Dispatches from District 48
Posts tagged ‘economy’
I love it when Mark Perry rewrites trade stories
"U.S. Steel Unions Score American Consumers Dealt Yet Another Huge Victory Loss As China They Are Slammed With New Steel Tariffs Taxes"
One has to envy pity the insignificant amount of pull U.S. steel workers consumers and steel-using companies have. The majority of U.S.-China trade agitation is caused by imposes signifcant costs on this one relatively tiny huge part of the U.S. economy.
I often respond to various articles that a group of politicians are going to create a strategic plan** for the local economy that this is similar to my trying to choreograph a ballet . TJIC has similar words for this effort:
Governor Deval Patrick and Senate President Therese Murray plan to propose this week several ways to improve the Bay State's business climate, saying they need to be more aggressive in steering the region out of its economic malaise.
Both have lifelong careers in non-business sectors (government, academia, journalism, legal, non-profit). TJIC responds:
Asking them to design programs to better the business climate is about like asking me to design menstrual pads "“ I don't understand the sector, I don't understand the features, I don't understand the problems, and there's no way that the effects of my work will ever come back to make an impact on me.
This is reminiscent of this great comment from Kevin Williamson via Instapundit
The good news is that, when it comes to reshaping the U.S. mortgage market [any market for that matter "” ed.], the Obama administration's top guns are bringing to bear all of the brisk, rough-'n'-ready entrepreneurial know-how they picked up in their previous careers as university professors, nonprofit activists, and holders of political sinecures.
But we are spending more and more to get this "expertise", as documented in a depressing post at Carpe Diem on the growth of government employment and salaries. One chart out of many:
** Footnote: About once a month we get some group lamenting that Phoenix has no master plan to create some kind of economic focus for itself. One of the hilarious things about this is that if you go back and look, about half of the past proposals have Phoenix focusing on some super-hot industry (e.g. semiconductor manufacturing, e-commerce) that is just about to crash. Lately, everyone has decided that Phoenix should be the center of the solar industry, because, uh, we have a lot of sun, without any particular explanation of why having a lot of sun should be an advantage in precision manufacturing and assembly of solar components. But we are shelling out all kinds of tax breaks and subsidies for these companies to come here. My prediction - solar will be the next ethanol. In ethanol, increases in government subsidies caused a lot of manufacturing capacity to be built. But subsidies could not grow as fast as capacity, and a glut resulted in a huge shakeout. The solar boom will occur when a technology is perfected that makes solar economic without subsidies. When that occurs, I will be the first in line to cover my roof in the new tech.
A man has to tear down a house he built with his own money on his own property because he did not get government bureaucrats' permission to build it. Don't tell me we are living in a free market economy when the only way to build shelter on your own property is to do it in secret.
From the SEC web site (via frequent contributor LK)
The Securities and Exchange Commission today voted to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.
I haven't seen anyone explain the reason for this requirement, so I thought I would do so. Companies know that no real investor is going to pay any attention to these climate disclosures, so to avoid any future action accusing them of not being forthcoming enough, companies are going to go overboard outlining potential risks far beyond what they think is likely. These exaggerations will protect them from the SEC while at the same time having no effect on their stock price. Then, alarmists will collate all of these and use them as evidence of the high cost of climate change, saying "see, look at what all these public companies are saying climte change will do to them." Lacking any evidence of harmful climate change in the actual climate or economy, this is one way to manufacture fake evidence.
By the way, here is the diclosure every oil company should put in their reports:
Notice: Poplist politicians are very likely to demagogue this company for a wide-range of imagined crimes in an attempt to get re-elected, including crimes against the climate in various forms. Politicians will attempt to preferentially saddle this company with new taxes and regulations given that this company is not liked by many voters (despite the fact that many of these voters freelydo business with this company). Politicians will likely continue to try to sieze portions of this company's earnings, despite the fact that those earnings are relatively low given the magnitude of the our investments and the amount of value we add.
Will we look back on 2009 as the tipping point where productive resources began to spiral faster and faster into the government black hole? A few stories that have caught my eye the last few weeks:
Federal salaries exploding, from USA Today via Q&O
The number of federal workers earning six-figure salaries has exploded during the recession, according to a USA TODAY analysis of federal salary data.
Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months "” and that's before overtime pay and bonuses are counted....
The trend to six-figure salaries is occurring throughout the federal government, in agencies big and small, high-tech and low-tech. The primary cause: substantial pay raises and new salary rules.
The highest-paid federal employees are doing best of all on salary increases. Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, the most recent figure available.
When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000.
Government Employment Rising, via Glenn Reynolds
Government services rising as a percent of the economy (from the Heritage Foundation via the same Glenn Reynolds link above)
Capital to private firms is increasingly allocated by the state -- the new Corporate State. First, Representative Paul Ryan in Forbes:
Thirty years later, this crony capitalism is back with a vengeance, accelerated by an aggressive program by President Obama and the Democratic congressional leadership. It is wreaking havoc on economic recovery and fueling continued resentment among the American people.
