The Resurrection: Lawrence H. White Defends the Gold Standard

It's time to break out my mantra again:

You can take gold out of the standard, but you can't take the standard out of gold.

How many times will I say this before the world hears me? Probably many, many more, if ever.

Finally, someone in the mainstream economic community has taken up the cry to resurrect the gold standard.


[Thanks to Allposter.com for the image of Caravaggio's Resurrection of Lazarus.]

Lawrence H. White, Adjunct Scholar at Cato, has just published this paper on gold and the gold standard.

I have written so much on this subject that I would be repeating previous posts to delve into the reasons why I support gold as a standard for modern monetary units. If you use the search feature above and look on this blog for "gold standard" or just "gold," you'll find dozens.

Please read Professor White's paper. An understanding of the principles he evokes is essential for the future economic stability of the world. And that's not an overstatement.

Will the politicians and power brokers take heed of the message? I don't think so; at least not yet. But they may be obligated to do so at some point if the public insists enough.

The history of gold is undeniable, and its future role--indeed its present role, albeit an unrecognized one--is just as undeniable. It's not because the monetary authorities have decided to uncouple gold from our currency, that gold does not retain its value as a measuring stick of their management shortcomings.

Gold is near an all-time high today. Many people in the world think as I do, that we humans need a measuring stick to manage out monetary unit. Until our leaders recognize this, expect gold to be the best store of value and to come back into favor as the currencies of the world are devalued through mismanagement.

Unfortunately, nothing in our modern age allows us to do better than the Romans or Greeks, or Medieval or Renaissance governments. Not the computers, not the modeling, not the statistics, none of it. Gold is on the level of the invisible hand. It is just there and will always be there to shine a light on our politicians' hubris.

Government Regulation Run Amuck, Example No. 9: Political Campaigning

Ann Coulter's 2/20/08 column entitled "How to Keep Reagan Out of Office" does an excellent job of explaining one reason why campaign finance reform isn't really campaign reform but rather campaign rigging, that favors incumbents and discourages the advancement of good but unknown political candidates by limiting vital funding in today's very expensive US political process.

As most readers know, the legislature voted in 2002 to regulate campaign financing, and the result was the McCain-Feingold Act, also called the Bipartisan Campaign Finance Reform Act. (For more, see also this entry.)

The idea was to get big-money donors out of politics and bring the game back down to the fair-and-square level of the people.

But government intentions are full of what the economic scientists call "unintended consequences." McCain-Feingold is no exception.


[Thanks to Harry Short and thesun.co.uk for the photo.]


There are two reasons. First, McCain-Feingold backfired. As laudable as the spirit of this law is, it has become a hindrance to good politics, as we see from Ms. Coulter's piece.

Second, McCain-Feingold didn't work. It failed to contain big-money donors, who simply found other ways to contribute their financial strength to a particular candidate, to wit the Section 527 committees that were so influential in 2004.

Senator McCain himself seems to recognize this, judging from his own activities in a non-profit called the Reform Institute.

According to this 2/12/08 article at Worldnetdaily.com, McCain's non-profit has been funded by the likes of George Soros and Teresa Heinz-Kerry since 2001. (I note in passing that McCain is listed as a Republican, and both these donors are strong liberal Democrats--just for the irony.)

McCain would defend himself by saying that political opponents can work together on issues. He might also say that the Reform Institute is not involved in any way in his campaign. Unfortunately, we learn from the article that Rick Davis, current campaign manager for Senator McCain, had been previously employed at the Reform Institute for years, as have others on McCain's campaign committee.

The Captainsquartersblog.com made this comment back in 2005:

"As the New York Times noted yesterday, RI provides a back-channel method of keeping his campaign staff employed without McCain having to do any fundraising for his political campaigns -- and avoiding the donation caps that come into play for his donors." (I'm not sure whether there is enough evidence to accuse McCain of this, but the liaison surely doesn't look good.)

The linked New York Times article goes into more detail about the appearance of conflict of interest:

"[S]ome campaign finance experts say that Mr. McCain is moving dangerously close to violating his own principles and that as a chief advocate of clean election rules he should make certain he is above criticism. [...] The problem [...] lies in the close and unregulated relationship between the nonprofit groups and politicians. [...] [The Reform Institute could be just a way of] keeping some of the senator's advisers busy in the months before any formal presidential campaign operation would be established. According to the institute's public tax records, Mr. [Rick] Davis, its president, received a $110,000 consulting fee from the group in 2003. Mr. Davis said he was making the same amount this year. [...] 'We don't do campaign work,' said Mr. Davis, who said contributors typically were zealous about political reforms."

And yes, that's the same Rick Davis.

As for big-business donors to the McCain campaign, this is what the New York Times says about the donors to the Reform Institute:

"Some donors [...] are communications industry giants who had business before the Commerce Committee when Mr. McCain was its chairman."

(See some more leftist vitriol against McCain and Davis here.)

Federal regulators please note: I am in no way trying to accuse McCain of any intentional wrongdoing, nor do I condemn one party or another. Rather, I wish to use this illustration to point out how government regulation can run amuck. Whether it be through naivety or cunning is not for me to judge.

Unintended consequences are neither a Republican nor Democratic issue. Ultimately, the issue is big government vs. small government. See my previous blog for more on this new political division running across both parties.

Will Capitalism Be A Victim of Its Own Success?

The economist Joseph Schumpeter describes what he sees as capitalism's Achilles Heel in his book Capitalism, Socialism and Democracy.


[Thanks to cambridgeforecast.files.wordpress.com for the image.]

Writing in a more approachable style, another economist Benjamin A. Rogge gives an overview of Schumpeter's main points in his work Can Capitalism Survive?. (See this excerpt.)

Rogge begins by citing Schumpeter:

"Can capitalism survive? No, I do not think it can. The thesis I shall endeavor to establish is that the actual and prospective performance of the capitalist system is such as to negative the idea of its breaking down under the weight of economic failure, but that its very success undermines the social institutions which protect it, and inevitably creates conditions in which it will not be able to live and which strongly point to socialism as the heir apparent."

Marx said something similar about capitalism, but the difference is that Marx relished the idea, and Schumpeter feared it.

Rogge interprets Schumpeter's theory thus:

"In effect if capitalism is to survive, it must defend itself in the arena of values and emotions—and here its very success as an economic system reduces its chances of victory."

I've been looking for the reasons for capitalism's lack of general defense and appeal, and this sounds like a plausible explanation. We ignore at our own peril the influence of emotion and culture over logic and observation.

