Archive for May, 2009

A few days ago, I read a great story in the FT on Dambisa Moyo and her book Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.  I can’t yet recommend the book as I haven’t read it but I can recommend you to look at some of her recent work.  She provides one more example of the good intentions of government support producing bad outcomes. 

I particularly like her response to a critic where his main objective is to attack her rather than rationally challenge her conclusions.  If you read the critic’s post, you will be impressed with how he diverts the discussion from the effectiveness of the current aid programs and instead looks to gain sympathy for the problem.  No one could logically argue with the need for economic change within Africa, but the critic, in order to support the current ineffective programs, uses the problem to justify the current solution even when much of the current problem could logically be the result of the solution (apologies if that made you dizzy).  Instead, Ms. Moyo focuses her work on the Chinese proverb “Give me a fish and I eat for a day.  Teach me to fish and I eat for a lifetime.”  How can any rational person argue with that?

I would highlight one piece from Ms. Moyo’s response as I think it sums up the entire conversation very well.

There is a more fundamental point — what kind of African society are we building when virtually all public goods — education, healthcare, infrastructure and even security — are paid for by Western taxpayers? Under the all encompassing aid system too many places in Africa continue to flounder under inept, corrupt and despotic regimes, who spend their time courting and catering to the demands of the army of aid organizations.

Underlying this discussion is the same issue that goes to many of our current problems and one that many socialists and statists cling too; that there are problems so big that only governments can solve.  Much like Ms. Moyo today and Ayn Rand before, they are criticized as being too simplistic in their thoughts.  To the contrary, they are the ones that truly respect the complexity of our world and see that the best and most stable solutions will come from large scale and constantly changing market responses.  It is their critics that are oversimplifying the size and scale of the problems, thinking that a small number of individuals (within government organizations) can coerce the many into some government defined utopia.

Note:  I posted a video that 20/20 did on this topic in the Watch section of the site.  I think John Stossel and his mustache did a great job summing it up.

Here is just one of many who share my opinion.

Those that favor a libertarian viewpoint to education get a bad rap.  More often than not, people that favor independent school education (i.e. school choice) are labeled elitists, unwilling to spend time and effort in the public school system to fix those items found objectionable.  Instead of working to make the system better, they prefer to just write a check to a private institution. 

From my own experience, I think those thoughts are off the mark.  Mrs. H and I are ones that have selected an independent elementary school for our offspring.  There are times when I feel people look at us as though we are escaping some form of responsibility towards our community.  Maybe I’m paranoid, but I get the feeling from some that if we were to choose to spend less time making money (i.e. working) and more time with our children’s public school system, we could impact the results and be a contributor to the community.

But the truth is we are not escaping our responsibility, we are embracing it.  And we need to work harder in order to afford that desired responsibility.  When the beautiful Mrs. H and I made the decision, our local public school was facing economic hardship and looking to cut expenses (which continues to this day).  Instead of looking to the administrative departments, they went directly to reducing the teacher ranks (knowing it improves their chances of raising taxes by threatening the harshest punishment).  Parents had little opportunity to resist.  Some in the area even offered to teach certain classes (such as art) but the school dismissed the idea as it would go against the union contract.  We, the local community, were being held hostage to the whims of the teachers’ union and the bureaucracy that has grown around our public school system. 

Now, the cuts weren’t the main reason we went the independent school route.  The primary advantage to an independent school education is the ability to tailor the education to the child’s needs.  If you perform a web search on learning styles, you will see much research on the topic with the number of styles ranging from 3 up to at least 8.  To assume that every public school can teach to every child’s strength seems highly unlikely to me.  (This is especially true when public systems are increasingly making the decision to raise the student-teacher ratio, and forced to bend to the federal and state authorities with regard to standardized tests.  The focus has been placed on standardizing the process (for efficiency sake) and esoteric scoring mechanisms and taken away from optimizing a child’s ability to develop their own individual thought process).

Not unique to our independent school, we have parents that have each of their children at completely different schools.  It makes it hard from the standpoint of logistics, but the parents feel the effort is justified in order to get the best learning environment for each child.  To judge these parents as irresponsible members of the community would be harsh and misguided.

A major issue with those against independent schools is their limited definition of community.  Implicit in their comment is a desire to focus on the community as defined by a locale that was defined by politicians and bureaucrats.  What makes the community defined by location any more important than the community I have with our children’s school?  Most of the parents live within 15 miles of the school, which actually brings a wider perspective rather than a narrower, geographical view to the world. 

