Monthly Archives: January 2012

On Creative Destruction in a Free Market

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Here is an example of the creative destruction that a free market, especially one free of government interference, can generate [emphasis added].

In 2011, auto makers sold fewer than 13 million cars and light trucks in the U.S., and this year’s sales are expected to approach 14 million, levels that once would have been considered catastrophic for the U.S. auto industry.

Instead, the industry’s major players are steaming ahead.  A much leaner Chrysler Group LLC next week is expected to report $2 billion in operating profit for 2011.

“Not too many years ago, the U.S. industry looked at [sales of] 16 million [vehicles a year] as a permanent fixture in the landscape,” Chrysler CEO Sergio Marchionne said earlier this month at a conference sponsored by Automotive News.

“We can survive at 10 million” a year, he said. “The U.S. recession provided critical impetus to address the critical issues that the industry had dragged behind it for years.”  Last year Chrysler sold 1.37 million vehicles in the U.S., 26% more than in 2010 but again well below the 2.14 million it sold in 2006.

Peter Nesvold, a financial analyst at Jeffries & Co. in New York, said the turning point for the industry was closing and downsizing plants, which took out about 30% of its production capacity and eased the pressure to keep making cars even when customers aren’t buying.

“Supply and demand are roughly equal, and that’s healthy,” he said.

Notice that.  Excess production was eliminated, and while in this case there was a net job loss, because the company is now competitive, it has a chance of surviving, and the majority of the company’s employees are able to stay in their jobs.  Furthermore, today’s Fords, GMs, and Chryslers are better cars with more gee-gaws, like GPS navigation and touch screen dashboards; hybrid versions exist today, too, that were not available before the recession forced a sorting out, and were not going to be available any time soon before that sorting.

The President’s Republican Plans

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President Obama, in his State of the Union address, spoke passionately of bringing manufacturing back to the US, of bringing in particular high-tech manufacturing back.

An America that attracts a new generation of high-tech manufacturing and high-paying jobs. … So we have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it….  It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized. … And this Congress should make sure that no foreign company has an advantage over American manufacturing when it comes to accessing finance or new markets like Russia. Our workers are the most productive on Earth, and if the playing field is level, I promise you—America will always win.

Republicans have been pushing for this—both manufacturing and dealing with economic cheaters—for quite some time.

And

…if you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making products here.

This has been a campaign theme of Senator Rick Santorum, in particular, for some time (although, let’s not forget that Obama’s tax plans aren’t entirely beneficial—he still demands to raise taxes on those groups of which he disapproves).

He also wants to boost domestic energy production.

Nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we’ve opened millions of new acres for oil and gas exploration, and tonight, I’m directing my Administration to open more than 75 percent of our potential offshore oil and gas resources. Right now, American oil production is the highest that it’s been in eight years. That’s right—eight years. Not only that—last year, we relied less on foreign oil than in any of the past sixteen years.
But with only 2 percent of the world’s oil reserves, oil isn’t enough.

This has been the push of Republicans for years.  The complaint has been about the Obama administration actively interfering with domestic energy production, from slow-walking offshore drilling permits (after an outright ban following the BP spill) to nixing the Keystone XL pipeline that would have brought Canadian oil into the US—North American, if not domestic.

I won’t go (far) into fact checking Obama’s claims in that segment (like that 2% claim, which actually refers to the amount of oil that is recoverable at current prices and under lands currently available by Federal fiat for development.  In fact, according to the Institute for Energy Research, the US has more than 1.4 trillion barrels of recoverable oil, more than the rest of the world (excluding North America) combined).  It’s enough that Obama is, apparently, embracing another Republican policy.

All this comes against the backdrop of Obama’s failed economic policies.  He chose not to address the budget disaster in his SOTUS, and he’s chosen to ignore it in his re-election campaign these last several months.  Beyond this, Obama’s Progressive Congress approved $4 trillion worth of economic stimulus via deficit spending, spending which has supported historically high unemployment rates for historically long periods, and which spending has suppressed the cyclical economic recovery that’s been struggling since spring 2009 when the present recession “ended.”  Further, in these last three years the national debt has exploded to more than $15 trillion, equal to the nation’s whole GDP.

Hmm….

Outcome Inequality

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The Daily Caller is writing about “The Inequality Trap,” in the context of income inequality.  Indeed, TheDC points out the hypocrisy generally inherent in the plaints:

At the World Economic Forum in Davos, Switzerland, last week, heads of state and billionaires from around the globe lamented the fact that some people are not as well off as they are, and called for government to do something about it. Then they went skiing.

