Dispatches from District 48
Archive for the ‘The Corporate State’ Category.
What a surprise -- apparently forced to make their case to private investors now rather than just DOE bureaucrats whose main criteria is "did this company support President Obama in the last election", Fisker is having trouble raising money and may declare bankruptcy.
...uh, just because
Update: Whenever I argue with people about this, I find out that we share different assumptions. Those who seem to support the bailouts assume that given some breathing space, the reckoning in Europe can be avoided. I assumed the reckoning is unavoidable, and will come either soon or at best in the next cyclical downturn. And it will be far worse in, say, 2015 than it would have been in 2010. Every time we delay the reckoning, we make it far worse.
And then there are politicians. I don't think they honestly know or care if the reckoning is unavoidable. They only care if it does not happen this minute. For politicians, the discount rate on pain is infinite. Future pain is thus always better than current pain.
Florida editorial via the Crony Chronicles
The problem with [the theory that sports subsidies help the economy] is that there is scant evidence that such economic benefits actually occur. Numerous studies done over the last 25 years have found that professional sport teams have little, if any, positive effect on a city’s economy. Usually, a new team or a new stadium location doesn’t increase the amount of consumer spending, it merely shifts it away from other, already existing sources. Entertainment dollars will be spent one way or another whether a stadium exists or not. Plus, the increase in jobs is often modest at best — nowhere near enough to offset the millions invested in the projects.
It's amazing they got the local paper to print this. Most local papers would be defunct without a sports page. As a result, local newspapers generally bring to bear tremendous pressure in favor of subsidies to attract and keep new professional sports teams. Our local paper the AZ Republic tends credulously publish every crazy, stupid benefit study of sports teams on the road to promoting more local subsidies for them.
I am simply amazed at this level of cronyism enjoyed by the sugar industry -- import restrictions on cheaper world sugar, price supports, and government loans that can be paid back with excess product rather than cash.
The U.S. Department of Agriculture is likely to buy sugar in the domestic market this year in order to drive prices up and prevent defaults on loans made to sugar processors, according to a USDA economist.
The USDA estimates it would need to buy 400,000 tons of sugar to boost prices to an “acceptable level,” said Barbara Fecso, an economist at the department. A purchase of 400,000 tons would amount to about 4.4% of projected U.S. sugar production in the marketing year that ends Sept. 30.
Domestic sugar prices have been trading at about 20 cents a pound, their lowest level in nearly four years, putting companies that make sugar from cane or beets at risk of defaulting on loans they received from the USDA when prices were higher.
People talk about these supposed government subsidies for oil companies, but every time I see a list of them they are dominated by things like depletion allowances, FIFO accounting, and investment tax credits, which are either standard accounting rules that apply to all industries or tax credits that apply to all manufacturers. But Big Sugar gets real heavy-duty subsidies no one, except maybe ethanol companies and other farmers, get.
Steven Rattner, investment banker and former member of the Obama Administration, is terrified that under a proposed law companies will be able to raise money without investment bankers.
Most troublesome is the legalization of “crowd funding,” the ability of start-up companies to raise capital from small investors on the Internet. While such lightly regulated capital raising has existed for years, until now, “investors” could receive only trinkets and other items of small value, similar to the way public television raises funds. As soon as regulations required to implement the new rules are completed, people who invest money in start-ups through sites similar to Kickstarter will be able to receive a financial interest in the soliciting company, much like buying shares on the stock exchange. But the enterprises soliciting these funds will hardly be big corporations like Wal-Mart or Exxon; they will be small start-ups with no track records.
This is absolutely, classically representative of the technocratic arrogance of the Obama Administration and the investment bankers that inhabit it. I have three quick thoughts:
I predict that over that Internet entrepreneurs running such crowd-sourcing sites would develop reputation management and review tools for investors (similar to those at Amazon and eBay). Over time, it may be that these become far more trustworthy than current credit agency reports or investment bank recommendations. After all, which do you trust more -- a 5-star Amazon review with 35 responses or a Goldman Sachs "buy" recommendation on an IPO like Facebook or Groupon? Besides, it would take a very long time, like eternity, for fraud losses in a crowd-sourcing site to equal 1/100 of the investor losses to heavily regulated Bernie Madoff.
Obama and the Left want a big new infrastructure spending bill, based on twin theories that it would be a) stimulative and b) a bargain, as needed infrastructure could be built more cheaply with construction industry over-capacity.
Since this is exactly the same theory of the stimulus four years ago, it seems a reasonable question to ask: What happened to the damn money we spent last time? We were sold a 3/4 of a trillion dollar stimulus on it being mostly infrastructure. So where is it? Show us pictures, success stories. Show us how the cost of construction of these projects were so much lower than expected because of construction industry over-capacity. Show us the projects selected, to demonstrate how well thought-out the investment prioritization was. If their arguments today have merit, all these things must be demonstrable from the last infrastructure bill. So where is the evidence?
Of course, absolutely no one who wants to sell stimulus 2 (or 3?) wants to go down the path of investigating how well stimulus 1 was spent. Instead, here is the argument presented:
Much of the Republican opposition to infrastructure spending has been rooted in a conviction that all government spending is a boondoggle, taxing hard-working Americans to give benefits to a favored few, and exceeding any reasonable cost estimate in the process. That's always a risk with new spending on infrastructure: that instead of the Hoover Dam and the interstate highway system, you end up with the Bridge to Nowhere and the Big Dig.