And with regards to parent involvement, most independent schools couldn’t exist without the daily involvement of their parent population.  In order to lower the costs, independent schools look to leverage the skills of those in the school community and have garnered high volunteer rates because of it.  I would argue that we in the independent school world actually are more involve in the educational process, sitting on the various boards and committees within the school.  Willing to dedicate the time because we can impact the results.  Also, when times get tough, we look for all options to cut expenses with the last being anything that directly touches our children’s education.  I know this from direct experience with our school during the current economic downturn.

When unions and bureaucrats get involved, the first phrase out of their mouths is ‘laying off teachers’ as they know that they can always hold us hostage for more tax dollars.  And the parents have little choice but to pay what is demanded of them. 

Just imagine a world where each and every local elementary school has to compete for children rather than being given a monopoly for their particular geographic location.  When times get tough, do you think the administrators would be arguing about how many teachers to lay off?  Do you think the parents would stand for it?  I know from my limited experience, they would not.

You may think that, from the title above, I am recommending that we can solve the problem of greenhouse gas creation by having our congressmen shut their mouths.  That may be a good idea, but that’s not where I was going with it. 

According to the EPA’s most recent study,   70% of the CO2 gas emissions in the US come from generating electricity (utilities) and transportation (cars and trucks) with the utilities being the majority.  Fine, that makes sense since the burning of fossil fuels generates CO2 gas.  Since we knew all along that burning fossil fuels were potentially harmful, why did the government make it easier to commission new gas-fired power plants and nearly impossible to commission new nuclear plants?

According to the Nuclear Energy Institute, between 1992 and 2007, the US commissioned 123x more gas-fired energy capacity as it did nuclear capacity.  Never mind the fact that nuclear energy is also 10% less expensive compared to coal-fired and over 20% less expensive than gas-fired.  Why did this occur?  Regulatory hurdles is the short answer.  The long answer will have to wait until someone else with much more knowledge writes about it or I have more time. 

What really gets my goat (yes, goats also generate greenhouse gases) is that the congress’ proposed solution to the gas emission problem is called the Waxman-Markey bill.  This bill would place a whole new level of government burden on all industry and, according to their own estimates, raise each household’s energy bill by $1,600 per year.  If that wasn’t bad enough, our elected officials want to provide ‘free credits’ to some industries in order to get this legislation through.  These credits allow those that hold them to go on producing the pollution that the bill attempts to lessen.  Who would get these free credits?  Funny you should ask.  Those that create most of the problem in the first place, the electric utilities. 

So, to make this long, painful story shorter, our federal government has potentially created a climate problem (still up for discussion, of course) by favoring one form of electricity generation over a more efficient, cleaner form.  And to correct the problem, they propose to impose heavy regulation over all except for the one industry that represents the largest source.

At least we can say that our government is consistent…

I apologize for so many articles coming out of the Wall Street Journal, not due to the quality being sub par (which it is not) but because I am not providing a diverse base of reading.  I’ll try harder in the future.

But for now, this is a great article that should be sent to every congressman.  The two parts I would emphasize are below.

Government enterprises are almost always monopolies and thus do not face competition at all.  But competition is exactly what makes capitalism so successful an economic system. The lack of it has always doomed socialist economies.

and…

Capitalism isn’t perfect. Indeed, to paraphrase Winston Churchill’s famous description of democracy, it’s the worst economic system except for all the others. But the inescapable fact is that only the profit motive and competition keep enterprises lean, efficient, innovative and customer-oriented.

chron.com

In the Wall Street Journal’s opinion section, Scott Sperling of THL Partners (a private equity firm) defends the current administration’s auto workout plan as a capitalistic approach.  With all due respect, I don’t believe he understands the meaning of capitalism.

Rather than re-inventing the wheel, I present the wikipedia definition of capitalism below;

Capitalism is an economic system in which wealth, and the means of producing wealth, are privately owned.  Through capitalism, the land, labor, and capital are owned, operated, and traded for the purpose of generating profits, without force or fraud, by private individuals either singly or jointly, and investments, distribution, income, production, pricing and supply of goods, commodities and services are determined by voluntary private decision in a market economy.  A distinguishing feature of capitalism is that each person owns his or her own labor and therefore is allowed to sell the use of it to employers.  In a “capitalist state”, private rights and property relations are protected by the rule of law of a limited regulatory framework.

I believe that the above adequately defines capitalism and further discussion on it would be a waste.