The actions taken at the height of the financial panic last fall, with credit markets frozen, succeeded in preventing a systemic--and catastrophic--collapse. Since bringing us back from the precipice however, the Troubled Asset Relief Program [TARP] has morphed into crony capitalism at its worst. Abandoning its original purpose providing targeted assistance to unlock credit markets, TARP has evolved into an ad hoc, opaque slush fund for large institutions that are able to influence the Treasury Department's investment decisions behind-the-scenes. No longer concerned with preserving overall financial market stability, Treasury's walking around money continues to be deployed to reward the market's Goliaths while letting its Davids suffer.
Further, via Reuters:
U.S. banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday.
Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan's Ross School of Business.
Banks with headquarters in the district of a U.S. House of Representatives member who serves on a committee or subcommittee relating to TARP also received more funds.
Political influence was most helpful for poorly performing banks, the study found.
"Political connections play an important role in a firm's access to capital," Sosyura, a University of Michigan assistant professor of finance, said in a statement.
The Government has gained new power to allocate capital in the future. This was perhaps one of the most under-reported stories of the last few months (mea culpa as well).
To close out 2009, I decided to do something I bet no member of Congress has done -- actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill....
The reading was especially painful since this reform sausage is stuffed with more gristle than meat. At least, that is, if you are a taxpayer hoping the bailout train is coming to a halt.
If you're a banker, the bill is tastier. While banks opposed the legislation, they should cheer for its passage by the full Congress in the New Year: There are huge giveaways insuring the government will again rescue banks and Wall Street if the need arises....
Here are some of the nuggets I gleaned from days spent reading Frank's handiwork:
-- For all its heft, the bill doesn't once mention the words "too-big-to-fail," the main issue confronting the financial system. Admitting you have a problem, as any 12- stepper knows, is the crucial first step toward recovery.
-- Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for "no-more-bailouts" talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate's health-care bill look minuscule....
But don't worry, trust Congress to get at the heart of the financial meltdown
The bill calls for more than a dozen agencies to create a position called "Director of Minority and Women Inclusion." People in these new posts will be presidential appointees.
Can't say that I really care, but I find all the quivering excitement here hilarious:
If Tiger Woods winds up in Wickenburg for rehab over his apparent sexual compulsion and pill addiction, local businesses are ready.As the rumor mill seems to suggest, Tiger would be checking into the Meadows Rehabilitation Center in Wickenburg just after New Years, and despite being a little late in covering Tiger-gate's Arizona connection, the Arizona Republic reports today that local businesses are gearing up for golf's greatest Lothario.
For example, the owner of Sundance Pizza in Wickenburg, Bob Halsey, has already placed a sign in front of his store that says "Hey, Tiger, we deliver."
Chances of Tiger ordering some of Halsey's take-out are probably unlikely -- perhaps a more suiting sign should say "hey, droves of paparazzi, we deliver."
If Tiger does end up in Wickenburg, the number of paparazzi that will descend on the tiny town is certain to cause a boom for the local economy. Some tabloids are even rumored to have placed journalists in the rehab center themselves, in order to get the real dirt on the golf great.
Paying lots of money to stop having sex with hot women seems an odd thing to do. From my experience he could take up playing Dungeons and Dragons and have the same result for a lot less money.
I could link Mark Perry almost every day, and have to restrain myself. If you like my blog, you should be reading his too. Anyway, here is his take on US manufacturing figures:
If the U.S. manufacturing sector were a separate country, it would be tied with Germany as the world's third largest economy. It would also be larger than the entire economies of India and Russia combined. As much as we hear about the "demise of U.S. manufacturing," and how we are a country that "doesn't produce anything anymore," and how we have "outsourced our production to China," the U.S. manufacturing sector is alive and well, and the U.S. is still the largest manufacturer in the world.
Phoenix officials said Monday they remain confident Dubai is still a good place to do business, even after the Middle East emirate's investment arm announced it would not be able to pay creditors on time for some of its nearly $60 billion in debt.
"It's just a matter of when business will pick up again," said Community and Economic Development Director Don Maxwell, who has been bullish on the Middle East and Dubai, one of seven city-states that make up the United Arab Emirates. "You just don't know what the timing will be, but it will happen."
Seriously, why are we paying Phoenix government officials to opine on stuff like this, and why is it news?
The two cities have exchanged best practices for wastewater management. Dubai imported 80,000 Palo Verde trees from a Phoenix nursery. And Charity Charms, a Phoenix-based maker of charms for nonprofit groups, received a $13,000 order from a Dubai arthritis support group shortly after the agreement was inked.
Oh, I see now. $13,000 in charms? Dubai was practically driving our economy.
I have warned about this before:
In fact, Hollywood's portion of the stimulus package reveals an important factor of the Recovery Act: The money is not going to areas that would more directly stimulate the economy but instead to provide ongoing life support to deficit-ridden federal, state and local agencies.
That is the main impression I have gotten when reading the stimulus jobs data base -- the fake districts and BS accounting did not catch my eye so much as the fact that all the jobs seemed to be saved jobs in government agencies. I am pretty sure that had the stimulus been originally sold with its true goals -- to help stave off financial accountability in state and local governments -- it would have had more difficulty passing.
