Monday, September 27, 2004


Looks like mortgage powerhouse Fannie Mae is being greedy. The New York Times reports that the government owned-and-operated "business" has been behaving rather shady as of late: "(Fannie Mae) agreed yesterday to major changes in its accounting and management practices in an unusual deal reached after a week of negotiations with the company's federal regulator. The agreement comes after a scathing report released by the regulator last week that accused Fannie Mae of accounting irregularities and earnings manipulation that helped enrich the company's senior executives and presented an apparently false portrait of its financial well-being to the public." I thought that was something profit-motivated business do, not a government entity focused solely on the well-being of the public. "Should further irregularities surface at Fannie Mae, the ramifications could be significant, not only for the company itself, but for the entire mortgage market, which has long depended on Fannie Mae's financial muscle and presence to make widespread home ownership one of the cornerstones of American life." If only every industry had a Fannie Mae.

In Dover, Delaware, an advisory panel has approved a payout of $14 million to keep a local business and its jobs in town, according to the Wilmington News-Journal. "The Council on Development Finance said today that the 350 jobs at Invista’s headquarters should be required to stay in Delaware for eight years, instead of the six originally proposed, in order for the company to receive an $8.75 million grant. The council also added that the company must keep employment levels constant at its Seaford plant to receive $400,000 in training for plant employees." That's brilliant. Use the tax dollars you took from the economy in the first place in order to give it a boost.

Residents in Kimmswick, Missouri (just south of St. Louis) are not very cozy with a rich businessman who wants to become a resident. According to the St. Louis Post-Dispatch: "Aldermen have delayed voting on a plan to annex 15 properties, including Francis' (the rich guy) estate, which is north of Kimmswick in Imperial, an unincorporated area in northern Jefferson County. According to some residents, there are those in Kimmswick who don't cotton to one of the landowners: a 40-year-old entrepreneur and professional speedboat racer who is quickly becoming Kimmswick's biggest booster, developer and employer." They're afraid he wants to become mayor. They like jobs, just not the businessmen who bring them. Makes plenty of sense. "But 'Mayor' Francis isn't the only thing his critics fear. Until recently, Kimmswick was a place of strict but unwritten rules: No business is open on Monday, and none is open past 4 p.m. Daytime might belong to antique-hunters from St. Louis and the lunching ladies of the Red Hat Society, but in the evening the town is a private place. Streets are empty, except for children on bicycles and neighbors gabbing over picket fences. Now, some of Francis' businesses stay open past 4 p.m." Mercy, that's bad. Next thing you know, businesses will be allowed to come in work a whole 40 hours a week, putting the locals out of business.

Tuesday, September 21, 2004


After a long fight with city officials, a judge in Cypress, California
(part of the Los Angeles metro area) has decided to allow a church to keep its land. The Los Angeles Times reported that the Cottonwood Christian Center was looking to relocate because of space concerns to an 18-acre plot. But the local government wanted to put a Costco there, and threatened to condemn the land and forcibly take it from the church. Said the Times: What ensued was a national debate that pitted religious freedom against city redevelopment rights. Redevelopment rights? Does anyone consider it sad that what is considered one of the more fundamental rights in America today is the right of the government to seize private property from individuals who rightfully attained it? Cypress officials said they welcome Cottonwood and that the fight had never been about blocking the church, but about standing for the city's right to redevelop. "We stood on principles," Mayor Tim Keenan said earlier in the week. If by "stood" you mean "trampled."

Here’s yet another example showing that nothing behooves the government more than having to pay compensation for its frequent landgrabs. In Holland, Michigan, a man is finally getting local authorities to pay up for seizing his land for environmental reasons, according to the Holland Sentinel. Ottawa County Circuit Judge Calvin Bosman ruled in May that a ban on building a home constituted a taking of Heaphy's property and that the state would be required to compensate him. “Compensate.” Now there’s a four-letter word if you’re paid with tax dollars.

Here’s one that hits close to home for me. In Baltimore, the Sun reports that the Jones Falls Expressway, which cuts straight through Baltimore, is finally finishing up its two-year construction project. I imagine Sun employees are jumping for joy, seeing as how much I remember them complaining about it. Even better, the government promises they won’t “improve” the roads – for now, at least. For the first time since the mid-1980s, JFX commuters can look forward to several years without major reconstruction projects holding up traffic on the city's segment of Interstate 83. That’s a good thing. Nothing spells disaster for Maryland roads like new government improvements.

