Posts Tagged ‘ US Auto Industry ’

More Czars than the Romanovs

Czar_NicholasII_Family

The last Russian Czar and his family in 1914

Senator John McCain (R-AZ – perhaps you’ve heard of him) posted this quip on his Twitter page, “Obama has more czars than the Romanovs — who ruled Russia for 3 centuries. Romanovs 18, cyberczar makes 20.” Like most Americans I dozed off watching apology after apology and did not really realize what is going on with on the Czars until I read this little sarcastic joke.  Twenty czars?  Why so many?

To answer this question I had to understand the definition of a “czar.”   Technically I already knew but I wanted to understand why a president, any president, needed or wanted someone in this position.  A “czar” in the classic sense, is an absolute dictator, the term having originally been derived from “Caesar” and used in Russian as “Tsar”.  Merriam-Webster’s dictionary provides the American usage which applies in this discussion, “one having great power or authority.”  What Merriam-Webster fails to point out is that in American politics the term implies a person in a position of power and authority, who is accountable to no one other than the President.  The position enables the President to coordinate and execute his agenda vigorously and without Congressional encumbrances.

little czars 1942

A 1942 Cartoon published in a DC newspaper

The term was first used in the 1940s when, then President Roosevelt appointed a series of federal managers to coordinate the U.S. economy.  Apparently the press dubbed the new positions “czars.”  Roosevelt’s “czars” were temporary and the idea of a policy czar being more permanent did not come around until Nixon.  Every President since Nixon has used Czars to push through some policy or agenda.  As mentioned previously, these Czars answer to no one aside from the President.  Does this not strike anyone as dangerous?

As I contemplated my thesis today, it occurred to me that criticizing President Obama for something Roosevelt, Nixon, Carter, Reagan, Bush I, Clinton, and Bush II all did would be both hypocritical and overtly partisan.  Thus, the need to state that had it not been for the number and types of Czars recently appointed, the entire issue might have been off my radar.  Upon the application of critical thinking, the entire concept of a czar unaccountable to Congress or the American people is unconstitutional.

The Presidential Cabinet, (Article Two, Section 2), is accountable not only to the President, but through the confirmation process is also accountable to the American people (assuming Senators listen to their constituents.)  Creating a Cabinet position requires Senatorial approval, red tape, and permanence that any President would like to avoid.  Besides, the whole idea is to expediently execute policy.  However, what makes a czar attractive to a President is the problem with the position – a “Czar” is not accountable to anyone in the Cabinet, the Congress, or the American people.

Examining the titles of the various Czars being appointed gives telling evidence into the President’s agenda as well as their philosophy.  For example, Nixon appointed the first Drug Czar as well as an Inflation Czar.  In spite of the fact he was negative on the concept he employed these Czars to get what he wanted done.  G.W. Bush had his Education Czar and even a “War Czar” (yeah, I know he refused to call him that but he was just that,) to coordinate the wars in Afghanistan and Iraq. Czars provide a clear picture of what policy an administration is pursuing.

Now let’s look some of the czars in the long list of Obama Czars.

