Billionaires and Mill Workers

Presidential candidate John Edwards tells every audience that his “father worked in a mill.” It’s right there on his MySpace page: “My dad was a millworker.” Google “john edwards mill worker” and you’ll find lots of journalists and reference sites reporting that as fact. Washington Post columnist Eugene Robinson upped the ante, declaring that “Edwards grew up poor.”

But is Edwards’s story true? Not quite, according to Boston Globe reporter Patrick Healy, who actually visited his home town back in 2003. Healy found:

On the campaign trail today, the senator regularly describes himself as the son of a mill worker but rarely if ever notes that his father was part of management. “They weren’t quite as humble as Edwards makes it sound,” says Pat Smith of Robbins. “Wallace was a very important man at the mill. … They weren’t rich, but they weren’t struggling poor.”

“John was more middle class than most of us,” says Bill Garner, a high school friend and college roommate.

In the LA Weekly Doug Ireland is more tendentious:

“The Edwardses were solidly middle class” when Johnny was growing up, according to a four-part profile of the North Carolina senator in his home state’s most prestigious daily, the Raleigh News and Observer. It’s true that for a few years as a young man Edwards’ father worked on the floor of a Roger Milliken textile mill. But Edwards père (a lifelong Republican, like his reactionary boss) quickly climbed upward, becoming a monitor of worker productivity as a “time-study” man — which any labor organizer in the South will tell you is a polite term for a stoolie who spies on the proletarian mill hands to get them to speed up production for the same low wages. Daddy Edwards’ grassing got him promoted to supervisor, then to plant manager — and he finally resigned to start his own business as a consultant to the textile industry.

Edwards was no millionaire scion, like the Roosevelts and the Kennedys and the Bushes. And even today he’s no billionaire like possible candidate Michael Bloomberg and avid, though struggling, candidate Mitt Romney. Nor did he completely make up a family history stolen from another candidate in another country, like Joe Biden.

But his background is more middle-class than he tells voters, and he wouldn’t connect so well with union audiences if he noted that his father was a mill manager. Indeed, his upbringing seems to have been more secure and comfortable than that of, say, Ronald Reagan or Bill Clinton.

New Bipartisan Bill Shows Key Senate Committee May Not Be Sympathetic to Dorgan’s Fiscal Protectionism

In a positive development, the Democratic Chairman of the Senate Finance Committee and a senior Republican on the Committee have introduced legislation to make “deferral” permanent for U.S. financial services companies that compete in global markets. This is not nearly as good as pure territorial taxation, but it is a step in the right direction. Equally important, it shows that the Finance Committee may not be very receptive to the protectionist and discriminatory Dorgan legislation - which would end deferral and impose immediate worldwide taxation on American companies with operations in selected low-tax jurisdictions. Tax-news.com reports:

Senators Max Baucus (D-Mont.) and Orrin Hatch (R-Utah) have introduced legislation which they say will protect the jobs that US financial services companies have created in the US, by keeping the industry on an equal tax footing with its international competitors. When foreign financial services companies earn income abroad, it’s not subject to taxation until the money is brought back to the parent company at home. The law giving American companies this tax treatment here at home is set to expire next year. The Senators’ bill would make the ‘Subpart F’ exception for active financing income permanent, so that US firms and their workers are not disadvantaged by tax burdens their competitors don’t face. “We need to make sure that US tax rules don’t make financial services companies less competitive in the world arena, and less able to keep good-paying jobs here at home,” Baucus stated. …“America’s tax laws shouldn’t handicap companies striving to lead in a very competitive global marketplace,” Hatch added. …“When we tax US companies working overseas, we increase their overhead and allow their competitors to undercut them,” Hatch noted. “That hurts American workers, business, our influence abroad, and – ultimately – the tax revenue we’re able to collect. Renewing legislation that puts our top-notch financial companies on competitive footing is good for business and good for our country.”

Tax Havens Protect Against Greedy Government

The New York Times has a story reviewing developments in the private banking industry. The article notes a couple of important points. First, high-tax nations - and the international bureaucracies that represent those nations - resent Swtizerland for serving as a refuge:

For generations, Europe’s wealthy journeyed through mountains and valleys to quietly stash their money with Switzerland’s bankers, famed for taking their secrets to the grave. …many of the country’s detractors complain that Switzerland remains the world’s prime tax haven. The European Union and the Organization for Economic Cooperation and Development have pressured Switzerland to loosen its bank secrecy.