In that sense, this is a great test of whether divided democracy can work, and whether Republicans can come to the table to govern. One can easily imagine a deal: Democrats get their new infrastructure spending, and Republicans insist on a structure that requires private sector lenders to be co-investors in any projects, deploying money based on its potential return rather than where the political winds are tilting.
This is bizarre for a number of reasons. First, he implies the problem is that Republicans are not "coming to the table to govern" In essence then, it is up to those who criticize government incremental infrastructure spending (with a lot of good evidence for believing so) as wasteful to come up with a solution. Huh?
Second, he talks about requiring private lenders to be co-investors in the project. This is a Trojan horse. Absurd projects like California High Speed Rail are sold based on the myth that private investors will step in along side the government. When they don't, because the project is stupid, the government claims to be in too deep already and that it must complete it with all public funds.
Third, to the extent that the government can sweeten the deal sufficiently to make private investors happy, the danger of Cronyism looms large. You get the government pouring money into windmills, for example, that benefits private investors with a sliver of equity and large manufacturers like GE, who practically have a hotline to the folks who run programs like this.
Fourth, almost all of these projects are sure to be local in impact - ie a bridge that helps New Orleans or a street paving project that aids Los Angeles. So why are the Feds doing this at all? If the prices are so cheap out there, and the need for these improvements so pressing, then surely it makes more sense to do them locally. After all, the need for them, the cost they impose, and the condition of the local construction market are all more obvious locally than back in DC. Further, the accountability for money spent at the Federal level is terrible. There are probably countless projects I should be pissed off about having my tax money fund, but since I don't see them every day, I don't scream. The most accountability exists for local money spent on local projects.
I cannot believe the sky-is-falling panic around the sequester. It is all so much BS. The sequester represents a trivial percentage reduction in spending down to levels we have not seen for, like, 2 years or so. But apparently everyone is getting into the act claiming the world will end if we cut a couple of percent from the growth rate of government spending. As an illustration, this is the over-wrought absurd email I just recieved:
If implemented, the US Navy directed cancellation of ship repair and maintenance due to lack of an approved Defense budget and sequestration will have a drastic impact on the commercial ship repair industry across the nation. The more than 150,000 expert ship repair professionals that have been cultivated across the nation cannot be easily replaced by a new workforce. In addition, many of our yards nationwide do both defense and commercial work. The Navy cancellations would severely undermine their ability to continue operating in a high quality, efficient manner.
The Virginia Ship Repair Association urges you to learn more and voice your concern. We have provided templates for mailing letters to your members of Congress, as well as contact lists to make phone calls. Please join us in this effort to preserve our maritime interests, protect our shipyards and secure the future of our workforce.
US Shipyards among the great pork-barrel spending stories in this country's history. Show me a shipyard with lots of defense business (e.g. Ingalls in Pascagoula) and I will show you a Senator from that state who wielded immense power on Congressional defense committees.
The story the other day that AIG was considering suing the taxpayers because the taxpayers did not give them a nice enough bailout was so vomit-inducing that I did not even look much further into it.
A couple of readers whom I trust both wrote me to say that the issues here are a bit more complex than I made them out to be. The Wall Street Journal sounds a similar note today:
Every taxpayer and shareholder should be rooting for this case to go to trial. It addresses an important Constitutional question: When does the federal government have the authority to take over a private business? The question looms larger since the 2010 passage of the Dodd-Frank law, which gave the feds new powers to seize companies they believe pose risks to the financial system.
That vague concept of "systemic risk" was the justification for the AIG intervention in September 2008. In the midst of the financial crisis, the federal government seized the faltering insurance giant and poured taxpayer money into it. The government then used AIG as a vehicle to bail out other financial institutions.
But the government never received the approval of AIG's owners. The government first delayed a shareholder vote, then held one and lost it in 2009, and then ignored the results and allowed itself to vote as if the common shareholders had approved the deal.
In 2011 Mr. Greenberg's Starr International, a major AIG shareholder, filed a class-action suit in the U.S. Court of Federal Claims in Washington alleging a violation of its Constitutional rights. Specifically, Starr cites the Fifth Amendment, which holds that private property shall not "be taken for public use, without just compensation." The original rescue loans from the government required AIG to pay a 14.5% interest rate and were fully secured by AIG assets. So when the government also demanded control of 79.9% of AIG's equity, where was the compensation?
Greenberg is apparently arguing that he would have preferred chapter 11 and that the company and its original shareholders likely would have gotten a better deal. Perhaps. So I will tone down my outrage against Greenberg, I suppose. But nothing about this makes me any happier about bailouts and corporate cronyism that are endemic in this administration.
Modern pirates do not need a ship or swords or cannon, they only need lobbyists. Ever wonder how Captain Morgan rum pays for all that expensive TV advertising? They don't -- you do! At President Obama's insistence, their subsidies (along with many others) were extended in the recent "fairness" tax bill.
This story is simply unbelievable. Shareholders of AIG should have been wiped out in 2008 in a bankruptcy or liquidation after it lost tens of billions of dollars making bad bets on insuring mortgage securities. Instead, AIG management and shareholders were bailed out by taxpayers.
