Obama Starts Down the Dreaded Path

Here a some beefs I have with President Obama's and the Democratic majority's recent actions and positions.

1) The so-called stimulus bill is full of pork. I'm hearing about more items all the time that sound more like ornaments on a Christmas tree of pork than elements of a well-thought-out and effective stimulus bill.

2) The stimulus bill is too light on tax cuts and too heavy on spending. I'll detail why tax cuts are more effective in a later post.

3) The Columbian Free Trade Agreement isn't passed yet. Remember this? It still matters. The U.S. so far has failed to lock in free trade and economic recovery advantages and the drug war advantages of passing the FTA. Stratfor and other sources have warned about Mexico's dire straits. We need to watch our southern border closely.

4) There's a "buy American" clause in the stimulus bill. It's nonsense to codify that in a bill. If a private party wants to pursue a buy America ad campaign that's fine. But massive sellers of treasury notes and the beacon of democracy and free markets, not to mention chief advocate of free trade, can ill afford to do this. It's stupid and economically wrong.

5) The Obama administration naively stated the obvious about China's handling of its currency relative to the dollar. Of course they manipulate it. It's officially pegged, after all. It doesn't even pretend to float in a free market relative to the dollar. But it was a stupid thing to say so. To do so within a week of the passage of a giant spending bill to be financed by government borrowing was a whopper. The Chinese have good reason to fear sanctions and legal consequences if what they are doing is called what it is. And of course a backlash to those actions would hit us. Hard. Please guys, try to act sophisticated even if you aren't. The U.S. and China are in a dance together and it will take at least another generation to unwind things enough to be free-market rational.

6) The "Card Check" pro-union bill lurks in the halls of congress. The election mechanism is un-American and I would think it would be unconstitutional. I'd have to look. The bill will also advance the government's role from referree to dictator of terms after a set time period of negotiations between a company and a union. That's bad on several levels. More on this later. For some detail see today's editorial page in Investor's Business Daily.

7) Obama signed the "Lilly Ledbetter" bill. That's a bill that sounds appealing to people who think with their hearts instead of their brains. But it sets up some incentives and legal mechanisms which will be abused, to the short-term detriment of businesses and the long term detriment of employees.

8) Closing Gitmo? Dumb. Castro's already making hay, and that's before we've let anybody out! We close Gitmo and celebrate only after we're out of Iraq and Afghanistan, UBL is proven dead, al Queada is discredited and dismantled, Iran has been shorn of nukes, the Isreal-Palestinian question has been resolved to the degree that Palestinians move forward economically instead of work to dismantle the present situation, and Hamas and Hesbollah in their present forms are nothing but bitter memories.

My relief at the perceived quality of Obama's cabinet picks is giving way to the forlorn environment I feared before Obama was elected.

We Shouldn't Bail Out the Big 3 Automakers

The government should not bail out the car companies. Their business model and their agreements with their workers unions have become non-competitive. A bailout will simply push bankruptcies into the future. And at that time the unfunded obligations will be bigger than today.

I have a deep affection for cars, and high on my list are American muscle cars. I also like vintage American cars, lowriders, and racing cars. I don't own any of these, but I love 'em. I love the sound and power of an American V8. I saw CanAm races at Riverside, and there I heard how engines really sound.

But none of the glorious past changes the sorry state of the industry today. The union agreements and the silly CAFE rules act as a scissors to cut profit out of the industry. The union agreements boost costs, so the big three built trucks and SUVs, which were most profitable. The CAFE rules forced unprofitable fleet allocations. The spike in gasoline prices revealed that the whole arrangement was untenable.

Studying economics in college, I asked whether an antitrust case could be brought against a union that represents workers for an entire industry, encompassing several companies. The answer is no, unions are exempt from antitrust cases, not matter what. I never bought that concept. It always seemed logical to me that a union might represent one of the big 3 automakers, for example, but different unions would have to represent workers in the others. That way, essentially the unions have to compete to make reasonable deals. A company could be taken down, but an industry would be less likely. I've read articles over the years after a new UAW contract is cut with one automaker, in which the dire warning is sounded for the prospects of the other two.

Naturally enough, the Democrats, with their union support, are for the bailout. If anything, their restraint and reasonableness is surprising. But bankruptcy is the best option if cash runs out. Contrary to fearful reports, a bankrupt automaker will not cease to exist. It will reorganize its obligations and carry on. And that is exactly what is needed.

A friend asked me about all the past workers' pensions and health coverage if one goes bankrupt. I said "Exactly." Instead of a person retiring at age 65 and and dying at 72 as in past years, a person may now retire at 55 and live until 82. How can a company be expected to carry that? If the real issue is people who no longer actually work at the Big 3, let's address that directly.

The UAW is now, suddenly, talking about renegotiating some parts of their agreements. It's too late. I say "No Deal." By the way, CAFE requirements should not exist. The fuel efficiency of cars and trucks is something the market should decide.

Please read my first post below. That's where I lay out the basic free-market vs. Socialism logic.