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Tuesday, April 20, 2010
What Color Is Your Petard?

You may recall that during the 2004 presidential campaign there was a lot of discussion about the economy. Despite the fact that nearly all economic indicators were trending positive, the Democrats--lead by John Kerry--continuously harped on the theme that it was a "jobless recovery" and that as president George W. Bush had lost more jobs than Herbert Hoover. And it was indeed true that the job market markedly lagged the rest of the economy in rebounding from the 2000-01 recession. Eventually, jobs did come back, enough so that by the time the 2004 election actually took place, the Democrats could no longer get much play out of the issue. (In June 2003, the unemployment rate topped out at 6.3%, by November of 2004, it was at 5.4%)

So it's somewhat ironic--in a delicious way--to think that Democrats may be faced to make the opposite side of the jobless recovery argument this time around. By most indications, it's becoming increasingly clear that some sort of economic recovery is afoot. The strength and eventual staying power of said recovery is open to debate, but even the dismalist of the dismal scientists have to admit it's getting better.

But this recovery also appears to be one wherein job creation doesn't really begin until significantly after the recovery is well underway. In fact this time around, it may take even longer to make a dent in the unemployment numbers. While companies are beginning to see the light, most are still playing it safe and waiting to add to their payrolls. And while some industries can bring workers back fairly quickly once they decide to begin hiring, in many others the cycle time from a firm's leaders giving the thumbs up to adding headcount to a new worker actually starting a job can be lengthy.

From an anecdotal perspective, the company that I toil for is seeing a nice bounce back in sales, especially in Asia and the United States. It's actually come sooner than we had expected and the outlook for the rest of the year is far more positive than most would have imagined just six months ago. However, there's no rush to bring bodies back in to the organization just yet. The stresses on our the leaner and meaner work force are apparent, but the hiring spigot is going to be opened slowly and with careful calibration. I would imagine this is also what is happening in other companies throughout America.

So even if the economic recovery continues, it's probably not going to happen soon or be strong enough to really turn the tables before November when it comes to jobs. And when it comes to jobs, perception is reality. Even if the unemployment rate drops significantly between now and November, if people don't feel like there's a boom in jobs, they won't believe it. If their unemployed friends still can't jobs and if their relatives who just graduated from college can't find meaningful work, they will have a negative impression of the state of the economy. It's going to be fun to watch Democrats tout GDP numbers as proof of the strong economic recovery, while they dismissed the exact same figures as meaningless in the lives of "real" people back in 2004.

But what's even more likely is that the economy will not be the X factor in the 2010 elections. While economic health is often what tips the political balance for or against the party in power, it doesn't always hold trump. In November of 1994, the economy was booming and unemployment was at 5.6%. That didn't prevent the Gingrich Revolution. In November 2006, the economy was in great shape with unemployment at 4.5%, but voter frustration with the war in Iraq and the perceived Culture of Corruption in Congress didn't save the GOP. 2010 seem likely to be another year where it isn't the economy, stupid.

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Monday, March 08, 2010
You Got This Round?

More reason to suspect that we're unlikely to see a robust jobs recovery anytime soon comes from an article about employers and consumers asking Who will blink first?:

Therein lies the standoff that helps explain the weakness of the recovery and the depth of the jobs crisis. Each side--employers on one, consumers on the other--is waiting for the other to spend more. Until then, the recovery will likely feel shaky. And job openings will be few.

Which side will blink first?

Many economists predict it will be businesses. Sometime this year, many companies are likely to decide they must replace worn-out equipment or they can't squeeze any more output from their existing staff, according to estimates from Moody's and IHS Global Insight. Some will then ramp up hiring.

Yet business expansion and hiring are likely to remain so modest that it could take until 2011 or 2012 for consumers to respond by opening their wallets wide, Moody's and IHS Global Insight predict. Once they do, households are expected to finally unleash a pent-up demand for appliances, clothes and cars.

Until then, consumers and employers will likely remain wary of hiring or spending much. The jobless rate, now 9.7 percent, will stay high. And employers will create nowhere near the roughly 10 million jobs that economists say are needed to restore the job market to its pre-recession health.

"There's a little bit of a standoff--a chicken-and-egg problem," said Robert Reich, a professor of public policy at University of California, Berkeley.

Reich holds out the possibility the stalemate will end soon. But short of a major industrial innovation--some new energy technology, for instance--he thinks businesses will remain slow to hire and consumers wary of spending freely for most of this year.

The government likely won't help much. Stimulus spending is waning. So are the Federal Reserve's emergency support programs. That leaves more of the job-creation burden for employers and consumers.

That doesn't mean that the government won't pretend that it's pitching in to help create jobs. Another fifteen billion piled on our mountain of debt is relatively insignificant, but it's maddening that we're spending any amount money that everyone knows won't make a difference. The only thing that's likely to break this employer-consumer gridlock is for both sides to regain the trust and confidence they need to open their wallets again. And that will only come with time. More government spending in the meantime will do nothing to increase trust and confidence for either group and, especially in the case of many employers, will likely only further delay their willingness to start making long-term investments again.


Friday, March 05, 2010
If You Don't Expect Too Much From Me You Might Not Be Let Down

Harry Reid reassured Americans today that this messy unemployment problem is finally over. Take it away, Harry:

"Today is a big day in America. Only 36,000 people lost their jobs today which is really good."

Well thank God for that. Now they can finally focus on things Americans really care about like global warming, government control of health care and destroying Toyota.

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Wednesday, March 03, 2010
Now Hiring?

Story in yesterday's WSJ on how Companies Are Mapping Their Routes to Recovery shows again that while the bleeding of jobs has largely stopped, most firms don't plan on bringing them back any time soon:

Corporate America is emerging from the worst downturn since the Great Depression smaller and thriftier.

To survive, companies have laid off millions of workers, closed hundreds of factories and vacated acres of office space. Like those who grew up in the Depression and still reuse sheets of aluminum foil, the experience has left them financially conservative and wary of risk.

The road to recovery will likely be marked by slow and steady acceleration, rather than speed. Some companies will see opportunities to amass undervalued assets or steal customers. But it is unclear if their efforts will create enough new jobs to spark broader economic growth.

Many companies will likely wait until growth forces them to start hiring again. And it will require some time and a fair degree of pain before they reach that point.

Having cut jobs and capacity, streamlined production, distribution and logistics, many companies like their slimmer look. "We have put the genie back in the bottle, and I'm not ready to let it out," says Parker Hannifin's Mr. Washkewicz.

Indeed, while some employers have added modestly to their payrolls, the absence of broader hiring remains a problem for the nation's economy, which depends on consumer spending.

More than 60% of the 1,000 chief executives surveyed by YPO Global, a network of 17,000 executives, expect their work forces to be the same a year from now. About 30% see an increase and 7% a decrease.

If only 30% of companies plan to expand their work forces in the next year, it means we won't see a significant bounce back in jobs that would signal a robust economic recovery. One thing that isn't mentioned in the story is the impact that uncertainty about what's coming next in terms of health care reform, regulations, and taxes is having on companies willingness to add employees. But this is also undoubtedly a drag on how quickly jobs come back as well. And the "job creation" steps the government has taken--whether in the form of stimulus spending or onetime tax credits--seem unlikely to change companies plans in this respect either.


Friday, February 05, 2010
Facts Are Stubborn Things

An August 1, 2003 statement from Nancy Pelosi chastised President Bush for failing to create jobs:
The fact is that President Bush's misguided economic policies have failed to create jobs. Since President Bush took office, the country has lost 3.2 million jobs, the worst record since President Hoover. And today we learned that in July nearly half a million people gave up looking for a job.

Fact: There were 14.8 million unemployed in January 2010.

Fact: There were 11.6 million unemployed in January 2009.

Fact: 14.8 million minus 11.6 million equals 3.2 million.

Fact: Bush had been President for 2 1/2 years when Pelosi issued the above release.

Fact: Obama has been President for 1 year.

Fact: Nancy Pelosi will never acknowledge these facts.


Monday, January 18, 2010
Still Making It

When people discuss America's present economic woes or the prospects for the future, one of the most common laments is "We just don't make anything anymore." While sometimes it does seem that everything you pick up has "Made in China" stamped on it, the truth of the matter is that America still does make things. They might not be the same things we used to make and there are definitely fewer people involved in making them, but the fears about our "not making anything anymore" are overblown.

This week, Menards--a chain of home improvement stores headquartered in Eau Claire, Wisconsin--is having a "Made in the U.S.A." sale. All of the products featured in the sixteen pages of this week's flier are made in the United States. That's a lot of stuff for a country that doesn't make anything anymore.

Let's start with the basics. You want an American flag? Made in Milwaukee.

How about a toilet seat cover? Bellmawr, New Jersey.

A storm door to keep out the cold? Brookings, South Dakota.

A new kitchen sink? Russton, Louisiana.

Some Berber carpet? Dalton, Georgia.

Hardwood flooring? Johnson City, Tennessee.

Need to fill some holes with spackling? Pryor, Oklahoma.

Electric outlets? Concord, North Carolina.

A heavy-duty adhesive? Temple, Texas.

Pre-charged well tanks? West Warwick, Rhode Island.

How about a high performance toilet? I don't know about you, but when I think of toilets, I always think about Perrysville, Ohio.

Garbage bags? Rogers, Arkansas.

Power stripper (for paint not poles)? Lessage, West Virginia.

Fluorescent light bulbs? Versailles, Kentucky (where the famous treaty was signed, right?)

