Category: The Economy
Posted by: an okie gardener
As parents of an alumnus, we receive the Trinity University (San Antonio) magazine. In the recent issue the Economics faculty offered some thoughts I want to share.

The deficit keeps eating up money that otherwise goes into private investment. That means the capital stock is not going to grow. And if capital stock doesn't grow, then productivity doesn't grow, and that in turn means our standard of living is going to be much lower than it would be otherwise. Roger Spencer

A year from now we'll start hearing about the jobless recovery. Employment is always a lagging indicator, and especially so at this time. Once we start growing again, we have some fiscal time bombs: Medicare, the prescription benefit program, and Social Security, pretty much in that order. Jorge Gonzales

Politicians will say they believe that the capitalist system is the best system. But the truth is politicians do not have full faith in free enterprise and in the capitalist system. They believe they need to meddle; they believe that government needs to intervene in all things. Philip Cooley.

I can't find the magazine online to link to the full article. Here is the Trinity website, a school I am happy with as the parent.

26/03: SAY WHAT!?!

Category: The Economy
Posted by: A Waco Farmer
This morning I caught a Steve Inskeep interview with Kent Conrad, chairman of the Senate Budget Committee and so-called budget hawk. The South Dakota Democrat spent five minutes explaining how to be a fiscal conservative while helping the president actualize New Deal 3.0

That was good for a laugh, but then things went from funny to alarming with the following exchange.

When reminded that "some Republicans have used the word bankruptcy," Conrad assured us that the opposition was just engaging in lose rhetoric.

"You know it's really not that much of a possibility," asserted Conrad, "because governments can print money."

More Conrad:

"We know the history. Governments can inflate their way out of debt, but that has consequences, doesn't it? So when our Republican friends use that word [bankruptcy], it's not reality. What is a real threat is a precipitous decline in the value of the dollar and the threat that would pose to the economic security of the country."


That's great. Don't worry about bankruptcy. We can always hyper-inflate and all be millionaires before that would happen.

Don't worry about NOT being able to swim, the fall will probably kill you first.
Category: The Economy
Posted by: A Waco Farmer
Nobel prize-winning economist and NYT columnist, Paul Krugman, pronounces The Geithner Plan economic "hocus pocus" and dead on arrival.

Why is this good news?

For all his erudition and acclaim, Krugman is too often a pompous and grandiloquent fool. And history, possessing a keen sense of irony, tends to seek out the most bombastic and definitive statements for singular embarrassment.

In short, Krugman is salivating at the possibility of a failure so huge that the only solution is complete government control (and I suspect he would also relish a turn running Treasury). But a successful private-public partnership does not further his agenda for nationalized banking and a planned economy.

This is not the first time Krugman has let his preferences get in the way of his judgment. He possesses a track record for pronouncements of doom that turned out to be nothing more than wishful thinking.

Krugman on the SURGE in Iraq (September 2007):

The smart money, then, knows that the surge has failed, that the war is lost, and that Iraq is going the way of Yugoslavia. And I suspect that most people in the Bush administration — maybe even Mr. Bush himself — know this, too.

The Financial Crisis is Barack Obama's Iraq. Just as President Bush understood that Iraq (once engaged) was the one potential threat that could fundamentally alter American hegemony in the world, President Obama needs to understand that the potential Financial Meltdown possesses the same destructive capacity.

Just as the surge had to work to save us all, the Geithner Plan has the same scent of absolute necessity (and desperation).

I hope the "Krug" is just as wrong now as he was then.
Category: The Economy
Posted by: an okie gardener
Story, link from Drudge.

March 8 (Bloomberg) -- Republican lawmakers said Congress should stop providing General Motors Corp. with federal aid and let the company file for bankruptcy if necessary.

“The best thing that could probably happen to General Motors, in my view, is they go into Chapter 11,” Senator John McCain said on the “Fox News Sunday” program today.

Of course, going into Chapter 11 does not mean ultimate failure. But, in the present political climate, it seems that we are assuming the Federal Government will decide whether or not the automaker fails or succeeds. That is not a good assumption for the long-term health of the economy.

The first family car I remember was the De Soto that my dad had before he married mom. Don't see too many on the road today.

If I remember correctly, the first car I can remember my maternal grandparents driving was a Studebaker. I don't know when I've seen one on the road.

The pastor during my boyhood drove an American Motors Rambler. I did see one the other day.

Until I was a young man, I saw several International Harvestor pick-ups in daily use, and the occasional IH Scout. I am not sure our younger readers even know what a Scout is.

American business has operated in a Darwinian world. In such an environment some species will become extinct. Others will prosper. In a government-controlled economy, the peasants drive Trabants.
Category: The Economy
Posted by: Martian Mariner
Okie Gardner recently pointed out that The Market Is Not God. I'm pleased to see the note of caution on pure reliance on "the market." Smith calls pricing (supply/demand) the "Invisible Hand," and claims that when individuals act in self-interest they end up working in society's interest. He never said anything about the "Infallible Hand."

