When is Government Overreaching?

This just came across my desk. It's about child labor on farms. Here is the key sentence:

"Under new standards being advocated by the Labor Department, youths under the age of eighteen would be prohibited from working in hay lofts, giving shots, caring for baby animals, and being in the vicinity of animals whose behavior may be "unpredictable." For the estimated 1.3 million youths living or working on farms, this means no longer being able to perform routine chores if the farm is set up as a corporation or a business partnership. Today, the vast majority of family farms are legally structured in this manner."

As with so many items on the Internet today, one needs to be careful to vet the truth. Here is the news release from the DOL.

Let's get to the point. Kids need to work. They need work experience. Newt Gingrich's statement about children taking up some jobs at school is an excellent idea. When I grew up, we did do work around the school, and got a free ice cream for it! It was basic dishwashing in the cafeteria and the like, but it was good to get the work experience. If kids are not allowed to work, what kind of work ethic will they have when they turn 18?

However, the article cites some dangerous activities, and it may be that other work may still be allowed. Fixing machinery may be allowed, or is it?

The troubling part of this is the perception of the government. Will it foster coddled children who otherwise may be well gifted in mechanics, but are hamstrung by Big Brother? Although Henry Ford was quite absent around the family farm, he may have been busy tinkering with plows. He was certainly annoyed with the work. Had he not been able to work around the farm freely, he may not have been successful in creating such an advanced assembly line.

BUT, he would have been freely allowed to work, even with this new proposal. Continuing on in the DOL press release:

"The FLSA also provides a complete exemption for youths employed on farms owned by their parents."

At first this initiative feels like the wrong thing. But the initiative is not event the point anymore. Search for "Labor Department Child Farm Work" and you get all kinds of mud being slung, but only in one direction. It takes some digging to even get to the source.

Until we are honest with ourselves, we are not making progress.

Another thing that makes America Great

One aspect that is often cited as the greatest part of American governance is its ability to change with the times – specifically the ability to amend the constitution. Our founding fathers knew that times would change, and that an enduring government run by the people would need to be able to adapt.

Penn Jillette, the famed Las Vegas magician of Penn and Teller, seems to be on a quest to define atheism. However, his Ten Commandments for Atheists are not so much atheistic, but more an update of the original Ten Commandments adapted to a society that has seemingly come closer to the Truth over the past 3400 years:

Religion has a useful place in explaining the currently unexplainable, guiding people's actions for a more fulfilling life, and fostering an environment to advance our society. Our religious leaders would benefit greatly by contemplating this "atheist's" work.

How easy it is to make numbers validate your cause

A friend points me to this article by Victor Hanson:

Wall Street’s Disgruntled Utopians

Generally, any article that uses pejoratives to be convincing is an immediate turn off. But getting the to meat of the matter is this passage:

"In 1981, the top 1% paid 17.58% of all federal income taxes; in 2005, this same cohort paid 39.38%. In 1981 the top 1% paid $94.84 billion (in 2005 dollars); in 2005 they paid $368.13, an increase of 288%"

Note that the top 1% increase in wealth has been 311% from 1979 to 2003. So, if Mr Hanson's numbers are correct, although the top 1% are paying a bigger portion of the pie than before (overall taxes paid), they are eating a larger portion of the pie than before (overall income received). The net effect is less taxes paid by the top 1%.

"Words be nimble,
words be quick,
words resemble
walking sticks."

- Morrison

Just ignore it an it will go away

I'm not quite sure what to make of RA's recent blog post in The Economist regarding China's currency peg. He acknowledges there is an issue, but argues we should ignore it and the problem will fix itself. In the case of a mosquito bite, that may be true. Other ailments need help or they get worse.

It's better maybe to consider his position. International institutions, relationships and the global economy seem to be what he is defending.

"America should ignore China's peg—and its warnings against taking further steps to loosen monetary policy—and adequately reflate. That will place pressure on China to revalue, but without putting the country in a position that weakens international institutions and a key diplomatic relationship."

There seem to be two sides at play here. One is the international community where the free flow of capital and ideas helps those who are not hindered by geography, and another more domestic component that is. Although he addresses the unemployment problem, it's a short fragment and seems to be just a salve for a not-my-problem morality position.

On the one hand R.A. speaks the truth about the consequences of American action addressing the Chinese currency policy. These actions have a high probability of a negative effect, but only on a subset of the Population: international institutions. On the other hand, real wages for most people in America and Europe have fallen over the past 10 years, and there's a reason for that. We must distinguish between what is good for some and what is good for the People.

Now we're talking

In an update to an earlier post about China's currency manipulation, the senate is taking up the debate this week. Chuck Schumer said he has been "disappointed" that Treasury in both the Bush and Obama administrations has not named China a currency manipulator.

It's not the entire reason for our current depression, but it is a big contributor to the continuing importation of lesser living standards through poor US trade management.Let's hope they make progress.

Related Paul Krugman blog post.

The ugly side of truth

As is well known, Google is "blind". It does not tweak its algorithm unless it leads to better results. So what is Santorum? and who is Santorum?

How to get peasants to do your bidding

The tax issue has been an interesting study in the movement of the masses by a small group of people. It reminds one of religion and why it is important for both those that have little and those that have so much.

As the historian James Truslow Adams defined the American Dream when he coined the term at the depths of the Great Depression, what we seek is “a land in which life should be better and richer and fuller for everyone.”

