Here’s what I mean.

• In the movie, which is set in Chicago during the depression era 1930s, Redford and Newman seek revenge on Shaw by taking him for a lot of money. To do this, Redford and Newman decide to run a sting on Shaw. The first stage of the sting operation is to con Shaw into thinking they (Redford and Newman) have established a past-posting operation where they intercept race results from various thoroughbred tracks around the country. Once race results are obtained, bets are then quickly made on the winning horse before anybody else has received the outcome of any given race.
• Of course it’s an elaborate scheme with fake betting parlors and phony western union offices. But Redford and Newman pull off the con so well that they convince Shaw they have really discovered a sure thing.
• Shaw, as is characteristic of human nature, sees only what Redford and Newman want him to see.
• The trap, better known as the sting, is finalized when Redford and Newman entice Shaw into making a huge bet at their faux betting parlor on what Shaw thinks is a horse that has already won. As intended, Shaw puts down a suitcase full of money on what he thinks is the winner. Redford and Newman take the money, stage a bogus raid by the FBI that “closes down” their betting parlor, and shove Shaw out the door telling him to run before he gets arrested.
• The last scene depicts a bewildered Shaw scurrying down the alley wondering what had just happened.

What had happened, my friends, is that he (Shaw) was stung by a confidence game. In a similar operation that more closely resembles a sting than good government, the United States Congress is busy setting-up the American taxpayer. An important difference is that whereas Shaw lost a one-time bundle of money, we are being conned out of a lot of money over a long period of time.

For those of you who think this is a stretch, let me point out the parallels.

• The introduction of the con is an economic crisis given birth by Members of Congress through the Community Reinvestment Act and made worse by easy credit and government guarantees by Fannie Mae and Freddie Mac. Eager homebuyers drove housing prices into the stratosphere with no-money-down mortgage loans. Banks and investment companies bought up these loans and packaged them for sale all over the world.
• When the “house of cards” inevitably came tumbling down, the government had to “do something”. That “something” has come fast and furious, as cons are designed to be executed. First was TARP, the $700 billion Troubled Assets Relief Program passed in the fall of 2008. Then came the $787 billion pork bill hopelessly titled the American Recovery and Reinvestment Act enacted in February of 2009 with no discussion or debate.
• Now, less than a year after TARP, Congress is attempting to pass two additional parts of the con: health care legislation that will cost trillions of dollars and cap-and-trade energy legislation that will boost the cost of living for every family with a car and electricity.

The hook is set and, as the U.S. races toward economic mediocrity, here comes the sting.

• To pay for our extravagant spending free-for-all Congress has had to print gobs of money and borrow a bunch more by selling securities to other countries. Naturally these countries (especially China) want to be assured their investments are safe. When U.S. government representatives assure our creditors we have our fiscal house in order, that means higher taxes.
• Administration officials are beginning to drop hints that we need to thwart the deficit onslaught by imposing higher taxes. There is no talk of reigning-in spending. In fact we could make a noticeable dent in our national debt by canceling the unobligated portion of the “stimulus” bill.
• It will be impossible to raise enough government revenue by taxing millionaires. That means the rest of us will hear the not-so-quiet knocking of government revenuers at our doors.

Get ready America. Here goes our money and our freedom. And to Congress: Great sting. Most of us didn’t see it coming.

Here’s the deal:

• CAFE fuel efficiency standards have been supercharged to become 35.5 mpg for all vehicles in a manufacturers’ fleet. This is mandated for 2016. The standards today are 27.5 mpg for cars and 23 mpg for light trucks including SUVs. This is a huge hurdle; impossible to clear without a compact vehicle in a fleet’s inventory.
• The reason is simple: Because regular size cars, light trucks and SUVs have mpg’s below the CAFE standards, each manufacturer must produce a high-mileage gas-sipper to bring their average mpg within the CAFE standards.

This presents a special problem for General Motors.

