First of all, Obama has probably ignited a new trade tensions that may cause a trade war between the US and China. The last time a global trade war broke, well….the Great Depression was a result. The Asian and US stock markets were down this morning on the news.

More importantly, it seems that Barack Obama may be putting American lives at risk on the highway. Consumer Reports’ official blog had a writeup that was interesting to say the least.

The Obama administration on Friday imposed a new 35-percent tax on tires made in China. That includes many of the S- and T-rated tires in our recent upcoming tire test of all-season passenger car tires. More than half of the top 10-rated tires in the November issue are imported from China.

The tariff is likely to increase prices on tires for consumers at least in the short term, as China is by far the largest tire producer in the world. Also, some tire models could be harder to find temporarily if manufacturers decide to switch production to another low cost country.

China’s crime apparently was that it built low cost tires which are better in quality than tires made by Obama-supporting union thugs. The United Steelworkers Mafia couldn’t have that so they decide to try and eliminate the competition.

Average Americans may pay for this blatant act of political pandering…with their lives in some cases.

Because the tire industry is very competitive, tiremakers may not be able to pass the price whole price increase along to consumers for long. But we at Consumer Reports are concerned that the higher tariff may indirectly compromise safety by giving consumers incentive to delay replacing worn tires. The move is likely to put some pressure on consumers, but more on tire manufacturers.

In addition to the lost jobs at our ports and among our importers when China retaliates and/or as a direct result of this tax increase, in addition to higher tire prices, in addition to the economic and diplomatic damage this has caused, in addition to the clear example of old style political payback behind closed doors and without public input, this tax increase may prove fatal for some Americans who will have accidents that will be caused by worn tires that they could not replace because they cannot afford them.

“Hope and change” indeed.

“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

Once again, President Obama has lied to the country. After raising cigarette taxes earlier this year, Obama just ordered another tax increase. This time, he raised every American’s taxes without a vote of Congress and with the simple stroke of a pen. Obama increased taxes on Chinese-made tires.

In one of his first major decisions on trade policy, President Obama opted Friday to impose a tariff on tires from China, a move that fulfills his campaign promise to “crack down” on imports that unfairly undermine American workers but risks angering the nation’s second-largest trading partner.

The decision is intended to bolster the ailing U.S. tire industry, in which more than 5,000 jobs have been lost over the past five years as the volume of Chinese tires in the market has tripled.

It comes at a sensitive time, however. Leaders from the world’s largest economies are preparing to gather in Pittsburgh in less than two weeks to discuss more cooperation amid tensions over trade.

The tire tariff will amount to 35 percent the first year, 30 percent the second and 25 percent the third.

Which means American consumers will see an increase in prices of at least 35% for their tires in the name of saving 5,000 jobs. Chinese and US companies with factories overseas are not going to pay the tariffs, they’ll pass them on to consumers. There is also the latest example of the Obama administration diplomatic ineptness of angering trade partners before major trade talks with China among other countries. Also, there was not much public debate over this, since this decision was reached behind closed doors with the help of an obscure Federal trade panel with no citizen input.

Of course with the Obama administration, there’s always someone or some group to be paid back.

Although a federal trade panel had recommended higher levies — of 55, 45 and 35 percent, respectively — the decision is considered a victory for the United Steelworkers union, which filed the trade complaint.

The United Steelworkers union endorsed Obama’s presidential bid and the Steelworkers had a massive grassroots effort that claimed credit for helping win Pennsylvania, Ohio, and Virginia; among other states.

“Hope and Change” indeed.

Really brings a smile to your face huh?

Hat Tip: Boortz

VATICAN CITY — Pope Benedict XVI on Tuesday called for a radical rethinking of the global economy, criticizing a growing divide between rich and poor and urging the establishment of a “world political authority” to oversee the economy and work for the “common good.”

He criticized the current economic system, “where the pernicious effects of sin are evident,” and urged financiers in particular to “rediscover the genuinely ethical foundation of their activity.

I have to ask the question to my Catholic friends who believe in Papal infallibility that also happen to believe in free market capitalism: how do you square the two philosophies? (Argument withdrawn; I am by no means infallible and was lacking in my understanding of this concept)

The article continues:

In many ways, the document is a somewhat puzzling cross between an anti-globalization tract and a government white paper, another indication that the Vatican does not comfortably fit into traditional political categories of right and left.

“There are paragraphs that sound like Ayn Rand, next to paragraphs that sound like ‘The Grapes of Wrath.’ That’s quite intentional,” Vincent J. Miller, a theologian at the University of Dayton, a Catholic institution in Ohio, said in a telephone interview.

“He’ll wax poetically about the virtuous capitalist, but then he’ll give you this very clear analysis of the ways in which global capital and the shareholder system cause managers to focus on short term good at the expense of the community, of workers, of the environment.”

Indeed, sometimes Benedict sounds like an old-school European socialist, lamenting the decline of the social welfare state and praising the “importance” of labor unions to protect workers. Without stable work, he notes, people lose hope and tend not to get married and have children.

Sorry padre, you can’t have it both ways. If you truly believe the Communist/Socialist model is morally superior to Capitalism (an admittedly selfish system by honest supporters such as Ayn Rand) just come out and say so! If one honestly reads the scriptures, one will see that the teachings of Christ are much more in line with Karl Marx than Adam Smith.

But wait, it gets worse…

Benedict also calls for a reform of the United Nations so that there can be a unified “global political body” that allows the less powerful of the earth to have a voice, and calls on rich nations to help less fortunate ones.

In other words, the U.N. should force the citizens of the most efficient and productive nations at gun point to give money to people in nations who are less efficient and less productive in large part because they subscribe to the philosophy of the Pope: “From each according to his ability, to each according to his need.” There’s a word for this; it’s called extortion.