In no way do the actions taken by the federal government (this administration or past administrations) to ‘save’ the US auto industry have any resemblance to 1) the fair trade of land, labor, and capital, and/or 2) the respect for the rule of law.  For him to offer that it is capitalistic because all parties suffered is ludicrous. In his own words, he mentions that the government “demands… …retirees take equity” and that it (government) “used rigorous analysis to make tough decisions.”  Remember, it was Bush and Congress (including Obama) that decided to get involved in the first place by writing a bailout check rather than letting these two (GM and Chrysler) go through the rational and logical process called Chapter 11.  The definition of capitalism does not include a caveat allowing an elected majority the right to dictate terms that go against the rule of law.

Actually, we can go back a little farther and assess some blame on the banks for being willing to fund a leverage buyout of Chrysler by a private equity firm, knowing that said firm has never been self-sufficient, was at the peak of an economic cycle, and had massive fixed labor costs (most of that is not hindsight).  They, under capitalism, have every right to make bad decisions, but they should have to suffer the consequences.  If they did, maybe Chrysler would have been liquidated and GM would have survived, as a major market participant would have been eliminated from the market.  Who knows the outcome since the free market was never allowed to operate.

It may be that the action taken by the current administration was the best solution available to lessen the pain by the largest amount for all parties directly involved, but in no way can it be confused with capitalism.  It was an action taken (forcefully and against the general population of the US) by a body of government elected by about 50% of the population, with the thought (right or wrong) that immediate steps were needed for the good of “society.”  In my opinion, the likely immediate benefits are far outweighed by the lasting implications of this decision, especially, if we resign ourselves into thinking that these actions represent capitalism. 

As mentioned above, maybe this was the best coarse of action, but we need to be honest about it residing outside the basic principles of capitalism.  If we accept Mr. Sperling’s argument, we do ourselves an injustice, redefine the word ‘capitalism’, and bend to forces of those in power, neglecting the rights of Individuals (singly or jointly) to succeed and fail.

As the Washington establishment discusses school vouchers for the district, they may want to re-read this.

 These naysayers… …see vouchers as a tool to destroy the public education system. Their rhetoric and ire are largely fueled by those special-interest groups that are more dedicated to the adults working in the education system than to making certain every child is properly educated.

From yesterday’s Wall Street Journal page A6…     Europe’s Social Benefits Are at Risk

The article mentioned above describes the growing public debt, the weak economy, and the need to rethink the large social programs that have become the norm within the European community.

To get some historical context for this, you could read the European Commission’s Social Agenda from April 2002.  It opens with ”Since the Lisbon European Council of March 2000, the European Union has focused on raising its performance and transforming itself into the most competitive and dynamic economic area in the world.”  It is filled with wonderful goals, objectives, desires, etc for how to make a better, more prosperous Union.  That’s all good, actually great intentions, but their means to achieve those goals were completely opposed to those objectives.

They mention the dictation of giving workers say on corporate restructurings making job flexibility all but impossible.  (Speaking to some of the companies I am close to, they avoid having facilities in Europe as they would need to get the workers’ permission (almost) to be laid off and then the costs linger for some time afterward).  They mention increasing the pension system and the healthcare system.  All great programs to have but how do you pay for them?

Well, it turns out it’s through higher taxes (which become higher costs to operate in Europe).  And what if companies avoid placing jobs into the Union due to costs of operation being too high?  Then tax revenue growth suffers as economic activity is muted.  In that event, government tax revenue is lower than anticipated and the social program costs are higher than expected (since employment doesn’t hit the objective set as companies shun the area).  Since funds are still required, it leads to higher public funding through other means; public debt. 

Hmmm.  Where are we seeing all that, as described above, occur right now?

Nearly 16 years ago in these very pages, I wrote that “‘one-size-fits all’ rules for business ignore the reality of the market place.” Today I’m watching some broad rules evolve on individual decisions that are even worse. (read more)

If you don’t read the entire article, please read the excerpt below.

“The value of the rule of law is not merely a matter of economic efficiency.  It also provides a bulwark against arbitrary governmental action taken at the behest of politically influential interests at the expense of the politically unpopular.  The government’s threats and bare-knuckle tactics set an ominous precedent for the treatment of those considered insufficiently responsive to its desires.” – Todd J. Zywicki

Is anyone else getting uncomfortable with every new  employee of the current administration being labeled a czar?  When did it become acceptable to refer to a government employee as a king, monarch, or ruler?  Please note that those being labeled czars are not elected politicians, but appointed officials.  We have the auto czar, the banking czar, the healthcare czar, the global warming czar, and now the regulatory czar.  Maybe we have more and I’ve been oblivious to it (more than fair odds that it true). 