Second, the article notes that high-tax countries can get at least some money to return home if they remove and/or reduce the tax penalites:

Several countries, including Italy and Belgium, have lured back untaxed assets held abroad by decreeing an amnesty for tax evasion. But that is not the biggest challenge.

Third, tax competition is creating other havens for people seeking to avoid not only punitive taxes, but also other forms of oppression:

As Swiss bankers penetrate markets abroad they are facing like-minded competitors from elsewhere in the world. Dubai and Singapore have cultivated sophisticated private banking hubs, offering discreet financial services and a tax haven aimed at luring away wealthy clients. And just as the Swiss have moved overseas, foreign banks like Citibank have flocked to Switzerland. Geneva, once a sleepy lakeshore town, now has branches of 100 foreign banks.

Lastly, the article notes that Switzerland has a completely different approach from America. Unlike the US - which has a so-called Bank Secrecy Act that strips away financial privacy, Swtizerland still respects the fundamental right to privacy. Citizens are treated like adults - a relationship that is facilitated by a better tax regime:

Unlike regulations in the United States, Swiss law forbids bankers from divulging information about clients or their assets, under threat of penalty. Tax evasion is not considered a crime.

Amazing What Patient Control Will Do

In Healthy Competition, Mike Tanner and I argue that when patients control the money involved, health care providers compete much more aggressively for those dollars on the basis of price, quality, and convenience.

Recently, American Public Media’s Dick Gordon conducted interesting interviews with patients of an Apex, North Carolina, doctor who accepts only cash. The doc posts prices for his services, which end up being affordable for his modest-income patients.  For example:

  • Office visit: $45
  • Urine Test: $25
  • Pap Smear: $55
  • Cholesterol Check: $25

(How much does your doctor charge for these things? He probably gets most of his money from insurance companies, doesn’t he?)

Gordon, the doc, and the patients discuss the economics of primary care and what one patient called “the insurance racket.” The doc even offers some good advice on how other doctors can switch from an insurance-based to a cash-based practice.

Gordon then switches gears to interview an uninsured patient who had been in need of heart surgery and who said:

The hospital system in America and the insurance system in America place people who are self-pay at an extreme disadvantage. 

U.S. hospitals had given him price quotes ranging from $70,000 to $200,000. However, Escorts Heart Institute And Research Centre in New Delhi (about which Tanner and I wrote in Healthy Competition) gave him a quote of about $10,000. Not only was he satisfied with his care there, he said he would go back “in a heartbeat.”

The entire program lasts 50 minutes. Click here for the online archive of the show. 

Bushies and Ideologues

Columnist David Ignatius writes this morning that “ideologues” are running rampant in the Bush administration, firing U.S. attorneys right and left. Writing about the emails that the administration released, he says

What interests me about the Justice e-mails is that they are a piece of sociology, documenting the mind-set of the young hotshots and ideologues who populate the Bush administration.

But there are few if any ideologues in this administration. What would their ideology be? Certainly not any previously known variant of conservatism. “Compassionate conversatism”?! Right. Country-club Republicanism? Maybe, but I think that’s a mindset at best, not an ideology.

The famous email about which U.S. attorneys should be fired said they would keep the “loyal Bushies,” not “the conservatives.” I don’t think “loyal Bushies” are loyal to compassionate conservatism or country-club Republicanism; they’re personally loyal to George W. Bush, for some reason that passeth my understanding.

Consider a similar term: “Reaganite.” I’m sure people in the Reagan administration asked one another if a job candidate was a Reaganite. And many people in the administration were personally loyal to Ronald Reagan. But they loved him most for the values he enunciated: “Government is not the solution to our problem; government is the problem.” The Republican Party should “raise a banner of no pale pastels, but bold colors.” America has a “rendezvous with destiny; that we will uphold the principles of self-reliance, self-discipline, morality, and — above all — responsible liberty for every individual that we will become that shining city on a hill.”

When someone says he’s a Reaganite, he means that he adheres to the principles of lower taxes, less regulation, traditional values, and a strong national defense. When a Justice Department staffer asks if someone is a “loyal Bushie,” he means something entirely different.

