Category Archives: Economics

Miscellaneous economy stuff

A Thought on Failure

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Or at least President Obama’s quasi-admission of his own.  This excerpt is from Sunday’s CBS News interview with Charlie Rose.  There’s also more, including Obama’s whining that he hasn’t been able to “change the atmosphere” in DC, with his partisan, character-assassinating politics.

Rose: But suppose, I mean he clearly would say, ‘Let’s look at your record; let’s look at the fact the unemployment is at 8.2%, and it’s unlikely to change.  Let’s look at how effective the stimulus was.  Let’s look at your management of the economy.  Yes, it was a bad hand you were dealt, but you have not made it to what it ought to be.  That is the centrality of their campaign.

Obama: Exactly.  That is his argument, and you don’t hear me complaining about him making that argument, because if I was in his shoes, I’d be making the same argument.

Hmm….

As an aside, it’s also interesting to see Rose’s mindset so plainly: government should be managing the economy.

It Misses the Question

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Ben Wattenberg wrote about demographics as a cause of our “entitlement crisis” in a recent Wall Street Journal op-ed.

As he pointed out, birth rates are falling drastically in the nations wealthy enough to have an entitlement régime.  Contradictorily, that’s a normal result of the development of widespread wealth within nations.  For a variety of reasons—delayed marriage, increasing education, increasing incomes, more effective means of birth control, lower stigmatization of terminating pregnancies, and so on—birth rates in developed nations have fallen below the replacement rate needed simply to maintain their existing population levels (generally, 2.1 births per woman).   The birth rates in Italy, Spain, Greece, Eastern Europe, Russia, the former Soviet republics, and South Korea, for instance, are all below 1.5.  Japan’s rate is a potentially catastrophic 1.2.  The US rate, at about 2.0, still isn’t quite high enough to maintain our own population; although until the current economic failures, we could count on immigration to make up the shortfall.  Sort of.

All this adds up to not enough people are entering the labor force to pay for the existing entitlements.  When the US’ Social Security entitlement program was created 75 years ago, there were 7 people in the labor force for every retired person, and that retiree could count on living about 6 years in retirement.  Today, the number of people in the work force is  around 2-3 (and falling), and the retiree being supported can count on living around 35-40 years in retirement (that longer support duration is a demographic that Wattenberg doesn’t mention).

This certainly does emphasize the proximity of the crisis that’s upon us.

Wattenberg identified two current solutions to this: cutting the entitlements or running massive deficits.  He then offered what he thinks is a better solution.  Harking back to the ’60s and ’70s worries about the population bomb and the meme that we need to reduce our birth rates, he wants a similar program, this time preaching the opposite: our new parents need to have more children.

But Wattenberg misses the crisis’ cause.  It’s not that birth rates are too low, or that there aren’t enough new workers entering the system to support the entitlement economy.  That argument proceeds from a false premise.

The real answer, the individual liberty- and responsibility-preserving answer, is to eliminate the entitlements and privatize them, instead.  It’s as wrong for government to try to “influence” the family timing and size decisions of free men and women as it is for government to try to “influence” any other family-related decisions made by free men and women—or any other decision founded in individual conscience.

Another Idiotic Idea

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And another attempt to emulate the blatantly failing European model.  This one is backed by the AFL-CIO and the National Nurses United unions….

With that union backing, the Democrats (led by Congressman Peter Defazio (D, OR) in the House and Senator Tom Harkin (D, IA)), are pushing a bill that would impose a .03 cent tax on all financial trades.  Defazio says,

It would benefit long-term investors with stability

but

It’s “tiny,” and it would cost the “average investor” just $1 per year.  Let me see if I understand the logic of this.  It’s too small to matter to the little guy (and since it’s not a progressive tax, it’s even more trivial for the big players) but it’ll influence everyone to move toward trading market stability.

Then Defazio added this:

[I]t will still generate about $35 billion a year in income—income that could be used to rebuild the real economy, infrastructure, other investments.  Or money that could be used to help defray our deficit.

Yeah, sure.  We saw how much the last several Progressive stimulus spending packages did for our “infrastructure” and all those shovel ready jobs that President Obama yucked it up about not actually being shovel ready.  On top of which, when was the last time either party used tax money to reduce a budget deficit, rather than as seed money with which to leverage even more spending?

And this:  Bill Gates and George Soros are cited as backing this…idea…as a fine way to “painlessly” raise “a lot of money without affecting growth.”  There’s that false premise, again, this idea that the government needs more money.