Schumpeter demonstrates why most types of individuals do not have the incentive to protect the very system that provides them with their standard of living. Rogge's translations of Schumpeter's ideas are so clear and succinct that I'll paraphrase him.

Who are these individuals who don't know a good thing when they see it?

1. The working people. Why will they not protect capitalism? In Rogge's words, "[b]ecause they do not connect their affluence with the capitalist system, because they are incapable of understanding any economic system as such, because they are more aware of their daily frustrations and insecurities under the system than they are of their long-run gains from the system, and because they are taught by the intellectuals in society to resent the capitalist system and its central figure—the businessman."

2. The businessman. Why will he not protect capitalism? "[E]ven if he were fully aware of the problem and determined to do something about it, the businessman lacks the capacity to capture the imagination of the society." Or as Schumpeter himself says so eloquently, "[t]he stock exchange is a poor substitute for the Holy Grail."

Schumpeter also explains:

"A genius in the business office may be, and often is, utterly unable outside of it to say boo to a goose—both in the drawing room and on the platform. Knowing this he wants to be left alone and to leave politics alone. [...] There is surely no trace of any mystic glamor about him which is what counts in the ruling of men."

A perfect example of this is General Motor Corp Vice Chairman Bob Lutz's recent statement dismissing global warming as "a total crock of s---." Ironically, he is part and parcel of GM's decision to spend millions of marketing dollars proving to the public that the company takes environmental factors seriously.

Schumpeter claims that business faces a second setback. Rogge puts it this way:

"As capitalism matures, the form of the business firm and the role of the businessman change in such ways as to weaken the businessman's will to resist the critics of capitalism. [...] Capitalism creates the organization man—and the organization man is indifferent to the fate of capitalism."

I'd written something similar in a previous post. I said:

"A businessman is a businessman. He is not an idealogue, or even an idealist, except in his more private moments. A businessman enjoys the challenge. He plays by the rules, no matter what they are."

Not an idealist indeed. We have only to observe how the big corporations, including the trade unions, wait until they see who the winner is likely to be before handing out campaign finance money.

3. The intellectuals. Why will the majority of them not protect capitalism?

"The intellectual tends always to be a critic of the system, of the establishment, whether he is in Russia or the U.S. [...] [I]n 1942 Schumpeter accurately foresaw the current surplus of intellectuals, surplus in the sense of there being far more intellectuals than employment opportunities with income and prestige equal to the self-evaluations of such people. For this, said Schumpeter, the intellectuals will hold the capitalist system responsible, which will add fuel to their already burning critical fires. Moreover, the widening gap between their own incomes and those of the businessmen will induce them to find ego-restoring explanations of the businessman's success—luck, exploitation, fraud, monopoly, etc. These rationalizations are described by Schumpeter as 'the autotherapy of the unsuccessful.'"

4. And lastly, the politicians. Why will they not protect capitalism? Because "the governmental bureaucrats, with whom [the intellectuals] share a common educational background [...] will be increasingly involved in administering anticapitalist legislative policies"--presumably by nature and by definition, because not to do so would be professional suicide.

Read the rest of the Rogge piece. It's a great one.

So ultimately, our socioeconomic system is determined by the politicians we elect, and the majority of voters (and therefore most politicians) are anti-capitalist--and this is true whether they be Republican or Democrat.

To make this point clear, I'll refer to the expert on that subject, Virginia Postrel, author of The Future and Its Enemies. In her perspicacious work, she pulverizes the split between left and right, turning the compass around so that it divides "stasists" from "dynamists", i.e. those Republicans and Democrats who prefer the status quo, who believe they can control the uncontrollable, and who fear change, on the one hand; and those who are confident in themselves and in society's capacity to organize itself, and who therefore crave the freedom and uncertainty of evolutionary dynamism, on the other.

Schumpeter and Rogge, you're right. I think the stasists are winning, at least for the short, medium, and shorter long-term. Hopefully, good sense will win in the end, at least in the Darwinian sense.

Government Regulation Gone Amuck, Example No. 8: Real Estate Bailouts

In this New York Times article by Edmund L. Andrews and Louis Uchitelle, we find the latest example of government regulation and/or intervention running amuck. The real estate market has collapsed and the legislators have noted that voters are hurting--once again.

It happens a lot, only in different domains. Politicians love it, because each episode represents an opportunity for them to look like they're "doing something."


[I highly recommend the Schalkenbach Foundation and this magazine article about what they had already labeled in 2006 as the "coming real estate crisis." Click on the image for their website.]

Crises like this one hark us back to the 1930s efforts of Herbert Hoover to "stiffen public confidence" through the National Credit Corporation and subsequently the War Finance Corporation, and to the 1990s bailout of the savings and loans. Today, the government is once again considering similar action.

We should all become suspicious, however, when the ones making the loudest noise are special interests and politicians. Here are five examples:

1. "Bank of America, which is in the process of acquiring Countrywide Financial and has potentially huge exposure, has circulated a proposal to create a new federal agency that would buy vast quantities of delinquent mortgages at a deep discount and replace them with fixed-rate federally guaranteed loans."

2. "The Federal Housing Administration [...] is examining ways to expand its new insurance program, known as FHA Secure, to help people replace their costly subprime mortgages with federally guaranteed fixed-rate mortgages."

3. "Credit Suisse executives said they have held lengthy meetings with F.H.A. officials and have urged the agency to relax rules that currently disqualify many borrowers."

4. "An aide to [House Representative] Mr. [Barney] Frank said his [new] bill would, among other things, allow the government to buy up at least some troubled mortgages."

5. "John M. Reich, director of the Office of Thrift Supervision, the agency that regulates savings and loan companies, [has another plan to] create a voluntary system under which mortgage lenders would reduce debt and monthly payments to reflect the diminished sales value of a home. It would take the remainder of the mortgage as a 'negative amortization certificate,' a lien that the investor could recoup if the house were later sold for its original mortgage value or higher."

(As an aside, does anyone stop to consider what effect these liens will have on the purchase price of houses?)

"In an interview, Mr. Reich said he hoped that most of the old mortgages would be replaced by cheaper mortgages insured through the F.H.A. 'It isn’t a bailout,' Mr. Reich said. 'It is a market-driven solution.'"

Since when is the Federal Housing Authority not forced to do what the government bids it to do, even against management's better market judgment? Thus, how can FHA loan leniency or intervention be a "market-driven solution"?