Though some of us saw this even in the bill itself (this blog, Jan 27, 2009)
So do you see my point. The reason so much of this infrastructure bill can be spent in the next two years is that there is no infrastructure in it, at least in the first two years! 42% of the deficit impact in 2009/2010 is tax cuts, another 44% is in transfer payments to individuals and state governments. 1% is defense. At least 5% seems to be just pumping up a number of budgets with no infrastructure impact (such as at Homeland Security). And at most 6% is infrastructure and green energy. I say at most because it is unclear if this stuff is really incremental, and much of this budget may be for planners and government departments rather than actual facilities on the ground.
Unfortunately don't have the time to comment much on this absurd comment, but I am not sure it is even deserving of comment
Andy Stern, president of one of the nations biggest labor unions, said today that America is failing, and many entrepreneurs arent loyal to the U.S.
I think the country is in a mess, Stern, president of the 2.1 million-member Service Employees International Union, said at the Wall Street Journal CEO Council, a conference in Washington. I think America is failing.
Stern, the most frequent guest to the White House this year, said the U.S. economy has created a system in which the entrepreneurial class is not loyal to America. Its not wrong for the government to distribute wealth to people who need it, and labor unions can help the country do that, Stern said.
I often conclude my presentations on climate that conservationists will likely look back in 10-20 years on the global warming hysteria as the worst thing that has ever happened to the environmental movement. While we focus 110% of our attention on a trace, naturally occurring atmospheric gas that our bodies exhale and plants need to live, here is what we are not focusing on.
All the problems in these pictures are ones we demonstrably know how to solve while still allowing for the economic growth that is pulling a billion Asians our of poverty. The same cannot be said for our current ability to eliminate CO2, and therefore most combustion, without imploding our economy.
I have shared before the main problem with all these new fake "rights" (e.g. right to healthcare, right to a job, etc.). Our original Constitutional rights were merely checks on government - they said the government could not pass laws to prevent us from doing certain things or invade our homes without some sort of due process, etc. But these new rights require that some previously free individual be coerced into providing money or labor or both to supply others with these new rights. I often use the desert island test - if you can't have the right alone on a desert island, its not a right.
But what I had not realized until recently is that many of these new fake rights also share in common a level of compulsion on the beneficiary (not just the payer and provider). For example, you have the right to bear arms and engage in free speech, but you are not required to own a gun or speak in public. But you will be required to use, and pay for, your new "right" to health care, at the threat of a term in prison. In this light, its doubly perverse to call something like health care a "right." How can something which government uses compulsion on the payers, the providers, and the users be associated with so clean and moral a notion as a "right." Freedom of religion is a right. Health care is a want.
I got to thinking about this even more with "the right to a job at a fair wage," embodied in such laws as the Fair Labor Standards Act. Proponents of such a right would consider it a victory that employers have been compelled to not pay less than $7.25 an hour for labor. But the beneficiary is the subject of compulsion as well. This law also means that I cannot sell my labor at less than $7.25, even if I am willing (even eager) to do so. This means that if my choices are to sell my labor at $6.00 or for nothing, the government compels me to be unemployed. My son is 16 and would like a retail job, preferably around books this summer. Having real job experience and customer contact experience, for him at his age, is worth enough that he would likely work for free. But he can't work for free, because the Fair Labor Standards Act only allows compensation to be valued in monetary terms - non-monetary benefits like skills improvements don't count. So, given the economy, my son will likely not work next summer. All for his own good, of course.
On any number of occasions from October through February, I predicted that this recession would top out at perhaps 9% unemployment at the most, and would probably not be as bad as the recession of the early 1980's. My logic was that we had a mortgage-driven banking crisis, but that the crisis was perhaps not as bad as that of the late 1980's and that many fundamentals (e.g. interest rates) were looking way better in this recession than in the early 1980's. I honestly thought that Bush and Obama Treasury and Fed officials were declaring the sky was falling more from the danger to their beloved former employers on Wall Street than due to any economic fundamentals.
Well, obviously I was wrong. Unemployment has topped 10% and could be headed higher.
So the question is, do I accept that others saw something I did not, or do I crack open the self-serving excuses. Well, at the danger that this will fall into the latter category (I will leave that to readers to decide) I do think some things have changed since late last year that have contributed to worsening the economy.
Businesses are reluctant to invest when the returns on their investment are wildly unpredictable, particularly when future income changes are more driven by changing acts of Congress rather than fluctuations in the market. Over the last year the Congress and Administration have:
I am sure this is just a subset (Louis Woodhill has more in this vein here), but these all have negative effects on investment. My company for one has backed out of several planned expansions this winter for four reasons:
I used to work as for several years in St. Louis as VP of Planning for Emerson Electric. I worked for a guy named Chuck Knight, who could be a real pain in the *ss to work for, but was a) brilliant and b) always willing to speak his mind without the typical filters a lot of other executives apply. It appears that his successor Dave Farr, who I also knew at Emerson, is following in this tradition:
Emerson Electric Co. Chief Executive Officer David Farr said the U.S. government is hurting manufacturers with regulation and taxes and his company will continue to focus on growth overseas."Washington is doing everything in their manpower, capability, to destroy U.S. manufacturing," Farr said today in Chicago at a Baird Industrial Outlook conference. "Cap and trade, medical reform, labor rules."...