I think Ignatius actually knows this. Later in the column he writes:

The Bush political operatives have become the people the Republicans once warned the country against — a club of insiders who seem to think that they’re better than other folks. They are so contemptuous of government and the public servants who populate it that they have been unable to govern effectively. They are a smug, inward-looking elite that thinks it knows who the good guys are by the political labels they wear.

But that’s not an ideology. That’s just partisanship. Us vs. them. Red vs. blue. “We need those people out, We need our people in,” as the previous First Lady put it. It’s pull and power and personal loyalty.

Ideology gets a bad name sometimes. But a commitment to a set of political principles is more deserving of respect than a regime of pure politics.

Does OPEC Run the World?

Last week, I appeared on CNBC’s Morning Call to discuss OPEC’s impact on the world oil market. On the show with me was Raymond Learsy, author of Over a Barrel: Breaking the Middle East Oil Cartel. Learsy argues that the OPEC cartel single-handedly sets the world price for crude oil, thoroughly manipulates petroleum markets and, presumably, fixes the World Series. I spent most of my time on the show qualifying those assertions. (If you want to watch the five-minute exchange for yourself, click here.)

Well, yesterday, Learsy posted over at “The Huffington Post” (where he’s something of a regular) and decided to initiate Round 2. OK, I’m game — not just because I hate letting someone else get the last word, but because the issues in play are quite interesting.

Let’s consider Learsy’s arguments in turn: 

First, he contends that OPEC sets price. Well, as I noted on the show last week, that’s not quite right. The cartel does not set price; it imposes production limitations on its members (theoretically, anyway). Price is established in world spot markets, where Mr. Supply and Ms. Demand come together to do the voodoo that they do so well. OPEC has a lot of say over the former (OPEC nations produce about 40 percent of global supply) but little say over the latter. OPEC nations certainly influence price, but they do not set price. 

Since Learsy is a former commodities trader, I assume he knows this as well as I do, so it’s a mystery to me why he insists on making this “OPEC sets price” claim. After all, if you believe that OPEC sets world crude oil prices, then you have to come up with some explanation for why OPEC set the price at $10 a barrel back in 1998–1999. Were the oil sheiks simply in a kind and generous mood? Were they so enamored of Bill Clinton that they decided to send him an economic love note? Did they get so thoroughly drunk over the course of several months that they had no idea what was going on in market? Similarly, why did OPEC’s ministers cut prices from $70 a barrel to $50 a barrel a few months back? Did they take a collective happy pill?

When I made those points on the show, Learsy shifted gears from “OPEC sets price” to “Big Oil sets price.” Well, beyond the fact that it can’t be both, he backed up this contention with the observation that British Petroleum is currently under investigation for manipulating the California oil market. With all the money and influence these big oil producers have, Learsy asked, “who says the exchanges are free of any kind of manipulation?” 

Well, one can’t prove a negative, so I’m not going to try. The right question to ask is, “What evidence do we have that oil markets are being systematically manipulated?” After all, by my count, there are 37 major oil futures markets, “over the counter” markets, and physical oil markets across the globe, all of which are quite transparent with thousands of well-informed buyers and sellers. Investigations of “Big Oil” and their market practices have been an around-the-clock phenomenon since the 1970s, so the fact that BP is currently under investigation in the state of California (land of business investigations) does not in itself suggest that there is fire to be found amongst the political smoke. 

Question: How many government investigations of “Big Oil” for price manipulation have been undertaken over the past three decades? Answer: At least 30 that I’m aware of, but that’s almost certainly an undercount. Question: How many government investigations of “Big Oil” have found any one of these major companies guilty of price manipulation? Answer: None. Zip. Zero. Nada.

Now, that doesn’t mean it’s not going on. But it does mean that there’s no evidence to suggest that it is. Once you combine that with a functional knowledge of how the oil market actually works, you can’t help but conclude that manipulation is a figment of the imagination.  Markets — believe it or not — sometime produce price increases, especially when instability rocks oil producing regions.

In sum, Learsy can believe what he wants. But belief without evidence is called faith, and organized faith is called religion.

The more interesting discussion, however, is whether OPEC even influences (much less “sets”) oil prices. I’m inclined to think that it does. After all, the whole point of the cartel is to collude with regards to production. As long as this collusion reduces production by more than zero, it will affect market prices.

