Monday, June 20, 2011
Thomas Geoghegan Again!
The labor lawyer, Thomas Geoghegan had a busy day--an op ed piece in the Wall Street Journal and another in the New York Times. The latter is about increasing social security benefits. Based on his reasoning, government can tax and spend us into prosperity. Again, I will quote his ending--he seems to save his strongest statements for the end--"A bigger pension--a raise in Social Security benefits--is the stimulus this demoralized country needs. Come on, Democrats: think of F.D.R., Robert Wagner, or heck, even Lyndon B. Johnson. Let's ask ourselve: Who are we for?"
Is Boeing a Threat to American Entierprise?
Today's Wall Street Journal has an op ed piece by a labor lawyer concerning the National Labor Relations Board unfair labor charge against Boeing. Boeing has built a plant in South Carolina instead of the state of Washington. Mr. Goeghegan argues that Boeing is moving for lower-cost labor, and that this means lower-skilled labor. He seems quite willing to assume that labor in South Carolina is lower skilled than labor in the North. He claims that the move is a signal that quality will fall and will harm Boeing in the long run. Further, it will hurt the American enterprise system. He ends the essay, "If a single story in the news can sum up the reasons for America's global decline, it's the decision build a Dreamliner that will gut the American dream."
There are several flaws in his arguments. First, in free markets, higher wages would usually indicate higher skilled labor, but the difference between Boeing's plant in Washington and the new plant in South Carolina reflects differences in union wages and nonunion wages. The wage difference does not necessarily reflect productivity differences. Does Mr. Geoghegan also believe that the quality of the Mercedes built in Alabama is necessarily less than those built in Germany? Second, at least part of what Boeing seems to be trying to prevent is work stoppages due to strikes. Third, it is always amazing when an outside person knows what is in the long-term interests of a corporation better than the management team of the firm.
There are several flaws in his arguments. First, in free markets, higher wages would usually indicate higher skilled labor, but the difference between Boeing's plant in Washington and the new plant in South Carolina reflects differences in union wages and nonunion wages. The wage difference does not necessarily reflect productivity differences. Does Mr. Geoghegan also believe that the quality of the Mercedes built in Alabama is necessarily less than those built in Germany? Second, at least part of what Boeing seems to be trying to prevent is work stoppages due to strikes. Third, it is always amazing when an outside person knows what is in the long-term interests of a corporation better than the management team of the firm.
Saturday, May 28, 2011
Theologians and Economics--Some Positive Signs
An article in the recent Presbyterian Outlook by a minister offers some hope that theologians and pastors who were trained in an anti-market seminary can break away from that training. Rev. Hobson certainly hasn't come to the position of the Acton Institute, but there is progress.
Friday, May 27, 2011
Housing Is Still the Issue
The American economy continues to struggle, regardless of what equity prices show. The slowness of the recovery reflects a couple of things--the fact that the recession started with a financial crisis, and the excess supply of existing houses. It does not make sense to build a lot of new homes when there are so many homes on the market and when foreclosures are still so great. The failure by the Administration to see accurately the causes of the recession led them to pursue solutions that were bound to be ineffective. Not that there are easy solutions to the housing market problems. Low interest rates are not the stimulus they might be when people owe more on their mortgage than the house is worth, and when consumer debt levels are high. Getting more money into the hands of households would make sense, but counting on spending on shovel-ready projects that provide funds to highway construction firms does not help carpenters or homeowners.
Eventually, debt levels will fall, house prices stabilize and housing will recover. But eventually has already been a long time and remains a longer time yet.
Eventually, debt levels will fall, house prices stabilize and housing will recover. But eventually has already been a long time and remains a longer time yet.
Wednesday, May 25, 2011
Fight of the Century in Germany
A German televesion station (Sat3) just had a segment on the latest Russel Roberts and John Papola's video contrasting Keynes and Hayek. I don't monitor every channel in the US all the time to see what is showing, but a random channel selection got me to this in Germany. Is there some reason German television and news offers more depth than American news and television. Several years ago I recall reading an article in a German newspaper about the most recent (at the time) Nobel price winner in economics, and the article was much more informative about the economics involved than any article I saw in an American paper. Maybe German news and TV realize they cannot compete with the pap of American news and entertainment, so actually offer more in-depth analysis of things.
On a similar note--I like the fact that the news anchors are basically news readers and not celebrities, as in the U.S.
On a similar note--I like the fact that the news anchors are basically news readers and not celebrities, as in the U.S.