  • Drug Czar. Every President since Nixon has had a Drug Czar, the appointment of Gil Kerlikowske was accompanied by the lessening of the position’s importance from previous administrations.  Clearly drug enforcement is not a priority and the administration has made no claim that it is.
  • God Czar. I must admit when i saw this position I thought it was a joke.  President G.W. Bush created this position and Obama has continued it.  However, Obama doesn’t seek to use the “God Czar” to help religious organizations but rather to use them for social engineering objectives.
  • Border Czar. The objective is to decrease the flow of guns and drugs flowing over the U.S./Mexican border.  I didn’t hear any mention of stemming the tide of illegal immigrants that drain our resources and cheapen the hard fought status of legal immigrants.
  • Health Czar. The point-person tasked with pressing hard to make sure nationalized health-care happens sooner rather than later.
  • Bailout Czars. Government takeovers of big industries is a big job and for this Obama has appointed two gentlemen to manage the task.  I find this a very troubling positions since government acquisitions through bailouts are inherently anti-capitalistic and clearly a road-map toward a command economy.  If you are inclined to dismiss this as reactionary, think about this, Herb Allison is the former CEO of Fannie Mae.  Didn’t Fannie Mae fail and require a huge Bush bailout?  I suppose that is why he is an expert on bailouts.
  • Car Czar. The auto industry is failing and I thought this Czar was going to pursue policies to prevent that from occuring, instead the government has nationalized GM and is forcing another offshore.  My head spins in the understanding how bad this is for the country in the long-term.  Also troubling is the history behind the man holding this position.  Steve Rattner has a scandalous history that includes allegations of kickbacks.
  • Regulatory Czar. The new administration is making clear they intend to control everything in the U.S. economy and the creation of this position with the accompanying power is a bold statement.
  • Stimulus Accountability Czar. If only the Czar were accountable.
  • Compensation Czar. This is the newest and most troubling of all these new Czars.  The new czar, Kenneth Feinberg, will be tasked with limiting the salaries of American corporations which have received bailout money.
Kenneth R. Feinberg, AP image from NYT

Kenneth R. Feinberg, AP image from NYT

It was the creation of this Czar position that rattled my cage today.  Like a camera that slowly brings a picture into crisp focus, each new Czar adds clarity and definition of the administration’s aims.  The left and the poor ignorant masses look to Obama to save the nation from economic disaster.  We all knew Bush could not do it and the press made sure he took full blame for the result of 20 years of trade policies that pushed productive business abroad and encouraged foreign dependence on everything.  Now Obama is saving us the only way a liberal college professor knows how, he is bringing socialism and doing so as fast as he can.  He knows he only has until 2010 to secure an economic entanglement so severe the election will not be able to alter its course.

Key to the achievement of this objective is health-care.  Yes, something needs to change in the American health-care system but socializing it is the wrong answer.  But rather than change the topic of this article let me remain on course.  The Czar positions have been created to aid in the transformation of the U.S. economy from capitalist to command.  A command economy is the term economist politely apply to what we in everyday America call communism.  It is economic communism without the associated despotic totalitarian government – at least we hope that is true.  Socializing health-care, especially in a hurried manner, places a huge portion of the American economy into the government’s complete and incompetent control.

As though this were not alarming enough, we must consider the long-term implications.  Conservatives like to point to long lines and postponed medical procedures that would result, just as they have in the United Kingdom, and yes, that concerns me as well.  However, there are scientific, political, and legal issues to consider as well.  For example, if health-care becomes nationalized as it is in Europe, what happens to incentive to find cures for health issues?

The profit motive eliminated, we will be forced to rely on government mandated research.  How effective might this be when the government knows that any treatment which only prolongs life without providing a cure, will result in sick, needy people continuing to be a drain on government resources.  Could we eventually find ourselves having treatments withheld because they delay death?

On the legal front we must consider malpractice litigation.  I contend tort is a major cause for the American health-care mess.  However, if bureaucrats and former attorneys control health-care policy and decision-making what recourse might future patients have when Mom is accidentally euthanized or the doctor makes a mistake that affects a patient’s quality of life?  Will rewards be severely limited or litigation curtailed.  Perhaps patients will be forced to arbitration through a hospital appointed arbitrator.

Finally, the political fall out is dramatic.  Once nationalized, any effort to limit costs or change the industry contrary to liberal designs will be demonized.  If Democrats decide to increase health-care expenditures 150% and Republicans counter with, say %100 increases, the attack is predictable.  The headlines will scream, “Republicans propose scaling back health-care by 50%” or “Republicans want to kill your children!”  Such a political tool could spell the end of the two party system and complete the journey to communism.

We stand at a critical juncture and I am afraid the American people have become too complacent to react or seriously consider the situation.  We’d rather read meaningless tweets and watch another edition of American Idol.  Content that all will be fine once the Health Czar is empowered to decide who lives, who dies, who gets health-care, who does not, who qualifies to pay nothing, and who is too rich and must pay far more.

