2012 Bailout-Free Ford F-150 Named Motor Trend Truck of the Year

Motor Trend Magazine has named the 2012 Ford F-150 truck of the year.  Motor Trend calls the recently redesigned F-150 "a Truck for all reasons."  Motor Trend was particularly impressed by Ford's "Ecoboost" V-6 engine (new in 2011 models), which boasts both improved gas mileage (22 MPG on the highway), 365 Horsepower and 420 foot pounds of torque.  For a photo of the Ecoboost, go here.  No wonder the Ford F-150 maintains is position as the best-selling vehicle in the United States, despite ill-advised federal bailouts of rivals Chevrolet and Chrysler.   Quality, it seems, still matters.

Bill Gates' Quest For Profit Might Help China Turn Green

Greedy Planet Savior?

As previously explained on this blog, China is the world's largest emitter of greenhouse gasses, even though its overall GDP is half or less than that of the USA.  As also explained in that post, some project that China's production of greenhouse gasses will double by 2030.   Almost a year ago this blog also called attention to China's under-reliance on nuclear power for electricity generation.  As explained then, coal-fired plants account for a disproportionate share of China's electricity compared to various Western nations and Japan.  Indeed, as also reported then, China, with the second largest economy in the world, ranks 9th in nuclear generation of electricity, behind such nations as Canada, Ukraine and South Korea. At the same, the post reported, China enthusiastically embraces nuclear power for military purposes, e.g., the propulsion of submarines. The post concluded as follows:

"If China is truly serious about moving to a clean energy economy, it should get with the (nuclear) program."

Recent reports suggest that China may in fact be getting more serious about civilian uses of nuclear power. In particular, Bill Gates and a start-up company, Terrapower, are developing a new line of nuclear reactors, called "travelling wave reactors," that will run mainly on spent uranium. (For a description of how such a reactor would work, go here.)   According to a recent report in the South China Morning Post, Gates and Terrapower are in talks with the Chinese government about jointly developing the reactor in cooperation with the Chinese National Nuclear Corporation.  Put another way, a profit-oriented entrepreneur is helping a Statist nation turn green in a way that could perhaps prevent undue damage to the climate.  Of course, even if Gates is successful, some will still scrutinze whether he gives enough to charity!

Lower Tax Brazil Overtakes Higher Tax Britain

Now Number Six

Brazil has apparently passed Great Britain to become the sixth largest economy in the world measured by GDP, according to this article in the UK Guardian.  (The United States is first, followed by China, Japan, Germany and France.)  Of course, Brazil's population of 203 million is more than three times that of Britain, with the result that Britain's per capita GDP is more than triple that of Brazil.  The Guardian article mentions several factors that it says account from Brazil's strong GDP growth relative to that of Britain.  For instance, Brazil has been exporting heavily to China, itself a rapidly growing economy.  Moreover, the banking and credit crisis in Britain, Europe and the United States has slowed the British economy as well as that of some of its trading partners.

The Guardian story leaves out another possible explanation for the divergence between British and Brazilian growth rates, namely, tax policy.  For, as previously reported on this blog, Brazil's top income tax rate is less than 30 percent, compared to a top rate of 50 percent in Great Britain.  (The top British rate, it should be noted, is the fourth highest in Europe, behind only Sweden, Denmark and the Netherlands.  In 2009, by contrast, Britain had the 13th highest rate in Europe.)  While Brazil has relatively high payroll taxes, one source reports that its tax to GDP ratio is nonetheless significantly lower than that of Britain's.  According to a previous article in the Guardian, some economists in Britain have contended that Britain's high tax rates are rendering the country less competitive internationally and slowing its growth.  Brazil's most recent triumph may be "exhibit A" supporting this assertion.  Nations rarely tax their way to prosperity.

Higher Minimum Wages Won't Stimulate the Economy

Ptolomey:  Thought Sun Revolved Around the Earth

CNN Money: Thinks Higher Minimum Wages Increase GDP

A recent story on CNN Money reports that several states are about to raise their minimum wages.  The story repeats as "news" (and not opinion) the oft-made claim that raising the minimum wage will stimulate the economy and thus increase Gross Domestic Product.

