Trust, two ways - government and people

Quality takes time.

Trust is essential in relationships but it is absolutely essential when it comes to how we expect government to operate. People need to trust that government will act in their best interest, and do so effectively.  Political differences come down how much people trust their government and consequently, how much they want the government to govern and how much they want the government to stay out of way.  Conservatives do not trust government to do things more effectively than the free market, liberals on the other hand trust government more implicitly and believe that it will act in the best interest of the public more effectively than the 'invisible hand'.

Liberals complain about sinister big business and yet put trust in a government far bigger than any single business.  Government is bureaucracy. All those departments trying to justify their existence have to find problems.  It's a recipe for sinister, self-serving decisions.  Big government even if it is not sinister, is still a recipe for inefficiency.

A defining example of  government "efficiency" is Obamacare.  It was  more than 2000 pages put together in a matter of months by cobbling together pieces of ideas from practically everywhere. Consistency, critical re-evaluation and working together (not to mention bipartisanship) were not part of the effort.  In retrospect, it's the paper tiger of legislation.  It was all sizzle and no steak.  It was hollow and left to it's own devices, it will collapse under it's own weight.  There's no way something like that hodgepodge could go wrong, right?  

For odd juxtapositional comparison, consider the best-selling album Rumours. Five (unfortunately) drug-infused musicians who were constantly at each other's throats but were nevertheless talented, spent a year putting the album together.  Eleven songs, approximately 45 minutes of music that are brilliant.  It took longer to produce than Obamacare and was considerably less detailed though far more eloquent.

Government does not deserve the trust it has been bestowed by the left today (president Trump aside).  On the other hand, government owes the public more trust than it has offered in recent history. Dodd-Frank, FATCA, the EPA regulating farmers' dust, the IRS and its predatory investigations of Tea Party groups  - it is all based on the premise that people cannot be trusted to do things for the greater good and must be forced to do so.  That's fundamentally sad, and largely wrong. In Canada, with a much more left-leaning government than America, citizens  donate to charity at a much lower rate than their American counterparts.  That comes down to two factors: (i) higher taxes and therefore lower disposable income to provide donations and (2) less tax benefit for donating because the government would rather have the money than provide the deduction.

Give people the freedom to help others, spice it with tax incentives and you will have a lot of charity happening.  Americans are more generous than Canadians not because they are fundamentally better people - people are people - but because the system encourages it to be so. And why does the system encourage it?  Because their is more trust.  Not enough trust, but more than elsewhere.  You give that away as an American, at your peril.

Saturday Learning Series - Crony Capitalism Corruption

From Mises TV, there's a great series of lectures, panels and talks from Mises University, several of which are great explanations or arguments around sound economic policy.

This video explains how crony capitalism corrupts the free market.  There's a truly important distinction between free market capitalism and the distortion of capitalism when crony capitalism perverts the free market into much of what we see happening today.  Such distorted capitalism holds no moral or operational superiority over socialism.  It is a flawed system that bends itself ever more towards either socialism or oligopoly - neither of which serve the general public in the way the Invisible Hand can.

Business can have unintended consequences too

Not quite what I had in mind.

Government typically doesn't do too many things right. This we know. From the military overpaying suppliers for hammers, to 46 million people on foods stamps clearly making visible the fact that the welfare state model is worse than broken, the government gets an enormous amount wrong. But they are not alone. Business makes an awful lot of mistakes too. Business decisions from off shoring jobs without a full impact assessment to tightening credit requirements are often made in knee jerk fashion focused on short term thinking. I'll give you a personal example and then explain why it's not sour grapes on my part. The anecdote itself is not the point of my argument in any case.

Saturday Learning Series - The Invisible Hand

Back to economics this week, the philosophy thread will continue again next week. Two weeks ago I came across this lecture series by Yale professor Douglas W. Rae who talks about the brilliant concept of The Invisible Hand by Adam Smith. The lecture is part of a course on capitalism. It's a terrific lecture if you give it a chance to soak in and watch more than the first few minutes.

Buying a GM? Think first.

Are you in the market for a car? Would you buy GM right now knowing it is seemingly being run by Barack Obama? The government can't even get the post office right, imagine how badly they'll screw up a car company. Not to mention the fact that getting Rick Wagoner to step down as CEO of GM is heavy handed autocracy on the part of the Obama administration. That's not what America is about. America is about allowing businesses to decide their own fate, free of government interference. That would include providing bailouts, by the way.

Would you buy a GM knowing that it is still suffering under the weight of the crushing legacy costs of UAW pensions and a crippling competitive disadvantage of fully loaded wage rates that will still take time to address despite the re-negotiations?

