Subsidy For Chevy Volt Keeps Growing

Boondoggles

As previously reported on this blog, President Obama justified the ill-advised bailout of General Motors and Chrysler by claiming that the debt-financed federal ownership of these two companies would encourage the production of "green" automobiles, like the electric-powered Chevrolet Volt pictured above. (Whether such cars really are that green is a separate question; as explained previously the manufacture of batteries for such vehicles exhibits a large carbon footprint.)

A recent study described here suggests that the bailout is just the tip of the subsidy iceburg.  The study emphasizes that state-ownership of General Motors did not, in fact, suffice to encourage production of cars like the Volt. Instead, in addition to the cost of the GM bail out itself ($14 Billion), various government agencies have showered GM with Volt-related subsidies that equal between $50,000 to $250,000 per car produced. (The exact figure will depend upon whether GM satisfies certain performance criteria attached to some of the subsidies.)  Even taking the more conservative estimate, i.e., $50,000 per car, the Volt, with a sticker price of $40,000, costs a total of $90,000 per car, compared to a mere $82,000 for the "Car designed by Homer Simpson," pictured above, featured in "Oh Brother Where Art Though," episode 15 of Season 2.  (The episode and the car Homer designed insightfully illustrated the consequences of ignoring scarcity when making important economic decisions.  The car flopped and the company making it failed.  Apparently the writers did not imagine a bailout.)   It seems unlikely that the benefits of the Chevy Volt justify these costs.

Saab Files for Banktruptcy

What, No Bailout?

The Chicago Tribune reports that SAAB has filed for bankruptcy. As previously reported on this Blog, General Motors sold its stake in SAAB to Spyker, a manufacturer of high-end sports cars, for $74 million, in 2010. (GM had paid $725 million to buy a partial and then complete interest in SAAB and then ran the company into the ground. What a terrific return in investment!) Unfortunately, SAAB was not able to recover from GM's "stewardship" of its classic brand. Moreover, unlike GM, which received an ill-advised bailout, SAAB will apparently receive no such taxpayer handout. In fact, as reported on this Blog at the time, Sweden rejected calls for such a bailout the last time SAAB was in trouble.

If This is Fairness ......

In a CNN Op-ed, Professor Julian Zelizer urges the Democratic Party to make economic fairness to the middle class the centerpiece of its political agenda as the 2012 election approaches. Zelizer sees an analogy to his own characterization of the party's strategy during the 1930s. Quoting another historian, Zelizer claims:

"This is a familiar strategy for the Democratic Party. During the 1930s, according to the historian Lizabeth Cohen, the Democratic Party fought for a vision of moral capitalism whereby government and other institutions, such as unions, would lessen some of the suffering that could be inflicted in the free-market economy."

Zelizer's history is a little out of date. Despite the rhetoric, 1930s Democrats in fact fought for a vision of state-enforced cartelization, including the cartelization of labor, that, when implemented, both deepened and lengthend the Depression. (Many 1930s Democrats also fought to defend Segregation, hardly an example of "fairness to the middle class." Though it should also be noted that, during post-New Deal World War II, FDR issued executive orders banning racial discrimination in factories making weapons and ammunition for the military.) That vision first came to fruition in the 1933 National Industrial Recovery Act ("NIRA"), the centerpiece of FDR's New Deal. The NIRA encouraged industries to proposed so-called "Codes of Fair Competition," which, if approved by the President, would have the binding force of law. Such codes imposed express price fixing, output limitations, barriers to entry and/or various practices that facilitated anticompetitive collusion. Moreover, industries could only obtain approval of such codes if they agreed to pay minimum wages and allowed their employees to join unions --- labor cartels --- that then bargained for higher wages.

Of course, the Supreme Court unanimously invalidated the NIRA in Schechter Poultry Corp. et al. v. United States, reversing the criminal conviction of a small corporation and several of its middle class owners. (The Roosevelt Administration had indicted the defendants on 60 counts of violating an NIRA code. Violations included failure to pay minimum wages (that is, employing too many workers) and --- get this --- allowing customers to select individual chickens for purchase, contrary to the code requirement that the defendants and their rivals sell chickens in blocks.) Ironically, the Supreme Court would later declare so-called "block booking" (requiring customers to purchase an entire package of movies, for instance, unlawful per se under Section 1 of the Sherman Act.) The Court unanimously held that the Act was an unconstitutional delegation of authority to the Executive Branch and that application of the statute to the defendants exceeded the scope of Congress's power under the Commerce Clause. After the decision, Justice Brandeis sought out a lawyer from the Department of Justice and asked him to convey a message to FDR:

“This is the end of this business of centralization, and I want you to go back and tell the president that we're not going to let this government centralize everything."

Congress responded to Schechter by passing the National Labor Relations Act, which empowered individual employees to form unions --- labor cartels --- and thereby drive wages above free market levels.

