March 2009 Archives

Applied Economics: Thinking Beyond Stage One by Thomas Sowell

My review

rating: 4 of 5 stars
While on vacation in southern California, I hit a Barnes & Noble in Costa Mesa to look for something to read and something for my wife's birthday. I was looking for a book I'd read about like New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America, but the store I was at seemed chock-full of books about President Barack Obama, Global Warming, what was wrong with the Republican Party, and not much of anything that would interest a conservative like me. I did find, however, this book: Applied Economics: Thinking Beyond Stage One.

There was one small problem. My B&N discount card membership had expired one month prior. I'd only used it make one book purchase in that entire year and, coincidentally, it was at that same store in Costa Mesa. I wasn't about to blow more money on their stupid discount plan and I wasn't going to spend $35 on "Applied Economics". I bought a different book instead and got something for my wife's birthday and went on my way.

When I returned home, I ordered Applied Economics Thinking Beyond Stage One from Amazon along with some other books, all at much more reasonable prices. I decided to read this one first.

Thomas Sowell is a very interesting guy. He's scholar in residence at the Hoover Institution at Stanford University and has taught economics at Cornell, UCLA, Amherst and other schools. He's written several books on economics. This book is the revised (and enlarged) edition and aims to help members of the general public understand complex economic systems.

Shooting for the general public is a lofty goal. I don't think Sowell quite made it. It was hard for me to absorb some of this material and I think I've been exposed to more economics material than the average member of the general public. I think this is a testament to how difficult of a task Sowell had taken on rather than his inability to achieve his goal.

The book is divided into eight chapters, each tackling an issue from the standpoint of pure economics. The first chapter, "Politics versus Economics," serves as a primer for the rest of the book and explains the "stage one" concept in the subtitle. Sowell states that most politicians (and many regular people, for that matter) fail to consider (or admit knowledge of) the long-term effects of economic policies (or any policies, for that matter.) This is, as Sowell puts it, "stage one thinking."

Sowell's intention in this book is to help the reader understand the longer-term effects of legislation and policy decisions.

In the first chapter, Sowell explains:

Laws and policies that will produce politically beneficial effects before the next election are usually preferred to policies that will produce even better results some time after the next election. Indeed, policies that will produce good results before the next election may be preferred even if they can be expected to produce bad results afterward.

As an example, a few paragraphs later:

... it is an open question whether drug prevention programs actually prevent or even reduce drug usage, whether public interest law firms actually benefit the public, or whether gun control laws actually control guns.

Later, he examines the consequences of a series of wage and price controls instituted in the 1970s by the Nixon administration and upheld or carried further by the Ford and Carter administrations. What seemed like a good idea at the time resulted in terrible economic consequences in the long run.

Sowell points out that many politicians just feel an overwhelming need to "do something" whenever there is a crisis at hand.

Doing something almost always seems like such a good idea, to those who do not look beyond stage one, that they see no need to look back at history or to apply economics. The alternative to a "do something" approach is not to have the government always do absolutely nothing but,rather, to recognize that governments can only do something specific-- and that these specifics must be assessed in terms of their specific erffects, both immediate and long-term, as well as the general effects of extended experimentation.

The second chapter, "Free and unfree labor" begins by talking about the history of slavery. It was interesting reading a book by one of the handful of famous black people in the field of economics discussing the pros and cons of various types of slavery. Sowell actually points out that slaves in the southern United States prior to the U.S. Civil War were treated very well compared to other forced labor situations throughout history.

This chapter also touches on crime as an occuptation, and indentured servitude.

The third chapter dives into the economics of medical care. It's no surprise that Sowell makes a strong case against government-subsidized healthcare (i.e. "Universal health care"). His most pronounced argument is simply that government healthcare is another way for saying "price controls" and he already discussed the disastrous effects such controls have on a market in the first chapter. He shows these effects are obvious when you look at government health care systems in Great Britain, Canada, and other countries that offer such programs.

He also discusses the economics of malpractice insurance, pharmaceutical drugs, drug advertising, and finally an extremely enlightening treatment on organ transplants and how much sense it makes to allow a legal market for organs for organ transplantation. That was really eye opening.

Chapter Four discusses the economics of housing and illustrates how government action and regulation affects pricing. He also discusses rent control, creative financing programs, segregation in housing, and other housing issues.

Chapter Five is titled "Risky Business" and is generally about the economics of insurance, but it goes beyond just the business of insurance. Most people, and certainly some politicians, don't consider risk issues when considering an issue.

One of my favorite sections of this chapter discusses how the family was traditionally the main risk reduction instutition in people's lives. This makes perfect sense when you consider how important family honor was, say, 2-300 years ago.

