Friday, October 5, 2007

In Praise of NOTA (None of the Above)

I have a project in which I believe: None of the Above. I had a long conversation with Bill White on Tuesday. Bill founded Voters for NOTA in Massachusetts and introduced bills in both legislative houses to permit voters to register a vote for "none of the above". The bill isn't going anywhere in Massachusetts, but it's worth a college professor's try in New York as well. Back in the 1960s, Howard Jarvis, a 1962 California primary Senate candidate didn't see Proposition 13 pass until 1978, eight years before his death in 1986. I envision a similar bill being proposed in NY, and I think I will be the one to propose a bill to my legislators. Bill White has done all the heavy lifting, and NOTA is an idea whose time has come in New York State.

This is a good year for NOTA. There's very slim pickings among the presidential candidates in both parties. Newsmax reports that James Carville believes that the Democrats are stronger than the Republicans only because of the "complete implosion" of the Republican Party, not because of enthusiasm for the Democrats. Even so, reports Newsmax, Carville still believes that the Democrats "could still lose focus". One reason might be the way the candidates look. I still believe that, ugly as Carville is, he is still better looking than Hillary, although both are better looking than Rosie O'Donnell.

On October 3, the Sun reported that growing evidence that conservatives are concerned about the choices shaping up in the Republican primary race, and Mike Huckabee's increasing popularity among voters in caucus states, offers the former Arkansas governor a rare opportunity to become a serious contender. Instead, social conservatives are thinking of running a third party candidate.

Speaking as an advocate of hard money, limited government and the common man, I feel the same way. Candidates just aren't interested in the erosion of the dollar, presumably because they assume that since voters have been educated in American public schools, the subject is difficult for them.

Last week in Kingston, NY, a shopper on line behind me in Hannaford's Supermarket claimed that grocery prices have gone up six percent since July. At dinner on Monday night, my aunt, Norma of Manhattan, a retired bookkeeper, mentioned that she believed that the Department of Labor's Bureau of Labor Statistics has been misleading the public by publishing inflation statistics that do not include food prices.

The only candidate who grasps the inflation issue is Ron Paul, but his views on Iraq are silly and his use of the phrase "Israel lobby" concerns me. Ryan Sager covers this matter here.

Tuesday, October 2, 2007

How to Make US Business More Competitive?

Q. Dear Professor Langbert,

I really enjoy the feedback you supply at the end of the forums. I have one question for you- what can be done to "save" U.S. economy, and provide decent jobs for everyone?

A. In my opinion there need to be 6-7 reforms:

1. Reform the education system. Make sure that all elementary students have good training in the three r's as well as socialization and interpersonal skills. Use objective testing and tighter management of elementary schools to motivate such outcomes.

2. Stablize the monetary system by adopting a fixed rule whereby money supply grows at the same pace as productivity times population or adopt a metal (i.e., gold) standard

3. Change the something for nothing mentality that has infected all walks of life, from Wall Street to MTV. The idea that manipulation, deception or luck is the chief ingredient that leads to success a problem. The TV show "Entourage" is as bad as the Jim Cramers
who scream for lower interest rates and welfare for the rich

4. Limit government to a smaller, fixed percentage of the economy than currently. This smaller percentage could not be changed except in times of emergency or war

5. As well, the companies need to became more careful about how they hire directors on the board as well as CEOs. Criteria for promotion and advancement need to be clearly articulated and revealed publicly, and the reasons for the promotions need to be publicly revealed. Hiring criteria at all levels need to be objective. The current fixation on college degrees needs to be either proven/rationalized or eliminated.

6. Companies need to do a better job of training, empowering and using incentives to motivate employees.

7. Adoption of HR strategies that motivate innovation and quality. Many manufacturing firms have focused on costs at the expense of quality.

Monday, October 1, 2007

I'm Driven to Drink

Winter sunrise near Pyrites, New York in St. Lawrence County, NY. Brighter and more interesting than

I just got back from the Heidelberg Restaurant on 2nd Avenue between 86 and 85th. Thirty years ago there were still a number of the old Yorkville restaurants left, such as the Cafe Geiger and Kleine Konditerei. The Heidelberg is the last of its breed. An excellent place.

Returning from my schnitzel a la Holstein and chocolate fondue, Larwyn sent me some blog posts that make me glad I'm fortified by a few martinis and my customary after-dinner B&B. So much for my diet, but what, me worry?

