Government – Page 86 – artdiamondblog.com

Obama Industrial Policy Risks Funding Dead Ends

(p. B1) President Obama has cast himself as a reluctant interventionist in two of the nation’s major industries, Wall Street and Detroit. The federal aid, he says, is a financial bridge to a postcrisis future and the hand-holding will be temporary.

Even so, the scale of the government investment and control — especially by the auto task force now vetting plans at Chrysler and General Motors — points to an approach that has been shunned by the United States more than other developed nations.
“By any coherent definition, this is industrial policy,” said Marcus Noland, a senior fellow at the Peterson Institute for International Economics.
. . .
(p. B7) . . . a more comprehensive, industrial-policylike approach to Detroit carries its own perils, economists say. In trying to manage the industrial shrinkage, they say, there is a fine line between easing the social impact and protecting jobs in ways that inhibit economic change and renewal. In pursuit of new growth, governments risk encouraging overinvestment in areas that prove to be technological dead ends.
In the Japanese experience, economists see evidence of both dangers. Problems, they say, are typically byproducts of what economists call “political capture.” That is, an industrial sector earmarked for special government attention builds up its own political constituency, lobbyists and government bureaucrats to serve that industry. They slow the pace of change, and an economy becomes less nimble and efficient as a result.
Economists say the phenomenon is scarcely confined to nations with explicit industrial policies and cite the history of agricultural subsidies in America or military procurement practices.
But going down the path of industrial policy certainly holds that risk. “You have to bear in mind the opportunity costs of these kinds of government interventions, and remember that life is not an economic textbook and that politics can easily override economic rationality,” said Mr. Noland, an author, with Howard Pack, of “Industrial Policy in an Era of Globalization: Lessons From Asia.”

For the full story, see:
STEVE LOHR. “Highway to the Unknown; Forays in Industrial Policy Bring Risks.” The New York Times (Weds., May 19, 2009): B1 & B7.
(Note: the online title is “In U.S., Steps Toward Industrial Policy in Autos.”)
(Note: ellipses added.)
The full reference to Noland and Pack’s book is:
Noland, Marcus, and Howard Pack. Industrial Policy in an Era of Globalization: Lessons from Asia, Policy Analyses in International Economics. Washington, D.C.: Peterson Institute, 2003.

Four Month Wait for Blood Test in Brits’ Government Health Care

(p. 6) Founded in 1948 during the grim postwar era, the National Health Service is essential to Britain’s identity. But Britons grouse about it, almost as a national sport. Among their complaints: it rations treatment; it forces people to wait for care; it favors the young over the old; its dental service is rudimentary at best; its hospitals are crawling with drug-resistant superbugs.

All these things are true, sometimes, up to a point.
. . .
Told my husband needed a sophisticated blood test from a particular doctor, I telephoned her office, only to be told there was a four-month wait.
“But I’m a private patient,” I said.
“Then we can see you tomorrow,” the secretary said.
And so it went. When it came time for my husband to undergo physical rehabilitation, I went to look at the facility offered by the N.H.S. The treatment was first rate, I was told, but the building was dismal: grim, dusty, hot, understaffed, housing 8 to 10 elderly men per ward. The food was inedible. The place reeked of desperation and despair.
Then I toured the other option, a private rehabilitation hospital with air-conditioned rooms, private bathrooms and cable televisions, a state-of-the-art gym, passably tasty food and cheery nurses who made a cup of cocoa for my husband every night before bed.

For the full commentary, see:
SARAH LYALL. “An Expat Goes for a Checkup.” The New York Times, Week in Review Section (Sun., August 8, 2009): 1 & 6.
(Note: the online title is “Health Care in Britain: Expat Goes for a Checkup.”)
(Note: ellipsis added.)

Clunker-Like Subsidies May Mainly Affect Timing of Purchases

(p. A6) The next program to test the effect of government funds comes this fall. Consumers who buy high-efficiency appliances such as refrigerators, washing machines and dishwasher can receive rebates of up to $200 on certain products; no trade-ins would be required. The $300 million program was included in the $787 billion stimulus law.

As with the clunkers program, it’s unclear whether the rebate program will offer anything more than a short-term economic boost.
“The people who will most like likely respond to this are the people who need appliances, and they were probably going to buy appliances anyway,” said Erik Hurst, an economist at the University of Chicago’s Booth School of Business. “If all you’ve done is move that from tomorrow to today, then the economy is going to lag even more tomorrow.”