Another issue we've got to look at is that Smith's conception of "society" is no longer synonymous with "nation." It was understood early on that while self-interested capitalist action would be beneficial to society overall, it would certainly be more beneficial to some than to others. When a market is wholly contained within a state, the government can regulate these "market failures." The problem now is the markets, particularly the oil market as pointed out by okie gardner, are world-wide rather than national. Therefore, the disproportional accrual of benefits is not just going to the Rockefellers, but to the al-Sauds and the Nevzlins.

And that's the way the market works. Those with the capital, resources, and entrepreneurship are going to get the big bucks, which, the way our international political economy is structured, equals power. An honest advocate for a purely free-market must accept that (and all it means) and move on.

The bigger problem comes when we look to market principles and expect that the market should and always will favor America. Yes, it has for a long time in a lot of areas. But it won't always, and it certainly won't in all sectors. I'd cite a few examples, but I take it you've turned on the news sometime this year.

So, I'd tag a modifier to Gardener's statement - The market is not God, and it is most certainly not a god who prefers America over all others. So if regarding the "Market" as absolute borders on idolatry, holding un-regulated market solutions invariably to be the best policy is also unpatriotic.

[I may tackle Gardener's other topic, which economists politely label as "negative externalities" in another post. Needless to say, this is another area in which market regulation is a net benefit.]
Category: The Economy
Posted by: A Waco Farmer
Back in my old car-selling days, smart operators lived by this saying:

"Better to have half a loaf than no loaf."

But not the UAW, evidently. On one hand, they are spreading talk of an impending economic cataclysm if the Big Three fail, but, in the same breath, they refuse to buckle down, suck it up, and accept compensation packages comparable to the competition.

Give us billions to save our jobs, but don't ask us to take painful cuts.

Some other quick thoughts on the Republican stand last night to stymie the Fed Bailout of the Big Three:

1. Regardless of what Democratic leadership may say, the GOP is not responsible for this tragedy. Democratic leaders needed to stand up to the UAW. Kudos to Republicans for courage and principled behavior in the face of incendiary political rhetoric.

2. The Nancy Pelosi wing of the Democratic Party is committed to a radical political solution to a peripheral concern that they have falsely indentified as the core problem; that is, the San Francisco Democrats are convinced that the fundamental flaw in GM's business model is that they have not produced enough Toyota Prius-like vehicles.

Wrong. In truth, very few practical-minded consumers want to buy hybrid cars for ten thousand dollars more than comparable fuel efficient gasoline-driven models. If we hand the American auto-making franchise over to the "Earth in the Balance" crowd, it will not be long before USA Motors will be producing a Yugo-like, faux-environmentally friendly monstrosity that no one will drive.

3. Saturn is a profitable division. GM trucks and SUVs are not going away. The Chevy Malibu is worth owning. And the list goes on. Worst-case scenario: Chapter 7. Someone will come along and buy up these assets sans the suicidal labor contracts--and American auto manufacturing will survive in some form, go through a process of healing and regeneration, and inevitably experience a rebirth at some point.

4. The President should stay away from this impasse. The UAW and the Democrats are expecting him to cave. Standing up to this power play will be incredibly difficult. The PR will be atrocious: lame duck, Herbert Hoover, heartless SOB, etc. But he needs to let this thing play out.

One more thought: if the automobile companies are to be nationalized, let it be done by the next president.
Category: The Economy
Posted by: A Waco Farmer
Does anybody really believe the troubled American auto industry will rebound under the leadership of Nancy Pelosi, Barney Frank, and Henry Waxman?

Perhaps, if you believe the real problem is that we have NOT had enough solar cars and/or GM just doesn't pay their workers a living wage, you might be cheering the government takeover.

Otherwise, I think you can mark down this day as the beginning of the final death spiral for the Big Three.
Category: The Economy
Posted by: A Waco Farmer
Lately, my time to blog has been scarce. However, I have enjoyed reacting to my friend Mark Osler's blog. From the beginning, Osler has consistently and adamantly expressed opposition to the financial sector bailout. He continues to inveigh against the practice in this post on the latest "Citigroup" episode in the unfolding melodrama.

However, I am not sure that I have fully expressed my deep anxiety over this financial meltdown on my own turf. If you are interested, you can get a feel for my abject trepidation concerning our current financial crisis.

Three comments from Osler's Razor that capture my dread:

No Auto Bailout!!!!

If Nissan and Honda can make cars profitably in the USA, we should not give GM and Ford any freebies. Let 'em sink or swim.

However, the continuing government bailout/rescue of the financial sector continues to be worth the effort.

In for a penny; in for a pound.

Here is a sad but true fact:

it is better to be a banker than an auto worker.


Because the sine qua non of any modern economy is liquidity [and banking stability and depositor security]. The banks have a gun to our head. If we lose the banks, we are fourth world.

Massive Bank failures = GREAT DEPRESSION.

Nothing else you can imagine compares to this dreadful looming possibility.

Creative destruction is a part of capitalism--yes. And I am a big proponent of capitalism--yes.

Pull GM's decaying carcass off the road and clear the way for the next innovator.

But that is not the way banking works. Remember, massive bank failures = GREAT DEPRESSION.

