Destroying the Free Market
Too Big to Fail, Too Big to Let Be

Power and Accountability, a 1991 book by Robert A. G. Monks and Nell Minow, explores the corruptions of the modern corporate system, from the point of view of a fund manager. Since the authors are themselves members of the establishment, their reformative proposals fall far short of the finish line, but this book has much to teach the dissident. Recommended. Here's the opening passage from the first chapter:

I was driving through Maine one late summer day when I stopped to admire a river running through a pretty wooded area. I noticed big, slick bubbles of industrial discharge corroding the vegetation along the riverbank, and I wondered: Who wants this to happen? Not the owners of the company, the shareholders. Not the managers or employees, who want to live in a healthy environment. Not the board of directors, not the community, not the government. I could not think of anyone connected with the company emitting the effluent who wanted the result I saw. This was an unintended consequence of the corporate structure. The very aspects of the company's design that made it so robust, so able to survive changes in leadership, in the economy, in technology, were the aspects that led to this result - pollution that no one wanted, and everyone would pay for.

I realized I was part of the problem some time later, while in my office at the Boston Safe Deposit and Trust Company, where I was Chairman of the Board. I was looking over the proxies that it was our responsibility, as trustee for $7 billion in assets, to vote, and I was preparing to do what we had always done - vote with management on all of them. I picked up the proxy for the company that produced the industrial sludge I had seen, and I realized that if I voted for management, I was endorsing this activity. Those of us who managed money on behalf of others had the opportunity, and the responsibility, to tell management that this activity was unacceptable. But none of us was doing it.

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No Innocent Stockholders

There is no such thing to my mind . . . as an innocent stockholder. He may be innocent in fact, but socially he cannot be held innocent. He accepts the benefits of the system. It is his business and his obligation to see that those who represent him carry out a policy which is consistent with the public welfare.

Louis Brandeis

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[...]

Here, from the London School of Economics and Political Science, Department of International Relations, International Business in the International System, is course guide for Political Environment for Global Business.

Also part of the class materials, here is The Global Shakeout by Michael Hodges and Louis Turner, a book that chronicles the economic and political consequences of the global marketplace.

See also Tony Gosling's page titled Companies now wealthier than Countries - The rise and rise of the Transnational Corporation.

See TIME Magazine's major series on corporate welfare. Big and thorough! Perhaps even a landmark.

from the Wall Street Journal, 2009-Jan-9, by Stephen Moore:

'Atlas Shrugged': From Fiction to Fact in 52 Years

Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read "Atlas Shrugged" a "virgin." Being conversant in Ayn Rand's classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.

Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.

Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated "Atlas" as the second-most influential book in their lives, behind only the Bible.

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

In the book, these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.

The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

When Rand was writing in the 1950s, one of the pillars of American industrial might was the railroads. In her novel the railroad owner, Dagny Taggart, an enterprising industrialist, has a FedEx-like vision for expansion and first-rate service by rail. But she is continuously badgered, cajoled, taxed, ruled and regulated -- always in the public interest -- into bankruptcy. Sound far-fetched? On the day I sat down to write this ode to "Atlas," a Wall Street Journal headline blared: "Rail Shippers Ask Congress to Regulate Freight Prices."

In one chapter of the book, an entrepreneur invents a new miracle metal -- stronger but lighter than steel. The government immediately appropriates the invention in "the public good." The politicians demand that the metal inventor come to Washington and sign over ownership of his invention or lose everything.

The scene is eerily similar to an event late last year when six bank presidents were summoned by Treasury Secretary Hank Paulson to Washington, and then shuttled into a conference room and told, in effect, that they could not leave until they collectively signed a document handing over percentages of their future profits to the government. The Treasury folks insisted that this shakedown, too, was all in "the public interest."

Ultimately, "Atlas Shrugged" is a celebration of the entrepreneur, the risk taker and the cultivator of wealth through human intellect. Critics dismissed the novel as simple-minded, and even some of Rand's political admirers complained that she lacked compassion. Yet one pertinent warning resounds throughout the book: When profits and wealth and creativity are denigrated in society, they start to disappear -- leaving everyone the poorer.

One memorable moment in "Atlas" occurs near the very end, when the economy has been rendered comatose by all the great economic minds in Washington. Finally, and out of desperation, the politicians come to the heroic businessman John Galt (who has resisted their assault on capitalism) and beg him to help them get the economy back on track. The discussion sounds much like what would happen today:

Galt: "You want me to be Economic Dictator?"

Mr. Thompson: "Yes!"

"And you'll obey any order I give?"

"Implicitly!"

"Then start by abolishing all income taxes."

"Oh no!" screamed Mr. Thompson, leaping to his feet. "We couldn't do that . . . How would we pay government employees?"

"Fire your government employees."

"Oh, no!"

Abolishing the income tax. Now that really would be a genuine economic stimulus. But Mr. Obama and the Democrats in Washington want to do the opposite: to raise the income tax "for purposes of fairness" as Barack Obama puts it.

David Kelley, the president of the Atlas Society, which is dedicated to promoting Rand's ideas, explains that "the older the book gets, the more timely its message." He tells me that there are plans to make "Atlas Shrugged" into a major motion picture -- it is the only classic novel of recent decades that was never made into a movie. "We don't need to make a movie out of the book," Mr. Kelley jokes. "We are living it right now."

Mr. Moore is senior economics writer for The Wall Street Journal editorial page.

from the Wall Street Journal, 2009-Oct-31, p.A19, by Peggy Noonan:

We're Governed by Callous Children

The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers.

Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment. The tide will recede. The boats aren't rising, they're bobbing, and will settle. No one believes the bad time is over. No one thinks we're entering a new age of abundance. No one thinks it will ever be the same as before 2008.

Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They'll miss the meaning of this moment, too.

The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.

It is a story in two parts. The first: "They do not think they can make it better."

I talked this week with a guy from Big Pharma, which we used to call "the drug companies" until we decided that didn't sound menacing enough. He is middle-aged, works in a significant position, and our conversation turned to the last great recession, in the late mid- to late 1970s and early '80s. We talked about how, in terms of numbers, that recession was in some ways worse than the one we're experiencing now. Interest rates were over 20%, and inflation and unemployment hit double digits. America was in what might be called a functional depression, yet there was still a prevalent feeling of hope.

Here's why. Everyone thought they could figure a way through. We knew we could find a path through the mess. In 1982 there were people saying, "If only we get rid of this guy Reagan, we can make it better!" Others said, "If we follow Reagan, he'll squeeze out inflation and lower taxes and we'll be America again, we'll be acting like Americans again." Everyone had a path through.

Now they don't. The most sophisticated Americans, experienced in how the country works on the ground, can't figure a way out. Have you heard, "If only we follow Obama and the Democrats, it will all get better"? Or, "If only we follow the Republicans, they'll make it all work again"? I bet you haven't, or not much.

This is historic. This is something new in modern political history, and I'm not sure we're fully noticing it. Americans are starting to think the problems we are facing cannot be solved.

