In the Vicinity of Beijing's 4th Ring, or More Properly, What America Should be Shooting For

I think what was most disappointing was simply the quality of the questions students asked during the Q&A. The first one was “In your dealings with President Obama, what have you found to be his best quality?” And it was simply downhill from there. Now, if this man was addressing a group of third graders, that question might have been appropriate (maybe), but among a group of college students and academics it’s simply absurd. Consider the situation. Here you are, a college student (or professor, or whatever), with an opportunity to discuss anything, from the anemic job market, the depressed housing market, a rapidly nuclearizing Iran, a debt-to-GDP ratio north of 100%, or the impeding collapse of the post-World War II world order, and you essentially ask, “Why is the President soooooo awesome?” I think this little episode perfectly encapsulates what is wrong with American higher education today. Instead of thinking critically about events around it, the academy is so radically self-absorbed and out of touch and so obsessed with its own ideology, it’s simply laughable. Is this really all that the best and brightest of North Carolina is capable of? Maybe it was a fluke, or maybe some rogue from Duke snuck in, but it was kind of embarrassing.

Secretary Donovan, when he wasn’t answering inane questions from the audience, also did a fair amount of pontificating. Apparently, the administration is convinced that we can educate ourselves out of this recession. If only we spend (a lot) more on higher education and push as many people as we can through the system, we’ll all be happy again. Color me a skeptic, but the plan he described, where the federal government subsidizes education through new tax credits, etc., guarantees low-interest loans for all comers, and then requires those borrowers to make only bare minimum payments on those loans, seems awfully similar to American housing policy circa 2008 (which incidentally, HUD bears a lot of responsibility for). I suppose if the idea is to create a giant education bubble, such that when it pops, everyone forgets about the housing problem because the education bubble is so much bigger, then this is a great idea. But if the idea is to generate genuine economic growth, this is certainly not the way to go.

And what’s a State of the Union talk without some mention of trains? Aren’t those things amazing? If only we had more of them, those pesky Chinese wouldn’t even be able to touch us. Actually, the best part of the Secretary’s little speech was when he was talking about China’s impressive infrastructure and how the Chinese are just light-years ahead of us in this regard. He clearly has no idea what he’s talking about. If he did know what he was talking about, he would know that, even in the (very crowded and polluted) major cities (i.e. places like Beijing), you can’t drink the tap water or flush toilet paper because the sewer systems are so old and so out of date. He would also know that electricity is also a problem, and that you actually have to buy surge protectors to insulate your electronic goods from regular power surges. Indeed, even China’s much lauded trains aren’t much to write home about. When they’re not falling off bridges, many of China’s trains are (very) overcrowded, smelly, and generally a very hellish experience. And their highway system isn’t anywhere nearly as well developed as ours. Now, don’t get me wrong, China’s quite a charming place, but the U.S. is definitely winning the infrastructure game.

Shiny!

There was also a fair amount of green energy hype. The Secretary informed us that while there might be a few Solyndras along the way (who doesn’t mind a little government corruption after all), we can’t expect the government to make the right choice every time when it comes to deciding which business to support. This, of course, is the whole point! The government can’t make these decisions, because they are infinitely complicated and not something that some bureaucrat hiding in the basement of a federal building can make. Such choices are properly left to the market, which is a better evaluator  of risk and profit than the government will ever be. When the government tries to make these decisions, you end up with Solyndra. Solyndra isn’t merely a side effect of government intervention in the market, it is its natural conclusion.

All in all, this event was pretty disappointing. The questions were childish, and we got the same old, same old from the administration. It’s simply too bad that what could have been a really interesting event on the future direction of the country devolved into a Why Barack Obama is the Greatest Thing Since Baked Bread event.

Let’s the consider the increase just on its face. A 15.6% increase for in-state students and a 6.5% increase for out-of-state students. The Consumer Price Index (core) for 2011 (year over year) currently sits at 2.1%. The Higher Education Price Index (which, incidentally is the index used to calculate fee increases) for 2011 is 2.3%. So, it’s worth asking the question why such large tuition increases (over inflation) are necessary. While the General Assembly did cut the education budget this year, I feel like their expectation was that the university would reciprocate and cut out some of the fat from its budget (maybe some of the “centers” and other things on campus that don’t contribute very much to the academic mission of the university).  It looks like raising tuition on students is merely an easy way out for the administration and saves them the trouble of having to make the “hard” choices. After all, it’s much easier to raise tuition than to fire people.