On the bright side, Don Surber reports that "a Rasmussen Poll showed only 23% of Americans approve of the Betray Us ad while 58% disapprove" and that has helped the Republicans:

"The [MoveOn ad] issue is very hot with our base right now," said National Republican Senatorial Committee spokeswoman Rebecca Fisher. 'We are using the controversy to reinforce our message that the Democrats in the Senate are beholden to the liberal wing of the party — and this is a perfect example of [their] pandering to the extreme wing.'"

On the not-so-bright side, James Taranto of Opinion Journal reports that Thomas L. Friedman has written yet another tiresome column for the New York Times. Friedman "will not vote for any candidate running on 9/11." Ho-hum. Rather than read the Times or Thomas L. Friedman, when I want something slow-paced I drive up to St. Lawrence County and visit Pyrites, which, according to is 400 miles from the nation's capital. The temp sometimes goes down to 47 below. I remember one night when the moisture in the air froze into a mist of microscopic icicles, several times larger than Thomas L. Friedman's cognitive complexity.

Even more depressing, Merv of PrairiePundit reports that:

"Alarmed at the possibility that the Republican Party might pick Rudolph W. Giuliani as its presidential nominee despite his support for abortion rights, a coalition of influential Christian conservatives is threatening to back a third-party candidate...Almost everyone present at the smaller group’s meeting expressed support for a written resolution stating that “if the Republican Party nominates a pro-abortion candidate we will consider running a third-party candidate,” participants said."

I'm having trouble grasping this. The Republicans have managed to alienate the economic conservatives, with George Bush's Rockefeller Republicanism (delivered in a ten gallon hat). But they've also managed to alienate social conservatives? I'm confused as to who the Republicans think is going to vote for them.

Unions and Money: Labor Unions Are Anti-Worker Because They Are Pro-Inflation

Freeman and Medoff have written a famous book, "What Do Unions Do?" in which they distinguish between the voice and monopoly faces of unions. The voice face gives employees an outlet to express dissatisfaction with management and to let management know what the employees want. The voice face includes collective bargaining, grievance procedures, and the elimination of employment at will (in part through progressive discipline rules that limit employers' right to fire employees). Freeman and Medoff argue that employee voice increases employee tenure with the firm, encourages more capable employees who are better trained and raises labor productivity.

In contrast the monopoly face of unionism is where unions raise wages by restricting employment. To concede higher wages to unions firms must restrict employment levels because of the laws of supply and demand. The higher wages cause firms to substitute capital investment and machinery for labor. In turn, the monopoly face causes a two-tier society in which elite workers working for large firms earn high wages, while "secondary sector" workers earn less.

Freeman and Medoff argue that the voice face is stronger than the monopoly face and that union wage gains of 5-30% are mostly due to employee voice, that is, due to lower turnover, more communication and better training.

However, Freeman and Medoff emphasize another piece of evidence: unionized firms are less profitable than non-union firms, and the difference is in the area of 15%. Since their book was written in the 1980s, firms have been increasingly motivated to move plants overseas to avoid the unions' effects on profits.

It is a specific characteristic of twentieth century American unionism that unions reduce efficiency. In Japan, unions are enterprise unions that are sometimes called "company unions" but not quite the same as the term "company union" would mean here. Enterprise unions contribute to firms' efficiency by providing employee voice but also encouraging more efficient production. In contrast, US unions are steadfastly opposed to helping firms, and are often anti-management. Also, they often insist on antiquated work rules that impede flexibility and innovation. This anti-management mentality is a problem that has hurt unions.

Unions have been co opted by left-wing ideology that holds that workers and management are enemies. Until about 40 years ago, American companies were the most dynamic in the world and American workers were the most successful. The two went together. This does not suggest that there is antagonism between labor and management, but rather that both benefit together.

What changed? CEOs, endowed with a rich cornucopia of stock options, have emphasized stock valuation to a greater degree, and so moved plants overseas. However, the situation is somewhat more complicated. Although I am unique in thinking this, I believe that the problem facing unions is due to monetary policy and the Fed.

In the 19th century unions opposed inflation. The Loco Focos in New York, the Workingmen's Parties of the 1830s, the Jacksonian Democrats all favored sound money and the gold standard. They opposed inflation. Inflation is harmful to workers because workers spend most of their wages. In contrast, inflation is helpful to capital because low interest rates, which are caused by the same thing that causes inflation, increasing money supply, boosts the present value of future earnings, hence the stock market, and makes firms more profitable because they can borrow for less.

