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Oct 14, 2010

Selling Us What We Won't Make

Fred:  We must prevent Americans from buying cheap Chinese clothes and women's purses, and so encourage ...
Mike:  ... our bright young people to sew cheap American clothes and women's purses.

The Choice
10/14/10 - Cafe Hayek by Don Boudreaux

Mr. Boudreaux posts about the value of free trade.

[edited]  By buying products such as textiles, footwear, and luggage from China and other foreign countries, workers and resources in America are freed to work in fields such as bioengineering and artificial intelligence.

If we prevent the importation of “cheap Chinese goods,” we would require American industries to produce – what? – cheap American goods. How bleak.

The problem for the United States is not that the Chinese and others are supplying inexpensive goods to us. The problem is that we are preventing business development in the US that would employ our people to produce many things that we would like. We don't need to limit trade, we need to free ourselves from suffocating restrictions on being productive.

This comment by Dallas Weaver nicely presents this issue [edited].

Without China and others to actually manufacture our US designed high tech devices, none of our engineers, designers, and scientists would be needed. For example, i-Pad sales so far have utilized something on the order of 100,000 man-years of manufacturing employment. If this were done in the US, it would have been more automated, but still it would probably have required at least 10,000 man-years of manufacturing labor.

However, imagine trying to get permits from our bureaucrats to build or even refurbish a manufacturing complex for 10,000 jobs in this country on the required time-scale. The environmental impact report on traffic impacts alone would take several years, and a single law suit on one component of the supply chain would delay the entire project for years.

You cannot manufacture products in rapidly changing markets quickly enough in the US. The markets change far more quickly than our government permit system and legal parasites allow. These malevolent forces slow projects far beyond the point of responding to changed market demands.

This is the real world of the US. Every bureaucrat and nut group has the ability to delay any project. A good example is the attempt to get a permit for seawater desalinization in southern California using existing seawater intakes and using a site already covered with abandoned oil tanks. Many millions of dollars have been spent on the project over the past 8 years, but even the permitting process is not complete.

Another example in southern California. We have a coastline, and a market for fresh seafood of more than 20 million people. Studies show we could create a $2+ billion aquaculture business directly employing 10,000 workers, competing to replace the $8 billion of seafood we currently import, without significant environmental impacts.

As a consultant in this area, I have had to inform potential investors that permits are effectively impossible and that they should look outside the US for business opportunities.

Imports have allowed our society to delay facing the fact that we have evolved from a country which could do and build anything, to a country dominated and controlled by bureaucrats and lawyers. They are parasitizing and decreasing the productive sectors of our economy. Without imports, our system would have collapsed.

Our innovation has continued to move our country forward, because our innovative ideas have been actualized outside our country.

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Stop Bashing Business, Mr. President
10/15/10 - Wall Street Journal by Ken Langone.  (Via Chicago Boys)

Ken Langone is a former director of the New York Stock Exchange and a co-founder of Home Depot. He describes how the onerous regulation of business and a hostile attitude from government keeps businesses from forming.

[edited]  Mr. President, I am glad that you answered my question at the town-hall meeting you hosted on September 20th in Washington, D.C.

The event seemed more like a lecture than a dialogue. For more than two years, the country has listened to your sharp rhetoric about how American businesses are short-changing workers, fleecing customers, cheating borrowers, and generally "driving the economy into a ditch."

I asked why it was necessary for you to vilify the people who deliver econimic growth, at this time when investment and dynamism are so critical to our country? Instead of offering a straight answer, you informed me that I was part of a "reckless" group that had made "bad decisions" and now required your guidance, if only I'd stop "resisting" it.

I'm sure that kind of argument draws cheers from the partisan faithful. But to my ears it sounded patronizing. One of the chief conceits of centralized economic planning is that the planners know better than everybody else.

You insist that your policies are necessary and beneficial to business, but this is utterly at odds with what you and your administration are saying elsewhere.

  • You picked a fight with the U.S. Chamber of Commerce, accusing it of using foreign money to influence congressional elections, something the chamber adamantly denies.
  • Preet Bahrara is your U.S. attorney in New York. He compared investment firms to Mexican drug cartels, and said he wants the power to wiretap Wall Street when he sees fit.
  • You drew guffaws of approving laughter with your car-wreck metaphor. You recently told a crowd that your critics are "standing up on the road, sipping a Slurpee" while you are "shoving" and "sweating" to fix the broken-down jalopy of state.

You offer condescending encouragement one day and hostile disparagement the next. That short-sighted wavering creates uncertainty and economic paralysis, because no one can tell what to expect next. Any investor could tell you this.

If we tried to start Home Depot today, under the kind of onerous regulatory controls that you have advocated, it's a stone cold certainty that our business would never get off the ground, much less thrive. Rules against providing stock options would prevent us as a start-up from incentivizing worthy employees. We could not pay the incredibly high cost of regulatory compliance overall and mandatory health insurance. Still worse are the risks of loss imposed by ever-rapacious trial lawyers.

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Bourgeois Dignity
10/05/10 - Cato@Liberty by Jason Kuznicki

Chief Secretary of Economics:  Those miserable shopkeepers and small businessmen are not cooperating. We will have to lower their taxes, just a bit and for a short while, to get them to work harder and invest more. We will get all of that revenue back later when we introduce the new rules.

Apparatchik:  Do you think they might work less because they are despised?

Economist Deirdre McCloskey:  [edited]  The Big Economic Story of our time is that the Chinese in 1978 and the Indians in 1991 came to attribute a dignity and a liberty to the bourgeoisie [small businessman] formerly denied. Then, China and India exploded in economic growth.

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Drowning In Law
10/16/10 - Overlawyered by Walter Olson

Mr. Olson quotes an op-ed by Philip K. Howard in the New York Daily News. There is much more at the link.

[edited]  Employers face legal challenges at every step. This requires legal and other overhead costing 50% more per employee for small businesses than big businesses.
  • Municipalities requires multiple and often nonsensical forms to do business.
  • Labor laws expose them to legal threats by any disgruntled employee.
  • Mandates to provide costly employment benefits impose high hurdles to hiring new employees.
  • Well-meaning but impossibly complex laws impose requirements to prevent consumer fraud, provide disability access, prevent hiring illegal immigrants, display warnings and notices, and prevent scores of other potential evils
  • The tax code is incomprehensible.

America will thrive only so long as Americans wake each morning believing they can succeed by their own efforts. Innovation, not cheap labor, is the economic engine of America. The Kauffman Foundation reports that the net increase in jobs since 1980 is attributed solely to newly started businesses.

The fatal flaw of the modern state is that it doesn't honor the human element of all accomplishment. Rules don't make things happen. Only people do, making fresh choices in response to the infinite complexities of daily challenges.

Nobel economist Friedrich Hayek warned us in 1960. "We are not far from the point where the deliberately organized forces of society may destroy those spontaneous forces which have made advance possible."

We may finally be there. Government is basically bankrupt, and the accretion of law is suffocating individual initiative. Nothing will work until we clean it out.

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