Part of the reason is that the problems—debt, spending, war—seem too big. But a larger part is that our government, from the White House through Congress and so many state and local governments, seems to be demonstrating every day that they cannot make things better. They are not offering a new path, they are only offering old paths—spend more, regulate more, tax more in an attempt to make us more healthy locally and nationally. And in the long term everyone—well, not those in government, but most everyone else—seems to know that won't work. It's not a way out. It's not a path through.

And so the disheartenedness of the leadership class, of those in business, of those who have something. This week the New York Post carried a report that 1.5 million people had left high-tax New York state between 2000 and 2008, more than a million of them from even higher-tax New York City. They took their tax dollars with them—in 2006 alone more than $4 billion.

You know what New York, both state and city, will do to make up for the lost money. They'll raise taxes.

I talked with an executive this week with what we still call "the insurance companies" and will no doubt soon be calling Big Insura. (Take it away, Democratic National Committee.) He was thoughtful, reflective about the big picture. He talked about all the new proposed regulations on the industry. Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.'" He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

He felt government doesn't understand that business in America is run by people, by human beings. Mr. Frank must believe America is populated by high-achieving robots who will obey whatever command he and his friends issue. But of course they're human, and they can become disheartened. They can pack it in, go elsewhere, quit what used to be called the rat race and might as well be called that again since the government seems to think they're all rats. (That would be you, Chamber of Commerce.)

***

And here is the second part of the story. While Americans feel increasingly disheartened, their leaders evince a mindless . . . one almost calls it optimism, but it is not that.

It is a curious thing that those who feel most mistily affectionate toward America, and most protective toward it, are the most aware of its vulnerabilities, the most aware that it can be harmed. They don't see it as all-powerful, impregnable, unharmable. The loving have a sense of its limits.

When I see those in government, both locally and in Washington, spend and tax and come up each day with new ways to spend and tax—health care, cap and trade, etc.—I think: Why aren't they worried about the impact of what they're doing? Why do they think America is so strong it can take endless abuse?

I think I know part of the answer. It is that they've never seen things go dark. They came of age during the great abundance, circa 1980-2008 (or 1950-2008, take your pick), and they don't have the habit of worry. They talk about their "concerns"—they're big on that word. But they're not really concerned. They think America is the goose that lays the golden egg. Why not? She laid it in their laps. She laid it in grandpa's lap.

They don't feel anxious, because they never had anything to be anxious about. They grew up in an America surrounded by phrases—"strongest nation in the world," "indispensable nation," "unipolar power," "highest standard of living"—and are not bright enough, or serious enough, to imagine that they can damage that, hurt it, even fatally.

We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists—they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice.

from the Wall Street Journal, 2009-Nov-11, p.A20:

America Leaves Itself Behind
A world of trade deals without the U.S.

President Obama heads for Asia this week to talk about U.S. economic recovery and reform, and one theme that we expect he'll hear from Asian leaders is this: America is leaving itself behind as the rest of the world tries to liberalize trade.

The numbers tell the story. At least 266 bilateral or regional trade deals are in force, according to the World Trade Organization, and there are roughly 100 more of which the WTO has not yet been formally informed. The U.S. is a party to only five of the 64 trade pacts that have taken effect since 2005—with Australia, Morocco, Bahrain, Oman and Peru.

In contrast, eight of those 64 deals involve the European Union (plus a round of EU expansion) and Japan has signed nine. Overall the U.S. has trade deals with only 17 countries including Canada and Mexico under Nafta. The EU has struck 29 deals on trade ranging from customs unions to larger free-trade agreements with 40 economies.

Of the deals the WTO knows about, an average of seven took effect each year in the five years after the WTO's founding in 1995. For 2004-2008, the annual average rose to 15. Another 12 have kicked in this year. New Zealand and Malaysia signed a pact last week, for instance, and China and India are in talks. Oh, and there's also the newly signed EU-Korea trade deal, and the one signed last year between Canada and Colombia.

These deals are proliferating for many reasons. Some countries are losing patience with the Doha round of global trade talks that has dragged on for eight years. Others view bilateral deals as a way of liberalizing beyond what Doha would accomplish—including areas like intellectual-property protection. These deals can also firm up alliances or build political influence, which is one reason China is aggressively pursuing trade deals with its neighbors.

The danger is that U.S. companies could find themselves on the wrong side of deals negotiated among other countries. The EU-South Korea pact, for example, will tear down almost all remaining tariff barriers between the two sides. It will also address such technical barriers as the excessive safety standards that Seoul has long used to block imports, and it will open Korea to European services. The U.S. has long tried to address these hurdles so American companies could gain better access to the world's 13th-largest economy. The EU is now beating Washington to the punch—largely by copying the trade deal the Bush Administration negotiated with Seoul but that Congress refuses to ratify.

The same holds for Canada's deal with Colombia. That deal eliminates Colombia's average 12% tariffs on nonagricultural goods from Canada; U.S. exporters will still have to pay those tariffs even as Colombians keep tariff-free access to the U.S. under an earlier agreement. Over time Canadian farmers will gain tariff-free access to Colombia for most of their agricultural exports while farmers in Iowa or Nebraska will be stuck with tariffs of between 5% and 80%.

Bilateral trade deals are far from ideal as a way to promote global growth. Far better for governments to lower their own trade barriers unilaterally to all comers, or for all governments to sign a multilateral deal like the Doha round. A complex web of bilateral and regional trade deals can saddle businesses with the costs of complying with multiple sets of rules. This "spaghetti bowl" approach also distorts economies to the extent that businesses make trade and investment decisions based more on where they can get trade preferences than on the highest return on capital.

But when the U.S. sits on the sidelines, the rest of the world is going to find its own trading way, however imperfect. The nearby table shows some of the benefits U.S. companies will be missing.

A start to getting the U.S. back in the game would be for Congress to ratify the pending deals with South Korea, Colombia and Panama. Mr. Obama and U.S. Trade Representative Ron Kirk need to rethink their emphasis on trade "enforcement," which is code for introducing higher barriers, and instead renew the push for more deals. Mr. Obama could also become a leading voice pushing for progress on Doha. Especially as other countries expand their own trading opportunities, the costs of Washington dithering are growing every day.

from the Washington Post, 2009-Nov-6, by Martin Feldstein:

Obamacare's nasty surprise
Fewer insured, higher costs might be the result

Obamacare could have the unintended consequence of raising health insurance premiums and causing a decline in the number of people with insurance.

Here's why: A key feature of the House and Senate health bills would prevent insurance companies from denying coverage to anyone with preexisting conditions. The new coverage would start immediately, and the premium could not reflect the individual's health condition.

This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums. (Separate accident policies might develop to deal with the risk of high-cost care after accidents when there is insufficient time to buy insurance.)

The higher premium level would cause others who are currently insured to drop coverage, pushing premiums even higher. The result would be a spiral of rising premiums and shrinking numbers of insured.

In an attempt to prevent this, the draft legislation provides penalties for individuals who choose not to buy insurance and for employers that do not offer health insurance. But the levels of these fines are generally too low to cause a rational individual to insure.