Tongue and groove pliers? Meadville, Pennsylvania.

A 6-way screwdriver? Shelton, Connecticut.

Foil insulation? Markelville, Indiana.

Hardwood plywood? Medford, Oregon.

Aviation snips? Sturgis, Michigan.

Sand texture paint? Fort Lauderdale, Florida.

20oz hammer? Bushnell, Illinois.

Underlayment? Norfolk, Nebraska.

Plastic containers to hold crap? Poway, California (at least until the company moves for tax reasons).

Plastic knives, forks, spoons, and sporks? Wilton, Maine.

Doggie treats? Hiawatha, Kansas.

Hippie treats (yogurt pretzels)? New Hope, Minnesota.

Finally, after JB visits and uses your high performance toilet, you'll likely need an all purpose plunger made in St. Louis, Missouri.

These items may not be the kind of things that come to mind when people think about American manufacturing. But they are good examples that show we're not quite dead yet when it comes to being a country that makes stuff.


Wednesday, October 21, 2009
Alpine Redoubt

Last week, there was some wild speculation about the possible meanings of a dream that I had that featured an appearance by noted libertarian blogger Vox Day. While the theories offered were interesting and even entertaining, there's likely a very simple explanation. Vox has a new book coming out soon called The Return of the Great Depression. He had sent me an advance preview of the book and asked for my comments on it. While I finished the book a few weeks ago, I haven't had a chance to collect my thoughts on it yet. With its October 29th (that dates seems familiar...) release looming, it's been moving up on my priority list of things that do. Therefore the dream was likely nothing more than subconscious reminder to take care of business and scribble a review. Sometimes a dream is just a dream and requires no further interpretation. Now, that dream where I'm lying in bed and Vox comes flying through the window...

Let me start my passing on a shocking piece of information: Vox Day is not an economist. That may lead some to discount his views on matters economic, but in this case it proves to be beneficial. He approaches the subject as an outsider and is not wedded to any particular school of economic theory from his background. This allows him to be rather dispassionate in his analysis and also forces him to be more vigorous in his research since he doesn't come into it with a great deal of experience.

It also makes "The Return of the Great Depression" a more understandable and entertaining read than your average economic tome. That's not to say its been dumbed down or overly simplified. Vox takes on some rather weighty and complicated economic topics. But, as he previously did in "The Irrational Atheist," he does so in his own unique voice (Vox's vox?). Even while explaining the inner workings of the money supply or the components that make up GDP, he maintains his straight-shooting style infused with the mix of cynicism and sarcastic humor that readers of his blog have come to expect. Its also one of the few economic texts that you're going to find sprinkled with gaming references. I was a little disappointed that he didn't find a way to work the Vikings in somewhere along the way.

"The Return of the Great Depression" covers a lot of ground in its relatively short (less than 250 pages) length. Vox begins by looking back at what happened to Japan's economy in the 1990s, why the attempts made to turn things around were bound to fail, and what lessons we can draw from that experience today. He then tries to explain how we got into the mess we're in today. One of my favorite chapters was "No One Knows Anything" where Vox casts a skeptical eye toward the economic data that we've come to rely on for guidance and decision making. For all the progress that the dismal science has made over the years there's still a frightening amount of uncertainty when it comes to knowing what's really going on with the economy and even more so with what will happen next.

One of the strengths of the arguments that Vox puts forth is his willingness to understand where the other side is coming from. He demonstrated this ably in "The Irrational Atheist" and does so again in "The Return of the Great Depression." For while he's firmly in the camp of the Austrian school of economic theory, he's obviously spent a lot of time studying the Monetarists and Keynesians. In fact, at times he seems to understand the underlying theories of Keynes better than some of his modern day adherents. After he details why he believes the Austrians offer the best (although far from perfect) explanations for how economic cycles work, he gives us a critique of the Austrian Theory from a Keynesian perspective. When you've taken the time to not only tear down your opponent's arguments, but also show that you can argue the case from their point of view, it demonstrates the thoroughness of your approach and understanding.

The book close with Vox presenting six possible scenarios for what might happen next to the global economy. They range the gamut from boom to gloom. The title of the book tells you what Vox thinks will happen next and he makes a strong case for it. I'm not quite as pessimistic as he is. While happy days aren't and won't be here again for some time, I don't believe that we're on the verge of Great Depression 2.0. We'll muddle through a period of prolonged stagnation and maybe even experience a double dip recession. No thanks to any conceivable government action. Vox also lists ten things that should be done to prevent things from getting any worse. The chance of any of those practical steps actually taking place is quite remote.

One possible criticism of the book is that it reflects Vox's style. Some might be put off by the at different times strident, arrogant, and flippant tone. But that's just Vox being Vox. It's definitely not for everyone. But if you want to read an informative, thoughtful, and even sometimes entertaining book on the current economic situation, you can't go wrong with "The Return of the Great Depression." Personally, I think that any book on economics with a chapter titled "The Whore, The False Prophet, and The Beast From The Sea" merits a look.

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Monday, September 28, 2009
Going For A Cure?

$35 Billion Slated for Local Housing:

The Obama administration is close to committing as much as $35 billion to help beleaguered state and local housing agencies continue to provide mortgages to low- and moderate-income families, according to administration officials.

The move would further cement the government's role in propping up the housing market even as some lawmakers push to curb spending at a time of rising debt.

Can't possibly see anything that could go wrong with this plan. No conceivable downsides here, no siree.

Um...wasn't government intervention in the housing market to encourage more Americans to own homes part of the reason we ended up in the current economic mire?


Friday, September 25, 2009
Go Global Or Go Home

Not much to laugh at in David Goldman's Dave's (additional) 10 Reasons Why the Recession Will Last Forever, especially the conclusion:

There just isn't any way to square the circle within the US as such: households have lost too much wealth at the cusp of a gigantic retirement wave, so that demand for savings is virtually limitless. That's one reason why bond yields remain so low (another is that the cheap dollar makes them attractive to foreign investors). Americans are locked into a vicious cycle: as their wealth collapses, they must save more; that reduces sales and output, and leads to unemployment; unemployment causes more home foreclosures and keeps the housing market weak; wealth continues to fall; returns to prospective retirement assets decline, forcing households to save more; and so on, ad infinitum, or at least as far as the eye can see.

The only way to break out is globally, and Obama is getting colder rather than hotter.


Wednesday, September 09, 2009
Robbing Peter To Stimulate Paul

Good piece by Brian Riedl in the Septenber 7th edition of National Review reminds conservatives that rather that criticizing the stimulus package for its size or timing, they should focus on the fact that the entire premise behind government spending stimulating economic growth is inherently flawed (sub req):

This is no longer a theoretical exercise. The idea that increased deficit spending can cure recessions has been tested, and it has failed. If growing the economy were as simple as expanding government spending and deficits, then Italy, France, and Germany would be the global economic kings. And there would be no reason to stop at $787 billion: Congress could guarantee unlimited prosperity by endlessly borrowing and spending trillions of dollars.

The simple reason government spending fails to end recessions is that Congress does not have a vault of money waiting to be distributed. Every dollar Congress "injects" into the economy must first be taxed or borrowed out of the economy. No new income, and therefore no new demand, is created. They are merely redistributed from one group of people to another. Congress cannot create new purchasing power out of thin air.

This is intuitively clear in the case of funding new spending with new taxes. Yet funding new spending with new borrowing is also pure redistribution, since the investors who lend Washington the money will have that much less to invest in the economy. The fact that borrowed funds (unlike taxes) must later be repaid by the government makes them no less of a zero-sum transfer today.

Even during recessions--when total production falls, leaving people with less income to spend--Congress cannot create new demand and income. Any government spending that increases production at factories and puts unemployed individuals to work will be financed by removing funds (and thus idling resources) elsewhere in the economy. This is true whether the unemployment rate is 5 percent or 50 percent.

For example, many lawmakers claim that every $1 billion in highway stimulus will create 47,576 new construction jobs. But Congress must first borrow that $1 billion out of the private economy, which will then lose a roughly equivalent number of jobs. As transportation-policy expert Ronald Utt has explained, "the only way that $1 billion of new highway spending can create 47,576 new jobs is if the $1 billion appears out of nowhere as if it were manna from heaven." Removing water from one end of a swimming pool and dumping it in the other end will not raise the overall water level. Similarly, moving dollars from one part of the economy to the other will not expand the economy. Not even in the short run.


Thursday, August 27, 2009
A Distant Boom

It now seems pretty clear that the economy has hit bottom. In general, things aren't getting any worse and there are even a few signs that indicate that a turnaround is underway. However, the one question that hangs over all the talk of recovery is what sector of the economy is going to drive growth.

In the past couple of recoveries, spending by American consumers has lead the way out of recession. But--as story after story has made abundantly clear--it seems unlikely if we're going to see a repeat of that this time around. Consumers are literally tapped out. They've already taken on more debt than they probably should have and many Americans are now concentrating on getting their personal financial houses in order by reducing debt loads, saving more, and spending less. This newfound fiscal prudence is both understandable and praiseworthy. But it means that we should not be looking for consumers to carry the economy forward.

Another possible source of consistent growth is business spending. The dramatic manner in which companies pared their inventories, reduced their workforces, and cut costs in the wake of the downturn means that they are now running lean. With the worst economic news now seemingly behind us, it's likely that they will need to restock and open up the purse strings a bit just to keep up with the steady--albeit flat--demand they are now seeing. This will likely have somewhat of a rebound effect which will improve GDP numbers in the next couple of quarters. But what will businesses do after that to driven consistent, sustained growth?