*So does this mean that perhaps Pope Benedict XVI is the AntiChrist?

My response was an immediate “to myself and to my family, but certainly not the federal government of the US!” (for many of the same reasons that tarran so eloquently explained). I’m quite certain that this is not a response this talk show host would appreciate. I’m also quite certain that in his view, these corporations are supposed to “provide American jobs” no matter how costly and no matter how much the federal government punishes them with taxes and regulations. To suggest that a business should make its first loyalty to pursuing profits for shareholders would be heretical! These populist propagandists ask such questions of these businesses but fail to ask the question of government “to whom or what does Washington pledge its allegiance?” (Hint: it certainly isn’t to free market principles or liberty).

After thinking about the question a little longer, I concluded that my allegiances are as follows: myself*, my family, and the defense of the principles of life, liberty, property and justice for all**.

Now I pose this question to you, the reader: To whom or what do you pledge your allegiance?

*The fact that I put myself first may be shocking to those who haven’t spent much time studying the philosophy known as Objectivism.

** “Liberty and Justice for All” – This is at least one part of the Pledge of Allegiance I can keep, but when I say “all” I mean all individuals irrespective of color, gender, sexual orientation, religion, national origin, rich or poor. All individuals are entitled the rights of life, liberty, property and justice (justice meaning equal treatment under the law).

I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don’t stand with them. I stand with Chrysler’s employees and their families and communities. I stand with Chrysler’s management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don’t stand with those who held out when everybody else is making sacrifices.

So what’s happening as a result? Misinformation and misdirection, much like the worries about what would happen to GM (and their suppliers) in a bankruptcy. I assume you remember that, of course: the bankruptcy of GM would result in the loss of millions of jobs as the ripple effect of a vanishing company would take down suppliers, dealers, and the rest of the nation. After all, a bankruptcy would liquidate GM and they’d go completely out of business, right?? Or maybe not. It’s an argument that Warren Meyer at the excellent Coyote Blog has blasted to smithereens on numerous occasions.

But yet the argument resurfaces, today coming from Ezra Klein (with help) on the fate of the workers’ pensions in this bankruptcy:

In it, he described a hypothetical restructuring, and argued that you needed to think of both the workers and the bondholders as having made the equivalent of “loans” to the company. The difference was that the bondholder had settled on clear terms. They could end the relationship at any time by selling the bond on the open market. Labor’s “loan,” however, could not be cashed out. If the company failed to honor future obligations to workers, the money was, for labor, simply lost. Bloom explained:

They worked a lifetime and deferred a significant amount of current compensation in exchange for the company’s promise that, upon their retirement, they would be paid a fixed stream of cash and provided with help with their medical bills. Then, without their knowledge or consent, the company chose to not set aside enough money to honor that promise. In effect, the company borrowed money from them without even discussing the terms of the loan….So what we have is a bunch of old men and widows being forced to lend the company, for whom they worked a lifetime, some portion of the value of their pension and their health care. This loan was made on terms on which they have no input and they have no ability to liquidate their position.

Labor, in other words, has no ability to liquidate. The hedge funds do. And in the case of Chrysler, the workers have seen their position brutally and quickly reduced, with very little input from them. The hedge fund, conversely, refused to liquidate their own position, and demanded ever more favorable terms from the government. And Obama, it seems, quickly grew to judge their position repellent.

Those people who have lived in a defined-benefit world have a contractual promise of certain benefits if they complete a certain term of service. For those who have completed that term of service and are already owed a pension, they may get screwed in a bankruptcy. Those who have partially completed their service, in that static union world, are still expecting to receive something back for their service. Part of the compensation, known going in, is that at the end of your work career you will have a pension to live out through old age.

So the argument is pretty simple. In a bankruptcy, all those pensioners get screwed because their company didn’t adequately fund the pension to meet their obligations. Thus, giving money to bondholders instead of pensioners is unfair. The argument is simple, but it’s also bullshit.

The defined benefit world is already on the way out. Many unionized corporations have already been obliterated by the defined benefit model, because large corporate managers, much like politicians, are often willing to promise to pay something tomorrow if it means they don’t have to make a tough decision today. Thus, the pensions grow bloated, the corporation becomes uncompetitive, and eventually goes bankrupt.

With this model on the way out, though, there is already a secondary method for dealing with this issue. It’s the same method that many states use to weather unemployment — insurance. Specifically, the Pension Benefit Guaranty Corporation, a government enterprise that charges insurance premiums to pension programs in order to protect the pensioners in case of a bankruptcy or other pension program cancellation.

So if the government’s proposed prepackaged bankruptcy fails, what happens to the pensions in the case of a standard bankruptcy proceeding?

At this point, nothing. The government agency that oversees pensions, the Pension Benefit Guaranty Corp., said it’s closely watching Chrysler’s pensions. Through a bankruptcy, a company could try to dump its pension obligation on the government. If that happens, pensions would not be wiped out, but capped, with younger retirees most likely to face larger reductions. The PBGC said it will work with Chrysler and other stakeholders to “ensure continuation of the pension plans.”

They may, like the bondholders, take a haircut on their pensions. But they won’t simply evaporate.

The bondholders aren’t waiting for another government bailout; they’re waiting for a standard bankruptcy proceeding. They (who I understand are mostly secured creditors) know that they have a position of strength here as bondholders. They buy bonds with less potential return than equities, but because they’re buying debt secured by the assets of the company, they will receive a preferred position in any standard bankruptcy proceeding. They’re sure to lose money, but they went into bond ownership with the understanding that the risk as a secured creditor is less than the risk as an equity holder.

