Tag: business

Trouble in Massachusetts

Yesterday, Cato released a new study, “The Massachusetts Health Plan: Much Pain, Little Gain,” which showed that official estimates overstate the gains in health insurance coverage resulting from a 2006 Massachusetts law by at least 45 percent.  The study also finds: supporters understate the law’s cost by nearly 60 percent; government programs are crowding out private insurance; self-reported health improved for some but fell for others; and young adults are responding to the law by avoiding Massachusetts.

Given that the Massachusetts health plan bears a “remarkable resemblance” to the Obama plan, the study should serve as a warning sign to members of Congress, says Michael Cannon, director of health policy studies.

The study has received coverage in Investor’s Business Daily, The Wall Street Journal, The Washington Post, Detroit News, The Washington Times, the Reason Foundation and the Pioneer Institute.

Thursday Links

  • Nat Hentoff: If you’re looking for reform in Cuba, don’t rest your hopes on Raul Castro.
  • Tim Carney, author of Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses gives the inside scoop on why big government is good for big business.

Mainstream Media’s Trade Gap

In a post at the Enterprise Blog two days ago, economist Mark Perry deftly parodies a typical mainstream media account of trade protectionism by editing the story in redline to contrast its original presentation with its true significance. I recommend reading the whole thing, but here’s the first paragraph:

WASHINGTON POST (Reuters) - A U.S. trade panel gave final approval on Wednesday to duties taxes ranging from 10 to 16 percent on cost-conscious firms in the U.S. who purchase low-priced Chinese-made steel pipe rather than high-price domestic pipe, in the biggest U.S. trade case to date against China American companies (and their shareholders, employees, and customers) who shop globally for their inputs and find the best value in China.

Perry’s point—and I share his frustration—is that the mainstream media typically fail to convey even a sense of the costs of U.S. protectionism to U.S. interests even though Americans (and non-Americans living in the U.S.) bear the greatest burden of that protectionism. When the U.S. government imposes duties on Chinese steel, it is imposing taxes on U.S. consuming industries, their employees, their shareholders, and their customers.

Considering that more than half of the value of all U.S. imports in a typical year is raw materials and intermediate goods (i.e., inputs for producers operating in the United States, who employ people, transact with other businesses, and pay taxes in the United States), the number of U.S. victims of U.S. import taxes is much larger than one can ever glean from a typical media account. Taxes on Chinese-made ”Oil Country Tubular Goods” or OCTG (the subject in the article Perry edits), which are used for oil exploration and transport, will raise costs in the energy industry, which are likely to be passed onto consumers in the form of higher energy prices.

As described in this paper, trade is no longer a competition between “Us and Them.” There is competition between entities that—because of the proliferation of cross-border investment and transnational production and supply chains—often defy any meaningful national identification. But that competition is preceded by collaboration and cooperation between entities in different countries. The factory floor has broken through its walls and now spans borders and oceans—a fact that renders U.S. workers and workers in other countries complementary in more and more cases, and a fact that amplifies the cost of trade barriers.

But media—chained to the false “Us versus Them” paradigm—describe protectionist policies as actions taken by one national monolith against another, and convey the impression that American readers should be cheering for Team America. It is a worldview that conflates the well-being of “our producers” with some homogenized conception of “the national interest.” It is the same misguided scoreboard mentality that colors reporting of the trade account, where exports are deemed “good” and imports “bad.”  And, it is this simplistic, misleading characterization that, in my opinion, is most responsible for withering public opinion about trade and globalization over the past decade.

I look forward to more of Dr. Perry’s editing projects.

Tuesday Links

How to Kill a Company: A Beginner’s Guide (Chapter 1, P. 1.)

As described in the current Cato Policy Report, one of the “Hard Lessons from the Auto Bailout” is that management at GM is likely to be “highly erratic, as the president and Congress wrestle for decisionmaking primacy at this majority taxpayer-owned entity.”  The “dealerships” issue is Exhibit A.

One of GM’s first decisions upon emerging from bankruptcy was to announce closures of a number of dealerships to help reduce costs. Then-nominal-CEO Fritz Henderson explained that the planned closings would save GM about $100 in distribution costs per vehicle–a few hundred million dollars per year when factoring in the millions of units GM expects to produce.