...the family-- the oldest insurer of all -- cautions its members, both when they are growing up and one specific occasions afterward, against various kinds of risky behavior. When families had the burden of taking care of an unwed daughter's baby, there was more chaperoning, screening of her associates, and moral stigma attached to unwed motherhood. All these things declined or disappeared after mean of these costs were shifted to government agencies.

Sowell attacks the issues of risk and insurance from a number of surprising and enlightening angles.

In Chapter Six, Sowell takes on immigration. Expecting him to jump right into the overwhelming costs to the system the illegal immigrant issue burdens our government, I was a little taken back when I a rather comprehensive look at immigration across history. He discusses cultural implications, income implications, health implications, legal and illegal immigration, economic benefits and costs to immigrants and the society they are immigrating to. It is, perhaps, the most unbiased and clearly focused treatment on immigration I've ever read.

In his conclusions, he does touch on some points specific to the hot issues in the US illegal immigration debate. For example, in comparing import of products versus import of labor:

When Americans buy a Toyota from Japan, the Toyota does not demand that the United States accomodate the Japanese language or that Americans adjust themselves to Japanese customs in their own country, much less introduce diseases into the American population. Moreover, Toyotas do not give birth to little Toyotas that can grow up with the problematic attitudes of some second generation immigrants.

Chapter seven is about discrimination. It begins by educating the reader on the distinct differences between bias, prejudice, and discrimination. Sowell points out that bias, prejudice, and discrimination are not "bad" by themselves. There are circumstances, history, and more criteria to consider before we can judge that they are bad.

From there, Sowell discusses anti-discrimination laws, affirmative action regulations and legislation, and the pros and cons (mostly cons) of each. One statement from the summary section reads:

...those who fail to qualify for particular benefits are often said to be denied "access" or "opportunity," when in fact they may have had as much access or opportunity as anyone else, but simply did not have the developed capabilities required...
...a mental test may be characterized as "culturally biased" if one group scores higher than another, as if it is impossible for different groups to have different interest, experience, upbringing, education, or other factors that would lead to a real difference being registered, rather than a biased assessment being made.

Chapter eight discusses the economic development of nations. This chapter discusses the misnomers of "developing nations," the effects of foreign aid, the importance of formal property rights, the geographic issues related to economies as well as bunch of other implications.

As I mentioned at the beginning of this review, Sowell's book is pretty heady content, but I found it refreshing as it is so clear cut. All of his statements came down on the side of common sense. Isn't that what we all wish our policy makers employed more of?

View all my reviews.

I am reading “Capitalism: The Unknown Ideal” by Ayn Rand. It is a collection of essays by Rand and other academics from the school of Objectism. One essay, “Common Fallacies About Capitalsm,” written in 1963 by Nathaniel Branden, grabbed my attention in a particularly intense manner.

After typing for quite some time, I would like to present an excerpt from this essay: a section titled “Depression”. Boldface emphasis has been added by me.

Question: Are periodic depressions inevitable in a system of Laissez-Faire Capitalism?

It is characteristic of the enemies of capitalism that they denounce it for evils which are, in fact, the result not of capitalism but of statism: evils which result from and are made possible only by government intervention into the economy.

I have discussed a flagrant example of this policy: the charge that capitalism leads to the establishment of coercive monopolies. The most notorious instance of this policy is the claim that capitalism, by its nature, inevitably leads to periodic depressions.

Statists repeatedly assert that depressions (the phenomenon of the so-called business cycle of “boom and bust”) are inherent in laissez-faire, and that the great rash of 1929 was the final proof of the failure of an unregulated, free-market economy. What is the truth of the matter?

A depression is a large-scale decline in production and trade; it is characterized by a sharp drop in productive output, in investment, and in the value of capital assets (plants, machinery, etc.). Normal business fluctuations, or a temporary decline in the rate of industrial expansion, do not constitute a depression. A depression is a nation-wide contraction of business activity—and a general decline in the value of capital assets—of major proportions.

There is nothing in the nature of a free-market economy to cause such an event. The popular explanations of depression as caused by “over-production,” “under-consumption,” monopolies, labor-saving decides, maldistribution, excessive accumulations of wealth, etc., have been exploded as fallacies many times.

Readjustments of economic activity, shifts of capital and labor from one industry to another, due to changing conditions, occur constantly under capitalism. This is entailed in the process of motion, growth, and progress that characterizes capitalism. But there always exists the possibility of profitable endeavor in one field or another, there is always the need and demand for goods, and all that can change is the kind of goods it becomes most profitable to produce.

