Should We Tax Our Way To Prosperity?

Writing today on the Washington Post's Post-Partisan Blog, E.J. Dionne takes issue with Mitt Romney's effort to analogize President Obama poor economic record to that of the British Labour Party in the 1970s. At issue is Romney's adaptation of a campaign poster employed by Margaret Thatcher during the late 1970s, calling attention to the failure of the Labour Party's economic policies. These policies, of course, helped produce high unemployment, high inflation and economic stagnation, all leading to a 1976 IMF bailout orchestrated by the Ford Administration. Like Thatcher's poster, which asserted (correctly) that "Labour's Not Working," Romney's new poster asserts "Obama's Not Working."

Dionne does not dispute that economic conditions in the United States are in some ways analogous to those in Britain in the 1970s, e.g., unemployment is high and debt is rising. (At the same time, inflation is still at bay here, partly because unions exert far less influence than they did in Britain in the 1970s.) Still, he claims there is a key difference between 1970s Britain and the current environment that deprives Romney's analogy of much force. According to Dionne:

"[T]he big difference is that the economic mess Obama inherited was the creation of some of the very policies that Romney now endorses, including low taxes on the wealthy and deregulation."

Apparently Dionne, like Labour in the 1970s, believes that we can tax and regulate our way to prosperity.

Huh?

Unfortunately, Dionne does not explain how higher taxes on those citizens who create the most wealth, and already pay most federal income taxes, a cornerstone of Labour's policies in the 1970s, would have prevented the current downturn or otherwise stimulate the economy. Perhaps he should review the economic records of Ronald Reagan, John F. Kennedy and Lady Thatcher herself, all of whom cut taxes "across the board," including on the "wealthy," to get the economy moving again. As Lady Thatcher's predecessor Winston Churchill colorfully put it: "[F]or a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

Nor does Dionne specify which "deregulation" led to the current economic downturn or, for that matter, document his claim that Romney, who was not a public official at the time, supported such deregulation. Finally, he does not mention that deregulation in both Britain and the United States in the early 1980s apparently helped produce sustained periods of economic growth in both countries or that President Obama's administration has sought to expand the power of cartelistic labor unions in so as to increase the cost of doing business in the United States and interfere with the process of competitive federalism.

This blogger suspects that Romney's message will have more resonance than Dionne cares to admit.

Do Low Taxes Put Our Food Supply At Risk?

Generously Offers Americans a Choice Between Higher Taxes or Food Poisoning

In his press conference earlier today, the President claimed that failure to find additional tax revenue could result in the elimination of food inspections by the Federal Government. (Here's the clip.) Talk about the politics of fear! The Federal Government spent over $3.5 Trillion last year. According to one source, the national government, via the Department of Agriculture, spent less than $11 billion in 2010 on "animal and plant health inspections, food safety, grain and packing inspections, and conservation activities." Is President Obama really asserting that, absent tax increases, he could not find $10 billion in non-essential spending in a $3.5 Trillion federal budget that would be better spent on food inspections?

Speaking of non-essential spending, the President's plea for more tax revenue is particularly ironic in light of his Administration's opposition to the bipartisan effort to eliminate the $6 Billion in annual subsidies to the Ethanol Industry. Apparently the President believes the National Government has ample funds to subsidize the use of corn as a fuel but somehow cannot locate the money necessary to prevent Americans from eating tainted food. This is a common tactic by so-called "Progressives," viz., invoke the need to fund core functions of government while at the same time supporting the existence and expansion of programs that simply transfer income from taxpayers to special interests.

Electric Cars Not So Green After All

An Un-Green "Leaf"



The Electricity-Hogging Chevy Volt

Nissan and General Motors are touting electric cars, like the Nissan Leaf, pictured above, as "green" alternatives to traditional gasoline-powered automobiles. At the same time, the National Government is subsidizing the sale of such automobiles, providing a $7,500 tax credit to individuals who purchase such automobiles. Moreover, as previously reported on this blog, President Obama justified the money-losing bailout of General Motors in part by claiming that the government would, as the owner of GM, encourage the firm to produce "green" automobiles like the $40,000 (minimum) Chevy Volt, also pictured above.

