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Posts Tagged ‘market intervention’

The bureaucrats at the International Labor Organization (which shouldn’t even exist) are correct to note that high levels of unemployment threaten social unrest. But like most left-wing international bureaucracies, they think the solution is more government – including so-called stimulus and government intervention in labor markets.

The extended loss of employment and growing perceptions of unfairness risked increasing social tension, the ILO said. In 35 countries for which data exists, nearly 40 per cent of jobseekers have been without work for more than one year, running risks of demoralisation and mental health problems, and young people were disproportionately hit by unemployment. It noted that social unrest related to the crisis has been reported in at least 25 countries, including some recovering emerging economies. …Torres warned governments against withdrawing fiscal stimulus measures while recovery was still weak. The ILO recommended…A combination of active labour market policies including work-sharing that target vulnerable groups such as young people, and training [and] A closer link between wages and productivity gains in surplus countries to boost demand and job creation;

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Christina Hoff Sommers of the American Enterprise Institute decimates the bean-counting feminist “paycheck fairness” legislation being considered by the Senate. Republicans presumably know this is a bad idea, but one can only wonder whether they will do the right thing and block this initiative that at best will be a boon for trial lawyers and at worst will lead to massive government intervention in employment markets. Here’s an excerpt from her New York Times column.

…[O]n the Senate’s to-do list before the November elections is a “paycheck fairness” bill, which would make it easier for women to file class-action, punitive-damages suits against employers they accuse of sex-based pay discrimination.

…[T]he bill…overlooks mountains of research showing that discrimination plays little role in pay disparities between men and women, and it threatens to impose onerous requirements on employers to correct gaps over which they have little control.

…[P]roponents point out that for every dollar men earn, women earn just 77 cents.

…[T]here are lots of…reasons men might earn more than women, including differences in education, experience and job tenure.

When these factors are taken into account the gap narrows considerably – in some studies, to the point of vanishing. A recent survey found that young, childless, single urban women earn 8 percent more than their male counterparts, mostly because more of them earn college degrees.

Moreover, a 2009 analysis of wage-gap studies commissioned by the Labor Department evaluated more than 50 peer-reviewed papers and concluded that the aggregate wage gap “may be almost entirely the result of the individual choices being made by both male and female workers.”

…The Paycheck Fairness bill would set women against men, empower trial lawyers and activists, perpetuate falsehoods about the status of women in the workplace and create havoc in a precarious job market. It is 1970s-style gender-war feminism…

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Considering they could have sat on their hands and relied on unhappy voters to give them big gains in November, I’m not too unhappy about the House GOP’s “Pledge to America.” Yes, it’s mostly filled with inoffensive motherhood-and-apple-pie language, but at least there’s some rhetoric about reining in excessive government. After eight years of fiscal profligacy under Bush, maybe this is a small sign that Republicans won’t screw up again if they wind up back in power.

That being said, I was a bit disappointed that the GOP couldn’t even muster the courage to shut down Fannie Mae and Freddie Mac, the two corrupt government-created entities that bear so much responsibility for the housing mess and subsequent financial crisis. The best the GOP could do was to say “Since taking over Fannie Mae and Freddie Mac, the mortgage companies that triggered the financial meltdown by giving too many high risk loans to people who couldn’t afford them, taxpayers were billed more than $145 billion to save the two companies. We will reform Fannie Mae and Freddie Mac by ending their government takeover, shrinking their portfolios, and establishing minimum capital standards.” Is it really asking too much for Republicans to simply say “The federal government has no role in housing and Fannie Mae, Freddie Mac, and the Department of Housing and Urban Development should be eliminated.” Heck, the GOP’s Pledge doesn’t even mention a penny’s worth of budget cuts for HUD.

Here’s an excerpt from Peter Wallison’s Bloomberg column, which explains why Fannie and Freddie should be decapitated.

In a year when angry voters are demanding a reduced government role in the economy, it is remarkable that most of the ideas for supplanting Fannie Mae and Freddie Mac are just imaginative ways of keeping government in the business of housing finance.

…This is pretty astonishing. One would think that something might have been learned from the recent past, when two New Deal ideas for government housing support–the savings and loan industry and the government sponsored enterprises, Fannie Mae and Freddie Mac–failed spectacularly. It cost taxpayers $150 billion to clean up the first and may cost more than $400 billion to resolve the second.

…[G]overnment policy that deliberately degrades loan quality or creates moral hazard will eventually cause devastation in the housing market.

…Government involvement in housing finance is an invitation to disaster. As illustrated by the S&Ls and GSEs, no matter how such a system is structured, government support will hide the real risks.

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Consider this a prelude to Obamacare:

Tens of thousands of Texas children will be directly affected by the 11th-hour decision of a number of major health insurance companies to stop selling child-only policies rather than comply with the new federal law that requires they cover youngsters with pre-existing conditions.

…Spokespersons for Aetna and Cigna said the change was made to keep family coverage affordable for as many people as possible and avoid significant price hikes. They said that under the new law, people suddenly seeking coverage would predominantly be those who need to consume healthcare services immediately for known, high-cost conditions.

Some people may find this hard to believe, but insurers are a business.  Like any other business, if they lose money while doing something, they will opt not to do it anymore.  So when government makes covering certain people a losing proposition, it is government that has caused them to lose their coverage. Keep that in mind when the statists inevitable respond to such developments with calls for yet more government intervention and control.