Gettelfinger thinks only an idiot would not want a bailout

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My good friend, Reedkeys, over on blogspot, posted this video and expressed his outrage that Lansing’s Mayor Bernero seems to imply that capitalism isn’t working for the auto industry.  I didn’t quite get that same message but then again, I’m an idiot.  I think he was saying that free trade isn’t working for the industry.  [Addendum:  OK, I went back and watched this again and I have to admit I tuned this interview out early the first time I watched it.  I see Reed was really responding to the dumbass comment the Mayor made toward the very end.  He then says capitalism doesn’t work and that the rest of the world is NOT capitalist.  OK, I disagree with all of that and think the mayor’s leftism is shining through.] In fact, I would say free trade isn’t working for any U.S. industry.  Unless you want to classify Wal-Mart as an industry.  Wal-Mart is not only thriving but they are a major reason so many jobs are going overseas.

Lansing’s Mayor Bernero tries to say that the American automakers are in a tough bind trying to compete with countries like China that can pay workers far less than we can.  Do we want an America where career choices for the masses are limited to selling a foreign product, service, or menial labor?

I’m not entirely certain I disagree with the mayor. I  blogged about free trade a few weeks ago, my point then was simply that free trade is a wonderful theory but one that only truly works when the playing field is level.  In pure theory, free trade allows the market to determine which industries live and which die, based on pure competitive factors. However, free trade does not introduce fair competition. It allows competitors into our market without adjusting price for VERY different standards of living.

Getting Fat on Free TradeNow if you believe the U.S. standard of living is far far too high and that we here in the U.S. should all be living without cars, TV’s, or computers, and our homes should be made from mud or other low tech materials, then I see where you are coming from. I think Gore may believe this – as long as he is exempt.  Granted unions are demanding wages that exceed their labor output but what is a fair competitive wage in the auto industry?  Would $10/hr be fair?  How about $5.75 that’s roughly the same as your average high school student. (I think they deserve more than $10 but to illustrate my point let’s go as low as we can go.)

Would lowering every single auto worker’s pay to minimum wage solve the problem? No. The average Chinese factory worker makes $2.20 an hour. Furthermore current trade agreements while eliminating tariffs allow the Koreans to continue import taxes on U.S. products through “taxing cars based on “engine displacement”, including the Special Consumption Tax, the Annual Vehicle Tax, and the Subway/Regional Development Bond.”   The Korean only agreed to “overhaul” and “address” trade concerns.  Meanwhile Korean textile imports to the U.S. go tax or nearly tax-free.  But trade agreements do not address the basic standard of living inequities that exist.

It is not capitalism that has failed it is the tariff system that has been changed to benefit third world producers while exterminating American producers. As I mentioned in my essay on this topic, we need to have equalizing tariffs or demand foreign workers make salaries that are roughly equivalent to U.S. workers. This would mean higher prices and thus no one wants this. But should nothing be done to equalize trade, we will slowly spiral into a world where the standard of living reaches a global median. (Oh, I’m certain it wiull never be totally uniform but more so than we see today.)  A world where those who are able to own a business populate the upper-class and what remains of the middle-class while the rest of the world languishes in the realm of the working poor.  This is when you can truly kiss capitalism goodbye.  A poor democracy will vote itself right into a communist dictatorship. Last month we got a taste of just how little people use reason when they are terrified of the future. Naturally, union concessions are necessary but equally so a little strategic use of tariffs to level the field.