Just last week the Australian newspaper reported on the findings of a British study that suggests that electric cars are actually less "green" than their gasoline-powered counterparts. As summarized by this story, the study found that "[a]n electric car owner would have to drive at least 129,000 km before producing a net savings of CO2" compared to a similar gasoline-power automobile. Why? Because the production and disposal of batteries employed in electric automobiles consumes significant amounts of electricity, with the result that the production of an electric automobile consumes at least 50 percent more carbon than the production of a similar gasoline-powered automobile. Thus, while electric cars emit less carbon per mile than their gasoline-powered counterparts, their lifetime carbon footprint exceeds that of gasoline-powered cars unless driven at least 129,000 km. The authors of the study also suggest that electric automobiles will rarely reach the 129,000 km mark, "because they typically have a range of less than 145km on a single charge and are unsuitable for long trips."

Taken at face value, this study, if accurate, would seem to undermine the case for encouraging the production of electric automobiles. Perhaps the Federal Trade Commission or Environmental Protection Agency will require Nissan and General Motors to disclose to consumers the actual carbon footprint of their vehicles.

Still, there are two caveats.

First, some electricity generation is carbon-free. Hence, the results of the study are presumably sensitive to assumptions about the method of generating the electricity employed to manufacture electric cars and their batteries and to charge such cars. Thus, an electric car manufactured in France, where nuclear power provides 75 percent of the nation's electricity, would have a smaller lifetime carbon footprint than an electric car manufactured in the United States, where coal provides 56 percent of the nation's electricity, and nuclear energy provides a mere 20 percent , or China, where coal provides 80 percent of the nation's electricity and nuclear power provides only 3-4 percent.

Second, it's conceivable that, over time, the energy-intensity of battery production will fall, thereby reducing the carbon footprint of electric automobiles. For instance, as the output of electric cars rises, manufacturers of batteries may be able to realize economies of scale and thus reduce production costs, including electricty consumption. This is sheer speculation, however. Indeed, the overall cost of producing an electric car could fall, without impacting the amount of electricity consumed per automobile produced.

AFSCME Challenging Scheme It Endorsed.....

AFSCME (Wisconsin) v. AFSCME

Yesterday several Wisconsin unions, including three Wisconsin Councils of the American Federation of State, County and Municipal Employees ("AFSCME") filed suit in Wisconsin federal court challenging the state's restrictions on collective bargaining by most state employees. As described by the Milwaukee Journal Sentinel, the suit claims that the recent legislation violates both the First and the Fourteenth Amendment to the Constitution of the United States. (See also here, for a report by Reuters.) In particular, the suit alleges that the law, which grants greater collective bargaining rights to police and firefighters than to other state workers, treats one category of state employee --- public safety workers --- more favorably than the rest and thus denies most state employees "equal protection of the law," in violation of the Fourteenth Amendment. The suit also refers to the category of "public safety workers" as "newly-created" and claims that reducing the collective bargaining rights of other employees violates the First Amendment by deterring union activity and granting preferential status to a favored political group --- police and firefighters.

The challenge is both unmeritorious and ironic. The First Amendment protects freedom of "speech," "press," "assembly" and the freedom to "petition" the government for redress of grievances. It does not guarantee the right to bargain collectively over terms of employment. Unions, after all, are labor cartels, which Congress or individual states could ban as such. Indeed, the Supreme Court has expressly held that there is no right for individuals to strike seeking higher salaries in defiance of duly enacted antitrust laws, even when the individuals are doing so for the purposes of making a political point. See FTC v. Superior Court Trial Lawyers, 493 U.S. 411 (1990). If Congress or individual states can outlaw such activity, then it necessarily follows that they need not encourage it by recognizing and bargaining with such unions. Moreover, while the 14th Amendment mandates "equal protection of the laws," it does not require states to authorize all labor cartels simply because it authorizes some. Where economic regulation is concerned, legislative classifications pass muster under the 14th Amendment so long as there is a "rational basis" to support them, unless the classification is based on race, gender or religion or burdens a fundamental right. Thus, Ann Althouse, a Professor of Constitutional Law at the University of Wisconsin, has suggested that the suit is frivolous:

"There's no suspect or quasi-suspect classification, so the courts will give this minimal scrutiny. How is this anything but a frivolous lawsuit?"