What astonishing changes a few years are capable of producing! I am told that even respectable characters speak of a monarchical form of government without horror. From thinking proceeds speaking, thence to acting is often but a single step. But how irrevocable and tremendous! What a triumph for the advocates of despotism to find that we are incapable of governing ourselves, and that systems founded on the basis of equal liberty are merely ideal & fallacious! – George Washington

To state clearly, I have no reason to be against any of these individuals holding some position within the government as I know very little about them.  But to willingly give them titles as mini dictators makes my stomach turn. 

What I find even more disgusting is the media’s acceptance of this term.  They appear to proudly endorse this type of talk by placing it in headlines on the front pages rather than condemning it in editorials.  Maybe this is too romantic a thought, but I was hoping journalists would question and test the actions of government, not endorse their power to dictate.

John Maynard Keynes was twitted with changing his mind. He replied, “When the facts change, I change my opinion. What do you do, sir?”  (read more)

http://wcbstv.com/health/cheerios.general.mills.2.1007986.html

Of course, a little sugar or honey makes them so much better…

There are many people discussing if government threatened hedge funds to take less during the Chrysler bankruptcy.  Implied in these discussions/opinions is that hedge funds are dirty, greedy, evil people looking to profit from others’ misfortunes.  Most definitely some are evil, much like individuals in general.  But what does that have to do with the government’s actions?

That whole discussion misses the point and is completely irrelevant to the fact that the government got involved with the automakers bankruptcy filing and enacted policy, ignoring the Rule of Law.  The fact is the government forced secure creditors (Chrysler made very specific promises to them giving them first rights to all assets in case of bankruptcy) to take less than due to them and gave considerably more to the UAW who were unsecured creditors (Chrysler made promises to them but the union workers were well aware that they were behind the secure creditors in case of bankruptcy).  Who held the secure debt is immaterial to this case as the Rule of Law is not being followed.  And it’s our own government not following it!

If you want to see the unintended consequences of these governmental dictates, please refer to page C2 of today’s Wall Street Journal or to recent comments from Bill Gross of Pimco (the largest steward of debt instruments in the US).  When the government changes the rules after the fact, no private capital will want to align with them to help solve the liquidity problems.  Or, if they do, they will require outsized returns to take on the outsized risks.  This only increases the costs of capital movement, therefore lowers the actual movement of capital which only drives the economic decline farther down.

This is exactly what happened in the 1930′s as the government continued to enact legislation that changed the rules after the fact.  This caused private capital to move/stay on the sidelines.  CEO’s decided to wait to buy new equipment and/or hire.  Capital providers demanded a higher return given the government’s involvement.  Investment, which drives job growth, stalls.  Quality of living drops.

Question:  Why does it matter if a hedge fund owns any of the Chrysler debt?  Does anyone feel it fair to treat them as less-than-equal investors?  If so, how do you want to parse out the good hedge funds (those managing the money for charities and widows) from the bad ones?  Who is to say that one man’s money is more ‘ethical’ than someone elses?  And what does any of that have to do with the government disobeying the Law?

So by now the world knows that Arlen Specter has changed political parties and become a Democrat. Prior to his conversion, he was the ranking member of the minority on the Judiciary Committee, a post he has had to surrender. (As an aside, he has been replaced in this session of Congress by Senator Sessions from Alabama.)

Prior to the Specter move, the Committee had 11 Democrats and 8 Republicans, as determined by the “makeup” of the Senate. So I wondered if the move by Specter meant that the Democrats have to drop someone, and the Republicans get to add someone, in order to keep the ratio of Democrats to Republicans the same. As it happens, the answer appears to be “no.” My call to the minority press office was answered by a bright, young person who told me that while not yet decided, it was unlikely that Republicans would get an additional member, leaving the Committee at 12 Democrats and 7 Republicans. (Membership is determined by Senate makeup, and 8/19ths is 42% – greater than the 39% of Republicans overall. Of course, 7/19ths is 36%.) That does not seem fair or right to me, but maybe it does not really matter.

So I investigated a little further to find out if it matters, and I learned something very interesting, with respect to two of the Committee Rules. One involves the definition of a Quorum. Rule III requires “Eight Members of the Committee, including at least two Members of the minority, shall constitute a quorum for the purpose of transacting business.” That implies that if at least two Republican members are not present, no business can be transacted – no Supreme Court Nomimee can be voted out of committee

The second, Rule IV requires The Chairman shall entertain a non-debatable motion to bring a matter before the Committee to a vote. If there is objection to bring the matter to a vote without further debate, a roll call vote of the Committee shall be taken, and debate shall be terminated if the motion to bring the matter to a vote without further debate passes with ten votes in the affirmative, one of which must be cast by the minority. This rule suggests to me that all Republicans working together can block a Supreme Court Nominee, no matter how few are members of the Committee.

Would the Republicans use these options to block an Obama nominee?