In any one industry, it is possible for supply to exceed demand, in the context of all the other existing demands. In such a case, there is a drop in prices, in profitableness, in investment, and in employment in that particular industry; capital and labor tend to flow elsewhere, seeking more rewarding uses. Such an industry undergoes a period of stagnation as a result of unjustified, that is, uneconomic, unprofitable, unproductive investment.

In a free economy that functions on a gold standard, such unproductive investment is severely limited; unjustified speculation does not rise, unchecked, until it engulfs an entire nation. In a free economy, the supply of money and credit needed to finance business ventures is determined by objective economic factors. it is the banking system that acts as the guardian of economic stability. The principles governing money supply operate to forbid large-scale unjustified investment.

Most businesses finance their undertakings, at least in part, by means of bank loans. Banks function as an investment clearing house, investing the savings of their customers in those enterprises which promise to be most successful. Banks do not have unlimited funds to loan; they are limited in the credit they can extend by the amount of their gold reserves. In order to remain successful, to make profits and thus attract the savings of investors, banks much make their loans judiciously: they must seek out those ventures which they judge to be most sound and potentially profitable.

If, in a period of increasing speculation, banks are confronted with an inordinate number of requests for loans, then, in response to the shrinking availability of money, they (a) raise their interest rates, and (b) scrutinize more severely the ventures for which loans are requested setting more exacting standards of what constitutes a justifiable investment. As a consequence, funds are more difficult to obtain, and there is a temporary curtailment and contraction of business investment. Businessmen are often unable to borrow the funds they desire and have to reduce plans for expansion. The purchase of common stocks, which reflects the investors’ estimates of the future earnings of companies is similarly curtailed; overvalued stocks fall in price. businesses engaged in credit, are obliged to close their doors; a further waste of productive factors is stopped and economic errors are liquidated.

At worst, the economy may experience a mild recession, i.e. a slight general decline in investment and production. In an unregulated economy, readjustments occur quite swiftly, and then production and investment begin to rise again. The temporary recession is not harmful but beneficial; it represents an economic system in the process of correcting its errors, of curtailing disease and returning to health.

The impact of such a recession may be significantly felt in a few industries, but it does not wreck an entire economy. A nation-wide depression, such as occurred in the United States in the thirties, would not have been possible in a fully free society. It was made possible only by government intervention in the economy—more specifically, by government manipulation of the money supply.

The government’s policy consisted, in essence, of anesthetizing the regulators, inherent in a free banking system, that prevent runaway speculation and consequent economic collapse.

All government intervention in the economy is based on the belief that economic laws need not operate, that principles of cause and effect can be suspended, that everything in existence is “flexible” and “malleable,” except a bureaucrat’s whim, which is omnipotent; reality, logic, and economics much not be allowed to get in the way.

This was the implicit premise that led to the establishment, in 1913, of the Federal Reserve System—an institution with control (through complex and often indirect means) over the individual banks throughout the country. The Federal Reserve undertook to free individual banks from the “limitations” imposed on them by the amount of their own individual reserves, to free them from laws of the market—and to arrogate to government officials the right to decide how much credit they wished to make available at what times.

A “cheap money” policy was the guiding idea and goal of these officials. Banks were no longer to be limited in making loans by the amount of their gold reserves. Interest rates were no longer to rise in response to increasing speculation and increasing demands for funds. Credit was to remain readily available—until and unless the Federal Reserve decided otherwise.

The government argued that by taking control of money and credit out of the hands of private bankers, and by contracting or expanding credit at will, guided by considerations other than those influencing the “selfish” bankers, it could—in conjunction with the other interventionist policies—so control investment as to guarantee a state of virtually constant prosperity. Many bureaucrats believed that the government could keep the economy in a state of unending boom.

To borrow an invaluable metaphor from Alan Greenspan: if, under laissez-faire, the banking system and the principles controlling the availability of funds act as a fuse that prevents a blowout in the economy—then the government, through the Federal Reserve System, put a penny in the fuse-box. The result was the explosion known as the Crash of 1929.

Throughout most of the 1920’s, the government compelled banks to keep interest rates artificially and uneconomically low. As a consequence, money was poured into every sort of speculative venture. By 1928, the warning signals of danger were deeply apparent: unjustified investment was rampant and stocks were increasingly overvalued. The government chose to ignore these danger signals.

A free banking system would have been compelled, by economic necessity, to put the brakes on this process of runaway speculation. credit and investment, in such a case, would be drastically curtailed; the banks which made unprofitable investments, the enterprises which proved unproductive, and those who dealt with them, would suffer—but that would be all; the country as a whole would not be dragged own. However, the “anarchy” of a free banking system had been abandoned—in favor of “enlightened” government planning.