Consider: 27 million people are covered by health insurance purchased directly, i.e. outside employer-based plans. The average cost of an insurance policy with family coverage in 2009 is $13,375. A married couple with a median family income of $75,000 who choose not to insure would be subject to a fine of 2.5 percent of that $75,000, or $1,875. So the family would save a net $11,500 by not insuring. If a serious illness occurs -- a chronic condition or a condition that requires surgery -- they could then buy insurance. Since fewer than one family in four has annual health-care costs that exceed $10,000, the decision to drop coverage looks like a good bet. For a lower-income family, the fine is smaller, and the incentive to be uninsured is even greater.

The story is similar for single people. The average cost of an individual policy is $4,800. An individual with earnings of $50,000 would face a fine of $1,250 and would therefore save $3,550 by not insuring.

The situation for the 176 million people who get their insurance through employer-based plans is more complex. To simplify, let's look at a family in which one adult earns $50,000 and receives the family plan that costs $13,375. Employees typically pay about 25 percent of the premium cost, or $3,340. The $10,035 remaining cost is deductible by the employer and not taxable to the employee. So the total net cost to the employer of this employee's compensation (taking into account the payroll tax and the corporate tax deduction) is $41,509. The employee would receive the $50,000 minus his part of the health insurance premium, or $46,660 as pretax income.

If that employer stopped providing insurance, he could be subject to a fine of 8 percent of payroll, or about $4,000 for this individual. But even with this fine, he could pay a cash wage to the individual of $53,605 and still have the same net cost of $41,509 (because the cash wage would be subject to the 7.65 percent payroll tax and the combined amount would be deductible at the 35 percent corporate tax rate.) The employee's pay would therefore rise from $46,660 to $53,605, an increase of $6,945. That would be subject to income and payroll taxes, leaving a net increase of $4,677. Even after paying the 2.5 percent personal fine on his cash income of $53,605, he would have additional net income of $3,337, a substantial rise for someone who started with pretax income of $46,660.

In short, for those who are now privately insured through employers or by direct purchase, there would be substantial incentives to become uninsured until they become sick. The resulting rise in the cost to insurance companies as the insured population becomes sicker would raise the average premium, strengthening that incentive.

The proposed legislation would at the same time increase the number of people who would get coverage through Medicaid or the Children's Health Insurance Program. It would also provide subsidies that would limit the premium cost to some low- and middle-income individuals.

But as the number of those who are currently insured declines, a future Congress might respond by increasing subsidies to middle- and upper-income individuals to buy private insurance. More likely, it would subsidize a public insurance company -- whether or not such a public option is in the initial law -- just as it now subsidizes Medicare in a way that was not contemplated when the Medicare program was created.

The Congressional Budget Office is required to estimate the cost of the law as it is written, not as it may evolve. But we as taxpayers will have to pay those future costs.

Martin Feldstein, a professor of economics at Harvard University and president emeritus of the nonprofit National Bureau of Economic Research, was chairman of the Council of Economic Advisers from 1982 to 1984. He is an independent outside director of the pharmaceutical company Eli Lilly. The views expressed here are his own.

from the Wall Street Journal, 2009-Nov-10, p.A4, by Anna Wilde Mathews:

Effort to Assist Older Voters May Raise Costs for the Young

A provision in the House health-care bill sets up a stark choice for Democrats between the interests of younger voters and older ones.

The bill would limit how much insurers can vary premiums based on the age of the person buying the policy. The narrower the range, the lower the premiums for older people, a help to those who currently pay some of the highest rates for insurance and often need coverage the most. But such a limitation tends to raise premiums for younger folks, who are sometimes reluctant to buy coverage.

In the House bill, the ratio can only be as much as 2 to 1, meaning older people could pay no more than twice what the youngest customers are charged. Senate Democrats, who haven't yet unveiled the bill that will go to the floor there, will have to decide whether to echo the House's ratio or use a different one. Lobbyists say one possibility might be 3 to 1, the average of two earlier Senate bills. Currently, the range isn't capped in most states and older people may pay five or six times as much.

It's tough to project the exact impact of the new age ratio because the bills contain other provisions affecting premiums.

Still, a calculator on the Kaiser Family Foundation Web site gives a rough sense. It suggests that under the House's 2-to-1 cap, a 20-year-old would pay $3,169 in annual premiums and a 60-year-old would pay $6,339 for comparable plans, if they both had incomes above the subsidy-eligible level. Under a bill passed by the Senate Finance Committee, which had a 4-to-1 age-rating ratio, the 20-year-old would pay $2,258 and the 60-year-old would pay $8,357.

The House bill also requires almost all Americans to carry health insurance or pay a fine. Republicans say the combined effect will be to make some young people buy expensive policies they don't want.

"We are going to tell every young American who has decided that they don't want to pay those premiums, they want to save up to get married or to buy a home, that, by golly, they are going to have to take insurance. And they are going to pay three to four times what they would under the current system because there is only a 2-to-1 ratio," said Rep. Joe Barton (R., Texas) during the weekend House debate.

Democrats, who relied on the youth vote in their 2008 election victories, counter that the bill helps young people by allowing them to stay longer on their parents' insurance plans and offering subsidies for coverage to lower-income Americans, many of whom are young people in low-paying jobs.

A spokeswoman for Rep. Henry Waxman (D., Calif.) chairman the House Energy and Commerce Committee, said the House bill will help level "the playing field so that regardless of age, gender, financial or health status, individuals and families are able to afford coverage."

The impact of the premium-age ratio would be felt most directly by those buying their own health plans. Based on Congressional Budget Office projections, after 10 years, about 30 million people would be buying individual insurance under the House bill, roughly double the current figure.

Merlyn Lawrence, a 64-year-old retiree in Scottsdale, Ariz., pays around $230 a month for a high-deductible insurance plan she bought through eHealthInsurance.com. Living with her daughter and relying on her Social Security income for expenses, she has to dip into her savings to make the monthly payments and can't always afford her prescriptions, she says. "At our age, we don't have the option of a job and bringing in a monthly income," she said. "Between that age of 50 and 65, I really feel like people need to be given a break."

On the other end of the spectrum, Tyler Routson, 23, of Los Angeles, works as a runner for a recording studio and is forced to rely on his parents to help pay the premiums for his roughly $140-a-month health plan. Though he is willing to help subsidize older people's costs as a "good Samaritan gesture," he said, he is also financially stretched and hoping a health bill will bring down the price of his coverage. "I know very few people who are my age who have money to help a 50-year-old person," he said.

The seniors' lobby AARP has pushed for the narrower age-rating band, arguing that older people would otherwise be priced out of the insurance market. "Our overriding concern is affordability," said John Rother, an executive vice president with the group.

Industry officials argue that if young people are asked to pay more, fewer of them will buy insurance, and many may opt instead to pay the penalty for being uninsured.

"That makes the premiums for everyone else increase," said Alissa Fox, senior vice president of the Blue Cross and Blue Shield Association.

from the Wall Street Journal, 2009-Nov-7, by Betsy Mccaughey:

What the Pelosi Health-Care Bill Really Says
Here are some important passages in the 2,000 page legislation.

The health bill that House Speaker Nancy Pelosi is bringing to a vote (H.R. 3962) is 1,990 pages. Here are some of the details you need to know.

