The best way to entrench the worst? Form a union. TSA approves AFGE union.

When the TSA was first formed in the comparatively innocent times just after September 11, 2001 (yes, you read that right), it was expressly prohibited that the workforce be unionized. Since then, the number of employees has exploded from 16,500 to 62,500. The amount of abuse travelers put up with has risen exponentially, from pat-downs to porno scanners. And the number of terrorists caught by TSA has… Well, that’s still a big, fat zero.

Nonetheless, TSA Administrator John Pistole, who knows which side his bread is buttered on, has allowed the TSA to go forward with an American Federation of Government Employees union contract. And just when you thought the TSA couldn’t get any worse.

While my views on unions are well-known, I think it bears repeating that this can only end in a disaster for both American travel security and Americans’ wallets.

Consider the example of the teachers’ unions. Since 1970, the cost of educating one student from kindergarten through 12th grade has roughly tripled, from $55,000 to $155,000 in inflation-adjusted dollars. Since 1970, American students have seen no improvement in math and reading, and regression in science scores.

This is because, once unionized, the workforce becomes entirely caught up in labor concerns to the detriment of their actual jobs. Hence, students suffer once the teachers’ unions begin to treat the public school system as nothing more than a jobs bank.

Using the example of history, it is easy to see that unionization of a workforce entrenches the worst elements of that workforce. Efficiency is sacrificed, goals go unmet, poor performers cannot be fired, and consumers bear the brunt of this failure.

Of course, airport security seems important enough that we should want to avoid these things, but no matter. The screeners pressed ahead with their unionization anyway, the public be damned. After all, the attitude of the unions has always been that the public owes them jobs, not that they owe the public a job well done.

The incredible vanishing multiplier, and economics as a science

Here is a blast from the past. In this .pdf file, economist Robert Barro talks about the Keynesian multiplier in 2009. 2009, as we recall, was the edge of the precipice. This article was published in February of that year, concurrently with the passage of the “American Recovery and Reinvestment Act,” commonly known as the first stimulus, which granted roughly $800 billion of taxpayer money to political cronies.

Here is an excerpt:

If the multiplier is greater than 1.0, as apparently assumed by Team Obama, the process is even more wonderful. In this case, real GDP rises by more than the increase in government purchases. Thus, in addition to the free airplane or bridge, we also have more goods and services left over to raise private consumption or investment. In this scenario, the government spending is a good idea even if the bridge goes to nowhere or if government employees are just uselessly filling holes. This free lunch would make Charles Ponzi proud. If the deal is genuine, why stop with only $1 trillion or so of added government purchases?

It seems as though the best way to judge macroeconomic predictions is with the benefit of hindsight. Indeed, when economists using the same data set come up with estimates that vary by the trillions, one must wonder whether foresight per se exists at all.

With the benefit of hindsight, it is clear that the stimulus did not stimulate. Many excuses have been made for the poor performance of ARRA, but the fact remains that it has failed.

In my view this is not surprising. Most economists, whether classical, monetarist, Keynesian, or whatever else, have been consistently missing the point for decades. They have become so caught up with making their math look legitimate that somewhere along the line they forgot that it should have some connection to the real world.

Perhaps when applied to mainstream macro, “voodoo economics” is a tautology.

Canadian auto workers union dumps water on drowning man

At Autoblog, “Canadian Auto Workers lobby government for national auto policy”.

Check out the specifics of what the Canadian auto workers are demanding this time around:

We’re not sure if the union asked for everything hoping they could at least get half, but most of the ideas have little chance of leaving the printed page: the government should maintain minority stakes in automakers, devalue the Canadian dollar, secure manufacturing commitments from automakers, examine the feasibility of a Canadian carmaker and halt free-trade negotiations with the EU and other carmaking nations like Japan and Thailand.

Nationalizing private industry? Check. Destroying the country’s currency for the benefit of a few privileged workers? Check. Forcing manufacturers into inflexible, unsustainable policies? Check. State-owned competition against the very companies they’re “negotiating” with? Check. Protectionism against the consumer for the benefit of a few privileged workers? Check.