The boom and the wild speculation—which had preceded every major depression—were allowed to rise unchecked, involving, in a widening network of malinvestments and miscalculations, the entire economic structure of the nation. People were investing in virtually everything and making fortunes overnight—on paper. Profits were calculated on hysterically exaggerated appraisals of the future earnings of companies. Credit was extended with promiscuous abandon, on the premise that somehow the goods would be there to back it up. It was like the policy of a man who passes out rubber checks, counting on the hope that he will somehow find a ay to obtain the necessary money and to deposit it in the bank before anyone presents his checks for collection.

But A is A—and reality is not infinitely elastic. In 1929, the country’s economic and financial structure had become impossibly precarious. By the time the government finally and frantically raised the interest rates, it was too late. It is doubtful whether anyone can state with certainty what events first set off the panic—and it does not matter: the crash had become inevitable; any number of events could have pulled the trigger. But when the news of the first bank and commercial failures began to spread, uncertainty spread across the country in widening waves of terror. People began to sell their stocks, hoping to get out of the market with their gains, or to obtain the money they suddenly needed to pay bank loans that were being called in—and other people, seeing this, apprehensively began to sell their stocks—and, virtually overnight, an avalanche hurled the stock market downward, prices collapsed, securities became worthless, loans were called in, many of which could not be paid, the value of capital assets plummeted sickeningly, fortunes were wiped out, and, by 1932, business activity had come almost to a halt. the law of causality had avenged itself.

Such, in essence, was the nature and cause of the 1929 depression.

It provides one of the most eloquent illustrations of the disastrous consequences of a “planned” economy. In a free economy, when an individual businessman makes an error of economic judgment, he (and perhaps those who immediately deal with him) suffers the consequences; in a controlled economy, when a central planner makes an error of economic judgment, the whole country suffers the consequences.

But it was not the Federal Reserve, it was not the government intervention that took the blame for the 1929 depression—it was capitalism. Freedom—cried statists of every breed and sect—had had its chance and had failed. The voices of the few thinkers who pointed to the real cause of the evil were drowned out in the denunciation of businessmen, of the profit motive, of capitalism.

Had men chosen to understand the cause of the crash, the country would have been spared much of the agony that followed. The depression was prolonged for tragically unnecessary years by the same evil that caused it: government controls and regulations.

Contrary to popular misconception, controls and regulation began long before the New Deal; in the 1920’s, the mixed economy was already an established fact of American life. But the trend toward statism began to move faster under the Hoover Administration—and, with the advent of Roosevelt’s New Deal, it accelerated at an unprecedented rate. The economic adjustments needed to bring the depression to an end were prevented from taking place—by the imposition of strangling controls, increased taxes, and labor legislation. This last had the effect of forcing wage rates to unjustifiably high levels, thus raising the businessman’s costs at precisely the time when costs needed to be lowered, if investment and production were to revive.

The National Industrial Recovery Act, the Wagner Act, and the abandonment of the gold standard (with the government’s subsequent plunge into inflation and an orgy of deficit spending) were only three of the many disastrous measures enacted by the New Deal for the avowed purpose of pulling the country out of the depression; all had the opposite effect.

As Alan Greenspan points out in “Stock Prices and Capital Evaluation,” the obstacle to business recovery did not consist exclusively of the specific New Deal legislation passed; more harmful still was the general atmosphere of uncertainty engendered by the Administration. Men had no way to know what law or regulation would descend on their heads at any moment; they had no way to know what sudden shifts of direction government policy might take; they had no way to plan long-range.

To act and produce, businessmen require knowledge, the possibility of rational calculation, not “faith” and “hope”—above all, not “faith” and “hope” concerning the unpredictable twistings within a bureaucrat’s head.

Such advances as business was able to achieve under the New Deal collapsed in 1937—as a result of intensification of uncertainty regarding what the government might choose to do next. Unemployment rose to more than ten million and business activity fell almost to the low point of 1932, the worst year of the depression.

It is part of the official New Deal mythology that Roosevelt “got us out of the depression.” How was the problem of the depression finally “solved”? By the favorite expedient of all statists in times of emergency: a war.

The depression precipitated by the stock market crash of 1929 was not the first in American history—though it was incomparably more severe than anything that had preceded it. If one studies the earlier depressions, the same basic cause and common denominator will be found: in one form or another, government manipulation of the money supply. It is typical the manner in which interventionism grows that the Federal Reserve System was instituted as a proposed antidote against those earlier depressions—which were themselves products of monetary manipulation by the government.

The financial mechanism of an economy is the sensitive center, the living heart, of business activity. In no other area can government intervention produce quite such disastrous consequences. For a general discussion of the business cycle and its relation to government manipulation of the money supply, see Ludwig von Mises, Human Action.