The suit is ironic because it represents a 180 degree reversal of the position that organized labor, including AFSCME, took last year. At that time, as previously discussed on this blog, organized labor advocated federal legislation mandating special collective bargaining rights for, you guessed it, public saftey employees! In fact, when the House of Representatives passed a "Public Safety Collective Bargaining Bill" in July, 2010, AFSCME bragged on its website that many of its members had visited members of Congress in support of the legislation. (Indeed, AFSCME repeatedly called for passage of such legislation last year. See here, here and here, for instance.) Such legislation was aimed at those states, like Virginia, that, following the advice of Fraklin Delano Roosevelt, refuse to engage in collective bargaining with public employees and would have required states and localities to allow public safety workers to unionize, even if such unionization was otherwise contrary to state law. (See here for a December 2010 editorial in the Daily Press of Hampton Roads taking issue with the proposed legislation and properly praising Senator Mark Warner for voting against it.) If passed, this legislation would have imposed on several American states the very sort of regime the pending suit claims is unconstitutional!

Perhaps AFSCME's national office will file a brief amicus curiae defending Wisconsin's decision to adopt the same regime AFSCME asked Congress to impose on the nation!

Should We Celebrate the Auto Bailouts?

$14 Billion FLOP

The President of the United States recently proclaimed the national "bailout" of Chrysler and General Motors a "success," despite the fact that the American Taxpayer will, by the President's own calculation, lose $14 Billion on the combined bailout. Among other things the President claims that the bailout saved a million jobs in the American auto industry and related industries by preventing the failure of the two firms. (For a transcript of the President's speech, go here.) The Washington Post has already announced that the President's speech was "one of the most misleading collections of assertions we have seen in a short presidential speech," and this blog does not find the President's argument convincing, for several reasons.

1. The President assumes that both Chrysler and General Motors, along with the jobs they support (between 100,000 and 150,000 American jobs), would have completely disappeared without the bailout. The President also assumes that hundreds of thousands of other jobs related to the automobile industry would have disappeared as well. Both assumptions are apparently incorrect. To be sure, both firms would have declared bankruptcy, but bankruptcy does not automatically lead to a firm's extinction. The whole point of bankruptcy is to facilitate the renegotiation of a debtor's obligations, in the hope that a streamlined firm will emerge from bankruptcy able to compete again in the marketplace. David Skeel, an expert on the laws of bankruptcy at the University of Pennsylvania Law School, contends in an Op-ed in Monday's Wall Street Journal, that "General Motors was a perfectly viable company that could have been restructured under the ordinary reorganization process." My colleague Nate Oman made a similar point in August, 2010 in an Op-ed in the Washington Times. Such restructuring, of course, might have led to a smaller company that focused more on more profitable brands and models that consumers actually wish to purchase, unlike the notorious Pontiac Axtec pictured above. But the company would have hardly disappeared. (Nor would such a company necessarily be any smaller than the bailed out version, as taxpayer subsidies do not increase the demand for GM vehicles.) Ditto for Chrysler which, as Skeel points out, owned the popular "Jeep" brand and is now controlled by Fiat. (Indeed, some readers will recall that Chrysler bought Jeep from then-floundering American Motors Corporation in 1987. AMC, in turn, had purchased Jeep from Kaiser Motors in 1970. AMC and Kaiser are long since extinct as corporations, but the Jeep brand, and the jobs associated with it, live on.) Any fair calculation of the number of GM and Chrysler jobs "saved" by the bailout would have to take into account the fact that, even without the bailout, both firms most likely would have survived. And, of course, if both firms had survived, then firms related to the automotive industry would have survived as well.

2. Even if both Chrysler and GM had failed completely, there is no reason to believe that all jobs supported by the two companies would have disappeared. The existence or not of GM and/or Chrylser does not alter the demand by American consumers for automobiles. Other companies with excess capacity, particularly Ford, could have ramped up production to meet that demand, hiring some of GM's and Chrysler's displaced workers as well as individuals who have never worked in the automobile industry before. (In fact, Ford announced earlier this week that it plans to increase its production by 50 percent over the next few years.) Ditto for American factories owned by Toyota, Honda, BMW, Volkswagen, Kia, Nissan and others. These firms, in turn, would have purchased parts and other inputs from firms that previously served GM and Chrysler. That, after all, is how free economies work --- firms that produce products like the Pontiac Aztec that consumers refuse to buy do not succeed, and firms that ARE producing succesful products thrive. (See here for "10 Cars That Damaged GM's Reputation" by Popular Mechanics). Thus, many of the jobs purportedly saved by the bailout would have survived, albeit at other firms.

