Tag Archives: markets

Who Built That?

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A private enterprise built the car—a Ford—that I drive.  Private enterprise drilled the oil well for the oil, private enterprise refined the oil into gasoline, private enterprise shipped the gasoline to my local filling station—itself a private enterprise.

Private individuals, and collections of private individuals—businesses—built all of those.  And it was my own private industry that enabled me to earn the wherewithal to buy my Ford.

I built that.  All of us in that chain can say that.

Now, it’s true enough that infrastructure facilitated all of that.  It’s nice to have decent bridges and paved roads on which to drive my car and on which those fuel shippers could drive their trucks.  It’s good to have a communications system (vis., the Internet, a technology developed by a private enterprise to solve an internal data management problem) through which to talk with others and do some research enabling me to choose the car I’d end up buying.  It’s nice to have a set of laws that enables these private enterprises to compete with each other in a fair way, free of the depredations of brigands.

From where did this infrastructure come, though?  Some have insisted that Government built that.  Private individuals, private enterprise, had nothing to do with any of that.  More, that without that Government-provided infrastructure, private effort would have been impossible, and so by extension, I—and you—didn’t build our companies, either.

But without the desire to have a car, without private enterprise providing that long chain of support for the car, there would be no demand—and so no need—for that infrastructure.  Private enterprise—I, and all the other private entities—created that need.

Private enterprise built the roads and communications networks, and all the other infrastructure items.  Not the Navy’s Seabees, not the Army’s Corps of Engineers, not the USAF’s Civil Engineers—none of these were out there building that.  Those were private construction firms and private communications companies building that.

That legal system?  The courts are manned by individuals, not some nebulous “government” thingie, albeit those individuals are government employees.  Private individuals, choosing to lead for a time public, political lives, deliberate and enact the laws of that legal system.  They’re elected—and fired—by private individuals voting at the polls.

But surely government paid for all that.  No.  Government has no money of its own; it has only the money we private individuals and our private enterprises allocate to government in our tax payments.  It’s our privately originating money, pooled for the purpose, that paid for the construction of that infrastructure.  And that pays the salaries of those government employees and elected politicians.

Government didn’t build anything; it just acted as middle man for a small part of all that private building.

A Tax Reform Idea

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Close, but no cigar.  Here are some ideas that are being kicked around.

…the president is pushing for tax incentives for making products, especially high-tech ones, in the US.  He also wants more focused federal research programs, including funds for new privately run institutes to study advanced manufacturing techniques.

Senator Debbie Stabenow (D, MI):

…legislation that would give tax breaks to help companies cover the cost of moving production back to the US and ban tax deductions for the expenses of moving operations abroad.

Congressman David Cicilline (D, RI):

…federal grants to help companies upgrade equipment and retrain workers.

Republican Presidential Candidate Mitt Romney has these:

…repealing “excessive” regulation in such areas as environmental protection.  He also wants to require secret ballots for union-certification votes, which might make it harder for organized labor to win.”

The Democrats want Big Government solutions—that are careful to keep government’s hands in business’ pockets—and solutions that simply make an already excessively convoluted tax code even more so.  Romney’s ideas don’t even address the tax question; although they would help business.

No.  Instead of that claptrap, simplify and reduce.

Get rid of the tax subsidies.  Get rid of the tax credits.  Get rid of business regulations that do not actively support productivity improvement or enforce contract law—contracts between businesses and suppliers, businesses and customers, business management and business employees.

Lower—if not eliminate—tax rates on businesses.  They’re not the ones paying the taxes, anyway; their customers pay them in the form of higher prices, so that a tax on business is simply a second tax on private American citizens.  Including those 50% who pay little to no income tax of their own; including seniors who have only a fixed income with which to pay for their necessities.

Why Did the PRC Buy These Businesses?

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The Wall Street Journal‘s Joseph Sternberg ran an op-ed the other day wondering whether the People’s Republic of China might be playing a risky game of “greater fool” in buying up failed or failing companies in the expectation of finding a greater fool to whom to sell these, later.