What the government will require you to do:

• Sec. 202 (p. 91-92) of the bill requires you to enroll in a "qualified plan." If you get your insurance at work, your employer will have a "grace period" to switch you to a "qualified plan," meaning a plan designed by the Secretary of Health and Human Services. If you buy your own insurance, there's no grace period. You'll have to enroll in a qualified plan as soon as any term in your contract changes, such as the co-pay, deductible or benefit.

• Sec. 224 (p. 118) provides that 18 months after the bill becomes law, the Secretary of Health and Human Services will decide what a "qualified plan" covers and how much you'll be legally required to pay for it. That's like a banker telling you to sign the loan agreement now, then filling in the interest rate and repayment terms 18 months later.

On Nov. 2, the Congressional Budget Office estimated what the plans will likely cost. An individual earning $44,000 before taxes who purchases his own insurance will have to pay a $5,300 premium and an estimated $2,000 in out-of-pocket expenses, for a total of $7,300 a year, which is 17% of his pre-tax income. A family earning $102,100 a year before taxes will have to pay a $15,000 premium plus an estimated $5,300 out-of-pocket, for a $20,300 total, or 20% of its pre-tax income. Individuals and families earning less than these amounts will be eligible for subsidies paid directly to their insurer.

• Sec. 303 (pp. 167-168) makes it clear that, although the "qualified plan" is not yet designed, it will be of the "one size fits all" variety. The bill claims to offer choice—basic, enhanced and premium levels—but the benefits are the same. Only the co-pays and deductibles differ. You will have to enroll in the same plan, whether the government is paying for it or you and your employer are footing the bill.

• Sec. 59b (pp. 297-299) says that when you file your taxes, you must include proof that you are in a qualified plan. If not, you will be fined thousands of dollars. Illegal immigrants are exempt from this requirement.

• Sec. 412 (p. 272) says that employers must provide a "qualified plan" for their employees and pay 72.5% of the cost, and a smaller share of family coverage, or incur an 8% payroll tax. Small businesses, with payrolls from $500,000 to $750,000, are fined less.

Eviscerating Medicare:

In addition to reducing future Medicare funding by an estimated $500 billion, the bill fundamentally changes how Medicare pays doctors and hospitals, permitting the government to dictate treatment decisions.

• Sec. 1302 (pp. 672-692) moves Medicare from a fee-for-service payment system, in which patients choose which doctors to see and doctors are paid for each service they provide, toward what's called a "medical home."

The medical home is this decade's version of HMO-restrictions on care. A primary-care provider manages access to costly specialists and diagnostic tests for a flat monthly fee. The bill specifies that patients may have to settle for a nurse practitioner rather than a physician as the primary-care provider. Medical homes begin with demonstration projects, but the HHS secretary is authorized to "disseminate this approach rapidly on a national basis."

A December 2008 Congressional Budget Office report noted that "medical homes" were likely to resemble the unpopular gatekeepers of 20 years ago if cost control was a priority.

• Sec. 1114 (pp. 391-393) replaces physicians with physician assistants in overseeing care for hospice patients.

• Secs. 1158-1160 (pp. 499-520) initiates programs to reduce payments for patient care to what it costs in the lowest cost regions of the country. This will reduce payments for care (and by implication the standard of care) for hospital patients in higher cost areas such as New York and Florida.

• Sec. 1161 (pp. 520-545) cuts payments to Medicare Advantage plans (used by 20% of seniors). Advantage plans have warned this will result in reductions in optional benefits such as vision and dental care.

• Sec. 1402 (p. 756) says that the results of comparative effectiveness research conducted by the government will be delivered to doctors electronically to guide their use of "medical items and services."

Questionable Priorities:

While the bill will slash Medicare funding, it will also direct billions of dollars to numerous inner-city social work and diversity programs with vague standards of accountability.

• Sec. 399V (p. 1422) provides for grants to community "entities" with no required qualifications except having "documented community activity and experience with community healthcare workers" to "educate, guide, and provide experiential learning opportunities" aimed at drug abuse, poor nutrition, smoking and obesity. "Each community health worker program receiving funds under the grant will provide services in the cultural context most appropriate for the individual served by the program."

These programs will "enhance the capacity of individuals to utilize health services and health related social services under Federal, State and local programs by assisting individuals in establishing eligibility . . . and in receiving services and other benefits" including transportation and translation services.

• Sec. 222 (p. 617) provides reimbursement for culturally and linguistically appropriate services. This program will train health-care workers to inform Medicare beneficiaries of their "right" to have an interpreter at all times and with no co-pays for language services.

• Secs. 2521 and 2533 (pp. 1379 and 1437) establishes racial and ethnic preferences in awarding grants for training nurses and creating secondary-school health science programs. For example, grants for nursing schools should "give preference to programs that provide for improving the diversity of new nurse graduates to reflect changes in the demographics of the patient population." And secondary-school grants should go to schools "graduating students from disadvantaged backgrounds including racial and ethnic minorities."

• Sec. 305 (p. 189) Provides for automatic Medicaid enrollment of newborns who do not otherwise have insurance.

For the text of the bill with page numbers, see www.defendyourhealthcare.us.

Ms. McCaughey is chairman of the Committee to Reduce Infection Deaths and a former Lt. Governor of New York state.

from the Wall Street Journal, 2009-Nov-12, p.A24:

A 69% Capital Gains Tax Hike . . .
Pelosi's 5.4% income surtax would hit capital gains and dividends.

Our job is to read bad legislation so you don't have to, and on that score we may demand combat pay for plowing our way through the House health-care bill that passed on Saturday. This thing has economic booby traps everywhere, such as favors for the tort bar (see below) and the largest capital gains tax increase in at least a half-century.

House Democrats are funding their new entitlement with a 5.4% surtax on incomes above $500,000 for individuals and above $1 million for joint filers. The surcharge is intended to snag the greatest number of taxpayers to raise some $460.5 billion, and so the House has written it to apply to modified adjusted gross income. That means it includes both capital gains and dividends.

That surtax takes effect on January 1, 2011, or the day the Bush tax rates of 2001 and 2003 expire. Today's capital gains tax rate of 15% would bounce back to 20% because of the Bush repeal and then to 25.4% with the surtax. That's a 69% increase, overnight. The last time investors were hit with anything comparable was 1986, when the capital gains rate jumped to 28% from 20%, a 40% increase, as part of the Reagan tax reform that lowered income tax rates.

The 1986 experience was not a happy one. Tax revenues from capital gains surged before the increase took effect in 1987, as investors moved to cash in at the lower rate. Revenues then plummeted. Total realized capital gains didn't again reach their 1985 level of $172 billion until 1996. By 1992, the federal government was barely getting more in revenue ($29 billion) at the 28% rate than it did in 1985 ($26.5 billion) at the 20% rate.

Rate reductions, as in 2003 when Republicans cut the rate to 15% from 20%, have typically had the opposite effect. Treasury receipts from capital gains climbed to an estimated $117.8 billion in 2006 from $49 billion in 2002.