And our favorite uncle Warren Buffet decries the premise that he pays less (income) tax than his secretary and wants government to raise his taxes—all the while declining to make donations to the Treasury and while doing everything legally within his and his accountants’ skill to reduce his own total tax bite.

Income or tax inequality, though, is just a small part of a larger item—inequality of outcomes generally.  The fact is, we can have equality of opportunity, as the principles statement of our social contract, or Declaration of Independence, promises us; or we can have equality of outcomes, as the Progressives today want us to have.  We can’t have both.

Not every individual has the same degree of talent, or capability, or work ethic of every other individual.  John Adams understood this:

Although, among men, all are subject by nature to equal laws of morality, and in society have a right to equal laws for their government, yet no two men are perfectly equal in person, property, understanding, activity, and virtue, or ever can be made so by any power less than that which created them.

Forcing equal outcomes, then, is nothing more than denial of a more successful man’s right to the fullness of his Liberty and Life by denying him the right to the fruits of his success, his right to achieve his fullest potential, and it holds him back for no other reason than that others have not kept up.  This also subsidizes the less successful so they have the same outcomes as the more successful independently of their own labors.  This government subsidy, then, usurps that individual’s right to make his own decisions and makes the government responsible for each individual’s welfare, eliminating that individual’s own responsibilities and obligations.

But restraining the more successful, or subsidizing the less successful, are the same thing: the more successful are denied full value for their work, their talent, and their skills.  In the first instance, the more successful are held back directly, with the full measure of their success denied them.  In the second, the more successful are denied the same extra return to their performance that is awarded the less successful through subsidy.  Here, for instance, is every child receiving a prize, independent of the outcome from his effort or skill or talent, and so both the self-esteem of the child who did not do well and that of the child who won the competition are damaged by not being able to reap a reward consistent with actual effort or reap the consequences of failure and the opportunity to learn from that—with its own concomitant return to self-esteem.  Each child functionally receives only a participation award.  Here, too, is the high school orchestra, having won a state-wide competition in one year denied by rule the opportunity to compete at all in the following year.  This punishment for success denies the successful orchestra the opportunity for further success, and it denies the newly “winning” orchestra the opportunity to show that it is truly the best by outperforming last year’s winner.  Here, too, is the man who worked hard, both at the particular endeavor and at acquiring the skills necessary for success in the endeavor, and who was able to bring his talent to bear, being forced to give up some portion of the results of his more successful effort to another who did not do as well.  This concept of equal outcomes punishes the successful for their success, and it denies the unsuccessful the opportunity to do better and to become successful in their own right.

Instead, under our social compact, each American has an equal opportunity to achieve his version of the American dream, to achieve the full potential of his own capabilities.  This necessarily produces unequal outcomes when measured merely by fiscal wealth or material possession.  However, this equal opportunity is a grand implementation of American rights and liberties, as it provides the greatest equality for the protections of each one’s existence, rights, freedoms, and social well-being.  This also produces the greatest moral strength.

Thomas Jefferson understood this, too:

To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare others, who, or whose fathers have not, exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it.

The Republican Primaries

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I haven’t posted on the Republican race for a presidential candidate in a while.  I’ve been wrong every time before; what’s one more?

Gingrich’s ads and campaign are beginning to have the air of a desperate man.  They’re getting increasingly shrill and personal, and they do not contrast (favorably) his own ideas and policies either with those of his fellow Republican candidates or those of President Obama.  His presence does, though, have a positive effect on the primary campaign in general.

For one thing, the longer the Republicans go without a clear front runner, the longer the question of who the Republican nominee will be remains unanswered, and the longer the campaigns run, the debates, whether on a stage or via dueling ads and speeches, will force the candidates to clarify their positions, their policies, their ideas, and their solutions in their own minds and in the minds of Americans before this fall.  This can only work to the good of the eventual nominee as he faces a Progressive candidate whose record of governing failure is as clear as is his skill at obfuscation, changing the subject, and raising straw men for his own opponent to defend.

For another thing, Gingrich’s continued survival as a viable candidate is forcing all of the other candidates to sharpen their own debating and communications skills, which also can only work to the benefit of the eventual nominee when he faces that Progressive in the fall.  This improvement in skill and clarity of communication is palpable.