Companies will create jobs in India and China, "places where people want the products and where the governments welcome you to actually do something," Farr said.
The unemployment rate in the U.S. jumped to 10.2 percent in October, the highest level since 1983. Emerson, which Farr said employs about 125,000 people worldwide, has eliminated more than 20,000 jobs since the end of 2008 to lower expenses.
"What do you think I am going to do?" Farr asked. "I'm not going to hire anybody in the United States. I'm moving. They are doing everything possible to destroy jobs."
Politicians in both parties are generally clueless about this kind of thing, because very few of them have ever run a business or even even been in a real business position other than as lawyer or lobbyist. Just look at how George McGovern feels now that he has run a business.
But the Obama administration is almost scary clueless. In defending their promotion of a good business environment, they cite the most hostile item on their agenda:
"This administration has made a significant commitment to U.S. manufacturing, including reforming the country's health insurance system to bring down costs and make American companies more competitive globally," Griffis said.
Not. One. Single. Clue.
Actually, I think the Obama administration may believe this, which just accentuates their preference for a corporate state wherein "business friendly" means support for the top 20-30 corporations in the country. In the context of a few old-line corporations with politically powerful unions, health care reform is helpful in that it dumps a bunch of the corporation's commitments to present and past workers onto the taxpayers. But these are not the companies that grow the economy -- they are just the ones with out-sized power in political elections.
From a press release from the Environmental News Network that landed in my inbox:
It's Time to Re-think Economic Growth for Advanced Nations
LONDON - In Prosperity Without Growth: Economics for a Finite Planet, published by Earthscan this week, Professor Tim Jackson raises fundamental questions about the economics needed to tackle climate change. Jackson argues that, faced with the limits imposed by carbon sinks and the scale of "˜de-carbonization' of the world's economy required to stay within them, continued economic growth in the already affluent world does not offer the solution; it represents the problem....
there is a strong case for the developed nations to make room for growth in poorer countries. It is in these poorer countries that growth really does make a difference. In richer countries the returns on further growth appear much more limited; for example subjective well-being diminishes rapidly at higher income levels."
Assuming that such thinking is not just a crass excuse for totalitarian control, it represents an enormous failure of imagination. The author cannot imagine what benefits increased wealth would provide, so he assumes those benefits to be zero. There is absolutely no reason that this same exact thinking could not have been applied in 1300 or 1750 or 1900. Fortunately it was not.
Wonder where the communists went when their philosophy was shown to be bankrupt? Wonder where the anti-globalization folks went after they looted in Seattle. Look no further than the global warming movement. The author suggests, among other things:
Just say no to ecological Marxism.
Since the New York Times has pretty much become the official media outlet of this administration, I presume that this article represents a new trial balloon in selling government health care. The pitch this time -- its good for small businesses! (via Maggies Farm)
President Obama, in his Saturday radio address, said the Democrats' health insurance overhaul would help small businesses and stimulate the economy by providing relief from "the crushing costs of health care "” costs that have forced too many small businesses to cut benefits, shed jobs, or shut their doors for good."....
The House speaker, Nancy Pelosi of California, said the sharp rise in premiums for small businesses offered the latest evidence that Congress must act swiftly on health care legislation.
"This underlines the urgent need for health insurance reform, including a public option," she said in an interview. "We need to have competition for the insurance companies to keep premiums down."
I am only now getting through the 1500 pages of this bill (putting me ahead of Ms. Pelosi in reading it, I am sure), but the last House bill would have been a disaster for my company, increasing taxes on wages by up to 8% and imposing a record-keeping burden that was just horrific.
The NYT and the Democrats are apparently trying to set up a mini-class war within bussinesses, snidely saying these companies have more negotiating leverage. Sure. But what they have even more of is the leverage to shape federal legislation to their benefit. However worse a deal my company may get in free insurance markets due to being small is nothing compared to how much worse of a deal we will get from Congress by being small.
If they really wanted to cut costs for small businesses, they would strip out all the national and state coverage mandates for things like aromatherapy that raise costs so much and let me shop for insurance across state lines. That would be real competition. Unfortunately, all Pelosi means by competition is throwing Amtrak into the mix to compete with the airlines. Yeah, that will do the trick.
Cameron Scott argues this when he says:
It's funny how green-haters accuse greens of being catastrophists, and then argue that cutting carbon emissions will destroy our economy and send us back to the Dark Ages. (See the trailer of Phelem McAleer's Not Evil Just Wrong for a prime example.)