Bankruptcy is a well-known and well-understood process. Obama is trying to change the game for political reasons, in order to protect an interest group [unions] which has been supportive of him in the past. We shouldn’t let the red herring of pensioners get in the way of understanding what is going on here.

[The story] quoted an unnamed person saying that in the meeting, management said that without the concessions, The Globe would lose $85 million in 2009. The Times Company chairman, Arthur Sulzberger Jr., and Catherine J. Mathis, chief spokeswoman for the company, each declined to comment or confirm the article. The company paid $1.1 billion for The Globe in 1993, the highest price ever paid for a single American newspaper, and it was highly profitable through that decade. But in recent years, the erosion of advertising and newspaper circulation has been more severe in the Boston area than in most of the country. Advertising revenue for the industry fell 16.6 percent in 2008, according to the Newspaper Association of America. The Times Company also wants to end a provision in The Globe’s contracts that gives certain employees lifetime job guarantees.

Well, first of all, seeking $20 million in cuts, in a paper that is losing $85 million a year seems… Absurdly inadequate I think is the phrase I’m looking for?

Also the fact that there are still lifetime job guarantees in today’s economy ought to be a pretty strong indicator of a company that isn’t exactly caught up to the realities of business today.

Though it’s not mentioned in the story, I happen to know those lifetime guarantees are printers union jobs. I’ve known a few people who had them. They also had (and have) RIDICULOUS pensions as well. People retiring at 55 (30 years as a master printer plus 7 years as an apprentice and journeyman, hired on right out of highschool) with 120% inflation indexed pensions and full gold plated medical for life.

Any concession they wrung on those lifetime guarantees would almost certainly NOT include losing those pensions and medical benefits of course.

Aside from the structural problems however, the article credits the decline in advertising revenues; saying only that the Boston market was harder hit than New York.

Really? Because other papers in the market aren’t seeing nearly the decline that the Globe is…

In fact, the Globe has been in decline faster and steeper than the other papers in the region, for about 16 years now. In 2008 the Globe’s average weekday circulation fell to 350,605, down from 382,503, or 8.3 percent. Sunday circulation fell 6.5 percent to 525,959.

The competing newspapers for the Boston Area, the Boston Herald, and the Patriot Ledger (and to a lesser extent, a smaller local paper, “The Enterprise”), are doing alright… as much as any newspaper is anyway. Both are down about 4%, HALF the decline of the Globe; and counter to the general trend in the newspaper business (actually in most any business) of the second and third papers in a market (which they are) losing more circulation in a downturn than the market leader.

The important thing there is, the Herald and Ledger are both TRULY local; and more conservative than the Globe, especially on social issues. Though they are now owned by the same publisher (as of 2006, The Enterprise), they maintain their respective moderate center right, and moderate center left stances.

In addition to the general downturn in newspapers over the past 20 years, the Globe has lost more and more circulation, as it has moved further and further left; and especially as it has been controlled more and more by the editorial voice and opinions of the NY Times corporation.

The Globe is very clearly a left newspaper. They spent most of their 137 year history as a center left paper, drifting gradually more to the left since the depression; until they turned SHARPLY left, with the takeover by the NY Times (though they are in fact still not as far left as the Times).

Ok, Boston’s something like the tenth most liberal major city in America, in the second most liberal state* right?

Well… Not really.

Massachusetts has a reputation as a very liberal state, and Boston a very liberal city; and to an extent that’s true. Certainly it is reflected in the states voting record, and much of it’s congressional contingent.

However, regarding Massachusetts as a liberal stronghold, fails to take into account the true nature of the states liberalism.

The vast majority of the Boston area is blue collar, and low level white collar, union, catholic, old line northeast democrats; with a significant minority of what we used to call Boston Brahmin democrats (rich, socially and politically conservative on a personal basis; but they support liberal politicians to seem “progressive”, to make sure “the right people” run things, and because democrats are easier to buy off).

Outside of the immediate Boston area, Massachusetts is basically politically identical to western Pennsylvania. It’s union Democrats, and center right Republicans; pro gun, pro hunting, pro business, and anti-leftist. Hell, still today, Western Massachusetts, and the adjoining parts of Connecticut and New York, are the firearms manufacturing capital of the western world.

I was born and raised in Boston, and just south of it. I know it. I lived it for more than 20 years (combined). I was born in Southie’ and have lived in Southie, Roslindale, West Roxubry, Dorchester, Mattapan, Milton, Quincy, Canton, Randolph, Newton, Dover, and Marlborough (not in that order).

I’m Boston Irish; with an Irish immigrant father, and a second generation mother. We’re walking stereotypes. My family are all either cops, criminals, lawyers, politicians, teachers, nurses, firemen, civil servants, or tradesmen (or sometimes more than one of the above). Blue collar and low level white collar, social and political conservative, Democrats (well… I’ve got an aunt and an uncle who are ridiculous lefties, and a pair of uncles who are to the right of Pat Buchannan… but they’re outliers).

Let me tell you, people from the area may vote Democrat; but they aren’t anything like the Democrats in San Francisco or LA.

What Boston area Democrats are, is machine voters. Democrats bring back more pork, more jobs, grant more favors etc…

If you want to be a part of the machine, you become a democrat, that’s how it is.

If you want a building permit, you go to your cousin, the selectman, and he talks to the zoning commissioner for you. Of course, all the selectmen for your area are democrats. If you want a construction contract, you go to the public works commissioner, your brother in laws old friend; also a Democrat. In fact all the public commissioners are Democrats too.

That’s how it is.

These folks aren’t leftists by any stretch, and in fact aren’t particularly socially liberal.