• As part of their coming out of bankruptcy, GM had resolved to make themselves “leaner” and “more flexible”. A key move toward this goal was to close their plant in Orion, Michigan and move the plant’s production elsewhere. And to comply with the new CAFE standards, they planned to build a compact car in China.
• “Hold on there” said the government (60% owner) and the UAW (17% owner). ”Your compact will be built here in the United States”.
• It’s important to note that both the government and the union have stated, unequivocally, that they do not want to tell GM how to manage their business. Yet here they both are, telling GM how to manage their business.

There’s a big problem with this scenario and you should be concerned.

• Compact cars are not profitable in the United States. Across the board, auto manufacturers can squeeze out $1,000 of profit per unit on compacts built in the U.S. This compares with $5,000 to $7,000 for larger vehicles. (If you’re a GM shareholder, which cars do you want them to build?)
• The reason for this is twofold: One, small cars are not popular in America. Customers don’t want them. So the market is very small. Two, Americans don’t want high-mileage cars because we don’t pay a lot for gas. Europeans, on the other hand, pay twice as much per gallon of gas as we do. That’s why small, dangerous, but fuel efficient cars are popular there.
• So General Motors, in their efforts to become profitable, gets double sucker-punched, first by unrealistic fuel efficiency standards mandated by Congress and second by having to build low profit economy cars in the United States, dictated by the Obama administration and the UAW.

How will they stay in business? That’s where you come in. Congress will see to it that General Motors remains viable despite a lousy business model. Members of Congress, who don’t care two flyin’ fedoras about how they spend your tax dollars, will simply provide GM with subsidies so they can put out the cars government wants built but which nobody wants to buy.

Then, when nobody buys these cars, Congress will provide more subsidies to hype sales. When your neighbor pulls into her driveway in her new compact, know that you helped pay for it.

I continue to wait for Congress to tell us why this nonsense is better than drilling and refining our own oil. Such a move would completely rid us of foreign oil imports and provide tens of thousands of jobs, two goals Congress says we must meet. I’m guessing you and I will have written many, many subsidy checks before that happens.

Today’s post draws a parallel between how the lack of free trade started the Great Depression and the protectionism in today’s stimulus legislation.

• Many think the stock market crash in October of 1929 caused more than a decade of double digit unemployment and economic stagnation. Not so. Though the market got clobbered, by the spring of 1930 it had recovered nearly half its losses. President Hoover told special interest groups not to look for government spending (stimulus in today’s vernacular) as a solution because “the depression is over”.
• And it probably would have been, but for Congress. Part of Hoover’s winning platform in the 1928 election was his promise to farmers to prop up farm prices by instituting new agricultural trade barriers in the form of tariffs. As one would expect, it wasn’t long before every special interest group in the country was parading before Congress to bewail their plight and how badly they needed protective tariffs, just like the farmers.
• Of course Congress didn’t want to leave anybody out. So they drew up the Smoot-Hawley Tariff Act, one of our country’s most disastrous pieces of legislation, and that is what started the Great Depression.

Tariffs are taxes and taxes are always a drag on our economy because consumers have to pay more for the goods they buy. But tariffs have effects far beyond our borders because they upset our trading partners who retaliate with trade barriers of their own. Pretty soon nobody is trading with anybody. Before Smoot-Hawley global trade was $36 billion annually; after Smoot-Hawley it was $12 billion. Before Smoot-Hawley American exports were $5 billion; after Smoot-Hawley they were $1 billion.

• This is an exact parallel to the “Buy American” clauses in our recent “stimulus” act. Though they won’t plunge us into another Great Depression, these clauses are nonetheless economically stupid.
• The argument against free trade is always brought by special interests, Big Business and unions. They contend that existing American jobs and products, those represented by the special interests, are better than new jobs and products in emerging markets and technologies.
• Nobody wants to lose their job, it’s gut-wrenching (I know). But in a dynamic economy, innovation and competition should crowd out the old and the inefficient. That’s how we maintain our leadership position in the world.
• Congress is supposed to be attuned to the greatest good for the greatest number of people, not special interests.

A tip of my hat to John Steele Gordon’s very fine book, An Empire of Wealth for supplying the historical numbers in this blog post. If you want an interesting account of the people who made America and its brand of capitalism the best the world has ever seen, Steele’s book is the one to read.