Of course, proponents of centralization (both then and now) claim that expanding the power of the National Government will somehow encourage economic recovery and thus full employment. But the data show otherwise. For instance, President Obama's first Chair of the Council of Economic Advisors, Christina Romer, concluded that the NIRA raised prices and wages and thus slowed economic recovery. See Christina D. Romer, Why Did Prices Rise in the 1930s?, 59 J. Econ. Hist. 167, 187-93, 197 (1999). More recently, two UCLA economists, Harold Cole and Lee Ohanian, concluded that various New Deal policies, particularly those that artificially raised wages, both deepened and lengthened the Great Depression. Indeed, these scholars conclude that FDR's New Deal prolonged the Depression by seven years. Finally, in 1999, this blogger argued that 1930s state and federal policies that raised wages likely exacerbated the Depression, by thwarting the process of ordinary macro-economic adjustment. See Alan J. Meese, Will, Judgment and Economic Liberty: Mr. Justice Souter and the Mistranslation of Liberty, 41 William and Mary L. Rev. 3, 48-49 (1999). (I hasten to add that unlike Drs. Romer, Cole and Ohanian, this blogger's arguments were purely theoretical and did not rest upon the sort of sophisticated econometric analysis deployed by these economists.) That is to say, FDR's policies deprived millions of middle class or potentially middle class Americans access to employment, hardly a "fair" result or exemplar of "moral capitalism." Indeed, the NIRA, with its coercive limits on price, wages and output was hardly capitalism, moral or otherwise

To be sure, some New Deal policies ameliorated the plight of unemployed Americans. For instance, the Work Progress Administration ("WPA") provided jobs for millions working on parks and various forms of public infrastructure. Ironically, many who took such jobs were unemployed because other New Deal policies, such as the NIRA and NLRA, eliminated jobs these individuals might otherwise have obtained. As Richard Epstein has observed, coercive interference with free labor markets and resulting unemployment often gives rise to offsetting policies designed to ameliorate the human cost of such misguided policies. Speaking of the New Deal, Epstein has observed:

"[I]n 1935, American labor law created a system of collective bargaining whereby employees bargain with a single voice. That system allows unions to seek, and often obtain, monopoly profits for their members. That system in turn reduces the number of workers hired by the unionized firms. So what is to be done with the excess workers? They should be shepherded into job-training programs, funded by the public, which would allow them to reenter the labor force with other jobs."

The WPA, of course, was an example of such a countervailing program only made necessary by antecedent and unjustified interference with free markets that destroyed middle class private sector jobs.

Hopefully today's Democrats have a different conception of "fairness to the middle class" that that which apparently animated the NIRA, NLRA and similar New Deal policies.

Does Tenure Increase The Cost of Higher Education?

A recent essay in the New York Times entitled "The End of Tenure" reviews two books critical of modern higher education. The complaints summarized by the review are familiar, and they include:

1) Higher education costs too much, and tuition keeps rising faster than inflation.

2) Tenured faculty at some elite universities do not teach enough, leaving much of the teaching to be done by adjuncts and other faculty who are not on the tenure track.

3) Student debt is rising by leaps and bounds and is unsustainable.

4) Faculty conduct research that is of little practical relevance, a claim that, if true, implies that the social cost of additional teaching by such faculty members is relatively low.

No doubt at least some of these claims are exaggerated. For instance, recent data also published in the Times suggests that horror stories about students graduating with, say, $100,000 in debt are few and far between. Indeed, these data show that 90 percent of students who borrowed to obtain their bachelor's degree graduated with less than $40,000 in debt. Moreover, some of those individuals who emerged with more than $40,000 in debt presumably chose to attend private universities instead of less expensive public institutions, thus undermining somewhat any complaint about resulting debt burdens. (A North Carolina resident who could have attended UNC Chapel Hill but matriculates at Wake Forest or Duke instead should not be heard to complain about his or her resulting debt burden.) Also, the tuition announced by a college or university is merely a sticker price and does not reflect financial aid that schools provide in the form of discounts for students who demonstrate financial need and/or academic merit.

What though about the claim, implied by the very title of the essay, that the institution of academic tenure is partly responsible for these woes? This is not a new claim --- earlier this year a legal academic argued that proponents of academic tenure for law school faculty were insufficiently sensitive to the fact that the institution of tenure increases the cost of law school. Does the institution of academic tenure make college more expensive, reduce access to higher education and pump up student debt?

Certainly not. After all, eliminating tenure and the job security that tenure brings would make academic positions less attractive than before, with the result that schools would have to raise salaries to attract high quality faculty. Moreover, if eliminating tenure led to greater faculty turnover, schools would presumably incur additional costs searching for and replacing departing faculty. In short, other things being equal, eliminating tenure would increase college tuition, reduce access to college and further add to student indebtedness.

While the institution of academic tenure might have some shortcomings, any propensity to raise the cost of higher education is not one of them.