Just ask a gay man from Boston how easy it was to come out; or BE out, outside of downtown, Newton, Cambridge, and Brookline. Ask him if he would walk in Southie alone at night; or EVER hand in hand with his boyfriend.

So when the Globe is run by clearly anti-American, anti-religious, anti-catholic, anti-israel, pro-islam, New Yorkers (even though it has local editorial and reporting staff)… Well, people just don’t like it.

The Herald on the other hand does just fine with a center right viewpoint, a great sports page, a strong focus on being local issues, and criticism of Washington, no matter who is in power.

Funny enough, that suits Bostonians just about right.

* An aside for those of you counting more liberal cities and states: San Francisco, Washington D.C., Los Angeles, Chicago, Detroit, Philadelphia, Seattle, Portland, New York and Newark (not necessarily in order); and for states, California.

HT: Doug Mataconis

First, the abridged letter from Troy Clarke, President of General Motors North America

Dear Employees & Suppliers,

Congress and the current Administration will soon determine whether to provide immediate support to the domestic auto industry to help it through one of the most difficult economic times in our nation’s history. Your elected officials must hear from all of us now on why this support is critical to our continuing the progress we began prior to the global financial crisis [...] As an employee or supplier, you have a lot at stake and continue to be one of our most effective and passionate voices. I know GM can count on you to have your voice heard.

Thank you for your urgent action and ongoing support.

Troy Clarke
President General Motors North America

Knox wrote the following e-mail in response and had originally sent a cc to his mother who then asked if she could forward it to her friends. Shortly thereafter, the e-mail went viral (and after reading it, you’ll understand why).

Gentlemen:

In response to your request to contact legislators and ask for a bailout for the Big Three automakers please consider the following, and please pass my thoughts on to Troy Clark, President of General Motors North America.

Politicians and Management of the Big 3 are both infected with the same entitlement mentality that has spread like cancerous germs in UAW halls for the last countless decades, and whose plague is now sweeping this nation, awaiting our new “messiah”, Pres-elect Obama, to wave his magic wand and make all our problems go away, while at the same time allowing our once great nation to keep “living the dream”… Believe me folks, The dream is over!

This dream where we can ignore the consumer for years while management myopically focuses on its personal rewards packages at the same time that our factories have been filled with the worlds most overpaid, arrogant, ignorant and laziest entitlement minded “laborers” without paying the price for these atrocities…this dream where you still think the masses will line up to buy our products for ever and ever.

Don’t even think about telling me I’m wrong. Don’t accuse me of not knowing of what I speak. I have called on Ford, GM, Chrysler, TRW, Delphi, Kelsey Hayes, American Axle and countless other automotive OEM’s throughout the Midwest during the past 30 years and what I’ve seen over those years in these union shops can only be described as disgusting.

Troy Clarke, President of General Motors North America, states: “There is widespread sentiment throughout this country, and our government, and especially via the news media, that the current crisis is completely the result of bad management which it certainly is not.”

You’re right Mr. Clarke, it’s not JUST management…how about the electricians who walk around the plants like lords in feudal times, making people wait on them for countless hours while they drag ass…so they can come in on the weekend and make double and triple time…for a job they easily could have done within their normal 40 hour work week. How about the line workers who threaten newbies with all kinds of scare tactics…for putting out too many parts on a shift…and for being too productive (We certainly must not expose those lazy bums who have been getting overpaid for decades for their horrific underproduction, must
we?!?)

Do you folks really not know about this stuff?!? How about this great sentiment abridged from Mr. Clarke’s sad plea: “over the last few years …we have closed the quality and efficiency gaps with our competitors.”
What the hell has Detroit been doing for the last 40 years?!? Did we really JUST wake up to the gaps in quality and efficiency between us and them? The K car vs. the Accord? The Pinto vs. the Civic?!? Do I
need to go on? What a joke!

We are living through the inevitable outcome of the actions of the United States auto industry for decades. It’s time to pay for your sins, Detroit.

I attended an economic summit last week where brilliant economist, Alan Beaulieu, from the Institute of Trend Research, surprised the crowd when he said he would not have given the banks a penny of “bailout money”.

“Yes, he said, this would cause short term problems,” but despite what people like politicians and corporate magnates would have us believe, the sun would in fact rise the next day… and the following very important thing would happen…where there had been greedy and sloppy banks, new efficient ones would pop up…that is how a free market system works…it does work…if we would only let it work…”

But for some nondescript reason we are now deciding that the rest of the world is right and that capitalism doesn’t work – that we need the government to step in and “save us”…Save us my ass, Hell – we’re
nationalizing…and unfortunately too many of our once fine nation’s citizens don’t even have a clue that this is what is really happening…But, they sure can tell you the stats on their favorite sports teams…yeah – THAT’S really important, isn’t it…

Does it ever occur to ANYONE that the “competition” has been producing vehicles, EXTREMELY PROFITABLY, for decades in this country?… How can that be??? Let’s see… Fuel efficient… Listening to customers…
Investing in the proper tooling and automation for the long haul…

Not being too complacent or arrogant to listen to Dr. W. Edwards Deming four decades ago when he taught that by adopting appropriate principles of management, organizations could increase quality and simultaneously reduce costs. Ever increased productivity through quality and intelligent planning… Treating vendors like strategic partners, rather than like “the enemy”… Efficient front and back offices… Non union
environment…

Again, I could go on and on, but I really wouldn’t be telling anyone anything they really don’t already know down deep in their hearts.

I have six children, so I am not unfamiliar with the concept of wanting someone to bail you out of a mess that you have gotten yourself into -my children do this on a weekly, if not daily basis, as I did when I was
their age. I do for them what my parents did for me (one of their greatest gifts, by the way) – I make them stand on their own two feet and accept the consequences of their actions and work through it.