Businesses in New Hampshire are looking to expand their trade options with Canada, according to the Manchester Union-Leader". “What we’re trying to do is meet with Canadian companies that are interested in expanding into the states, specifically New Hampshire,” said Department of Resources and Economic Development Commissioner Sean O’Kane. “An obvious advantage to New Hampshire is the proximity of the border and we share such a deep and rich cultural heritage with our Canadian neighbors that there is just a good symmetry there, plus we have the business base and the customer base existing here for them already.” Kumbaya. That sounds great to me, as long as we make sure we only give them stuff. We don’t want to get anything in return. Imports will cost us jobs.

Sunday, September 19, 2004

The Outsourcing Craze: Showing Why Politics Today Just Doesn't Cut It

Alright, time to give the o-word its face time. In my short time at the business desk in the Baltimore Sun newsroom, I must've heard the journalistic buzzword "outsourcing" 80 billion times from reporters giddy at the smart-sounding word, like they'd just discovered a new sector in modern economics previously unexplored by people with Ph.D.'s in the subject. Yes, reporters have a little too much faith in themselves.

Nothing irritates me more than hearing the word "outsourcing." Nothing. The reason why is because reporters throw it around like it's a new phenomenon, when all they've done is given a basic economic function a new name.

So in true journalistic fashion, their columnists spin 20-inch diatribes on the floundering U.S. economy and why the Chinese are to blame, while their reporters slap the face of a 70-year-old guy who just got fired at the Townsville plant where he's been working for "durn near 30 years" on every business story that has to do with our current economic standing. As if that's supposed to tell us anything. No wonder Americans are fine with invading just about any foreign country. They don't care about WMDs, they want their jobs back!

(Above: Indiana Gov. Joe Kernan shakes hands with the economy's big losers.)

For a nice textbook example of your run-of-the-mill outsourcing news story, the Star-Press in east central Indiana is a good recipe. First, begin with politician decrying the practice and shaking hands with blue-collar workers.

MUNCIE - Democratic Gov. Joe Kernan on Thursday spoke out against outsourcing of American jobs, then campaigned at the plant gates at Borg-Warner Automotive.

"There are those people in Washington telling us outsourcing is a good thing for the American economy," said Kernan. "I don't believe it."

Kernan told members of the United Auto Workers Local 287 executive committee that he recognized the importance of keeping manufacturing jobs in Indiana by pumping more money into job training and tax incentives for new business and industry.

Throw in a couple workers who lost their jobs (which can be found easily in any economic climate):

Lewis Cole, an electrician, recently lost his job at Marion's Thomson plant because of outsourcing and said he felt fortunate to get work at Borg-Warner.

"Kernan is doing what he can," Cole said.

Andrea Ivy, a 10-year production worker, was still undecided about the Kernan-Daniels race. She thought Kernan's stop also would encourage people to go out and vote.

"It shows the governor is concerned about bringing jobs here," she said.

Finally, finish with a weak conclusion that does the bare minimum of that annoying little journalistic rule of "getting both sides of the story." Don't forget the typo!

Marion insurance executive Tim Harris, Republican candidate in the House 31 race, said more tax restructuring and reducing regulations would make Indiana more business friendly.

"Government should create an environment that is business friendly and tax friend and get out of the way," Harris said.

Let sit for a few hours, and boom, you have a story that not only glosses over one side of a deep economic issue, but manages to provide a nice publicity piece for the Governor. Welcome to the mainstream.

But even I will say there is some hope. Much of the outsourcing craze (a journalism fad, not a business fad) has died down as the economy picks up a little, and some newspapers are saying that maybe outsourcing isn't bad for the economy. Where were you guys six months ago?

The Commercial Appeal out of Tennessee reports today that "outsourcing" was "a minimal drag on the job market."

Between 2001 and 2003, increased international outsourcing didn't have much effect on overall jobs or wages, even though individual workers were affected. This suggests that investors shouldn't worry even though the trend of turning to foreign workers may continue.

Well I'll be. Read on.

In the new UBS study, Harris says the U.S. economy adds new jobs in some areas even as it loses them in others. His study estimates that only about 400,000 job cuts annually are due to foreign outsourcing, out of a total of about 21 million unemployment claims each year.

"Outsourcing" is a wealth creator. It is a function of the U.S. economy necessary to create efficiency. It goes on all the time within U.S. borders. Jobs go from California to Michigan. Jobs go from Arizona to New Hampshire. Jobs go from Florida to Iowa. Jobs move in any healthy economy to their most efficient locations. There is not a lump sum of jobs that is "lost."

We have "outsourced" countless jobs to machines. A tractor can do the work of 20 or 30 men in a fraction of the time. That's 20-30 jobs we could have if we just banned tractors. Is technological progress bad for the economy? Did we outsource every last job to machines?