That is, the Federal Reserve Bank increases the money supply (and has increased it by 68 times since 1913 when it was founded) and the increases in the money supply cause increases in the stock market that are greater than the increases in prices. Since 1913 the stock market has gone up 218 times while prices have increased 16 times.

In the 19th century, the working class was overwhelmingly opposed to inflation, and had the unions favored inflation they would have failed. What the low inflation environment did, though, was cause American firms to grow rapidly not because of financial gimmickry as they do now, but because of improvements in efficiency and innovation. Firms like Standard Oil made repeated breakthroughs in technology such as oil pipelines and were for their time extraordinarily efficient. American firms consolidated markets in areas like steel and meat as well in order to obtain efficiencies. Although there were labor conflicts, the conflicts were occurring in an environment in which hundreds of thousands of Europeans were immigrating here each year in order to work in those same companies. In other words, we had the best paid employees in the world while the labor supply was continually expanding because of immigration. No other economy in the history of the world had come close to expanding the welfare of the poor as did the American economy under laissez faire capitalism.

In the early 1930s, during a depression brought on by Fed policy, the unions switched their position on inflation. This was done at the same time as the National Labor Relations Act was passed and anti-free market legislation under the New Deal became dominant. The unions' new indifference to inflation was justified in terms of the Keynesian economics prevalent at that time (and today). However, this put the union workers at loggerheads with other workers. Relying on pro-union economists such as Freeman and Medoff, unions saw indexing as a way around inflation.

Economists claimed that inflation did not matter because union wages were indexed, but of course few workers' wages were indexed. Inflation exists to help capital at labor's expense, so there had to be two categories of workers, the unionized and the non-unionized. This was facilitated in part by the exclusion of white collar workers from unions. Since the economy was moving away from manufacturing toward services throughout the 20th century, this largely doomed unions by the millenium. Moreover, white collar workers tend to identify with management, which has generally been anti-union.

The result has been that the unions secured a niche for themselves, but were viewed as antagonistic to the needs of the majority of workers, who opposed inflation just as they did in the 19th century. The workers themselves disliked unions. This tension came to a head during the 1980 presidential election, when the union leadership backed the pro-inflation Democrats but the majority of blue collar workers, including most union workers, backed Ronald Reagan who claimed to oppose inflation. In fact, President Reagan did end the inflation of the 1970s, but then recommenced a new cycle of inflation under Alan Greenspan from which we have yet to emerge (and are only beginning to experience the ill effects).

In this cycle there was a surprise effect, namely, because executives were granted stock options and so motivated to cut costs, many union jobs were driven out of the country. Thus, unions backed the wrong horse. They backed the Fed, Keynesianism and inflation because they thought that they were best protected and would gain at the secondary sector workers' expense. But they did not anticipate that the stock market would become more buoyant (because of low interest rates). When combined with executive stock options, the buoyant stock market made executives more eager to combat unions. In other words, the availability of easy credit caused executives to focus less on innovation and efficiency as they did in the 19th century, and more on low-risk cost cutting by moving plants overseas.

The end result is that the American employee has been in bad shape since the 1980s, and unions have done nothing to help. If anything, unions have been an excellent friend to Wall Street at the expense of the poor during the past 70 years.

Howard S. Katz's "Bad News"

Howard S. Katz has posted a fascinating blog entitled "Bad News" which I reproduce below:

>"I have bad news for all young Americans.

"You were born into what used to be the greatest country in the world. The Founding Fathers of this country fought for our liberty in the 18th century. They won, and they set up a government whose purpose was the protection of everyone’s rights. The first President of this country was known for being unable to tell a lie.

"In 1933, however, the country fell into the hands of a collection of scoundrels. They said, “Rob from the rich and give to the poor.” Then they set up a system which robs from the poor and gives to the rich. In order to win support for this system, they told a bunch of lies.

"Then when these lies had become accepted as commonplace, they made up more lies. Then more lies still. The whole structure resembles an onion. If you are smart enough to discover an important truth and peel off one layer of the onion, you think that you are seeing reality. But then there is another lie to be peeled off and yet another lie beneath that. Let us take the current issue facing America, the “interest rate cut” of Sept. 18, 2007. The phrase is in quotes because, while not literally a lie, it was a half truth, and a half truth with the intent to deceive. (See blog 9-24-07.)