Outsourcing

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Outsourcing isn’t necessarily bad, when it’s done for appropriate reasons—that is to say, for sound business purposes.  Outsourcing lets a company lower its own costs, so that it can prosper.  That prosperity both facilitates customers’ ability to get their needed products at lower cost and it facilitates the company’s ability to grow—and so to hire more labor.  This is true whether the outsourcing is to another company that uses American labor or whether the outsourcing is to an overseas company.  A lot of  the difference between those two types of outsourcing depends on labor costs and on government regulatory and taxing costs in those two areas.

Moreover, potsful of American businesses have global reach and need facilities in other countries: sales staffs, managers, production, and so on.  This is business in the 21st (and 20th) centuries.  Likewise, potsful of European, Asian, South American companies do business in the US, with salesmen, managers, production, and so on here; many of their employees are Americans.  Are those companies “outsourcing?”  Should they take their marbles and go home?

But what happens when it’s Federal dollars—your and my money collectively—and not private enterprise’s that are being spent, and that are claimed to be getting spent on jobs promptly available for Americans?  As Governor John Sununu pointed out in a recent interview with Andrea Mitchell,

When you’ve sent $500 million to Fisker and it goes to Finland immediately. When you send the solar money and it goes to Mexico. When you send the turbine money and it goes to Denmark. And we can go on all day. There is $29 billion worth of purchases that came out of this administration, outsourced jobs to foreign countries. Mitt Romney outsourced zero. Obama outsourced 29 [billion dollars].

Here are a couple of examples, albeit from a Republican-sponsored Web site, among other sources:

The People’s Republic of China:

North Carolina-based LED maker Cree Inc got $39 million in stimulus money in January 2010 and opened its first plant in the PRC.  Over half of the company’s employees are in the PRC and Cree’s CEO Says the company’s strategy is “Cree Chip, China Heart.

Sempra got a $337 million loan guarantee for an Arizona solar plant, putting American taxpayers on the hook for the loan.  However, the solar panels will be supplied by SunTech, a Chinese solar panel manufacturer.  While it’s true that SunTech has built a solar panel plant in Arizona, it will supply, at its peak, 10% of the panels for the Sempra project.  The other 90% will come from factories in the PRC.

Japan:

According to a 2010 report from American University, Eurus Energy America, a subsidiary of the Japanese company Eurus Energy, got $91 million in stimulus monies to build a wind farm in Texas, but the wind farm was built with 180 wind turbines built by the Japanese company Mitsubishi.

There are lots of others in those $29 billion.

Obamacare vs Romneycare

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Just to be clear from the start: I don’t like Romneycare.  I think any time a government thinks it knows better how I should allocate my resources and my priorities than I do, it’s making a grave mistake.  Against that background, I want to look at the “debate” over Obamacare and Romneycare.

Here’s President Obama:

[W]hen you hear all these folks saying, oh, no, no, this is a tax, this is a burden on middle-class families, let me tell you, we know because the guy I’m running against tried this in Massachusetts and it’s working just fine.

Except that it’s not working that well, as President Obama surely knows, since of course he looked into the matter before he began pontificating on it.  Between half and two-thirds of those uninsured before the plan was implemented remain so—not quite universal coverage.  And this failure stems from the same thing that makes Obamacare a failure: it’s cheaper to pay the penalty in MA than it is to get health insurance.  Furthermore, as recently as 2011, National Review Online was reporting that Massachusetts still has the highest health costs in the US.  Mandates and subsidies—here for folks required to buy insurance but can’t afford it—just don’t work, whether implemented by Republicans or Democrats.

Against that baseline, there are major differences between the two programs.

President Obama has inflicted a trillion dollars in tax increases over Obamacare’s first 10 years to cover its cost.  Romneycare didn’t raise taxes at all.

Stan Dorn, of the Urban Institute, claims that Romney got Federal financial help in the form of Federal Medicaid money.  This is disingenuous, though.  Romneycare simply diverted Federal Medicaid funding it already was getting from its originally targeted hospitals (vis., to pay unpaid bills) to subsidies to individuals with which to buy their own policies.  As Josh Archambault, of the Boston-based Pioneer Institute, put it

Affordable insurance on their own.  The federal approach simply put them on the public rolls….

There’s another difference that both candidates are ignoring, and that difference centers on the 10th Amendment.  What one state does for its own citizens, for good or ill, is not a valid reason for the Federal government mandating or proscribing that same thing for all states and all Americans.  Each state, under the 10th Amendment, is free to makes its own decision concerning what is appropriate for its citizens.  Of course, this States’ Rights argument would be wholly irrelevant were the Progressives willing to admit that Obamacare is originally and completely President Obama’s idea, instead of trying to blame it onattribute it to Governor Romney.