Cato's David Boaz

Cato’s David Boaz writes Occupy Pennsylvania Avenue in The Cato Policy Report for Jan/ Feb 2012

Excerpt:

The libertarian argument for keeping more of society in the private sector is not that there’s no self-interest or corruption in business; it is that the market system has more competition, more checks and balances, and more incentives to satisfy customers. You can make money in the private sector by cutting costs; government agencies that cut costs find their appropriations reduced. Businesses must constantly search for better ways to deliver goods and services lest customers move to their competitors. Government agencies are usually monopolies that forbid competition. With no owners seeking a profit on their investment, no financial reward for doing a good job, no penalty for wasting money, government employees have little incentive to deliver goods and services efficiently.

As Adam Smith suggested with his “invisible hand” metaphor, the competitive market system channels self-interest in a socially beneficial way — into the search for ways to attract customers — while the non-market system actually encourages pure self-interest. And one aspect of that is lobbying. Big government means big lobbying. When you lay out a picnic, you get ants. And today’s federal budget is the biggest picnic in history.

Lobbyists love spending bills. They also love a complicated tax system with myriad rates and exemptions. And they especially love complex regulations, which generate demand for consultants who can navigate the regulatory agencies. Just look at some of the lobbying stories from 2011: “Desperate to Stop AT&T [in Washington, not in the hearts and minds of consumers], Sprint Doubles Lobbying Spend.” “Google, facing an antitrust probe by federal authorities, boosted its lobbying expenditures.” “Goldman Sachs flexes its lobbying muscle.”

As Craig Holman of Public Citizen, an organization founded by Ralph Nader, told Marketplace Radio after a report on rising lobbying expenditures during the financial crisis, “the amount spent on lobbying … is related entirely to how much the federal government intervenes in the private economy.”

HKO

Lobbying is a by-product of regulation, yet the same people who decry lobbying the most are often the biggest pushers of new regulations.  Political self interest is often more corrupting than economic self interest because they substitute the force of government rule for the force of market discipline.  When wealth is sought from government connections rather than market service the economy becomes stagnant

Mark Perry analyzes the current Bureau of Labor Statistics unemployment data is his blog, Carpe Diem, a required daily read for me.

Excerpt from Interesting Facts from Today’s Employment Report, 1/6/12:

The unemployment rate for workers with a college degree fell to 4.1% in December, which  is the lowest jobless rate for that group since January 2009, almost three years ago.   The number of employed college graduates is at an all-time high of 45.2 million, and more than 1.6 million above the December 2007 level when the recession started.  In contrast, the jobless rate for workers with less than a high school degree jumped to 13.8% in December from 13.3% in November, and the employment level for those workers remains 1.24 million jobs below the December 2007 level. This contrast suggests that educational level might be an important factor in the labor market improvements and the drop in the jobless rate to 8.5%, with college-educated workers being the group that is gaining jobs during the recovery, while the least educated workers are the group finding it hardest to find jobs.

HKO comments:

This may not be very surprising, but it does point to changes that have caused this.  Our economy has shifted from manufacturing production to information processing. Even in a modern steel mill, workers are scarce but the booth suspended in the air controlling quality and processing is governed by a worker sitting before an array of computer screens that look like the Starship Enterprise.    It could also mean that current college grads have skills that may have been comparable to high school grads a generation ago.

Control room of a modern steel mill

Modern financial giants like Google and Facebook have a fraction of the workers that such a financial base would have required during the previous industrial era.  A high school grad used to be able to get a decent job in an auto factory ora  steel mill or with a construction company.  Especially with the collapse of the housing market, construction jobs are substantially down.  Even with government supportted tech schools teaching useful trades, the demand for these are substantially down.

All of this is made much worse by a huge jump in the minimum wage that occurred when the Democrats took control of the House in 2006, just before the financial collapse.   To the extent that the mandated minimum wage is in excess of the market wage, this will show up in higher unemployment.  Reducing the minimum wage may be sound economics but it is probably politically suicidal.  We will like just have to wait until the market rate catches up to the mandated rate.

Lastly, one economist noted that each successive recession appears to have a longer period of unemployment. This may be due to the longer period of unemployment benefits.  This is magnified at some point by a period of unemployment that is so long that it makes an employer skeptical of the work ethic of the prospect.  The longer one is unemployed the more unemployable he becomes.

Wisconsin Governor Scott Walker

The history of unions in the American workforce is wrapped up in their quest for political power.

Originally unions sought equality in the workforce with the holders of the capital that employed them.  Unifying was a natural choice.  But their power devolved because the critical industries that employed them devolved.  Foreign competition put their employers at a growing disadvantage.  New information intensive industries such as Google and Facebook became financial powerhouses with few employees.  Much of this was just natural evolution.

Political pressure to promote unionism often had opposite effects.  Factories relocated to less union friendly states and countries.  Read the New York Times article How the U.S.  Lost Out on iPhone Work.

Excerpt:

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Apple has become one of the best-known, most admired and most imitated companies on earth, in part through an unrelenting mastery of global operations. Last year, it earned over $400,000 in profit per employee, more than Goldman Sachs, Exxon Mobil or Google.

But unions have also lost ground to enlightened management.  As old-line steel companies, a major source of union workers, faded they were replaced by companies such as Nucor.  Nucor is now the largest American steel producer and mostly nonunion.