The structure of the increases is also curious. Why such a large increase for in-state students (who, with their parents, pay taxes to support the university), while such relatively small increases for out-of-state students? Why is the in-state increase more than double the out-of-state increase? I don’t pretend to have the answers to these questions, but considering that the university’s traditional role has been to provide an education to the people of North Carolina for “as close to free as possible,” the way that these increases are being distributed across the student body is quite odd.

And let’s consider what the increase will be spent on. From what I can tell, the new money will be spent primarily on faculty salary raises and financial aid. Raising tuition to pay for financial aid is quite strange. In effect, you’re increasing your prices so that you can give money to other people who can’t afford to pay your prices. It’s a classic redistributionist scheme. And then there’s the issue of salaries. I don’t know if the administration’s noticed but there’s a recession going on out there. Lots of people don’t even have jobs, and most of the ones that do haven’t gotten raises in a while. So, I’m not really sure that this should be a priority at the moment. Raising tuition by 15.6% (a fair amount of which will probably end up being paid via loans which students will then have the privilege of paying off for the rest of their lives) to hand out pay raises in such a depressed job market hardly seems like a good investment.

So, it doesn’t seem like these tuition increases are really worth it. What the university ought to do is own up to the fact that the golden days of ever-increasing budgets are over, and do what every other governmental entity (with the exception of the federal government) on earth has been doing for the last few years: make real, hard cuts.

Price per Gallon of Regular Unleaded Gasoline (data from the Federal Reserve)

January 26, 2009: $1.838

April 18, 2011: $3.844

Price Change: 109.14%

Would anyone care to explain to me why the Obama Administration thinks it’s a good idea to subsidize oil production in South America while curtailing any attempts to exploit our own, local resources, all while the price of gas doubles? Furthermore, why is no attention given to this dramatic price swing when we are in the midst of a rather tenuous economic “recovery”?

Ben “The Helicopter” Bernanke likes to say that inflation has been rather subdued. Looking at the CPI, one could get that impression. But considering that fuel costs typically take up a substantial portion of a household’s budget, a doubling of those costs is going to have significant psychological and economic implications for how the household is able to spend the rest of its budget. When people see the price of gas double, their first instinct tends to be depressive, i.e. they associate higher gas prices with a lousy economy and act as if they are in a lousy economy (even if the economy is performing well- which wouldn’t really apply in this case anyway). They then have to reallocate the rest of their income to account for the higher fuel costs. So, they spend more money on fuel and less on splurges at the mall. So, this is really a double-whammy for economic growth, and yet no one’s talking about it.

On a side note, if you look at the data, you’ll notice that gas prices really take off right as the FED began implementing its QE2 program. I can’t really say anything authoritatively without looking into it more, but the correlation is certainly interesting, particularly considering that one of the main criticisms of the QE2 program was that it would produce significant inflation. I’d say that an approximately 30% price jump over a 6-month period counts as significant. Although some of that may include added risk-premiums to compensate for the Middle East’s increased instability of late. But that’s not likely the entire explanation, as gas prices were on their way up well before the Arabs started getting restless.

As unemployment rates continue to hover around double digits, universities are using federal funds to create internships in a sector that the Obama administration has repeatedly said will lead the U.S. out of the recession.

This assumes that jobs created is the same as a net gain in jobs.  An easy mistake to make (one the Obama Administration has made many a time), but a mistake nonetheless because it falls afoul of the “Broken Window Fallacy.” First articulated by Frédéric Bastiat, it basically says you have to take hidden costs of a particular action into account. In the parable Bastiat used to illustrate his point, the shopkeeper’s careless son breaks his father’s window, and a sequence of actions follows: the shopkeeper pays the glazier six francs to fix the window, who uses the money to pay another merchant, who uses the same money to buy goods from another merchant, etc.

To the onlookers, the son is a hero! He broke a window which caused the glazier to get money, which he used to buy more goods, down the line. But Bastiat says, hold on one second. The onlookers are only looking at the benefits accrued to the glazier et al. What about the initial cost to the shopkeeper? Instead of paying six francs to fix the window, maybe he wanted to buy a jacket for his wife which cost 12 francs? So now he’s out six francs and has to save up more, with no economic expansion because all that happened was a pre-existing window was replaced.