Radical concept, huh… Am I there for them in the wings? Of course – but only until such time as they need to be fully on their own as adults..

I don’t want to oversimplify a complex situation, but there certainly are unmistakable parallels here between the proper role of parenting and government. Detroit and the United States need to pay for their sins.
Bad news people – it’s coming whether we like it or not. The newly elected Messiah really doesn’t have a magic wand big enough to “make it all go away.” I laughed as I heard Obama “reeling it back in” almost
immediately after the final vote count was tallied…”we really might not do it in a year…or in four…” Where the Hell was that kind of talk when he was RUNNING for office.

Stop trying to put off the inevitable folks … That house in Florida really isn’t worth $750,000… People who jump across a border really don’t deserve free health care benefits… That job driving that forklift for the Big 3 really isn’t worth $85,000 a year… We really shouldn’t allow Wal-Mart to stock their shelves with products acquired from a country that unfairly manipulates their currency and has the most atrocious human rights infractions on the face of the globe…

That couple whose combined income is less than $50,000 really shouldn’t be living in that $485,000 home… Let the market correct itself folks – it will. Yes it will be painful, but it’s gonna’ be painful either way, and the bright side of my proposal is that on the other side of it all, is a nation that appreciates what it has…and doesn’t live beyond its means…and gets back to basics…and redevelops the patriotic work
ethic that made it the greatest nation in the history of the world…and probably turns back to God.

Sorry – don’t cut my head off, I’m just the messenger sharing with you the “bad news”. I hope you take it to heart.

Gregory J. Knox, President
Knox Machinery, Inc.
Franklin, Ohio 45005

A few minor arguments aside, overall I think Mr. Knox is right. The financial problems that GM is currently facing was caused by mismanagement, unions, and an unwillingness to compete in a global economy.

Now it seems that Congress has snuck in a provision for the Teamsters, to restrict Mexican truckers:

Buried in the $410 billion catch-all appropriations bill now before the U.S. Senate is a provision that would end a program that has allowed Mexican truck drivers to deliver goods to destinations inside the United States.

A provision in the original North American Free Trade Agreement of 1994 was supposed to allow U.S. and Mexican trucking companies to deliver goods in each other’s country. But opposition from the Teamsters union and old-fashioned prejudice against Mexicans has derailed implementation of the provision.

Under current restrictions, goods coming into the United States from Mexico by truck must be unloaded inside the “commercial zone” within 20 miles or so of either side of the border and transferred to U.S.-owned trucks for final delivery. U.S. goods going to Mexico face the same inefficient and unnecessary restrictions.

The Bush administration established a pilot program that allows certain Mexican trucking companies that meet U.S. safety and other standards to deliver goods directly to U.S. destinations, while the Mexican government has agreed to allow reciprocal access to its market. But the Democratic Congress and the new Democratic president have vowed to finally kill the program, and the provision inside the appropriations bill will probably deliver the final blow.

As I argued in an article in 2007, the Mexican trucks that have been allowed to operate in the United States under the pilot program have actually had a better safety record than U.S. trucks.

It’s not about safety, and the added inefficiency of transferring everything from one truck to another 20 miles inside the border shows that it’s not about reducing prices for consumers. So this is nothing but bald-faced protectionism to reward unions.

I guess someone in Congress didn’t read that Hope and Change memo, eh?

This is incorrect. Rather, the progressives who support nationalization are being very short-sighted and are threatening to return society back to feudalism and are threatening to destroy the development of new technologies, technologies that will be vital to improving our standard of living while reducing the amount of pollution and natural resources needed to maintain such comfort. This not hyperbole but rather simple fact.

The problem, which has plagued all fascist and socialist economies throughout history, is that nationalization destroys the ability of the economy to rationally allocate capital goods and invest in the future. It is this incapability that is behind the phenomenon where communist countries seem to become mired in the past with stagnant technology, bare shelves in shops and factories that routinely fail to meet production quotas.

If asked, a manager of a factory in a communist country will explain that his inability to meet quotas arises from some combination of three factors:

1) Lack of tools or equipment that is in poor shape.

2) Insufficient labor.

3) Lack of inputs such as raw materials or semi-finished goods.

4) Sabotage.

We can set aside aside sabotage, which should equally affect capitalist economies (since according to socialists, they should have a larger share of disgruntled or exploited workers).

It is safe to concluded that any failure of centrally planned economies to meet consumer demand should be primarily due to the impact of the first three reasons. As we shall see, like electricity and magnetism, these three factors are really the manifestation of a fundamental failing of centrally planned economies, one which progressives ignore at their peril.

Under central planning, rational economic calculation becomes nearly impossible. It is impossible for a manager to calculate whether one process or another is ‘better’. Complex processes become unwieldy, and slowly, as capital equipment deteriorates, the economy grinds to a halt.

Economic Calculation: Chapter 2

The explanation as to why this occurs may be found in a paper written by the economist Ludwig von Mises in 1920 titled, Economic Calculation in the Socialist Commonwealth.  In this post, I will summarize some of his arguments.  I highly recommend that everyone who is curious read the original paper.  For a more in-depth analysis of how prices are used in economic production, I strongly recommend Chapters 4 – 7 of Murray Rothbard’s Man Economy and State.

In a free market, most economic activity consists of a cycle of a person or firm acquiring the inputs for some form of production, using them to make something or provide some service, and consuming or exchaning the result of the production to others.  In acquiring the inputs, and disposing of the produced goods or services, the producers typically engage in indirect exchange, trading money for the inputs, and selling their product for money.  The use of money trades for inputs and outputs gives rise to prices.  These prices play a critical role in allocating resources and promoting investment.