MOCs (Members of Congress) have but one objective: getting themselves re-elected.

Four things work in their favor and perpetuate our predicament:

• Gerrymandering, which is where political parties re-draw and/or maintain district boundaries to ensure as many voters as possible are in the incumbent’s party. This procedure has spawned the phrase, “gerrymandered for life”.
• Earmarks, which is where MOCs hand out tax dollars to special interests in exchange for re-election campaign donations. MOCs know taxpayers despise this unique form of larceny but refuse to stop.
• Term limits, which is a logical solution to congressional corruption but requires a constitutional amendment. Congress will never introduce, much less pass, term limit legislation.
• An uniformed public, which, more than anything else, allows MOCs to do pretty much as they please.

Nothing is more abhorrent to taxpayers than the way Congress spends what taxpayers have earned, because nobody can rationally explain why we should send money to our national government so it can buy things better left to states and localities.

I’ve heard several different takes on how much it costs for the federal government to spend what the states should do themselves. Estimates range from 25 to 70 percent of every dollar we send to Washington DC goes to support federal bureaucracy. Even if it’s only 25%, that’s an abominable return on our “investment”.

The future looks more and more bleak, as Congress exempts more and more citizens from having to pay taxes. Soon taxpayers will be in the minority. Then our vote will mean nothing.

Here are three examples of what I mean:

• Al Gore, who has shamelessly promoted bogus global warming as a crisis that we must deal with immediately or face impending doom, is one kind of special interest poised to take advantage of cap-and trade. Gore has allied himself with Kleiner, Perkins, Caulfield & Byers, the premier venture capital firm in Silicon Valley. Together they have amassed a venture fund to invest in “green technology”. Could the former Vice President be on board for any reason other than his government contacts?
• General Electric Company is another good example. GE launched a lobbying frenzy first to get Barack Obama elected, then for billions of dollars from the stimulus bill (which they got) and now for cap-and-trade legislation. GE didn’t stop at lobbying for special favors but used their subsidiary, NBC Universal, to attack critics of cap-and-trade.
• Massachusetts Congressman Barney Frank recently gave us a preview of the kind of influence peddling we can expect with cap-and-trade. Recall the hoopla of how automobile manufacturers had the operational imperative of closing many, many dealerships? No sooner had the bailout been consummated than Representative Frank called, Fritz Henderson, the new CEO of General Motors to tell him not to close a Frank constituent’s dealership. Henderson complied in a disgusting case of NIMBY politics.

We can only imagine the corruption that will be spawned when our entire energy-dependent economy is subject to regulatory whim.

Members of Congress, for whom earmarks are a way of life, will have a ball.

No senator or representative could say they have read Top Ten Myths and, with a clear conscience, push the kind of foolish health care legislation we see in Congress today.

But Voltaire said that common sense isn’t very common as is certainly is the case with our Congress. However, any American citizen who is confused about the health care issue can get an immediate IQ upgrade by reading this short but informative book. 

Ms. Pipes lines up ten accepted (and often written about as gospel) points of view about health care and shoots them down like the bad guys in a video game. Here they are:

1. Government health care is more efficient. The unwarranted assumption here is the government will not have middlemen to contend with and will therefore cost less. But ask yourself, is the IRS efficient? Do our schools deliver the results we want? Is our welfare system streamlined? Medicare/Medicaid is Congress’s business model. Both are bankrupt, rife with fraud and outrageously costly to run.
2. We’re spending too much on health care. That depends on one’s perception of the value our health care system delivers. America’s leadership in life-saving technology and drugs gives its citizens a better quality of life than any other country on earth. How meaningful is low cost if you’re dead?
3. Forty-Six million Americans can’t get health care. This is a canard, meant to tweak the heartstrings of the gullible. Everyone in America can get treatment, without regard to cost or citizenship, by simply going to an emergency room.
4. High drug prices drive up health care costs.True. Our patent laws enable pharmaceutical companies to recover the costs of bringing a new drug to market. We Americans subsidize drugs for the rest of the world. Without profits there will be no new drugs. And consider this: Lipitor is cheaper than heart surgery.
5. Importing drugs would reduce health care costs. Anybody can manufacture a pill, which other countries do after after the U.S. has spent a billion dollars per drug researching, testing and getting approval for innovative drugs that save lives and make living more pleasant.
6. Universal coverage can be achieved by forcing everyone to buy insurance.People won’t need to be forced to buy insurance if they can buy it at a price they consider reasonable. We can achieve this by opening up insurance competition across state lines, by doing away with expensive insurance mandates like acupuncture and by implementing tort reform.
7. Government prevention programs reduce health care costs. Balderdash! People who smoke, are obese or eat lots of trans fats reduce health care costs by dying young. People already know what’s bad for them. Government nannies are not going to make a difference.
8. We need more government to insure poor Americans. Government insurance means price controls, means fewer doctors, means rationing.
9. Health Information Technology is a silver bullet for reducing costs. A nice idea but difficult to implement.
10. Government run health care systems in other countries are cheaper. Of course. Countries with nationalized health care deliver lousy medicine. That’s why people come to the U.S.

By all means let’s improve our best-in-the-world health care system. But not through more government control.

• CAFE’s primary goal is to reduce gas consumption by forcing automobile manufacturers to increase fuel efficiency. An underlying premise was that using less gas would reduce pollution; certainly a reasonable assumption. However, Congress rarely produces legislation without unintended consequences and CAFE was no exception.
• Automobile manufacturers succeeded in improving fuel efficiency. But, as auto makers raised mileage per gallon, the price of gasoline rose too.  A legitimate question became: Did manufacturers increase automobile fuel efficiency because of CAFE or consumer demand? Regardless, a more important question is: Did CAFE reach its goal of lower gas consumption? The answer is no because the increased miles per gallon encouraged more gasoline consumption, the logical result of lowering a car’s operating cost.
• Another of CAFE’s goals was to reduce America’s dependence on foreign oil imports. Did CAFE do the trick? Nope. When the standards were first passed we imported about 35% of our oil. Now we depend on foreign imports for over 60% of our needs.

Rubbing salt in consumers’ wounds is an activity Congress has never shied from. This turned out to be deadly true in Congressional fuel efficiency promulgations. Without quantum leaps in technology, the best way to increase average fuel efficiency is to lower the weight of the average vehicle, which auto manufacturers did. The result was lighter cars that fared relatively less well in crashes than did their heavier brethren.

• The National Research Council says CAFE requirements kill 2,000 people each year.
• To put 2,000 highway deaths in perspective, consider this: The Environmental Protection Agency (EPA), funded by Congress, thinks “a mouse is a little man”. This means no expense is too much to save one human life. If a lab experiment finds that a substance kills a mouse, even in ludicrous proportions, that substance must be regulated or banned.

Congress should review legislation and regulations to see whether or not they reach their stated goals. It’s clear CAFE Standards have achieved nothing but producing more highway deaths.

Doesn’t it seem likely that Congress would score lots of points by simply getting rid of CAFE Standards? In a forthcoming blog we’ll discuss how CAFE Standards are a critical part of auto manufacturing policy.

Who among us has not seen, as part of a TV news presentation, the sorry picture of Members of Congress berating a panel of CEOs for being “greedy” and producing “obscene profits” at the public’s expense. The chief executives are usually leaders of companies from industries with media supplied labels like Big Oil or Big Pharma. They normally sit quitely and take the derision meted out by hypocritical representatives or senators.

The most frequent setting happens when gas prices rise during the summer driving season and motorists begin to holler at Congress to “do something”. To shift the blame from themselves Congress ”invites” executives from the oil industry to come to Capital Hill to be demagogued.