We have just as many jobs now as we did before these advanced machines that free up labor. That's because there isn't a lump sum of jobs. When a person is freed up from one job by technology, he can apply his efforts at something more pressing. If a maid gets a vaccuum cleaner that runs itself, she can go off and clean the bathroom in the time she would have spent vaccuuming. She can now do her job in half the time, freeing her up to make more money throughout the day at other houses. Outsourcing makes it possible for more to be done with less resources.

Also, there is the myth that invisible national boundaries have an impact on economic law. Sure, there are different laws in different countries regarding trade, and in that sense they have an impact, but as Mike Moore (no, not that Mike Moore) of the National Business Review points out:

Essentially, the internet and the communications revolution has abolished time and distance. Therefore any job that is not "shopfront" can be moved anywhere. There's no difference in sending information upstairs or a continent away.

He goes on:

Doctors are sending blood samples and x-rays for diagnostic testing. Legal and accounting firms, researchers and software developers are also migrating offshore for non face-to-face services.

The same old anti-Japan speeches of the 1980s are being dusted off in the US presidential campaign to play on the real fears of workers.

... More than 2.5 million jobs have disappeared under President George W Bush but much of the huge productivity gains have been the result of outsourcing. This is a tricky dilemma and is touching a raw political nerve.

Politicians who normally support free trade are voting for preventive measures. Senator John Kerry, the Democratic presidential candidate, is urging changes on government outsourcing and a right to know law to force call centres to disclose their locations. The US Senate has passed laws, as have a number of states, to control outsourcing of government contracts.

The laws of competitive advantage have not been abolished. IT, biotech, nanotech and pharmaceutical research companies cannot afford to lose their competitive edge. Protectionism can save jobs in the short term but only at the expense of better new jobs; long term, you will end up with neither.

... Consumers gain because of cheaper prices, companies gain due to lower input costs and developing countries gain new jobs and new wealth. Their middle class are our customers of the future. (emphasis added)

But who cares? The government of today has taken the role of economic watchdog, even though it should never have that power. And there are a million reasons why that's going to be bad for America's economy in the long run.

For one thing, those with the time and audience to examine economic realities when it comes to so-called "outsourcing" are those with a strictly white-collar audience -- not your average voter. Ernest Zedillo had an important commentary in Forbes magazine on the WTO's reanimation of the Doha Round of trade liberalization, but economic experts are largely viewed by the public as out of touch with the blue-collar worker. And even if they weren't, the cries from the average worker (not necessarily because they're stupid on the whole but because they're economically ignorant) will drown them out. You won't see any politicians courting the "expert" vote. Zedillo seems to acknowledge this at least in part:

There are two serious problems with (the WTO proposal): First, it's based on false premises; second, it would inflict much more harm than good on the U.S. economy. A recent study by the Federal Reserve Bank of Boston shows that domestic developments associated with higher productivity, not offshoring, explain the anemic growth in employment during the present recovery. While outsourcing does cause some layoffs, it also leads to insourcing to the U.S. In fact, a study by Global Insight (USA) has found that global sourcing contributes significantly to GDP in the U.S., adding $33.6 billion in 2003. The study also provides evidence that while IT offshoring displaces some workers, it ends up increasing total employment in the U.S. as its effects on productivity, demand for other domestically produced goods, lower inflation and lower interest rates flow through the economy. Politicians of all persuasions should know better!

But they don't. And neither does the media. You won't find this snippit on the front page of any business section, or on the inside for the matter. Why? Because it's easier to tell people that Billy Bob lost his job to a Chinaman than explain the economic in's and out's of the business cycle. Obviously, the Kerry camp will take advantage of that, Zedilla added.

They (the Kerry campaign) have found it politically expedient to blame offshoring for the U.S.' weak job creation in recent years and are pledging to restrict it.

Expect the Bush camp to follow suit. I'll admit that Bush has done well trade-wise by resisting tariffs and most inhibitions on free trade. But even he, or should I say he especially, is a slave to political reality. It's not like Republicans, despite their rhetoric, are going to believe that they can give a sound economic argument and win over voter's hearts against the emotional diatribes of the left. Here's what happens when you try to pull something like that off:

"People talk about (outsourcing) a lot," (Labor Secretary Elaine) Chao said in an interview after appearing before Missouri delegates at the Republican convention. "The anxiety belies the numbers."

Vice presidential candidate John Edwards seized on Chao's remarks and called it another example of President Bush's misguided economic policies.

