s lifeblood.

The policy agenda you share with Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid contain elements that are the outright enemies of democratically-free economies.

The enemies of democratically-free economies have now, under the cover of populist sentiment slipped in during the night. These enemies callously demonize and threaten the very engine of our economic prosperity for their own political ambitions. They do this hoping that we, the powerless business underclass, will not speak up to defend ourselves because of some guilt we are made to carry. Well, we are not guilty, we are speaking, and we are enraged.

You may think the high income earners are ripping off the nation. This is just not true. They have become the high income earners because they are the nation’s most productive segment and have borne economic and social risks to build successful businesses.

Your promise to 95% of Americans that they will receive a tax break is an outright deception and appalling. How can the 40% who pay no taxes receive a tax break? Under the guise of innovative tax policy, you are masterfully creating a new welfare entitlement system.

The letter continues with many great points. Please share with anyone that could possibly think of voting B Hussein into office.

Letter to Congress

Dear Senator:

I am very concerned about the current actions being undertaken by Congress. Nearly $1 Trillion is being spent without any coherent plan. We now have all sort of companies from Autos, Alternative Energy, Hedge Funds, Banks and even States looking for a piece of the government bonanza of spending.

Congress has created the largest moral hazard in the history of man by socializing the huge losses by companies that took on too much risk in investments they did not understand. This is just providing more evidence that government involvement in business is costly to the prosperity of society. Your actions in Congress will saddle our children’s children with more debt than they can realistically sustain.

I ask that Congress actually take the appropriate action which is nothing. Let firms go bankrupt that made bad decisions. Let stronger companies buy whatever is left of those firms and move on. The natural workings of the free market will repair the damage that has been caused by bad government policies from the last 40 years. It will take time to unwind what was been done, but more government involvement will only make matters worse over the long run.

There is undoubtedly pressure for Congress to do something. However, resist that pressure and temptation and let events take their course. This will prove to be the right action over time.

Respectfully yours,

XXX
Wichita, KS

I wish we had a "do nothing" Congress.

From Russ Roberts today in the WSJ:

People ask me if the current mess feels like 1929. But the right comparison is 1932, when Herbert Hoover was desperately trying anything, anything at all, to get the economy going. The stock market had crashed. The economy was starting to follow it down. So what did Hoover and his fellow policy makers do?

In 1930, Congress passed a massive tariff increase, in hopes of protecting American jobs. Hoover signed it. But it simply accelerated the economy's slide. The Federal Reserve contracted the money supply, taking a recession and making it into a depression. By 1932, real GDP was 25% lower than three years earlier.

Hoover increased federal spending steadily, including an increase in real terms of about 40% in 1932. At the same time, fearful that deficits were harmful, Hoover raised income taxes.

Nothing worked. So Franklin Roosevelt came into office pledging stronger medicine. Enter even bigger increases in government spending. Government nationalization. Bigger deficits. Destruction of crops and livestock in the name of raising prices. Government-organized cartels. A greater empowerment of unions. It was a whirlwind of activity without any real plan.

It worked for a while, but then, in 1938, the economy turned sour again. Unemployment, which had been falling, spiked again, reaching 19%. Consumption didn't recover to its prewar levels until 1945.

Today, President George W. Bush plays the role of Hoover, the so-called free market ideologue who is trying anything to avert disaster. He signs a $700 billion bill putting Treasury in charge of buying troubled assets. A week later, the money is used to partially nationalize the banks. Some companies, like Bear Stearns, are bailed out. Others, like Lehman Brothers, are not. Some companies are sold. Some are allowed to fail. There is no plan, no rules, nothing to count on.

It's just like the New Deal: a massive accumulation of power in Washington justified by the need to do something. There is every reason to think this trend will accelerate regardless of whether Barack Obama or John McCain wins the election.

Back in March, Henry Paulson, Ben Bernanke and the experts assured us that Bear Stearns had to be propped up. If not, the whole system could come crashing down. It is crashing down anyway. Just as in the 1930s, there is no evidence that the policy makers have any understanding of what they are doing. They need to make way for the natural forces of repair.