In the meantime, the Canadian doctors union has been prescribing cyanide to poisoning victims, the Canadian firefighters union has been spraying kerosene on open flames, and the Canadian government workers union calls for more corruption in politics.

The worst part? These ridiculous demands are in response to GM moving Chevrolet Impala production from one assembly line in Oshawa to …another assembly line in Oshawa. One that was just given a $68 million investment to increase flexibility and efficiency.

When will they learn?

When wealth is a problem in electoral politics

Much has been made of Mitt Romney’s personal fortune in the run-up to the general election this November. Many are turned off by the accumulation of millions of dollars, especially in these silly times where a brainless “movement” like Occupy Wall Street can get traction.

However, the answer to the question “when is wealth a problem?” seems to be “when you are a Republican.” Don Surber at the Daily Mail elaborates:

No matter who you support this year, you have to admit Mitt Romney went about becoming president the wrong way. Instead of wasting his time learning how business works and building a multi-billion-dollar company that really did save or create hundreds of thousands of jobs, Mitt should have lived off his daddy’s fortune like Jack Kennedy. Chasing skirts and molesting teenage virgin is a lot more fun than figuring out how to revive an old business.

Instead, Mitt Romney gave his inheritance to charity. Who does that anymore?

The press loves the kids of privilege — Bobby Kennedy, Ted Kennedy, Jay Rockefeller and the rest of the trust fund babies — but only if they support huge government programs that transfer wealth from workers to non-workers.

It is important to recall that the class warriors in politics are virtually always among the elitest of the elite themselves. Of course, this is important to know not because that somehow makes their proclamations more or less logically sound; instead, people should be able to recognize when an issue is not an issue and when they are being fed a line for political gain.

 

A strong dollar, free trade, and economic tradeoffs

I have long been an advocate for the idea that there is no such thing as a “solution.” Realistically, every policy choice involves tradeoffs only – not solutions.  However, it is all too common that only one side of an issue is considered, leading to an inaccurate depiction of those critical tradeoffs.

I was lately spurred into thinking about this in the context of trade policy when reading David Malpass’s column in the Wall Street Journal, called “Ron Paul, the Fed and the Need for a Stable Dollar.” In pertinent part:

Dollar weakness doesn’t work at all for economic well-being. The corollary to the Fed’s policy of manipulating interest rates downward at the expense of savers is declining median incomes. It’s no coincidence that inflation-adjusted median incomes rose in the sound-money booms of the Reagan and Clinton administrations and fell in the weak-dollar busts during the Carter, Bush and Obama years. When the currency weakens, the prices of staples rise faster than wages, hurting all but the rich who buy protection.

The economy and median incomes would do much better if the Fed said simply that it would set interest rates as best it could in order to keep the dollar’s value strong and stable in coming decades, with the goal of attracting capital, maintaining price stability and encouraging full employment.

Dollar weakness is very often touted by bad economists as a way for the economy to grow through export, or (far more pernicious) a way for governments to inflate their way out of fiscal mistakes.  Both are true enough.

But what good is an increase in exports if we do not examine the correlated tradeoffs?  Weak dollars mean propping up export-driven businesses artificially, and this supports some jobs. But as Malpass points out, commodity prices rise faster than wages, reducing real wealth for everyone, including those whose jobs are being supported.

Furthermore, as Malpass notes, manipulating interest rates downward in the service of a weak dollar is an implicit tax on savers.  This leads to over-stimulated current demand, and this skewed time preference precludes valuable investment in the economy that would sustain real wealth over the long term.

And speaking of investment, it is worth noting that running a current account deficit requires running a capital account surplus. The dollars that do not come back to this country as payment for what we do export come back as investments.  The last few decades have shown that, in times of high current account deficits (importing over exporting), the United States has experienced relatively higher growth than when the current account deficits were low.