For the full story, see:
SUDEEP REDDY. “Dealers Get More Time to File for Clunker Rebates.” The Wall Street Journal (Weds., AUGUST 25, 2009): A6.

Congress Takes Exotic, Costly Global Warming Trip

Source of map: online version of the WSJ article quoted and cited below.

(p. A1) WASHINGTON — When 10 members of Congress wanted to study climate change, they did more than just dip their toes into the subject: They went diving and snorkeling at the Great Barrier Reef. They also rode a cable car through the Australian rain forest, visited a penguin rookery and flew to the South Pole.

The 11-day trip — with six spouses traveling along as well — took place over New Year’s 2008. Details are only now coming to light as part of a Wall Street Journal analysis piecing together the specifics of the excursion.
It’s tough to calculate the travel bills racked up by members of Congress, but one thing’s for sure: They use a lot of airplanes. In recent days, House of Representatives members allocated $550 million to upgrade the fleet of luxury Air Force jets used for trips like these — even though the Defense Department says it doesn’t need all the planes. . . .
The South Pole trip, led by Rep. Brian Baird (D., Wash.), ranks among the priciest. The lawmakers reported a cost to taxpayers of $103,000.
That figure, however, doesn’t include the actual flying, because the trip used the Air Force planes, not commercial carriers. Flight costs would lift the total tab to more than $500,000, based on Defense Department figures for aircraft per-hour operating costs.

For the full story, see:
BRODY MULLINS and T.W. FARNAM. “Lawmakers’ Global-Warming Trip Hit Tourist Hot Spots; Penguins, a Rocket-Propelled Airplane (and Tax Dollars) Also Involved.” The Wall Street Journal (Weds., June 10, 2009): A1 & A4.
(Note: ellipsis added.)

“The type of rocket-assisted, ski-equipped plane that took the lawmakers to the South Pole.” Source of photo and caption: online version of the WSJ article quoted and cited above.

Government Regulations Stifle Creative Venture Capital

(p. A9) This is a good time to recall that the venture-capital industry was born as a reaction to New Deal regulations that stifled capital and prolonged the Depression. The country’s first venture-capital firm (other than family-run funds) was American Research and Development, planned in the 1930s and launched after World War II in Boston.

Its leader was longtime Harvard Business School professor Georges Doriot, who is the subject of a fascinating recent biography, “Creative Capital,” by Spencer Ante. Mr. Ante, a BusinessWeek editor, tells me that as he researched the topic “one of the most surprising things I learned was how concerned financiers and industrialists had become about the riskless economy in direct response to the New Deal. Even in the 1930s, people understood that small business was the lifeblood of the economy.”
American Research and Development backed early-stage companies deemed too risky by banks and investment trusts at the time. The firm was an early investor in Digital Equipment Corp., the Boston-area company that revolutionized computing.
Despite financial success, the history of the firm is a reminder that our regulatory system, by its nature focused on avoiding risk, has a hard time dealing with investment firms whose mission is to take risks. Doriot was a well-known name in commerce and academia from the 1940s through the 1970s. He was the first French graduate of Harvard Business School, a founder of the INSEAD business school and a leading adviser to the U.S. military.
But even as a pillar of Boston’s commercial and academic worlds, Doriot had many run-ins with federal regulators. Over the years, regulators dictated compensation for the American Research and Development staff, tried to force disclosure of the performance of its early-stage companies, and second-guessed how it tracked the valuations of its investments.
The Securities and Exchange Commission hounded the company so often that Doriot once wrote a three-page memo saying, “ARD has more knowledge of what is right and wrong than the average person at the SEC.” He was prudent enough not to send it. He did mail another memo to the SEC enforcement office in Boston, in 1965: “I rather resent, after 20 years of experience, to have two men come here, spend two days, and tell us that we do not know what we are doing.”
. . .
No venture capital firm has asked to be bailed out, and none are too big to fail. As hard as it is for regulators to understand, the nature of venture capital is such that it should not even aspire to be a low-risk enterprise

For the full commentary, see:

L. GORDON CROVITZ. “No Such Thing as Riskless Venture Capital; New regulations could retard the innovation our economy needs.” The Wall Street Journal (Weds., AUGUST 9, 2009): A19.
(Note: ellipsis added.)