While the rising stock market through this period played a role, so did the "unlocking" effect from a lower rate that reduces the friction of taxes on decisions to buy or sell and thus report a capital gain. Both the economy and the Treasury also benefitted when Bill Clinton agreed to reduce the rate to 20% from 28% as part of his budget deal with Newt Gingrich in 1997.

Candidate Obama acknowledged this reality in April of 2007, when he backed away from his original proposal to nearly double the capital gains rate to 28%, and instead suggested 20%. He also promised to eliminate the tax entirely for small business. "I'm mindful that we've got to keep our capital gains tax to a point where we can actually get more revenue," he said at the time.

While families of all income levels realize capital gains, Internal Revenue Service data from 2007 show that 58% of overall capital gains revenue was reported by taxpayers with adjusted gross income above $1 million—and would be subject to the new 25.4% rate. The actual percentage of revenue subject to the penalty would be higher when counting individuals with income above $500,000.

Some readers may think that this 5.4% surtax can't possibly make it into a final Congressional bill due to Senate opposition, but we wouldn't be so sure. Mr. Obama hasn't said so much as a discouraging word about the House bill. And we've seen in the past 10 months that when Mr. Obama's campaign promises clash with the priorities of House liberals, the liberals always win.

from the Wall Street Journal, 2009-Nov-12, p.A24:

. . . And a Buried Tort Bomb
A stealth provision that would undermine state damage caps.

In his September address to Congress, President Obama made a nod to bipartisanship by acknowledging that excessive litigation "may be" contributing to rising health costs, and he proposed state "demonstration projects" to test medical tort reform. This wasn't much of a concession, but it apparently was still too much for House Democrats, who are using their bill to subvert reform that is already on the books in many states.

Buried in Speaker Nancy Pelosi's 1,990-page bill is a provision that provides "incentive payments" to each state that develops an "alternative medical liability law" that encourages "fair resolution" of disputes and "maintains access to affordable liability insurance." Sounds encouraging. Read on, however, and you come to this nugget: The state only qualifies if its new law "does not limit attorneys' fees or impose caps on damages."

Holy Bill Lerach.

Huge contingency fees and damage awards are the mother's milk of frivolous lawsuits. That's why 30 states have adopted caps on awards as the core of their reform, with huge success. Texas imposed malpractice caps in 2003, and the state has been rewarded with fewer lawsuits, a 50% drop in malpractice premiums, and a flood of new doctors. The House bill is intended to discourage other states from doing the same.

The Pelosi bill also provides these incentives only if states adopt watered-down alternatives to existing malpractice caps. Those alternatives include certificate-of-merit rules, which in theory require lawyers to get medical proof before suing but in practice mean that lawyers recruit and finance "expert" witnesses.

States could also provide "early offer" rules, which are supposed to encourage fair settlement of legitimate claims. But as organizations like the Manhattan Institute have noted, those offers only work if combined with restrictions on lawyer fees and damage awards that reduce the incentive to go for the jackpot judgment.

The Senate bill avoids tort reform entirely, notwithstanding Mr. Obama's showy pledge before a national TV audience.

Never mind that reducing medical lawsuits is a rare reform provision that really would reduce health-care costs. The Congressional Budget Office estimates the savings at $54 billion over a decade. Consulting firm Tillinghast Towers-Perrin has suggested the direct cost of medical tort litigation is more like $30 billion annually. PriceWaterhouseCoopers estimates that last year $240 billion in health expenditures were the result of doctors ordering unnecessary procedures to protect against the risk of lawsuits.

The hidden Pelosi tort bomb is one more example of the stealth radicalism that defines ObamaCare. If it passes in anything like its current form, we are going to be cleaning up the mess for decades to come.

from the Hill, 2009-Nov-6, by Dick Morris and Eileen McGann:

ObamaCare endorsements: What the bribe was

As the suicidal Democratic congressmen proceed to rubber-stamp the Obama healthcare reform despite the drubbing their party took in the '09 elections, the president trotted out the endorsements of the AMA and the AARP to stimulate support. But these — and the other endorsements — his package has received are all bought and paid for. Here are the deals:

• The American Medical Association (AMA) was facing a 21 percent cut in physicians' reimbursements under the current law. Obama promised to kill the cut if they backed his bill. The cuts are the fruit of a law requiring annual 5-6 percent reductions in doctor reimbursements for treating Medicare patients. Bravely, each year Congress has rolled the cuts over, suspending them but not repealing them. So each year, the accumulated cuts threaten doctors. By now, they have risen to 21 percent. With this blackmail leverage, Obama compelled the AMA to support his bill … or else!

• The AARP got a financial windfall in return for its support of the healthcare bill. Over the past decade, the AARP has morphed from an advocacy group to an insurance company (through its subsidiary company). It is one of the main suppliers of Medi-gap insurance, a high-cost, privately purchased coverage that picks up where Medicare leaves off. But President Bush-43 passed the Medicare Advantage program, which offered a subsidized, lower-cost alternative to Medi-gap. Under Medicare Advantage, the elderly get all the extra coverage they need plus coordinated, well-managed care, usually by the same physician. So more than 10 million seniors went with Medicare Advantage, cutting into AARP Medi-gap revenues.

Presto! Obama solved their problem. He eliminates subsidies for Medicare Advantage. The elderly will have to pay more for coverage under Medigap, but the AARP — which supposedly represents them — will make more money. (If this galls you, join the American Seniors Association, the alternative group; contact sbarton@americanseniors.org.)

• The drug industry backed ObamaCare and, in return, got a 10-year limit of $80 billion on cuts in prescription drug costs. (A drop in the bucket of their almost $3 trillion projected cost over the next decade.) They also got administration assurances that it will continue to bar lower-cost Canadian drugs from coming into the U.S. All it had to do was put its formidable advertising budget at the disposal of the administration.

• Insurance companies got access to 40 million potential new customers. But when the Senate Finance Committee lowered the fine that would be imposed on those who don't buy insurance from $3,500 to $1,500, the insurance companies jumped ship and now oppose the bill, albeit for the worst of motives.

The only industry that refused to knuckle under was the medical device makers. They stood for principle and wouldn't go along with Obama's blackmail. So the Senate Finance Committee retaliated by imposing a tax on medical devices such as automated wheelchairs, pacemakers, arterial stents, prosthetic limbs, artificial knees and hips and other necessary accoutrements of healthcare.

So these endorsements are not freely given, but bought and paid for by an administration that is intent on passing its program at any cost.

from the Wall Street Journal, 2009-Oct-22, by Allysia Finley:

Obama's Doctor Shortage
All of the president's "fixes" will just create new problems.

In his campaign for health-care reform, President Obama has repeatedly harped about a primary care doctor shortage. "The status quo is we don't have enough primary care physicians," President Obama said in an ABC interview in July. The president promises that his health-care reform proposal will address the problem of a primary care physician shortage---and he's right. He will make it worse.

Mr. Obama wants to provide insurance for an additional 30 million Americans, but recent experience in Massachusetts shows that universal coverage will result in an even greater physician shortage and longer waiting times for patients.