Right Back At You

I fantasize about the day when a CEO, let’s say an Exxon executive, will rise up and tell the star chamber panel what profits are all about. He or she will say something like:

• What’s the matter with you bunch of mullet-heads? Don’t you know how important profits are to our economy? Where’s the first place you turn for campaign contributions? The answer is, as you all know, profitable companies.
• As he works up a head of steam, the CEO continues: To my knowledge, Marx, who says owners of capital steal profits from the workers, has never satisfactorially explained where investment dollars will come from without the incentive of profits. A good definition of “profit” is that it is the reward to investors for 1) giving up their money in the first place, and 2) waiting to get paid back with the added risk that they won’t be paid back at all.
• Here’s an example of what I mean. When any citizen buys a certificate of deposit from a bank, he gives that bank money the citizen could have spent on something else. Additionally he agrees to wait until the CD’s term expires before he will get his money back. In exchange for giving up his money and waiting for redemption, perhaps for 12 or more months, the citizen expects and receives a return in the form of interest on the CD. That return is profit.
• The exec continues: The citizen’s investment is small and the likehood of his not being paid back is almost nil. Therefore, his profit is justifiably small, say 2 or 3 percent. On the other hand, Exxon invests billions of dollars and employs hundreds of thousands of workers, in exploring, refining and distributing the gas Americans depend on to fuel their automobiles. Those investment dollars do not belong to Exxon; they belong to individuals, 401(k) funds, pension funds and many, many investment funds who are, ultimately, individuals. Those “investors” trust Exxon to manage business so as to make a profit for those investors.
• And, we cannot control the cost of our raw material. We can only sell the gas we buy from those who dig it out of the ground for us. If it’s expensive, we have to charge more at the pump or we will become General Motors. Taxpayers should know that the government makes a lot more on a gallon of gasoline in tax revenue than oil companies do in profits. Without taking a risk I might add.

The Close

You Members of Congress know all this. So let’s cut the phony outrage and start teaching America how socially responsible profits are in providing jobs, technological advancement and creating wealth for everybody, not just oil companies.

Amen.

Sixteen years ago Ivan Reitman directed a comedy titled Dave starring Kevin Kline and Sigourney Weaver. Kline played a nice guy who owned a small-town temp agency. But he was also a part-time stand-in double for the President of the United States because of his nearly identical likeness to the president. The real president liked to tom-cat around, and when he had a heart attack during an amorous adventure, his chief of staff, played by Frank Langella, decided the best cover-up would be for Dave to assume a full-time role as president.

You can imagine the high jinks the movie played off this theme. But the interesting part, to me, came when Dave (acting as the president) attended a budget meeting with his cabinet. Remember, Dave looked so much like the president even the president’s wife (Sigourney Weaver) didn’t suspect, and neither did the cabinet members.

• Anyway, Dave proceeded to look at the budget binder and ask questions, questions based on common sense. For instance, Dave says matter-of-factly: “I see we are spending more than we are bringing in. We can’t have that. We have to bring revenues and spending into line.”
• As the slack-jawed cabinet members looked at one another in shock, the secretary of something-or-other finally asks, “Mr. President, what did you just say?”
• “I said, we cant spend more than we bring in because we won’t have enough money.” With that Dave continues turning the pages of the voluminous budget binder asking probative questions like, “What do we need this for?” Whenever he got a shoulder shrug, which was the cabinet’s response to every question, he would say, “Well then, let’s take it out.”
• This continues until finally Dave says, “OK, now the revenues and expenses equal. What’s next on the agenda?”

What Can We Do?

Ever since I saw this movie, Ive imagined being in a similar situation and having the power to direct the budget. I’d do many things, but here’s my top priority. I’d look the secretary of agriculture square in the eye and tell him this: In May 2008 Congress appropriated $286 billion for farm subsidies. Whatever has not been obligated I want you to leave alone. Tell the corporate farmers and their lobbyists if they can’t grow a crop that makes a profit, get out of the business. Tell the movie stars and sports millionaires we are no longer going to pay them for simply owning farm land. And tell the Ag state Congress people they will have to find another source of campaign funds because there will be no more farm subsidies to bribe with.

Wouldn’t it be wonderful if we taxpayers had an ombudsman in Congress with that kind of authority? Then when President Obama asks us to sacrifice for the likes of banks, unions and millionaire farmers, we could feel as though we had a say in things instead of having our pockets picked.