This manifests itself in higher GDP growth, a higher stock market, higher job growth, and higher manufacturing output. Consider this last.  Those who insist on examining only one side of the equation insist that weaker dollars and export-driven economy lead to more manufacturing employment, since we can ship our products overseas.

What they do not see, or do not acknowledge, is that the capital investment required to sustain manufacturing employment over the long run often comes from foreign investors looking for a place to invest the dollars they received when we imported their goods.

I would argue that the advantages of a stable dollar policy (growth, employment, standard of living) outweigh the advantages of a weak dollar policy (preservation of some preexisting jobs, political talking points). And the downsides to weak dollar policy (bias against savings, bias toward government spending) are disconcerting too.  All in all, I do not find this to be a tradeoff worth making.

Quote of the day on the State of Union – Megan McArdle

Megan McArdle writes in the Atlantic about President Obama’s state of the union address.  I know that I am a few days late, but this quote was too insightful to pass up:

I think the speech made it even clearer than other speeches have that the president’s vision of the world is a lightly updated 1950s technocracy without the social conservatism, and with solar panels instead of rocket ships.  Government and labor and business working in tightly controlled concert, with nice people like Obama at the reins–all the inventions coming out of massive government or corporate labs, and all the resulting products built by a heavily unionized workforce that knows no worry about the future.

…

As David Boaz said last night, Obama’s talk of blueprints was telling.  A blueprint is a simple plan that an architect imposes on an inanimate object.  Obama really does seem to think that he can manage the economy in the same way.  No, I don’t think that he is a socialist.  Rather, I think that he really believes there are technocratic levers that can make the income distribution flatter, the rate of innovation faster, and the banking system safer, without undesireable side effects.

…

I had hoped that the last three years had taught Obama the limits of this sort of thinking.  But if they have, he certainly hasn’t chosen to share that hard-won knowledge with the rest of us.

This is the belief that all of modern “progressivism” is built on, and it amazes me that people still buy in.

Tim Carney on the false frame of regulation vs. inequality

The news and the punditry tends to put out a constant stream of logical fallacies, which are easy to spot if you know what you are looking for.  However, I have to assume that many – if not most – people just lap it up, because otherwise, why would they continue unabated?

One of the latest examples is a logical fallacy called the “false dichotomy” or the “false dilemma.” Briefly, only two possible options are considered when multiple options across a spectrum may be available.  For example, if I were to say “the weather will not get any warmer tomorrow, so it must get cooler,” I have committed this fallacy by ignoring the possibility that the weather may stay exactly the same.

Tim Carney over at the Washington Examiner examines a false dichotomy in a post called “The false frame of regulation vs. inequality.” The false dichotomy posited  here is the idea that either regulation will increase or inequality will increase.  Of course, it may be true that they are positively correlated (no causation), or it may be true that an increase in regulation will cause an increase in inequality.

This is the option I find more convincing.  Tim Carney expands on this idea:

That naive-liberal postulate is false, and I suspect many of those polled don’t share it. I think when people say the economy is rigged for the rich, they are pointing, at least in part, at things like bailouts, subsidies, and other murky advantages gained by lobbying and cronyism. I notice that while the Post didn’t give it as an option, still 5 percent said that overregulation and inequality were equally bad.

Off the top of my head I can think of a few overregulations that unfairly favor the wealthy: crackdowns on food trucks in favor of restaurants, regulations blocking people from selling home-baked goods, online gaming regulation favoring big casinos, regulations keeping women from doing hair-braiding for money, and a bunch more. If you expand the notion of “regulation” slightly to include mandates, a skewed tax code, and wealth transfers, there’s plenty of evidence that our inequality stems in part from too much — not too little — government.

I have been banging on this drum for awhile on this blog.  Regulation offers false hope, since corruption, exploitation, and theft tend to calcify around the edges of the regulation.  The solution proffered by Washington is then, inevitably, more regulation.  The cycle repeats.