An article in yesterday's WSJ asked Where Consumers Fail, Can Businesses Lead?:

What the economy needs now is a business spending spree that will lead to a hiring boom and rising consumer incomes.

Businesses clearly have the cash. In the first quarter, nonfinancial companies had some $14.1 trillion in financial assets, according to Federal Reserve data, or 100.1% of gross domestic product, a record high.

But after the 2001 recession, businesses accumulated cash, rather than spending it, because of the spending glut during the tech boom. They mightn't have much appetite for spending this time around, either.

They owned more than $4 trillion in equipment and software in the first quarter, about 29% of GDP, not far from the 30% that prevailed during the tech boom. Meanwhile, the nation's factories, utilities and mines in July ran at 68.5% of their production capacity, near a record low, giving them little reason to build out more capacity.

At this point, it isn't even clear that business spending will be strong enough to make the recovery self-sustaining. A business-led boom seems unlikely.

So we can't count on consumer or business spending to drive the next economic growth. What's that leave us with? Government? Keynesians would tell us not to worry. After all, most of the government stimulus money hasn't even been spent yet. Why, once that starts kicking in then the economy is really going to get humming again.

Even if you assume that most of President Obama's stimulus package will actually serve to stimulate the economy (a pretty dubious assumption), the problem with relying on such one-off government spending is that its impact is usually short-lived. If look at the factors holding back consumers and businesses from spending, it's hard to see how the stimulus package will serve to change behaviors with either group.

And with the latest news on the growing deficits and mountains of debt the Obama administration has already signed us up for, it's difficult to imagine a second stimulus package (Son of Stimulus?) being a realistic possibility. So once this wave of government spending washes over the land, the well is pretty much dried up.

Which means that we're probably looking at a best case economic recovery of slow growth, limited job creation, and constrained spending (at least by consumers and businesses). Better than being in recession, but not much to write home about. Worst case? A double dip with the economy falling back into recession again. No roaring or booming on the horizon.


Monday, August 10, 2009
No Hiring Line On The Horizon

Zachary Karabell warns that better corporate earnings of late and the increased stock prices that have accompanied them are not necessarily a bellwether of better times for the broader US economy (WSJ):

That suggests the connection between corporate profits and robust economic recovery in the U.S. is tenuous at best. In fact, the financial crisis hastened the trend toward efficiencies, toward leaner inventories, and towards integrating both technology and global supply chains that has been taking place over the past decade.

That has led to severe pressure on the American working class and eroding employment. As these companies profit from global expansion and greater efficiency, they have little or no reason to rehire fired workers, or to expand their work force in a U.S. that is barely growing. If you are a global company, you want to hire and expand where the most dynamic growth is. Unfortunately for Americans, that's not the U.S.

So we are facing a conundrum: Companies can grow by leaps and bounds--by double-digits--and yet unemployment can skyrocket and remain high. There is nothing on the horizon that would lead one to expect a turnaround in the employment picture.

The only thing certain about the current economic downturn is that appears to be unlike most of the previous recessions we've experienced and trying to make future projections about where the economy is heading based on indicators from the past is a fool's errand. Higher corporate profits and rising stock prices are no doubt encouraging signs, but until we see a real improvement in the employment numbers it's going to be hard to say that a true recovery is underway.


Wednesday, August 05, 2009
Moral Victory

David Harsanyi labels cash for clunkers an "unmitigated fiasco" in a Denver Post piece called Little bitty bang, bang:

To begin with, building a new car consumes energy. It is estimated that 6.7 tons of carbon are emitted in process. So a driver who participates in the "cash for clunkers" program would need to make up for that wickedness. There around 250 million registered vehicles in the United States. Only a micro-slither of those cars will be traded in--and a slither of that number could be deemed a "clunker" outside the Beltway.

A survey of car dealerships found a relatively small differential in fuel efficiency of cars traded in and those replacing them. A Reuters analysis concluded--even with the extended program in place--cash for clunkers would trim U.S. oil consumption by only a quarter of 1 percent.

As an economic stimulus, the plan is equally impotent. As James Pethokoukis, a columnist at Reuters, succinctly explained,"the program gets much of its juice via stealing car sales from the near future rather than generating additional demand."

The point of a stimulus should be to create new demand, not to move existing demand around to score political points. Then again, for this administration, economic recovery always takes a back seat to moral recovery.


Monday, August 03, 2009
Rattle, Rattle, Thunder, Clatter, BOOM-BOOM-BOOM

While many politicians are engaged in self-congratulatory back-patting over the "success" of the cash for clunkers program, the WSJ editorializes that the subsidy is crackpot economics:

Americans are streaming back into auto showrooms, and one reason is the "cash for clunkers" subsidy. Democrats are naturally claiming this is a great success, while Republicans are claiming that because the program has run out of clunker cash so quickly, this proves government can't run the health-care system. How do we elect these people? What the clunker policy really proves is that Americans aren't stupid and will let some other taxpayer buy them a free lunch if given the chance.

The buying spree is good for the car companies, if only for the short term and for certain car models. It's good, too, for folks who've been sitting on an older car or truck but weren't sure they had the cash to trade it in for something new. Now they get a taxpayer subsidy of up to $4,500, which on some models can be 25% of the purchase price. It's hardly surprising that Peter is willing to use a donation from his neighbor Paul, midwifed by Uncle Sugar, to class up his driveway.

On the other hand, this is crackpot economics. The subsidy won't add to net national wealth, since it merely transfers money to one taxpayer's pocket from someone else's, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.

With the toll our kids have taken on our couch already, we'd be itching for such a sofa subsidy soon. And, although it might not be environmentally friendly, imagine the fun of taking a torch to the family furniture. Nothing brings a neighborhood together like a good old fashioned couch burning. National Night Out is just around the corner...

Jeremy Anwyl--CEO of has a piece in today's WSJ questioning the value of cash for clunkers:

Clearly, cash for clunkers was underfunded from the start. Consumers quickly figured that out and rushed to take advantage before funding ran out.

This sales frenzy was inevitable. We have crammed three to four months of normal activity into just a few days.

What everyone fails to realize is that once this backlog is met, interest in the program will fade.

This is the key argument against the program. Did it really generate new economic activity or merely bring forward spending that was going to happen anyway? As product companies well know, you can always increase your short term sales by pulling in your future backlog. The problem is refilling that backlog so you're not twiddling your thumbs when that future arrives. Not only is this "cash for clunkers" surge unsustainable, it's probably already cannibalizing sales of 2010 models which will arrive at dealers in a few months. Who's going to be buying cars then?

There's also this:

There is also an ironic unintended consequence. Car companies have cut the number of vehicles coming off their assembly lines in response to the recession, which is leading to spot shortages. This is particularly the case for fuel-efficient models the program was suppose to encourage consumers to buy. As prices for these autos rise, buyers will inevitably use their cash-for-clunker dollars to buy less-efficient models and thus crush one of the touted environmental benefits of the program.

In most of the cash for clunkers anecdotes that I've heard so far, it's a case of someone trading in one pickup truck or SUV for another. Yes, the newer vehicles are more energy efficient, but the differences aren't usually all that significant. The cash for clunkers vision of a newly enlightened, environmentally conscious citizen trading in his Hummer for a Prius is not the reality.

Despite the weight of these arguments, the Senate--never one to let the facts get in the way of a popular spending item--will likely approve additional funding for cash for clunkers this week.

Given the "success" of the program, Congress is also considering expanding it into other areas.

Cash for Punkers: Former punk rocks fans can turn in their punk CDs, black clothes, and spike collars for a government subsidy to be used toward the purchase of classical music.

Cash for Lunkers: Fisherman can turn in their trophy mounts and receive a government subsidy to be used toward catching even bigger fish at resorts and camps.

Cash for Spelunkers: Government subsidies will be available to purchase gear and travel to explore caves. Will be especially helpful in states that will be adversely impacted by Cap and Trade like Kentucky and West Virginia.

UPDATE-- Bob e-mails:

I write to let you know that, because of your latest post, you might be eligible for the Fed's latest "Cash-For" program. It's called "Cash For Debunkers," and offers up generous sums to anyone with enough economic savvy to thoroughly debunk the ridiculous "Cash For Clunkers" nonsense. The government's only condition is that you drink the "Cash-For" Kool-Aid and cease your debunking activities immediately.

My silence is most definitely for sale.

On a related note, plans were also unveiled for another program:

Cash For Chunkers: To help stem the rise in childhood obesity, parents who bring their overweight offspring to government-run fat camps will receive a generous subsidy. Their children will receive a reeducation in proper diet and exercise and three helpings of government issued gruel per day.


Thursday, July 02, 2009
Blessing In Disguise?

The bad news? The U.S. unemployment rate continues to rise and will almost certainly hit double digits soon.

The good news? Historically, high unemployment has served to keep inflation in check:

A rule of thumb is that inflation doesn't become sticky until the unemployment rate dips below 5%. Since 2001, the Nonaccelerating Inflation Rate of Unemployment, or NAIRU, the rate at which economists estimate the labor market can trigger inflation, has stood at 4.8% unemployment, according to the Congressional Budget Office.

In the first quarter, the spread between the NAIRU and the actual unemployment rate averaged 3.3 percentage points, the widest spread since 1983, when unemployment hovered around 10%. A high spread suggests the labor market needs to get stronger before inflation is a concern.