No one mentions that the special banking interests, including the above-mentioned Bank of America and Credit Suisse (not even an American bank--why should we bail them out?), made some very bad decisions over the past ten years. But this doesn't keep them from whining for government handouts.

Here's an example of the misleading reasons given for all of this renewed hyperactivity:

"The $168 billion federal stimulus package is likely to be less effective than intended because many homeowners may simply use their government checks to pay down their debts."

(Heaven forbid that they should pay down their debts.)

Does this mean, then, that even the stimulus package won't work? Why am I not surprised? It's what economists call a "Keynesian" effort that will just put the nation further in debt. (Keynes was an early 20th century economist who thought that the Great Depression was caused by abnormal lack of consumer spending, and that it had to be spiked to function, like a lazy nag. Most economists today realize that (1) this was not true at the time and is still not true today, and (2) it's an ineffective and even counterproductive way of trying to improve the economy, borrowing as it does from Peter to pay Paul.)

And finally, here is an example of government misuse of statistics to back up all this frenzy:

"Housing prices in Memphis fell by 2.5 percent last year, only the second decline since records began to be kept in 1968, and by far the largest dip, according to Chandler Reports, which gathers this data for Greater Memphis."

What is missing, of course, is the data that points out the 230% percent rise in home prices that took place in the eight years preceding this housing bust. (Chart.) That's an increase of more than 16 percent a year.

But when home prices go up, nobody complains on behalf of home buyers for some reason, perhaps because everyone thinks he's making money. Well, the party's over, folks.

If you read to the end of the article, you'll see more reasons why government bailouts are a bad idea. The examples chosen incite no pity in me; how about you?

Government Regulation Gone Amuck: An Overview

Economics professor and author Arnold Kling is an adjunct scholar at the Cato Institute, and he writes also for Tech Central Station and for his and a partner's website, EconLog.

He has recently written an article published by the Wall Street Journal on the future of government regulation in America.

He states that public understanding of the limitations of government is poor, as evidenced in the popularity of big-government ideas like nationalized health care and government control of energy production and use.

I like his piece for its clarity and good examples, and also because it sums up the conclusion I was headed toward, i.e. that excessive government regulation will always tend to run amuck, by definition. It destroys competition, pulverizes the pricing mechanism, and pushes a society towards anti-free-market socialism at its own expense, which expense big-government enthusiasts ("progressive" voters and legislators) underestimate (naively or purposely).

He finishes with this:

"Many Americans will welcome the regulatory state. Many others will accommodate it. Only a minority of us will oppose it. Somewhere down the road, as people see the indignity of the many intrusions and the adversity of the consequences, I hope that there will be a backlash. Otherwise, if the era of mandates emerges as I fear it will, then the engine of capitalism in America may run out of the fuel of competition."

I second that. Hear, hear.

Government Regulation Gone Amuck - Case No. 7: Labor

This little program of mine--the finding of cases of well-meaning but poorly-functioning government regulation--is gaining momentum.

Today's example is union control of the construction business in New York, facilitated by state laws that provide the Mafia and mob-controlled corporations with the means to obtain a monopoly of hiring in construction firms.


[Thanks to petergof.com for the photo.]

In passing, I'll mention that I'm embarrassed to admit that I thought mob control of labor in New York went out with Giulani. I've seen Marlon Brando's movie, "On The Waterfront," and The Sopranos, which I thought was a period piece; but no. The Mafia's still with us, thanks to government corruption and misfiring legislation.

According to Steve Malanga of the City Journal in this article:

"[E]ven after decades of intensive investigation by law enforcement, organized crime remains a powerful force within the city’s construction industry and in related businesses—like trucking—that are particularly susceptible to mob corruption.
...
"[I]n construction [...], labor law permits contracts between builders and unions in which unions effectively have power over hiring. They enlist workers in their organizations first and then send them out on jobs."

State government officials tried to handle the situation, but unsound reasoning--to give them the benefit of the doubt--got the better of them:

"New York State’s laws and policies add to the industry’s problems by snuffing out competition. The state decrees that on all public construction projects—representing a huge chunk of the industry’s revenue pie—government must pay even nonunionized workers a 'prevailing' wage that in most cases is equal to the highest union worker’s wage. The law sharply reduces the ability of non-union contractors to get government work, since they lose any pricing advantage that lower wages would give them. Thus, many don’t even bother to bid on government contracts, which the construction unions inevitably win. That’s the kind of monopoly that mobsters love.
...
"The state’s Wicks Law further aids the wise guys by requiring government to carve up public construction projects into at least four separate bidding packages, multiplying the number of contractors and subcontractors involved in any project and adding layers of complexity that encourage fraud, bribery, and bid rigging.... [T]he unions love the bureaucracy, inefficiency, and extra work (and workers) that Wicks requires."

France also has plenty of examples of union abuse and monopoly privilege. See this article for an example of their power, and this article at Mises.org giving some background information.

It's Time to Reconfigure the Fed's Modus Operandi

Our central banking network, called the Federal Reserve System, has several functions one of which is coordinating overnight exchanges between banks around the country and insuring a smooth flow of banking transactions in general. The Fed regulators are also responsible for the oversight of some bank operations (although some have accused them of laxity in this regard).

The job should stop here, but unfortunately there's more. A third thing the Fed does--or at least is supposed to do--is maintain just the right amount of purchasing media in circulation to support the economy's needs, nothing more and nothing less.

The centralized maintenance of the money supply is a superhuman task. Some economists believe that it could be much better performed by a private banking system. (For more on this idea, see Breaking the Banks: Central Banking Problems and Free Banking Solutions, published at the American Institute for Economic Research.)

But there's even more to their job. According to the Federal Reserve Board's Congressional mandate, they are also required "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." (Source.)

That's like handing over to your local supermarket manager the responsibility for maintaining the stability of your job, your salary, the purchasing power of your money, your available credit, and the supply and demand of everything you buy.

Economists are not in agreement regarding the feasibility of centralized control of the money supply, never mind of accomplishing this Congressional mandate, i.e. whether the status of the economic science is competent to allow any person(s) to undertake such responsibilities. The Fed has had to utilize existing "scientific" tools that are of necessity inadequate to achieve these goals, even by their own admission.

Federal Reserve Chairman Ben Bernanke said, in November of last year, "because our knowledge of the structure of the economy is incomplete and future economic disturbances are often unforeseeable, economic forecasting is a highly uncertain enterprise. The only economic forecast in which I have complete confidence is that the economy will not evolve along the precise path implied by our projections." I applaud his openness, revealing courage and humility, two qualities that some former Chairmen have not possessed.