Well, the last pooh-pooh is on them: It turns out we're already cutting emissions in the United States. Sure, some of that is due to a sluggish economy. But negative economic circumstances don't account for the 9 percent reduction in carbon emissions since 2007. In fact, the amount of carbon dioxide produced for every dollar of economic output declined by 3.8 percent in 2008.
I responded:
I really wish you would apply your analytical abilities to equities so I would have some way to bet against you.
Had you looked, you would see that the US has been reducing the CO2 intensity for a unit of economic output for decades. Here is the first source I found online but there are zillions. In terms of improvement, the US has done better on this metric in the last 20 years than nearly any other country in the world, and just as well as the best (e.g. Germany)
So what you tell is not a new story, and has nothing to do with recent governmental dictats or pleas by environmentalists and everything to do with the ongoing incentives of individuals and businesses to reduce costs and be more efficient.
The reason our total Co2 output has not decreased is that while CO2 per unit of GDP (I will call this CO2 efficiency) has improved 2-4 percent per year, our GDP has grown the same rate or faster. So our overall CO2 output is flat to up (and has actually been down the last few years). One of the main reasons Europe has done better than the US in total CO2 reductions is not improvements in CO2 efficiency, but because their economies have lagged. They bent over backwards in Kyoto to make 1990 the baseline year, so they could include the horrible economies of Russia and East Germany which were in the process of crashing, thus giving them an automatic CO2 reduction for nothing.
Anyway, just look at your own numbers. In the year before, we got about 3% improvement in Co2 efficiency and had about 3% economic growth so CO2 output was flat to down. Last year we had about 3% improvement in Co2 efficiency and the economy was down a lot and thus CO2 was down a lot. When there are two variables in a function, and only one is changing, most logical people attribute the change in output of the function (ie changes in total CO2 output) to the variable that changed (ie economic growth). You, for some reason, attribute changes in the output to the variable (co2 efficiency improvements) which basically remained unchanged. Nice analysis.
You can even see it in your numbers. If CO2 efficiency is up 3.8 percent and Co2 output is down 9 percent, then that means the economic growth/size component has to be down 5.4% (.91/.962 - 1). So almost 60% of the "improvement" is due to a very bad recession and 10% unemployment, but you attribute it to the unchanging 40% piece.
Did anyone in the environmental movement study math or economics?
The graph is large, so you will have to click through to it, but basically it shows employment losses and wage changes by industry in the US from 2008 to 2009. What confuses me is that all these industries show fairly large hourly wage gains, with gains the largest in certain sectors with the largest employment losses.
I come up with one of two explanations:
Not sure which it is. Probably a bit of both.
The treaty draft is really hard to read, as it has all kinds of alternate language in brackets. However, a few folks have already started reviewing the treaty, and what they are finding is less of a climate treaty and more of a blueprint for world socialism. One example, via Anthony Watt, from page 122 of the draft:
17. [[Developed [and developing] countries] [Developed and developing country Parties] [All Parties] [shall] [should]:]
(a) Compensate for damage to the LDCs' economy and also compensate for lost opportunities, resources, lives, land and dignity, as many will become environmental refugees;
(b) Africa, in the context of environmental justice, should be equitably compensated for environmental, social and economic losses arising from the implementation of response measures.
Compensating for "lost opportunities?" Isn't that number just whatever they want it to be? And don't get me started on lost "dignity."
This post at Dr. Helen's site is dead on. She posts a number of comments from Don Surber's site, starting with this one:
Commenter Sean says:
Businesses aren't hiring because no one knows what in the hell our economic system is going to look like 5 years, or even 5 months, from now.
Will "Cap and Trade" get implemented as the Democrats hope?
How much of an upheaval will "Healthcare Reform" end up being?
Is the administration and Congress done overhauling regulation of the Financial Industry?
No prudent investor is going to bet their money (i.e., invest in growth) when it is conceivable that the government is going to radically alter how 50% of this nation's economy functions.
This is exactly where I am right now. The business I own has been growing at about 10% a year for the last five years. In each of the last 3 years, we have invested an average of a half million dollars in new facilities. In the past five years I have added over a hundred new positions in the company.
This year we will add ZERO.
It is not for lack of opportunity. Because we are on the low-cost end of recreation, we have had a record year. And because I am in the business of privatizing public recreation, my phone has been ringing off the hook. All over the country, desperate public recreation authorities are calling me to say that they are out of money, their parks are about to shut down, and can I do something to keep them open.
To the extent we find opportunities to grow with limited investment, we are pursuing those. But I just cannot put up any more capital in this environment. If I make an investment, how much will the government let me keep? How much are taxes going up (because they certainly are going up)? Inflation simply must be around the corner given the monetary policy this country is pursuing -- so will my business be able to raise prices fast enough to keep up with inflation in my inputs?
The legislative risks we face are tremendous. My two highest costs are labor (50% of revenues) and fuel and electricity (about 10% of revenues). Thus, nearly 2/3 of my costs are going to be increased by the current health care bill and cap-and-trade bill. The only question is how much. If forced to guess, I would estimate that my labor costs are going up 8% and my fuel costs by 20%,which when you compute these by their percentage shares, says that my costs will likely increase by at least 6% of revenues. My current profit margin before tax is between 6 and 8 percent of revenues. I may be able to raise prices fast enough to cover this, or I may not. In a business with thin profit margins, there just isn't much, uh, margin for uncertainty.