Mr Sternberg makes some interesting points, and his piece should be read in its entirety.  But I think he may be misreading the PRC on this; I think he’s making the same mistake here that the Obama administration is making about Iran and the usefulness of sanctions: each thinks these others—the PRC and Iran—think like we do.

They do not.  Their pain buttons are not the same as ours, their goals are not the same as ours, and so their motivations cannot possibly be like ours.  Sternberg cites two of the PRC purchases—the car battery maker, A123, and the Canadian oil and gas company, Nexen, for each of which the PRC paid large premiums, as his examples of the potential for the PRC finding itself at the end of the greater fool chain.

These are, indeed, useful examples for Sternberg’s points; consider, though, an alternative set of goals for the PRC’s acquisitions.  The PRC bought a controlling stake in A123 not for the car battery technology, but for the battery technology.  The PRC has, for instance, a burgeoning space program.  They have a desire to expand, generally and massively, into the solar power realm for a variety of reasons, and power storage is critical to both.

The PRC bought a controlling stake in Nexen, not because they think they can manage the company better than the incumbents but for Nexen’s Canadian oil and gas assets.  Recall that the PRC also has a burgeoning physical industry and transportation functionality that need copious quantities of oil.  Also, oil that the PRC controls is oil that the US does not.  Hormuz need not be the only bottleneck in our access to oil.

What a Central Bank Does vs What the European Central Bank is Doing

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…and to too great an extent, what the Fed is doing….

As Spiegel Online International reports, the ECB intends to attempt to buy up southern Europe’s sovereign debt instruments on an enormous scale.  The idea is to get those, I’ll call them, toxic assets off the market so that lending can resume and the euro zone’s (and EU’s) market economies can restart.

There are a couple of fundamental problems with this scheme (and I use that term in the American sense).  I’ll elide, in this post, the clumsiness of it: it doesn’t satisfy central bank statutes, and the ECB risks becoming a secondary government while simultaneously losing its independence to national politicians.

One problem is the enormous risk this entails—not just for the ECB, but for the EU member nations that fund the ECB and so are on the hook for its failures.  That is to say, the taxpaying citizens of those nations are on the hook.  The risk is whether the bailed out nations will benefit and recover their economies.  If they do not, the losses will become astronomic: the Spanish and Italian debts alone sum to nearly €3 trillion.

Another problem is that this sort of scheme, even if carried out without those…inefficiencies…does not work.  For instance, the euro zone finance ministers, in their latest bailout round, approved a €100 billion to rescue the Spanish banks.  However, the benefits only lasted until those €100 billion ran out; then yields—the prices borrowers must pay in order to get others to lend—on Spanish and Italian government bonds went back up to dangerous levels.

Some understand this: Jürgen Stark, a former member of the ECB Executive Board, has already said

The ECB has a clear mandate to guarantee price stability.  Every additional responsibility compromises this core function.

Notice that: the purpose of the ECB—of any central bank—is to maintain price stability.  The legitimate purpose doesn’t even include maintaining full employment, as the Fed attempts to do.  (In a free market, unfettered by government interferences beyond such niceties as enforcing contract law and laws against things like lying or cheating, price stability combined with freedom in the market tend to maintain full employment through market forces.)

Price stability—monetary policy—for the EU, and for the euro zone in particular, is the über-framework, within which the various nations can structure their individual market economies as they see fit: against a backdrop of price stability.

Interferingintervening in the markets—monetary policy—is the job of elected governments, not that of central banks.

The ECB needs to stay out of the market for sovereign debt.

A Quibble that Tells the Truth

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This is from the White House’s very own blog, from the personal keyboard of Alan Krueger, Chairman of the Council of Economic Advisers:

The household survey showed that the unemployment rate ticked up to 8.3% in July (or, more precisely, the rate rose from 8.217% in June to 8.254% in July).  Acting BLS Commissioner John Galvin noted in his statement that the unemployment rate was “essentially unchanged” from June to July.

And so is our economic recovery “essentially unchanged” from 2009 to 2012.