But does it? The best evidence for that proposition comes from economists Robert Kaufmann, Stephane Dees, Pavlos Karadeloglou, and Marcelo Sanchez. In their 2004 paper “Does OPEC Matter? An Econometric Analysis of Oil Prices,” published in The Energy Journal, they examine quarterly data from the third quarter of 1986 to the third quarter of 2000 and find a statistically significant relationship between real crude oil prices, OPEC capacity utilization, OPEC quotas, the degree to which OPEC exceeds those production quotas, and OECD oil stocks. According to most laymen, this probably qualifies for a cover story in “Duh!” magazine.

But not so fast! The evidence forwarded by Kaufman et al. does not settle the matter. After all, Learsy’s case is that the cartel delivers less oil to the market than would be the case if the cartel did not exist — which is, after all, the very definition of the claim that “OPEC sets/influences oil prices.” That’s a tricky matter to establish because we can only guess what production levels would be absent the cartel. Economist James Smith noted in 2005, “Despite a strong consensus among experts and laymen alike that OPEC operates as a cartel, very little conclusive statistical evidence of collusive behavior has appeared in the economics literature to date.” His 2005 paper ”Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis,” likewise published in The Energy Journal, comes closest to answering the question. His econometric investigation of monthly OPEC production data from January 1973 to December 2001 finds strong evidence that OPEC “acts as a bureaucratic syndicate; i.e., a cartel weighed down by the cost of forging and enforcing consensus among its members, and therefore [is] partially impaired in pursuit of the common good.” 

OK, we’ve now found empirical reason to believe that OPEC is indeed the clumsy economic cartel that oil economists long suspected. But that doesn’t tell us whether this cartel succeeds in its mission or not. As Smith writes: 

This paper has examined the conduct of members of an alleged cartel, not the performance of the cartel itself. Any conclusions regarding the effectiveness of OPEC’s cooperative actions, or the organization’s impact on market prices and member profits, is beyond the scope of this research. A cartel’s actions may be in vain if it lacks either the information base to anticipate, or the operating flexibility to respond to market forces. Whether the rewards reaped by OPEC have actually gone beyond what one could expect of a non-cooperative oligopoly is not clear. That part of the question remains. 

Like Learsy, I suspect that the cartel produces some net economic benefit for its members. That is, I suspect that the cartel serves to increase prices above where they would be absent the cartel. But I don’t KNOW that. And if you think countries like Saudi Arabia, Venezuela, Kuwait, and the UAE have a significant amount of unilateral power in world crude oil markets given their large reserves and low production costs, then it’s perfectly reasonable to suspect that formalized collusion in the form of a cartel is not the root of the (price) problem.

A Serious Matter

The Washington Post deserves a lot of credit for publishing this piece on its editorial page today. An anonymous businessman explains his predicament after having been served with an FBI “national security letter”:

Three years ago, I received a national security letter (NSL) in my capacity as the president of a small Internet access and consulting business. The letter ordered me to provide sensitive information about one of my clients. There was no indication that a judge had reviewed or approved the letter, and it turned out that none had. The letter came with a gag provision that prohibited me from telling anyone, including my client, that the FBI was seeking this information. Based on the context of the demand — a context that the FBI still won’t let me discuss publicly — I suspected that the FBI was abusing its power and that the letter sought information to which the FBI was not entitled.

I resent being conscripted as a secret informer for the government and being made to mislead those who are close to me, especially because I have doubts about the legitimacy of the underlying investigation.

(For background on national security letters, go here). 

This businessman has given us a sneak preview of life in the surveillance state. I’ve tried to draw attention to the conscription aspect of anti-terrorism laws and policies, but conservatives don’t want to talk about it. The ACLU has gotten involved in the gag order/free speech aspect, but the conscription gets tossed aside in a cacophony. 

President Bush insists that he is ”defending freedom.” John Yoo and Eric Posner advance the view that the sphere of liberty has been expanding over the years. Other conservatives see the impact on liberty but strangely taunt: “The government has already been doing that! If Bush wants to take it further, what’s the big deal? This is no time to rethink legal precedent.”

Robert Higgs, among many others, has showed that liberty has been losing ground to government over the years. Since 9/11, we have been in a vicious political cycle. The courts are defending constitutional liberties at the margins, but the overall trend is quite bad. A few months ago, some U.S. senators voted to enact a law that they believed to be unconstitutional. That’s an indication of the political climate. Bad.