One of the most striking facts of history is men’s failure to learn from it.

Wow.

That’s about all I can think of. Wow.

John Stossel’s latest 20/20 piece on the so-called economic stimulus features lawmakers, economists, lots of media darlings, and simple, simple questions. After watching this, how can you not wonder what the hell our elected “leaders” are thinking?

(Note: After I posted this, I discovered the video I original watched was only one of six parts, so here you go!)

Part 1 of 6: http://www.youtube.com/watch?v=CiUy5n8gkJs

Part 2 of 6: http://www.youtube.com/watch?v=lZl9AMnwio0

Part 3 of 6: http://www.youtube.com/watch?v=wPTjO3MjdiM

Part 4 of 6: http://www.youtube.com/watch?v=LOAzvWB7mHo

Part 5 of 6: http://www.youtube.com/watch?v=lA1Y61xdCX4

Part 6 of 6: http://www.youtube.com/watch?v=2y4Y9(dWMQzE

This book— Applied Economics by Thomas Sowell— is just chock full of gems. A lot of this stuff I already was aware of, but Sowell frames it exceptionally well.

Here is another blurb from the chapter on insurance which addresses social insurance (e.g. social security), which isn’t a real insurance at all:

Government-run social insurance programs seldom have enough assets to cover their liabilities, but rely instead of making current payments out of current receipts. These are called pay-as-you-go programs— and sometimes they are called pyramid schemes. Pyramid schemes are privately run pay-as-you-go plans— and they are illegal because of their high risk of default and the opportunities for those who run them to take part of the money for themselves. The most famous pyramid scheme was run by a man named Charles Ponzi, who went to jail back in 1920. He used the same principles behind the pension plans of many Western governments today.

Ponzi had promised, within 90 days, to double the investments of those who paid into his program. The first investors who were not deterred by warnings from skeptics were in fact rewarded by having their investments pay off double in 90 days. Ponzi simply paid the first wave of investors with money from the second wave of investors, and the second wave from the even larger number of those in the third wave, as enthusiasm for his plan spread. So long as the number of people attracted to this plan formed an expanding pyramid, both the earlier investors and Ponzi profited handsomely. But, once the pyramid stopped growing, there was no way to continue to pay off those who sent Ponzi their money, since his scheme created no new wealth.

The American Social Security pension system and similar government pension systems in the countries of the European Union likewise take in payments from people who are working and use that money to pay the pensions of people who have retired— paying the first generation who paid into these pension plans with money received from the second generation, and so on.

…

Those who warned that these government pension plans were essentially Ponzi schemes without enough assets to cover their liabilities— that they were “actuarially unsound” in the financial jargon— were either not believed or were brushed aside for having made objections that were theoretically correct by in practice irrelevant. One of those who brushed these objections aside was Professor Paul Samuelson of MIT, the first American winner of the Nobel Prize in economics:

The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in… Always there are more youths than old folks in a growing population. More important, with real incomes growing at some 3% a year, the taxable base upon which benefits rest in any period are much greater than the taxes paid historically by the generations now retired… A growing nation is the greatest Ponzi game ever contrived.

By the end of the twentieth century, however, the day of reckoning began to loom on the horizon for these government pension programs, as it had for the original Ponzi scheme. Contrary to Professor Samuelson’s assertion, there are not always “more youths than old folks.” As birth rates declined in the Western world and life expectancy increased, vastly increasing the number of years in which pensions would have to paid to growing numbers of people, it became painfully clear that either tax rates were going to have to rise by very large amounts or the benefits would have to be reduced in one way or another — or both— or the system would simply run out of money.

Continuing with more excellent excerpts from Applied Economics by Thomas Sowell.

This one is on Government intervention in depressions and comes from the chapter titled Politics versus Economics:

Prior to the Great Depression of the 1930s, there was no tradition of federal government intervention to get the United States out of depressions. Roosevelt’s predecessor, President Herbert Hoover, was the first President to take on that responsibility, and many of his interventions were later simply carrier much further by FDR, despite a political myth that persisted for years that Hoover was a “do nothing” President. In much later years, even prominent former advisers of the Roosevelt administration admitted that FDR’s New Deal was a further extension of what Hoover had been doing. Herbert Hoover was in fact the first President to decide to “do something” on a national scale to try to extricate the country from a depression, though there is no evidence that what he did made things any better and there is considerable reason to believe that they made things worse.

Earlier in the 1920s, a sharp decline in the economy had been largely ignored by President Calvin Coolidge— and the economy pulled out of its decline in relatively short time, as it had pulled out of other such declines in the past. There was nothing inevitable about a stock market crash leading to a decade-long depression. Moreover, as Professor Peter Temin or M.I.T. has noted, the 1929 stock market crash was not unique:

The stock market has gone up and down many times since then without producing a similar movement in income. The most obvious parallel was in the fall of 1987. The isomorphism was uncanny. The stock market fell almost exactly the same amount on almost exactly the same dates.