But many of GM’s congressional CEOs cried foul, demanding reconsideration from a company that had taken public funds.  The House of Representatives even passed a bill requiring companies that received federal funds to reestablish terminated dealership agreements, though no action was taken in the Senate.

However, as reported in The Hill today, Congress is fast-tracking legislation to restrict GM’s (and Chrysler’s) closings, by subjecting each decision to an arbitrator, who will “balance the economic interests of the terminated dealership, the car companies and the general public.”  A Senate aide is cited as saying legislators intend to pass this measure before Christmas.

Well, look, EVERY decision GM makes will produce winners and losers in terms of real and opportunity costs.   Hence, EVERY decision is just as worthy of legislative or executive scrutiny, if the dealership issue is the litmus test. 

With 537 CEOs, all but one of whom have bigger priorities than GM’s bottom line, GM’s future will be dictated by splitting differences, political logrolling, and managing by consensus–tactics that will assure GM’s demise.

Today’s White House ‘Jobs Summit’

Today’s Politico Arena asks:

The WH Jobs Summit: “A little less conversation? A little more action? ( please)”

My response:

Today’s White House “jobs summit” reflects little more, doubtless, than growing administration panic over the political implications of the unemployment picture.  With the 2010 election season looming just ahead, and little prospect that unemployment numbers will soon improve, Democrats feel compelled to “do something” – reflecting their general belief that for nearly every problem there’s a government solution.  Thus, this summit is heavily stacked with proponents of government action.  This morning’s Wall Street Journal tells us, for example, that “AFL-CIO President Richard Trumka is proposing a plan that would extend jobless benefits, send billions in relief to the states, open up credit to small businesses, pour more into infrastructure projects, and bring throngs of new workers onto the federal payroll – at a cost of between $400 billion and $500 billion.”  If Obama falls for that, we’ll be in this recession far beyond the 2010 elections.
 
The main reason we’re in this mess, after all, is because government – from the Fed’s easy money to the Community Reinvestment Act and the policies of Freddy and Fannie – encouraged what amounted to a giant Ponzi scheme.  So what is the administration’s response to this irresponsible behavior?  Why, it’s brainchilds like ”cash for clunkers,” which cost taxpayers $24,000 for each car sold.  Comedians can’t make this stuff up.  It takes big-government thinkers.
 
Americans will start to find jobs not when government pays them to sweep streets or caulk their own homes but when small businesses get back on their feet.  Yet that won’t happen as long as the kinds of taxes and national indebtedness that are inherent in such schemes as ObamaCare hang over our heads.  Milton Friedman put it well:  “No one spends someone else’s money as carefully as he spends his own.”  Yet the very definition of Obamanomics is spending other people’s money.  If he’s truly worried about the looming 2010 elections (and beyond), Mr. Obama should look to the editorial page of this morning’s Wall Street Journal, where he’ll read that in both Westchester and Nassau Counties in New York – New York! – Democratic county executives have just been thrown out of office, and the dominant reason is taxes.  Two more on the unemployment rolls.

The Cost of Government Guarantees

John Kay’s column in yesterday’s Financial Times criticizes government guarantees to banks because they involve hidden but large costs. According to Kay:

  • Such guarantees distort competition: sheltered banks outperform rivals not because of greater efficiency, but because capital becomes cheaper to obtain.
  • Sheltered banks gain too-big-to-fail status, which creates barriers to entry for smaller, more efficient banks.
  • Relief from business risk leads to more risk taking, AKA moral hazard.
  • Cheaper private risk management incentives are reduced within and outside the bank.

Other kinds of government guarantees, such as social insurance, also involve large hidden costs. Social Security and Medicare’s guarantee of a paid holiday with medical care for the rest of retirees’ lives generates the same types of costs:

  • Labor competition is reduced because the programs induce early worker retirements, which leads to higher wage costs, on average, and lower national output.
  • Workers who believe they will receive Social Security and Medicare will engage in lower personal saving, which means less capital formation and lower economic efficiency.
  • Retirement income guarantees induce riskier personal savings portfolios, AKA moral hazard.
  • Guaranteed retirement income means poorer financial knowledge and poorer risk management.

And now, retiree political power is too big to fail as well!

How come when Kay writes about market distortions from government guarantees for banks, he gets published; but when I do the same about government guarantees for people, I get the cold shoulder from editorial page editors?