Government Protects Us from Unlicensed Eight Year Old Lemonade Entrepreneur

Daniela Earnest at her lemonade stand (left) and in court (right). Source of photo: http://3.bp.blogspot.com/_GGAmzDRA_BY/SnvDbYoMpzI/AAAAAAAAHEg/W1BI2XK8DH4/s400/daniela%2Bearnest.jpg

(p. 5A) THE FRESNO BEE

TULARE, Calif. — Eight-year- old Daniela Earnest made lemonade out of lemons in more ways than one last week.

Hoping to raise money for a family trip to Disneyland, the Tulare girl opened a lemonade stand Monday. But she didn’t have a business license, so the city shut it down that day.
. . .

Tulare officials said they could not recall ever shutting down a lemonade stand before, though such action is not uncommon. Authorities across the nation have done it.
. . .
Daniela found the situation “pretty weird” but said it hadn’t soured her on reopening the lemonade stand.

For the full story, see:
The Fresno Bee. “City puts squeeze on pint-size purveyor of lemonade.” Omaha World-Herald (Sun., Aug. 9, 2009): 5A.
(Note: ellipses added.)

Mafia Will Get Fed Stimulus Money

(p. A13) Everybody is looking for stimulus money.

From bridge builders to food stamp recipients, from roofers to subway riders, from teachers to housing project residents, people are eager to feel some part of a tidal wave of federal dollars in their lives.
The mob is eager, too.
Federal and state investigators who track organized crime believe that some members have geared up to take advantage of the swift and enormous cash influx — if they have not already — looking, as the old Sicilian expression goes, to wet their beaks.
Nimble, innovative and with a seemingly boundless appetite for the taxpayer’s dollar, the mob’s more sophisticated cadre has plundered municipal, state and federal coffers for generations.
. . .
(p. A14) The distinctiveness of the immediate challenge surrounding the stimulus money is owed in part to the bill’s twin imperatives: Get a lot of money out and get it out as fast as possible. And it is compounded by the fact that law enforcement agencies like the F. B. I. and prosecutors’ offices are hip deep in the competing priorities of counterterrorism and the explosion of corporate and mortgage fraud cases.
Making matters worse, the money is flowing into familiar territory for those with a history of feeding at the public trough. Two of the largest portions of the stimulus pie in the New York City area are going to sectors of the economy — Medicaid and infrastructure projects — where the mob and Eastern European crime groups have flourished for decades, perfecting old schemes and developing new ones.
And it is not just criminals who are causing concern. Several officials noted that in an area where close to two dozen state and city legislators have been indicted in recent years, the flow of stimulus funds through government agencies will provide ample opportunity for corrupt public employees.
. . .
. . . , the speed with which the program has been put in place, along with what many officials have called insufficient oversight, has left some in law enforcement with grave concerns.
“It’s coming out without the internal controls in place,” said a law enforcement official who spoke on condition of anonymity because he was not authorized to discuss the issue publicly. “It’s like putting a bank robber in a toll booth.”

For the full story, see:

WILLIAM K. RASHBAUM. “Concern Is High That the Mob May Seek a Cut of the Stimulus Pie.” The New York Times (Fri., August 31, 2009): A13-A14.
(Note: ellipses added.)

“Churchillian Steadfastness” Versus “Sullen Paralysis and Futile Efforts”

(p. A15) . . . beyond amelioration and providing the judicial (or in the case of the FDIC, quasi-judicial) procedures for reorganization, there is little more that the government can do to accelerate the unwinding and renewal necessary to put the economy back on an even keel.

The process involves a sequence of negotiations and experiments that cannot be truncated by throwing in more resources. As Frederick Brooks wrote in his celebrated book on software development, “The Mythical Man-Month: Essays on Software Engineering”: “When a task cannot be partitioned because of sequential constraints, the application of more effort has no effect on the schedule. The bearing of a child takes nine months, no matter how many women are assigned.” “Brooks’s Law” suggests that increasing the size of software teams may delay development.
The wide variety of problems and circumstances in an economic downturn precludes the effective use of a single solution. And the federal government doesn’t have the capacity to determine adjustments on a case-by-case basis. The late Nobel Laureate Friedrich Hayek taught that the “man on the spot” with the appropriate local knowledge was much more capable of making good investment decisions than a central planner.
. . .
Suppose that, when the financial crisis broke two years ago, our leaders had shown a Churchillian steadfastness and allowed the normal realignment to play out under a predictable judicial and regulatory regime. The prices of stocks, bank debt and houses would still have crumbled and unemployment risen. Although recovery wouldn’t have been immediate, we’d at least have progress, instead of a sullen paralysis and futile efforts to turn the clock back.
More loans would have been renegotiated and foreclosed properties auctioned off. The FDIC would already be engaged in finding a good home for the loans and deposits of a megabank or two. That agency, now operating with about one-third the staff it had in the 1980s, could also have used some of the bailout money that helped pay for bonuses at AIG and its counterparties to recruit, train and retain more employees.
Best of all, more entrepreneurs and innovators, who capitalize on the opportunities to be found in the midst of turmoil, could have been building the foundations of a prosperous future.