As unions lost their grip on American industry they sought to maintain their membership by representing government workers.  This was a radical departure and infected with political repercussions.  FDR opposed this and state and local governments largely forbade union representation until JFK in 1962.

Government unions collect union dues from workers, use the funds to promote strongly pro union political leaders, who further enrich the coffers of the unions. It is a vicious cycle that raises the cost of government at the taxpayers’ expense.

It is no wonder that government pay and benefits have thus outstripped the private sector.  And it is no wonder that states have had to push back on the never-ending growth.  Chris Christie from New Jersey, Mitch Daniels of Indiana have fought hard battles with state unions, but the big battle brewing is Wisconsin Governor Scott Walker’s recall vote.  The state’s unions are trying to remove from the office the governor who sought to reduce their power.  This, hopefully, will be the unions’ Waterloo.

From the Wall Street Journal Stephen Moore writes The Most Important Non-Presidential Election of the Decade, 1/28/12.

Excerpt:
The stakes here “go well beyond who will be governor of Wisconsin,” Mr. Walker explains. The recall’s ultimate objective is to intimidate any official across the country who’s thinking of crossing swords with the empire of teachers and other public-employee unions. “This is about killing reform initiatives in every state in the country,” says Mr. Walker.

In Wisconsin, the evidence is mounting that Mr. Walker hasn’t brought economic Armageddon but financial stability. Last year’s $3 billion deficit is now a $300 million surplus—and it was accomplished without the new taxes that unions favored. “If a business is failing, you don’t raise the prices on your customers,” Mr. Walker scoffs.

HKO comment:

Obama has been the ferocious proponent for unions that they expected when they elected him.  The card check bill (which though proposed was never voted on) was a major job killer and he has sought to accomplish through the NLRB what he was unable to get through Congress.

It will be a long touch fight but Walker, Daniels and Christie are at the forefront.  Public sector unions must go.

Rick Moran writes in Pajamas Media, The Death of Pragmatism, 1/27/12

In his article about the evisceration of centrism he quotes from the movie, The American President:

We have serious problems to solve, and we need serious people to solve them. And whatever your particular problem is, I promise you, Bob Rumson is not the least bit interested in solving it. He is interested in two things and two things only: making you afraid of it and telling you who’s to blame for it. That, ladies and gentlemen, is how you win elections. You gather a group of middle-aged, middle-class, middle-income voters who remember with longing an easier time, and you talk to them about family and American values and character.

Moran Continues:

For a large number of conservatives and many liberals who are being taunted with the epithet “RINO” or “DINO,” the fact remains that they have not left their party. Their party has left them. Those who can’t stomach the extremism, the obstructionism, the radicalism of the neo-liberals and Tea Party conservatives who both seek to hammer each other into the ground on a daily basis are largely left on the outside, viewing the slow-motion train wreck that politics has become with a feeling of abject helplessness.

It’s not a question of “moderates” not holding power. One can be liberal or conservative and be pragmatic enough to work with the other side on the big issues of the day. The problem is, pragmatism is dead — killed by the excessively ideological base of both parties who view compromise as treason, and comity as cowardice. Both sides are so besotted with a warped and tangled view of each other that they occasionally — unintentionally — provide comic relief for our political culture.

HKO comment:

I confess that the primary has left me feeling a need for political detox.  The debate seems to shift from the wildly theoretical to the totally irrelevant.  We must eventually select the best of less than perfect choices.  But we still have a choice.

The president seeks a fairer distribution of wealth; he claims not to admonish prosperity, but seeks to be sure it is shared.  There is a proven method to this noble objective and it lies under his nose. Instead of promoting it he is effectively destroying it.

In The Wall Street Journal, 1/26/12 Henry Nau writes Lessons from the Great Expansion.  (p A15 in the print version, the link may require a paid subscription, which I encourage.)

Excerpts:

Yes, “the middle class has shrunk,” as Mr. Obama said while campaigning last month. But not because it’s getting poorer, rather because it’s getting richer.

According to Stephen Rose of the Georgetown University Center on Education and the Workforce, fewer people live today in middle-class households with incomes between $35,000 and $105,000, while the percentage of households making less than $35,000 has remained the same. Where did the missing households go? They became richer. In the past three decades, the percentage of households making more than $105,000 in inflation-adjusted dollars doubled to 24% from 11%.

Even more importantly, the global surge in growth spread wealth from the rich to the poor countries, creating greater equality in global markets than ever before. Throughout this period, developing countries grew two and even three times faster than developed countries. As a result, the share of world GDP held by emerging markets increased to 22% from 13%, while the U.S. share remained steady at approximately 26%. The “Great Expansion” created a global middle class of some 600 million-800 million people in China, India, Brazil and other developing countries.

What were the policy trends that produced this Great Expansion? Precisely the free-market policies of deregulation and lower marginal income-tax rates that Mr. Obama decries.

HKO Comments:

Capitalism replaced the feudal societies where capital was allocated based on rank and privilege with an allocation based on merit and innovation.  The re-emergence of a more state controlled economy is in a very real sense a return to allocating capital based on privilege and power as opposed to individual merit and freedom. By overreacting to a short period of correction and adjustment this administration risks damaging the very best system for achieving the objectives he claims to value so highly.