Socialism through the backdoor
Wednesday, November 19, 2008 at 03:24PM On September 24, 2008, President Bush gave a very disturbing speech. He described a catastrophic scenario resulting from the financial fallout in the housing market: "Millions of Americans could lose their jobs....the value of your home could plummet." He also said that America could avoid a " long and painful recession" if Congress approved a $700 billion bailout package.
Bush rationalized his abandonment of free market principles with the following: "I'm a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly."
The market is not functioning properly! "This is the favored lament of reluctant central planners everywhere," points out Matt Welch in the December issue of Reason.
I don't know about you but I am sick and tired of politicians -- many of whom have never had a single class in economics, or owned, or managed, a business --- offering draconian solutions to economic problems. Bush's rhetoric is based on the common (and erroneous) assumption that it is the job of Government to provide sustained growth...forever. And, that the Government can actually protect the market from downturns and restructuring.
This is why I supported Mitt Romney for President:
"If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check."
From an article entitled Let Detroit Go Bankrupt.
View Printer Friendly Version
Reader Comments (42)
Detroit is being bankrupted by the UAW's pension deals and idiotic importation policies. If Germany and Japan wish to sell models in the US, they should either be made in the US or sold through a one-for-one trade deal.
Bush - Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly.
Sigh. A market is functioning. It's in no way a free market, but market players are responding to conditions.
Creative destruction is one of the features of a market. When an unproductive and innefficient participant fails, they go to the wall. Assets are then reallocated more efficiently and we progress.
Sigh.
As someone said, freedom looks messy to the authoritarian mind.
"Assets are then reallocated more efficiently and we progress"
Not when the assets are being reallocated from one country's economy (and workforce) to another's. It's OK when GM picks up Ford market share because workers can get jobs in another nearby factory. But when the jobs end up in Germany or Japan, what happens to the UAW's members then? The unions had better start thinking.
Patty,
Bush has an MBA and has run a business (quite a few, but rarely successfully!).
I agree with Romney about the car industry. I was barely in favor of the banking bailout, but banking is special. Making cars is not.
Patty - I applaud you for advancing an article from the New York Times! Romney is slumming!
Allan@Aberdeen -
Well this is a dilemma. Jobs are retained, if shuffled around, when assets are allocated in domestic markets.
Jobs are lost here when jobs go overseas. However jobs are costs to most of us. When jobs go abroad for cost reasons, we become wealthier. If Gupta can make your windows cheaper than Harry down the road, you'll pay less for your new windows from Gupta - i.e. you're wealthier.
Clearly, there is a trade off, particularly for free market nationalists. In fact there are always trade offs, we can never avoid them.
Fortunately for Harry down the road, a relatively free market is by far the most efficient way for him to redeploy his labour and skills. The more free the market, the more jobs will be created.
Bush said;
"I'm a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly."
The market is not functioning because it is being manipulated, and has been for many years. To blame 'government' is too simplistic. It is actually the revolving door of personnel from private sectors to public office and back again that has all but ruined the market system. Implicit in his statement is an admission of the failure of neo-liberal economics. These people are all for less and less state involvement in the markets and that is exactly what has happened for 30 odd years. Yet here we are in the midst of, I would argue, the greatest failure of the market system, simply because the 'markets' have been allowed to regulate themselves. No more proof is needed to argue for rational state involvement in the system. What that involvement is I cant answer as you have to take into account social morality, protectionism and a whole host of complex barriers.
I disagree with the claim that it is socialism that is gaining ground. Its exactly the opposite. Its monopoly capitalism run by a corp-ocracy that is winning out (an inevitability of the revolving door). To us at the bottom it looks much the same as it involves a centralisation of economics, business and power. To be fair we could merge the two arguments and call it 'top down' or 'trickle down' socialism.
There is another element to this that few have been really addressing- the role of Cerberus Capital Management, which actually owns Chrysler.
"There's no such thing as Chrysler. It doesn't even have any stockholders to save. If the bailout passes, your money will go directly to the hardworking men and women of something called Cerberus Capital Management, L.P."
I know some of you are not fans of Huffington- but this article is well worth reading.
http://www.huffingtonpost.com/chris-kelly/whats-good-for-cerberus-c_b_144759.html
Jobs are lost here when jobs go overseas. However jobs are costs to most of us. When jobs go abroad for cost reasons, we become wealthier. If Gupta can make your windows cheaper than Harry down the road, you'll pay less for your new windows from Gupta - i.e. you're wealthier.