And none of this takes into account the proposed new paperwork load that will likely make my business less enjoyable to run (example of current mess). From having to track and report our company's greenhouse gas emissions to keep track of the health insurance choices made by every employee, it is sure to be ridiculously burdensome.
So I am going to wait it out for a while.
"I can make a firm pledge"¦.no family making less than $250,000 will see any form of tax increase"¦..not any of your taxes"-Barack Obama, September 12, 2008
Oops, well, so much for that, as Obama imposes a 35% tax on Chinese tires, requiring higher prices be paid by the majority of Americans. This is a broad-based tax aimed at supporting one narrow American industry, as a payoff to the United Steel Workers who have been sad that the UAW has been getting all the political gravy of late.
Suppose the Chinese government is massively subsidizing tire exports -- that they are taking Chinese taxpayer money and directly applying it to tire exports to reduce prices in the US. What should our response be? Mine would be: Thanks, suckers. If the Chinese really want to tax their people to subsidize lower US consumer prices, why in the world would we want to stop them?
Oh, and remember that Obama pledge to be all lovey-dovey with the rest of the world instead of that nasty confrontational Bush administration? Well, forget that too:
HONG KONG -- Just two days after the United States slapped Chinese tire imports with hefty tariffs, Beijing has hit back by saying it would launch an anti-dumping investigation into automobile and chicken products from the U.S.
[...]
The "protectionist" policy that seems to have triggered the Chinese tit-for-tat investigation was an order signed on Friday by President Barack Obama that imposes a 35% tariff on tires imported from China on top of the existing import duty of 4%.
Can anyone say, "Smoot-Hawley." I am sure happy we all learned from the one unequivocal lesson that every economist, left-right-Keynsian-monetarist, took away from the Great Depression -- that starting an international trade war is the best way to exacerbate a recession. Obama has done just about the only thing everyone agrees shouldn't be done in response to a major economic downturn.
Update: More good analysis here
Postscript: I wrote this hypothetical post from the Chinese perspective a couple of years ago: From "Panda Blog:"
Our Chinese government continues to pursue a policy of export promotion, patting itself on the back for its trade surplus in manufactured goods with the United States. The Chinese government does so through a number of avenues, including:
- Limiting yuan convertibility, and keeping the yuan's value artificially low
- Imposing strict capital controls that limit dollar reinvestment to low-yield securities like US government T-bills
- Selling exports below cost and well below domestic prices (what the Americans call "dumping") and subsidizing products for export
It is important to note that each and every one of these government interventions subsidizes US citizens and consumers at the expense of Chinese citizens and consumers. A low yuan makes Chinese products cheap for Americans but makes imports relatively dear for Chinese. So-called "dumping" represents an even clearer direct subsidy of American consumers over their Chinese counterparts. And limiting foreign exchange re-investments to low-yield government bonds has acted as a direct subsidy of American taxpayers and the American government, saddling China with extraordinarily low yields on our nearly $1 trillion in foreign exchange. Every single step China takes to promote exports is in effect a subsidy of American consumers by Chinese citizens.
This policy of raping the domestic market in pursuit of exports and trade surpluses was one that Japan followed in the seventies and eighties. It sacrificed its own consumers, protecting local producers in the domestic market while subsidizing exports. Japanese consumers had to live with some of the highest prices in the world, so that Americans could get some of the lowest prices on those same goods. Japanese customers endured limited product choices and a horrendously outdated retail sector that were all protected by government regulation, all in the name of creating trade surpluses. And surpluses they did create. Japan achieved massive trade surpluses with the US, and built the largest accumulation of foreign exchange (mostly dollars) in the world. And what did this get them? Fifteen years of recession, from which the country is only now emerging, while the US economy happily continued to grow and create wealth in astonishing proportions, seemingly unaware that is was supposed to have been "defeated" by Japan.
We at Panda Blog believe it is insane for our Chinese government to continue to chase the chimera of ever-growing foreign exchange and trade surpluses. These achieved nothing lasting for Japan and they will achieve nothing for China. In fact, the only thing that amazes us more than China's subsidize-Americans strategy is that the Americans seem to complain about it so much. They complain about their trade deficits, which are nothing more than a reflection of their incredible wealth. They complain about the yuan exchange rate, which is set today to give discounts to Americans and price premiums to Chinese. They complain about China buying their government bonds, which does nothing more than reduce the costs of their Congress's insane deficit spending. They even complain about dumping, which is nothing more than a direct subsidy by China of lower prices for American consumers.