"The argument in favor of the “rate cut” was that the country was on the verge of a recession. Please to define recession? Well, John Maynard Keynes argued that it was not having a lot of goods that made a country rich. Just the opposite, what made a country rich was having a lot of demand. It was necessary to have an intense desire for economic goods, and having this desire would in some way create the goods.

"Let us test this theory against the empirical facts. In North Korea, for example, they have unbelievable poverty. Ditto, ditto, Tibet, Albania and most of black Africa. Is the United States rich and North Korea poor for the simple reason that we have more demand? And anyway, how would you measure demand to prove whether this was true or false?

"In reality, a human being starts to demand economic goods almost from his first breath. He cries for food. Then he cries for a rattle, then a bicycle. Then he asks for a car. Then he gets a job so that he can get a better car. All of his life is spent demanding. The problem in an economy is not to create the demand. There is plenty of demand. What America (and Britain) did starting about 1790 was to figure out a way to increase the quantity of goods to satisfy that demand. That took a number of brilliant men. At that time, all of the world was demanding (and had been demanding since the creation of the human species), but only the Anglo-Saxon countries (and later a number of other countries which imitated them to a degree) figured out how to satisfy much of that demand.

"Now, what about recessions? According to the Keynesian theory it is bad to not have enough demand. But it is equally bad to have too much demand. And since there is no way to measure demand, we must depend on the economic authority figures to tell us whether demand is too high or too low. An economy with demand too low is said to be in recession or depression. An economy with demand too high is said to be overheating and suffering from inflation. And what the Keynesian economists are always searching for is a Goldilocks economy – one where the demand is just right.

"One thing is impossible under this theory,: to have demand too low and too high at the same time. Or to put it in their lingo, it is impossible to have a recession and an overheating (inflationary) economy at the same time.

"But two months ago, Ben Bernanke, the chairman of the Federal Reserve, said that the economy was in danger of inflation. Indeed, for the first 8 months of 2007 the official consumer price index has risen by 3%. If this continues for the remainder of the year, then 2007 will come in at a 4.5% rate. And this would be the highest rate since 1990. But just last week, in the twinkling of an economic eye, Bernanke said that the economy was in danger of a recession. (I should mention that most pieces of economic data are very erratic, and it is necessary to watch a given index for at least 6 or 12 months to even know whether it is going up or down. Indeed, all of the data issued over the most recent two months are labeled preliminary. They are often revised, and sometimes revised sharply. A piece of data which was reported two months ago might be revised away next month and discovered never to have happened.)

"If you want to understand what is really going on, then the U.S. economy did not suddenly go from too much to too little demand. There has been too much demand for every one of the past 52 years because prices have risen every year since 1955. And during this period there have been nine officially declared recessions. In every one of these, there has been too much demand and too little demand. Nobody cares that this is impossible. To be a Keynesian economist, one must, like the Queen of Hearts, “believe 6 impossible things before breakfast.” (To believe the impossible, it is helpful to give different meanings to the same concept. For example, sometimes demand means a willful desire, as when a baby cries; sometimes it means effective demand, i.e., demand backed up by the money to buy.)

"But the sad thing, dear young American, can be seen if we consider a line from Hamlet. “Though this be madness, yet there be method in’t.” Indeed, modern establishment economics is madness. Yet there is a method in it. The method is to rob from the poor and give to the rich. From 1972, real wages in America have been going down. From 1974, the stock market has been going up. (During the age known as the period of the robber barons the real wages of the working man went up, and the stock market went sideways.)

"The Federal Reserve does not have the ability to manage the economy. From 1836 to 1914 there was no central bank in America, and our economy was the greatest in the world. During this time prices remained stable. Today the bankers (government and private) have the privilege to create money, and the classrooms are filled with “economists” teaching that the creation of money out of nothing is the “road to plenty.”

"One of the rich people who made big bucks from the Greenspan issues of money in the 1990s was hurting this year because the creation of money slowed down. This gentleman, Jim Cramer, went on YouTube on August 6 and threw a public tantrum. (You can find it via a Google search on his name and then click YouTube – Market Meltdown.) The reason that the Federal Reserve “lowered interest rates” (meaning agreed to print money) on Sept. 18 was that it was trying to balance the rich people like Jim Cramer with the poor people who do not make any noise. The squeaky wheel got the grease. And all the pseudo-economics is a rationalization.

"This is the world into which you were born. The Government steals from the poor and gives to the rich. How much is to be stolen is decided by the method of the 3-year old who throws a tantrum in the supermarket. Paper money is the money of the bankers. Gold money is honest money. Gold is the money of the people."