I am not alone in my evaluation of the Fed's incapacity to fulfill its duty. To quote just one other skeptic, here is what economist Milton Friedman has said about this subject:

"Any system which gives so much power and so much discretion to a few men that mistakes--excusable or not--can have such far-reaching effects is a bad system.... Mistakes, excusable or not, cannot be avoided in a system which disperses responsibility yet gives a few men great power, and which thereby makes important policy actions highly dependent on accidents of personality.... [M]oney is much too serious a matter to be left to the Central Bankers." (From Capitalism and Freedom.)

When you read Wall Street news tickers like this one from the bond markets, you get a sense of how much the economy's short- and medium-term well-being is dependent upon the Fed. Before making any decisions, stock market players and industry leaders all look to the Fed to see what their next move will be.

Why are the Fed movements so important? Because the use by our central bankers of exceptional powers to affect the supply of purchasing media, and the credit that goes with it, creates an uncertain playing field in which players can no longer make long-term plans. Instead, they must become Fed-watchers.

In other words, our vital economic equilibrium no longer depends upon predictable market parameters but rather upon what the central bankers do--even what the individual members say. One wrong word or action can literally make or break an economy, or at least that's what the Fed-watchers believe.

Friedrich Von Hayek, another great economist, once said in The Road to Serfdom, "If the individuals are to be able to use their knowledge effectively in making plans, they must be able to predict actions of the state which may affect their plans."

Our money managers might do better to replace themselves by a computer, as Friedman himself once remarked only half in jest. Scientists like John B. Taylor have searched for a computer-like formula that might aid the Fed in managing the stock of money. It's possible that a solid rule like his Taylor Rule would furnish much better results than allowing central bankers the discretion to move economic parameters as they see fit.

Even if such a rule would not be perfect (perfection doesn't exist), surely predictability is better than hunch, no matter how educated.

As for what the central bankers think about this idea, here's an excerpt of a speech by Fed Governor Mishkin:

"Monetary policy will [...] never become as boring as dentistry. Monetary policy will always have elements of art as well as science. (That is good news because it will keep life interesting for monetary economists like me.)" (Source.)

Maybe it's time to get rid of the artists and try the Taylor Rule. Even if it doesn't produce perfection, surely the market's renewed capacity to plan ahead would cure much that ills us today.

And if that doesn't work, we should go back to the gold standard or something like it, coupled with a private banking network where reputations count and sound commercial banking controls the money supply. (For more on this, see the chapter on commercial banking in Cause and Control of the Business Cycle by E.C. Harwood, published also by the American Institute for Economic Research.)

Government Regulation Gone Amuck, Three Examples in One Day, No. 6: Farming

6. Farming. Due to high prices, food producers are going to ask the government's help to "allow" (?) farmers to increase production of wheat and other grains, according to this article at the Wall Street Journal, written by Lauren Etter and David Kesmodel.

This example is a regulation comedy in reverse.

Everyone knows that a rise in prices causes production to go up, and prices for grains have more than doubled in the past months. Yet farmers are having to beg the government on bended knee for permission to cultivate more food.

How could this be? What is preventing them, you ask?

Did you know that farmers are required by contracts they signed with the government to hold quite a bit of their land idle "to preserve wildlife habitats under an effort called the Conservation Reserve Program"? The Endangered Species Act literally confiscates land from farmers without compensation.

Government officials must have assumed that there would never be a need for more grain, so to protect the habitat of certain animals they forced the farmers not to cultivate on some of their land.


[Thanks to dirtworks.net for the image.]

Conservationists and environmentalists will applaud. However, they forget two things. First, as economist Richard L. Stroup has demonstrated, these laws backfire, because when a farmer sees a spotted owl on their land, they quickly destroy the habitat so that the animal goes away before anyone sees it.

Second, our kind-hearted brethren forget that the result of having less land to farm is that poorer people in other nations will have either to fork up more money (and they already have very, very little) or go without grain foods altogether, some of them to the point of malnutrition or worse.

Marie Antoinette's descendant might answer, "No bread? Let them eat meat." But remember, that attitude is what started the heads rolling.

Do we really want our government and organizations like Ducks Unlimited and Pheasants Forever to be accomplices in international hunger? Isn't this the opposite of what philanthropists like Bono and Bill Gates have been trying to do?

* * *

In this and the last five posts, I have described a dangerous tendency in this country to call on Daddy Government at the slightest itch. Hopefully, these and other regulatory efforts will get nowhere; but if they do get anywhere, we voters will be one step closer to central planning.

If you haven't read Von Hayek's The Road to Serfdom, please do it now. You can find a Reader's Digest excerpt here or a cartoon version here. You can also buy the original book at Amazon by clicking on the Amazon "Road to Serfdom" link to your right.

Hayek's book explains why these little baby steps towards bigger government must end eventually with a totalitarian state.

Government Regulation Gone Amuck, Three More Examples in One Day: No. 5 is Banking

5. Banking. The banking industry is "shopping proposals to Congress" so as to shift risk and eventual losses from bad loans to taxpayers.

In this WSJ article by Damian Paletta, we learn that banks are turning to the federal government, i.e. us as taxpayers, to bail them out of their mistakes. Credit Suisse and J.P. Morgan Chase are both proposing that the government step into this mess and save their butts.

And of course the bonuses their "mistakes" incurred have already been paid, nonrefundable.

They are worried, among other things, that in trying to help homeowners by writing off a portion of subprime loans, "they [the banks] might be sued by investors who hold mortgage-backed securities [i.e. the creditors who actually hold the debt]. However, if the industry came forward with a standard backed by the Treasury Department, the legal concerns would likely fade."

In other words, when you're about to break your contracted word and you're scared of the repercussions, look for a big thug with a gun.


[Thanks to hitman2.com for the image.]

The second thing they want the government to do is to guarantee the bad loans with taxpayer money. Do you and I really want to pay up when some homeowner who (knowingly or unknowingly) got in over his head decides to walk away from his house?

If you ask me, forcing us innocent bystanders to pay for the bad bets of investors, bankers, mortgage brokers and naive or greedy homeowners, is tantamount to embezzlement, racketeering, and tutti quanti.

Wake up, people. Your representatives in the legislator are about to steal your money, and they don't even have to put a gun to your head.

See my next post for Example No. 6.

Government Regulation Gone Amuck, Three More Examples in One Day: Health Insurance is No. 4

I struck a gold mine with this subject, apparently. In today's Wall Street Journal, I stumbled upon three more examples of government's role as Sugar Daddy, i.e. egocentric drug dealer where the drug is special privilege and/or monopoly. (See my last post for a more detailed explanation.)