And, incredibly, the Americans complain that it is they that run a security risk with their current trade deficit with China! This claim is so crazy, we at Panda Blog have come to the conclusion that it must be the result of a misdirection campaign by CIA-controlled American media. After all, the fact that China exports more to the US than the US does to China means that by definition, more of China's economic production is dependent on the well-being of the American economy than vice-versa. And, with nearly a trillion dollars in foreign exchange invested heavily in US government bonds, it is China that has the most riding on the continued stability of the American government, rather than the reverse. American commentators invent scenarios where the Chinese could hurt the American economy, which we could, but only at the cost of hurting ourselves worse. Mutual Assured Destruction is alive and well, but today it is not just a feature of nuclear strategy but a fact of the global economy.
Today's issue in Arizona: Should our public utility be required to provide line extensions to new homes "for free" (meaning paid for by existing rate payers) or should homebuilders, developers, and home buyers have to pay the real marginal cost of their utility infrastructure.
It is another of those subsidy issues where "visible" jobs (ie jobs in new home construction) are held out as justification, while "invisible job losses (ie from higher electricity rates to existing customers) are not even mentioned.
One of the biggest sticking points in the case is whether it is fairer to charge new developments the cost of new lines or simply charge the existing 1.1 million APS customers higher monthly rates to fund free lines.
Proponents of free lines said it would only cost customers 80 cents a month for APS to reinstate free lines, but APS officials said that if growth picks up as the economy recovers, customers could be charged an average of $45 a year to fund free lines.
Why is this even a point of discussion? A small group of people are attempting to make the majority buy them some goodies. The argument, as always, is that when the price of these goodies is spread across lots of people, its not really very much per person. It is almost as if the rest of us are being made to feel churlish for not agreeing to fund their next housing development.
I am far, far, far from being an anti-growth guy. But I agree with the anti-growth guys in one respect - it is perfectly reasonable for new developments to pay for the full incremental infrastructure cost of their development.
Imagine we had entirely private health insurance market "“ no Medicare or Medicaid. If I live to be sixty-five, I will probably have a personal and/or family history that indicates a strong probability of developing an expensive chronic condition. I would wager that is true of almost all sixty-five year olds.
So here is my question: which insurer in their right mind would take on my risk?
I suspect none. Once philanthropy and savings were exhausted, I would surely risk a painful life and preventable death.
Do I want this? Does anyone? Isn't "socialized" medicine for older people an unpleasant moral necessity for our wealthy society? Please note I am deeply suspicious of most arguments cast in moral terms in discussions of politics and economics. I ask these questions guardedly.
I answer in the comments:
Imagine we had entirely private life insurance market "“ no government options at all. If I live to be sixty-five, I will probably have a pretty high probability of dieing in the next 15 years or so. I would wager that is true of almost all sixty-five year olds.
So why would anyone insure me?
Because the life insurance market has developed a very reasonable solution to this -- you negotiate a term life rate for X number of years. Your rate might be Y a year for 10 years, or 1.5Y a year for 20 years, or 2Y a year for 30 years. The longer the rate guarantee, the higher the rate. You are explicitly paying higher rates than you might have in younger, less risky years to make sure you get a coverage guarantee at an affordable rate in later, risky years.
Of course, if you play the grasshopper and never buy insurance until you are 65, your price is going to be awful. But I don't think it is a reasonable role for government to do all kinds of individual-liberty-defying and costly things just because you did not take responsibility for your old age earlier in life. However, saying that, I of course know that this is EXACTLY what the government does with Social Security.
I have a high deductible individual insurance plan from Assurant who specializes in insuring individuals, and they have been evolving to a pricing model sort of similar to the term life model I listed above, though they are not quite there yet.
To the folks that say this is no solace for folks already 65, that is an implementation transition issue, not an argument against the market's ability to deal with this. Certainly a lot of folks have paid Medicare taxes for years and are counting on it. Some kind of phase out, possibly where the government redirects Medicare funds to make up the difference in policy prices for having not started locking in earlier, is possible. But the question was not an implementation question - it was a question of whether the market inherently fails for 65-year olds, and I think the answer is that it does not. We have a perfectly serviceable analog in life insurance to prove it
I call this the "failure of imagination" argument against free markets. Some sector of the economy (such as education) has been dominated by government for so long that folks can't imagine a private model. For example, when I argue for private grade school education, I can't tell you how often people say "private schools are all really expensive, no one could afford them." Private schools are expensive because in the current government model, the only market niche for private schools is for families that can afford to pay the government for education they don't use and then pay a second time for a private school.
In case you weren't sure what progressives were after:
The outgoing leader of Greenpeace has issued a call for the suppression of economic growth in the U.S. and Western nations. Under questioning by BBC reporter Stephen Sackur on the August 5, 2009 "Hardtalk" program, Gerd Leipold, the retiring leader of Greenpeace, said "the lifestyle of the rich in the world is not a sustainable model.
Excerpt from NotEvilJustWrong.com: "Leipold told the BBC that there is an urgent need for the suppression of economic growth in the United States and around the world. He said annual growth rates of 3 percent to 8 percent cannot continue without serious consequences for the climate."
"We will definitely have to move to a different concept of growth. ... The lifestyle of the rich in the world is not a sustainable model," Leipold told the BBC.
"If you take the lifestyle, its cost on the environment, and you multiply it with the billions of people and an increasing world population, you come up with numbers which are truly scary," Leipold explained.