It is bad enough I have to endure those awful commercials with AIG employees "thanking" me for their bailout. It's like the thief who stole my TV sending me occasional emails telling me how much he is enjoying it.
Now, AIG managers and owners are considering suing the government because the the amazing special only-good-for-a-powerful-and-connected-company deal they got was not good enough.
Directors at American International Group Inc., AIG -1.28% the recipient of one of the biggest government bailout packages during the financial crisis, are considering whether to join a lawsuit that accuses the U.S. government of too-onerous terms in the 2008-2009 rescue package.
The directors will hear arguments on Wednesday both for and against joining the $25 billion suit, a person briefed on the matter said. The suit was filed in 2011 on behalf of Starr International Co., a once very large AIG shareholder that is led by former AIG Chief Executive Maurice "Hank" Greenberg. It is pending in a federal claims court in Washington, D.C....
Starr sued the government in 2011, saying its taking of a roughly 80% AIG stake and extending tens of billions of dollars in credit with an onerous initial interest rate of roughly 15% deprived shareholders of their due process and equal protection rights.
This is especially hilarious since it coincides with those miserable commercials celebrating how AIG has successfully paid off all these supposedly too-onerous obligations. And certainly Starr and other AIG investors were perfectly free not to take cash from the government in 2008 and line up some other private source of financing. Oh, you mean no one else wanted to voluntarily put money into AIG in 2008? No kidding.
Postscript: By the way, employees of AIG, you have not paid off all the costs of your bailout and you never will. The single largest cost is the contribution to moral hazard, the precedent that insurance companies, if sufficiently large and well-connected in Washington, can reap profits on their bets when they go the right way, and turn to the taxpayer to cover the bets when they go wrong.
Kevin Drum is uncomfortable that Google got off the hook on anti-trust charges merely because it was not harming consumers
Google made a number of arguments in its own defense, and consumer welfare was only one of them. Still, it was almost certainly the main reason they won, and it's still not clear to me that this is really what's best for consumers in the long run. Did Google users click on the products they highlighted? Sure. Did they buy some of the stuff? Sure. Were they happy with their purchases? Sure. Is that, ipso facto, evidence that there's no long-run harm from a single company dominating the entire search space? I doubt it. After all, John D. Rockefeller could have argued that consumers bought his oil and were pretty happy with it, so what was the harm in his controlling the entire market?
The tech industry moves fast enough that antitrust might genuinely not be a big issue there. In the end, it wasn't antitrust that hurt IBM and Microsoft. It was the fact that the industry moved rapidly toward smaller computers and then the internet, and neither company was really able to react fast enough to dominate these new spaces. Nonetheless, I'm skeptical of the tautology at the heart of the consumer welfare argument. If a company is successful, then by definition people must be buying its stuff. On this basis, bigness is simply unassailable anymore. That has broad societal implications that I suspect we're not taking seriously enough.
He seems to be arguing that we consider returning to a pure bigness standard without reference to consumer harm. I am not sure that we ever followed such a standard, but certainly today the alternative to a consumer harm standard is not a bigness standard but a competitor harm standard. Whether he knows it or now, this is essentially what Drum is advocating. We see this in the article he quotes:
But while the F.T.C. said that Google’s actions might have hurt individual competitors, over all it found that the search engine helped consumers, as evidenced by Google users’ clicking on the products that Google highlighted and competing search engines’ adopting similar approaches.
I am not sure what Drum really wants, but the result of eliminating the consumer-harm standard would be an environment where every failed company can haul its more successful competitors in front of the government and then duke it out based on relative political pull rather than product quality. It is pretty well understood out there that this anti-Google FTC claim was initiated and championed by Microsoft, certainly not among the powerless typically championed by progressives, and a company well known to have missed the boat on Internet search and which is apparently trying to do now through government fiat what it has not been able to do in the marketplace. Microsoft learned this technique from Sun and Oracle, which took Microsoft to the FTC in the famous browser case where Microsoft faced years of anti-trust scrutiny for the crime of giving the public a free product.
Already, anti-trust law is an important tool of the corporate state, to allow politically powerful companies to squash competition from those who invested less money in their Washington office. I am not a legal expert at all, but this consumer standard in anti-trust strikes me as a critical shield stopping a hell of a lot more abuse of anti-trust law.
By the way, there is a modern bigness problem with corporations that is very troubling -- we have made government tremendously powerful, giving it many tools to arbitrarily choose winners and losers without any reference to justice or rights. As private entities get larger and richer, they are better able to access and wield this power in their own favor. The libertarian solution is to reduce the government's power to pick winners and losers. The progressive answer is to regulate business more with tools like anti-trust.
But the progressive solution has a built-in contradiction, which why Drum probably does not suggest a solution. Because the very tools progressives suggest to regulate business typically become the tools with which politically connected corporations further tilt the game in their own favor. Anti-trust is a great example. We want to reduce the number of large companies with an eye to reducing corporatism and cronyism, but the very tool to do so -- anti-trust law -- has become one the corporate crony's best tools for stepping on competitors and insulating their own market positions.
And by the way, Rockefeller's Standard Oil did a HELL of a job for consumers. It was nominally punished for what it might some day hypothetically do to consumers.