Everything economic activity that people perform is intended by the actor to satisfy some need.  The higher the value that individuals assign a particular need, the higher the price they are willing to pay for the goods they must consume to satisfy the need.  This attracts producers who wish to manufacture these consumption goods  and sell them.  These producers must acquire the inputs from which these consumption goods will be manufactured.  The prices that these 1st order producers are willing to pay for the inputs they desire will be impacted by the prices that they expect for their product. The producers who intend to produce consumption goods that are in high demand will be willing to bid higher prices for the inputs they desire.  There may be producers who wish to produce goods that are not as highly demanded.  This latter good cannot profitably employ the inputs whose prices were bid up by the former group of producers.  They will look for substitute inputs. If continued indefinitely in the absence of technological change, this process will lead to a sort of equilibrium where the inputs available to producers are being used to support the satisfaction of the highest priority needs as expressed by individuals.  And this process is repeated for higher order goods: the inputs needed to produce the goods that are inputs to lower order processes.  When one considers that the same good can be simultaneously useful in processes that are lower order or even intended for consumption and higher order processes.  For example, stainless steel can be desired by a man who wants to make cutlery, a person who intends to use it to make reactors for a pharmaceutical plant, who wants to produce artworks etc.

The production matrix required to produce three consumer goods. Note that the same high order good (green) is required to produce the three goods. In the absence of a price system, the planner has to guess when and how much of various goods he must produce - an impossible task for an economy consisting of millions of goods and people.

The existence of prices mediates between the wide range of uses the goods can be put to.  The prices also inform investors, advising them of weaknesses or shortages in the matrix of production.  It informs them of whether a proposed new business or factory will be socially useful or a waste of resources.  In a free market, shortages are signaled by high prices, and activities that will satisfy the most urgent of needs are rewarded by high profits.  Moreover, while no individual or group of people can simultaneously hold in their heads all the information needed to rationally allocate a complex basket of goods to their optimal uses, the price system allows a single individual to rationally allocate the goods that he or she controls trading them.

When an industry is nationalized, these price signals are at a minimum distorted, and – in extreme cases – can even be lost entirely.

A nationalized industry no longer needs to worry about prices.  The state commandeers resources and awards them to the nationalized industry.  It decrees the prices at which suppliers must sell goods to the industry and issues quotas as to how much they will have to supply.  It decrees the quantities and price of the produced goods.  It makes production decisions politically, ignoring the unmet needs in greater demand to satisfy lower priority needs.  If only one industry is nationalized, but the rest of the economy remains free, the managers of the nationalized firm may still have access to prices as set by the economic activity of the free sectors with which they deal.  However, the more thorough the nationalization, the less dependable the prices are, and the less information managers of the nationalized industry have available to them when deciding how to allocate production.

This is the reason why shortages appear.  A shortage in a free market leads temporarily to higher prices, which encourages other producers to enter into the market and spurs existing producers to increase production in an attempt to capitalize on those prices. When a shortage does not result in a higher price, it takes the instructions of a central planning board to order the producers to increase production.  In the absence of such orders, there will be no meaningful attempt to increase production to mitigate the shortage.

Even if the planners do give the orders, it is much less likely that the orders will be obeyed.  All actions come at a price to the actor.  A factory manager who decides to extend the factory’s hours of operation by four hours a day must spend time making arrangements for this change.  He must monitor the extra hours of work.  In order to do this, he sacrifices leisure time.  The laborer who works harder to increase production must sacrifice something to achieve that extra burst of effort (a person will not limit their work voluntarily if they would value harder work more).  This phenomenon is called the disutility of labor. The disutility of labor acts as a brake on economic activity.  In the absence of a reward for extra effort, people will not forego other uses for their time.

Immediately after nationalization, the workers and managers can continue executing the activities they did prior to the nationalization.  However, the world is not static.  Peoples’ needs change. New sources of raw materials are discovered and old sources dry up.  In a free market, these changes would result in price changes that would signal to producers and consumers which goods were more available and which were more scarce, pointing the way to more efficient allocation of the available resources to their current needs.

In the absence of prices, these changes would be manifest themselves with shortages and gluts.  One would see factories producing unwanted goods that filled up warehouses, while goods that were desired would go unproduced.  We would see workers assigned not to the factories that would make the most profitable use of them, but to factories that used them less profitably.   The result would be shortages in labor in some industries, while other industries were so well staffed that they were assigning people make work.

This misallocation of labor and production does not explain the fact that heavily nationalized economies seem to have very few gluts and a great deal of shortages.  Under the above model we should be seeing the shelves of markets with too much milk and too little meat, instead of bare store shelves.  Why should nationalization, in practice, be associated with shortages and not surpluses?

In the absence of a price system, there is no way to rigorously determine if a new venture will be usefully productive or not.  There is no way to rational way to calculate whether or not a new idea for producing existing goods is a good idea.  Nor is there any way to identify whether a new class of goods is worth producing.  There is no way to rationally decide when to pause production to replace or upgrade equipment.  There is little incentive to invent or make improvements.  People who do come up with good ideas have little incentive to put them into practice.  In many cases they lack the means to do it – they lack access the the planners who decide what it to be done.

This is why a nationalized industry typically will stagnate, with necessary improvements not being made and innovations being largely absent.  Without the information conveyed by present prices, it becomes impossible for managers to invest wisely in preparation for the future.  A nationalized industry will typically struggle to maintain production – using factories that are aging and using methods that are not evolving with time – to produce goods that are often of no better quality than those produced when the industry was nationalized.

