Monday, May 23, 2011

Enemies List

The current economic plan is to set up enemies to blame for whatever goes wrong. While claiming to be a friend of business, this Administration has fed the populist urge to blame banks, oil companies, drug companies, insurance companies and any other industry that makes a profit – unless they are heavily unionized or in Nancy Pelosi’s district. Favorites get waivers from Obamacare and subsidies; those who are not get audited, increasing regulated, don’t get waivers and are blamed for anything that goes wrong.

The latest plan is to eliminate tax breaks for oil companies and make then pay more taxes – a popular stance. The oil companies announce high profits and are an easy target but a thought or two would be instructive.

The first thing to note is that no corporation really pays taxes. Companies get money by selling something to customers; the money corporations use to pay their taxes comes from - customers. Suppose you own a business selling widgets and tomorrow there is an additional 10% widget tax. What do you do? Probably raise your prices about 10%. So who is paying the tax?

It is no surprise that big companies make more profit in total dollars than small ones. They have more invested. It is also no surprise that they make more when prices rise. The reason is profit margin - the return of their money. Suppose you risk $100 in an investment and at the end of a year you have $110. Pretty good these days, you made 10%. But suppose you risk $10,000 and at the end of the year you had $10,010. Both investments made $10 but one guy did well and one guy didn’t because their return percentage was markedly different. Oil companies have billions invested and they make billions but their margin is not particularly high.

Headlines about how much money a company makes in absolute dollars is not particularly informative. But this is helpful to the demagogues who have a need to blame someone else and distract from the Administration’s efforts to raise fuel prices in every way they can. The Secretary of Energy is on record as supporting higher oil prices; the EPA puts all kinds of roadblocks in the path of the oil companies; leases are discouraged; oil flow from Alaska is reduced; drilling is pushed to the most expensive places to drill. All of these things contribute to higher fuel prices. While this is all happening, additional dollars are being printed. When the dollar’s value goes down, oil prices go up. Their need for a scapegoat is obvious.

Ending subsidies is not a bad idea but singling out one industry is and most of the tax deductions under discussion are available to all businesses. Ending all subsidies is a different discussion but the plan to end subsidies for oil and continue to subsidize the energy producers that are currently in favor just creates another Government Motors. Does anyone think these government subsidies will end? If these energy producers need government subsidies to succeed we are only creating another ward of the State.

Whether solar, wind or bio-fuels become economically feasible is something that will be determined in the future. Whether anyone likes it or not, there are no viable and affordable wind/solar/biofuel/hybrid cars available and when they are available, it will be quite a while before people can afford to replace their current cars. While the Administration devotes its efforts to increasing oil prices in order to assist sources that might be of use in 10 years, we get $4+ gas prices.

Administration efforts to increase oil prices and blame the messenger have to stop. More importantly, the reasons for the increases need to be properly identified so that corrective measures can be directed at the real root causes.

Schumer's Latest Demand

Senator Schumer demands that Amtrak fix its problems but Amtrak is a public for profit (insert laugh track) company owned by the US Government. The Senator should be asking why the Federal Government is in the railroad business. It is only a coincidence that it is a highly unionized industry so there must be some other reason. Even with heavily subsidized fares, Amtrak’s share of the market is minimal; most travel is by people in with higher incomes; and its contribution to reducing pollution and congestion is minimal at best (no riders). If a railroad is privately owned and does not run trains, the owners generate no revenue until the problem is fixed; if Amtrak cannot run trains it just asks for higher subsidies. Just another example of what happens when the Government tries to run a business. Why does anyone think a government run healthcare system is going to work?

Strawmen vs.real bad guys

Mr. Akst’s article about banks is an example of misdirection that would make Houdini proud. The formula is predictable: Lead with something about the Bad Guys - CEO’s make a lot of money and credit card rates are high - to stir the populist pot; link that to the need for unavoidable Government action - holding rates down; and throw in a sympathy line - Grandma is paying for this).

The implications are that Grandma is paying CEO salaries, that Banks are holding down their borrowing rates, and that the government is the white knight that will correct this mess. Well, no it is not.

CEO salaries have nothing to do with Fed Rates or Grandma; perhaps shareholders should hold them more accountable but that is another discussion.

The bailouts (all of them, some of them?) were not unavoidable. The Government’s responsibility was to honor the guarantees they made on the sub prime mortgages that Fannie Mae and Freddie Mac were pushing and securitizing. The sub prime market was their creation in an effort to support the Government’s social policies.

Banks are certainly beneficiaries of the Federal Reserve policy of artificially keeping interest rates low but they do not make the policy and the policy is certainly not unavoidable. It is the Federal Reserve that sets the rate and has printed trillions of dollars in the last few years. This devaluation has made everything more expensive – gas, clothes, food, - everything. This is inflation that Bernanke does not recognize but it does impact Grandma. Her savings have less value and her monthly check buys less but has nothing to do with the banks, their CEOs or their salaries. The Fed is just supporting the Administration’s announced policy of making oil more expensive.