So for the moment at least inflation doesn't seem to be something that Americans should be too worried about. As long as they have a job.


Friday, June 12, 2009
Who You Gonna Call?

Just in case you didn't think doing your taxes was already complicated enough comes news that the IRS wants to tax your corporate mobile phone:

The use of company-issued mobile phones could trigger new federal income taxes on millions of Americans as a "fringe benefit."

The Internal Revenue Service proposed employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax.

The IRS, in a notice issued this week, said employees could avoid tax liability if they showed proof they used personal cellphones for nonbusiness calls during work hours. The agency also could decide on a set number of phone minutes as "minimal personal use" that would be untaxed.

In a third option proposed by the IRS, employers could use a statistical sampling to determine what portion of workers' cellphone use is personal and how much is work-related. Workers would be taxed on the difference.

Gee that sounds great. All I have to do show "proof" that I used personal cellphones for nonbusiness calls during work hours or my employer can use precious resources to conduct a statistical sampling to determine how much I should pay? Yeah, that doesn't like either a total nightmare for the individual or a cost-increasing, productivity-dampening process for the employer.

While the IRS looks at this as a potential revenue windfall, the actual outcomes will be that companies will stop issuing cell phones to workers instead asking them to submit expenses when they use personal cell phones for business and/or individuals deciding to not use their business cell phones as often less they risk incurring an additional tax burden. Either way, NO ONE wins.


Wednesday, June 10, 2009
Leaves of Three

One thing about politics that really annoys me is when people try to talk down the economy or exaggerate its negatives in pursuit of their own political agendas. Democrats were notorious for doing this during the Bush years and there are certainly some Republicans who appear to be engaging in the same tawdry tactics today. When it comes to the success or failure of the economy, I'm strictly non-partisan. I always want the US economy to be strong and growing. It's good for the country, good for the world for that matter, and, strictly from a personal point of view, good for me and my family.

So I would very much like to embrace the emerging optimistic view that the economy has turned the corner and that recovery is already underway. But there a number of troubling signs that the economy's "green shoots" that people are talking about will not sprout and bloom, but soon wither. Three signs to be exact.

1. The recent uptick in the price of commodities is viewed as a sign that the global market has confidence in a recovery. But at this point, it's not clear if rising commodity prices are a mini-boom driven by rational expectations of growth or a mini-bubble driven by people's need to put their money somewhere (WSJ-sub req):

China is one: Even if its nascent economic recovery falters, it will likely keep gobbling commodities. China has more than doubled its gold holdings since 2003 and is accumulating bigger inventories of crude, copper and other materials -- both for future use and to protect against the potential decline in value of its massive dollar holdings, says Bart Melek, commodity strategist at BMO Capital Markets.

Global liquidity is another. The ratio of global money supply to gross domestic product has never been higher, according to Morgan Stanley economists Joachim Fels and Manoj Pradhan -- supporting what they call a "global liquidity cycle" that puts cash into the hands of investors who bid up assets. Similar cycles supported the tech-stock and housing bubbles in the past decade, the economists say.

Or the most recent commodity bubbles of the last few years in oil and metals. Maybe the rising commodity prices are based on demands from China and other developing countries. But I suspect that they're more a result of the need to invest that excess global liquidity. At some point, if the economic fundamentals aren't there to support the higher commodity prices, that bubble is going to burst or at least deflate.

2. Although the latest unemployment numbers were greeted by some as positive news since the US lost fewer jobs than in previous periods, it's hard to see much light at the end of the jobs tunnel right now. While it is true that an upturn in employment lags during a recovery, jobs are a factor that can either help ignite or extinguish said recovery. Based on the forecasts through 2010, it appears more likely that we will see the latter effect. Unemployment at 10% to Depress Consumer Spending:

Surging unemployment in the U.S. will delay a recovery in consumer spending and mute the rebound when it does materialize, according to a Bloomberg News survey.

The jobless rate will climb to 10 percent by the end of 2009, 1.6 percentage points higher than projected at the start of the year, according to the median forecast of 62 economists surveyed from June 1 to June 8. Household purchases will drop this year more than previously estimated.

And we all know how important consumer spending is to the American economy.

3. Which bring us to the third and probably most worrisome sign that economic recovery may be a long ways off. Not only is consumer spending being dampened by the bleak unemployment numbers, but even those consumers who do want to spend may no longer be able to tap into the usual resources to do so. On Borrowed Time: Consumer-Led Recovery (WSJ-sub req):

Despite recent frugality, consumers have barely dented their debt load. The Federal Reserve will offer a fresh peek at that mountain on Thursday, when it releases its "flow of funds" data for the first quarter.

By the end of 2008, households were on the hook for $13.8 trillion in debt -- nearly matching the $14.3 trillion output of the entire U.S. economy, not adjusted for inflation, that year.

Households are shedding debt; they're just not doing it very quickly. They owed roughly 130% of disposable income at the end of 2008, down only slightly from a record 133% in the first quarter of 2008.

An old saw about U.S. consumers is never to underestimate their willingness to spend beyond their means. The debt-to-income ratio first crossed 100% during the 2001 recession, when debt-fueled consumer spending helped spark a recovery. It kept rising post-recession as super-low interest rates encouraged still more borrowing. And it rose even after the Fed raised rates, as consumers piled into mortgages to chase rising home prices.

Money is easy again, but unemployment is far higher and wage growth slower than at any time during the 2001 recession.

Households have also now suffered the bursting of two bubbles -- housing and stocks -- carving $12.9 trillion from their net worth since the second quarter of 2007. The recent market rally should bolster household balance sheets, the flow of funds data might show. But real estate is still the biggest household asset, at 36% of net worth, and prices haven't stopped falling.

Finally, credit is still far tighter than at any point during the 2001 recession, according to a Citigroup index of financial conditions.

It's difficult to imagine this situation improving any time soon. Housing prices may stabilize and people will continue to save more and borrow less, which theoretically would free up more debt for them to incur in order to spend. But given the lay of the economic land today and in the foreseeable future, a surge in consumer spending doesn't seem likely to occur in the coming months.

Consider me skeptical that the economy has reached a turning point and is on the road to recovery. This is one time where I would very much like to have my skepticism proven to be unfounded.


Thursday, May 21, 2009
Housing Hustlers

In the grand tradition of civil rights shakedown artists and poverty pimps come the "housing activists" who definitely are not letting the current crisis go to waste. Yesterday's WSJ profiled one such activist named Bruce Marks and cataloged some of his group's outrageous behavior:

Mr. Marks's nonprofit organization, Neighborhood Assistance Corp. of America, has emerged as one of the loudest scourges of the banking industry in the post-bubble economy. It salts its Web site with photos of executives it accuses of standing in the way of helping homeowners -- emblazoning "Predator" across their photos, picturing their homes and sometimes including home phone numbers. In February, NACA, as it's called, protested at the home of a mortgage investor by scattering furniture on his lawn, to give him a taste of what it feels like to be evicted.

In the 1990s, Mr. Marks leaked details of a banker's divorce to the press and organized a protest at the school of another banker's child. He says he would use such tactics again. "We have to terrorize these bankers," Mr. Marks says.

This is truly despicable. What's even more shocking than the behavior itself is that no one seems willing to call out Marks on it.

Though some bankers privately deplore his tactics, Mr. Marks is a growing influence in the lending industry and the effort to curb foreclosures. NACA has signed agreements with the four largest U.S. mortgage lenders -- Bank of America, Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc. -- in which they agree to work with his counselors on a regular basis to try to arrange lower payments for struggling borrowers. NACA has made powerful political friends, such as House majority whip James Clyburn of South Carolina, and it receives federal money to counsel homeowners.

So the federal government--in other words you, me and everyone else who pays taxes--is subsidizing an organization whose leader views "terrorizing bankers" as a legitimate tactic to "help" homeowners?

Lest you think Marks' efforts will only damage the much vilified "bankers" consider what his goals are:

"We have the opportunity to change how lending gets done in this country," says Mr. Marks, whose group is itself a mortgage broker and has 40 offices staffed with housing counselors. He favors a return to more traditional standards, with full documentation of income and the same fixed interest rate for everyone.

Instead of relying on credit scores, he thinks lenders should look into the reasons for any late payments in prospective borrowers' past and prepare renters for the responsibilities of home ownership. Then, if people are given a loan they can afford, they shouldn't be required to make a down payment, he argues.

Sounds great doesn't it? The same interest rate for everyone. No down payments. What could be wrong with that?

Critics doubt some of these changes would be helpful. Having to use a single interest rate for all would make banks less likely to lend to people with blemished credit records, says Richard Riese, an executive at the American Bankers Association.

A single rate also could lead to higher rates for everyone, adds John Courson, chief executive of another trade group, the Mortgage Bankers Association.

So many of the people that Marx Marks claims to be helping wouldn't get loans and many others would have to pay more? Sign me up.

For now, NACA's main focus is fighting foreclosure, and the 53-year-old Mr. Marks pursues it relentlessly. NACA holds mass "Save the Dream" gatherings, flying in hundreds of counselors to work with borrowers who hope to restructure their mortgages.

At one in Columbia, S.C., in March, a line of homeowners stretched around an arena waiting to meet counselors in canary-yellow T-shirts reading "Financial Predators Beware." Mr. Marks, dressed in black and wearing a NACA cap, circled the arena with a bullhorn. "We're gonna get it done!" he bellowed.