The Good News: President-elect Obama is bringing back a group of Wall Street sharpies who are clear-eyed realists. They understand where we are and what needs to be done.

The Car Question is politics; the Bank Question is pure survival.

Of course, none of this may matter. The banks might still fail--but, at this point, that means that they take the whole government down with them.

We cannot save every industry in the coming crisis. But, if we get real lucky, and God really does watch over drunks, fools, and the United States, we just might save the banks—and our own hides.

And this:

The difference between the banking crisis and the tragedy of American automobile manufacturing is that we can survive without American-made cars.

If the government folds its hands and watches banks like Citi go bust, or the other myriad private financial institutions that we have bolstered, or the quasi-public Freddie Mac or Fannie Mae, we will initiate a launch sequence of massive panic.

Right now the thin blue line between society as we have come to know it and complete chaos is the assurance that money and banks are backed by the United States government.

You [Osler] are correct that the liquidity is not coming back as hoped--although we have thus far avoided the Great Crash and the ensuing pandemonium.

And there is some irony that the new President-elect is charging the foxes to guard the hen house--but, the truth is, we just have no other choice.

Or do we?

What is your proposal at this point?

Osler replied:

I think if you are going to intervene, let the weak go bust and bolster two groups-- the strong and the new innovators.

Are you assuming the feds will cover all the losses on all the banks we elect not to prop up?

I don't think we have the ability to do that. That is, I fear this is financially NOT feasible. NOT POSSIBLE.

The only hope for us, in my view, is for the feds to guarantee the banks, pump in massive amounts of fake cash, create the illusion of security, and allow the banks to heal themselves.

No guarantee there--but our best bet.

If we start letting these big banks fail, I fear we put the lie to the house of cards we are counting on to protect us from the cold.
Category: The Economy
Posted by: an okie gardener
Recently Instapundit linked to this story from Popular Mechanics on the Top Ten Startup Car Makers.

These are ten new companies that are either in production, or near production of automobiles. Some of them are performance gas-guzzlers. Others are electric cars. One is a speciality police car.

Historically in the United States, and it has served us well, businesses came into being and passed out of being--a constant state of creative ferment: Darwinism in the economic realm where the fittest survive. Remember A&P? Montgomery Ward? Remember America before Wal-Mart? Before Apple? Ultimately the consumer benefits.

Preserving the Big Three with government money freezes the status quo in place. May be the best thing that can happen to American auto manufacturing is for one or more of the big guys to tank, and a new collection of car makers to grow.

New technologies also contribute to this creative ferment. The demise of demand for whale-oil hit certain New England seaports hard. But the increased demand for petroleum did wonders for parts of Pennsylvania, Texas, Oklahoma, etc. Overall, as old jobs disappeared, new ones appeared.

Transitions are tough on people. No doubt about it. But what are the alternatives?

Think of a continuum--a line where one color gradually shades into another color without sharp breaks. This contimuum represents Industrial society. At one end is laissez-faire capitalism--Capitalism with no restraints. In Capitalism the means of production are in private hands, and the decision-making is in private hands. At the other end of the continuum is pure Socialism--the means of production and decision-making are in public (read government) hands. Various combinations are in between. Pure Socialism has never been very good at benefitting the masses. While the elites do OK, the masses stand in line for toilet paper. On the other hand, at the end of the nineteenth century we learned that pure laissez-faire Capitalism led to monopolies, abuse of workers, and other bad things. So we moved to regulated Capitalism. The means of production remained in private hands, and decision-making remained in private hands within the bounds of regulations to ensure competition, humane treatment of workers, etc. This has worked out pretty well. (Distributivism, such as G.K.Chesterton espoused following Pope Leo XIII, results in a pre-industrial society, I think.)

We are now, I think, at a point in our nation's history when we may be sliding a bit farther down the continuum from Regulated-Capitalism toward the Socialist end. That direction does not promise prosperity.

And there is another worry. Liberty is a fragile condition. Most human beings in the history of the world have not had much. Moving toward the Socialist end of the spectrum, taking more out of private hands and putting it under government control, creates a stronger and stronger government. Stronger governments are threats to Liberty, even if the government thinks it has noble motives.

We may be moving in this direction because we have come to believe that life should have no risk, that there should be no suffering or hardship. Not possible. A world without risk or hardship is a world without Liberty, and without personal responsibility.

Am I being callous? No. I want reasonable Unemployment Insurance for American workers. And I want government limited so that there is money for private charity. But sometimes people must move to find work. Sometimes people must change jobs. The European model is becoming unsustainable even in Europe. We should take a lesson.
Category: The Economy
Posted by: Martian Mariner
Thomas Friedman has a lucid commentary on the causes of the current financial crisis in today's NYT: Why How Matters

A quote which well summarizes his argument:

You cannot tell tens of thousands of people that they can have the American dream — a home, for no money down and nothing to pay for two years — without that eventually catching up to you. The Puritan ethic of hard work and saving still matters.

I don't always agree with the NYT (see here), but she's still got some good things to say, especially when Tom Friedman's the one saying them.