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.

Reason to Give Thanks

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

Thankful For Markets

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

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.

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

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 1/4^th 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.

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?

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

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.

B Hussein and Coal