Here are the facts, via Reason
Standard Oil began in 1870, when kerosene cost 30 cents a gallon. By 1897, Rockefeller's scientists and managers had driven the price to under 6 cents per gallon, and many of his less-efficient competitors were out of business--including companies whose inferior grades of kerosene were prone to explosion and whose dangerous wares had depressed the demand for the product. Standard Oil did the same for petroleum: In a single decade, from 1880 to 1890, Rockefeller's consolidations helped drive petroleum prices down 61 percent while increasing output 393 percent.
By the way, Greenpeace should have a picture of John D. Rockefeller on the wall of every office. Rockefeller, by driving down the cost of kerosene as an illuminant, did more than any other person in the history to save the whales. By making kerosene cheap, people were willing to give up whale oil, dealing a mortal blow to the whaling industry (perhaps just in time for the Sperm Whale).
So Rockefeller grew because he had the lowest cost position in the industry, and was able to offer the lowest prices, and the country was hurt, how? Sure, he drove competitors out of business at times through harsh tactics, but most of these folks were big boys who knew the rules and engaged in most of the same practices. In fact, Rockefeller seldom ran competitors entirely out of business but rather put pressure on them until they sold out, usually on very fair terms.
From "Money, Greed, and Risk," author Charles Morris
An extraordinary combination of piratical entrepreneur and steady-handed corporate administrator, he achieved dominance primarily by being more farsighted, more technologically advanced, more ruthlessly focused on costs and efficiency than anyone else. When Rockefeller was consolidating the refining industry in the 1870s, for example, he simply invited competitors to his office and showed them his books. One refiner - who quickly sold out on favorable terms - was 'astounded' that Rockefeller could profitably sell kerosene at a price far below his own cost of production.
How the recent "fairness" tax bill became a vehicle for subsidizing connected corporations.
Baucus' Finance Committee passed a bill in August extending 50 expiring deductions and credits for favored industries. At Obama's insistence, the Baucus bill was cut and pasted word for word into the cliff legislation. Set aside for a moment how this contradicts Obama's talk about "fair shares" and the need to diminish the influence of lobbyists, and look at what this raft of tax favors shows us about the Baucus Machine.
Pick any one of the special-interest tax breaks extended by the cliff deal, and you're likely to find a former Baucus aide who lobbied for it on behalf of a large corporation or industry organization.
General Electric may have been the biggest winner from the cliff deal. GE makes more wind turbines than any other U.S. company, and it lobbied hard for extension of the wind production tax credit. But more important for the multinational conglomerate was an arcane-sounding provision that became Section 222 of Baucus' bill and then Section 322 of the cliff bill: "Extension of subpart F exception for active financing income."
In short, this provision allows multinationals to move profits to offshore financial subsidiaries and thus avoid paying U.S. corporate income taxes. This is a windfall for GE: The exception played a central role in GE paying $0 in U.S. corporate income tax in 2011 when it made $5.1 billion in U.S. profits.
Peter Prowitt, formerly Baucus' chief of staff, is now an in-house lobbyist and VP at GE. GE filings show Prowitt on the lobbying teams that won wind-tax credits, electric-vehicle tax credits, and "Extension of Subpart F Deferral for Financial Services."
The examples in the article go on and on. The best way to get rich in America is not to have a great idea or work hard but to hire an ex-staffer from Senator Baucus's office.
The various cities in the Phoenix metropolitan area have spent a fortune renovating ten spring training fields for 15 major league teams. I have seen a number like $500 million for the total, but this seems low as Scottsdale spent $100 million for just one complex and Glendale may have spent as much as $200 million for theirs. Never-the-less, its a lot of taxpayer money.
The primary subsidy, of course, is for major league teams that get lovely facilities that they use for about one month in twelve.
But these subsidies always get sold on their community impact. But that economic impact turns out to be really narrow. For in-town visitors, the economic impact is typically a wash, as money spent on going to sports games just substitutes for other local spending. But these stadiums are held up as great economic engines because they attract out of town visitors:
Cactus League baseball and year-round use of its ballparks and training facilities add an estimated $632 million to Arizona economy, according to a study released Monday by the Cactus League Baseball Association.
The study found that 56 percent of the 1.7 million fans attending games this past spring were out-of-state visitors and the median stay in metro Phoenix was 5.3 nights.
Spring training accounted for $422 million in economic impact in 2012, up 36 percent from the previous study in 2007. Both were done by FMR Associates of Tucson.
One of the flaws of such studies is they never, ever look at what the business displaces. For example, for local visitors, they never look at local spending sports customers might have made if they had not gone to the game. All spending on the sports-related businesses are treated as incremental. For out-of-town visitors, no one ever considers other visitors coming for non-sports reasons who are displaced (March was already, without all the baseball, the busiest hotel month in Phoenix) or considers that some of the visitors might have come to the area anyway.
However, let's for one moment of excessive credulity accept these numbers, and look at the out of town visitors. 56 percent of 1.7 million people times 5.3 nights divided by 2 people per room is 2.52 million room nights, or at $150 each a total of $378 million. So most of their spring training economic impact is hotel room nights. This by the way is the same logic that supports various public subsidies of local college bowl games.
Which begs the question, why are we spending upwards of a billion dollars in taxpayer money to subsidize sports teams and hotel chains? If the vast majority of the economic impact of these stadium investments is for hotels, why don't they pay for them, or split the cost with the teams?
