Category Archives: Business

Business, Economics, Political Commentary

GM’s “Business Plan”

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Manzi is on the job, deconstructing it. Bottom line:

…this is not a real business plan, but simply a political document. It exists to provide political cover to members of Congress. But if that’s the case, it’s an unintentionally beautiful illustration of why industrial policy fails. It’s both economically crucial and very hard to allocate capital well; that’s why people who are good at it make so much money. Businesses struggle to do this well, and they’re really trying. What do you think the odds are that this is a wise use of money, when the people involved are barely pretending to try?

All this is doing is kicking the can down the road, and delaying (and making much worse) the inevitable and painful restructuring that has to take place. And I’m not talking about just GM, or the auto industry.

Business, Economics, Political Commentary

Nice Little Economy You Have Here

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It would be a shame if anything were to happen to it…

“We’re on the brink with the U.S. auto manufacturing industry,” Press told The Associated Press in an interview. “If we have a catastrophic failure of one of these car companies, in this tender environment for the economy, it’s a huge blow. It could trigger a depression.”

I’d be inclined to take this more seriously if it weren’t coming from someone asking the taxpayers for a multi-billion-dollar handout.

Business, Economics, Media Criticism, Political Commentary

More Forgotten Men

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I hope that the Obama plans to resurrect the New Deal don’t include things like this:

As part of its legislation, the NRA had all kinds of detailed codes for individual industries, describing to the letter how firms must do their business. The Schechters fell under the “Code of Fair Competition for the Live Poultry Industry of the Metropolitan Area in and About the City of New York” (and you thought Atlas Shrugged was fiction….). Among the things the code prohibited was “straight killing” which meant that customers could buy a whole or half coop of chickens, but did not have the right to make any selection of particular birds (such individual selection was “straight killing”).

This last rule was in direct conflict with Kashrut laws, which also served as an informal health code in the Jewish community. As Shlaes points out, the phrase “glatt kosher” referred to the fact that the lungs of the animal were smooth (which is what “glatt” means) and therefore free of tuberculosis. Inspecting the lungs was part of the official process of conferring Kosher status on a butcher shop. Removing unhealthy animals from the stock was one of the core principles of keeping Kosher, and the rabbinical inspectors were fanatic about doing this. But so were customers. As Shlaes points out, individual customers, both retailers and their customers, had the right to refuse individual animals. This minimized the risk of an unhealthy animal getting through when both seller and buyer did such inspections. And it ensured that the kosher laws served as a health code, or perhaps something more like the Underwriters Laboratory or Good Housekeeping seal.

The Schechters, as you may have guessed, were targeted by the NRA enforcement crew. They were inspected repeatedly during the summer of 1934, which forced them to violate their own Kashrut practices, telling customers that they could not reject individual birds as keeping Kosher allowed. Not surprisingly, their deeply religious customer base began to dwindle. The constant inspection turned up a variety of violations, including allegations that they had, in fact, sold sick chickens (not surprising, if true, given that part of their own internal inspection process was negated by the NRA code itself!). They were also accused of “competing too hard” and keeping prices “too low.” Shlaes recounts a couple of hilarious exchanges between the government lawyers and the Schechters where the knowledge of the actor is much greater than the knowledge of the expert.

Eventually, the lower courts found them guilty of 60 different violations and they all served a little bit of jail time. But more important, the Schecters’ lawyer continued to appeal and the case made it all the way to the Supreme Court, where the Roosevelt Administration saw it as the perfect test case of the constitutionality of the NRA, and perhaps the whole New Deal. Coverage of the case, Shlaes shows, was highly tinged with the standard anti-Semitism of the time, especially because the Schechters were right out of Jewish central casting, being immigrants with their Eastern Eurpoean cadences and traditional Jewish dress. It was the Jewish rubes of Brooklyn against the high powered WASP lawyers of the northeast corridor.

Fortunately, they ultimately won, and if was in fact the first hit against the NRA by the SCOTUS (which eventually resulted in Roosevelt’s attempt to pack the court to get it to allow him to rule unopposed). But as the bloggist points out, it’s also a demonstration of the blindness of Jews to their own interests in continuing to support Democrats in general, and Roosevelt in particular. Marxists talk about the false consciousness of the proletariat, but this seems to be a much more clear-cut example.