Because Massachusetts' Commonwealth system served as the model for the universal coverage Mr. Obama wants to implement nationwide, a few results of its health-care experiment are worth noting. A 2008 Physician Workforce Study by the Massachusetts Medical Society found that the percentage of residents having difficulty getting care rose to 24% from 16% between 2007 and 2008. Since 2006 when the Commonwealth system was implemented, internal medicine and family practice went from having labor market conditions that were considered "soft" or unstressed to being the only two specialties with labor market conditions classified as "severe" or experiencing the highest possible degree of stress.

And with 33% of the state's primary care doctors now considering changing professions due to dissatisfaction with the current practice environment---an increase of 8% in the last year---Massachusetts' problems are just beginning. Because of physicians' overbearing work loads and a massive administrative bureaucracy, Massachusetts is struggling to recruit and retain doctors. About three-quarters of medical group directors say that their ability to retain physicians has become more difficult in the last three years. Over half of the state's resident physicians choose to practice elsewhere.

Massachusetts provides just a taste of what the U.S. has to look forward to with ObamaCare, but it's enough to make anyone want to forgo the whole dish. The Association of American Medical Colleges predicts a primary care physician shortage of 46,000 by 2025, and if universal health care is passed, the physician shortage would increase by 25%.

If Mr. Obama intends to implement universal health care, he can do a few things to increase the supply of primary care doctors to meet the sudden surge in demand his plan would create. But as with most other ObamaCare "fixes," these solutions would just create new problems.

First, the president can try to increase the number of medical students entering primary care through incentives like improved student loan programs. But loan repayment programs aimed at enticing medical students into primary care are going to be just about as effective as they are at enticing young attorneys into civil service, which is to say, not very.

While medical students graduate with an average debt of $154,607, the discrepancy between the earnings of primary care physicians and specialists after a few years eclipses the benefits of increased financial aid. According to data compiled by physician research and consulting company Merritt Hawkins, family physicians earn on average $173,000 a year compared to $335,000 for oncologists and $419,000 for cardiologists. Even if the federal government were to pay off all of primary care physicians' student loans, specialists would still be financially better off than primary care doctors after only a few years.

Mr. Obama ignores two of the most important reasons why U.S. medical students specialize: they want more flexible, lighter work loads and don't want to deal with primary care's tangle of bureaucracy. The SF Gate notes that according to a University of Missouri and the Federal Health Resources and Services Administration estimate, ObamaCare would increase the work load of primary care physicians by 29% in the next 15 years. By increasing primary care physicians' work loads and adding a new, government insurance bureaucracy, ObamaCare would make primary care even less attractive.

Mr. Obama could also try to incentivize docs to pursue primary care by increasing their payments. But this is a zero-sum game as doctors are already finding out. This year Medicare payments to primary care doctors are increasing by 6-8% while payments to specialists are getting cut to compensate for this increase.

Even if Mr. Obama were to succeed at enticing more medical students into primary care, he'd have to grapple with Medicare's current cap on Graduate Medical Education residency funding. Passed to slow growth in Medicare spending, the Balanced Budget Act of 1997 maintains Medicare funding for Graduate Medical Education at 1996 levels and thereby acts as a ceiling on the physician supply. That means any increase in the number of primary care physicians would require a commensurate decrease in the number of specialists.

In order to prevent a reduction in specialists while increasing the number of primary care physicians, Congress would have to lift Graduate Medical Education caps. But lifting GME caps, the most important step to increasing the primary care physician supply, isn't part of the legislation, mainly because Congress doesn't want to further inflate the price tag on this trillion dollar behemoth. According to Atul Grover, M.D. of the AAMC, adding 30,000 new residency positions---which is what Mr. Grover says would be necessary to offset the impending physician shortage---would cost about $25 billion over 10 years.

By drastically increasing demand while doing little to increase primary care physician supply, ObamaCare will turn health care into a consumer nightmare: longer wait times, shorter visits, higher prices, and decreased customer satisfaction. The U.S. will have to rely increasingly on nurse practitioners and physician assistants to meet patient demand. According to the WHO, the nurse-to-physician ratio in Canada and the U.K. are 5.3 and 5.6, respectively, compared to 3.6 in the U.S. And as fewer bright young people pursue medicine due to the profession's general malaise and oppressive bureaucratic regulations, we're likely to see an even greater physician shortage---not just in primary care, but in specialty care as well.

A September survey by Investors Business Daily found that 45% of doctors would consider quitting if Congress passes its "comprehensive" health-care overhaul, largely because of the increased bureaucracy and liabilities and lower reimbursements. The U.S. is facing a John Galt-like protest from doctors. The Obama administration may soon be wondering: who is John Galt?

from CNSNews.com, 2009-Jul-31, by Christopher Neefus:

Obama's Science Adviser Called for `Zero Economic Growth'

At a time when it was popular among environmentalists to talk about capping pollutants, John Holdren was writing about placing “caps” on the U.S. economy itself--and working toward “zero economic growth.”

Holdren, who is now President Obama’s top adviser on science and technology policy, wrote in the 1970s that it would be “entirely logical” to cap the Gross National Product--the total productivity of the American economy. 

“It is by now abundantly clear that the GNP cannot grow forever. Why should it?” Holdren asked in a 1977 college science textbook he co-wrote with Paul R. Ehrlich and Anne H. Ehrlich, titled “Ecoscience: Population, Resources, Environment.”

“Why should we not strive for zero economic growth (ZEG) as well as zero population growth?”

The pertinent chapter, “Changing American Institutions,” discusses what the authors perceived as problems in America’s social mores, government, and economic system, which they say makes it “the leader in humanity’s reckless exploitation of Earth.”

The United States, they argued, should focus on limiting the amount of physical product produced and in circulation. 

Again, it would be “entirely logical,” Holdren and the Ehrlichs wrote, “to set limits on the amount of product a nation needs and then strive to reduce the amount of work required to produce such a product (and, we might add, to see that the product is much more equitably distributed that it is today).”

Elsewhere in the chapter, Holdren and the Ehrlichs instead highlight economies less focused on economic growth, what they call “growthmania,” where product could be better distributed.

“That economists have clung to their ‘growthmania’ is not surprising,” they wrote. “After all, natural scientists often cling to outmoded ideas that have produced far less palpable benefits than the growing mixed economies of the Western world in the twentieth century.”

“The question of whether a different economic system might have produced a more equitable distribution of benefits is not one that Western economists like to dwell on.”

Consistent with many of the other arguments laid out in “Ecoscience,” Holdren and the Ehrlichs believe making the change to a zero growth global economy also requires curtailing Earth’s population. “How do we get from here to there? Population control, of course, is absolutely essential, with an eventual target of a smaller population than today’s.”

The authors admit that making such a change to the U.S. economy would be difficult because of ingrained cultural opposition, with two chief road blocks to zero growth and broad redistribution of resources. 

The first problem, they say, is that it would be “a threat to some of the most dearly held beliefs of this society” and would “attack the Protestant work ethic.”

That work ethic, they write, insists that one must be kept busy on the job for forty hours a week” and work overtime or moonlight, “so that the money can be earned to buy all those wonderful automobiles, detergents, appliances, and assorted gimcracks that must be bought if the economy is to continue to grow.” 