PS- as an aside, it seems that to be successful in the corporate state, one needs ready access to consultants who will put absurdly high numbers on the positive impact of one's government subsidies. It's like money laundering, but with talking points. Take your self-serving spin, hand it with a bunch of money to a consultant, and out comes a laundered "study". In this case, the "study" architects are FMR Associates, which bills itself as specializing "in strategic research for the communications industry." The communications industry means "PR flacks". So they specialize in making your talking points sound like they have real research behind them. Probably a growing business in our corporate state.
According to the New York Times, French Socialist president François Hollande demanded and received the dismissal of the editor of Le Figaro, the country’s leading conservative newspaper. If that sounds impossibly high-handed, consider the background, as reported in the Times:
The publisher, Serge Dassault, is a senator from [ousted President Nicolas] Sarkozy’s political party [and thus opposed to Hollande]. But Mr. Dassault also heads a major military contractor, and there was widespread speculation that [Figaro editor Étienne] Mougeotte’s ouster was meant to put the Dassault group in good stead with the new president.
For an American reader, it would be natural to turn the page with a murmur of thanks that such things don’t go on in our country. Don’tbe so sure:
[Since-convicted Illinois Gov. Rod] Blagojevich, Harris and others are also alleged [in the federal indictment] to have withheld state assistance to the Tribune Company in connection with the sale of Wrigley Field. The statement says this was done to induce the firing of Chicago Tribune editorial board members who were critical of Blagojevich.
Read the whole thing. He has an interesting story about Ted Kennedy passing legislation to force a change in ownership of the Boston paper most consistently critical of him.
Presented without comment (source).
The source is an agency in PA so I don't know if this is a state phenomenon there or if this is US data
For years I have argued that Obama is leading us to a European-style corporate state rather than socialism per se (though the two have many things in common). It seems like his defenders on the Left have figured that out, and are getting on board.
The other day, Kevin Drum seems to agree with a Washington Monthly article that defends corporatism in the name of attacking it. In this case, it was an example from the beer industry:
Prior to the 2008 takeover, Anheuser-Busch generally accepted the regulatory regime that had governed the U.S. alcohol industry since the repeal of Prohibition. It didn’t attack the independent wholesalers in control of its supply chain, and generally treated them well. “Tough but fair” is a phrase used by several wholesale-business sources to describe their dealings with the Busch family dynasty. Everyone was making money; there was no need to rock the boat.
All that changed quickly after Anheuser-Busch lost its independence....Today, with only one remaining real competitor, MillerCoors, the pressure it can put on its wholesalers is extraordinary. A wholesaler who loses its account with either company loses one of its two largest customers, and cannot offer his retail clients the name-brand beers that form the backbone of the market. The Big Two in effect have a captive system by which to bring their goods to market.
.... So distributors are caught in an impossible bind: they either do the brewer’s bidding, including selling their businesses to favored “Anchor Wholesalers,” or they lose Anheuser-Busch InBev as a client. And if the wholesalers try to push back? Anheuser-Busch InBev will get rough.
I don't know if this is just tremendous ignorance or some sort of calculated scheming. The article decries the growing power of beer manufacturers vis a vis liquor distributors, and wants to call this some sort of slide into corporatism. Actually just the opposite is true -- what we see is Anheuser-Busch taking on some of the largest beneficiaries of government cronysism: the liquor wholesalers.
The liquor distribution scheme, and resulting government enforced monopolies, created post-Prohibition have been the worst sort of corporate statism, and what is going on here is that the beer manufacturers are finally fed up with it. Regional liquor wholesalers are generally some of the most politically powerful forces in local and state politics. These distribution monopolies have all created multi-millionaire owners who deploy money and political clout to prevent any changes in law that might weaken their government-enforced monopoly position. Wonder why you still can't mail order from Amazon that bottle of California Merlot -- thank the liquor wholesale lobby. Without all this government protection of distributors, the soft drink business went through identical changes, relatively quietly, decades ago.
This whole liquor distribution scheme we have today is consistent with FDR's corporatist thinking (he was a great admirer of the economic aspects of Mussolini's fascism, and modeled the National Recovery Act after this Italian system). But it is also thoroughly anti-consumer, and has both raised prices of alcohol to consumers as well as stifled innovation and competition. We are living in a glorious age of incredible micro-brew choice, but this almost didn't happen. The biggest hurdle these early pioneers had to clear was cracking this liquor distribution monopoly.
I find it incredible that a Progressive like Drum sees fit to defend such a system and castigate Anheuser-Busch for challenging it. It is even more amazing to see him positing that anti-trust is all about protecting millionaire corporate players in one part of the supply chain from billionaire corporate players in another part. I have said for years that anti-trust has been corrupted from protecting consumers to protecting weaker competitors, even when this protection hurts consumers (remember, Microsoft was convicted of anti-trust violations for giving away free stuff to consumers). I just am amazed that the Left has come so far that it has now openly adopted this view of anti-trust.
Update: Here is another example of the Left describing market attacks on a government-protected corporation "Corporatist." There are always beneficiaries of deregulation (consumers being the most unsung of these). It is crazy and disingenuous for the Left to call those who win in a newly deregulated market "cronies."
I got a lot of email that Republicans aren't libertarians and to stop complaining that they are not. OK. But let's look at their campaign messaging in the context of their own values.
