Where Did My Capitalism Go?

This blog has been silent for too long a time (over six months!), but over the next few weeks I’d like to change that. 

Given the recent events in Massachusetts regarding Scott Brown’s win of that state’s Senate seat, the Republicans now have the ability to filibuster legislative action in the Senate.  Even with this greater balance of power, however, the citizens of this country and our representatives must remain diligent in their efforts to combat the anti-capitalistic tendencies that have emerged from the Democrat’s Congressional majority over the past year.  Now that the Democrats can be stymied by a Republican filibuster, we must be wary of the political wheelings and dealings that can occur on both sides of the aisle.  As the balance of power approaches equilibrium in Congress, the propensity for compromise grows, and the temptation to make a deal in order to push legislation forward can become great.  I urge all members of Congress to resist this temptation. 

This nation was built by those who would not compromise their beliefs, who stood for what they believed in and could not be swayed by gestures of appeasment.  Spirited debate led us to independence and gave shape to our government, but a deal that compromises the morals, values or beliefs of the dealer has no place in the realm of a republic.  Speak for your people, for those you represent, and for yourself.  When you deal in politics as a trader, you speak only for politicking itself. 

Our Congress should be pressed by their public to serve the American and capitalisitc ideals that have made this country the nation that it is today.  Those ideas of spirited competition, freedom from government restriction and unbounded opportunity for all citizens which were so celebrated in early America have been gradually limited  by our government over time.  I can imagine that these ideals might have remained as centerpieces of American business and thought had our politicians been less compromising in their agendas.  It would be an interesting study to find out how we got to where we are in our current state of government, but that’s a conversation for another post.  As far as this topic goes, I believe it is the representatives duty to hold the peoples will at heart whenever decisions are made, and when this will is compromised, the representation of the public is forfeited.

General Motors is now back in business, albeit as a diminshed version of its former self. The company is still largely owned by the American and Canadian governments which means that the taxpayer is footing the bill when it comes to GM’s operating expenses. One of the stipulations that the Obama administration has for GM is the expectation that the company will increase their efforts to build more fuel-efficient vehicles and become a
technological innovator. I don’t see how a government owned company could ever innovate like a private entity can, and I certainly don’t expect GM to become a technological innovator that out-performs their non-government owned competitors.

Government sponsored innovation will never produce results equivalent to those bourne out of market driven competition. GM’s main source of funding is more concerned with creating and maintaining jobs than they are with improving technology and finding new solutions for more fuel-efficient cars. Keeping those jobs was the primary driver for the government takeover of the company, so why would it be any less important to them moving forward? The ability for GM to innovate will be hindered by the fact that they know the government will not let them fail. This comfort does not produce a more efficient company; it breeds laziness. Just look at how innovative GM was before the government bailout. You might say that they were one of the least innovative companies on the market, and yet the US and Canadian governments decided to keep them afloat. These governments have set a precedent that GM will surely take advantage of as they continue to fund their research
and development operations with taxpayer money. The government will surely not be as hard on GM as they say they will be when there are jobs at stake, a fact that gives GM license to become a bloated beauracracy where nothing gets accomplished.

Another issue to consider is that if GM actually does stumble upon some new technology, or new method of manufacturing that improves efficiency or reduces costs, who will own the rights to that idea? At any other company, a new product or idea is patented or copyrighted to ensure the ownership is retained by that company for their exclusive use. At GM, a new idea is essentially a government funded initiative that the government may see as their property. This new product or idea could then become public domain that GM’s competitors may use in their own operations, possibly even improving upon it and beating GM at their own game. The fact that the government has control of GM because of the funding they provide makes GM less able to compete in the marketplace through innovation. A government controlled by special interests and beauracracy cannot competitively control a company in the marketplace and expect to win.

The fate of GM is still unraveling. It will be interesting to see how the government performs in the vehicle manufacturing business, and even more exciting to see how GM’s competitors will win out over the taxpayer funded entity in the market. I see GM’s ability to innovate severely limited by this takeover, but perhaps it’s better to still be in business, unable to innovate, than to not be in business at all.

There’s been a lot of talk about the legislation that was hastily passed by the House this past Friday night. The “American Clean Energy and Security Act” as it is called, is around 1200 pages long, and apparently already has another 300 pages of amendments which were added shortly before it was passed in a narrow 219-212 House vote. In short, this bill is long: there is a lot of stuff going on here. I’ve taken the liberty of downloading a version of the bill (before the 300 pages of amendments were added) to review myself and I’d like to address a few choice sections of it here, including my opinion on why these new laws are no good for the American taxpayer. I urge all readers to also review the text of the bill and educate themselves on the major shift in federal legislation that is currently taking place.

The first portion of the bill I’ll address is “Section 201 - Greater Energy Efficiency in Building Codes” which calls for a national building code energy efficiency target of 30% reduction in energy use as dictated in local building codes at the time of adoption of the bill in 2009, and 50% reduction in building energy use by 2015. The bill requires state by state adoption of these targets to be written into new building codes within a year after the adoption of the federal law. Each of those building codes must also be approved by the national overseer, the Secretary of Energy, as meeting the targets set forth by the bill. The fact that the government needs to use the states as a vehicle for this shift in building code (a responsibility solely entrusted to the states) is evidence of the federal inability to dictate and enforce such legislation. This change, if adopted by the states, would cause major hardships for the construction industry, not only for builders but for architects, engineers and local jurisdictions, burdening all involved with the extra cost of acheiving this reduced energy consumption target that will ultimately reflect itself in higher housing costs.