Monday, May 23, 2011
Energy in Germany
There are two interesting articles in today's business section of the German newspaper, DIE WELT. One concerns the high price of gasoline and that the antitrust division (Bundeskartellamt) is looking into collusion among the top five firms in Germany. The price of a liter of gasoline is 1.62 euros. With an exchange rate of a little more than $1.40 per euro and with 3.785 liters per gallon, it works out to $8.60 a gallon. Now, this is for premium and not regular. According to the article, this is the highest price ever in Germany.
The second article concerns a warning from electric utility firms that there may be blackouts in southern Germany this winter. The winter is prime time for electricity for a variety of reasons--short hours of daylight, cold weather, and southern Germany is highly industrialized so large demand from industry. Why this winter? After the problems with the nuclear power plant in Japan, Germany has put its older nuclear plants off line and are giving stress tests of some kind on others. The utility companies are saying that too much capacity will be off line if all this happens, and blackouts could result. An option that some think is possible is to import electricty from France, but France is a net importer in the winter.
Representatives of the Green Party dismiss the concerns. One represtative said that there are no bottlenecks and another that it is their view that there is not a problem. The article also reports that Alcoa has recently announed that they will not expand production facilities in Germany because they consider Germany's energy policy to be too risky.
The second article concerns a warning from electric utility firms that there may be blackouts in southern Germany this winter. The winter is prime time for electricity for a variety of reasons--short hours of daylight, cold weather, and southern Germany is highly industrialized so large demand from industry. Why this winter? After the problems with the nuclear power plant in Japan, Germany has put its older nuclear plants off line and are giving stress tests of some kind on others. The utility companies are saying that too much capacity will be off line if all this happens, and blackouts could result. An option that some think is possible is to import electricty from France, but France is a net importer in the winter.
Representatives of the Green Party dismiss the concerns. One represtative said that there are no bottlenecks and another that it is their view that there is not a problem. The article also reports that Alcoa has recently announed that they will not expand production facilities in Germany because they consider Germany's energy policy to be too risky.
Sunday, May 22, 2011
The Price of a Dollar
The dollar exchange rate with the euro as of Friday is $1.4156. I believe it was $1.19 when the euro officially began and the euro almost immediately declined with respect to the dollar. Eventually, one euro bought less than 90 cents. In recent years, that trend reversed and not long ago, some thought it would hit $1.50.
In today's New York Times, Christina Romer has a column on the exchange rate. In it, she argues that the exchange rate is just a price, a view that most economists would agree with. In general, I do too. However, there are three caveats in my agreement. The first is straight-forward--manipulation of the exchange rate to affect trade patterns should be avoided. Once one country begins it is difficult for others to not follow, and soon we have a kind of beggar-thy-neighbor policy causing problems. Second, when people are uncertain over the state of monetary policy, the exchange rate provides some evidence. The Fed is trying to have an easy money policy right now, and the exchange rate is evidence that they are succeeding even if unemployment remains high.
Finally, all statements about exchange rates being merely prices fail to reflect fully the fact that the dollar is still the reserve currency in the world. Further, the U.S. receives substantial benefits from that status. If other countries, and especially businesspeople and those in financial markets develop a lack of trust in the dollar, the special status of the dollar could switch to another currency. At this point in time, the euro would appear to be the likely candidate, but the Eurozone has problems of its own. China has indicated in the past that it would like a greater role for the reminibi. However, so long as it manipulates its currency, it is unlikely China's currency will replace the dollar. But, forty or fifty years from now, who knows?
In today's New York Times, Christina Romer has a column on the exchange rate. In it, she argues that the exchange rate is just a price, a view that most economists would agree with. In general, I do too. However, there are three caveats in my agreement. The first is straight-forward--manipulation of the exchange rate to affect trade patterns should be avoided. Once one country begins it is difficult for others to not follow, and soon we have a kind of beggar-thy-neighbor policy causing problems. Second, when people are uncertain over the state of monetary policy, the exchange rate provides some evidence. The Fed is trying to have an easy money policy right now, and the exchange rate is evidence that they are succeeding even if unemployment remains high.
Finally, all statements about exchange rates being merely prices fail to reflect fully the fact that the dollar is still the reserve currency in the world. Further, the U.S. receives substantial benefits from that status. If other countries, and especially businesspeople and those in financial markets develop a lack of trust in the dollar, the special status of the dollar could switch to another currency. At this point in time, the euro would appear to be the likely candidate, but the Eurozone has problems of its own. China has indicated in the past that it would like a greater role for the reminibi. However, so long as it manipulates its currency, it is unlikely China's currency will replace the dollar. But, forty or fifty years from now, who knows?
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