Business, Economics, Media Criticism, Political Commentary

The POR Recession

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The unending (and infuriating) irony of this election will be that the Democrats won this election by first tanking the economy and then (with the aid of the MSM) blaming the hapless Republicans for it. Tom Blumer explains:

The recession, once it becomes official, will thus richly deserve designation as the POR (Pelosi-Obama-Reid) recession. Further, Obama’s and the Democratic Party’s performance on the economy must be benchmarked from June 1, 2008 — not Election Day, not Inauguration Day, and not, as traditionally has been the case, from October 1 of the new president’s first year in office.

Evidence of the POR triumvirate’s virtually unilateral damage to the economy began appearing as early as the fourth quarter of 2007, the first quarter of negative growth in six years. The POR recession itself began in June. The historically steep downward revision in second-quarter gross domestic product (GDP) growth from an annualized 3.3% to 2.8% in the government’s final September announcement was more than likely due to deterioration that occurred in the final month of the quarter.It’s not at all a coincidence that June was the month in which it became crystal clear that despite sky-high oil prices, Pelosi, Obama, and Reid were hostile to the idea of drilling for more oil — offshore or anywhere else. Pelosi insisted that “we can’t drill our way out of our problems.” In the speaker’s world, this means that you don’t drill at all. Reid declared that we have to stop using oil and coal because “it’s making us sick.” Obama seemed pleased that gas prices were so high, saying only that “I think that I would have preferred a gradual adjustment” instead of the sharp spike. What a guy.

As would be expected, the country’s businesses, investors, and consumers, never having witnessed a political party dedicate itself so completely to starving its own national economy, reacted very negatively to all of this. I said at the time that “businesses and investors are responding to their total lack of seriousness by battening down the hatches and preparing for the worst.” Subsequent events have validated that observation.

As commenter Carl Pham pointed out recently, the American people bought fire insurance from an arsonist.

Business, Economics, History, Political Commentary

A New New Deal?

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Tyler Cowen has some history:

The good New Deal policies, like constructing a basic social safety net, made sense on their own terms and would have been desirable in the boom years of the 1920s as well. The bad policies made things worse. Today, that means we should restrict extraordinary measures to the financial sector as much as possible and resist the temptation to “do something” for its own sake.

In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives.

There was also this little item that caught my eye:

A study of the 1930s by Christina D. Romer, a professor at the University of California, Berkeley (“What Ended the Great Depression?,” Journal of Economic History, 1992), confirmed that expansionary monetary policy was the key to the partial recovery of the 1930s. The worst years of the New Deal were 1937 and 1938, right after the Fed increased reserve requirements for banks, thereby curbing lending and moving the economy back to dangerous deflationary pressures.

Why?

Because of this news:

ABC News has learned that President-elect Obama had tapped University of California -Berkeley economics professor Christina Romer to be the chair of the Council of Economic Advisers, an office within the Executive Office of the President.

It seems like a much better pick than those of us concerned about an FDRophilic president could have expected. Maybe we won’t replay the thirties.

Business, Economics, Political Commentary

“Bold Experimentation”

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Jonah Goldberg explains why we should fear that Barack Obama will emulate Franklin Roosevelt:

there can be a chasm between being right and merely appearing to be right. Why anyone stakes greater value on the appearance than reality is a mystery to me.

But as Obama clearly recognizes, that was a big part of the FDR magic. FDR came into office promising “bold, persistent experimentation” — and delivered. Raymond Moley, an early member of FDR’s “brain trust,” saw the New Deal for what it was. “To look upon these programs as the result of a unified plan was to believe that the accumulation of stuffed snakes, baseball pictures, school flags, old tennis shoes, carpenter’s tools, geometry books and chemistry sets in a boy’s bedroom could have been put there by an interior decorator,” Moley wrote later.

Yet Americans thought it was all part of a plan, even though experimentation and planning are in fact near opposites. Why? Because FDR always projected such confidence, even as he made things worse. But this isn’t another column about how FDR prolonged the Depression. Been there, done that. I’d rather be forward-looking.

In fact, I want to be experimental, too. So here’s my idea: Just stop.

Stop talking about bailouts and stimuli. Stop pondering ever more drastic action. Give it a rest. Let it be.

One of the main reasons there’s all of this “money on the sidelines” out there among private investors is that Wall Street doesn’t know what the government will do next. Will it bail out the auto industry? The insurance companies? Which taxes will go up? How far will interest rates go down? How long will the federal government own stakes in the banks? Will more stimulus checks go out? If so, how big will the deficit get?

Don’t just do something–stand there!