They need to let housing prices fall. They need to let firms go bankrupt. They need to let firms that are healthy thrive. They need to let healthy firms buy the sick firms. It is time to let the imprudent fail and the prudent pick up the bargains.

A recession is coming (or has already arrived) no matter what happens in Washington. The question is whether the attempt to forestall it is going to make it worse and turn it into another Great Depression.

By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s.

The next administration is unlikely to do any better. Mr. Bernanke is perhaps the greatest living authority on the Great Depression, yet he has failed to stem the damage. Messrs. Paulson and Bernanke are confronted with a sick patient. They have antibiotics. They have a scalpel. But is there any evidence from the last seven months that they understand the underlying cause of the illness, or how to cure it?

Worst of all are the political incentives that are unleashed when Washington promises to spend a trillion dollars (and counting). No one can spend such money wisely even if they want to. The information about who needs to be bailed out and who needs to fail is too complicated. Inevitably, such decisions will begin to be more about politics than economics.

The banks were first. Then the insurance companies. The car makers are getting a cut. Who's next? The governors, probably. Homeowners are waiting. Then there will be the hedge funds. Once the line forms, companies will stop trying to save themselves and focus on being saved by Washington. The resulting spiral will be devastating.

Unfortunately, there is no consensus about a preferable alternative. The economists are almost as clueless as the politicians. At such a time, inaction may be the wisest course of action.

Mr. Roberts is a professor of economics at George Mason University and a research fellow at Stanford University's Hoover Institution. His latest book is "The Price of Everything: A Parable of Possibility and Prosperity" (Princeton University Press, 2008).

Wednesday, October 29, 2008

Cartoon of the Day

Why Markets Are Weak

Great article today in the WSJ:

To state the obvious: The valuation of an individual stock reflects the collective expectation of investors about a company's future profits, dividends and appreciation, and the same is true of the market as a whole. These profits, in turn, are greatly influenced by government policy on taxes, spending, subsidies, environmental and other regulations, labor laws, and the corporate legal climate. Investors have heard enough from both candidates in the last month or two to conclude that prospects for a flourishing, competitive, growing and reasonably free economy in a McCain administration are bad, and in an Obama administration far worse. (In fact, the market's bearish behavior over the last couple of months pretty closely tracks Barack Obama's gains.)

If you don't believe me, please answer a few questions:

- Have you thought of what a gradual doubling (and indexation) of the minimum wage, sailing through a veto-proof and filibuster-proof Congress, would do to inflation, unemployment and corporate profits? The market now has.

- Have you thought of how easily a Labor Department headed by a militant union boss would push through a "Transparency in Labor Relations" law that does away with secret ballots in strike votes, and what this would do to industrial peace? The market now has.

- Have you thought of how a Treasury Secretary George Soros would engineer the double taxation of the multinationals' world-wide profits, and what this would mean for investors (to say nothing of full-scale industrial flight from the U.S.)? The market now has.

- Have you thought of how an Attorney General Charles J. Ogletree would champion a trillion-dollar reparations-for-slavery project (whittled down, to be fair, to a mere $800-billion, over-10-years compromise), and what this would do to the economy? The market now has.

- Have you thought of what the virtual outlawing of arbitration -- exposing all industries to the fate of asbestos producers -- would do to corporate liability and legal bills? The market now has.

- Have you thought of how a Health and Human Services Secretary Hillary Clinton would fix drug prices (generously allowing 10% over the cost of raw materials), and what this would do to the financial health of the pharmaceutical industry (not to mention the nondiscovery of lifesaving drugs)? The market now has.

- Have you thought of a Secretary of the newly established Department of Equal Opportunity for Women mandating "comparable worth" pay practices for every company doing any business with government at any level -- where any residual gap between the average pay of men and women is an eo ipso violation? Have you thought about what this would do to administrative and legal costs, hiring practices, productivity and wage bills? The market now has.