According to the story:

"What's more, the increases could be a mini-boost for the economy.  The expected rise in consumer spending as a result of the wage increases would add $366 million to the nation's gross domestic product and lead to the creation of more than 3,000 full-time jobs."

and 

"Increasing minimum wage is a key form of local stimulus," said Paul Sonn, legal co-director at NELP. "It helps front-line workers whose wages have been stagnant and falling by putting more money into the pockets of low income families who then spend the money at local businesses."

Both economic theory and empirical evidence have long falsified such claims.  Take theory first.  Yes, raising wages by coercive fiat will increase the income of some workers.  At the same time, such increases will reduce the income of other workers to zero, by inducing firms to eliminate their jobs and also to hire fewer workers in the future.  Wages, after all, are the price of a particular input --- labor --- and increasing the price of one input, whether that input is steel, labor or electricity, will cause firms to substitute to other inputs and thus reduce their purchases of the now more expensive input.  Moreover, to the extent that firms continue to employ some of the more expensive input, their costs will rise, thereby reducing their output, further reducing their use of the input in question.  Thus, raising the minimum wage above market levels will cause firms to employ less labor, by reducing their output and using less labor per unit of remaining output than before the increase.

Now consider the empirics.  As a nation, we have already experimented with using artificially-inflated wages  as a tool for increasing GDP and thus stabilizing the macroeconomy.   As previously explained on this blog (go here and here), legislation passed during the New Deal artificially raised wages, purportedly as a method of enhancing the "purchasing power" of employees and thus stimulating the macroeconomy.  The legislation did not, however, have its intended effect.  Instead, artificially high wages choked off economic recovery by increasing firms' costs, reducing their output and fostering unemployment, as workers expended resources searching for those scarce jobs that remained.  Indeed, according to one study, reported here, New Deal policies that artificially raised wages deepened the Depression and prolonged it by seven years.

The story also helps illustrate the downside of over-reaching Federal regulation.   As the story notes, there is also a federal minimum wage, currently equal to $7.25 per hour.  (There is an exception for the first 90 days of employment for juveniles --- $4.25 per hour --- so long as employment of the juvenile does not displace an adult worker.)    That wage edict applies to any employee working in interstate commerce or working for a firm, no matter how local, with $500,000 in gross sales.   Thus, federal law creates a wage floor, even in those states (and there are five) with no minimum wage whatsoever or those with minimum wages lower than that set by the national government.   As a result, states that wish to compete with other states for labor and capital by eliminating their minimum wages or, for instance, adopting differential wages for youth greater than 90 days, will find such a policy thwarted by the "one-size fits all" federal floor on wages, a floor that applies equally in Manhattan, New York and Moscow, Idaho.  Competitive federalism suffers when the national government asserts a regulatory monopoly over matters properly left to the states.

Christmas Story Marathon in Less than 16 Hours!

A New Furnace ........

Tomorrow TBS will renew one of this nation's most important Christmas traditions --- its 24 hour Christmas Story Marathon.  For the schedule see the TBS Christmas Story website.


In honor of the upcoming marathon, here are the ten best lines from the movie, in this blogger's estimation.


1. You used up all the glue on purpose!  (Mr. Parker)



2.  Nottafinga!   (Mr. Parker)


3.  Some men are Baptists, others Catholics; my father was an Oldsmobile man.  (Ralphie as an adult) (Narrating)

 4.  Fra-gee-lay. That must be Italian.  (Mr. Parker)


5.  Uh, I think that says FRAGILE, dear.  (Mrs. Parker)

6.  My father's spare tires were only tires on the academic sense. They were round,and had once been made of rubber.  (Ralphie as an adult) (Narrating)

 

7.  My old man was one of the most feared furnace fighters in Northern Indiana.  (Ralphie as an adult) (Narrating)

8.  In the heat of battle my father wove a tapestry of obscenities that as far as we know is still hanging in space over Lake Michigan.  (Ralphie as an adult) (Narrating)

9.  My mother was trying to insinuate herself between us and the statue.  (Ralphie as an adult) (Narrating)


10.  Hey Dad! I bet you never guess what I got you for Christmas! (Ralphie)
       A new furnace?  (Mr. Parker)


       He he, that's a good one Dad!  (Ralphie).