Congressman Ron Paul has gone from frequent mumbling incoherence, from reliance on the inside oral shorthand that he and his coterie have evolved over their 30 years in relative isolation in the House, to a much clearer enunciation of his principles and a much sharper expression of his ideas and solutions.  And once we can understand him, his domestic ideas and solutions are very much worth taking seriously.

Senator Rick Santorum has become a much less a one-dimensional, only anti-abortion candidate.  He’s been forced to talk more about his economic ideas—and he has good ones—and to talk more about solutions to entitlements, the role of self-confidence and self-reliance, and the place of education in facilitating these.  And the Federal government’s (lack of) place in that education.  And in Thursday’s debate, he had the clearest comment of the night, when on the subject of government-provided health care, he pointed out (for the first time by anybody, with this degree of clarity) that it didn’t matter whether it was the Federal government or a state government that forced an individual to buy health insurance as a condition of existence: it was still government run health care, it was still top-down control and not individual choice.

Governor Mitt Romney was, in the beginning, a pure technocrat, who could only speak in the details and weeds, without clarity, and with too much mildness—often perceived as timidity.  The debates—with Gingrich’s sharp participation—have forced him to develop a sharper approach, and he, too, has gotten much clearer as he explains his policies and solutions.  He needs to improve his explanation of the role and benefits of capitalism, particularly against the background of the Bain rap (unfounded, but still there), but he’s improved on this a great deal.  Likewise, he needs to improve his explanation of his position on health care, but he’s gotten better there, as well.  He’s finally said in so many words that he’ll work to repeal in toto Obamacare; although as Santorum pointed out Thursday, he still needs to work on his explanation for Romneycare.

Speaker Newt Gingrich, though, isn’t getting any better.  Certainly one reason is that he’s already very good, and his opponents have been unable until recently to challenge him as he’s been able to challenge them.  However, one of the raps on him is that, for all his debating skills, when he meets someone who can match him, he folds.  This was clearly demonstrated in last Thursday’s debate when he began to remonstrate with the moderator Wolf Blitzer.  When Blitzer pushed back, Gingrich backed down.  Later, Gingrich admitted he was flat generally in that debate: he doesn’t know how to debate effectively when the other debater is manufacturing “facts,” distorting issues, and so on.

You cannot debate somebody who is dishonest.  You just can’t….  I can’t debate somebody who won’t tell the truth….  I know what he’s saying is untrue. And I also know that, in that particular audience, it would not have worked to take him head on, so I backed out.

Given this admission, and given the audience stacking we can expect the Progressives to do, what should we expect from Gingrich in any debate with Obama, who will do exactly that on steroids?

Gingrich needs to pick two or three ideas and push those to the exclusion of all else; he needs to show how they’re better ideas than Obama’s and more so than are the ideas of his Republican competitors.  But he’s never been able to stay this focused.  He’s an outstanding idea man, but his inability to stay centered also works against his capacity to be President.

So….  These are desperate times, but that means we cannot afford a desperate man for our President.  Additionally, Paul’s foreign policy plans demonstrate his dangerous naiveté concerning the ways of the outside world.  I’m beginning to lean toward a Romney/Santorum ticket.  I don’t see Santorum on the top spot because I don’t think he has the temperament for President, but he does have the temperament to ride herd on the Senate, and he can certainly be an effective bad cop to the President’s good cop.

The Obama Economy

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We have a choice of two paths, both the Republicans and the Democrats say.  But in order to decide which of two paths we want our country to take—even accepting Obama’s characterization of the two paths—we have to look at the record away from which Obama is running so hard.  It is that record that demonstrates the value of his path, and it is that record that is a subject he is so desperate to avoid with his non sequitor of paths.  It is that record that must inform Republican reasoning of why their path is better.

As Obama himself said at Harlem’s Apollo theater on the 19th,

We have not seen a choice this stark in years.  The contrast this year could not be sharper. So the question is not whether people are still hurting; people are still hurting profoundly.  A lot of folks out there still out of work looking for work.  The question is, what do we do about it?

The Republican candidates agree that we have a choice to make, and it’s substantially the same one that Obama offers.  Newt Gingrich described the choices this way:

The debate we’re going to have with President Obama over the next eight or nine months [involves] the outlining of the two Americas.

The America of the Declaration of Independence; the America of Saul Alinsky. The America of paychecks; the America of food stamps. The America of independence; the America of dependence. The America of strength in foreign policy; the America of weakness in foreign policy.

Those two choices, I believe, will give the American people a chance to decide permanently whether we want to remain the historic America that has provided opportunity for more people of more backgrounds than any country in history, or whether in fact, we prefer to become a brand new secular, European-style bureaucratic socialist system.