Republicans had a golden opportunity to use the results of a natural experiment over the last four years between red and blue states. Obama constantly harped on the fact that 3.5 million new jobs had been created on his watch. Rather than play dueling statistics or end points in this analysis, the Republicans should have taken advantage of existing red/blue data:
Yes. And the vast majority of these jobs were created in states like Texas which have been successful precisely because they have labor and tax policies which you, Mr. Obama, oppose. And they have been created in industries like Oil and Gas production that you, Mr. Obama, have done your best to hinder. All the jobs you claim to have helped to create were actually facilitated by a philosophy of government you oppose, by regulatory policy you would overturn if you could, and in industries you would prefer did not exist. States like Texas -- with organic growth driven by private capital -- stand in stark contrast to your investments of our taxpayer money in bankrupt companies like Solyndra. If you had had your way, Mr. Obama, few of these jobs would have been created. Yes, this country saw some job creation, but it occurred despite your efforts, not because of them.
Instead of this clear kind of message, we get a bunch of wonky stuff about tax deductions vs. tax rate changes. Heck, even if you told me I had to run my campaign on the single plank of eliminating tax deductions, I could have done a better job. I saw this part of the debate that Romney supposedly won. His explanation was lame. What about this instead:
This country over the past several decades has increasingly become plagued by cronyism. Whether it be Wall Street bankers or public employees unions or casket sellers in Louisiana, everyone wants to try to convert influence with the government into taxpayer money for themselves. We have to end this. And a good place to start is with the tax code. Every special deduction and tax credit in the tax code is a giveaway to some special interest. At best it is a misguided attempt, like the money we wasted in Solyndra, of politicians to try to pick winners and losers, to say that one kind of spending is somehow better than another. At worst, these deductions are a crony giveaway. Sure, it's eliminating these deductions will help reduce the deficit. But even more importantly, eliminating them would be an opening shot in the war to take cronyism and corporatism out of Washington.
I don't know if its the distance from the Mainland or something about its history, but Hawaii often appears to be among the worst states for regulatory capture by local businesses. This example was brought to me by a co-worker, who lives in AZ but wants to buy a condo in Hawaii. They want the condo for their own use, but also hope to rent it out. This kind of model is more appealing nowadays given the ease (and low cost) with which one can advertise rentals on various Internet sites.
But not so fast, not in Hawaii. In legislation that reminds be of stuff from the 1990's when businesses tried to fight Internet-driven disintermediation, Hawaii is proposing to force non-Hawaiians to use a local broker to list their rental properties. Apparently local residents can still list their properties on low-cost Internet sites, but folks on the mainland (also known as "the United States") must use a high-cost locally licensed broker, who typically charge 50% of rental fees as a commission. These type of commission rates are farcical - they imply that fully half the value of a one-week condominium stay is due to the broker, not the condo itself, its location, etc. The only way brokers can charge these fees is by maintaining a tight cartel enforced by government licensing laws.
Any reasonable person will look at this law and immediately know it is about crony protection of local real estate brokers. Of course, that is not what the law says. It is all about "consumer protection"
The legislature also finds that requiring nonresident owners to employ a licensed professional such as a real estate broker or salesperson or a condominium hotel operator is an important consumer protection measure. Consumers who use real estate companies, real estate brokers, real estate salespersons, or condominium hotel operators for their transient accommodation rental needs can do so with the knowledge that all money generated will flow through a client trust account, the appropriate federal tax form 990s will be generated, and accurate transient accommodations taxes and general excise taxes will be paid. Real estate companies, real estate brokers, real estate salespersons, and condominium hotel operators must comply with specific licensing and bonding requirements, thus offering additional protections for consumers.
So consumer protection is defined as making sure taxes get paid and the government forms get filled out. Because God knows my entire vacation would be ruined if Federal tax form 990 was not filled out properly.
This is total BS, and Milton Friedman called it years ago when he wrote on licensing:
The justification offered is always the same: to protect the consumer. However, the reason is demonstrated by observing who lobbies at the state legislature for the imposition or strengthening of licensure. The lobbyists are invariably representatives of the occupation in question rather than of the customers. True enough, plumbers presumably know better than anyone else what their customers need to be protected against. However, it is hard to regard altruistic concern for their customers as the primary motive behind their determined efforts to get legal power to decide who may be a plumber.
This is also a great example of voters agreeing to add costs on everyone but themselves. If the almost inevitable Constitutional concerns with this law forced in-state and out-of-state condo owners to be treated equally, local owners would immediately push back, hard, against the costs this law would impose. Only by structuring this law to apply to those annoying out-of-staters could it ever be passed.
I have been considering taking advantage of low prices in Hawaii to buy a condo, but I may rethink that plan given this pending legislation.
Companies and assets don't go *poof* in a bankruptcy. In fact, if any of you are even somewhat of a frequent airline flyer, over the last 10 years you likely flew an airline in bankruptcy. Companies operate all the time, sometimes for years, out of Chapter 11. In fact, that is what chapter 11 is all about -- helping creditors get more value from a company by keeping it in operation (only in truly hopeless cases, like Solyndra, is liquidation a higher value outcome for creditors than continued operation).
As such, then, the Obama Administration did not "save" GM and Chrysler, it simply managed their bankruptcy to political ends, shifting the proceeds from those guaranteed them by the rule of law to cronies and political allies. In the process, they kept these companies on essentially the same path that led them to bankruptcy in the first place, only with a pile of taxpayer money to blow so they could hang around for a while.