Enjoy!

Competitive Federalism Punishing California

Economic Dynamo

Not So Much

A recent Op-ed by George Will adduces additional evidence vindicating a fundamental choice by those who framed and ratified the Constitution, namely, the decision to limit the power of the National Government and thus to divide regulatory authority between the National Government and the States.  According to James Madison's Federalist 51, this division of power between the central and various state governments, along with the separation of powers between judicial, executive and legislative branches at the national level, ensures that a "double security arises for the rights of the people."  Madison apparently recognized that competition between states for productive citizens and capital would deter a state from infringing on the rights of its citizens who, if dissatisfied with their state's laws, could move to other states.  Thus arose a system of competitive federalism, whereby each state can attempt to attract labor and capital by offering regulatory regimes and thus institutional frameworks most conducive to free market wealth creation and job creation. 

California has not been doing well in this competitive struggle as of late.  Once considered a land of opportunity, the state experienced a net outflow of citizens in 2008.  The state's unemployment rate currently stands at over 11 percent, one of the highest in the nation.  Will's Op-ed calls attention to part of California's problem, namely, a plethora of unduly burdensome regulations that inhibit the creation and expansion of businesses and thus job creation.  Will focuses on the plight of CKE, Inc., which owns the Hardees and Carl's Jr. fast food chains.  Each such restaurant creates 25 jobs, Will reports.  According to Will, these and other "California restaurants are governed by 57 categories of regulations."  Moreover, Will goes on to explain that:

"CKE has about 720 California restaurants, in which 84 percent of the managers are minorities and 67 percent are women. CKE has, however, all but stopped building restaurants in this state because approvals and permits for establishing them can take up to two years, compared to as little as six weeks in Texas, and the cost to build one is $100,000 more than in Texas, where CKE is planning to open 300 new restaurants this decade."

Simply put, California has apparently made it all but impossible to open a new restaurant, while Texas facilitates the creation of these businesses and the jobs they bring.  That is to say, California stands in the way of voluntary arrangements that improve the welfare of consumers who would voluntarily patronize new restaurants and the employees who would work there.  If California were to replicate similar regulatory strategies with respect to other industries, many California residents would have little choice but to move elsewhere to locate employment, and residents of other states would decline to immigrate to California in the first place.  It's not much of a stretch to surmise that a portion of California's high unemployment rate results from these sorts of regulations.

Of course, some regulation is critical to a well-functioning free market and the welfare of a polity's citizens.   No state would or should win the struggle for labor and capital contemplated by our constitutional design  by embracing the state of nature as its regulatory philosophy.  Even the most ardent libertarians properly endorse "police power" regulation that implements the ancient principle "Sic utere tuo ut alienum non laedas," viz. "use what is yours so as not to injure another's."  States that leave their citizens at the mercy of predatory commercial tactics, such as the sale of impure food or fraud will lose citizens and investment just as surely as those that impose unduly burdensome regulations that prevent market entry or otherwise interfere with bona fide economic liberty.  There is, however, no indication that, say, delaying market entry by two years is necessary to protect the public from such predatory behavior.  Instead, such permit requirements function as a barrier to entry, plain and simple, protecting incumbent firms and limiting consumer choice.

Unfortunately, the system of competitive federalism that is punishing California and rewarding Texas is not self-enforcing but is instead constantly under attack.  As federal regulatory power expands, the space for competition between states contracts, rendering such regulatory competition a less effective tool for enhancing the welfare of citizens.  If, say, the central government imposes one model of "health insurance reform," on every citizen in the nation, then states cannot compete with each other to provide reforms that meet the needs of their own citizens.  Moreover, if the national solution is suboptimal, citizens can only avoid the resulting reform by emigrating to another country, hardly a plausible option for most people.  Unfortunately, proponents of the most recent "health care reform," overlooked this downside of  a "one-sized fits all" centralized plan.