Another study referred to the October 19, 19878 decline as “by far the worst precentage decline day in the stock market’s history.” In 1987, however, President Ronald Reagan did not react as Presidents Hoover and Roosevelt had in the wake of the 1929 stock market crash. Instead, like Coolidge before him (whom he admired,) Reagan let the economy recover on its own. Far from leading to a Great Depression, the recovery began one of the longest periods of sustained high employment, low inflation, and general prosperity in American history. At the time, however, President Reagan was sharply criticized in the Washington Post for a “do-nothing, let-the-problems-accumulate, Calvin Coolidge act of the 1980s” and was denounced in the New York Times for having “squandered the opportunity” to take action.

I am currently reading Applied Economics by Thomas Sowell and have found it full of awesome quotes and data. For example, this from the chapter section on insurance and risk:

As a matter of financial self-protection, both families and insurance companies must seek to discourage risky behavior in one way or another. For a government agency, however, financed by taxpayers’ money, there is no such urgency about discouraging the increased risks that people may take when those risks are covered by others. Moreover, the agency gets its biggest political support from helping those suffering the consequences of the risks they have taken, however unwisely, not by criticizing them.

Stay tuned for more great nuggets.

Mona Charen wrote an article titled “American Dependence - Where is the responsibility?” that I saw at National Review Online which addresses the issue of which political party to blame for soaring government deficits.

For eight years, the Democrats have entertained us with a great song and dance about deficits. It is now evident that they were, not to put too fine a point on it, insincere.

On the other hand, some of us have been calling out Republicans, in good times and bad, for abandoning principle. In 2003, for example, I wrote: “When it comes to spending, alas, the Republicans are hardly Eagle Scouts either. The ideal of smaller government is in eclipse at the moment. The terror attacks have been seized as an opportunity to lard on new spending for favored constituencies. Citizens Against Government Waste estimates that the federal government will spend $22.5 billion on 9,362 pork-barrel projects in 2003.” And in a 2005 column titled “Who Are These Republicans,” I wrote “And now President Bush, whose greatest sin in his first term was failure to wield the veto pen, has joined enthusiastically in the legalized looting of the taxpayer.”

She opens the article with some mighty embarrassing quotes from Speaker Pelosi in 2006:

“While President Bush continues to trumpet his so-called ‘economic achievements,’ the Bush administration confirmed today that the budget deficit for 2006 will be one of the largest in our nation’s history. President Bush’s failed economic policies have resulted in budgets that are drastically out of balance and skyrocketing debt. Budget deficits translate into higher interest rates, which means that mortgages cost more, credit-card debt grows, and student loans cost more… . Democrats know how to restore fiscal discipline with tough policies of pay-as-you-go budgeting, no new deficit spending … .”

Ahhh. It would be hilarious if it weren’t… you know… our money.

I think every elected official in the federal government needs one of those fancy reset buttons Hillary’s been giving out in Europe.

Beginning in 2007 during the beginning of the 2008 presidential election, many on the right began predicting that the election of one of the viable democratic contenders for president — Clinton and Obama — would result in a significant move toward a socialist state in the US. Some of the more… dramatic ones on the left, including my idol Glenn Beck, have succeeded in bluring the lines between socialism and communism.

Now, I’m sure many pundits and commentators, including the amazing, wonderful and entertaining Beck, really do know the difference between the two, but their flippant banter only confuses people.

This article Cathy Young over at Reason magazine explains the rhetoric pretty well and makes the observation that while Obama’s administration is certainly friendly to larger government chock full of social programs, this isn’t a course change by any means.

A headline in The Weekly Standard warns of “The Return of Big Government”; but big government never left, and certainly not under Bush. Obama may be seeking to reverse Ronald Reagan’s legacy; but, as conservative economist Bruce Bartlett argued persuasively in his 2006 book, Impostor, that legacy was already betrayed by Bush. Many people will tell you we officially became “the U.S.S.A.” with the bank bailout in October 2008.

Since the 2008 presidential election cycle was in full swing, Glenn Beck has been saying that both Republican and Democrat parties were both in favor of “taking us to the same place, only one is taking us in a steam train and the other is taking us in a jet plane.”

It seems any time philosophical labels are brought up on the Internet, bad things tend to happen. I think part of the reason there has been so much back and forth discussion about these labels is due to Jonah Goldberg’s book Liberal Fascism: The Secret History of the American Left, From Mussolini to the Politics of Meaning. People have ridiculed Jonah, but I think he’s dead-on.