Erick Exum, a NACA official, told those present: "What happened is not your fault. The mortgage crisis is the result of abuses and exploitation by Wall Street." Even so, he said, they might have to make sacrifices: "If you have a car payment and a boat payment, the boat may not make sense."

Terrorize the bankers, skin the Wall Street fat cats, and make irresponsible borrowers give up ONE of their goodies. Sounds like a shared sacrifice.

Mr. Marks grew up in affluent Scarsdale, N.Y., and Greenwich, Conn. He says a childhood stuttering problem gave him sympathy for underdogs, which evolved into a career as an activist. He studied business to "know the enemy," earning an M.B.A. and working briefly for the Federal Reserve Bank of New York. A later job for a labor union stirred his interest in reviving poor neighborhoods and helping people afford homes.

Boy have we seen that blueprint for social activism before.

What's really depressing is that most of the bankers--like the companies that Jesse Jackson's Rainbow PUSH targeted--find it far less painful to pay the tribute than to fight back:

In 1988 he launched NACA. It soon began arranging loans for Boston-area banks that were eager to show they were serving poor neighborhoods, in compliance with the 1977 Community Reinvestment Act.

The organization has been allocated $34.5 million from a new federal program to counsel distressed mortgage borrowers, to be paid to groups such as NACA little by little as they provide counseling. NACA's slice is nearly 10% of the program's funds; the rest goes to more than 100 other nonprofits and state agencies. Besides these grants, most income to cover NACA's roughly $40 million annual budget comes from the fees lenders pay it for arranging new mortgages, typically $2,500 per loan.

So what the government doesn't cover gets picked up by lenders afraid of facing NACA's terror tactics. Nice racket if you can get it.

Another NACA event is the "predator's tour." In February, it sent hundreds of protesters to the homes of bankers and investors in posh New York suburbs such as Rye, N.Y., and Greenwich. One stop was the home of William Frey of Greenwich Financial Services, a broker-dealer specializing in mortgage-backed securities. He was a target because he resisted some aspects of a settlement that called for modifying loans.

State attorneys general had accused Countrywide Financial Corp. of predatory lending, and Countrywide's new owner, Bank of America, settled the suit last year by agreeing to modify many mortgages. A fund Mr. Frey controls then sued the bank. The suit didn't take issue with the settlement but complained that the bank had passed on most of the cost of it to buyers of securities backed by Countrywide's loans.

Mr. Frey was the target of the protest in which NACA dumped furniture on the lawn. "They had hundreds of people trespassing on my property," he says.

"I have a difference with Bank of America. I have a substantial amount of assets with them," Mr. Frey says. "We take them to court. This is how we do it in this country....It's a civilized society." The response from NACA, he adds, "is a mob showing up at someone's house to intimidate them to drop this suit. At what point do people say, 'This is starting to be uncomfortable'?"

"It should be uncomfortable," says Mr. Marks. "You win a campaign by being relentless. Everybody has a breaking point....At some point they say, 'How do I get these crazies off my back?' "

Poor Mr. Frey. He actually believes in such quaint notions as the rule of law, property rights, and civilized society. He doesn't understand that for a committed activist in pursuit of a noble goal, there are no limits. Well, almost no limits.

Some lenders have refused to sign contracts to work with NACA, among them HSBC Holdings, Barclays and Credit Suisse Group. All declined to comment. Mr. Marks says some banks that won't sign agreements do negotiate individual cases with NACA. Even so, NACA sometimes pictures their executives and the executives' homes on its Web site.

It recently added a photo of William Gross of Pacific Investment Management Co., the big bond house known as Pimco, along with pictures of his home and other information. Mr. Marks says his contacts in banking and government tell him Pimco doesn't support the administration's push to modify mortgages. "We're exposing them," Mr. Marks says. A spokesman for Pimco said neither it nor Mr. Gross would comment.

Mr. Marks says financial executives should be held personally responsible for actions that affect people's lives, and "if they interpret that as intimidation, so be it." He says that "we're not talking about violence. We don't do violence."

Nice to know where Marks draws the line. His group will terrorize, intimidate, and drive bankers to the breaking point, but they won't actually commit physical violence. Yet.

Oh by the way, Marks--who enthusiastically endorses exposing the privacy, homes, faces, and children of bankers to the public--is suddenly very secretive when it comes to disclosing information about the activities of his own group:

Despite receiving taxpayer money, NACA doesn't provide public reports on either its loan-brokerage business or its campaign to modify mortgages. Jim Campen, an economics professor emeritus at the University of Massachusetts, Boston, says he tried in the 1990s to analyze the performance of loans arranged by NACA, but Mr. Marks refused to provide data.

Mr. Marks says he feared the data would be used by another nonprofit to discredit his group. NACA does provide information to lenders that work with it, he says, but sees no duty to disclose it to the public.

"He's been very effective in shaking money out of the banks," says Mr. Campen, but "he's not one to open up his records to public scrutiny."

Getting government funds to help shake down corporations while refusing to disclose your own financial information? We definitely have seen that playbook used before.


Tuesday, May 19, 2009
No Children, No Growth

A lot has been written in recent years about what current demographic trends portend for the future of the West. Most of that commentary has focused on the cultural, political, and religious impacts of declining birthrates. When the economic consequences are discussed, it's usually on how declining demographics will affect Social Security, Medicare, and other unsupportable entitlement programs.

In the May issue of FIRST THINGS, David P. Goldman looked at how our demographics have contributed to the current U.S. economic crisis and how they will limit future economic growth. The stark piece is called Demographics and Depression (sub req):

Unless we restore the traditional family to a central position in American life, we cannot expect to return to the kind of wealth accumulation that characterized the 1980s and 1990s. Theoretically, we might recruit immigrants to replace the children we did not rear, or we might invest capital overseas with the children of other countries. From the standpoint of economic policy, neither of those possibilities can be dismissed. But the contributions of immigration or capital export will be marginal at best compared to the central issue of whether the demographics of America reverts to health.

Life is sacred for its own sake. It is not an instrument to provide us with fatter IRAs or better real-estate values. But it is fair to point out that wealth depends ultimately on the natural order of human life. Failing to rear a new generation in sufficient numbers to replace the present one violates that order, and it has consequences for wealth, among many other things. Americans who rejected the mild yoke of family responsibility in pursuit of atavistic enjoyment will find at last that this is not to be theirs, either.

UPDATE-- For the Evening Commute: David Goldman:

First Things associate editor David Goldman will be talking about his article "Demographics & Depression" with Tom Keene this evening on Bloomberg Radio from 6-7. For those in the New York area, Bloomberg radio is found at 1130 am.


Thursday, May 07, 2009
Made In The USA?

In today's WSJ, Matthew Slaughter (a childhood chum of mine) asks just What Is An "American" Car These Days?:

What exactly makes a car "American?" Does it mean a car made by a U.S.-headquartered company? If so, then it is important to understand that any future success of the Big Three will depend a lot on their ability to make -- and sell -- cars outside the United States, not in it. A big reason Chrysler has fallen bankrupt is its narrow U.S. focus. It has not boosted revenues by penetrating fast-growing markets such as China, India and Eastern Europe. Nor has it lowered costs by restructuring to access talent and production beyond North America.

On many measures the Big Three today are far less global than the most successful U.S.-headquartered companies. Today about two-thirds of IBM's revenue is earned outside the U.S. And what does it say on the back of every Apple iPod? "Designed by Apple in California, Assembled in China." Chrysler and GM will be stronger if they can become more global, not less so. This should benefit not just their bottom lines but their U.S. workers, too. Much research now shows that expansion abroad by U.S. companies tends to support jobs in America, not destroy them.

Or is an "American" car one made within U.S. borders? If so, then it is important to understand that America today has a robust automobile industry thanks to insourcing. In 2006, foreign-headquartered multinationals engaged in making and wholesaling motor vehicles and parts employed 402,800 Americans -- at an average annual compensation of $63,538 -- 20% above the national average. Amid the Big Three struggles of the past generation, insourcing companies like Toyota, Honda and Mercedes have greatly expanded automobile operations in the U.S. In fiscal year 2008, Toyota assembled 1.66 million motor vehicles in North America with production in seven U.S. states supported by research and development in three more.

We're running into a situation at work that raises some of the same type of questions. Some of the recent government stimulus programs have designated that goods supplied in projects be "Made In America."

While we're headquarted in the US and manufacture some of our products here, we also supply the North American market with other products made in Mexico. A Swiss competitor has a plant in Indiana that manufactures some of the same products we make in Mexico.

So even though we're a US based corporation that pays hundred of millions of dollars in taxes and employs thousands of people in the US (far more in both categories than or competitor), the "Made in America" requirement means that a Swiss company gets the government business. I find it hard to believe that those who included the "Buy American" mandate intended for a rich family in Switzerland (its a privately held company) to profit at the expense of an American company, but that's exactly what's happening. Unintended consequences and all that.


Wednesday, May 06, 2009
The Worst Of All Worlds

Almost everyone agrees that the current U.S. tax-deferral rules are a complicated mess that are difficult for American companies to follow, inefficient at collecting revenue, and create accounting distortions. But as an editorial in today's WSJ makes clear President Obama's proposed solutions are only going to make a bad situation even worse:

The President's argument is that U.S. tax-deferral rules make it more expensive for American companies to reinvest overseas profits at home than abroad. This, he claims, creates a perverse incentive for companies to "ship jobs overseas" and reduces investment and job creation in the U.S.