3. The President's argument "proves too much," that is, would, if taken to its logical conclusion, justify policies that all or nearly all Americans would reject. Even in the best of economic times, thousands of businesses fail each year, taking countless jobs with them. In good times, however, business expansions and start-ups outpace failures, causing a net increase in employment. In poor economic times, of course, there are more failures and fewer start-ups and expansions to offset such failures, thereby resulting in the sort of large net job losses the economy experienced in this most recent recession. One might naturally ask why it was appropriate, during poor economic times, to expend $14 billion bailing out Chrysler and General Motors while at the same time refusing to bail out thousands of other businesses (and thus the businesses that supplied them) that failed during the same period. The answer, of course, is that any effort to bail out all such failing businesses, that is, to apply President Obama's logic across the board, would have bankrupted the nation. True enough. But then why choose to bail out Chrysler and GM, both of which most likely would have survived anyway? The fact that the bailout saved jobs in one particular sector, while other sectors were also failing, is not a good answer.

4. Finally, President Obama's argument ignores the concept of opportunity cost. As explained earlier on this blog, capital is scarce, and free societies rely upon free markets to allocate scarce capital between competing potential uses. Moreover, the capital has to come from somewhere, either higher taxes or borrowing in credit markets. There is no reason to believe that the national government is in a better position to determine the best use of scarce capital than private markets, where investors generally bear the long term costs and benefits of their investment decisions. Even if the expenditure of $14 Billion in scarce resources saved some jobs, there is no reason to believe that this particular allocation of capital was superior to that which private capital markets would have produced.

China's Smog Production Growing Briskly

Previous posts on this blog have sought to debunk the myth that China is somehow a leader in "green energy" and that the United States should seek to emulate Chinese policies. (See here, here and here, for instance.) A new report (discussed here and here) from British Petroleum further rebuts the myth and suggests that China is further solidifying its distinction as the world's largest emitter of greenhouse gases. The report concludes that China, which has a GDP less than half that of the United States, has nonetheless surpassed America as the largest consumer of energy derived from all sources. (China now consumes 20.3 percent of the world's energy, while the United States consumes only 19 percent.) The report also concludes that, in the last year, China increased its own energy consumption by 11.2 percent and its coal consumption by 10 percent. As a result, the report says, China now accounts for 48 percent of the world's annual coal consumption. In short, as previously explained on this blog, China's output is far more carbon intensive than that of the United States, undermining any assertion that China is a "leader" in green energy.

The NLRB Attacks Competitive Federalism

Commissar for the Ministry of 787 Dreamliner Production?

The National Government is at it again, interfering with the workings of competitive federalism. That is, the general counsel of the National Labor Relations Board, Mr. Lafe Solomon (pictured above) has issued a complaint against Boeing, claiming that the firm has engaged in unfair labor practices. As a remedy, the complaint seeks an order to compell the firm to increase its production of 787 Dreamliners at facilities in the State of Washington, above and beyond current levels of production. In particular, the complaint alleges that Boeing chose to open a second production line for the 787 in South Carolina and to create numerous jobs (over 2000 according to one report) in that state in order to punish the members of The International Association of Machinists and Aerospace Workers, which called two strikes against Boeing in the past six years. (No one disputes that an eight week strike in 2008, for instance, cost Boeing $100 million per day in deferred revenue. For additional details on how the IAMAW has disrupted Boeing's operations and made its product less attractive to potential buyers, see this Op-Ed by Steve Chapman of the Chicago Tribune.) Such an allegedly punitive act, the NLRB says, violates federal labor law, even though the new facility would entail an increase in production of Boeing's 787, that is, would not move any production from Washington to South Carolina. Indeed, one former Chair of the National Labor Relations Board has opined that the complaint is unprecedented, given that Boeing is not moving existing work being done in Washington to South Carolina. Moreover, Boeing has itself exposed numerous inaccuracies in the NLRB's complaint and post-complaint statements, leaving one to wonder whether the NLRB will simply withdraw the complaint and correct the record. Finally, Boeing's answer to the NLRB's complaint points out that there were any number of reasons that motivated Boeing's decision to open a production line in South Carolina, including a desire for geographic diversity in the firm's production facilities and South Carolina's overall favorable business climate.