Back to the jobs created by the federal grant money. We see the internships provided by the grant money (which at UNC amount to $324,736), but what else could have been used with that money? Think about it. $5.6 billion, immediately added to our national debt (which impacts interest rates for borrowers). $5.6 billion which sucks up labor and resources that could have been directed elsewhere, in a more efficient manner. And $5.6 billion which is being used to prop up an already economically inefficient industry (seeing as it wouldn’t exist without huge government subsidies) by training people to learn economically inefficient skills for economically inefficient jobs. See where this is going?

The only way this all makes sense is if you believe the threat posed by global warming (climate change, take your pick) is great enough to warrant massive inefficiencies. But then we’ve finally dispensed with economics and have moved full on to the moral imperative of action. Which is fine, you just can’t have pundits and politicians claiming “green jobs” are economically efficient or will create a net gain in jobs because that’s just empirically false.

However, on my own initiative, I tracked down North Carolina’s numbers, and the data was quite interesting. For example, take North Carolina’s 37^th Congressional District, where two jobs were created or saved with about $4 million. Or take the 14^th District where 0 jobs were created or saved with $180,000. Of course the problem here is that North Carolina only has 13 Congressional Districts. But even disregarding that, $4 million for two jobs?

Source: www.recovery.gov

This reveals several things. First, it shows that all of the claims made by the Obama administration about how they’ve created or saved so many jobs are false. At best they are gross exaggerations, at worst they are outright lies. This of course calls in question all the numbers put forth by the Administration. Things like the unemployment statistic announced by the Labor Department should be viewed with considerably more scrutiny after this rather shameless attempt to delude the American people.

Also, how exactly does one quantify a “saved job”? This, of course, is another attempt by the Administration to inflate its accomplishments (or lack thereof) and to sell the supposed success of the stimulus package.

What’s also interesting is where the money is being spent. Districts represented by Democrats received $3,219,725,447 or 86.11% of the money allotted to North Carolina. Districts represented by Republicans received $591,809,554 or 13.75% of the money allotted to North Carolina, despite making up 46% of the Congressional delegation. The money is being spent disproportionately in Democratic districts. One could interpret this as an attempt to buy off these districts and ensure that they stay solidly blue. But of course, it would take a really cynical person to think that.

Perhaps what most reveals that the stimulus package is not what we’re told it is, is the fact that the unemployment rate continues to rise. It currently resides at 10.2%; well above the 8% ceiling the American people were promised.

Enjoy!

httpv://www.youtube.com/watch?v=kkPGxmSQgyw

httpv://www.youtube.com/watch?v=1Ji4fCtIra0

httpv://www.youtube.com/watch?v=4SvwpsnULNQ

httpv://www.youtube.com/watch?v=l_xSA4y03-M

httpv://www.youtube.com/watch?v=zlWLc8fF5wY

httpv://www.youtube.com/watch?v=RcISx8oAITQ

httpv://www.youtube.com/watch?v=ZUw7yompl_k

httpv://www.youtube.com/watch?v=yiW_OGbVFiY

The first is that employers are shedding far fewer temp employees than in months prior.  The temp employment market normally precede normal employment markets, so the fact that the temp market is stabilizing is a good indication that a recovery is in the offing.

The second is the front page article in today’s paper reporting that Cadbury rejected an acquisition bid by Kraft. The recent burst of activity on the mergers and acquisitions front is always a good sign and indicates that the recession is on its way out.  The Kraft bid follows Disney’s purchase of Marvel, JBS’s bid for Pilgrim’s Pride (to make it the second largest meat company in the world), and Baker Hughes $5.5 billion purchase of BJ Services to consolidate its oil- and gas-field services operations.

M&As mean that there is no longer a liquidity problem as banks are willing to extend credit to these corporations to make these purchases, but, equally important, they mean that business are confident and optimistic about the future.  The economy will stabilize and employment will increase.

All of this no thanks to the stimulus package or any action on the part of the Obama Administration.  We’ve spent only 10% of the $787 billion package (~$78.7 billion), yet the economy is now recovering.  In fact, according to the head of the Federal Reserve in Dallas, the recession is over.

So, think about it. The economy is recovering before any major overhaul of the financial sector, before nationalizing health care, and before a substantial portion of the stimulus package was spent.  We can conclude that we could have achieved the same results of the $787 billion stimulus package with a stimulus package of $78.7 billion, avoiding such a gargantuan increase in the national debt and the requisite pain and suffering for our posterity.

Or maybe, just maybe, we can conclude the recovery isn’t related to the stimulus package at all, and the Keynesians have been wrong all along…

Nevertheless, today’s Democratic majority in Congress, with UPS now aligned with the Teamsters, wants to put FedEx’s ground pickup and delivery operations under the NLRA, thereby making FedEx’s entire integrated system susceptible to disruption by local disputes.