Thats all well and good, but in munfacturing not only are labour costs rationalised but so are material costs and production costs (assembly, testing [quality] etc). So outsourcing often comes at the cost of cheaper but inferior goods. So Harry pays less but effectively gets less. Add to that the added pressure Harry adds to his local labour market. Wages are forced down and Harry gets paid less. In the end he pays less but earns less so the only noticible difference is in the reduced quality of the goods. Extrapolate that out and you see why many peoples wages are stagnating or reducing in purchasing strength and the falling quality of many consumer goods, especially those from overseas. There is little net benefit. Infact if we had retained our local industries and got paid better we could all happily afford more expensive and better quality goods, and have a much more robust and diversy economy to boot. The problem is, the corporatists hate the concept of those at the bottom retaining wealth and personal power.
DT -
Oh come on, what a load of nonsense.
Implicit in his statement is an admission of the failure of neo-liberal economics. These people are all for less and less state involvement in the markets and that is exactly what has happened for 30 odd years.
What?? What is Congress legislating on around the clock? There are no free markets in the US. It is a tightly bound corporatist state.
To us at the bottom it looks much the same as it involves a centralisation of economics, business and power.
Well, business and politics, which is an argument for more business and less politics, but you also manage to contradict yourself with these statements.
How have markets been regulating themselves, how are the politicians for less and less state involvement in markets, if business and politics are coming together?
I've read a right load of old tosh from socialists and corporatists and Leftists and liberals over the last few months, and not one of them has been able to make any coherent argument as to why we or the US has seen any kind of market failure - as if markets can fail in the first place!
(Market players walking away from bad conditions, uncertainty and volatility is not 'market failure' - it's a market at work!)
Memo for the hard of understanding - markets strongly contained and directed by legislation, devolved regulations and the decisions of regulators on many levels are not free markets.
Pete,
"Fortunately for Harry down the road, a relatively free market is by far the most efficient way for him to redeploy his labour and skills"
Unfortunately for Harry, he is trained as a glazier with special skills that enable him to earn his living, now that Gupta has 'won' his customers with a cheaper price, Harry is going out-of-business.
Harry is going to be unhappy, as he knows that Gupta can only produce windows cheaper than Harry, because his government doesn't run an expensive welfare system, nor does it maintain a force of mercenaries to assist in policing the world on behalf of a group of fantasists going under the name of the UN, nor does his country play host to an immigration flow that inundates every service of his government has evolved to provide for Harry and his neighbours, even down to causing failure of the education system.
Harry is unhappy because his tax and wage burden are probably some 100% higher than Gupta's, - Harry doesn't stand a chance!
While overt and aggressive protectionism is itself a bad thing, there is a happy medium where a balance can be achieved, something along the lines of: 'We will import your crappy plastic toilet seats, or in Harry's case, crappy plastic glazing, - if you in turn will import whatever it is that Britain has left to export'.
But as we are governed by a bunch of clowns who couldn't run a tap, let alone a business, so they welcome 'globalisation' as a panacea for all that which ails our economy, without, of course, bothering to look ahead and see what the consequences may be.
Yes 'free trade' is a wonderful concept, such a pity it doesn't quite work in the simplistic way that you seem to imagine it should. I am inclined to think that you 'free marketeers' are as doolally as your opponents.
For free market globalisation to work we need a level playing field, - and that ain't gonna happen in our lifetime...
What?? What is Congress legislating on around the clock? There are no free markets in the US. It is a tightly bound corporatist state.
And who wants the legislation, Which seems frighteningly thin on the ground anyway?
The private sector. We are not witnessing a nationalisation of markets but a privatisation of state apparatus.
Memo for the hard of understanding - markets strongly contained and directed by legislation, devolved regulations and the decisions of regulators on many levels are not free markets.
Then explain why the post war era (approx 45-80) was the most successful era in economic terms. Your 'golden days' were all inside an epoch with more regulation and state involvement in the economy. The unwinding of that era has brought us to where we are today.
...............................