He's right, except that his proposals would only compound the problem. His plan would limit the tax deferral on income earned abroad by tightening the rules, limiting allowable deductions and restricting eligibility for foreign-tax credits. This "solution" is antigrowth, job-destroying, protectionist and unlikely to raise the tax revenue Mr. Obama predicts. Other than that...

But it sounds good. And since most Americans will only hear about a plan to stop companies from shipping jobs overseas without having an understanding of the economic fundamentals of the matter, I expect it will prove quite popular. The reality of tax-deferral is that rather than being a "loophole" or "tax break" for big business, it's more of a effort to ease tax burdens on U.S. companies that their global competitors don't carry:

The current tax-deferral system is a clumsy attempt to deal with the fact that most other countries don't tax their companies' overseas profits. A German firm doing business in Ireland, say, pays no German income tax on its Irish profits, but it does pay Ireland's corporate income tax at its 12.5% rate. The U.S. company competing with that German business in Ireland, by contrast, pays Ireland the same 12.5% on its profits -- and it then pays Uncle Sam up to 35%, minus a credit for what it paid the Irish. And because almost everyone else's corporate tax rates are lower than America's (see nearby table), U.S. companies end up paying higher taxes than their international competitors.

Congress long ago created the corporate tax deferral to compensate for this competitive disadvantage. Under deferral, a company doesn't have to pay the U.S. corporate rate until it repatriates its earnings. It can retain them overseas or reinvest them abroad with no penalty. But if it brings them home or pays them as dividends, the tax bill comes due.

The German company faces no such quandary. It pays the Irish tax, and it's free to invest that money in Ireland or Germany or anywhere else. This territorial tax system, embraced by most of the world, eliminates the perverse incentive to hold money abroad that America's deferral system creates. Adopting a territorial system would be the most obvious and simplest way to eliminate the distortion that tax deferral creates. Alternatively, Mr. Obama could lower the U.S. corporate tax rate to a level that is internationally competitive.

Yes, we know: Few major U.S. companies pay 35% of their profits in taxes because of the foreign tax-deferral and other deductions, credits and loopholes. But that's precisely why Mr. Obama should want to take the better path to corporate tax reform by reducing the rate and removing loopholes. America now has the worst of both worlds -- a high statutory rate and a tax code so riddled with complexity that it is both expensive to administer and inefficient at collecting revenue. And yet Mr. Obama's proposal to limit deferral only layers on the complexity.

And reduces the ability of U.S. companies to compete globally. But hey, at least they won't be shipping jobs overseas, right?

But even as a revenue raiser, this is likely to fail. Fewer companies will keep their headquarters in the U.S., especially small or mid-sized firms that can slip away without becoming a political target. Those companies that can't flee will sooner or later demand relief from Congress, which will be happy to create even more loopholes.

Think that can't happen? Think again.

UPDATE--Further ponderings: When it comes to issues such as crime or terrorism, the Left is always eager to talk about the need to address the "root causes." We can't just lock up criminals or kill terrorists. No, we must delve deep into the root cause of these problems (poverty) and come up with solutions (more government spending).

But when it comes to matters of economic nature, this embrace of solutions to the root cause is nowhere to be found. If the problem is U.S. companies using tax-deferral to avoid paying U.S. corporate taxes, the Left's answer is to limit their ability to do so.

Hmmmm...I wonder what the root cause of this problem really is. Could it possibly be the onerous U.S. corporate tax rates (some of the highest in the world) that drive companies' attempts at avoidance? If you really wanted to address the root cause, that's what you would change.


Friday, May 01, 2009
Chinese For Shovel Ready

Story in yesterday's WSJ that, unlike the US, China's government spending on infrastructure has already stimulated construction projects. And these projects are also helping US companies:

China's efforts to quickly pump up its economy are providing a much-needed boost for U.S. businesses as well.

A growing number of companies, from tire and excavator makers to fast-food chains, are benefiting from China's $585 billion stimulus program, which has quickly funneled money into everything from bridges to consumers' pockets.

Just 11 days after the Chinese government approved a $930 million bridge and expressway project called Xiangshan Island Bridge, which will extend over the East China Sea and through mountain tunnels, massive orange drilling equipment was already on site.

Such speed is critical to U.S. industrial-equipment makers, which sell into that market and aren't benefiting nearly as quickly from U.S. stimulus spending.

Caterpillar Inc. Chief Executive James W. Owens says the company's excavator sales in China have returned to record levels in recent months, bouncing back from plummeting sales over the winter.

He says China continues to have a great need for infrastructure and that projects there could start much more quickly than could similar projects in the U.S. "It's something like nine months [in the U.S.] versus nine weeks" in China, he says.

Good thing the Chinese didn't have any requirements that these projects only use materials and equipment made in China.


Wednesday, April 29, 2009
With a Name Like That It Has to Be Good

The Web site Publica has published the complete list of financial institutions taking Federal bail out money. A staggering $426 billion committed taxpayer dollars so far. Only time will tell how wise these expenditure are. But reviewing the names of the banks and financial institutions on the list, the following seem like extremely bad investments on their face:

1) Popular, Inc. $935 million

Trying WAY too hard with that name. If they were really so beloved, would they need nearly a BILLION tax dollars in relief? Plus there's this, from their Wikipedia entry:

During the 1970s, the company's commercials were very popular on Puerto Rican television: they presented a balding, middle aged man in a white tee shirt, announcing the company in a comic way.
2) Umpqua $214.4 million

Too guttural. Sounds like pig Latin for something obscene.

3) Old Second Bancorp $73 million

We're chronic losers, and we're proud of it!

4) Flushing Financial Corp. $70 million

Whoosh! Your investments straight down the terlet.

5) Beach Business Bank $6 million

I'm surprised a bank specializing in financing sunglasses, inflatable rafts, and tiny buckets and shovels only needs $6 million to survive.

6) Crazy Woman Creek Bancorp $3.1 million

Hey, Nancy Pelosi started a bank. Even with that name, it sounds like a more attractive investment than bailing out GM.


Cap End Trade

The Center for Consumer Freedom conducted a nationwide survey to measure American's attitudes towards government imposed price caps. The Survey Results are not encouraging:

Today, the Center for Consumer Freedom (CCF) released the results of a nationwide survey showing equal levels of public support for price limits on cell phones, automobiles, and short-term loans. The findings demonstrate that Americans still lack a basic understanding of the dangers of market realities and the margins businesses work on.

Earlier this month a lobbying group called the Center for Responsible Lending (CRL) released a survey purporting to show that most Americans support capping interest rates on short-term loans. But a recent survey conducted by CCF shows that many Americans support a price cap on nearly everything: 39% support the government limiting the price of a cup of coffee as well as new televisions!

CCF's survey also showed that 57% of Americans support Congressional action to cap the cost of cell phones, 56% support capping interest on short-term loans, and 55% supported capping the price of automobiles!

These results make it clear that Americans don't understand the negative consequences of price caps. Given the clear economic consensus that artificial price ceilings lead to product shortages, black markets and other unfavorable outcomes, the Center for Responsible Lending's insistence on price caps is itself irresponsible. Their use of flawed public surveys to justify their positions is disingenuous.

At times, the sheer level of ignorance exhibited by our fellow citizens leads one to question whether there is really is hope of ever turning things around. This is one of those times.


Tuesday, April 28, 2009
No Minimum Required

Sometimes when I read a news story, I find myself scratching my head and wondering if I'm missing something. Particularly when it comes to the "need" for government to regulate certain aspects of business. Case in point is this story in today's WSJ on a new law in Maryland that Targets Minimum Pricing (sub req):

The law, which takes effect Oct. 1, takes aim at agreements that many manufacturers have been forcing on retailers, requiring them to charge minimum prices on certain products. The practice has surged since a controversial 2007 U.S. Supreme Court ruling that no longer makes such agreements automatically illegal under federal antitrust law.

Under the new state law, retailers doing business in Maryland -- as well as state officials -- can sue manufacturers that impose minimum-pricing agreements. The law also covers transactions in which consumers in Maryland buy goods on the Internet, even when the retailer is based out of state. That could potentially affect manufacturers throughout the country.

So far, so good. These minimum-pricing agreements must be quite an affront to liberty.

Maybe if we looked at an example, we could better understand their dastardly nature:

One company with a minimum-pricing policy is Kolcraft Enterprises Inc., a Chicago-based supplier of bassinets and strollers sold by Wal-Mart Stores Inc. According to a copy of a pricing agreement obtained by The Wall Street Journal, Kolcraft requires retailers to charge a minimum price of $159.99 for its Contours Classique 3-in-1 Bassinet. Wal-Mart's price is $169.88. The price dictated by Kolcraft for its Options Tandem Stroller is $219.99; Wal-Mart charges $219.98.

The agreement states that the policy is intended, among other things, "to protect all Kolcraft and Kolcraft-licensed brands from diminution." Kolcraft also sells products under the Sealy and Jeep brands. Eileen Lysaught, Kolcraft's general counsel and vice-president of operations, declined to comment, as did Wal-Mart.

Okay, let me get this straight. Kolcraft and Wal-Mart voluntarily enter into an agreement in which Wal-Mart agrees to buy products from Kolcraft and then resell to consumers at no less than a price that Kolcraft stipulates. Then a consumer voluntarily purchases a Kolcraft product at that price. My God, there ought to be a law.

