Tag Archives: unions

Why Politicians Are Like Copper Thieves

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Washington is a criminal enterprise, which is not news. Politicians regularly dole favors to their donors in the form of grants and loan guarantees (Solyndra), theft of private assets for bailouts (Chrysler), and mandates for the use of worthless commodities (corn ethanol). The corruption is endless and goes back to Byzantium; governments are always corrupt because men are corruptible. Due to its size, however, Washington is the greatest criminal enterprise ever assembled. Still, what manner of thief has Washington become? The worst kind.

Popular culture lionizes certain classes of criminals, such as jewel thieves and bank heist masterminds, while it demonizes dirty crimes like armed robberies. Why the difference? Isn’t a thief a thief? Not entirely, and for good reasons. A jewel thief takes from the rich, who by popular belief can afford a loss. He sneaks into a mansion, barely breaking a single window, removes the jewels, and disappears. Nobody is injured, nothing much is damaged, and the jewels go on to flatter another wealthy owner; at least in the movies. Economically, this theft is highly efficient. Wealth is transferred from one person to another with little collateral impact. It is as if the rich victim just handed a stack of cash to the thief.

Dirty crimes involve a high degree of collateral damage as a part of the transfer of wealth. When an armed robber steals a few hundred dollars from a convenience store, the collateral damage is tremendous. People are often murdered, and customers lose faith in the store’s safety, so they shop elsewhere. The damage caused by dirty and unpopular crimes greatly exceeds the value to the thief; people instinctively say “what a waste” when they hear of these crimes.

A particularly wasteful crime trend is copper thieves. Copper thieves steal from construction sites by cutting down installed copper wires and pipes in order to sell the valuable metal as scrap. In doing so, they destroy the value of the labor that installed the copper as well as the finished value of the wire and pipe. Stealing copper whose scrap value may be a few hundred dollars can cause hundreds of thousands of dollars in collateral damage. Economically, copper thieves are among the worst criminals because they cause so much harm for a relatively small personal gain.

So, is Washington’s culture of corruption more like a jewel thief or a copper thief? Washington causes incalculable collateral damage while directing wealth to its friends. As Peter Schweizer’s Throw Them All Out documented, a few hundred thousand dollars thrown at a politician results in tens of millions in graft in return. From the investor’s (i.e. donor’s) point of view, political gamesmanship is the best investment of all. From the taxpayer’s perspective, Washington corruption is nearly a crime against humanity.

Consider corn ethanol. Because each State is equal in the Senate, a swath of low population states that grow corn wield extreme power over Congress’s appropriations. These corn states have forced politicians to mandate ever more corn ethanol in gasoline because it drives up prices and demand for corn. Congress has outlawed the importation of Brazilian sugar and ethanol because it is too competitive. If the goal were to reduce CO2 emissions, Brazilian sugar and ethanol would be the choice, but the goal is to benefit comparatively rich plain state farmers. The result is world hyperinflation in food prices. Corn prices rose from under $2.50 per bushel to $6 thanks to Washington mandates. Since cattle feed on corn, steak prices are rising at 10 times the rate of general inflation. Worldwide prices of substitute staples like rice also rose, causing a food crisis where most people spend most of their income on food. Just like copper thieves, Washington politicians, largely Republican in this case, do not care how many people they hurt to get a few thousand campaign dollars.

On the Democrat side, consider Pres. Obama’s harassment of Chrysler bondholders. In order to bail out his UAW base, Obama stole from the bondholders whose rights were senior to those of the labor union. Obama called on the bondholders to “sacrifice” to benefit the greater good, but his version of the greater good was the UAW, which represents a tiny wealthy sliver of the US’s workforce. The greater cost for Obama’s theft is hidden in the revelation that politics trumps property rights. The Chrysler bondholders were prepared to sue the Government, but they were convinced by Obama’s operatives that they would be beaten down long before prevailing in court. Until this moment, an investor felt he knew his rights, but now any investment can be taken without cause or compensation if the President so wishes. In order to transfer a few million dollars to his cronies, Obama permanently damaged an $8 trillion engine for capital formation and economic growth.