Agree Ernest, although it would also be much better if Harry would realise that immigration is another effect of the same economic philosophy that lost him his job (ie neo-liberalised world labour market). The immigrants themselves always get it in the neck when infact they are every bit the victim (of decimated local markets) that Harry is.
Eagle: "Bush has an MBA and has run a business"
Yes.and he's a Republican! prior party of limited government -- You would think that he would know better, wouldn't you?
DT,
So anxious are the politicians to 'make their mark', and get their names in the history books, that they throw caution to the winds and leap before they look, or more importantly, even understand, what the consequences will be.
'There is always a happy medium', should be the motto hanging over the door of any politician's office door!....
I too have an MBA, - but mine didn't come from Harvard...
Take the example of a business which manufactures vacuum cleaners in the UK and has a turnover of say £100 million and profits of £20 million. The wages it pays are taxed and the goods and services it needs are sourced in the UK. It also exports 50% of its produce.
Let us now suppose that it relocates to Malaysia for cheaper labour. Its profits rise from £20 million to £30 million BUT:
the UK now imports that 50% and exports nothing,
the UK receives no tax from wages, sub-contracted services etc,
the profits are taxed overseas and little is taxable in the UK.
This is the reality of out-sourcing and importing, and when we bring the cheaper labour into the UK, our own workforce is undercut and the tax base reduced (social tensions, criminality and demands on the NHS can be discussed on other threads). Globalisation, whether of goods or mass movement of people, is utter madness and benefits nobody but a tiny clique. We are not better off than we would otherwise have been: hasn't anybody noticed that the UK is up to its neck in public and private debt, to say nothing of the grossly shocking cumulative trade deficit of circa £400 billion? Take that away from the imagined 'wealth' and find out how much we are really worth.
It's all about 'nett asset value', anything else is in the realm of con artists...
Judged on that basis, a surprising number of well respected national 'names' are already bankrupt.
Ernest,
Check out GS and C, on the New York stock exchange today! NAV indeed!
Next week will be a market disaster, as my mother says " I have a feeling in me water." ( Said outside polite company, of course).
Globalisation, whether of goods or mass movement of people, is utter madness and benefits nobody but a tiny clique.
luckily they have a plethora or anti
-civilian-terror laws to help protect themselves incase we get a bit uppity.Judged on that basis, a surprising number of well respected national 'names' are already bankrupt.
High St is in for a rough ride over the next 3 months. Probably a good thing. Britians shopping districts could do with a bit more variety.
Globalisation, whether of goods or mass movement of people, is utter madness and benefits nobody but a tiny clique.
luckily they have a plethora or anti-civilian-terror laws to help protect themselves incase we get a bit uppity.
It is funny that you speak of that DT. I read finance boards, particularly the US boards these days.
I have seen it mentioned on more than one board and by many more than one blogger, that it will all come to violence on the streets. Some are even talking of their 'right to bear arms' and what that means for a government willing to take over the markets!!
Ernest Young -
Unfortunately for Harry, he is trained as a glazier with special skills that enable him to earn his living, now that Gupta has 'won' his customers with a cheaper price, Harry is going out-of-business.
Gupta winning his job is an invite to Harry to improve productivity or adapt into other markets. He has no more right to compel you to keep him in a job than a politician does.
Harry is going to be unhappy, as he knows that Gupta can only produce windows cheaper than Harry, because his government doesn't run an expensive welfare system, nor does it maintain a force of mercenaries to assist in policing the world on behalf of a group of fantasists going under the name of the UN, nor does his country play host to an immigration flow that inundates every service of his government has evolved to provide for Harry and his neighbours, even down to causing failure of the education system.
Harry is unhappy because his tax and wage burden are probably some 100% higher than Gupta's, - Harry doesn't stand a chance!
That's an argument against government, not free markets.
While overt and aggressive protectionism is itself a bad thing, there is a happy medium where a balance can be achieved, something along the lines of: 'We will import your crappy plastic toilet seats, or in Harry's case, crappy plastic glazing, - if you in turn will import whatever it is that Britain has left to export'.
Protectionism wins the day then, against the centuries of unarguable evidence that free markets create wealth better.
And where are these brilliant people who know what you want to buy from abroad? Do they read your mind each morning, all the better to know what you want to shop for in the afternoon?
Yes 'free trade' is a wonderful concept, such a pity it doesn't quite work in the simplistic way that you seem to imagine it should.