Seriously though, what is wrong with such agreements? If Wal-Mart doesn't like it, they can tell Kolcraft to go pound sand and refuse to sell their product. That's actually one of the more amusing angles to this story. Maryland's law and others proposed through the country purport to be about protecting consumers and the retailers are playing along by pretending that they are needed to help them ward off the predatory manufacturers:

The Maryland bill won the support of the Maryland Retailers Association, whose members include Wal-Mart, Target Corp. and Sears Holdings Corp. Wal-Mart did not take a position on the Maryland bill. But Rhoda M. Washington, Wal-Mart's regional senior manager for state and local government relations, says, "Wal-Mart customers expect competitive, reasonable prices, and the Maryland legislature is seeking to ensure that we can deliver on that promise." Target and Sears declined to comment.

It's all about the customers, isn't it Wal-Mart? If the government doesn't step in and help protect Wal-Mart, and by extension their customers, they would helpless to prevent their suppliers from imposing these draconian minimum pricing agreements.

That's good for a larf. Wal-Mart is well-known notorious for "managing" their relationships with suppliers. Said relationships between Wal-Mart and their suppliers are probably best compared to that between the sadomasochistic redneck homosexuals and "The Gimp" in the movie "Pulp Fiction." Essentially Wal-Mart's suppliers are brutalized, enslaved, chained and locked in a box in a basement dungeon. Upon Wal-Mart's request they can also be made to squeal like a pig. Their supplier recognition events are a real hoot. (Yes, using two redneck gay rape movie references when talking about Wal-Mart was lazy, cheap and tawdry, but it was too hard to resist.)

Now, we're expected to believe that all that stands between greedy suppliers having their way with Wal-Mart and their customers is the powerful hand of government stepping in to outlaw such practices? Again, this is one of the cases where I just don't get it.


Tuesday, April 21, 2009
Must See Video

CSPAN shows some of the speeches from the recent Wooster College forum on"Great Decisions in Times of Economic Crisis."   Of particular note is Wall Street Journal columnist James Stewart and his speech on the origins of the current recession.  A very user friendly and fascinating discussion of the timeline, major events, and major players in this morass.  He starts at about the nine minute mark, here.  


Monday, April 20, 2009
Hail Columbia

If President Obama is looking for an opportunity to tack to the center on the economic front, challenge liberal special interest groups, and show nervous free marketeers that he's more Clinton than Carter, free trade would seem to present an obvious opening. This report on New Movement on Colombia Trade Pact (WSJ sub req) is an encouraging sign:

President Barack Obama discussed a pending free-trade agreement with his Colombian counterpart Saturday and dispatched his trade representative to discuss U.S. concerns over Colombia's treatment of labor leaders.

At the Summit of the Americas in Port-of-Spain, Mr. Obama asked to be seated next to Colombian President Alvaro Uribe, and the pair discussed the deal, U.S. officials said. During his presidential campaign, Mr. Obama had voiced opposition to the pact, citing violence toward labor organizers in Colombia. The deal, which would allow free trade between the two nations, is awaiting ratification in the U.S. Senate and has already been approved by Colombia's congress.

Since taking office, Mr. Obama has struck a more-positive tone on free trade than he often did during the campaign. He and aides have spoken out against protectionism, and in Mexico last week he declined to raise the question of renegotiating the North American Free Trade Agreement, despite a pledge to do so last year.

I'll believe it when I see it, but if Mr. Obama does follow through and get a free-trade deal with Columbia done, he should be cheered. It's also nice to know that he spent at least some time at the Summit of the Americas talking with our allies and not our enemies.

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Friday, March 27, 2009
No One Knows What It's Like

The President of Brazil, Luiz Inacio Lula da Silva, on the culprit behind the current global economic troubles:
"This is a crisis that was caused by white people with blue eyes."
OK, we're getting to the bottom of this. I've been wondering at whom to aim my wrath. Thanks to our man Lula, I can narrow this down to a few hundred million people. (And I'm one of them!) But that's not quite enough information to properly direct a lynch mob.

Into the breach steps another helpful resource, our own Rep. Betty McCollum, from earlier this month:
"The global food security and economic crises are two disasters - man made and ... both made primarily by men."
Boom! That cuts the suspect list in half right there. White, blue-eyed, males. Now we're getting somewhere.

Slight problem, I'm still on the hook. And, er, ah, your eminence, I have no recollection of making either the global food security or economic crisis. I was in my basement, blogging in my underwear at the time, I swear.

Looks like we're going to need at least a couple more demagogues ascribing negative behavior to groups based on personal characteristics. Before we can string anybody up with confidence, a little more discrimination based on, say, creed, religion, national origin, marital status, status with regard to public assistance, disability, sexual orientation, and age would helpful. Thank you.

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Wednesday, March 25, 2009
Not Worth The Paper They're Printed On

Hernando De Soto is the author of The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, a book that should grace the shelves of anyone with an interest in economics. In today's WSJ, he warns that the real root cause of our current problems are not the bad loans themselves but the derivatives that have created an overall lack of trust in the true value of all paper assets:

The Obama administration has finally come up with a plan to deal with the real cause of the credit crunch: the infamous "toxic assets" on bank balance sheets that have scared off investors and borrowers, clogging credit markets around the world. But if Treasury Secretary Timothy Geithner hopes to prevent a repeat of this global economic crisis, his rescue plan must recognize that the real problem is not the bad loans, but the debasement of the paper they are printed on.

Today's global crisis -- a loss on paper of more than $50 trillion in stocks, real estate, commodities and operational earnings within 15 months -- cannot be explained only by the default on a meager 7% of subprime mortgages (worth probably no more than $1 trillion) that triggered it. The real villain is the lack of trust in the paper on which they -- and all other assets -- are printed. If we don't restore trust in paper, the next default -- on credit cards or student loans -- will trigger another collapse in paper and bring the world economy to its knees.

If you think about it, everything of value we own travels on property paper. At the beginning of the decade there was about $100 trillion worth of property paper representing tangible goods such as land, buildings, and patents world-wide, and some $170 trillion representing ownership over such semiliquid assets as mortgages, stocks and bonds. Since then, however, aggressive financiers have manufactured what the Bank for International Settlements estimates to be $1 quadrillion worth of new derivatives (mortgage-backed securities, collateralized debt obligations, and credit default swaps) that have flooded the market.

A quadrillion here, a quadrillion there, and pretty soon you're talking real money. De Soto goes on to recommend that government enforce six established procedures with respect to derivatives to ensure the value and legitimacy of these paper assets and restore trust.

Government's main duty now is to bring the whole toxic environment under the rule of law where it will be subject to enforcement. No economic activity based on the public trust should be allowed to operate outside the general principles of property law.

Given the important role that property law plays as part of the foundation of capitalism itself, his proposal seems eminently prudent.


Friday, March 20, 2009
Tales Of The Bizarro World

Leighton e-mails to compare and contrast how government intervention in the economy is picking winners and losers in a most backward manner:

This is how out-of-hand things are getting. A glimpse into the relationship between government and business in the year 2009:

If your company is a failure, but in the financial or insurance sector, the government is waiting to prop you up with billions of dollars in taxpayer money.

If your company is successful, but selling a popular product and creating jobs, the government is going to come down hard and tax the bejeezus out of you.

Gotta love it when government begins distributing the wealth.

Before Leighton's e-mail, I had not heard of the plans of Florida Governor Charlie Crist (Republican in name if not in deed) to tax bottled water companies. It appears to be yet another case of government action based on flimsy premises, poor understanding, and baseless predictions. And the unintended costs will be far greater than whatever dubious benefits it was projected to achieve.

Instead, the governor's proposal will only drain jobs from our state and put more Floridians on the unemployment lines.

This policy, unfortunately, was conceived in a vacuum. Bureaucrats at the Department of Environmental Protection (DEP) now admit that they did not discuss the proposed tax with anyone from the bottled water industry. In fact, it wasn't until after Crist released his proposed budget that they began gathering data on how much money the tax would raise. Further, they offer no scientific or economic data about how they arrived at the $60-per-thousand-gallon figure.

Apparently, all that matters is that water bottling companies are making a profit, which means we should be taxed.

That seems to be the prevailing attitude throughout government today.


Going For A Cure?

Throughout history there have been many schools of economic thought. Like Protestant churches, it seems like every time any economist had the slightest quibble with the existing orthodoxy they broke off and formed their own branch of economic thought. This time, we have discovered the real truth. Until someone within that "new" school disagreed and they spilt and so on and so on and so on....

But even with all this variety of economic thought, with all the neo, classical (and neo-classical), post, pre, and new modifiers attached to distinguish the various schools, we have arrived at the point where there seem to be three major viewpoints on economic policy: Austrian, monetarist, and Keynesian. The monetarists had their run, the Keynesians are enjoying their revival, and the Austrians are in their usual position on the sidelines saying "we told you so."

However, recent developments, like the Fed's renewed efforts to print money and debase the currency, lead me to wonder if perhaps there might be a more appropriate name for the current school of thought that guides our government's approach to the economy: the hair of the dog school. I didn't originate it and variations have been floating around for some time. But I think it's quite an accurate description of what's going on.

The American economy walks into a bar.

Bartender: Geez bud, you look terrible. Need a little pick me up?

Economy: Yeah, I'm coming off quite a bender.

Bartender: Mind if I ask what did ya in?

Economy: Well, to start with let's just say those Fed guys really had that money tap flowing. They sure know how to party.

Bartender (sliding glass across bar): Here ya go. This'll get you back on your feet in no time.

Economy (knocks it back): Not bad. What was it?