For the full commentary, see:
Amar Bhidé. “You Can’t Rush a Recovery; While small business struggles, Goldman Sachs was protected from its AIG mistakes.” The Wall Street Journal (Thurs., APRIL 9, 2009): A15.
(Note: ellipsis added.)

Empathetic Judges Are Unjust to Bastiat’s “Unseen”

(p. A15) . . . , a compassionate judge would tend to base his or her decisions on sympathy for the unfortunate; an empathetic judge on how the people directly affected by the decision would think and feel. What could be wrong with that?

Frederic Bastiat answered that question in his famous 1850 essay, “What is Seen and What is Not Seen.” There the economist and member of the French parliament pointed out that law “produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.” Bastiat further noted that “[t]here is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”
This observation is just as true for judges as it is for economists. As important as compassion and empathy are, one can have these feelings only for people that exist and that one knows about — that is, for those who are “seen.”
One can have compassion for workers who lose their jobs when a plant closes. They can be seen. One cannot have compassion for unknown persons in other industries who do not receive job offers when a compassionate government subsidizes an unprofitable plant. The potential employees not hired are unseen.

For the full commentary, see:
JOHN HASNAS. “The ‘Unseen’ Deserve Empathy, Too.” The Wall Street Journal (Fri., MAY 29, 2009): A15.
(Note: ellipsis added.)

BB&T Founder John Allison Speaks for Rand’s Free Market Philosophy

“John A. Allison IV, chairman of the banking company BB&T, is a devoted follower of Ayn Rand’s antigovernment views.” Source of photo and caption: online version of the NYT article quoted and cited below.

(p. 1) OVER much of the last four decades, John A. Allison IV built BB&T from a local bank in North Carolina into a regional powerhouse that has weathered the economic crisis far better than many of its troubled rivals — largely by avoiding financial gimmickry.

And in his spare time, Mr. Allison travels the country making speeches about his bank’s distinctive philosophy.
Speaking at a recent convention in Boston to a group of like-minded business people and students, Mr. Allison tells a story: A boy is playing in a sandbox, only to have his truck taken by another child. A fight ensues, and the boy’s mother tells him to stop being selfish and to share.
“You learned in that sandbox at some really deep level that it’s bad to be selfish,” says Mr. Allison, adding that the mother has taught a horrible lesson. “To say man is bad because he is selfish is to say it’s bad because he’s alive.”
If Mr. Allison’s speech sounds vaguely familiar, it’s because it’s based on the philosophy of Ayn Rand, who celebrated the virtues of reason, self-interest and laissez-faire capitalism while maintaining that altruism is a destructive force. In Ms. Rand’s world, nothing is more heroic — and sexy — than a hard-working businessman free to pursue his wealth. And nothing is worse than a pesky bureaucrat trying to restrict business and redistribute wealth.
Or, as Mr. Allison explained, “put balls and chains on good people, and bad things happen.”
Ms. Rand, who died in 1982, has all sorts of admirers on Wall Street, in corporate boardrooms and in the entertainment industry, including the hedge fund manager Clifford Asness, the former baseball great Cal Ripken Jr. and the Whole Foods chief executive, John Mackey.
But Mr. Allison, who remains BB&T’s chairman after retiring as chief executive in December, has emerged as perhaps the most vocal proponent of Ms. Rand’s ideas and of the dangers of government meddling in the markets. For a dedicated Randian like him, the government’s headlong rush to try to rescue and fix the economy is a horrifying re-(p. 6)alization of his worst fears.

For the full story, see:

ANDREW MARTIN. “Give Him Liberty, but Not a Bailout.” The New York Times, SundayBusiness Section (Sun., August 2, 2009): 1 & 6.
(Note: the online title is the slightly different: “Give BB&T Liberty, but Not a Bailout.”)