Well, it does.
Allan@Aberdeen -
Let's take you and your hypothetical business as an example instead. You want to move that business abroad for a variety of reasons - yes, lower wage costs, but also access to other markets, access to materials and expertise and so on.
These other reasons are all as applicable as costs.
But I'm from the government and I decide you can't do that. Attempt to move your business and I'll have you punished.
There, freedom might seem messy at forst, but it's not really.
As for the vacuum cleaner manufacturer, them staying here and passing on higher wage costs to you makes you poorer. I accept your argument that you don;t like the idewa (actually, neither do I like it) but you must also be honest and acknowledge that you are made poorer by manufacturers remaining in locations where input costs are higher than elsewhere.
Pinky -
Globalisation, whether of goods or mass movement of people, is utter madness and benefits nobody but a tiny clique.
Of people, yes, but globalisation and free markets are seperate things entirely.
Governments are at this moment seeking to globalise government, currencies, regulations and laws. That is the great push behind 'globalisation' and it's a great danger to us all, but still lunatics just do not see that government is always the greatest danger in their lives.
By the way, the next time you buy flowers from a supermarket, be sure to see where they come from.
but you must also be honest and acknowledge that you are made poorer by manufacturers remaining in locations where input costs are higher than elsewhere.
Wednesday, November 19, 2008 at 07:56PM | Pete Moore
Who is made poorer? The workers are paid higher wages, the tax base is higher, people are in productive work. I'll ask the same question as before: subtract the UK's debts from its supposed wealth and how much is left. Compare it now to Germany which has deliberately retained its manufacturing sector.
exactamundo allan. it seems that two people saying the same thing cant even penetrate his defences.
Allan@Aberdeen -
Blimey, you're made poorer. When you have to pay higher prices for goods you're made poorer.
subtract the UK's debts from its supposed wealth and how much is left.
Fantastic wealth, we're just not liquidating it. Our debts - the greater part of which were ran up by the State - are about £1.5 trillion. We're worth an awful lot more than that, but we'd rather not have to sell our homes and cars and shares and jewellery and everything else.
But you never know, with government screwing everything it touches, we might have to.
Pete, the goods which were being made at home now have to be imported. Foreign currency has to be earned to buy them, unless you just want to hand over wads of currency which can then be used by the recipient country to buy national infrastructure and institutions - just as has happened here. Now that we have all of these lovely imports and our currency is heading south, those imports are about to become shockingly more expensive. Oh ! - and the tax base has been hit, and the productive sector has shrunk. And people who should be in productive work are dealing drugs, drawing 'benefits' etc. The social outcome is poor but, at least we have cheap TVs.
Allan@Aberdeen -
Imports make us richer, exports are only the things we sell in order to get the money that we exchange for the things we actually want. As Adam Smith explained, every trade, every exchange makes us all richer because we exchange something for something we want more.
Now if our currency is heading south then those foreigners who have stuffed their pockets with it selling us those things we want are losing out too, so chill.
Look, it really isn't convincing to argue for more government (which is what you are doing) when it's government taxes and laws and regulations and prohibitions and red tape which has done more than anything else to send jobs and businesses abroad.
The worst of all worlds is government intervention making it pay for those jobs and businesses to move, all the while killing the free markets and entreprenurial spirit creating the new jobs and businesses and industries.
Less government, people! Less!
Oh ! - and the tax base has been hit, and the productive sector has shrunk. And people who should be in productive work are dealing drugs, drawing 'benefits' etc. The social outcome is poor but, at least we have cheap TVs.
Why do people send arguments against government my way?
Pete,
"Protectionism wins the day then, against the centuries of unarguable evidence that free markets create wealth better."
You can make up what you like, but that is not what I wrote, or implied. Good grief, you cut and pasted my paragraph, did you not read it first, or was it above your pay grade to understand what it meant?
"Gupta winning his job is an invite to Harry to improve productivity or adapt into other markets. He has no more right to compel you to keep him in a job than a politician does.'
That would be in order, - if the competition was just that, as it stands Harry is being handicapped out of the race.
That eventually Harry's income will deteriorate to the same level as Gupta's, may not be the 'good thing' you, in your shortsighted scenario, imagine.