When is Satire Libel?

This is an interesting article from Forbes.com. The title is Paul Krugman Demands More From Hurricane Irene: A Satire. But to be a satire, it must use the truth in a convincing way. Much of what is said is what people believe Paul Krugman says, but if you read his blog and articles, he doesn't say these things. In the arena of discourse to solve our problems, this is not helpful. Forbes should know the difference between Satire and Libel.

How China's beating us, even on clean energy

You have to admire China, not for the way it treats its people, necessarily, but in how China moves decisively to build up its infrastructure and manufacturing might. In this sense, it treats its people quite well.

The administration did challenge the Chinese government's practice of giving subsidy grants equal to between $6.7 million and $22.5 million to Chinese wind turbine manufacturers that agreed not to buy imported components. China agreed in June to discontinue the practice but has already built the world's largest wind turbine manufacturing industry in the past five years and now has highly competitive producers for almost every component.

Currency Wars

In an update to a previous post, people have been addressing our currency issues, especially with BRIC. Here's Paul Krugman:

All those accusation of hooliganism, currency wars etc. are in effect demands that the trilemma be resolved by having America give up having an independent monetary policy — basically, that the Fed give up on trying to stabilize the US economy so that emerging markets aren’t faced with the uncomfortable tradeoff between massive appreciation and imported inflation... [W]hat this analysis tells us is that the hard choices emerging markets are facing don’t reflect any kind of spectacular misbehavior on the part of the United States. All that we’re seeing is the classic set of tradeoffs that any currency regime faces — and it’s not the business of the Fed to save other countries from the necessity of making choices.

August 23, 2011

What made America Great?

Larry Elliott gives us a warning about the global economic system, and in fact our entire social order.

August 15th was the 40th anniversary of Richard Nixon's announcement that America was suspending the convertibility of the dollar into gold at $35 an ounce. Nixon also announced that the US was imposing a 10% tax on all imports into the US (protectionism was common at the time). It was the end of the Bretton Woods system, which was brought about, interestingly enough, to stabilize world economies, the lack of which many attribute to the two world wars.

The Bretton Woods system had two conflicting architects: Harry Dexter White, chief international economist at the US Treasury, drafted the US blueprint, which competed with the plan drafted for the British Treasury by John Maynard Keynes. Overall, White's scheme tended to favor incentives designed to create price stability within the world's economies, while Keynes' wanted a system that encouraged economic growth.

More importantly, the United States was in a strong position at the time, and likely a creditor nation to war-ravaged countries. The US balked at Keynes' plan of shared responsibility. The US contingent was too concerned about inflationary pressures in the postwar economy, and White saw an imbalance as a problem only of the deficit country. Because of the overwhelming economic and military power of the United States, the participants at Bretton Woods largely agreed on White's plan.

Which brings us to the question: "What made America great?" The evidence points to our leadership bringing the fight to the oppressors. We prepared for war well before Pearl Harbor. We developed amazing technologies for the war effort that were also useful for peacetime products. In the end, America was largely intact, and we believed and practiced the fundamental principle of personal liberties. This allowed us to attract great intellectual minds to bring even more technology to bear while other countries spent their efforts rebuilding infrastructure.

Today, our resources are driven to other countries with protectionist measures while we continue to hold on to our beliefs in a clean environment and social insurance, both of which are under threat. More important than ensuring democracy in far away lands, we must first focus on our own. Simply put, we believe in life, liberty and the pursuit of happiness. We need to bring back our protectionist measures to ensure this standard prevails.

August 16, 2011

The cause of the financial crisis

Mark Thoma asks an interesting question.

"What Caused the Financial Crisis?"

The answer is quite easy, but no one talks about it.

Mismanagement of trade, especially China.

I know this first hand. In the 90's China looked like a great opportunity to reduce manufacturing costs and I was all for it. But when China pegged their currency, goods from China were priced artificially low. This made items sold at places like WalMart and Home Depot a great bargain. Efficiencies increased, people got paid more, people could afford more in a house, and as a result, housing became more valuable. The banks made sure they were in the game competing to provide the best mortgages.

Slowly, however, US labor - especially for manufacturing - became too expensive. Manufacturers shed jobs. Those jobs were small at first, but those jobs build the foundation. When line workers were no longer needed, their managers were no longer needed. This is the part that crumbled (So far the high-end is doing OK).

When China pegged their currency, the US failed to intervene with increased duties. In fact, US duties importing from China are extremely low. Generally, I'm not for duties. Any student of international finance knows the top portion of efficiencies in trade simply vanishes with duties. However, artificially low exchange rates create inflation on one side (China is dealing with this now) and a depressed economy on the other (which we are dealing with now).

Anyone who has been to China knows the huge difference in living standards between our countries. A currency that was allowed to float would have let Chinese citizens enjoy greater wealth and it would have moved the US labor base into higher value work until there was an equilibrium. But with the peg, China sees rising costs, and America sees unemployment. The only way to get to equilibrium in this situation is to reduce the quality of living for Americans. In effect, we are importing China's standard of living.

Had we aggressively managed trade when China overstayed their peg by imposing duties, much would have been saved. *HOWEVER* this increases prices in the short term. Retailers don't like it, manufacturers don't like it, consumers don't like it. and investors don't like it. Nobody likes it. But to avoid the situation we're in, you have to do it.

I'm convinced this is where this all started. The most interesting thing is, nobody speaks about it.

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