Many people believe Hitler was the epitome of fascism and that fascism is an extreme form of right-wing thinking — that had George W. Bush been able to go full-bore and do whatever he wanted as much as he wanted, we would have seen the second coming of Hitler. (Note: Bush is a poor analogy since he is, by far, a moderate Republican and not the poster-boy for the far-right.) Jonah Goldberg sets the record straight and I have to wonder why we ever wondered in the first place. After all, the Nazis stood for the “National Socialist German Workers’ Party”. “Socialist” and “Workers” should be the key words there. That’s something to think about.

As President Obama and the US Congress continue to, in my opinion, destroy wealth-production in our country and severely handicap our ability to recover from the economic advertsity we’ve gotten into, I’m encouraged by leaders of business, like Gregory Knox, who obviously get it.

The new administration seems set on continuing to bail out failing businesses and providing support to labor unions — big reasons these businesses are failing!

Here’s a letter from a president of General Motors to his employees in 2008:

Dear Employee,

Next week, Congress and the current Administration will determine whether to provide immediate support to the domestic auto industry to help it through one of the most difficult economic times in our nation’s history. Your elected officials must hear from all of us now on why this support is critical to our continuing the progress we began prior to the global financial crisis… As an employee, you have a lot at stake and continue to be one of our most effective and passionate voices. I know GM can count on you to have your voice heard.

Thank you for your urgent action and ongoing support.

Troy Clarke
President
General Motors North America

Mr. Knox wrote a letter back to Mr. Clarke in December 2008:

In response to your request to call legislators and ask for a bailout for the United States automakers please consider the following, and please also pass this onto Troy Clark, the president of General Motors North America for me.

You are both infected with the same entitlement mentality that has bred like cancerous germs in UAW halls for the last countless decades, and whose plague is now sweeping the nation, awaiting our new “messiah” to wave his magical wand and make all our problems go away, while at the same time allowing our once great nation to keep “living the dream”.

The dream is over!

The dream that we can ignore the consumer for years while management myopically focuses on its personal rewards packages at the same time that our factories have been filled with the worlds most overpaid, arrogant, ignorant and laziest entitlement minded “laborers” without paying the price for these atrocities and that still the masses will line up to buy our products

Don’t tell me I’m wrong. Don’t accuse me of not knowing of what I speak. I have called on Ford, GM, Chrysler, TRW, Delphi, Kelsey Hayes, American Axle and countless other automotive OEM’s and Tier ones for 3 decades now throughout the Midwest and what I’ve seen over the years in these union shops can only be described as disgusting.

Mr Clark, the president of General Motors, states:

“There is widespread sentiment in this country, our government and especially in the media that the current crisis is completely the result of bad management. It is not.”

You’re right, it’s not JUST management, how about the electricians who walk around the plants like lords in feudal times, making people wait on them for countless hours while they drag ass so they can come in on the weekend and make double and triple time for a job they easily could have done within their normal 40 hour week

How about the line workers who threaten newbies with all kinds of scare tactics for putting out too many parts on a shift and for being too productive (mustn’t expose the lazy bums who have been getting overpaid for decades for their horrific underproduction, must we?!?) Do you really not know about this stuff?!?

How about this great sentiment abridged from Mr. Clarke’s sad plea:

“Over the last few years we have closed the quality and efficiency gaps with our competitors.”

What the hell has Detroit been doing for the last 40 years?!?

Did we really JUST wake up to the gaps in quality and efficiency between us and them?

• The K car vs. the Accord?

• The Pinto vs. the Civic?!?

Do I need to go on?

We are living through the inevitable outcome of the actions of the United States auto industry for decades.

Time to pay for your sins, Detroit .

I attended an economic summit last week where a brilliant economist, Alan Beaulieu surprised the crowd when he said he would not have given the banks a penny of “bailout money”. Yes, he said, this would cause short term problems, but despite what people like George Bush and Troy Clark would have us believe, the sun would in fact rise the next day and something else would happen. Where there had been greedy and sloppy banks, new efficient ones would pop up. That is how a free market system works. It does work if we would let it work!

But for some reason we are now deciding that the rest of the world is right and that capitalism doesn’t work; that we need the government to step in and “save us”. Save us, hell we’re nationalizing and unfortunately too many of this once fine nation’s citizens don’t even have a clue that this is what’s really happening but they sure can tell you the stats on their favorite sports teams yeah THAT’S important.

Does it occur to ANYONE that the “competition” has been producing vehicles, EXTREMELY PROFITABLY, for decades now in this country?…

How can that be???