What innovation that does take place is the innovation recommended by the central planners.  The central planners typically have only a rudimentary sense of the impact of the innovation they want to see made.  they have trouble judging how much effort to allocate to R&D, and how much to maintain their capital stock.  The central planners can foster innovation or make improvements – as has happened with the U.S. and Russian space programs.  But they will neglect vast areas under their purview.   The lack of incentives to preserve the value of capital goods such as land is also the reason why in nationalized economies there is a high degree of environmental degradation.

And, being human, the central planners will make their decisions based on what profits them personally.  A manager who identifies a method to manufacture the same number of cars with one quarter the employees would in a free market profit hansdomely by so cutting his manfuacturing costs.  A manager who would lose status and take a pay cut for supervising fewer people would not make adopt such a plan.  In fact, he might torpedo attempts to adopt such a plan in order to preserve his empire.

Thus we see why central planning is associated with stagnation, inefficiency and privation.  The lack of innovation and declines in production inevitably lead to poverty.

If we apply this to the auto industry, it would not be surprising to see car companies producing first generation hybrid vehicles that require massive subsidies while not making any effort to produce second or third generation cars that would be more environmentally sound and easier to maintain.  Rather than trying to attract customers with improvements in the product, they will attempt to placate the oversight boards appointed by the U.S. congress.  Consumers will choose to purchase vehicles from competing companies who are making decisions independently of the planning board.  Naturally the planners will call for and be granted legislation that handicaps these competitors or forces people to purchase vehicles from the car companies that are under oversight.

The result is inevitable,  a smaller selection of more shoddily built and undesirable vehicles that only meet the most basic of needs.

For example, he seems to like the idea of appointing a single individual with the authority to remake an entire industry:

The troubles of the ailing auto industry are quickly becoming a major focus for President-Elect Barack Obama’s young administration. As Congress and President Bush debate an industry bailout, sources indicate that Obama may favor creating a White House office, headed by an “auto industry czar,” to oversee reforming the troubled American auto industry.

The Detroit News reports that both “Bush and Obama are signaling they may favor appointment of an auto czar to oversee the government’s efforts to funnel emergency assistance to automakers.” Congressional leaders and members of both the outgoing and incoming administrations have all said that automakers might receive federal aid only on certain dictions, including efforts “to further improve fuel efficiency and show that they have a plan to return to profitability. Automakers could also be required to give the government preferred stock in the companies and accept government representatives as board members. As in the 1979-80 Chrysler bailout, workers may have to make wage concessions.”

As if that wasn’t enough, Obama’s transition team is apparently talking about implementing congestion charges on American highways:

The Manchester Evening News reports that President-elect Barack Obama’s transition team has contacted Jack Opiola, a transportation principal for the firm Booz, Allen and Hamilton. Opiola the brains behind a program to tax drivers £5 (US $8) when entering the city of Manchester during peak hours. “I was ‘noticed’ by key people in the Obama campaign and I have been providing input to his strategy team in Chicago, including information about Greater Manchester’s bid,” Opiola said. Previously, Senator Obama’s most specific transportation proposal was a proposal to create a $60b toll road bank. In March, Obama endorsed New York City Mayor Michael Bloomberg’s scheme to charge a $9 toll on cars and a $22 toll for trucks that enter downtown Manhattan during working hours. Hoping to fill the gap with specifics, the American Association of State Highway and Transportation Officials (AASHTO) last month submitted a detailed $544 billion transportation re-authorization proposal designed to encourage the new administration to shore-up the domestic economy with heavy spending on infrastructure projects.

The new programs would be paid for with massive new tax hikes, including a per-mile driving tax that would begin with “proof of concept” trials as early as 2010. The tax would initially be one cent per mile to generate an estimated $32.4b a year. An extra one cent per gallon in the federal gasoline tax would generate another $1.8b, and a national sales tax on cars of one percent would generate $7.6b.

If that happens, then any idea that taxes would go down for most Americans, which Obama promised during the campaign, would be nothing but a lie.

Finally, Andrew Sullivan points to this old article that Obama wrote a few years back:

[W]e should then ensure that, within a decade, every new car sold in America can run on flexible fuel. We can advance this goal by offering manufacturers a $100 tax credit for every flexible-fuel tank they install before the decade is up.

As my friend Tom Daschle details in this report, millions of people driving flexible-fuel vehicles don’t even know it. The auto companies shouldn’t get CAFE credit for making these cars if they don’t let buyers know about them, so the entire auto industry should follow GM’s lead and put a yellow gas cap on all flexible fuel vehicles, and notify consumers in writing as well.

These may be admirable goals, but as Sullivan points out, accomplishing them, or trying to, via government fiat and state ownership of the auto companies isn’t the way to do it.

As Sully goes on to note, this is a test for Obama:

This is a real test for Obama: is he a market-friendly pragmatist or a knee-jerk socialist?

During the campaign and since the election, more than a few people told me that Obama was a indeed a market-friendly pragmatist. How he handles this will go a long way toward determining if they were right or not.

Originally posted at Below The Beltway

Unlike the debates we have already seen in this cycle, the candidates in this debate actually debated the issues!

*The candidates who could theoretically receive the requisite electoral vote to win the presidency

Now, Wurzelbacher admits that and say that, because he works for someone who has a license, he isn’t required to be licensed under Ohio law.

Whether that’s true or not, though, Matthew Yglesias notes it raises another question entirely:

[Wurzelbacher] raises the issue of whether or not it really serves the public interest to have so many occupational licensing rules. Like most people, if I needed to hire a plumber, I’d probably look for a recommendation. I don’t have any real confidence that these licensing schemes are tracking quality in any meaningful way, just preventing a certain number of people from earning a living and raising the general cost of plumbing services for everyone else.