What has Obama done about his just above acknowledged performance, so far?  His record actually is pretty clear from the fact that he’s still saying those things three years into his term.   Here is the path down which he wants us to continue, as demonstrated by his record.

Joblessness remains high at historic highs, for an historic duration: 8.5 percent unemployment only last month, and even higher unemployment for most of the Obama three years.  Millions of Americans out of work for a year or more—for a third of Obama’s term so far.

Repeated claims of millions of jobs saved (not so much anymore of jobs created, even though job creation actually has been ticking up slightly).  But with these claims, the Obama administration stubbornly declines to offer any evidence that this improvement—such as it is—is due to his profligate spending policies and not due to an ordinary cyclic economic recovery, one that has been depressed these last three years by that same spending and his extreme regulatory policies.

Democratic party has refusal—for 1,000 days—to offer a budget in the Senate, and its refusal to allow the Senate take up the House-passed budget bill for FY2012, passed in Jan 2011.  Absent a budget, the Progressives have run up deficits that require the government to borrow 36 cents of every dollar spent.  Beyond that, Obama now is delaying for a week the release of his budget proposal for the 2013 fiscal year.  House Budget Committee Chairman Paul Ryan (R, WI) points out that

This will mark the third time in four years the president has missed his statutory requirement to present a budget on time, while trillion-dollar budget deficits continue to mount.  As the president announces another missed deadline, tomorrow marks the 1,000th day Senate Democrats have gone without any budget at all.

Democratic party refusal to allow the Senate take up more than 20 House-passed jobs bills.

Active destruction of jobs and job opportunities, such as his willful cancelation of the Keystone XL pipeline with all those prompt jobs and even greater numbers of longer-term follow-on jobs; and his EPA regulations that are closing down coal-fired electricity generating plants, with the loss of jobs at those plants, and the potential loss of vastly more jobs from closing of businesses that depended on that power.

Further active interference in the energy sector of our energy economy.  Tom Steyer and John Podesta write, in all seriousness

…the Production Tax Credit, first passed in 1992, has generated massive amounts of new growth in the wind industry, a sector employing 85,000 Americans.  But each time Congress allows this credit to expire after a mere two years, investment grinds to a halt….

Notice that: since 1992, a whole 85,000 jobs, out of 14 million Americans currently out of work.  Notice further: this “green” industry cannot survive—it is not economically viable—without massive investments of your money.  Sort of like Solyndra, Beacon, Evergreen Solar, AES Eastern Energy LP, et al.

Class warfare, and the politics of rank envy.  Obama has chosen to frame his campaign as a fight for fairness for those who are struggling to keep a job, a home or college savings and losing faith in how the country works.  And yet his policies actively interfere with growing our economy so that Americans can actually get jobs, much less won’t need to “struggle to keep a job,” and so that savings for a home or an education become possible.  Instead, Obama simply promotes jealousy of those who have on the part of those whom he wants to buy with his wealth redistribution, funded by selective taxes.  This is Obama’s nation of “You have, and I want,” not the nation of “haves and soon to haves,” as Governor Mitch Daniel described.

That class warfare now has the IRS implementing new rules that will require employers to calculate and report the cost of health insurance provided to employees on each W-2 beginning in 2013, for the 2012 tax year.  Since this benefit is not taxable, what possible reason could the Obama administration have for demanding the data—except that they plan to tax these, too.

In the end, as Ryan put it,

We deserve better than a president unwilling to meet his legal and moral obligation to tackle our nation’s most pressing challenges.  We deserve better than the President’s path to debt, doubt and decline.

And in a statement released jointly with Senator Jeff Sessions (R, AL), Ryan added this:

The President and his party’s leaders have yet to detail a credible budget plan to prevent the fiscal crisis that awaits us should we continue down the current path to debt, doubt, and decline.  Such a crisis would threaten the economic security, health security, and retirement security of every American.  If the President wishes to begin a genuine dialogue with the American people…then he must hold his own party accountable for its dogged refusal to produce a plan to prevent this crisis and lift this cloud of uncertainty from the economy.  The President must also deliver what he has so far refused: serious reforms to change our debt course and prevent fiscal disaster.

It is a choice of two paths: Obama’s performance record or a path of American resurgence in freedom, reduced government interference, economic growth.  The danger for the Republicans is they’ll let Obama stick to a debate of choices and not keep Obama tied to, and having to explain, his record as the demonstration of where his path leads us.