Left unexplained by Leipold is how environmental conditions in the US have improved substantially over the last 100 years, not just coincident with but because of economic growth and growing wealth. Our country looked like China 100 years ago, but growing wealth gave us the ability not only to produce, but to produce much more cleanly. On virtually every metric you can name, the US is cleaner than it was even 30 years ago. On many key metrics, like water quality and sulfur dioxide production, we are cleaner even than Europe and certainly cleaner than most Third World nations.
By the way, if you really want to tick someone off at Greenpeace, you should observe that the person most responsible for saving the whales was not anyone at Greenpeace, but was John D. Rockefeller. Greenpeace may have saved a few by jumping their boat in front of some Japanese or Russian harpoons, but Rockefeller made whaling unprofitable.
Which brings us full circle to the "growth killing the planet" issue. I made fun of this static view of man and technology here when I wrote a hypothetical 1870 post on the Peak Whale Theory
As the US Population reaches toward the astronomical total of 40 million persons, we are reaching the limits of the number of people this earth can support. If one were to extrapolate current population growth rates, this country in a hundred years could have over 250 million people in it! Now of course, that figure is impossible - the farmland of this country couldn't possibly support even half this number. But it is interesting to consider the environmental consequences.
Take the issue of transportation. Currently there are over 11 million horses in this country, the feeding and care of which constitute a significant part of our economy. A population of 250 million would imply the need for nearly 70 million horses in this country, and this is even before one considers the fact that "horse intensity", or the average number of horses per family, has been increasing steadily over the last several decades. It is not unreasonable, therefore, to assume that so many people might need 100 million horses to fulfill all their transportation needs. There is just no way this admittedly bountiful nation could support 100 million horses. The disposal of their manure alone would create an environmental problem of unprecedented magnitude.
Or, take the case of illuminant. As the population grows, the demand for illuminant should grow at least as quickly. However, whale catches and therefore whale oil supply has leveled off of late, such that many are talking about the "peak whale" phenomena, which refers to the theory that whale oil production may have already passed its peak. 250 million people would use up the entire supply of the world's whales four or five times over, leaving none for poorer nations of the world.
For years, I have suspected that a lot of increased per pupil spending in public schools has gone to increasing numbers of administrators rather than teachers or facilities. I just have to compare the administration numbers at my kids private school and those at the local public school and the contrast is just amazing.
Mark Perry demonstrates a similar effect in state-run college education:
This decade has been good for associate vice chancellors at UNC-Chapel Hill. Their numbers have nearly doubled, from 10 to 19, and the money paid to them has more than tripled, to a total of nearly $4 million a year. The university now admits that some of these people were in jobs that were not vital. They represent the rapid management growth in the 16-campus UNC system that has added tens of millions of dollars to annual payrolls.
Now, with a tough economy and sinking tax revenues, UNC officials and state lawmakers say these jobs need cutting first.
Systemwide over the past five years, the administrative ranks have grown by 28%, from 1,269 administrative jobs to 1,623 last year, UNC-system data show. That's faster than the growth of faculty and other teaching positions -- 24% -- and faster than student enrollment at 14%. The number of people with provost or chancellor in their titles alone has increased by 34% the past five years, from 312 in 2004 to 418 last year. The cost was $61.1 million, up $25 million from five years before.
Perry also show similar numbers in his own university in Michigan.
Kudos to the UNC system for at least considering cuts in these bloated administrator positions. You never see public grade schools systems ever suggest such cuts - when forced to economize, they always suggest cutting something inflammatory like textbooks for high school or crayons for kindergarteners. One difference is that UNC faces competition from a myriad of other public and private colleges, while most local grade school districts do not.
I would still like to find similar staffing numbers for our local public school district, breaking out teachers from principals, assistant principals, and administrators, but they seem loath to share such detail.
Usually an article like this would blame the US:
Global carbon dioxide emissions in 2008 rose 1.94 percent year-on-year to 31.5 billion tonnes, German renewable energy industry institute IWR said on Monday, based on official information and its own research.
Several other leftish / alarmist sites picked up the story, but still didn't hammer the US, saying only that the US is the largest contributor to total emissions but not whether it contributed significantly to last year's rise. It turns out there is a reason for this. US emissions were actually way down, falling far faster than the drop in economic growth: (from the EIA)
The story tries to put a positive spin on Europe (again, the preferred story line is always Europe-good-America-bad):
Carbon dioxide emissions from heavy industry participating in the European Union's Emissions Trading Scheme fell 3.1 percent last year compared with 2007, the EU's executive Commission said in mid-May
This is a carefully worded cherry-picking on one sector of the economy. I would be willing to bet almost any amount of money that the rest of Europe's economy saw less of a drop or even an increase. Even so, the cherry-picked sector, the one subject to cap-and-trade, still underperformed the US. Overall, US emissions have fallen since 2000 without any real regulatory program and just the normal incentives of economic efficiency at work.
The US is NOT the problem when it comes to future emissions growth.