Note to readers: FDR introduced farm subsidies in the 1930s during the Great Depression. At that time in our history farmers were truly dirt poor (forgive the pun). That is not the case today; farmers are doing very well. Many of them are multi-millionaires. Income and net worth are both rising as crop prices ratchet up and land values appreciate. Farmers’ family income averages nearly $90,000. (Have you  noticed your grocery bill getting higher too?)

Most of the government subsidies go to only five crops where Big Ag resides: cotton, wheat, corn, soybeans and rice. Farms that produce fruits, vegetables, poultry and beef operate without subsidies.

Reference note: If you want a short but very well done source of basic information on farm subsidies, read Brian Riedl’s backgrounder titled Seven Reasons to Veto the Farm Bill at www.heritage.org. On their homepage do a search for “2008 farm bill”. Riedl’s article will be the first entry among the returns.

You can further increase your awareness of how Congress piddles away our money by reading Ten Dumb Things Congress Does, which you can purchase on this site.

Congress and the Obama administration have presented Americans with two alternatives for solving carbon dioxide emissions: One, Congress must enact a solution; or two, the Environmental Protection Agency (EPA) must regulate a solution.

Either of these “solutions” aims at lowering carbon dioxide emissions by lowering the demand for carbon producing energy.

• A legislative solution by Congress would mean, besides potential corruption that will make earmarks look like penny-ante poker, a direct carbon tax or a cap and trade scheme. Both will raise the cost of carbon based energy, a cost that producers will have to pass on to us consumers. The objective is for higher prices to force lower demand.
• Even less palatable would be lower demand induced by EPA regulations that dictate to consumers what cars we can drive and how much fuel we can use to heat our homes. Unelected bureaucrats will be in charge of our quality of life.

Not many Americans realize how persnickety the EPA can be. Ben Lieberman, in a Heritage Foundation article titled “The True Costs of EPA Global Warming Regulation”, points out the costly and impractical regulatory cross Americans will have to bear if the EPA imposes their answer to climate change.

• For starters, EPA documentation of proposed regulation to date totals 18,000 pages detailing how the agency will try to control fossil fuel emissions for cars, homes, buildings, farms, factories, power plants and… well you get the idea.
• But here’s the part that needs explaining by our policy makers in Washington DC. Our government, backed up by the media, has given us legislation or regulation as the only two possible solutions for controlling carbon dioxide emissions. This is a faulty dilemma; there are other avenues.

Other Solutions

I can think of at least two: 1) Embrace nuclear power; or 2) Do nothing. Both are superior to higher taxes and onerous regulation.

• Nuclear power emits no carbon dioxide. Hey, isn’t that the goal? Nuclear power is relatively cheap making it cost effective. Building and maintaining more reactors will create tens of thousands of evergreen jobs. And if we can figure out how to process and recycle waste effectively, nuclear power is renewable.
• Doing nothing means that environmentalists will have to admit that the relationship between carbon dioxide emissions and global warming is correlation not causation. Greens will also have to recognize that the tiny percentage of CO2 humans put into the atmosphere is negligible. And they will have to get on board with the idea that CO2 emission control by the United States is inconsequential when considered in light of China’s and India’s refusals to bog down their exuberant economies by tilting at greenhouse gas windmills.

But Solutions Are Not the Goal

As many of us know, congressional and environmental Luddites will never give credence to viable energy options like nuclear or “do nothing”, or any other solution one can mention. Why? Precisely because they are viable options. Environmentalists don’t want to solve climate problems, proven or otherwise. They want to destroy capitalism. Zealots who use the environment as a cudgel see advancements in technology as the beginning of the end of civilization.

Congress is simply mercenary. They need cap and trade or a carbon tax to help pay for President Obama’s education and health care promises. The economy and our quality of life play second fiddle to the revenue energy legislation will bring them. So, while we Americans chase a special interest induced carbon bogeyman, other nations build nuclear reactors and factories.

When the government tells its citizens an energy tax or burdensome regulations are the only possible solutions to carbon dioxide emissions, it is presenting a faulty dilemma. Too many of us are accepting it.