Today, we get these:

4. Health Insurance. The State of New York is going to conduct an "investigation" into "illegal" (?) pricing of rates by United Health, Aetna, Cigna, and Blue Cross/Blue Shield.

As the article by Vanessa Fuhrmans and Theo Francis states, "Doctors and hospitals have long complained that the methodology [of calculating out-of-network providers' covered fees] is opaque and sets reimbursement artificially low."

Most people have heard of the "preferred provider" system that insurance companies use. Would it really make sense for insurance companies to pay the higher fees of those doctors and hospitals who refused to enter into contracts with them?


[Thanks to gamewad.com for the image.]

And anyway, my experience has been that all of the doctors and hospitals I have consulted have been preferred providers.

Furthermore, without the preferred provider system, patients would have no incentive to use the providers who charged lower negotiated rates because all rates would be reimbursed regardless of the amount and the cost to the patient would be the same.

There is little or no competition in health care under our present system given the extent of coverage from which US insureds can and do benefit; so in order to control costs to the extent they can, insurance companies do not reimburse the higher fees charged. It's the only tool they have to discourage an explosion of medical fees and hence of premiums, which you and I pay for in the long run by renouncing higher salaries.

The truth of the matter is that all players in this game have something to win. New York Attorney General Cuomo, by throwing around unprovable accusations like "insurance companies ... defraud customers" and that there is an "industrywide scheme," gets to look like a hero to voters when he soon runs for governor. (What he doesn't say is that those companies got that big with state help. For more on this and for excellent suggestions for improving our health system, see this Cato material.)

Other players, the doctors and hospitals who refuse to contract with the insurance companies, will try to get the government to bully them into paying their higher rates. And another player, the big-government politicians, see this as a golden opportunity to inch the country towards nationalized health care.

Finally, the insurance companies win because to fight this kind of battle takes lots of money, and only the biggest and baddest can survive. This kills all the small-fry competition.

Insureds, beware. This is going to be a cat-and-dog fight, and once again, we the little guys and gals are going to lose out. Politicians and special interest groups will be the winners.

See my upcoming post for Example No. 5.

Government Regulation Gone Amuck, No. 3: The American Railroad Industry

How many of you readers think that the government should get more involved with the railroads? How many would like to see a high-speed train between Los Angeles and San Francisco?

How many know the story of the railroads in America?

Alan Greenspan, our former Federal Reserve Chairman who is noted for his foggy Fed-speak, wrote some very clear chapters about 30 years ago describing the American rail fiasco. So did Ayn Rand, although not everyone likes her style or thinks of her as a notable historian.

(For example, see her Capitalism: The Unknown Ideal, Chapters 3 and 4 [the latter written by Greenspan] for an easily understandable critique. I don't support Rand's every word by any means, but I do like some of her better-written passages.)

Because blog posts must remain short and pithy, I won't go into the history of the American railroad but rather will simply note that the federal government was a major factor in the demise of the industry, and it remains involved to this day. Let me just quote Wikepedia's Amtrak entry as a pretty unbiased source of information, at least as of today 2/13/08:

"Literature suggests that the causes of the decline of passenger rail were complex. The industry was hobbled by government regulation and labor inflexibility, which undermined passenger rail just as the industry faced an explosion of competition from flexible and user subsidized automobile and airplane transportation. [Footnotes omitted] These for-profit railroads were structured to sell access to elaborate, efficient, roads at a profit; they lost in the competition for passengers to parallel, publicly-funded, non-profit turnpikes, air strips, and highways in the sky." (Please note the seemingly derogatory use of the phrase "user subsidized." I'm not quite sure what the authors intended to convey thereby, but it doesn't really matter.)

And government involvement continues to this day. Amtrak, the poorly run, mostly government-owned passenger rail system that the legislators have decided to pump up with taxpayer funding to permit it to survive, is only one example. To wit another:

In today's Wall Street Journal article by Daniel Machalaba, we learn that privately owned freight railroads are finally becoming profitable, after almost a century of stagnation. Investors like Warren Buffett have taken serious stakes in one or the other of five major lines: Union Pacific Corp., Burlington Northern Santa Fe Corp., CSX Corp., Norfolk Southern, and Kansas City Southern. Rightfully earned profits, instead of tax dollars, are finally being reinvested, undeterred, in improving rail lines.

But this situation may not last for long:

"The expansion is stirring conflict with some old customers, the shippers who move raw materials such as chemicals, grain and logs, who feel they're being charged unnecessarily high rates to pay for capital improvements. Trade groups representing such shippers are seeking federal legislation to rein in railroad rate increases."

With friendly customers like that, who needs enemies?

What business do you know that doesn't use its own profits, and good credit based thereon, to make capital improvements? The rail companies are charging prices that are competitive with trucking and air freight prices, and if the shippers don't like rail pricing, they should switch to trucking or airplanes instead of running to Daddy Government for intervention.

But old habits die hard. Our nation has become accustomed to Daddy's spoiling ways. Indeed, Daddy feeds our addiction to special favors in order to increase his own stature and power over us. What kind of Daddy is that, a Sugar Daddy?


[Thanks to buycostumes.com for the photo of this great "Sugar Daddy" costume.]

We will see what the federal government does. Unfortunately, there is such a long history of federal intervention into this business--indeed, on behalf of special interests in so many businesses--that I wouldn't be surprised if legislators profited from this golden opportunity to "help" (themselves).

Government Substituting Itself for A Good Reputation: Case No. 2 of Government Regulation Gone Amuck

This is a second example of government regulation gone amuck. The title insurance industry. (See the first one at this previous post.)

Today's Wall Street Journal article by John R. Wilke talks about "new scrutiny" of the "$17 billion title-insurance business."

According to him, there are four insurance companies that dominate the national title insurance industry: Fidelity National Title Group, First American Corp, LandAmerica Financial Group, and Stewart Title Insurance. They control almost 90% of the market.

Because state governments regulate this industry in an effort to eliminate pricing abuse and unsavory practices like kick-backs (although I never really understood how you can compensate an intermediary if you don't pay them), these companies have taken to hiding behind Daddy Government.


[Thanks to chris2fer.wordpress.com for this cute picture. I recommend his site for other photos that will melt your heart.]