Yglesias has a point, and it applies to more than just plumbers. Depending on the jurisdiction you live in you have to get a license from the state to be a plumber, carpenter, landscaper, electrician, beautician, dog groomer, dog walker, and probably a whole host of other occupations that I can’t even think of right now.

But what purpose does the licensing really serve ? Does anyone really believe that the mere fact that one of these professionals has a piece of paper from the state or local government means that they are competent to do their job, or that they’ve never cheated someone on a job ?

Of course not. That’s why you don’t just rely on whether or not someone is licensed before hiring them to, say, remodel your basement, build a deck, or fix your water heater. You do what Yglesias would do, you’d look for recommendations from friends, family or neighbors.

So if it’s not guaranteeing good or even competent service, what purpose is the licensing serving ?

Well, one of Yglesias’s commentors, probably inadvertently, stated it pretty clearly:

The problem is that when you don’t have any licensing for skilled positions you have a glut of weekend warriors who drive the price down and put professionals out of business– and that eventually lowers quality. I knew a guy who had his own landscaping business but gave it up because there were too many people with a John Deere who would do stuff for absurdly low rates because it was only a hobby for them. When it came to doing actually skilled work, of course, they sucked at it– but people want to believe they can get quality work without paying for it. So they go with an unskilled cheap guy and the actual professional suffers.

In other words, the purpose of professional licensing, more often than not, is not to “protect the public,” it’s to protect incumbent businesses by creating barriers to entry, restricting the supply of skilled labor, and making the cost of that labor more expensive to the public.

What motivates these very nice people to be such tyrants? Some will vote in ignorance of the issue* and others out of a sense of ‘social justice.’ Very few will intentionally vote to take liberty or property from a fellow citizen; most will vote to do so out of a well intentioned but misguided sense of right and wrong.

The Colorado ballot contains 18 ballot measures, most of which are proposed amendments to the state’s constitution. About half of these measures would restrict liberty, increase taxes, or otherwise punish individuals for activities which ought not to be a crime in a free state or country.

Threats to Liberty from the Left

Union backed amendments 53, 55, 56, and 57 are all very hostile to business. Amendment 53 targets business executives for criminal liability (as if business executives are not already criminally liable for committing crimes), 55 would change Colorado from a “right to work state” to a “just cause state,” 56 requires employers with 20 employees or more to provide health coverage for employees and their dependants, and 57 would put employers at greater liability than the existing workman’s comp laws.

All of these amendments would make Colorado a less attractive place to do business and would likely mean fewer decent paying jobs. Like most populist proposals, the people who the advocates of these measures are trying to help would be hurt the most.

Amendments 51, 58, and 59 concern taxation. Amendment 51 would increase the sales tax to fund programs for the developmentally disabled, 58 directly taxes the oil and gas industry (Coloradans who wish to pay more for gas should support this measure), and 59 redirects funds which under current law are rebated to taxpayers under the Taxpayer Bill of Rights (TABOR) to an education savings fund.

Given governments’ track record of mismanaging taxpayer money (especially given what’s going on in Washington), I am in no mood to pay additional taxes or allow the government at any level to keep more no matter what the reason.

Threats to Liberty from the Right

While many of the ballot measures are economically on the Left, at least one is socially conservative. Amendment 48, the so-called “personhood” amendment would amend the Colorado Constitution to define all fertilized eggs, embryos, and fetuses as people complete with all legal rights associated with being a person. Clearly, this amendment is an attempt to ban abortion in the state of Colorado. Inevitably, if 48 is passed, there will be legal challenges which 48’s proponents hope would ultimately lead to overturning Roe v. Wade.

Amendment 48 makes no exceptions for rape** or incest. While there is an exception for abortion in the event that the life of the mother is threatened, opponents of 48 believe that doctors would put women at unnecessary mortal risk out of fear of being prosecuted for murdering the unborn. Because a fertilized egg would have the same legal rights as a person, a woman and her doctor could face life imprisonment and even the death penalty (someone explain to me how this is “pro-life”!).

Opponents of 48 also fear that doctors would be compelled to violate doctor/patient confidentiality as they may be required to report miscarriages to the authorities if s/he has the slightest suspicion that the miscarriage was caused intentionally***.

Giving fertilized eggs a definition of personhood would also:

- Ban commonly used birth control such as the birth control pill and the morning after pill
- Ban embryonic stem cell research (both public and private)
- Raise additional legal reproductive rights questions on issues with regard to artificial insemination

Despite what both pro-lifers and pro-choicers say, the abortion issue is very complex and there is plenty of room for debate on the merits of this issue among libertarians. What I would hope abortion foes would realize is that this measure has implications far beyond a legal prohibition of abortion.

NEXT: Why Libertarians Should Vote: Restoring Liberty via the Ballot Box (Part 3 of 3)

*To be fair, some of the language found in some ballot measures is very difficult to understand for those who do not have a legal background. The campaigns which support and oppose these measures understand this and create misleading ads to appeal to the ignorance of the voters to vote with emotion rather than reason.

**Women who become pregnant as a result of rape should never, ever, be forced to give birth to the spawn of her attacker. Never.

***The tragedy of a miscarriage is horrible enough without being interrogated by the police.

In fact, let me say unequivocally, I’m OK with more people dying, so long as we have more freedom; be it with drugs, or guns, or sex, or anything else.

Are there limits? Of course there are; at the very least, my fist is limited by your nose… but doing immoral, unethical, and unconstitutional things (and I include setting arbitrary limits on freedom in that list) in service of “a good cause”, does not make those things right.