- Have you thought of what confiscatory "windfall profits" taxes on oil companies would do to exploration, supply and prices? The market now has.

- Have you thought of how the nationalization of health insurance, the mandated coverage of ever more -- and more exotic -- risks, the forced reimbursement for excluded events, and the diminished freedom to match premium to risk would affect the insurance industry? The market now has.

- Have you thought of Energy Czar Al Gore's five million new green jobs -- high-paying, unionized and subsidized -- to replace, at five times the cost, what we are now producing without those five million workers, and what this will do to our productivity, deficit and competitiveness? The market now has.

The market is forward looking. If it is unhappy with a president, it does not wait almost eight years before the numbers reflect it. If it really anticipated good times under Mr. Obama, the market would have gained 40% in anticipation of the transition. By losing that much, it seems to be saying the opposite.

The silver lining in all this is that the market has already "discounted" an Obama win, so if that happens you won't wake up on Nov. 5 to find your remaining savings down the drain. If the unexpected happens, you may be in for a pleasant surprise.

I agree that a surprise McCain win would be a boost for the markets. The B Hussein discount would be removed and we could see 15-25% recovery almost immediately. However, the misinformed, or il-informed, voting public hears all these great socialist ideas, that have been tried and failed, and B Hussein seems to be an easy victor. Romney would have beat B Hussein...

Sunday, October 26, 2008

To the Undecided Voter

From Neil Boortz:

There’s a quote that’s been floating around since I began my talk radio career. This quote is most often attributed to someone named Alexander Tyler writing in 1787 about the fall of the Athenian Republic. Others have said the guy’s name was Tyler. Let’s not argue spelling right now … let’s just get to the quote, because the quote goes to the heart of this presidential election:

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”

Think about this, my friends. Isn’t this exactly what we’re seeing right now? In fact, hasn’t this pretty much been the theme of Democrat Party election politics for nearly as long as you can remember? Here we have Barack Obama promising that he’s only going to raise taxes on the evil rich who make over $250,000 a year while 95% of Americans will get tax cuts. Think of this in terms of votes; higher taxes for 5% of the voters, lower taxes for the other 95%. It really doesn’t take all that much brainpower to figure out how this is going to work at in an election does it? You take money away from the people whose votes you don’t need, and give it to the people whose votes you do need. So very simple. The result is that people have, in fact, discovered that they can vote themselves generous gifts from the public treasury. Who is promising those wonderful goodies? That would be Barack Obama. Just what percentage of voters out there do you think are going to vote for Obama simply because he is promising them someone else’s money? My guess is that the number would be high enough to constitute the margin of victory for The Great Redistributionist.

The entire column is very good and should be read by everyone.

Monday, October 20, 2008

Politicially Incorrect Guide to Politics

A must watch, 5-part series from 20/20's John Stossel.

ABC 20/20

Also catch the Voting for Dummies segment. It will scare as our Democracy is in the hands of idiots. Each of these people has the same vote as me?

Boudreaux on Politicians

From Cafe Hayek this weekend...

It's a Difficult Job Saving Society

Don Boudreaux

Here's a letter that I sent yesterday to The State (of Columbia, SC):

Asked why he failed to disclose his receiving, free-of-charge, $250,000 worth of renovation work on his private residence, Sen. Ted Stevens explained, as you summarize it, "that some details may have gotten lost amid the busy life of a senator: the committee meetings, the long hours and the challenges that come with representing a state four time zones away" ("Stevens combative in questioning during trial," October 17).

I see the problem. And it suggests that Sen. Stevens (and his overworked, travel-weary colleagues in Congress) must also be unaware of the details that permeate those massive bailout bills, omnibus spending statutes, and other such pieces of legislation. No busy mortal can possibly keep track of these details. So it would be only right for Sen. Stevens and those Senators who've testified in his defense as character witnesses to renounce the vast bulk of legislation that they've passed as being filled with provisions too numerous and detailed for such busy pooh-bahs to have carefully pondered - or even to have noticed.