Bartender: More of the good money stuff man. That'll get your cash flowing in no time. Want another? I can always make more.

Economy: No thanks. I'm still not feeling too good. Probably shouldn't have been mixing...

Bartender: Yeah, that'll always get ya. What else was it that brought you to this state?

Economy (sheepishly): I knew I shouldn't have, but I just couldn't stop with the irrational spending and unsustainable debt. I thought the party would never end.

Bartender: Know exactly where you're coming from. I know just what you need. Let me whip up my special StimulusBudgetBusterpalooza. I'll throw in extra earmarks too.

Pushes large fishbowl concoction across the bar a few minutes later.

Economy: Is that really going to make me feel better?

Bartender: Maybe not tomorrow, but it will right now. Why worry? Go ahead and splurge. Works best is you use the straw.

Twenty minutes later.

Economy: That helped a little, but I think it's wearing off. What else you got?

Bartender: Well, what else got you trouble?

Economy: I think what finally pushed me over the edge was government intervention in markets leading to perverse incentives that socialized risk and privatized reward.

Bartender: Now you're talking my friend. If you want to feel better now what you need is a strong dose of nationalization. (pours shot & sets it across bar) Don't nurse it either.

Economy (throws down shot & winces): Whew, that's strong stuff. I'm really not felling good now. Maybe I should just quit...

Bartender: Okay, okay. I usually save this for special occasions, but you look like you really need it.

Reaches up to highest shelf behind bar and pulls down dusty bottle. Blows off dust to reveal XXX.

Economy (warily): What's that?

Bartender: Oh this? It's nothin' much. Just a little brew of confiscatory taxation and onerous regulation. It's been aging for years now and should be especially potent. It really is the only thing that can cure what ails you at this stage.

Economy (backing away from the bar): You know, maybe I should just go home and try to sleep this off.

Bartender: Oh c'mon. Just one more. What's the harm in that?


Thursday, March 19, 2009
Thank God, It's The Fed

There's a scene near the end of the movie "Fletch," where the corrupt police chief (played by the incomparable Joe Don Baker) arrives in the middle of a standoff between Fletch and the movie's primary villain Alan Stanwyk. Chevy Chase delivers Fletch's reaction with a deadpan:

"Thank God, it's the police."

That's pretty much how I felt when I read the news the Fed was coming to the rescue with a new plan to buy securities:

March 19 (Bloomberg) -- By committing to buy Treasuries and double his purchases of mortgage debt, Federal Reserve Chairman Ben S. Bernanke signaled his determination to avoid a repeat of the Great Depression and his willingness to pump as much cash into the economy as needed to end the current crisis.

U.S. central bankers decided yesterday to buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion, aiming to lower home- loan and other interest rates. The Fed kept its main rate at almost zero and may keep it there for an ?extended? time.

The moves sparked the biggest drop in 10-year Treasury yields since 1962, rallies in the stock market and gold and a plunge in the dollar against the euro. Economist Richard Hoey said Bernanke has created the "Rambo Fed," referring to the Sylvester Stallone character skilled with weapons.

Aren't you the same guys who helped get us into this mess in the first place by playing too fast and loose with the money supply? And now you're going to save us with more mad money?


Wednesday, March 04, 2009
One In Five

After looking at the historical relationships between stock market crashes and depressions, economics professor Robert Barro lays out the odds that the US economic decline will meet the D word criteria:

In the end, we learned two things. Periods without stock-market crashes are very safe, in the sense that depressions are extremely unlikely. However, periods experiencing stock-market crashes, such as 2008-09 in the U.S., represent a serious threat. The odds are roughly one-in-five that the current recession will snowball into the macroeconomic decline of 10% or more that is the hallmark of a depression.

A sobering possibility. However, there is a sunny side:

The bright side of a 20% depression probability is the 80% chance of avoiding a depression. The U.S. had stock-market crashes in 2000-02 (by 42%) and 1973-74 (49%) and, in each case, experienced only mild recessions. Hence, if we are lucky, the current downturn will also be moderate, though likely worse than the other U.S. post-World War II recessions, including 1982.

So the best case scenario is that we endure the worst recession in sixty years? Lucky us.


Wednesday, February 25, 2009
The Bite of Reality

You often hear people bemoan the negative impacts of the globalized economy on America by claiming that "We don't make anything anymore." The truth is that we still make stuff. It's just not necessarily the same stuff we used to make and requires far fewer people to make it. To believe that we don't make anything anymore is to embrace the fallacy that manufacturing jobs and output are positively related. It would be like saying "We don't grow anything anymore" based on the number of workers involved in the agricultural sector today compared to the past.

Jim Manzi has an article in the latest edition of National Review called Factory Man (sub req) with a helpful graph to illustrate that while the percentage of the workforce in manufacturing in America has been declining for some time, manufacturing as a percentage of the total US economic output has remained relatively steady:

Manzi is a self-described "Factory Man" and he fondly recalls the hey days of American manufacturing. However, he recognizes that nostalgia for the past should not influence our perception of the realities of today nor our policies for the future:

This same dynamic has been playing out for manufacturing over the past 60 years. It has been exacerbated by international competition to a degree not seen in agriculture. Countries with much lower wages can produce goods cheaply and export them to the U.S. market, especially goods with labor-intensive manufacturing processes. Consequently--unlike the case with agriculture--the U.S. runs a consistent merchandise trade deficit. Those American manufacturing industries that are not in secular decline typically respond to this situation with one or more of the following strategies: (1) automate production to reduce the labor content, (2) manufacture overseas and become a research, design, and marketing company, (3) employ low-wage/low-skill manufacturing labor (very often illegal-immigrant labor with pre?New Deal economic protections), and (4) produce complex goods that require frequent manufacturing innovation and provide high-wage jobs. As Jack Welch, the legendary CEO of General Electric who probably did as much as any individual to drive manufacturing reform, put it in the 1980s: American factories must "automate, emigrate, or evaporate."

Most of these alternatives are bad for traditional-production workers, though some can work out well for manufacturing employees who can be flexible and develop advanced capabilities. As a result, while there is always a wage premium for those with better skills, manufacturing-sector jobs are increasingly re-segregating into high-skill/high-wage and low-skill/low-wage ghettos in a pattern very reminiscent of early-20th-century America. According to research by Claudia Goldin, an economic historian at Harvard, the ratio of pay for a starting engineer to that of the average production worker declined from about 1.4 in 1904 to about parity in 1956, at the peak of the post-war economic high tide. In 2007, the average starting industrial engineer made about $55,000 per year, or about 1.5 times the $37,000 that the average non-supervisory production worker made. And more broadly, wage inequality and the economy-wide skills premium have been rising in the U.S. for the past 30 years.

The days of getting out of high school, working in a factory, and having a middle-class life are pretty much gone, because the economic world of 1955 is gone. The jobs that provided this opportunity have been automated out of existence, and our international position no longer allows us to protect them at feasible cost. I take no joy in the need for restructuring the auto industry. I wish that old world still existed, but it does not.

I realize now that my attempts to resist this change were like William Jennings Bryan's attempts to resist the coming of the economic order that I was trying to preserve. I slowly came to understand through experience that my original vision of saving manufacturing would have destroyed it. Theories for how to revive American manufacturing abounded in the 1980s, and it's hard to exaggerate how difficult it is to understand which alternatives are feasible and which are not in the face of an economic transformation. It is almost impossible not to be guided by our sentiments in such a situation, and this happened to me. I fought the direction in which market price signals were pushing manufacturing, but in the end, they were the only reliable guide to what might work.

As a crude generalization, new economic sectors that rely on innovation are the ones that produce lots of high-wage jobs for an economy. It is often said that services are less productive than manufacturing, but in a certain way, this is the good thing about services: They provide jobs. Eventually, what we now call services will presumably go through the same transformation as farming and factories have, and we'll have to find a new sector to provide employment.

At each of these stages, we don't abandon the maturing industries. We still need food and manufactured goods, and it would be foolish to become completely dependent on foreign supplies for either. In the event of a real shooting war we couldn't book enough conference rooms to protect ourselves from a determined adversary. But, as we've seen, we are well able to feed ourselves, and we have an extremely robust manufacturing economy. In fact, had we tried to freeze in place either family farms or employee-intensive factories, we would probably have a far worse defense capability because we would have less domestic agricultural output and antiquated factories.

Which new sectors will actually be productive, and how they will ultimately develop, is highly unpredictable. This is why the free play of markets with limited intrusion by the government is so essential. Almost all industrial policy ends up protecting existing institutions: This is a function of human nature and is not fixable with clever program design. In practice, industrial policy normally means maintaining jobs that a ruthless market would eliminate, and subsidizing technological developments that can be exploited by existing large firms. But these are rarely the sources of new high-wage jobs. Ironically, these attempts to protect ourselves end up creating a sclerotic economy that in the long run puts everyone at greater risk. The painful reality of economic growth is creative destruction, and in a globalized economy, to lose out in this race is ultimately to put ourselves at the mercy of those who may or may not share our interests.

No one will deny that the transformation of manufacturing in American has been and continues to be painful. We do need to do a better job of recognizing and managing the changing world of manufacturing to ameliorate that pain.

But when people start talking about how we need the government to "fix it" or "protect it," you have to ask yourself whether the cure will be worse than the disease. As Manzi says, it ain't 1955 no more and we can't go back to the way the economy worked then. To pretend that we can is a false promise and to try to turn back the clock is likely to result in far worse consequences than any wrought by the change.


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