"Today a member of his cabinet said that outsourcing American jobs overseas creates jobs," Edwards said. "Like most Americans, I have no idea how they could say that."

That's right. No economic argument for "outsourcing." Just "did you hear that? They want to ship more jobs overseas!"

Rather than look at economic realities, the American public encourages politicians to encourage private firms to behave like children and start the outsourcing name-call game, as the Commercial Appeal noted:

[T]he battle over who will build a new presidential helicopter has homed in on which competitor has the best U.S. production credentials. Sikorsky Aircraft Corp. has tried to position itself as the all-American candidate, saying rival Lockheed Martin Corp. will be using a helicopter designed by Italian firm AgustaWestland, part of Finmeccanica.

But Lockheed Martin says much of its team's work will take place in Texas. Meanwhile, it notes that Sikorsky and its parent firm, United Technologies Corp., have production facilities in China.

Oh please. To anyone else, this is childish. To the U.S. government, it's responsible economic policy.

This is why the government should not be making decisions when it comes to trade. It's not merely because they themselves don't know what they're doing, which is certainly the case. It's mostly because they are ruled by a group of people who definitely don't know what they're doing: the American public. Most of them don't have degrees in economics. Most of them don't know the first thing of running a business. But they're still making all the decisions when it comes to what trade is OK and what trade isn't. In these days of "the majority is always right," you can expect hard economic times because you can be sure the majority doesn't have a clue what they're doing.

There will never be a real discussion in American politics about the issue, or any other issue for that matter, because politics isn't built that way. Instead, there will only be superficial discussions about things like who did what 35 years ago in a war everyone despises. I even saw a recent article in the Salt Lake Tribune on whether or not Karl Rove dodged the draft. Who cares?

Three groups: The media, elected officials, and the public. The holy trinity that will perpetually be in power in America, rather than the free market. Is it any wonder that we follow a continuing route to greater protectionism?

I'll close with this quote by Mike Moore:

[A]s a politician who knows the language of the street corner meeting, one recent TV grab featuring a South Carolina voter haunts me. A middle-aged man explained how he had lost his textile job to China, had retrained himself in IT only to lose that to India. Now, he said, he was studying real estate because "that's the one job that can't go offshore."

It's a big task trying to explain the theory of creative destruction or how infrastructural inefficiencies are a tax on every other job to an unemployed 50-year-old.

And that's one reason I was New Zealand's shortest-serving prime minister.

CBS: A sad state of affairs for journalism

Well, I assume most of you by now know that the supposed 1972 memos proving Bush behaved dishonorably put on the air by Dan Rather turned out to be fairly obvious fakes. I enjoyed reading the Chicago Sun-Times rip CBS a new one. Trust me, go read it. This wouldn't be worth a post if it weren't such a good read.

Saturday, September 18, 2004

A must-read

Joseph Sobran calls democracy "two wolves and a lamb voting on what to have for lunch." Regardless of your views on democracy, this is an excellent piece on the subject. A very fresh perspective.

More Hooplah on the Minimum Wage

As election time looms, commentary on the minimum wage inevitably rears its ugly head. And while most reporters these days are content to parrot the same hype that our elected officials give because they lack the creativity to dig deeper into a story, there are snippits of reality showing up here and there in the midst of wishy-washy articles about "getting the poor back on their feet."

The first is this hopeful piece from the San Jose Mercury-News, describing Gov. Schwarzenegger's recent veto of a bill that would have increased California's minimum wage to $7.75 an hour -- the highest in the nation.

"Now is not the time to create barriers to our economic recovery or reverse the momentum we have generated," he said. "I want to create more jobs and make every California job more secure."

And that's not all. The California Chamber of Commerce actually opposed the bill for the correct reason that minimum wage laws, as delicious as they sound, are only likely to increase unemployment: The California Chamber of Commerce praised the veto, saying the legislation would have created a "huge disincentive for employers looking for locations to expand operations or locate new jobs."

Glory be. Maybe Schwarzenegger's California won't be worse off under his watch. For now, California remains in third place in the miminum wage standings behind -- you guessed it -- Oregon and Washington, whose laws are "adjusted for inflation."

On the same day as Arnie's big veto, Oregon announced an increase in their own minimum wage. Eugene's Register-Guard had a happy little story for one worker who'd be enjoying more cash thanks to the bill.

Rachel Strasshofer considers the raise her employer gave her earlier this year - a 15-cent bump to $7.25 an hour - a big deal.

"When I got that raise, it helped me pay bills," said Strasshofer, 20, as she cleaned tables at the Big Town Hero sandwich shop on Crescent Avenue in Eugene Friday afternoon.