The bill realizes that, by its own actions, the cost of energy to the consumer will be increased. This is exemplified by the text in “Subtitle B, Section 432 - Energy Refund Program for Low Income Consumers” which gives refunds to those who can’t afford to pay for their energy consumption. This section is a built-in method for the government to chip in on the increased cost of energy that will result from this bill. Again, the administration of this program also falls on the states who will need to create new beauracratic infrastructure for the pay out of refunds to consumers that can’t afford the energy they buy. The bill also does not specify a budget for the expense of this new program as is customary with legislation funded by taxpayer money.

The final section, which has gotten much more media attention than those previously discussed is the latter portion of the bill, “Title VII - Global Warming Pollution Reduction Program”. This is the basis of what is also referred to as the “cap and trade” program. This section of the bill sets limits on the carbon emissions that companies and industry can, well, emit. The bill allows those that fail to reduce their own emissions to buy credits or offsets from other entities that have been successful in that endeavor, or by investing in sources of renewable energy and thus playing the carbon offset market. The bill sets regulations for the offset market, and targets for reduction of greenhouse gas emissions. The issue here, again, is the increased operating cost transferred to the businesses affected by this legislation. Companies will be forced to limit their production, find new manufacturing methods or be forced to buy offset credits. This will inevitably cut jobs, increase research and development costs, and increase operating costs in an attempt to compensate for money dedicated to adhering to these new regulations. This increased cost to American businesses will be transferred to the consumer…why else would such a provision as the Energy Refund Program be made in the bill?

The provisions of this latest legislation passed by the House, in my opinion, will have detrimental effects on the American economy, the power of states to write their own building standards, the value of energy for the consumer and supplier, and the perception of what climate change means for the American taxpayer. American people across all classes will be affected by increased taxes to support the local, state and federal beauracracy needed to enforce this legislation, and by increased energy costs that the American business will need to pass on to the consumer in order to adhere to new emission and energy efficiency standards. Please read this bill and learn about its contents. The American standard of living and free market are under severe threat.

I read this opinion piece about the current health care proposal of a public insurance system being reviewed by Congress and started to consider the main question being asked: why should private insurers fear the proposal of a public insurance system? The article had some good thoughts but, in my opinion, the author didn’t give an adequate answer to his primary question. I’ll give you my take on the issue here.

From what I can deduce, private insurers may fear the current proposal because a public insurance system would be cheaper for the insured, meaning the private insurers prices would have to be lowered in order to adequately compete. But one of the main reasons the private insurers prices are currently so high is that they need to buffer against today’s uninsured. The fact that uninsured persons still use the healthcare system without being able to pay for their care translates into an increased price for that care across the board (a cost that private insurers currently have to roll into their price). If a public healthcare system is created, those costs will decrease allowing the private insurers to better compete with the public plan. The problem then becomes the transfer of the cost for the publicly insured into higher taxes for the citizentry.

The money to pay for a public health care plan is the main sticking point: those who most need this plan are often the least able to pay for it. Given the current make up of Congress, I expect the cost of this public insurance to be pinned on the middle and upper classes in the form of increased taxes. I don’t believe in paying for the needs of others. Those who don’t make enough money to provide adequate health care for themselves should not force those who can take care of themselves into an involuntary position as social provider. The screening process for such a public program shoud be rigorous enough to determine actual need based on an inability to work and provide for yourself (something the government should have plenty of experience with by now, and yes, you can read that as a jab at welfare).

The private insurance companies should have little to fear. Ultimately, you get what you pay for, and I guarantee that the service and quality of healthcare will be worse for those under the public plan. The private insurers will remain the providers of quality care, probably at less cost to the insurer. The ones who will bear this burden are the taxpayer, mainly those who want to maintain their level of care by remaing privately insured, but find themselves in debt for the health care needs of those that choose to use the public option.

The last article generated a great response so I want to continue along the same general topic: whether or not the government should be charged with protecting the people from themselves, specifically pertaining to the recent tobacco legislation signed into law. The legislation places heavy restrictions on tobacco marketing, primarily to thwart the youth of America from becoming smokers, but also to raise general awareness about the hazards of smoking.

While in the past the tobacco lobby was a definitive wall against such legislation, this time around Philip Morris USA, the nation’s largest tobacco company, turned the tables and seemingly supported the legislation outright. This drew heavy criticism from other cigarette makers with lesser market share that said this new legislation would hinder them from winning a greater portion of the consumer base. Honestly, I have to hand it to Philip Morris…they saw an opportunity and took it. Who needs marketing anyway when you already have the customer addicted to your product? But I digress…

The question is: Does the government really think that covering 50% of a cigerette package with warning labels will deter people from smoking? The health hazards of tobacco are quite well known among the American public. We know that nicotine is addictive, so if you get into the habit, it will be very hard to stop. We know that smoking often leads to cancer, and ultimately reduces one’s life expectancy. I don’t think it’s the label on a package of cigarettes that entices the buyer. The product is what people want (and in a lot of cases, need). I don’t see tobacco sales drastically declining due to this legislation, just for that reason. If the government wants to continue to protect its people from the harmful habit of smoking, they should expect a long term, generational fight; one that should base itself on a new way of thinking rather than reactionary deterrents to the industry.

The most effective thing that the American people (government included) can do to curb the habit of smoking is to educate the youth of the nation. This already happens to a certain extent, but obviously our country (among many others) still has an issue with underage smokers. Banning the sale of candy-flavored cigarettes is a lame solution. A better idea would incentivize good parenting practices; for instance, a program that would give a tax-break to parents that kept their kids from smoking for a set amount of time. Truthfully, I’m against anything like this idea or the new laws since I don’t believe parenting or the tobacco market are any of the government’s business. But if the government’s going to intrude anyway they should address the root of problem (lack of attention when parenting) and not punish tobacco companies for diversifying their product line by reducing their marketing capability.