The real estate bubble, collapse, and bailout is the archetypal example.  People are justly outraged that everyone – everyone – in power whose hands were dirty walked away rich, in both the government and the private sector.  Only the innocents who paid their taxes were stuck with the bill.  Clearly, the regulation in this case contributed to inequality.  No serious person would argue that it did not, unless they had an agenda other than the facts.

EEOC Says Requiring a High School Diploma May Violate the Law

The Washington Times reports that the Equal Employment Opportunity Commission posted an “informal discussion letter” on its website December 2, warning employers that requiring prospective employees to have a high school diploma may run afoul of the Americans with Disabilities Act.

According to the Times, employers could violate the ADA by screening out those individuals unable to complete a high school degree due to a learning disability that meets the ADA’s statutory definition of “disability.”

I will, for the moment, forego discussion of the most obvious problem: with an economy in the doldrums and real unemployment sky high, bureaucrats in Washington are doling out heaping helpings of uncertainty to the marketplace, making it difficult to know which practices are acceptable and which will be interpreted as against the law.  And when employers are uncertain of what they can and cannot do, the default is to avoid even the possibility of problems.  In this case, that means they will avoid hiring.

As important as I think this criticism is, I also believe the EEOC’s guidelines – which thankfully do not carry the force of law at the current time – are indicative of another problem, which I can illustrate using myself as an example.

I am an attorney, and with my law license, I am a[n unwilling] member of a cartel.  I was required to finish a terminal law degree, and then required to pass a three-day examination. One may wonder what the difference between requiring a high school diploma and a law degree is, or how, if disabilities cause you to fail your tests in high school, they would not also cause you to fail the bar exam.

And yet the EEOC seems not to care about the law profession (or about doctors, psychologists, dentists, etc.) and its relation to the non-exclusionary implications of the ADA. Why is that?

My thought is that it is because lawyers (and doctors, psychologists, dentists, etc.) have their own comfy little cartel. With the imprimatur of the government – both in individual state licensing schemes and the nationwide aegis of the American Bar Association and its school accreditation scheme – lawyers are exempted from still further meddling by such entities as the EEOC.  The EEOC considers the law cartel “one of us.”

And yet, what of the effect on the rest of “them”?  The cartelization typical of professional occupations like law, as well as the zealous restrictions on all other professions by Washington bureaucracies does not tend to help the vast masses of people who are seeking jobs.

On the contrary, the regulations are drawn up to do the exact opposite: if you are already a member of the cartel or securely in a job, you are generally unaffected.  If you are not, you are getting ever more difficult to hire.  Institutions like the EEOC claim that they are run in the interest of the public. But when a large chunk of the public is looking for work and being blocked by bureaucratic policies, it seems more likely that the EEOC is run in the interest of the EEOC.

Which is fine if you are on the inside, but not if you are on the outside looking in.

The Disturbingly Close Ties Between Chicago Gangs and Chicago Politicians

When Barack Obama was elected president, most of the intelligent electorate knew exactly what to expect.  You may take the politician out of Chicago, but you can never take the Chicago out of the politician.

As expected, Obama has rewarded the country with corruption, sweetheart deals, arbitrary policies, and a spoils system on steroids.  Despite the frantic efforts of most mainstream news sources to avoid coping with this reality, the roots of the Obama presidency are solidly set in the seedy underworld of Chicago.

So when Chicago Magazine’s David Bernstein and Noah Isackson published their expose “Gangs and Politicians in Chicago: An Unholy Alliance,” I probably should not have been surprised at the length, depth, and breadth of corruption and crime in the highest reaches and lowliest bureaus of Chicago’s political machine.

But I was.

I strongly encourage you to read the entire article, as I cannot hope to encapsulate the perverse nature of this institutionalized corruption in a single quote.  However, the authors have helpfully summarized their findings, so hopefully reading this will induce you to seek more.