One of his readers says that this also explains the current market volatility:

Free market economics involves the application of immutable laws, and it’s those laws that allow us to forecast the effect of current events on various companies and the stocks and bonds they’ve issued. But investors will only play the game if they believe the rules aren’t going to change in the middle. When government begins ‘experimenting’, it makes it harder for investors to generate a long term forecast. This drives long term investors away from the market, or converts them into short term traders. The result is a massive increase in volatility as investors shorten their investment outlook because they can’t predict what’s going to happen far enough into the future.

Volatility is an indication of instability. It’s not a sign of a healthy economy but of an economy which has lost its way. High volatility isn’t what you expect from the worlds largest market, but from the emerging economy of a third world country. As you can see from the attached chart, when Roosevelt began his ‘bold persistent experimentation’ it drove away long term investors and that caused volatility to dramatically increase. It will almost certainly have the same effect when Obama does it.

Since he’s so determined not to learn from the mistakes of the past, I would expect him to repeat them. I’m betting that his poking and prodding will add to unemployment, reduce economic growth, and wreak havoc with the federal deficit. There is little doubt that he’s the wrong man at the wrong time. I’m just hoping that he is as devoid of principles as the Clintons, and that he finds a way to break his campaign promises or we’re in for a long painful recession, and maybe worse.

We can only hope, since we lost an opportunity to do any more than that a couple weeks ago.

Business, Economics, Education, Media Criticism, Political Commentary, Science And Society

A Corrective

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…to the charlatans like Jim Hansen. Here are two useful books. First, Cool It, by Bjorn Lomborg who, while he doesn’t deny the science behind global warming, he doesn’t need to, because he has actually prioritized useful government policy actions based on cost and benefit (something that the warm-mongers refuse to do, e.g., Kyoto). Second, from Chris Horner, Red Hot Lies, which is well described by its subtitle: “How Global Warming Alarmists Use Threats, Fraud, and Deception to Keep You Misinformed.

Yup. As many reviewers note, “climate change” isn’t really about science–it’s just the latest ideology to come along for the collectivists to use in their latest attempt to bend us to their will.

Business, Economics, Political Commentary

No Bail Out

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Here’s a fellow Flintite (Flintian) explaining why her former employer shouldn’t be bailed out:

The strength of the union and the weakness of management made it impossible to conduct business properly at any level. For instance, I had an employee who punched in his time card and then disappeared. The rules were such that I had to spend hours documenting that this man was not in his three foot by three foot work area. I needed witnesses, timed reports, calls over the intercom and a plant wide search all documented in detail. After this absurdity I decided to go my own route; I called the corner bar and paged him and he came to the phone. I gave him a 30 day unpaid disciplinary lay off because he was a “repeat offender”. When he returned he thanked me for the PAID vacation. I scoffed, until he explained: (1) He had tried to get the lay off because it was fishing season; (2) The UAW negotiated with GM Labor Relations Department to give him the time WITH PAY.

I supervised a loading dock and 21 UAW workers who worked approximately five hours per day for eight hours pay. They could easily load one third more rail cars and still maintain their union negotiated break times, but when I tried to make them increase production ever so slightly they sabotaged my ability to make even the current production levels by hiding stock, calling in sick, feigning equipment problems, and even once, as a show of force, used a fork lift truck and pallets and racks to create a car part prison where they trapped me while I was conducting inventory. The reaction of upper management to my request to boost production was that I should “not be naïve”.

Another employee in the plant urinated on the feet of his supervisor as a protest to discipline. He was, of course, fired…that is until the union negotiated and got his job back.

Eventually I was promoted to a management position where I supervised salaried employees at HQ. As I left the plant I gave management a blunt message. I told them that I expected the union to act like the union, but I was disappointed that management didn’t act like management.

I saw a lot of this in the 1970s when I worked summer jobs in the shop, and my relatives who are still there tell me it goes on to this day. Of course, it’s hard to put all the blame on management, when the Wagner Act made it impossible for them to do much about it, because it allowed the UAW to credibly threaten their company with bankruptcy if they didn’t knuckle under. This crisis was caused by government, and bailing out the UAW will not solve it.

Also, Jim Manzi explains why we (the taxpayers) can’t just buy the three auto companies for their current market value (only seven billion) and save ourselves the many more billions that a bailout would cost. It’s kind of amazing that the stock has any value at all (GM’s in fact doesn’t). Equity in these companies currently has negative value because running them requires putting more cash into them, with no certainty, or even likelihood of return, at least with their current union contracts and cost structure. They are the proverbial white elephants.

This, by the way, is the reason that the notion of selling the Shuttle or the ISS to anyone else is a non-starter. No one could afford them, even if you gave them away.