Don't believe it? Blogging Stocks points out the reality;

For both GM and Chrysler to receive any more federal aid, it was mandated that wage parity had to be reached between the two companies and the U.S. operations of their foreign rivals. Instead of a $70/hour figure for compensation, insurance and fringe benefits, wages would have to approach the $50/hour level.

Indeed, Ford's latest contract with the UAW puts it close to the $50 level, even though Ford has not taken federal bailout money yet. So, it took the impending collapse of the U.S. auto industry for this change to come? If you don't think unions have power in U.S. industry, think again.

With UAW workers making $28/hour at all three U.S. automakers (just base wage), newer workers that are hired to replace retiring ones only make half that. Still, with benefits, foreign companies like Nissan and Hyundai's U.S. operations pay $30/hour and up -- and Ford or GM's entire workforces won't retire overnight. For unions, labor concessions are only the start. Welcome to the global stage, fellas.

And what about those legacy costs? Pensions and benefits for retirees? From the New York Times the following Ford graphic shows the before and after situation, but notice the 20% new workers required to get to that smaller cost. That means the new cost per hour of labor isn't instantaneous. Taking the pensions and retiree benefits off the books will help. But recovery around the corner is still a ways away for Ford and GM (and Chrysler too).

There's an interesting take on it at 538 that argues it isn't a liberal versus conservative issue, it's a today versus the past issue. That's true from the sense the root cause - the UAW and management in the past were willing to kick the can down the road. But the solution can be addressed in a free market way or a government interventionist way. That's where the discussion becomes contentious. What makes anyone think the government wouldn't also kick the problem down the road like it has with Medicare, Medicaid and Social Security liabilities? In fact by offering bailout money the government already has kicked the can down the road.

Back to my initial question - Are you in the market for a car? Would you buy GM right now knowing it is seemingly being run by Barack Obama?

Or would you buy a Ford? The company who did not take bailout money and negotiated the wages down anyway. The company that took steps to prevent a need for potentially filing for Chapter 11 bankruptcy. A company that's trying to be ahead of the curve on the problems the industry is facing.

Or would you buy a Toyota or Honda? As Americans have been doing ever increasing percentages over time. They make what is perceived to be better vehicles, because in the 70's American manufacturers produced a lot of junk. The way back for Ford, GM and yes Chrysler, is not only cutting uncompetitive practices and costs, it's also about rehabilitating their product and their image. They need people to want to buy their product, or even just to consider it as an option and have a reasonable shot at their business.

America is still a democracy. Just because there are no elections, doesn't mean that you can't vote. You can vote with your feet and you can vote with your wallet. And that seems to be what a lot of Americans and others worldwide are doing.

But that ignores that America is the land of the automobile. It ignores that Chevy is like apple pie. It ignores that America has smart engineers and good workers. Do you want to throw all that away because of mistakes that were made and corners that were cut 30 years ago? Or do you believe America can still make cars as well as anyone else? Do you believe that GM and Ford are salvagable?

Do you believe in buying American? Because you can vote with your feet that way too. If you hate government intervention you can still buy Ford. If you don't care but want American manufacturing not to continue dying a death by 1000 cuts, you can buy Ford or GM.

Or you can not care and buy what's best for you and/or your family. That's the American way, and the way of Adam Smith's Invisible Hand.

Those decisions are your own. It may not be a simple call. Weighing what's good for America long term versus what's good for yourself immediately isn't easy to measure. Consider though, that what's good for America long term should be good for Americans long term too. I wouldn't presume to tell you what's best for your own personal situation. That would make me a liberal. I'm just saying an informed decision is always better than a rash one.

The fundamental difference between 'us' and 'them'

The fundamental difference between conservatives (us) and liberals (them) can be summed up in this graph;

Sure looks pretty close to the election results when you look at the overall government versus business breakdown. The problem for conservatives in explaining our positions to the non-conservative portions of society is that this graph shows where there starting point is. We've got a long way to go in educating people on The Invisible Hand and how economics works. It appears there's no easy shortcuts. Winning the education war is a long term project, and liberals have a 40+ year head start. Then again, we could probably work a little quicker if we put our minds to it.

The more I look at it the more the dark green bar in the Republican section is the biggest concern. The real question is perhaps can we trade the 29% of Republicans who think government is a better way to solve the problem for the 24% of Democrats who think that business should handle it? We could even throw in a bag of hockey pucks. Or better still, a 1-for-1 trade for the most conservative leaning independents. Again, we could throw in some Starbucks coupons or something.