Other Oregon workers at the bottom of the wage scale will get a similar raise starting Jan. 1, when the state will hike the minimum wage by 20 cents, to $7.25 an hour, to help offset inflation. The state on Friday announced the new rate.

Strasshofer, who started $7.10 an hour when she began at Big Town Hero, said the increase should help other workers as it did her. "For people who work a lot of hours, it is significant."

It's enough to bring a tear to my eye. Unfortunately, the article fails to dig up someone who got fired because the company couldn't afford to simply pay all their employees more money. To its credit, though, it did point out the following:

Although minimum wage earners and workers rights advocates applaud the inflation-offsetting increases, many business owners argue the system chokes job creation.

"It's very coincidental that this comes right on the heels of another announcement - an increase in our unemployment rate," said Mike McCallum, executive director of the Oregon Restaurant Association. The state jobless rate rose to a seasonally adjusted 7.4 percent in August, up from 6.8 percent in July.

"We continue to be leaders in the minimum wage rate, and we're going the wrong way" on the jobless rate, McCallum said, adding that low-margin restaurants have trouble passing the increased labor costs on to customers. "If they do pass them on, they lose customers."

And as it is their job to do, officials scoffed at such silly capitalist propaganda. Pish and tosh, says Chuck Sheketoff, executive director of the Oregon Center for Public Policy, calling those arguments "slop."

"They should be more concerned about Mad Cow disease coming back and what that would do to the industry rather than complaining about the minimum wage," Sheketoff said.

Yeah, take that, local businesses. Deal with it!

Of course no news on the minimum wage would be complete without a check on what our European friends are doing. Britain's the Guardian reported last Monday that employers were backtracking on committments to raise the minimum wage after being hit hard by initial increases, drawing the fury of trade unions, of course.

"It looks as if the CBI is getting ready to oppose any further increases in the minimum wage even though it helps fewer than was originally planned and had no adverse effect on jobs," said Brendan Barber, the general secretary. "The minimum wage has been a huge success, and further careful increases to boost the income of the low paid above inflation have always been part of the deal. Too many CBI members already practise boardroom excess. Now it seems they want to keep the poor in their place, too."

Leave it to government agencies to create class warfare. Nonetheless, the government is, to their chagrin, limited by reality. Bad economic policies will breed a bad economy, and chief among them is the belief that wages can be coercively raised and employers will simply bear the burden. Well, if that were so, why not just raise the minimum wage to $80 per hour so everyone can be rich?

To answer that, Shawn Ritenour at wrote a timely piece entitled "What you need to know about the minimum wage."

Within the past ten years it has become conventional wisdom among the left that we can get all of the benefits of raising the minimum wage "a reasonable amount" without increasing unemployment. This amounts, of course, to an assertion that we can easily put aside economic law. An increase in the minimum wage will not benefit all low income workers. It will help only some of them at the expense of others. Why is this so? Well, economic law tells us that if the price of any good increases, people will want to buy less. This is true for gasoline. It is true for apples. It is true for iPods. It is also true for labor services.

Even the "living wage" zealots at ACORN recognize this. In 1995 ACORN sued the state of California to get itself declared exempt from California labor law, so it would not have to pay the minimum wage to its own employees. In its brief submitted to the Court of Appeal, ACORN argued, "The more that ACORN must pay each individual outreach worker—either because of minimum wage or overtime requirements—the fewer outreach workers it will be able to hire."

That's the reality that no government can get around no matter what kind of rhetoric they use. It is impossible to force businesses to both raise wages and keep all their employees. A raised minimum wage comes at the expense of unemployment, and that's the economic reality of things.

Ritenour further points out that most people who work the minimum wage get paid above that wage after a year. So the key to getting paid more is simply to stay employed. That is precisely the problem with minimum wage laws, it makes it difficult for lower-skilled workers to get employed in the first place.

One more thing to note. Ritenour first points out that the "poor" are not people who lack the necessities of life. Such people are very rare in America. Says Ritenour:

Data from the most recent census, however, reveal that those who are officially classified as "poor" by the United Statesgovernment possess a surprising amount of wealth.[2] The official "poor" are not that poor after all. For example, for those persons classified as "poor," 46% own their own home and 76% have air conditioning. More than 66% of the "poor" have more than two rooms of living space per person. In fact, the average "poor" United States citizen has more living space that the average citizen (not "poor" citizen) living in Austria, Belgium, France, Finland, Germany, Greece, Ireland, Italy, Portugal, Spain, and the United Kingdom; 97% of the official American "poor" own a color television and over half own more than one; 62% of the "poor" have either cable or satellite television. Far from being undernourished, the "poor" have a greater obesity problem than the rest of the population. The most common hardship that most poor people face is making late rent and utility payments.