• While they typically deny it, many public officials—mostly, but not limited to, aldermen, state legislators, and elected judges—routinely seek political support from influential street gangs. Meetings like the ones Baskin organized, for instance, are hardly an anomaly. Gangs can provide a decisive advantage at election time by performing the kinds of chores patronage armies once did.

• In some cases, the partnerships extend beyond the elections in troubling—and possibly criminal—ways, greased by the steady and largely secret flow of money from gang leaders to certain politicians and vice versa. The gangs funnel their largess through opaque businesses, or front companies, and through under-the-table payments. In turn, grateful politicians use their payrolls or campaign funds to hire gang members, pull strings for them to get jobs or contracts, or offer other favors (see “Gangs and Politicians: Prisoner Shuffle”).

• Most alarming, both law enforcement and gang sources say, is that some politicians ignore the gangs’ criminal activities. Some go so far as to protect gangs from the police, tipping them off to impending raids or to surveillance activities—in effect, creating safe havens in their political districts. And often they chafe at backing tough measures to stem gang activities, advocating instead for superficial solutions that may garner good press but have little impact.

The paradox is that Chicago’s struggle to combat street gangs is being undermined by its own elected officials. And the alliances between lawmakers and lawbreakers raise a troubling question: Who actually rules the neighborhoods—our public servants or the gangs?

The extent of the corruption is shocking, and the brazen attitude with which politicians ally themselves with [more] common criminals is unbelievable.  If you want any indication of the source of the corruption currently in the White House, look no further than here.

The Sad Case of the Chevy Volt

Michigan’s Mackinac Center for Public Policy is reporting that the Chevy Volt, far from being a mid-priced car at some $40,000, actually costs about $250,000 when you factor in state and federal incentives and subsidies.

In an amusing aside, it is described as “the most government-supported car since the Trabant.”  Well played.

Each Chevy Volt sold thus far may have as much as $250,000 in state and federal dollars in incentives behind it – a total of $3 billion altogether, according to an analysis by James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy.

Hohman looked at total state and federal assistance offered for the development and production of the Chevy Volt, General Motors’ plug-in hybrid electric vehicle. His analysis included 18 government deals that included loans, rebates, grants and tax credits. The amount of government assistance does not include the fact that General Motors is currently 26 percent owned by the federal government.

Like the late, unlamented Trabant, the Chevy Volt stands out to me as emblematic of the failures of state central planning.  I agree with Johan de Nysschen, president of Audi of America, who calls the Volt “a car for idiots.”

“No one is going to pay a $15,000 premium for a car that competes with a (Toyota) Corolla. So there are not enough idiots who will buy it.” The Volt, you’ll recall, is expected to cost around $40,000 once tax credits are applied.

De Nysschen also laid into full-on electric vehicles: “They’re for the intellectual elite who want to show what enlightened souls they are.”

Of course they are.  The premium you pay for a Volt – even with aforementioned subsidies excluded – will almost certainly never be recouped by the savings in fuel over something like a Corolla.  And God help you if you actually need to get anywhere, since the range is dismal.

Of course I am not saying that electric cars per se are terrible things; what is terrible is that the American taxpayer is being forced to subsidize the Volt’s rich ($170,000 median income) buyers so that the government can feel good about its “green” credentials.

When people genuinely want to pay for an electric car, the market will emerge spontaneously, and I already see stirrings of an economical product line in some smaller companies. However, the value proposition is not there yet, and there is no use attempting to force an uneconomical product to market.

Like almost all new technologies, these cars will start out as expensive toys for the rich, then the free market will commoditize them and expand their reach into the mass market, sending prices down and volume up. Personal computers have followed this path, and there was never any need for the government to subsidize computer companies, or pick winners and losers in computer technology.  The story is the same for televisions, microwaves, CD players, telephones, and even the car itself more than a century ago.

But I’m sure the fact that the government is the beneficial owner of a huge chunk of GM had nothing to do with GM being the recipient of billions in subsidies.

So go ahead and give a one-finger wave to the next Volt driver you see.  After all, you helped pay for his car.