I am as willing as any to criticise government, and I agree that we are taxed too heavily to be competitive in a global market, but you are not going to achieve any relief from that situation by making Harry redundant, all you will do is create a generation of useless people with little or no skills, - and that is also a fact proven by past experience, - just look around you!
Whether you like it or not, there is place for government in a free market, if for no other reason than to maintain the status quo that inspired the market in the first instance. In any game there has to be rules, and a referee!. It seems you prefer anarchy...
Ernest Young -
Do tell me how you keep Harry in a job. How do you punish his booses for attempting to move it? Who do you steal from in order to maintain his wages?
And how are you proposing anything different from what killed the British car industry?
Whether you like it or not, there is place for government in a free market,<.i>
Well, there isn't really, because then it's not a free market.
if for no other reason than to maintain the status quo that inspired the market in the first instance.
Inspire sclerosis you mean. Good grief, the point of a market is that it changes, adapts to circumstances. Players come and go all the time, it's fluid, dynamic and often unpredictable.
It seems you prefer anarchy...
No, freedom to state central planning is my preference.
If people like you had your way, Badvok attaching a wheel to his cart would be the height of industry. Yes, that is so. That is the sclerosis you get when you kill markets.
Pete,
"Why do people send arguments against government my way?'
Perhaps it is because we realise that government and trade, and in particular, global trade, are inextricable involved, and it is almost unbelevable that you just don't get it, and repeatedly attempt to seperate one from the other.
Your search for a pure 'free trade' environment is almost as naive and fantastical as the socialist's search for the perfect welfare nirvana, and sounds just as bigoted.
As businessmen we have to work in an unfair world, and make the best of it, we also realise that there is a vast difference between the smaller enterprise and the national conglomerate, and the one is not the friend of the other...
Ernest Young -
Of course I get it about government and business. For crying out loud, do you think that's another 'Pete Moore' who damns corporatism so often?
Your search for a pure 'free trade' environment is almost as naive and fantastical as the socialist's search for the perfect welfare nirvana, and sounds just as bigoted.
Yeah, I noticed you and other big government types (only judging you by your preferences) had nothing to say when I posted on Hong Kong a couple of weeks ago.
Pete,
"As Adam Smith explained, every trade, every exchange makes us all richer because we exchange something for something we want more."
Voluntary exchange. Often forgotten, that word 'voluntary' matters a lot.
Turns out that when you look a bit closer a lot of people are parties to things you might consider to be 'free' trades, even though they never asked to be.
Pete,
Sorry, but when you insist on writing such perniciously stupid and thoughtless rubbish, you are no longer a pleasure to debate with. It becomes a waste of time reading your replies.
Have you ever started or run a successful business? I get the feeling that you are speaking 'from theory' rather than any practical experience. Perhaps you are watching too much Dragon's Den!...
Pete,
Perhaps I never even saw your treatise on Hong Kong, - heaven forbid that I missed one of your 'learned', screeds.
If you see me as a 'big goverment type', then that doesn't say much for your powers of deduction...
Frank O'Dwyer -
Yes, 'voluntary', absolutely, no doubt about it. 'Voluntary', no coercion whatsoever. Free people trading freely in free markets.
Ernest Young -
Maybe 'it's above my pay grade' to second guess your sensibilities. Maybe I'm just 'bigoted'. It could be I lack 'powers of deduction'.
Have I missed any other snide comments of yours from this thread alone?
By the way, no, I don't run a business although I'm a company director.
I would love to run it but I spend most of my time making sure we're not breaking the law instead. I speak with lawyers and insurers and health and safety people more than staff and clients.
Running a business in the UK is such a pain in the arse if I was the majority shareholder I'd move it abroad.
Pete,
"Yes, 'voluntary', absolutely, no doubt about it. 'Voluntary', no coercion whatsoever. Free people trading freely in free markets."
That's denying reality, because no matter how you set up the rules there is always some coercion, there's no objective definition of it, and the task is to minimise it.
If I was the majority shareholder I'd move it abroad.
But it wouldnt be globalisation when you do it, right?
Pete,
You don't have to guess sensibilities, just read what is written, and all is revealed, and then you wont have to make silly assumptions as to meaning.
Dt,
LoL,, - so much for Old English pride!...
DT -
Call it what you like, but government would be to blame.
Yeah, and so much for English liberty. No wonder it died.