Sincerely,
Donald J. Boudreaux

I can no more imagine myself behaving as a successful politician behaves -- kissing babies in public; telling strangers that I feel their pain; assuring strangers that I'm to be trusted to spend their money more wisely than then will spend it -- than I can imagine myself being a mosquito or a venus fly trap. It is simply inconceivable that any decent human being would behave in ways that the typical politician behaves.

And yet, so many people -- so many decent people -- believe in (or at least crave, child-like) secular salvation through secular saviors. It's no surprise, then, that persons unashamed to act deceitfully and disingenuously crawl out from under their rocks to pose as saviors.

Justification....Politician Style

From Senator Stevens's testimony today:

Stevens has said he never sought gifts and wouldn't even accept a free lunch, much less expensive remodeling services. But prosecutors say he had a history of accepting gifts — including an expensive massage chair from a friend — and omitting them from the financial disclosure forms.

He said he considered that chair a loan.

"And the chair is still at your house?" prosecutor Brenda Morris asked.

"Yes," Stevens said.

"How is that not a gift?"

"He bought that chair as a gift, but I refused it as a gift," Stevens said. "He put it there and said it was my chair. I told him I would not accept it as a gift. We have lots of things in our house that don't belong to us."

Playing to the jury, Morris appeared confused.

"So, if you say it's not a gift, it's not a gift?" she said.

"I refused it as a gift," Stevens replied. "I let him put it in our basement at his request."

Friday, October 17, 2008

Wishing We Had 4 Different Choices

It is clear we have no one running for office that knows anything about economics. I bet McCain wishes he chose Mitt....

From Ideoblog:

Calling for Mitt

During this financial crisis, it's been weird to watch the presidential candidates be almost a sideshow to the dominant crisis of the day on election eve, as all eyes turn to Bernanke and Paulson. And so I wonder (and I'm not alone), what if McCain had picked as his running mate somebody who actually knew something about business – i.e., Mitt Romney? In any event, hopefully this election teaches a lesson about the importance of real business expertise these days.

Capitalism

Seems like there is a lot of bad press around capitalism these days. Here are a couple must reads that counter the growing tide of anti-capitalist sentiment.

Don't Blame Capitalism

Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. Everyone wants to make money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic risk-taking and hard work that are essential to a vibrant economy.

But over the past generation, government has removed the necessary counterbalance of fear from the equation. Policies enacted by the Federal Reserve, the Federal Housing Administration, Fannie Mae and Freddie Mac (which were always government entities in disguise), and others created advantages for home-buying and selling and removed disincentives for lending and borrowing. The result was a credit and real estate bubble that could only grow -- until it could grow no more.

Similarly, the FHA, Fannie and Freddie were created to encourage lending by allowing primary lenders to turn their long-term risk over to the government. Absent this implicit guarantee, lenders would probably have been much more conservative in approving borrowers and setting interest terms, and in requiring documentation of incomes and higher down payments. Market forces would have kept out unqualified buyers and prevented home-price appreciation from exceeding the growth in household income.

Real credit can be supplied only by savings, so artificial steps to stimulate lending will only produce inflation. By refusing to allow market forces to rein in excess spending, liquidate bad investments, replenish depleted savings, fund capital investment and help workers transition from the service sector to the manufacturing sector, government is resisting the cure while exacerbating the disease.

Gods That Fail

Where to begin? Certainly we haven’t had any unregulated capitalism lately. As I put it the other day, the kind of capitalism that has encountered the current crisis is “the kind in which a central monetary authority manipulates money and credit, the central government taxes and redistributes $3 trillion a year, huge government-sponsored enterprises create a taxpayer-backed duopoly in the mortgage business, tax laws encourage excessive use of debt financing, and government pressures banks to make bad loans.”

Sunday, October 12, 2008

THE Health Care Solution

Why Stealing From Taxpayers Should Be Treason

This story in the NYT about made my blood boil.  A typical government bureaucrat in the Defense Department bilked millions from taxpayers.  How did this happen?  He was in cahoots with lobbyists, corrupt politicians (Lott, Shelby, Stevens, etc.), and contractors that took advantage of lax oversight.