Let’s see - -

• Fuel efficient -

• Listening to customers -

• Investing in the proper tooling and automation for the long haul -

• Not being too complacent or arrogant to listen to Dr W Edwards Deming 4 decades ago -

• Ever increased productivity through quality, lean and six sigma plans -

• Treating vendors like strategic partners, rather than like “the enemy” -

• Efficient front and back offices -

• Non union environment

Again, I could go on and on, but I really wouldn’t be telling anyone anything they really don’t already know in their hearts

I have six children, so I am not unfamiliar with the concept of wanting someone to bail you out of a mess that you have gotten yourself into. My children do this on a weekly, if not daily basis, as I did at their age. I do for them what my parents did for me (one of their greatest gifts, by the way). I make them stand on their own two feet and accept the consequences of their actions and work them through.

Radical concept, huh?

Am I there for them in the wings? Of course but only until such time as they need to be fully on their own as adults

I don’t want to oversimplify a complex situation, but there certainly are unmistakable parallels here between the proper role of parenting and government.

Detroit and the United States need to pay for their sins.

Bad news people, it’s coming whether we like it or not.

The newly elected Messiah really doesn’t have a magic wand big enough to “make it all go away” I laughed as I heard Obama “reeling it back in” almost immediately after the vote count was tallied “we might not do it in a year or in four”! Where was that kind of talk when he was RUNNING for the office

Stop trying to put off the inevitable!

That house in Florida really isn’t worth $750,000!

People who jump across a border really don’t deserve free health care benefits!

That job driving that forklift for the big 3 really isn’t worth $85,000 a year!

That couple whose combined income is less than $50,000 really shouldn’t be living in that $485,000 home!

Let the market correct itself people, it will. Yes it will be painful, but it’s gonna be painful either way, and the bright side of my proposal is that on the other side of it is a nation that appreciates what is has and doesn’t live beyond its means and gets back to basics and redevelops the work ethic that made it the greatest nation in the history of the world and probably turns back to God.

Sorry, don’t cut my head off. I’m just the messenger sharing with you the “bad news”

Gregory J Knox
President
Knox Machinery, Inc.
Franklin, Ohio 45005

I just returned from vacationing with my family in California, a state that is hurting terribly right now economically and is also a “leader” among states in the fight against global warming. While vacationing, we spoke with a few locals and just about all had personal stories to tell about the economic perils of the state. One older couple described how one of their sons had been laid off from his job and wasn’t enjoying being “Mr. Mom.” Another couple told us a story of gettign IOUs from the state in place of a state tax refund.

In a previous post, I presented the notion that “cap and trade” legislation was, in reality, a tax on businesses. Proponents of cap and trade have argued it is not a tax because the revenue from the purchases of carbon credits (the permits required to emit the restricted materials) does not go to the government. But, it’s just the same to the business- a penalty they must pay which is calculated more or less as a portion of their overall production.

Politicians like to say things like “This isn’t a tax on the individual. This is a tax on corporations.” A lot of people buy into that, but people who understand how business works realize a tax on business results in a burden on individuals because businesses aren’t going to eat the cost of those taxes — they’re going to pass it on to the consumer. Cap and trade is no different.

Over the last couple of years, there has been talk about a carbon tax instead of cap and trade. This would be a literal tax and would provide revenue to the government from companies that emit over the prescribed capped levels. Either way, it’s still an additional cost on production for companies that are already struggling in today’s tough economy and operating in a country with some of the highest corporate tax rates in the the world.

What do large companies do when the cost of operations in a region is high? They do what many “evil” American companies do: they move operations to a region where operations can be done under more friendly terms. Case in point: California. Increasing regulations, taxes, and red tape have prompted California employers to relocate to other more business-friendly regions over the last decade. The result: A recent headline indicates unemployment numbers in California around ten percent!

Finally, here’s some food for thought: American companies, whether out of principle or because of the intimidation of the Environmental Protection Agency, generally conduct the cleanest operations in their industry, worldwide. This doesn’t surprise me after I see automotive manufacturers repeatedly include verbiage in their marketing about how little energy they use, how much recycled material they use, or how much they do to offset their impact on the environment.

If you buy into the idea of global warming gradually destroying our planet, you should realize that almost all regulatory schemes like cap and trade are based on older, flawed models like Kyoto. If these regulation schemes force companies to move operations to regions with less cost/regulation or force manufacturers to purchase their raw goods from producers in other countries, the overall impact to the planet probably isn’t going to change. Countries with inexpensive labor costs like China, India, Russia and others have practically no incentive to regulate their impact on the environment whatsoever.

The best policy, both for our economy and for the good of the planet (if you’re an alarmist) is to promote production in the United States where we do things clean, efficiently, and under a watchful eye.