To this end, the WSJ has a great editorial on the whole mess
In a true bankruptcy guided by the law rather than by a sympathetic, rule-bending political task force, GM and Chrysler would have more fully faced their competitive challenges, enjoyed more leverage to secure union concessions, and had the chance to divest money-losing operations like GM's moribund Opel unit. True bankruptcy would have lessened the chance that GM and Chrysler will stumble again, a very real possibility in the brutally competitive auto industry.
Certainly President Obama threw enough money at GM and Chrysler to create a short-term turnaround, but if the auto makers find themselves on hard times and return to Washington with hats in hand, his policy will have been no rescue at all.
I will refer the reader back to my editorial way back in 2005 why it was OK to let GM die
Workers get tax money to play cards
Workers at LG Chem, a $300 million lithium-ion battery plant heavily funded by taxpayers, tell Target 8 that they have so little work to do that they spend hours playing cards and board games, reading magazines or watching movies.
They say it's been going on for months.
"There would be up to 40 of us that would just sit in there during the day," said former LG Chem employee Nicole Merryman, who said she quit in May.
"We were given assignments to go outside and clean; if we weren't cleaning outside, we were cleaning inside. If there was nothing for us to do, we would study in the cafeteria, or we would sit and play cards, sit and read magazines," said Merryman. "It's really sad that all these people are sitting there and doing nothing, and it's basically on taxpayer money."
Two current employees told Target 8 that the game-playing continues because, as much as they want to work, they still have nothing to do.
"There's a whole bunch of people, a whole bunch," filling their time with card games and board games," one of those current employees said.
Via the WSJ, the Solyndra scam continues
Having sold off its manufacturing plant, fired nearly 1,000 workers and proven the non-viability of its business model, Solyndra's only real assets are what the IRS calls "tax attributes." These are between $875 million and $975 million in net operating losses that can reduce future taxable income, which the IRS values as high as $350 million. Before it went toes up, Solyndra also accumulated $12 million in solar tax credits that can reduce tax liabilities dollar for dollar.
Tax-loss carry-forwards are routine but worthless if a company can't turn profits to pay taxes on. So Solyndra's owners are asking the court to liquidate the rest of the business and contribute a net $6.7 million to pay off creditors for pennies on the dollar. A holding corporation will then emerge from Chapter 11 that won't make products or employ workers, but it will get the Solyndra tax offsets.
The dummy company is owned by Argonaut Ventures I LLC, Solyndra's largest shareholder and the primary investment arm of the George Kaiser Family Foundation. Mr. Kaiser is a Tulsa oil billionaire who bundled campaign checks for Mr. Obama in 2008.
Wow, who could have predicted this? Well, lots of folks, including me just over a year ago. I actually underestimated the value, assuming the losses would be worth about $150 million in avoided taxes, not the $350 million the IRS now pegs them at. If I can figure out this game, the Obama Administration had to know what was going on.
If the Administration allows this to happen (and remember that in the GM boondoggle, Obama waived the traditional rules that have bankrupt companies losing their tax loss carryforwards, giving GM a multi-billion dollar tax subsidy almost no one counts in the bailout costs), this will make Kaiser's last cash investment in Solyndra one of the great crony deals of all time.
If you remember, Kaiser (via Argonaut) invested $75 million as Solyndra was going down the tubes. No rational person could have thought that amount would have saved the company, and it didn't. What it bought, we now know, is three things:
JP Morgan finds itself under the government microscope for having heartlessly... cooperated with the government four years ago
The U.S. Department of Justice and New York Attorney General Eric Schneiderman teamed up last week to sue J.P. Morgan in a headline-grabbing case alleging the fraudulent sale of mortgage-backed securities.
One notable detail: J.P. Morgan didn't sell the securities. The seller was Bear Stearns—yes, the same Bear Stearns that the government persuaded Morgan to buy in 2008. And, yes, the same government that is now participating in the lawsuit against Morgan to answer for stuff Bear did before the government got Morgan to buy it....
As for the federal government's role, it's helpful to recall some recent history: In the mid-2000s, Bear Stearns became—outside of Fannie Mae and Freddie Mac—perhaps the most reckless financial firm in the housing market. Bear was the smallest of the major Wall Street investment banks. But instead of allowing market punishment for Bear and its creditors when it was headed to bankruptcy, the feds decided the country could not survive a Bear failure. So they orchestrated a sale to J.P. Morgan and provided $29 billion in taxpayer financing to make it happen.
The principal author of the Bear deal was Timothy Geithner, who was then the president of the Federal Reserve Bank of New York and is now the Secretary of the Treasury. Until this week, we didn't think the Bear intervention could look any worse.
Somewhere there was a legal department fail here - I can't ever, ever imagine buying a company with Bear's reputation that was sinking into bankruptcy without doing either via an asset sale or letting the mess wash through Chapter 7 so there could be an old bank / new bank split. But Bank of America made exactly the same mistake at roughly the same time with Countrywide, so it must have appeared at the time that the government largess here (or the government pressure) was too much to ignore.
I work in a small, four-story suburban office building. I have seen our fire drills and can look out at our parking lot, and I would be surprised if there are 200 people in the building. A few months ago some division of Chrysler moved in and took a bunch of the space. A lot still remains empty (which is why I am here -- cheap!)