It just makes me wonder how much waste and corruption is there in the Federal budget?  There is just too much incentive to cheat the system and not enough penalty to avoid it.  I am thinking death by hanging should be in store for any of those involved here, including CONgressmen.

The truly said fact is many, if not all, of these politicians will be re-elected.

How Times Change

Just a few short months ago, CONgress hauled executives from the big oil companies into Washington to testify about the high cost of crude oil.   The testimony quickly turned to inquisition as the hearings became a way for CONgressmen to sound tough (AKA popular) back home.

The blame was placed on greedy speculators, oil companies that were not making investments in new fields or alternative energy, buying back their own stock, and a whole host of other things.  That was when oil price spiked to $143/bbl.  Now oil prices have dropped to under $80 and seem to be falling even farther.  Oil company stocks have dropped over 50% from their highs this summer as well.

So where is the talk about speculators now?  Mutual funds, pension funds, and many individual investors have lost billions with oil's fall.  Who is responsible?  The market.

I would hope it would be obvious to CONgress that Big Oil was no more involved in the rise in crude as it was in its recent fall.  However, I am sure this will be used for political advantage at home to gain more votes.  It will probably go something like this:

"See Joe Voter those hearings did pay off.  Big Oil was scared and dropped their prices because they knew I, your trusted, elected official, backed them into a corner on behalf of my constituents."

Lee Raymond, former CEO of Exxon, stated it very clearly to CONgress a few months ago that oil is a commodity and its price is cyclical.  Nothing but market forces drive its price.  Sometimes it rises, and it always falls back to historical levels.  Crude oil is not immune to the commodity cycle any more than iron ore or bananas.  I wonder if CONgress will send an apology to all the speculators and oil company executives?


Government and Profitability

I saw this column come up on my yahoo reader this week and it caught my eye for obvious reasons: DOE Doles OUt Bucks for Biofuel.  Not only does this article outline who is getting what from our government at a time when money seems to be no scarce object, but it also talks about the return our government is "getting."  

Novozymes said Wednesday it scored $12.3 million from the U.S. Department of Energy to develop enzymes that would help cut the cost of producing cellulosic ethanol.

Then

The government expects something in return for its investment. The deal calls for the Danish company to increase the efficiency of the enzymes by two folds.

Wow, the government is getting an increase in efficiency?  That does not sound like money for the taxpayer to me.  That sounds like a better return for the producer?

Then the article goes on to say...

This is the second time the company has received funding from the DOE. In 2001, Novozymes bagged $18 million from the federal government, again to improve enzymes used in producing biofuels.

So the government has now invested over $30M in this company, that is Dutch no less, and how much cellulosic-based ethanol is commercially available?  None.

Then the article finishes with this....

Ethanol producer Poet said Tuesday it is getting the total funding the DOE promised last year. In February 2007, the DOE said it would give Poet up to $80 million to build a commercial ethanol plant that makes fuel from corn as well as corn fiber and cobs. The first part of the deal with the government gave the Sioux Falls, S.D.-based company $3.7 million to help with the preliminary design of the plant and feedstock collection. Now, the company is getting the remaining $76.3 million for construction and plant operation. Upon completion, the plant will make 125 million gallons ethanol per year, 25 million of which will be from corn fiber and cobs. Construction on the plant will begin in 2009, and cellulosic fuel production could come as early as 2011, the company said.

The government is paying for the entire plant?  Where is the tax payer return on this one?  Oh yeah, there is not one.  This is exactly why government needs to stay out of business.  The US Taxpayers just flushed $80M down the drain.  Why is that, well ethanol producers all over the country are going bankrupt (see here and here) since the US is producing more ethanol than is demanded.  So government just throws more ethanol supply into the mix at a lower cost to produce.  The funny thing is most of these ethanol producers think government is their friend.

Our government should not be in the investment banking business.  As a matter of fact, it should not be in any business.