So there you have it. The minimum wage war will rage on in our political annals, with really the bulk of the arguments focusing on how much should the increases be rather than should we get rid of it. The reason why is that 99% of Americans are not going to devote the time and energy to give an issue the thought it needs. That's simply a reality of human nature. As a result, only the superficial arguments will be considered, and it sure looks juicy to the college students, the "working men," and the conscientious liberal artists of America (of which there are plenty of) to support making poor people richer. That's essentially what minimum wage laws propose, and that's what will be given time in the circles of debate among ordinary Americans, which unfortunately only go skin deep on these important issues.

This is the fundamental flaw with American politics. It's sad, but for now the rest of us will just have to bite the bullet until somehow some sanity finds its way into our political system once again.

Friday, September 17, 2004

Prices: The Free Market's Unnecessary Evil (Thus Sayeth the Government)

It's been a pretty slow news week, but this little piece in the Honolulu Star-Bulletin out of Hawaii caught my eye.

As you know, prices for housing are pretty high in Hawaii. As a result, many who can't afford it are forced to rent instead. This was simply unacceptable to the Hawaiian government.

"Hawaiians to get 3,500 homes," reads the triumphant headline. "The state transfers 1,800
acres on three isles to the Hawaiian Homes Department."

It continues:

"At a time when the cost of housing is unreasonable, we will be providing people who clearly are in many cases in a rental situation into a position of home ownership," department Director Micah Kane said yesterday.

This quote is similar to President Bush's pledge to provide FHA no-down-payment loans to America earlier this year, and obviously it's just as politically popular.

But once again both the Hawaiian and U.S. government run into a problem of not really being sure what they want. On the one hand, skyrocketing prices keep people from buying, they say. But on the other hand, they praise the boost that the housing industry has given the economy when many other industries are cutting jobs.

So which is it? Somehow, it makes perfect logical sense to Americans when elected officials both deride and applaud two sides to the same coin. If the housing industry is driven into the ground due to a lack of demand, then people can afford cheap housing. Of course that consequently means no one wanted housing in the first place, and it doesn't bode well for jobs in the industry either. On the other hand, a thriving housing industry necessarily means producers pulling a big profit and raising prices. We can't have that.

The problem politicians and people in general have is looking at prices as an unnecessary evil, rather than what it is -- a necessary good. It is a mechanism for telling the market what to make more of. When a producer makes a massive profit off what he or she is selling, it induces him to raise prices. How is that good, you ask? By raising prices to a certain level, he can see what the market will bear, and, consequently, how much more he needs to produce. Without this pricing mechanism, our economy would not have the information necessary to decide how much to produce.

For example, if an economy wants lots more oranges, but the government puts a price cap on oranges to stem "gouging," how is a producer supposed to know what the economy wants? If, because of the price cap, he pulls only a marginal profit, he will increase his supply of oranges only marginally. If the same producer is allowed to charge whatever he wishes, he can pull a huge profit, and at the same time realize he best produce some more oranges to maximize his profits.

But still, our officials seem to be content to perpetuate such obviously self-contradictory nonsense. The article continues:

"Our board had no difficulty making this decision. We feel that our mission, which is statewide, to provide affordable housing, covers all the people that live in Hawaii. And in fact we see no difference between Hawaiians or others," said Stephanie Aveiro, housing agency executive director.

Their mission is to provide affordable housing? Why stop there? If you're going to define affordable, why not go ahead and make every other product affordable?

The obvious reason why this will never happen is because it's not possible. Picture the economy and prices as a balloon. Forcing one industry to be "affordable" is like trying to flatten one area of a balloon with your foot. When you step on that one area, the rest of the balloon expands. If you use both feet to flatten it all out, the balloon will burst. So would our economy if the government tried to enforce a price cap on every product, which is why it doesn't. So if it is so obvious that price caps on everything would be disasterous, why does it follow the logic that price caps on only somethings are not equally as bad for the economy?

This is the problem with government as a whole. The goal of politicians is to appeal to superficial arguments on issues, not to give it a full logical review.

Monday, September 13, 2004

I'm Back - TODAY'S HEADLINERS (Mon. 9/13)

I’m finally back. I was vacationing in New Orleans for a little while, but now the updates should be fairly regular.