South Carolina, of course, is a so-called "right to work state," and employees at the new factory would not be members of the IAMAW or any other union. As previously explained on this blog, Congress, via the Taft-Hartley Act of 1947, altered American Labor Law, by empowering states to opt-out of portions of the National Labor Relations Act (NLRA) of 1935. Under the original NLRA, unions --- best characterized as labor cartels --- could use their bargaining power to force employers to to enter "closed shop" agreements. Under such agreements, an employee had no choice but to join a union and thus support the union financially if he or she wished to work for the company in question. Indeed, such agreements require firms to fire individuals who quit a union or refuse to pay their dues. Thus, by exempting unions from the antitrust laws and requiring private firms to recognize unions, federal labor law bolsters arrangements that coercively deprive individuals of their freedom of association, that is, their freedom not to join a union. This result is supremely ironic, as it turns the purpose of government on its head. For, as explained in an earlier post on this blog, the purpose of government, at least according to James Madison, is the protection of faculties of acquiring property, including occupational liberty. As Madison put it, in his 1792 Essay on Property:

"That is not a just government, nor is property secure under it, where arbitrary restrictions, exemptions, and monopolies deny to part of its citizens that free use of their faculties, and free choice of their occupations, which not only constitute their property in the general sense of the word; but are the means of acquiring property strictly so called."

A state-backed closed-shop arrangement is just such an "arbitrary restriction" that denies citizens a free use of their faculties.

The Taft-Hartley Act, by contrast, allows a state to declare itself a "Right to Work" jurisdiction, thereby outlawing "closed shop" agreements. A state that chooses this course ensures that individuals may pursue the occupation of their choice without being forced to join and financially support an organization they may dislike or, worse, believe to be contrary to their economic interest. Moreover, as a practical economic matter, union organization is less likely in right to work states, because a union that successfully organizes a particular workforce cannot be sure than any more than a bare majority of a firm's employees will financially support the union.

In our federal system, firms and individuals are free to incorporate where they wish and also free to locate their facilities where they wish. Combined with the NLRA, the Taft-Hartley Act authorizes two different frameworks for labor relations from which firms can choose when they select their locations. Presumably competition between these two frameworks, just like competition on other attributes that make for a healthy business environment, will result in firms locating their production facilities in those states that offer the overall best business climate. If, as some have argued, coercive unionization makes workers more productive and thus facilitates wealth creation, then choosing "right to work" status will deter investment in a particular state, other things being equal. (For instance, some claim that such coercion is necessary to prevent non-union employees from "free riding" on the efforts of unions to raise a firm's wages.) If, on the other hand, coercive unionization imposes more costs than benefits, then a state's choice as a "right to work state" will, other things being equal, attract capital investment and jobs. That is to say, "competition between states" will decide which of two possible institutional frameworks survives. In fact, it may be that one framework is superior for certain firms, while another is superior for others. That's the way federalism is supposed to work.

The NLRB's order, however, short circuits that process, at least in part. Under the rule sought by the NLRB, a firm that suffers at the hands of one or more costly strikes will find it difficult to open a new facility elsewhere, as a fact finder could always infer, perhaps quite reasonably, that the firm has opened the new facility in a different state at least in part "because" it wants to avoid the debilitating consequences of a future strike. And, having drawn this inference, the next logical inference will be that the firm firm opened the new facility to "punish" the union for striking, perhaps supported --- like the NLRB's current complaint --- by some offhand statements by company officials taken out of context. Indeed, the more costly the prior strike, the stronger will be the inference that any subsequent move is a form of retaliation! While the company might ultimately prevail, it will do so only after bearing significant costs in the form of litigation and uncertainty.

Aside from short-circuiting federalism, the NLRB's approach will, if validated in court, have other negative consequences as well. For one thing, the rule will encourage otherwise unwarranted strikes by unions that fear employers might be planning --- quite lawfully --- to build facilities elsewhere, even if those plans have nothing to do with organized labor. (Perhaps a firms is considering a move to a state with less onerous taxes or environmental regulation, for instance.) By striking today, a union would thereby give itself the option down the road to argue that any construction of new facilities in another state is retaliation for the recent strike. Moreover, the prospect that unions might behave in this manner, or otherwise take advantage of the NLRB's unprecedented rule, will cause companies to resist unionization more vigorously than they otherwise might, even if unionization would make sense for all concerned. Indeed, at the margin, firms might avoid closed-shop states altogether to avoid the NLRB's new rule.

Hopefully the courts will reject the NLRB's effort to short-circuit the workings of competitive federalism. Indeed, they may not even reach the issue, as Senators have already introduced legislation to clarify labor law in a way that rejects the NLRB's gambit.

Private Enterprise To Boost Production and Sales Without Federal Subsidies!

Today's Chicago Tribune reports that Ford has announced plans to increase production by 50 percent worldwide by the middle of this decade, an increase that will be driven in part by greater demand in China and India. Apparently some American automobile companies, or at least one, can thrive without multi-billion dollar subsidies from the taxpayer! Now that's true job creation!