The irony is that because state regulators approve the rates charged by title companies, the companies benefit from a certain amount of immunity from antitrust claims. What the states have done is, in effect, to create a monopoly, whereby the title companies "collaborate" (collude?) under state government protection to set their rates.

In other words, the goal of government has backfired.

How many of you readers have bought real property and then shopped around for a title company? I'm willing to bet that the shoppers would represent less than 1 percent. All of us accept the title company that our broker and his escrow agent provide.

On the other hand, I am also willing to bet that the escrow companies are faced with a constant barrage of efforts by title companies to compete with each other. This is healthy.

If there were no regulatory action on the part of the state governments, the title companies would be required to compete on the basis of the quality of their service and the rates they charge. Because rates would not be "fixed" by government action, they would become competitive.

What happens, however, is that state government officials (who have no personal skin in the game) approve of title company rates, thereby (1) making all the rates the same, and (2) arbitrarily fixing an amount that has little to do with the actual market.

What has evolved as a result is that the title companies have found another way to compete. With the government's help, they have been able to charge enough money to send kick-backs to escrow agencies. The one who can send the most gets the prize.

Nowadays, therefore, instead of the incentive being to make money by offering a high-quality and low-cost service, it is reduced to making the most money under government protection.

Without this government stamp of approval, market players would have to sink or swim on their reputation. Escrow companies would have to spend a little time finding the best quality title insurance company, if only to preserve their own good name.

When the government tries to regulate industry, it substitutes itself for a hard-won and constantly challenged market reputation; and it creates a playing field where the players who can survive the cost of acquiring government approval can abuse their monopolistic privileges and hide behind their government benefactor as they rip off those paying for the service.

Who is the ultimate loser? You and I, the helpless consumer.

The G7: "Who, Me?"

This weekend, the seven world industrial leaders (US, Japan, UK, France, Germany, Italy, and Canada) sent their central bankers to Tokyo to discuss the economy.


[This great deer-in-the-headlights face from Hamiltonspectator.com.]

Typical of central bankers, at no time does any one of them suggest that maybe they had a hand in creating the current credit crisis.

Writers in today's Wall Street Journal (Michael M. Phillips and Yuka Hayashi) give us a report of what our central bankers are discussing.

The causes of the crisis, our bankers say, are:

- Poor underwriting of subprime mortgages and some fraudulent practices in the US industry;

- Rising defaults among subprime borrowers that led to confusion about the value of securities for which the loans were collateral;

- Lack of due diligence on the part of banks regarding the nature of these loans;

- Resulting timidity on the part of the banks holding some of these unquantifiable loans, who found themselves unable to evaluate the value of their portfolios and thus unable to offer or obtain credit from their peers;

- Poor evaluation of risk by the rating agencies;

- Misplaced incentives in the compensation of financial institution employees; and

- High oil prices.

At no time does anyone think to suggest that maybe the world's central bankers might have been inflating money supply to an excessive degree, and that maybe excessive leveraged speculation might have created a ponzi scheme of unworthy credit, both of these phenomena creating the bubbles and bursts that we have experienced.

Oh no, we can't blame the central bankers.... For more details on how these two processes work, see this article, this article, and this article, Page 1 and Page 2.

Five Speeches from the AIER Global Warming Conference

In my previous post, I mentioned a Global Warming Conference at the American Institute for Economic Research.

Here are links to five of the speeches that, so far, have been posted to YouTube:

Robert H. Nelson - Theological Aspects of Global Warming

Kenneth Green - Cap-And-Trade vs. Carbon Tax

Claudia Rosett - United Nations, Climate Change, and Money Trails

David Henderson - Government and Climate Change Issues

William M. Gray - Hurricanes Frequently Happen

Other speakers were:

Carl Wunsch
David Chapman
Richard Lindzen
Gordon Michaels
Robert Mendelsohn
Gilbert Metcalf
Peter Wilcoxen
Ross McKitrick
Edward Kane

And I may have missed a few.

You might say that a majority of these could be described as skeptics. I don't know if this is true, but if it is, I suspect the reason is that the believers don't see the worth in such scientific discussions, preferring instead to stir up more media frenzy. It's more efficacious, for sure, than some stodgy academic conference.


[Thanks to Newsbusters.org for the image.]

Global Warming: For Once, An Unbiased Evaluation

I don't know about you, but I'm really sick of reading vitriolic statements from one side or the other of this debate.

The Believers

The believers put across a convincing case, but a few admit that they are willing to deform the science in order to convince the unprofessional public.

You don't believe me? Here's what one "scientific" believer named Stephen Schneider said in the Detroit News in 1989:

"On the one hand, we are ethically bound to the scientific method, in effect promising to tell the truth, the whole truth, and nothing but [...] which means that we must include all the doubts, caveats, ifs, and buts. On the other hand, we are not just scientists, but human beings as well. And like most people we'd like to see the world a better place, which in this context translates into our working to reduce the risk of potentially disastrous climatic change. To do that we have to get some broad-based support, to capture the public's imagination. That, of course, entails getting loads of media coverage. So we have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubts we might have."

So much for the believers. And yes, I think most of them would fit into this category. Please be my guest to disagree.


[Thanks to Time Mag for this embarrassing, didactic, rush-to-judgment cover story of April 2006.]

The Skeptics

The skeptics, on the other hand, are media-impotent, i.e. they can't seem to get their message out there in such a way as to make an impact, even though their science is cleaner. I'm not saying they're right, but they're cleaner.

In the spirit of full disclosure, I'll admit I'm a skeptic, but I won't be intolerant of those who are believers--assuming they will return the favor.

What Should We Do?

If even the scientists can't seem to agree on this, then it would seem to be only fair to hold off judgment and action until we know more about the subject.

This is also the conclusion reached by a number of both believers and skeptics at a November 2007 conference at the American Institute for Economic Research.

The AIER is the only "think tank" I know that can honestly claim it is impartial. Most of the others, even places like Cato, have monied donors who are trying to get their point across, albeit a good point in many cases.

AIER has no such donors, relying instead on purchases of their newsletters and publications by the public, and on charitable trust income, the use of which the original donors purposely cannot predetermine.

AIER's recent 2/4/08 Research Reports summary of their November conference on Global Warming should be useful to all impartial thinkers. The article is entitled "Are We Frogs in a Pot," and was written by Michael Rizzo, Ph.D., one of the Institute's researchers.

The conclusion is apt:

"The range of views expressed at our conference suggests that the debate is far from being over, and that there is still time for much-needed rational discussion."

In other words, it is much too early in this scientific debate for governments to be involving themselves in trying to solve a problem that we understand very little about, indeed even whether there really is a problem.