The concept of private businesses starting clam farms is quickly drawing the ire of residents in an Alaskan town, the Homer Tribune reports. The article is pretty poorly written, but I think I can decipher from it that Homer residents simply expect their way of life to be destroyed by private industry: Sen. Gary Stevens, R-Kodiak, publicly opposed lifting the ban in a statement issued Aug. 30. Stevens, whose senate district includes the Kachemak Bay area, recognized the need for greater economic opportunities in the region. However, he noted, “the area was placed off-limits to commercial harvesting in 2001 over concerns about the incompatible use of on-bottom mariculture. The proposal to lift the commercial harvesting ban has galvanized Kachemak Bay residents, as well as Homer and Seldovia civic leaders in strong opposition to the plan. Many have cited lack of public access to beaches used in the on-bottom clam farming, and denial of traditional harvest rights as reasons to oppose Fish and Game’s proposal.” You know, with all the complaining people to do about how the government doesn’t do enough to strengthen their economy, maybe America is flailing economically because most of the time they react towards incoming business as though it were a Nazi invasion.

On the same note, the Record-Courier in Gardnerville, Nevada is bemoaning the loss of an old tree to a private business. Douglas County residents are seeing a few of their beloved cottonwoods being chopped down to make way for new homes. Well, the residents don’t technically own the land the trees are on. But old trees like that belong to the community ipso facto apparently. "Developers are motivated by profit. They have little concern the history, culture, or the future well-being of a community. These trees should be allowed to die in their own time," (Douglas County resident Barbara) Havens said. "County of officials should provide the check and balance.” I agree. New jobs and homes would be devastating to the community. Now where are Gardnervillians going to get their carbon dioxide?

This is a good one. For all those who fear the Svengali-like powers of businesses that swarthily offer goods and services, you might enjoy this. The Oregonian out of Portland says: When Wieden+Kennedy made a one-hour logo-laden movie for Brand Jordan about boxer Roy Jones Jr., the ESPN2 network reportedly aired it at no cost to Nike. (scroll past Ford ad to the rest of the article) Everyone won -- especially viewers, who got a close-up look at Jones that only Nike could deliver -- say Wieden+Kennedy managers. Not so, says Gary Ruskin, director of Commercial Alert, a Portland-based nonprofit that works nationally to contain commercialization. Ruskin, who is probably 95 and begins every sentence with “back in my day,” continued: "When Wieden+Kennedy engages in this trickery and networks do as well, they're brazenly violating the public's right to know who is seeking to persuade them," Ruskin says. "It's deeply sleazy and part of the creep of advertising into every nook and cranny of our lives and culture." Public’s right to know who is persuading them? Which amendment is that? … A question for Mr. Ruskin: Who lost? How was the consumer harmed? Why is commercialization bad? Has anyone ever bothered to spell that out with something other than abstractions? … Execs involved with the little movie defended their actions: "Our feeling is, as long as the story's great, you're good," says Jimmy Smith, Wieden+Kennedy's Nike basketball creative director, who hopes to land the ad shop's hip-hop play, "Ball," in an off-Broadway theater by spring. And if the story sucks, no one will watch it. Very simple. … "Part of why companies like Wieden+Kennedy like guerrilla marketing is because they are so deeply unpopular," says Ruskin, citing polls showing increasing resistance to advertising. "People hate the companies so much they have to hide their tracks." Thank God that the company has a tractor beam so they can suck customers in whether they like it or not.

Wednesday, September 01, 2004


The major media continues to press on in what it apparently sees as its primary purpose: sowing the seeds of discord between the proletariat and the bourgeoisie. A recent AP article pointed out in a not-so-subtle manner that outsourcing is very profitable for CEOs: "Average CEO compensation at the 50 companies outsourcing the most service jobs rose by 46 percent in 2003 from a year earlier, compared with a 9 percent increase for CEOs at 365 big companies overall, the study by the left-leaning Institute for Policy Studies and United for a Fair Economy found." I guess if this trend continues, all the jobs will be outsourced to Asians, a group of about 25 CEOs will run the entire country, and every American will be unemployed. Oh yeah and we'll have cheap goods.

R.I.P.: A foolish New England state has fallen prey to the sneaky free trade practices of Chile. The Union-Leader reports that New Hampshire "is one of six states that received a grant to take part in the project to begin exporting to Chile." But with exports come imports, and we all know what the means. Kiss your jobs goodbye, New Hampshire. Now the Chileans will be doing everything you do for six cents a day, and be happy about it. If only there were a way to export without getting any imports. That's the whole problem with our economy.