Should the auto industry fail, can the U.S. economy absorb up to 3 million displaced workers?  I certainly do not want to give the big 3 money, but I think loans with attached strings is a sound rescue plan.  However, if we do not begin to practice “fair trade” and learn to compete, it will be no different than keeping a brain-dead trauma patient plugged into life-support.  The auto industry and for that matter all U.S. manufacturing will eventually falter.  Allowing industries to fail and continuing to import from nations where labor costs are nearly unmeasurable is economic suicide.  Whether it occurs slowly over decades or overnight I simply cannot accept the notion that such a trade policy is good in the long haul.  I am reminded of something I heard as a child, “the production of finished product from raw materials is the only true way to produce wealth.”  That may not be always be true but applied to nations it makes more sense than where we seem to be headed, “Producing nothing, while consuming all the world can produce is the true way for importers to get rich while a nation goes to hell.”

As a  theory, free trade makes a lot of sense, but sometimes there are good economic reasons to stray from a good theory.

How Much Free Trade is Free?

Getting Fat on Free TradeLet me preface this by explaining, I believe in lowering taxes everywhere we can. It just makes good sense. Without exception when taxes are lowered business increases and government receipts increase. What about import tariffs? Tariffs are taxes and lowering or eliminating them stimulates trade, more economic activity, and thus more taxes through greater income and sales. Prior to the 16th Amendment, legalizing the income tax, the bulk of federal receipts came in the form of tariffs. As the proliferation of free trade agreements has grown revenue from tariffs has been on a decline while income taxes have grown in importance as a source of replacement income for the government.

When we discuss tariffs, it is important to understand who benefits and who does not. Naturally, the federal government benefits as tariffs increase the revenues, domestic producers benefit as they are afforded a degree of protection against cheap foreign competition, and domestic workers benefit by virtue of the protection afforded their companies. The losers in the tariff game are consumers who must pay higher prices for imports and domestic products that are unable to reduce their costs due to the tariffs.

I wish trade policy were only this simple. Unfortunately, as Free Trade proponents will correctly point out, no tariff lives in a vacuum. When the U.S. imposes a tariff on say Japanese automakers to protect U.S. automakers, the Japanese government will in turn impose its own tariff on a U.S. import, like beef. Soon a trade war begins and the world economy is negatively impacted. As this chart from Pitzer College illustrates tariffs artificially increase price and potentially decrease supply (should domestic suppliers not adequately fill the void.)

Earlier I mentioned that domestic businesses were aided by import tariffs but interestingly domestic businesses also benefit by removing import tariffs. When import tariffs are removed, U.S. companies are free to outsource. Businesses can move various parts of their processes to locations abroad that offer the lowest cost. Thus, the overall world economy is made more efficient by the lowering of trade barriers. The economic theory says that each country will produce those products it can produce most efficiently. This is a great benefit for multinational companies that can take advantage of it. In turn, it is a great advantage to consumers, as nearly all studies have concluded import tariffs significantly raise consumer costs through higher prices. A no-brainer, really.

Nevertheless, and yes this is where I get into trouble, is this good for the U.S. consumers in the long-term? I agree that in the shorter term, (meaning 0-15 years), free trade is a “nothing-but-net” slam-dunk win. I have my doubt about its long-term benefits. Liberals argue stockholders and business executives win while workers see their jobs whisked away to far off pockets of impoverished slave labor factories. They will lament the poor living conditions of those workers and point out how Americans are profiting from their misery. They may even complain that U.S. factory workers once making $20 an hour are reduced to working minimum wage jobs or worse standing in unemployment lines. (But you probably won’t find them lining up for a more expensive American made car.)  I decided to research the wage issue and I found that since 1980 there has been very little change in the inflation-adjusted wages of Americans. However, this chart shows an average wage, which includes executives and janitors. So while executives expand their income through higher profit (and I don’t begrudge them earning more), nonfarm, nonsupervisory wages are decreasing. However, we all know we’re in the midst of a global recession.

So far, my argument has been pro-free trade, but I have serious concerns over free trade as a long-term policy. The obvious benefits of adopting a free trade regime is the lower cost of goods and the freeing of resources to produce items in which our country has a comparative advantage. However, my concern is not about the advantage but rather the costs. The one cost nearly everyone recognizes is the loss of American jobs. I would like to add another, the loss of knowledge and innovation.