If only Washington acted as the gentlemanly jewel thief, simply giving its stolen cash to its friends. Instead, Washington is like the copper thief, callous to the incidental damage its thievery causes. The next time someone exposes the latest episode of Washington corruption, remember to scale-up the reported graft to include the collateral damage.

An Obama Referendum in Colorado

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On November 1, Colorado voters faced a handful of off-year ballot issues, including a ‘tax the rich’ measure and a pro-union measure local to Denver. While the local media worked overtime to spin the issues as not being a referendum on Pres. Obama’s policies, the measures seemed custom designed to let the President know where Coloradans stand on his agenda. The fact that these measures, that mirrored Obama’s policies, resoundingly failed augers poorly for his 2012 chances in Colorado.

The tax increase, Prop. 103, would have raised the state income tax by 8% and the state sales tax by 3.4%. Pushed by Colorado’s most leftist State Senator, Rollie Heath (D, Boulder), the new tax revenues were earmarked for the teachers’ unions (e.g. ‘for the children’). Well, Obama has just completed a southern bus tour touting his own tax increases and stimulus spending earmarked for the teachers’ unions. Despite early PPP poling suggesting that Prop. 103 was too close to call, the real voters brushed aside the education canard to defeat the tax increase nearly 2 to 1.

The Denver union measure, Prop. 300, sought to force even tiny businesses to provide generous sick pay of 5 to 9 days per year. Supported primarily by two Wisconsin unions, the measure went down nearly 2 to 1 in a left wing, pro-union city that voted 3 to 1 for Obama in 2008. Unions and their politician allies seek to force union rules like sick pay on non-union employers to level the playing field for their members. Denver voters saw through the niceties of ‘giving’ employees sick pay as a threat to Denver’s competitiveness in industries where sick pay is not justified or is open to abuse. Obama has used his executive powers to reward the unions that back him by making unionizing unfairly easy. If left-wing Denverites realize that union policies are job-killers, Obama’s aggressive pro-union policies may drag him down.

Naturally, the local Old Time Media outlet, the Denver Post was having none of that. The Post went out of its way to mischaracterize the election results, saying they were “an election for no change, “and “it would be a mistake to look at the results . . . as an indicator for the 2012 election.” Despite the Post’s front page editorializing, the election did mirror national issues, and it was a stunning blue-state rebuke of Obama’s tax and union policies.

A realistic assessment of the November 1 election is that the 2010 elections were a fluke. The election of a serial tax raiser to Governor and an inexperienced teachers’ union flack to the US Senate were due solely to the GOP’s internal divisions that put exceptionally weak candidates on the ballot. The left-wing activism of Tim Gill, who turned Colorado from red to deep blue, has crashed on the shore of independence minded voters.

While the Obama agenda mirrors Props. 103 and 300, his is much more aggressive. Obama wants much higher tax increases, and his union agenda is a frightening threat to free enterprise. Colorado’s strong rejection of the comparatively modest Props. 103 and 300 suggests a defeat in 2012 for a President that effortlessly carried the state in 2008.

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Everything I Learned In MBA School Was Wrong

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To some, a MBA is a yardstick of business acumen or a launch pad for great accomplishments. While graduate students are expected to exercise increased independent and critical thought, the amount of leftist indoctrination that goes unchallenged is startling. In nearly every department, the MBA curriculum has got it wrong.

Keynesianism:

MBA programs teach that government spending and expansive monetary policy stimulates GDP expansion. Keynesian formulas suggest that recessions can be cured by stimulus spending and money supply growth. Stimulus ‘primes the pump’ of the economy. Well, no, stimulus has never worked, but MBA professors fail to mention this, as they also fail to mention other economists like Hayek, Taylor, and Hazlitt whose theories refute Keynes.