A full run-down of the whole proceedings will come out later this year. Contact AIER for the publication date.

Sometimes we lay people get frustrated with the slow-motion speed of science and with scientists' constant need to "do further research," but it's either accept our human frailty or make huge mistakes that cost us much, much more in the longer run. The public execution of Italian astronomer Giordano Bruno in 1600 comes to mind.

So be impartial, allow others to disagree, and inform yourself. If you do that, you'll be way ahead of the politicians, scare-mongering media, and hysterical, unscientific "scientists" like Schneider.

US Won't Take It's Own Medicine

[Rockwell artwork from the Saturday Evening Post and Curtis Publishing]

This good wisdom from an Australian site called The Privateer (the 2/1/08 commentary):

"The US controlled IMF has 'presided' over financial and monetary crises affecting almost every nation on earth over the past two decades or so. The 'formula' presented to the afflicted government was always the same. Cut spending, raise interest rates, balance budgets, take the downturn. Now, it is the turn of the US government. And what is THEIR formula? RAISE spending, CUT interest rates, BLOW OUT budgets, AVOID the downturn. After all, it is an election year."

Hear, hear.

An Example of Government Regulation Gone Amuck

Most government regulation is well-intentioned, but it often runs amuck. As a proponent of the free market, I'm always on the look-out for a good example illustrating its evils. Well, I've found a doozy.

Most of my readers know at least a little about the current credit crisis. Banks have found themselves holding billions of securities, the value of which they can't decipher because the securities were rated as being of good quality when in reality they weren't.

Three rating agencies handle the rating of securities in the US, and these are the only agencies approved by the SEC. They are Moody's, Fitch, and S&P (Standard & Poor).


[Thanks to nfib.com for the image.]

The government has put its seal of approval on these three rating agencies, and as a result these companies pretty much control the whole market for ratings. The seal of approval, the "NR-SRO" or the "Nationally Recognized Statistical Rating Organization," is supposed to tell the public that these companies have passed several government standard tests.

Mr. Egan, creator of a small rating agency named Egan-Jones, says the seal stands for "No Room-Standing Room Only." What he means is that the seal is so hard to obtain and so expensive that competitors like himself find it virtually impossible to reach for it.

Aaron Lucchetti in today's Wall Street Journal tells us the story of the Egan-Jones Rating Company, a David of an operation in a world of Goliaths if there ever was one. While S&P, Moody's and Fitch were distributing AAAs like jelly beans, Egan-Jones was dropping many of the troublesome securities to Bs. The only problem was that no one was listening.

The article does a good job of delving into the source of the problem. The big agencies' fees are paid by the issuers of the securities, creating a conflict of interest. How can the raters be impartial when their livelihood depends on the good rates they issue?

Egan-Jones's fees, however, are paid (and smartly) by their investing customers (from $20,000 to $100,000 a year for ratings and research). Egan-Jones's incentive structure is therefore the reverse, they claim.

So if you're a small company trying to elbow into a field of goliaths, get out your wallet and hire lots of lawyers. Oh, and don't forget to finagle a financial industry smash-up while you're at it, because it helps blow your competition out of the water. Egan-Jones is doing better than ever--and they might even win SEC approval soon.

Is Gold Building Up To A Bubble?

Much of the appreciation for gold comes from the East, places like China where the people know gold not only as jewelry but also as "the" store of value.

Other nations are beginning to wake up to the insufficiencies of fiat (i.e. unstandardized paper) currency, if we are to judge by gold's recent price levels (over $900 an ounce and equally as high in all currencies).

Perusing through some nice Wall Street Journal video clips, I found this one about China's love for golden effigies of their yearly animal. This year, it's the rat, and so you get this:


[Thanks to the Wall Street Journal and Reuters for the photo. See the video called "Gold Rats for Sale" here. Be sure and change the tabs at the top for more choices.]

With the dollar's continued devaluation the gold price should be going upwards even more, unless the Federal Reserve Governors start making noise like they want to stop the printing presses, and I'm not holding my breath until they do.

But you see, that's the problem with living out your self-aggrandizing fantasy: Once you take the job of Governor of the Federal Reserve Board (never mind Chairman), you have to act like you know what you're doing, even though this is scientifically impossible.

The Fed Governors' reaction? Do what your buddies suggest you do, no matter if your Wall Street and former Fed-chairman friends are actually your enemies.

Our government legislators are in the same predicament. Their reaction to this uncertainty? Do what feels good. Send checks to voters, even though the money is just more debt the taxpayers will have to reimburse at some point in the future.

We may see a change in the euro-dollar rates over the next coming months, as the European Union caves in to pressure from the dollar's weakness and from discord in their internal bond markets. But I doubt you'll see much change in the dollar-gold ratio for a while yet.

We still have a long way to go to get our heads out of the water in this housing/credit maelstrom, in reaction to which the government and its agencies (like the central bank) will continue to overreact, making a bad situation worse. (For more, see this post.)

I suggest that some economics wonk check out this Sybilian conjecture: In a fiat environment with legal private holding of gold, gold has always been and will probably always be the last bubble before any semblance of sanity returns.

Newt's Original YouTube Entry Comparing Efficiency With Government Inefficiency

This is another fun one. It's the clip that sparked enough interest to encourage his writing of the book mentioned in my last post below.

Newt's Got His Finger On It

Listen for just a sec to Newt Gingrich, in an excerpt from a speech at the American Enterprise Institute. Click on the little video at the right, under the headline "New Video" on this page. You'll get just a taste of the full speech that is here.

He makes some very valid points about why Republicans who are "anti-government" have been so easily bamboozled by the enemy, big bureaucracy.

Very enlightening. I'm a libertarian-type thinker, and I really despise what today's Republicans have done to their own small-government platform. It's hypocrisy pure and simple.


[Artwork by Scott Anderson, from his website sacada.com.au.]

Democrats are at least less hypocritical about their intentions, even though I hate what they stand for.

Caution: Here Comes the Wolf Cry: "Market Failure"

With my ear stuck closely to the ground, I can hear the drumbeat mounting against deregulation and the free market. Liberals and even moderate conservatives are seizing the public's fears and running towards increased surveillance of the financial industry and more government intervention rather than less.



[Artwork by Kelly Lollis, her photo from kelligraphics.com]

But blaming these troubled times on "market failure" is nonsense.