Some banks credit card rates are higher than other - so shop around – some cars cost more than others. It should also be noted that recent Government legislation limits the fees for overdrafts, bounced checks, exceeding card credit lines and such. This spreads the costs for these things from the people who do them to everyone. The government thinks that is only fair but means that Grandma is paying for bounced checks whether she does or not.

It has a favored tactic to link government action to protecting people. Just set up some bad guys – banks, oil companies, insurance companies, drug companies – and link anything that goes wrong to them. It keeps the pressure off of the ineptitude of Government actions.


A hotel worker is raped in NYC; a guy leaves his kid in a car in Italy and the kid dies. A politician in Brooklyn thinks the answer is to make all hotels provide employees with panic buttons in case they are attacked by patrons. Miscellaneous do-gooders want all cars to have a system that automatically keeps cars cools whether anyone is in the or not so no one who forgets their kid is in the cars accidentally kills them. It is unfortunate that either thing happened but the proposed solutions are misplaced.

There are alternative positions: It makes no sense for hotels to provide panic buttons. Who does this guy think is going to pay for that? The answer is that people who do not rape hotel maids. Is there a rash of such incidents? Should the Post Office provide all its workers with panic buttons in case a disgruntled former worker goes postal? How about retail workers or what about when the plumber shows up?

People do stupid things. It is not a function of government to spread the costs of stupid mistakes over the entire population. The majority of people are bright enough to know that there is a kid in the back seat and to make sure there are no children playing behind the car before they back up. If people want to buy back up screen and automatic car cools that is their business but politicians should have better things to attempt to mandate things designed to prevent stupidity. That isn’t going to work anyway.

Since there are other stupid mistakes and potential crimes to be avoided, why not provide everyone with their own government worker who would be responsible for reminding people that they had kids, that it was a bad idea to back up the car without looking, to floss frequently and to eat sensibly. It is a full employment program but there is still the issue of the government worker remembering to do all that stuff.

The solution to stupid mistakes and preventing crimes is not for the government to another service that the vast majority does not need or passing another cost on to business

Wednesday, May 18, 2011

Time and Taxes

The Obama administration has floated a transportation authorization bill that would require the study and implementation of a plan to tax automobile drivers based on how many miles they drive. The proposal was included in a draft of the administration's Transportation Opportunities Act, but (after it became know to sane people outside the Administration who are not Democrats) a White House spokesman said it "was not an Administration proposal." Somehow, the people that the First Dope appointed to the Department of Transportation wrote a bill that was not really put out by the people appointed by the Administration. They don’t want you to use gas so and that makes revenue from gas taxes go down so, in addition to the taxes on gas, they come up with a tax on people whether they use gas or not – a non-consumption tax! This is the same thing as taxing people who don’t smoke cigarettes because revenue from cigarette taxes is decreasing. Who thinks this stuff up and who appoints the dopes who think this stuff actually makes any sense?

But maybe it is better if these guys just completely waste their time; that way they do less harm. ABC News says that the Senate (the part of Congress where the Democrats currently control the agenda) will hold hearings on the use of the code name Geronimo as a reference to Osama Bin Laden. The Senate committee is chaired by Sen. Daniel Akaka, D-Hawaii. It will examine how Wild West shows, Hollywood films, and Indigenous-themed sports mascots have shaped the perception of Native Americans.

Culture Wars

Any potential cuts in child care are seen as victims of the culture wars. The specific cultural roadblock that is seen as an obstacle to preventing children from receiving these subsidies is that those who think mothers should stay home and raise the children oppose subsidies.
It can be agreed that stay at home moms are not an economic reality for many. It is also a reality that the largest obstacles to achieving any measure of success for both the parent and child are dropping out of high school, having a child before you are 18, and being a single parent. This is the environment and culture that “at risk” children come from. Newsday gives that culture a complete pass. While no one is advocating cutting off all aid, there is something intrinsically wrong with increasingly subsidizing the behaviors that are at the root of the problem.

Savings Plans

Teachers unions are militant and tax payers are outraged. And then there is our current economic situation while Newsday (“Teachers’ union takes lower raise”) only fans the flames. There is no dispute that school costs have to be brought to a sustainable point. Similarly, we have to have teachers and they have to be paid the salaries necessary to attract and retain qualified people.

The misdirection is worthy of Houdini. The article refers to “step” increase five times and in every instance these are distinguished from salary increases but they are cash payments that raise salaries. Looks like a duck, quacks like a duck… But the pro-union people act like they do not count even though they increase taxes just like salary increase would.

In the time honored tradition of political “savings”, not spending money in future years is considered a cost cutting triumph. According to this logic, if my plan is spend a million dollars next year and I manage to eke by only spending a hundred thousand, an easy way to save $900,000. That will be my new retirement plan.