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No CAP bedwetter to debate in this segment.

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Jonah Goldberg writes in National Review that President Obama is beginning to look like the next Herbert Hoover. This is rather ironic since the left wanted him to become the next Franklin Delano Roosevelt, ushering in a new era of politically-popular statism.

…the Great Depression discredited laissez-faire economics for a generation or more. Hoover, who was hardly the “market fundamentalist” FDR made him out to be, suffered largely from the (bad) luck of the draw, giving Democrats a chance to argue for a new deal of the cards. For reasons fair and unfair, Obama, who inherited a bad recession and made it worse, every day looks more like a modern-day Hoover, whining about his problems, rather than an FDR cheerily getting things done. Inadequate to the task, Obama is discrediting the statism he was elected to restore.

Jonah makes a compelling case, particularly from a political perspective. But if we look just at economic policy, the Obama-as-FDR analogy is more accurate. Hoover was a big-government interventionist with failed policies. That’s a pretty good description of Bush. FDR got elected in 1932 by promising to fix the mess, which is akin to Obama’s hope and change message in 2008. And, just like FDR, Obama then continued the big-government interventionist policies of his predecessor. The only difference is that Roosevelt somehow was able to remain popular even though his policies kept the nation mired in depression for another decade. Obama, by contrast, is veering dangerously close to becoming another Jimmy Carter. Tom Sowell has some key details about the timing and impact of the Hoover-Roosevelt policies.

The history of the United States is full of evidence on the negative effects of government intervention. For the first 150 years of this country’s existence, the federal government did not think it was its business to intervene when the economy turned down.

All of those downturns ended faster than the first downturn where the federal government intervened big time– the Great Depression of the 1930s.

…if you look at the facts, they go like this: Unemployment never hit double digits in any of the 12 months following the big stock market crash of 1929 that is often blamed for the massive unemployment of the 1930s. Unemployment peaked at 9 percent, two months after the October 1929 crash, and then began drifting downward.

Unemployment was down to 6.3 percent by June 1930, when the first big federal intervention occurred. Within six months, the downward trend in unemployment reversed and hit double digits for the first time in December 1930.

What were politicians to do? Say “We messed up”? Or keep trying one huge intervention after another? The record shows what they did: President Hoover’s interventions were followed by President Roosevelt’s bigger interventions– and unemployment remained in double digits in every month for the entire remainder of the decade.

There is another set of facts: The record that was set in 1929 for the biggest stock market decline in one day was broken in 1987. But Ronald Reagan did nothing– and the media clobbered him for it.

Then the economy rebounded and there were 20 years of sustained economic growth with low inflation and low unemployment. Can you imagine Barack Obama doing another Ronald Reagan?

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In a free society, people obviously should be free to join unions and companies should be free to negotiate with unions. But that also means that companies should be free to resist union demands and hire non-union workers. There is no right or wrong in these battles, just as there is no right or wrong when McDonald’s decides to sell french fries for a particular price. The market will reward good decisions and penalize bad choices. The only appropriate role for policy in this area is to enforce contracts and protect public safety. The government should not attempt to tip the scales either in favor of unions or in favor of employers. Our friends on the left, however, want the rules rigged in favor of unions, in part because of a reflexive desire for coerced equality. E.J. Dionne waxes nostalgic in the Washington Post for the good ol’ days, when unions held significant power in the American economy.

Only 12.3 percent of American wage and salary workers belong to unions, according to the Bureau of Labor Statistics, down from a peak of about one-third of the work force in 1955. A movement historically associated with the brawny workers in auto, steel, rubber, construction, rail and the ports now represents more employees in the public sector (7.9 million) than in the private sector (7.4 million). Even worse than the falling membership numbers is the extent to which the ethos animating organized labor is increasingly foreign to American culture. The union movement has always been attached to a set of values — solidarity being the most important, the sense that each should look out for the interests of all. This promoted other commitments: to mutual assistance, to a rough-and-ready sense of equality, to a disdain for elitism, to a belief that democracy and individual rights did not stop at the plant gate or the office reception room.

You might accuse me of being a union romantic, and in some ways I am, having grown up in a union town, loved the great union songs, and imbibed such novels about labor’s struggles as John Steinbeck’s fine and underrated “In Dubious Battle.”

There would be nothing wrong with Dionne’s love letter to big labor – but only if he also agreed that the government should not take sides. Unfortunately (and predictably), that’s not the case. Like other statists, he wants a thumb on the scales to help unions. He thinks he is being pro-worker, but his mistake is failing to understand that above-market wages (at least in the private sector) are not sustainable in the long run. Workers ultimately get paid on the basis of what they produce and if it costs $25 per hour to employ a worker and that worker produces $23 per hour of output, that ultimately is a recipe for unemployment.

A good example is the American auto industry, which has declined in part because of a compensation system that is not matched by productivity. This does not necessarily mean that wages are too high. It could mean that productivity is too low. Some of that, to be sure, is the fault of government policies such as a corporate tax system that penalizes investment (thus making it more difficult for workers to boost productivity). But unions also have used their government-granted power to insist on absurd workforce practices. The picture below, taken from Mark Perry’s excellent blog, compares union contracts in 1941 and 2007. With all the bureaucracy that is buried in those pages, is it a surprise that American auto workers don’t produce as many cars per hours as their main foreign competitors?

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