He goes on to explain how Democrats are planning to expand the National Labor Relations Act to cover FedEx’s ground division which is currently covered by the Railway Labor Act. As Will explains, the RLA “ensure[s] that any bargaining unit for workers must be systemwide so that no local unit could hold the railroads hostage.” Operations like FedEx were covered by the RLA instead of the NLRA because this didn’t allow a unit in Nashville, TN affect a unit in Anchorage, AK for example. All union negotiations are made on a system-wide level.

Right now, UPS isn’t doing too hot. And UPS happens to be a Teamsters’ stronghold while FedEx is not. So, as the government no longer respects the free market and contracts between two parties (i.e. employment contracts), they’re trying to harm FedEx. But not by offering a better product or services, reducing prices, or doing anything that would attract consumers to them and not to FedEx. They’re trying to harm FedEx by bringing the coercive arm of the government to implement a law that would make FedEx’s operations more suspectible to stoppages due to local disputes.

Yet another example of why the government should not involve itself in the free market. Big Business teams up with Big Government to make our economy less efficient which ends up being paid for, not by Big Business, but by consumers, individuals like you and me. Because if the law is changed, FedEx will be forced to cancel a “multibillion-dollar order for 15 Boeing 777s” which would not only make FedEx operations more efficient (thereby reducing costs), but also keeps people employed making aircraft. Something that would actually “create or save” thousands of jobs which just might be welcome in this economy.

Representative Henry Waxman (D-CA)

Here’s hoping for the “off.” At least for Representative Henry Waxman, the California Democrat who was recently the subject of a book, The Waxman Report. The Washington Post recently published a fawning book review which contained the following:

“But the corruption of Congress, the corrosive influence of money and lobbying and the failure of one Congress after another to address the country’s biggest problems have done much more to undermine the reputation of our legislative branch than Watergate and Vietnam. To his credit, as the new chairman of the House Energy and Commerce Committee, Waxman is currently addressing one of the nation’s most complex crises: climate change.”

That people fail to make the connection between an intrusive government and lobbying is one reason why we must continual bemoan the “influence of money” in Congress. As government regulates more and more, more and more people are affected which naturally leads to lobbying. The only reason people have to lobby is to attempt to have government legislate policies that positively affect them.  Mr Waxman’s climate change will be no different looking at the bill recently passed by the House.

One of the more obvious cases of this is regulation of businesses. Back in the day, Bill Gates used to brag that he never paid attention to what was going on in Washington. Then suddenly the Department of Justice got involved with a possible antitrust lawsuit against Microsoft. Gates realized his mistake and quickly hired Washington lobbyists and consultants to preserve Microsoft’s interests. He later lamented:

I’m sorry that we have to have a Washington presence. We thrived during our first 16 years without any of this. I never made a political visit to Washington and we had no people here. It wasn’t on our radar screen. We were just making great software.

The same occurred with Wal-Mart. Sam Walton rarely disguised his disdain for Washington. Then Congress and state assemblies started passing laws that adversely affected Wal-Mart (e.g. mandating health coverage or anti-Wal-Mart zoning laws like in Maryland). Wal-Mart quickly opened up a Washington office and engaged a team of lobbyists.

These examples are illustrated in Ayn Rand’s Atlas Shrugged where Hank Rearden focused solely on his company, trying to improve his product and increase sales with only Wesley Mouch on payroll as a Washington lobbyist. Then the government started to oppose Rearden Metal because other steel firms had more lobbyists and could influence key officials to try to stifle competition from Rearden.

This is the unintended consequence of expanding government in the free market: The business with the most lobbyists uses government to shut down competition. Phillip Morris and other large tobacco firms used this with the tobacco lawsuit settlement and now Wal-Mart is trying to use it with health care now that President Obama has promised them “a seat at the table.”

The review ended with this aspiration:

“The Waxman Report explains, at least, how Congress can work, and it is fun to read. You finish it with gratitude to the voters of Beverly Hills and nearby areas who keep returning this ornery fellow to the House to challenge entrenched special interests. More Henry Waxmans on both sides of the aisle would give us a much better Congress than the one we’ve got.”

Well, not really. We should only want more Henry Waxmans if we have a national death wish. Basically, if we eventually end up with more Henry Waxmans, we’ll end up with more and more lobbying and government being used to stifle competition by big business. We ignore the consequences of increased government intervention at our peril.