Keynesian stimulus does not work for two real world reasons: 1. When the government stimulates, it almost always procures things nobody needs or wants. The government spends based on political favoritism, and those items are unlikely to stimulate further productive economic activity (e.g. bridge to nowhere); and 2. People don’t measure their wellbeing by GDP growth, they measure their wellbeing by prosperity. The fact that Pres. Obama’s stimulus grew the public sector component of GDP did nothing for regular Americans. People do not really want more money; they really want things like food, houses, cars, and TVs. Stimulus is largely busywork that creates nothing, especially in the short term, to increase real prosperity. Paul Krugman’s recent ludicrous endorsement of government spending on alien invasion preparedness as a way to grow the economy is the perfect example of Keynesianism’s fatal flaw.

Currency Devaluation:

MBA programs teach the IMF mantra that when a country has a trade deficit, or it can’t pay its obligations, it should devalue its currency. The theory posits that after a devaluation, the troubled country’s exports will be more competitive, imports less competitive, and soverign debt more affordable. As Argentina and every other test case has shown, this never works. MBA professors cite a ‘J-Curve’ effect whereby devaluation causes the opposite of its stated goals in the short term, but as consumption and production shift, the devalued economy will reach a balance. The J-Curve must take a long time, because devalued economies continue to suffer for a long time.

Devaluation does not work because, as with Keynes, people do not want money, they want goods. No magic wand increases the real efficiency of a labor force. Further, when a government inflates its currency (devaluation), it makes foreign capital formation less attractive. Without capital formation, modern economies cannot grow, and real prosperity becomes impossible. Currency devaluations are just a form of surprise inflation, which is stealing from those who save to pay off government debt. Only an ivory tower academic can think that is the path to prosperity.

Union Management Partnerships:

MBA academics are big on labor partnerships. True to their socialist instincts, they can’t believe that unions are bad for business. They laud each effort to find a new way to harmonize union and shareholder interests. In the real world, these partnerships never work. UAL gave its unions ownership and board seats, and GM’s Saturn division gave unions decision authorities, but both of these experiments failed, resulting in bankruptcy. The steadily declining private sector union ranks prove that unions cause business failure wherever they take root, otherwise businesses would be inviting unions to form and their ranks would be growing. There is no aligning union and shareholder objectives; shareholders seek to avoid Ch. 11 bankruptcy at all costs, while unions see Ch. 11 as at most a temporary setback.

Efficient Market Hypothesis:

MBA professors hate Wall Street traders because academics think that what they do is impossible. The religion of MBA finance professors is that the markets are efficient (i.e. their prices always reflect true value and that without inside information nobody can make a supernormal profit). Securities’ prices fall along a line that sets their price relative to their risk, so stock picking is a waste of time.

Shout Bits apologizes for the following obscure references, but every assumption underlying the efficient market hypothesis is wrong. Investors are not objectively rational; their decisions are based on needs other than risk adjusted return. Stocks’ returns are not a random walk; returns are auto-correlated. Stock returns’ correlations are not constant; in times of extreme gains or losses, correlations increase. Likewise, betas are not constant and are difficult to predict. Every foundation of the efficient market hypothesis is bunk. The efficient market hypothesis is a classic example of MBA professors living within their walls of assumptions and formulas while those less constrained by theory make a killing.

The list of MBA fallacies goes on (e.g. more regulation creates more safety, the green movement and its economy, strategic reorganization creates value, Japan’s model of government / private partnerships). Of course a lot of smart people earn their MBAs, but they would have been smart without them. As with liberal arts BAs, the hidden price for expanding minds at an MBA program is the indoctrination into left wing and academic fantasies that have no use in the real world. The best business education is getting one’s teeth kicked in by tough competitors who know their trade and know how to win. That is a lesson that no MBA program can teach.