Yet another government entity is giving local businesses a lesson in how to treat their customers. A South Carolina government study committee is looking into making restaurants "post signs indicating how smoky they are," according to the Charleston Post and Courier. "[T]he subcommittee unanimously approved a recommendation that restaurants and bars post their smoking policies, just as they now post health department ratings, and that the city provide unspecified incentives for those that go smoke-free or install better ventilation equipment." Wow. These businesses are obviously operating with absolutely no concern for the comfort of their customers. By the way, do you ever wonder why businesses try to make good products even though no law requires them to? It blows my mind.

Now on to the other Charleston. The significantly less attractive West Virginia version. The Gazette cheerfully reports that hundreds on welfare are taking college classes. "(Sue Buster, director of the Division of Family Assistance) said a key factor appears to be accessibility to college programs. 'Where they’re available, it looks like people are taking advantage of them,' she said." Yeah. Right. You can tell because a whopping 6.5% of the state's 12,905 welfare recipients are going to college. Good thing they're not working.

Parasoft's CEO hits the nail on the head

Why Regulating Offshore Outsourcing Will Hurt the U.S. Economy

"It's important to recognize that outsourcing can help us develop trading relations with the nations to which we are outsourcing. Such trading relations can lead to long-term opportunities for the U.S. For example, consider the evolution of the U.S.'s now vital trading relationship with Japan. At the end of World War II, Japan was largely undeveloped; if they remained that way, we might not have a trade deficit with them, but we also would have little to no trade with them. As Japan first began to develop, they flooded the U.S. market with sometimes strange exports. By the late 1980s, there was fairly widespread fear that Japan's economic development was going to threaten the U.S. economy -- just as there is now fear that economic development in India and China will threaten the U.S. economy.

Did Japan's economic development ruin us? Hardly. In fact, starting around the early 1990s, Japan became a prime market for U.S. exports. Many U.S. companies (including Parasoft, the software development company of which I am the CEO and co-founder) enjoyed much success exporting products to Japan since the early 1990s. To this day, Parasoft and many other companies have continued to build and foster relationships with Japanese organizations -- relationships that have been key to our ability to weather U.S. recessions.

If Japan had remained a less-developed nation -- as many in the U.S. initially hoped it would -- Parasoft and other U.S. companies would not have been able to reap the benefits yielded by our exporting to Japan. Job growth would have been slower, tax revenues from corporate profits would have been reduced, and many fewer U.S. companies would have weathered the previous (early 1990s) and current recession. Now, development in India and China is starting to promote new export opportunities. If it weren't for offshore outsourcing, these opportunities would not exist. We would continue to consider India and China to be nations that are not receptive to our technology exports (like we currently consider Africa and much of South America).

I think that when we hear about short-term job losses that result from outsourcing to India and China, we also need to consider the long-term benefits of these nations developing into prime markets for U.S. exports. From my perspective as the CEO of a technology company, it appears that having these new markets offers U.S. businesses, U.S. workers (and prospective workers), and the US economy a tremendous opportunity for growth and expansion."

Labor Secretary Elaine Chao also pointed out an important fact about our economy:

In the past year, employers have eliminated about 300,000 jobs in the United States in favor of cheaper labor elsewhere, Chao said. Yet about 9 million Americans currently work for U.S. subsidiaries of foreign-owned companies, she said.

"People talk about (outsourcing) a lot," Chao said in an interview after appearing before Missouri delegates at the Republican convention. "The anxiety belies the numbers."

Vice presidential candidate John Edwards seized on Chao's remarks and called it another example of President Bush's misguided economic policies.

"Today a member of his cabinet said that outsourcing American jobs overseas creates jobs," Edwards said. "Like most Americans, I have no idea how they could say that."

Chao said the administration is concerned about every lost job, but realizes job shuffling is part of a dynamic economy that constantly requires workers to get new training."

This is what people do not get about outsourcing. Other countries do not send us exports as gifts, i.e. there is no such thing as free wealth. Exports pay for imports, and vice versa. There's no way around that, that's why it's called trade. Initially we may lose some jobs to other countries who have a comparative advantage in a certain market. But that only increases demand for products that we have a comparative advantage in down the road. When they export, they receive our money. They're not going to just take this money and bury it in the ground, and they can't spend it in their economy. Basically, they receive our wealth in one form or another when they export goods to our economy. Whether that is our exports or money that will be used to buy our exports in the future is irrelevant. There is simply no such thing as one-sided trade. Anyone who says such a thing is either making a very fundamental economic fallacy, or he is a politician that knows better but wants to tell the laid-off plant workers something they want to hear despite how wrong it is.

Trade is trade. One-sided trade is an oxymoron.