As we ship technical and manufacturing jobs overseas in search of ever-cheaper labor we are losing the ability not only to manufacture goods efficiently here but we are losing the ability to innovate new product ideas. U.S. companies not only export low-tech factory jobs but also have begun exporting knowledge-based jobs, such as recruiting R&D engineers in Asia. These engineers cost less and have economical access to production plants.

Excessive dependence on too few exports is another risk presented by free trade agreements. If a nation reduces the diversification of its industries to only those in which it has a comparative advantage, there is risk to the economy if global demand should drop for those products. This is closely related to another risk, the risk that an industry might be permitted to die and this could come at a cost to national security; such as losing the ability to produce aircraft, automobiles (thus tanks), or shipbuilding. Yet another risk is losing an historic industry, such as the auto industry. What happens if we find ourselves the victim of an economic embargo? Probably not much today but in 20 years it might be a different story.

Lowering tariffs naturally leads to outsourcing, as we have seen. This results in workforce reductions. Companies are freed to provide lower priced products but the discretionary spending of consumers is lower slightly, (through higher unemployment and lower income), which produces an increased demand for lower prices. This precipitates more outsourcing, automation, and/or other job reductions to facilitate still lower prices. This again lowers aggregate income slightly, thus discretionary spending and so the cycle repeats. Corporations benefit, stockholders benefit, host nations benefit (for a while), but we ultimately pay a long-term economic cost in the form of a reduced standard of living.

It is a very slow turning wheel because people find new sources of employment as technology changes and these new jobs come and go. Simple logic should tell us that you couldn’t put a hole in a bucket and expect the rain to keep it full. Alright, not the best analogy, my point is resources are flowing away from our country faster than they are flowing in. How long can this go on? I would argue until the standard of living is obviously impacted, then the people revolt.

Finally, many trade agreements are lopsided benefiting one partner more than the other. For example, The 2007 KORUS free trade agreement with Korea lowered nearly all restrictions on South Korean imports to the U.S. yet permitted South Korea to maintain nearly all of its barriers against U.S. auto imports. I keep hearing people say, “Let it die” – these people are not strategic thinkers. We need the auto industry, it is the backbone of what makes our nation strong, and it is a historically American product. Granted we need to address problems associated with bad management and poor labor arrangements. Part of the labor problem is the American standard of living. No American factory worker would tolerate living in a small hut and unable to purchase a car him or herself, yet in some countries, this is normal. I say forcing the auto industry to redesign its business model, coupled with a loan, and a modest import tariff on imported automobiles would be a reasonable bailout. Letting it die would be reckless. Do you really want to displace so many additional American workers?  My opinion is that the use of tariffs and subsidies is justified here.  Using tariffs in this sort of bailout makes far more sense than throwing money at the big 3.

We have being giving the house away in free trade agreements that do not benefit the long-term economic or strategic interest of America as a whole. We have getting fat off cheap stuff from China while throwing our own jobs under the container ship without realizing there is a price to pay. What will the American economy look like in 40 years? Can a purely service-oriented economy maintain our current standard of living?

Just because we can does not mean we should. Are protectionist tariffs the answer? Should we use tariffs to protect American industries like the auto industry?  Should we demand workers in other countries make competitive wages? (I made myself chuckle) Do we tax the crap out of business that ship jobs overseas? Do we force American companies to just finish the job and move completely offshore? How far do we go in job creation and what types of jobs do we want?

US flag Made in ChinaI’ll leave you with this interesting thought; I am a history buff and a few years ago, I was reading a book containing a letter from a British soldier stationed in the American colonies just prior to the Revolution. A paraphrase from memory goes something like this, “These colonists would procure their flags from the enemy if they could save a farthing.”* Last year, on the 4th of July, my daughter commented that our Walmart-purchased flags were made in China.  Guess it’s true.

* Farthing: Smallest British Imperial currency measure. 4 farthings made 1 penny.

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