Compromise

“The fellow who says he’ll meet you halfway usually thinks he’s standing on the dividing line.” -Orlando Battista

When you hear the top political candidates speak, one of the more common qualifications you hear them push is their ability to get compromise between democrats and republicans. What does a bipartisan compromise mean in America?  There are a few ways we break the deadlock.

• One is when individual representatives decide to sacrifice their convictions on the current issue in exchange for pushing through their own pet project they know would never fly otherwise. We call this pork.
• Another is to remove all the parts of the bill that are offensive to anyone, usually removing the taxes that will pay for the project, or the regulations on how it will be used.
• Or they can just spread panic and try to push it through under public pressure before realization and regret set in.
• Or they can just reallocate the money from something vital and force the other side to re-fund that (as seen with the Iraq surge, and California budget under Schwarzenegger)

None of these are helpful. The second example, splitting the difference, is what most often appeals to the public. This is like having each party with a hand on the steering wheel. The Democrats wanting to turn left, the republicans right; meanwhile the media is in the back seat rooting for the underdog.  We will hit the center divider every time.

 

There are ways to affect compromise that aren’t dirty. An example would be this plan put forth by Bob Ingles. He proposes starting up a carbon tax (democrats want), but offsetting the tax by reducing taxes elsewhere, such as income taxes (republican opposition evaporates). I’m a fan of taxing problems to fund solutions. Pollution is a much bigger problem than income.  If we give the free market incentive to clean up, they will do so. Since this is as much a behavioral issue as a technological one, I would consider it progress. Imperfect progress (for much the same reason as traffic cameras), but still far better than the business as usual methods of compromise.

How Does Inflation Work?

This motion picture from the depression era explains nearly everything. Well, this is a cow…

Toyota Republicans

 

Recently on the McLaughlin Group, Pat Buchanan coined a new term for a faction of the Republican party: Toyota Republicans. The phrase is an odd one because it is far more subtle and complicated than it seems. Under the watch of the Bush administration we saw outsourcing become the norm. We didn’t slowly lose a difficult battle to China, we eagerly gave them the plans and asked them to take over our manufacturing. The Alabama foreign car manufacturers Pat referred to are an interesting case. When we can’t even lead in our own industry in our own country selling to our own people, we have failed. It isn’t about patriotism and buying American. I’ll buy American when faced with a tough choice, but in the end I’m going with the better product, as should we all. We don’t need to bail out the failures, we need to create successes. These foreign plants on U.S. soil aren’t entirely a bad thing, although they are still sending our money overseas.

An interesting point has been made about who pays the cost of medical care. If the American auto makers are saddled with responsibility for the health care of their workers, and the foreign competitors aren’t, because the government takes care of that, then we didn’t fire the first shot in the coming Cold War Race to Socialism, they did.

As Pat puts it: “America faces nationalistic trade rivals who manipulate currencies, employ nontariff barriers, subsidize their manufacturers, rebate value-added taxes on exports to us and impose value-added taxes on imports from us, all to capture our markets and kill our great companies.“

How should we respond? Pat wants us to “produce ourselves the guns and ships to defend the republic and the necessities of our national life so we could stand alone against the world.“ He suggests we do this by putting tariffs on imports in order to level the playing field. This isn’t a wise step forward in the new global economy; it leads to foreign retaliation, reducing our exports.  When you are only selling things to yourself, you don’t earn any money. It would work well here in the U.S. Until the industries got lazy and corrupt. We already can see the results of such tactics in the corn industry. The reason everything we eat is packed with corn syrup is that we tax the import of sugar and subsidize the growing of corn. What we need is to be lighter on our feet. We need small specialized manufacturers.

Pat Buchanan puts the blame on neocons for removing tariffs imposed by Reagan:

“When an icon of American industry, Harley-Davidson, was being run out of business by cutthroat Japanese dumping of big bikes to kill the “Harley Hog,” Reagan slapped 50 percent tariffs on their motorcycles and imposed quotas on imported Japanese cars. Message to Tokyo. If you folks want to keep selling cars here, start building them here.“

Alabama is now home to several automotive plants:

• Mercedes-Benz: Headquarted in Germany
• Honda: Headquartered in Japan
• Hyundai: Headquartered in South Korea
• Toyota: headquartered in Japan

These U.S. plants make a total of more than 700,000 vehicles a year and employ over 11,000 workers.  This would all be a good thing if these vehicles were being shipped out, but they are built here to be sold here. To follow the money: You buy a Toyota. Part of that money goes to the workers in the Toyota plants in Alabama and elsewhere in the US; another part goes to Japan. To some extent it is nice to have foreign industry in our country; it gives them incentive to be nice to us so they can retain their factory. On the other hand, if we are making the product in our country with our labor and selling it to our people, we could do without sending the profits to Japan.

Pat is afraid that if we don’t do whatever it takes to keep the big three in business, that these foreign owned manufacturers will take over their market share.

Agreements like NAFTA aren’t really free trade, they are managed trade. In the end, under NAFTA, manufactuuring and agriculture find advantage in moving to Mexico. This includes companies like Toyota. The question is, are these Toyota republicans opposing the bailout on strong free trade principles, or are southern politicians trying to remove the competing U.S. manufacturers in Detroit to better their own foreign owned manufacturing?

From here on I will be using the term ‘Toyota Republican’ to describe the NAFTA loving portion of the party that is partially responsible for outsourcing and the exodus of  industry.

 

Update: Leo Gerard, the president of the United Steelworkers Union, went on Bill Moyers Joural with his take on the auto bailout and the Toyota Republicans.

The Most Basic of Economic Principles

If you can solve this brain teaser from a 1932 issue of Modern Mechanics, you may just be a step ahead of your average congressman when it comes to fixing the economy.

Too Big to Fail?

The latest group to ask for bailout is the automobile industry. Most of their argument for bailout hinges on the thought that if they fail, they will take the economy with them. They are framing the problem backwards. The real problem is that they are too big to succeed. Any time you try to have your company do everything, you risk not being very good or efficient at any of it. What the companies really need is to be more modular. If cars were built like computers, you could choose your own build out of the most appropriate components, knowing that all of them were built by people who specialize, and that replacement parts would be standardized enough to be cheaply available. TechCrunch has a good article about the concept .

What we need is to be lighter on our feet. The days of massive self sufficient manufactueres with big pension plans should be a thing of the past. We need small specialized manufacturers. When they see a need in the market they should specialize in creating the best product at the best price to fill the need. When the need is gone, there shouldn’t be any crying about lost jobs; just restructure, retool, retrain, transfer if neccesary, and get back to work. Benefit packages should be made more easily transferrable. If another nation is seriously subsidizing an industry in order to gain market share, I think we would be better served by putting more international economic pressure on that country, which is stronger the more global the industry is. We should encourage  distributed international industry in order to make it unprofitable to cheat. The alternative is a cold war race to socialism.

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