More Evidence that Compelled Support for Unions Thwarts Job Creation

Not so friendly to job creation and wages

Mr. Republican. Fought Trade Union Excesses and Bolstered Competitive Federalism

A recent study by the National Institute for Labor Research concludes that Right-to-Work states experience higher employment growth, enhanced economic growth and enhanced wages compared to those states that allow unionized firms to require all their employees to pay union dues, even if the employee declines to join a union. As previously explained on this blog, the Taft-Hartley Act of 1947 empowers states to become Right-to-Work states, thereby opting out of provisions in the 1935 National Labor Relations Act that originally allowed firms to compel employees, under threat of termination, to pay such dues against their wishes. Thus, the Act helps facilitate competitive federalism, whereby states offer different menus of background regulatory and tax policy in their efforts to woo industry that is free to locate in any of 50 states and numerous foreign countries. Co-authored by Ohio Senator Robert Taft (also known as "Mr. Republican"), pictured above, the statute followed a Republican landslide in 1948. Strangely, many of the Law's opponents referred to it as the "slave labor law," a bizarre appellation given the Act's effort to enhance the autonomy of individual employees and protect all employees against union excesses.   Maybe "Johnny Friendly," the fictional leader of a corrupt union, portrayed in "On the Waterfront" by Lee Cobb (pictured above) would have characterized the law in this way!

In particular, the study finds that:

1) Between 2000 and 2010, private sector employmnt in Right-to-Work states rose .3 percent, while it fell by over 5 percent in other states.

2) During the same period, real manufacturing GDP grew over 18 percent in Right-to-Work states but just over 8 percent in other states.

3) During the same period, the compensation of employees in the private sector rose 11.3 percent in Right-to-Work states, while compensation of employees in other states rose only 0.7 percent.

Of course, the study does not by itself establish that a state's embrace of Right-to-Work status will thereby, other things being equal, enhance economic growth and job creation. For one thing, right to work status may correlate with other variables that encourage economic growth, such as a political culture within a state hostile to over-regulation and burdensome taxation. (Indeed, the study finds that the average "tax freedom day" in Right-to-Work states is April 6, compared to April 14 in other states.) If so, then superior economic growth may be the result of an overall regulatory and tax environment conducive to economic growth, of which Right-to-Work status is merely one element. Moreover, large economic events unrelated to labor regulation and trade unionism that affect a few states who happen to fall into one category or the other could produce employment effects that coincidentally correlate with Right-to-Work status. The results are nonetheless interesting and reflect the sort of empirical work necessary to test competing hypotheses about the impact of Right-to-Work status.

Do Health Care Systems Determine Life Expectancy? Of Course Not!

Would Americans Be Healthier in Greece?

England's Daily Mail has produced a misleading attack on the U.S. Healthcare system, blaming the "system" for Americans' relatively low life expectancy. The article, based on a study from the Organization for Economic Cooperation and Development, reports that the USA ranks 28th in life expectancy, because Americans live on average "only" to age 78.2, behind countries such as Chile and Greece (the home of the hooliganism pictured above), with Japan, Spain and Switzerland taking first through third place respectively. The article attributes the gap between the US and other developed nations to a comparatively poor US health care system. The article also notes that the US spends more per person on health care than any other nation. This line of criticism is not new; at least one University maintains a website making a similar claim.

The article's argument falls wide of its intended mark. In any society, longevity depends upon any number of factors, of which the quality of health care is but one. Such factors include the prevalence of accidental death and homicide, the prevalence of unhealthy habits like smoking and excessive drinking, and cultural norms regarding diet and exercise. Indeed, according to one source, the 2008 homicide rate in the United States, 5.22/100,000, was more than ten times higher than that in Japan (.45/100,000), more than five times higher than in Spain (.91/100,000), and more than seven times higher than in Switzerland (.72/100,000). According to another source, America's per capita rate of death from automobile accidents is more than twice that of Japan and Spain and also larger than that of Switzerland as well. If, as seems likely, most victims of homicides and automobile accidents are significantly younger than the nation's average life expectancy, then such differences explain at least part of the gap between life expectancy in the United States and that in other countries. Any comparison of the outcomes produced by different health care systems would have to control for the numerous other independent variables that impact life expectancy.

Moreover, differences in accidental deaths and homicides also highlight another fallacy in the Daily Mail's argument, namely, the treatment of health care expenditures as an exogenous variable that "causes" death at particular ages. In fact, such causation may in many cases flow in the opposite direction. After all, many homicides and accidental deaths themselves result in significant health care expenditures. So do accidents and/or shootings and stabbings that do NOT result in death. Thus, any analysis seeking to isolate the impact of health care expenditures upon longevity, other things being equal, would have to treat health care expenditures as a variable driven in part by other independent variables. For all we know, such an analysis could conclude that the US Health Care System is more efficient than suggested by the Daily Mail's simplistic analysis.