Can you blame a river for flowing over a dam when the rains have swollen its volume? Can you blame the ocean for destroying lives when an earthquake causes it to vibrate in uncontrollable tsunamis? Can you blame the wind for destroying people's homes and towns in a tornado?

Can you blame a hurricane for destroying New Orleans when the city managers didn't maintain the levies to modern standards? You can blame the managers for corruption or mismanagement; but you can't fault the hurricane.

Can you blame thieves, high-profile bankers, high-rolling speculators, smalltime quick-buck gamblers, and little guys with nothing to lose, for stealing money just laying there on an unattended roulette table? Of course you can find fault with them for lack of judgment and/or morality; but you can't blame the credit crisis on them, because the money shouldn't have been on the table in the first place.

The market is such a natural phenomenon. It is one of nature's forces. It is a constant flux and reflux, a balancing of tensions among three elements: sellers of goods and services, buyers of these, and the stock of money used in the transactions.

These three elements are interdependent. When one shifts, the other two must and will react. When the shift is violent or voluminous, the reaction is likewise.

We cannot judge the cause of this violent shift until we know all the elements. For all intents and purposes, we might as well be light-years away in the science of economics from being able to measure these elements. The truth is that no one really knows what caused this crisis, even though we all can conjecture about a few contributing factors.

Given this lack of scientific sophistication, our legislators should be very wary of attempting to influence market phenomena. That is why I have been critical of government or quasi-government (central bank) intervention, its efforts to control the flow of credit, and its probable role in our current crisis. Some well-known economists like Anna Schwartz are of the same opinion.

If at some point the government and central bank were to get out of the credit creation and regulation businesses, then and only then could economic scientists begin to observe and interpret the fluctuations of the market and find the true cause of a crisis such as this one.

As long as the government continues to intervene in various aspects of market phenomena, we will find it very difficult to observe action and reaction. "We" are part of the equation.

So it's not "market failure" that critics should address, but rather "intervention failure." Our only hope is to reduce all government distortion of market phenomena to the point where economic scientists can do their work.

Dream on, Sybil, dream on.

English Humorists' Version of the Credit Crisis

You can't beat the English when it comes to humor. Watch this extract of the Southbank Show for the kind of laugh that hurts because it's too close to reality.



Via Brasschecktv.com.

Oh-Oh, If Lacker Is Leaving the Inflation-Hawk Nest, This Must Be Serious

If Lacker says times are going to get tough, things must be bad--either that, or Bernanke has hypnotized him.


[Illustration by True Williams from "Lionising Murderers," first edition of SKETCHES NEW AND OLD, 1875, via Twainquotes.com]

Federal Reserve Governor Lacker has built a reputation as one of the few real hawks on the Board when it comes to voting against rate cuts. See my cartoon from November 2006 with him in the back of the boat.

Today for the first time in years, he speaks in favor of such cuts. See the Bloomberg extract of the speech, a Bloomberg video of the speech, or the Federal Reserve website for the written version some time later today.

Sarkozy's Latest Shenanigans (And I Don't Mean His Marriage to a Model/Rock Star)

I guess I'm not really surprised, but let's just say I'm getting ready to be either impressed or disappointed, depending on the outcome of a battle between Arcelor-Mittal and the French government.

Either French President Sarkozy is arm-wrestling with steel magnate Mr. Mittal, or he actually believes that the laying off of workers in a steel factory deserves state intervention a la Hugo Chavez.

In 2007, newly elected Mr. Sarkozy came along looking so very promising for France, saying things that would have been political suicide only a few years ago. He said he was going to reform France's heavily socialist policies once and for all, and he surprised everyone by persuading well over half the French population to go along with him, including many former socialists.

He started out well, moved fast, got a few things done. But then he began to make economic faux pas, like promising to sit down with the megastores to reason with them about their "unfair" price increases, and like persuading a few suppliers to freeze the prices of school supplies last September to "help out" struggling parents.

He also has started to emit protectionist statements about "keeping jobs in France," and he reprimands the European Central Bank for not allowing the euro to slip lower in support of the export sector, completely ignoring that the ECB doesn't have to pay him any mind, and probably won't. (He probably doesn't really care, realizing that in politics it's often the intention that counts.)

His latest display of bad economic taste is promising state investment in a French steel mill to save jobs. Or is this statist gesture just camouflage for something else?

The steel mill company, Arcelor-Mittal, is now run by an influential Indian who has bought up many steel resources. In 2006, Mr. Mittal acquired Arcelor, a European company with steel mills in a region of France among other places, making Arcelor-Mittal the biggest steel company in the world.

After about a year, two French senators began to call for state intervention for alleged mistreatment of minority shareholders. Apparently, the courts are not an option, for some reason, so they go crying to Daddy.


[Thanks to www.225.ca for the photo.]

Sarkozy, who likes to play Daddy and has involved himself in disputes of this sort on a few occasions already (especially when he can get face time in the French media shaking hands with factory workers), called Mr. Mittal into the Elysee Palace for a meeting. (Source.)

Mittal attended, but decided that he could still no longer afford to maintain all the workers at the French plant--a seeming about-face from his earlier enthusiasm. He declared that he would lay off hundreds of employees.

Sarkozy has now reacted by committing the latest in the economic faux-pas series. He has promised laid-off workers that the French government would work out some kind of deal involving state financial intervention. ["Soit nous arrivons à convaincre Lakshmi Mittal (le patron indien d'ArcelorMittal, de revenir sur son plan [note-de-la-redaction]) et nous investirons avec lui, soit nous trouvons un repreneur et nous investirons avec lui."]

Mittal did agree to freeze his lay-offs after their recent one-on-one meeting, so now the union involved will appoint an expert review of the situation. In March or April, Sarkozy intends to reunite union leaders, Mittal representatives, and the expert, to consider the alternatives. He promises the workers, "I'll come back to the factory to announce the solution we will have found."

Now I'm wondering: Is Sarkozy really making this faux pas innocently, or is he playing socialist hardball with capitalist Mittal? (i.e., "If you continue to threaten lay-offs, we'll nationalize you.")

A suivre. [To be continued.]

Arnold's Broken Promise

On October 8, 2003, California's voters elected Arnold Schwarzenegger as Governor of California to straighten out the State's budget crisis. Back then, he said this:

"Today California has given me the greatest gift of all: You've given me your trust by voting for me. I will do everything I can to live up to that trust. I will not fail you."

Famous last words.

In one of the most flagrant flip-flops of all time, he has now joined Fabio Nunez and the other spendthrift democrats in driving California further than ever into debt. (Click on the image for a larger version of my cartoon.)