The Chrysler folks put a sign downstairs a few days ago saying that they would be hosting a luncheon for the building. Great, I thought, a free hot dog and some fruit salad. Imagine my shock when I saw this when I arrived today:
Chrysler sent three full semi-trailers, one of cars and two of convention-type booths and displays, plus a whole crew of people to set this up, all for a lunch in our building with less than 200 people. I thought maybe that we were just getting a preview of a larger public event, but I am looking out my window now and they are tearing down again. Crazy.
One thing that even many libertarians get wrong: Wasting money is not unique to government entities. Private and public entities can become senescent, and grow bureaucracies that lose focus on what they are supposed to be doing. The difference between the private and the pubic sphere, though, is that for private companies, markets eventually enforce discipline (either forcing change or killing off the bloated entity). There is no similar mechanism for state agencies short of perhaps absolute bankruptcy, and Greece is proving even that is not enough to force change.
Of course, when the government gives large private entities with political pull special protections and bailouts, then no such accountability is enforced. The same people are operating the company with the same false assumptions and unlearned lessons.
I found this article in the Arizona Republic, our local rag, almost criminal. As far as it goes, I think the facts are correct. What is amazing is what it leaves out. First, the article:
Glendale administrators propose cutting nearly a quarter of the city's employees, or 249 positions, if voters approve a ballot measure in November to repeal a sales-tax hike.
Repeal of the 0.7 percentage-point tax hike that took effect last month would mean the loss of $11 million this year and $25 million annually through 2017, according to city estimates.
The City Council had approved the temporary increase to shore up its deficit-ridden general fund after laying off 49 employees and cutting $10 million from departments at the start of this fiscal year....
Proposed cuts include shuttering two of the three city libraries, one of its two aquatic centers, the TV station and all city festivals, including Glendale Glitters.
The article continues with the usual panic about cuts in police and firefighters and libraries and parks, etc. etc. What the article does not mention except in passing in paragraph 12 is the reason for the tax increase and the budget problems in the first place. Over heated opposition in the community, the City Council, which has enjoyed pretending to be big shot Donald Trumps over the last few years with taxpayer money, handed a private individual $25 million a year to keep the ice hockey team in town, an ice hockey team that has the lowest attendance in the league despite doing fairly well the last few years. This is on top of years of other subsidies and the taxpayer-funded $300 million stadium. The numbers line up exactly -- a new $25 million a year subsidy and a new $25 million a year tax, and the paper cannot even connect these dots, even when they were directly connected in real time (ie the tax was specifically justified to pay for the subsidy).
What the article entirely fails to mention is that, given no voice in these corporatist extravagances in Glendale (the tiny town of 250,000 has also subsidized an NFL franchise and a couple of MLB teams), the only way the citizens of this town have any way to exercise accountability is to vote down the tax that enables this corporate handout. They were not allowed to vote on the deal itself. This is not a bunch of wacky red-staters voting to decimate the parks departments, as the city and the paper would like you to believe, but a citizenship that is tired of the idiotic corporate cronyism in the Glendale city council and are looking for some way, any way, to enforce some accountability.
This is the media and the state in bed together promoting the larger state. Glendale's problems are entirely self-imposed, spending huge amounts of tax money on subsidizing sports teams and real estate ventures. When these all failed like so many Solyndras, they are trying to make this out to be a tax shortfall, when in fact it is spending idiocy.
The media always seems to participate as a cheerleader in this statism, but local papers have a special interest in promoting this sort of sports corporatism. Just about the only thing that sells dead-tree newspapers any more is the sports section. I would love to see what would happen to circulation rates if they cut the sports section. So any state actions that add professional sports franchises or keeps them in town contribute directly to the newspapers' survival.
I thought this was an interesting example of creative destruction. Five years ago, Time and Newsweek were running cover stories about the "Blackberry" culture and how ubiquitous the device was in modern business. Now, people are making fun of it for being outdated tech. If only we could get the average voter to truly appreciate creative destruction. We might have fewer bailouts and more economic growth.
By the way, Canada says it won't bail out Blackberry, which is good, but is interesting given that it did bail out the Canadian automotive sector just a few years ago. In terms of total market value I would guess the Canadian automotive sector is way smaller than Blackberry at its peak. Only a cynic would suggest the difference is that the auto sector is unionized and therefore politically organized to generate campaign donations and grass roots get-out-the-vote efforts, while RIM is not. That would imply that bailouts were due to political pull rather than sound and consistent economic reasoning, which I am sure can't possibly be true.
PS- there are still good and valid reasons for enterprises, like the Administration and government agencies, to use the Blackberry over smartphones. Just because they are out of favor with 16-year-old girls does not mean they don't have utility. Oddly, though, given this particular niche and comparative advantage, RIM seems to be obsoleting its installed base of enterprise servers. I am not an expert, but I think a lot of enterprises would stick with Blackberry for quite a while just out of inertia and lack of desire to change. But now that Blackberry is forcing them to rethink their whole enterprise platform anyway, it seems to allow other competitors solutions into play. Or am I missing something?
Update: Apparently RIM is saying the previous paragraph is incorrect, that the new servers will support all the old devices ... except for email, calendar, and contacts. Unfortunately, this seems to encompass the entire Blackberry functionality. I have had one or two of the devices, and you are a nut if you are trying to surf the web on one as your main usage.
