Category Archives: political economy

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 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.

State of the Union

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Third verse, same as the first.  President Obama’s speech Tuesday night before the Congress, although couched in rousing terms of “teamwork” and “rebuilding America,” was in the end just more of the usual Progressive fare of class warfare, higher taxes and spending, and bigger government.

While promising to work toward job creation, Obama already has cancelled the Keystone XL pipeline, which would have been worth a prompt 20,000 construction and construction-related jobs and an additional 100,000 plus follow-on, more permanent jobs.  While promising vast reductions of intrusive regulations (he actually cited only a single elimination, that of 40-year-old regulation concerning treating spilled milk as an oil spill), his EPA has been running amok with intrusive regulations, from dictating the light bulbs we’re allowed to have in our bed- and bathrooms, to closing down badly needed electricity power plants (with their jobs and the jobs of the businesses that need that power) with excessive “pollutant” regulations that will do nothing to improve our environment or our health, to expanded regulations in the medical device industry that will stifle innovation in that vital area, and on and on.

He wants to reform our tax system, he said, but only to raise taxes on disfavored groups while “reforming” it through extending a payroll tax holiday that guts funding for Social Security;  “double[ing] the tax deduction” for businesses that manufacture in the US, adding to the Byzantine complexity of our corporate tax code; taxing revenue (all of it) from the sale of those severely regulated medical devices; and so on.  But he refuses to accept an overall reduction in income taxes in substitution for that general payroll tax reduction, he refuses to simplify the code and reduce the rates for all corporations—or for all individuals.  Instead, he wants to raise taxes on his “wealthy,” the top 5% of whom pay nearly 60% of the nation’s income taxes, while he refuses to talk about the taxes of the 50% of Americans who pay around 3%-4% of the nation’s income taxes while.  He wants to eliminate the tax breaks for

an [oil and gas] industry that’s rarely been more profitable, and double-down on a clean energy industry that’s never been more promising. Pass clean energy tax credits….

Yes—he refuses to eliminate the same subsidies for his “green” energy efforts, like Solyndra, et al.

Obama said he wants an “an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.”  This from the president that shoved senior creditors (at least as defined by existing bankruptcy law) to the back of the bus and gave preferential treatment to his union donors in the government-union takeover of GM and Chrysler.

And he promised openly to continue to govern by fiat whenever our democratic process won’t let him get his way:

With or without this Congress, I will keep taking actions….

Next, there are factual errors in Obama’s speech.  He claimed that Obamacare “relies on a reformed private market, not a government program.”  But the fact is that fully half the more than 30 million currently uninsured are expected to receive coverage through government programs, while the other half are expected to be enrolled in government-approved “private” health insurance through state-based insurance markets.  Moreover, many of these will be get federal subsidies to do so.  Further, Medicaid will be expanded drastically.

And there’s this:  “On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen.”  I’ve addressed above some of the corrections to this claim.  Here’s more: the bailout actually began under President Bush the Younger.  Ford, though, the other member of the American auto industry as Progressives define it (eliding Toyota, Nissan, Honda, Volkswagen, etc. that also have major manufacturing plants in the US and so are key participants in the American auto industry) took none of the bailout money.  Furthermore, if we’re limiting the “American auto industry” in the Obama manner, Chrysler is no longer a part: it’s owned by Fiat, an Italian company.

Finally, although Obama gave short shrift to America’s foreign affairs, he did claim this.  “The Taliban’s momentum has been broken, and some troops in Afghanistan have begun to come home.”  However, the latest National Intelligence Estimate says that the Taliban will grow stronger, and it’ll use Obama’s unilateral offer of “negotiation” for delay.  The NIE adds that the Taliban in fact will end controlling the Afghan countryside—which gives it the cities