Holdren and the Ehrlichs, however, call that tradition “outmoded,” and say American attitudes must change to reflect their environmental situation.

The larger problem, the radical enviromentalists wrote, is that forcing the economy to be less productive would face opposition from those with money and political influence.

“The critical question, of course, is how to get around the extraordinary power interests that would be unalterably opposed to maximum income limits and (if possible) even more opposed to direct taxation of wealth,” they say on page 850.

“Greed and the desire for power are extraordinarily strong forces against any serious attempts to curb income and wealth,” and, “(t)he real sticky wicket would be direct taxation of wealth, since that would threaten the entrenched power of the Rockefellers, Carnegies, Fords, Kennedys, and countless other beneficiaries of enterprising and acquisitive ancestors.”

“But once some system of further redistribution were established in the United States, it would then be justifiable to implement a transition to a (less productive) economy as quickly as possible.”

Before joining the Obama administration, Holdren was a professor at Harvard and the director of the Woods Hole Research Center in Falmouth, Mass. He holds a Ph.D. from Stanford University and an M.S. from MIT, where he also received his undergraduate degree.

The White House Office of Science and Technology Policy did not comment on questions from CNSNews.com about Holdren’s stance on zero economic growth or whether it has changed since the 1970s.

from the Heritage Foundation online, 2009-Oct-1, by Conn Carroll:

Kerry-Boxer: 10% Unemployment Is Just The Beginning

Defending his new energy tax bill Sen. John Kerry (D-MA) told Congress Daily yesterday:

Let me emphasize something very strongly as we begin this discussion. The United States has already this year alone achieved a 6 percent reduction in emissions simply because of the downturn in the economy, so we are effectively saying we need to go another 14 percent.

The United States has also “achieved” 3.36 million net jobs lost so far this year and a 9.7% unemployment rate. Is this “green jobs” economy that the enviro-left is trying to sell America? Is Kerry admitting that instituting cap and trade will inflict the same amount of damage on the U.S. economy as the housing bubble and financial sector breakdown have?

Kerry-Boxer: 20% less carbon and 10% unemployment through 2020!

from the Associated Press, 2009-Nov-6, by Jim Kuhnhenn:

Analysis: 10 percent jobless is Obama's new world

WASHINGTON — For months he had warned it was coming but that didn't ease the political shockwaves for President Barack Obama when unemployment topped 10 percent.

A year after his election Obama finds it increasingly difficult to blame the sour economy on George W. Bush or offer reassurances that jobless Americans will soon find work.

Never mind that the economy itself grew in the last quarter, that the recession, as measured by the precise formulas used by economists, is over and that the number of jobs lost in October was less than one-third the number of job losses at the start of his presidency.

Those claims about the recession's end do not convince most people, who remain painfully aware of the unemployment rate.

At 10.2 percent, October unemployment climbed to chart-topping heights unseen in more than a quarter century. The bottom line is that more than 15 million Americans are out of work and 3.5 million lost their jobs while Obama was president. Expected or not, this is Obama's new reality.

"I won't let up until the Americans who want to find work can find work, and until all Americans can earn enough to raise their families and keep their businesses open," the president declared Friday.

That's a hopeful promise but not very realistic.

And it shows that, for the time being, action to tackle record budget deficits will simply have to wait.

Obama, appearing at the White House Rose Garden on Friday three hours after the jobless numbers were made public, said his administration was looking at additional spending for roads and bridges and energy efficient buildings. Additional tax cuts for businesses and steps to increase credit for small businesses were also on the bill.

The new unemployment rate also came on the same day Obama signed a $24 billion bill to extend jobless benefits and spur homebuying

In a sign of Democratic thinking, Rep. Carolyn Maloney, who heads Congress's Joint Economic committee, said Democrats would consider new aid to states, an "infrastructure bank" to increase construction jobs and small business tax credits.

"I think we're witnessing a political renaissance about concerns about jobs," Lawrence Mishel, president of the labor-leaning Economic Policy Institute, said approvingly. "It will put the deficit concerns into their appropriate context."

What all this amounts to is another stimulus for the economy. Though don't look for Democrats to call it that; Democrats have a tough enough time debating the merits of the $787 billion stimulus Congress passed earlier this year.

Republicans were quick to pounce on the proposals. Internal polling by the Republican National Committee after Republican gubernatorial victories in New Jersey and Virginia showed that Republican candidates could do well by arguing against additional spending while promoting job growth through tax cutting alone.

But in rhetoric and in deed, Obama is being forced to address an unemployment picture his economic team had long ago expected to avoid.

Many economists predict the jobless rate will rise again, peaking at 10.5 percent sometime next year before employment makes a turnaround in the spring. That still means unemployment will remain high for some time. The administration's own projections still see unemployment at 8 percent by the end of 2011.

Such lingering discomfort can have economic and political consequences.

Consumer spending likely won't increase rapidly. Foreclosures will continue to rise, hitting not just subprime borrowers, but prime mortgage holders as well. Commercial real estate lending, already teetering, could plunge in the face of rising vacancy and loan delinquency rates.

Politically, Democrats are staring at some damage — and the fear of unemployment — themselves. Exit polls Tuesday in the New Jersey and Virginia GOP victories showed that the economy was the top issue in the minds of voters. And national public opinion surveys show that a majority of the public doesn't believe Obama's economic policies are working.

Couple that with traditional losses by the president's party during midterm elections and Democrats have cause to worry about their own fate.

The unemployment number masks the fact that job losses slowed compared to past months — the work force went down by 190,000 in October compared to 219,000 in September. What's more, the Bureau of Labor Statistics said job losses in August and September had been overstated by 91,000.

In addition, the economy grew by 3.5 percent in the third quarter. And Christina Romer, a top Obama economic adviser, noted an increase in temporary service jobs. "That's often the first sign of firms kind of dipping their toe back into hiring people," she said in an interview with The Associated Press.

But since the start of the recession in December 2007, 7.3 million Americans have lost their jobs and key sectors — construction, manufacturing and retail trade — are still seeing significant declines.

The president has not been helped by reports of flaws in the administration's count of jobs created by the $787 billion stimulus.

Ten months into the job, Obama did not even try to lay the blame for the economy at Bush's feet, as he has in the past. His only criticism was implied.

"When we first came into office, our immediate goal was to stop the free fall that caused our economy to shrink at an alarming rate," he said. "We've succeeded in achieving that goal, as our economy grew last quarter for the first time in a year."

But Obama has already taken ownership of the economy.

Republicans, he noted wryly during a July speech in Michigan, were eager to blame him for the economy.

"That's fine," he added, "Give it to me!"

Four months later, it would be hard to give it back.

from the New York Times, 2009-Nov-7, p.A1, by David Leonhardt:

Broader Measure of U.S. Unemployment Stands at 17.5%

For all the pain caused by the Great Recession, the job market still was not in as bad shape as it had been during the depths of the early 1980s recession — until now.

With the release of the jobs report on Friday, the broadest measure of unemployment and underemployment tracked by the Labor Department has reached its highest level in decades. If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression.

In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982.

This includes the officially unemployed, who have looked for work in the last four weeks. It also includes discouraged workers, who have looked in the past year, as well as millions of part-time workers who want to be working full time.

The official jobless rate — 10.2 percent in October, up from 9.8 percent in September — remains lower than the early 1980s peak of 10.8 percent.

The broader rate is highest today, sometimes 20 percent, in states that had big housing bubbles, like California and Arizona, or that have large manufacturing sectors, like Michigan, Ohio, Oregon, Rhode Island and South Carolina.

The new benchmark is a sign of just how much damage financial crises tend to inflict. A recent book by Carmen M. Reinhart and Kenneth S. Rogoff, two economists, found that over the last century the typical crisis had caused the jobless rate in the country where it occurred to rise for almost five years. By that standard, the jobless rate here would continue rising for two more years, through the end of 2011.

Most economists predict that the rate will in fact begin to fall next year, largely because of the federal government's aggressive response — fiscal stimulus, interest-rate cuts and a variety of creative steps by the Federal Reserve and Treasury Department. Friday's report showed that monthly job losses continued to slow recently, though the improvement has been gradual.

At the White House Friday, President Obama signed a bill to extend unemployment benefits and a tax credit for home buyers, and said that he was looking at ways to enact more stimulus. On Wednesday, the Fed announced that it expected to leave its benchmark interest at zero for “an extended period.”

Nearly 16 million people are now unemployed and more than seven million jobs have been lost since late 2007.

Officially, the Labor Department's broad measure of unemployment goes back only to 1994. But early this year, with the help of economists at the department, The New York Times created a version that estimates it going back to 1970. If such a measure were available for the Depression, it probably would have exceeded 30 percent.

Compared with the early 1980s, a smaller share of workers today are officially unemployed and a smaller share are considered discouraged workers.

But there are many more people who would like to be working full time and have been able to find only part-time work, according to the government's monthly survey of workers. The rapid increase in their ranks and in the officially unemployed has caused the rate to rise much faster in this recession than in the early 1980s. Two years ago, it was only 8.2 percent.

One of the more striking aspects of the Great Recession is that most of its impact has fallen on a relatively narrow group of workers. This is evident primarily in two ways.

First, the number of people who have experienced any unemployment is surprisingly low, given the severity of the recession. The pace of layoffs has increased, but the peak layoff rate this year was the same as it was during the 2001 recession, which was a fairly mild downturn. The main reason that the unemployment rate has soared is the hiring rate has plummeted.

So fewer workers than might be expected have lost their jobs. But those without work are paying a steep price, because finding a new job is extremely difficult.

Second, wages have continued to rise for most people who still have jobs. The average hourly wage for rank-and-file workers, who make up about four-fifths of the work force, actually accelerated in October, according to the new report.

Even though some companies have cut the pay of workers, the average hourly wage has still risen 1.5 to 2.5 percent over the last year, depending on which government survey is examined. Average weekly pay has risen less — zero to 1 percent — because hours have been cut. But average prices have fallen. Altogether, the typical worker has received a 1 to 2 percent inflation-adjusted raise over the last year.

In the other two severe recessions in recent decades, workers with jobs fared considerably worse. At the same point in the mid-1970s downturn, real weekly pay had fallen 7 percent; in the early 1980s recession, it had fallen 4 percent.

It is a strange combination: workers who still have a job are doing better than in other deep recessions, but the unemployment and underemployment have risen to their highest level since the Depression.

from City Journal, 2009-Autumn, by Steven Malanga:

Feral Detroit
Nature is reclaiming the Motor City.

We usually apply the word “feral,” which means “reverting to a wild state,” to domesticated animals that are abandoned and must survive on their own. But in rapidly shrinking Detroit, where tens of thousands of structures have sat empty for years, people are starting to describe houses and neighborhoods as feral—that is, as places where human activity ceased so long ago that nature has reclaimed them.

Two Detroit residents writing for the blog Sweet Juniper describe these feral houses as places that “for a few beautiful months during the summer . . . disappear behind ivy or the untended shrubs and trees planted generations ago to decorate their yards. The wood that frames the rooms gets crushed by trees. . . . The burnt lime, sand, gravel and plaster slowly erode into dust.” The bloggers' striking photos show long-neglected houses completely enclosed in vegetation; only the outline of the architect's design suggests something created by man buried beneath.

Feral houses are perhaps the most visible sign of Detroit's long decline, and their troubling numbers are starting to create talk within the administration of Mayor Dave Bing, who is running for reelection in November, that the city must shrink to survive. Bing, the former National Basketball Association great who first won the mayor's office in a special May election to replace the disgraced Kwame Kilpatrick, recalls how, during the campaign, he would travel through neighborhoods where only a house or two remained occupied on each block, where weeds had reclaimed abandoned lots, and where storefronts sat empty. Today, officials estimate, the city contains an astonishing 70,000 abandoned structures—many of them houses, but also some commercial properties. In downtown Detroit alone, a local newspaper identified 48 office buildings with “no outward sign of life.”

That's not surprising, considering how many people have fled Detroit over the decades. Over the last half-century, the city's population has shrunk by 50 percent, from about 1.8 million people to fewer than 900,000. Since 2000, the city has lost 35,000 residents. Detroit officials acknowledge that they see little prospect for a population turnaround soon.

Though any plan to downsize Detroit—a city where people now use only half the acreage within its boundaries—would be complicated, expensive, and time-consuming, it would let the city focus its resources, including crime-fighting and redevelopment efforts, where they could do the most good. The first phase in such a plan would involve tearing down abandoned houses and other empty structures that serve as focal points for criminal activity. But that itself is a daunting task. City officials say that it takes an average of $10,000 to demolish an abandoned house, which makes the city's long-term tab potentially north of $700 million. This summer, Detroit used federal grants to start the task, demolishing some 226 abandoned houses in areas near neighborhood schools to reduce criminals' opportunities to prey on schoolchildren.

Downsizing Detroit also presents political obstacles. Officials must identify neighborhoods whose city services would be withdrawn and whose residents would be relocated, a process certain to set off political fireworks. A summer series in a Detroit newspaper quoted some residents of desolate neighborhoods as welcoming such relocation efforts; others vowed to resist.

Yet doing nothing is no longer an option: the city's economic and fiscal woes are already forcing deep cuts in services. Detroit's board of education, for instance, resisted downsizing for years and continued until 2007 to operate a school system with a capacity for 160,000 students, even though just 115,000 students attended that year. The hemorrhaging budget finally forced the city to close some 40 schools. But the system still faces insolvency and is even considering a bankruptcy filing. Similar budget crises will require rolling back various other essential services, from police and fire to sanitation.

Though some blame Detroit's population losses on larger economic forces, economists Edward Glaeser and Andrei Shleifer argue in a groundbreaking paper that the city's problems are mostly self-inflicted. (The paper, called “The Curley Effect,” gets its name from legendary Boston mayor James Curley, who favored Irish residents and pushed other groups out.) After winning election in 1973, Detroit's first black mayor, Coleman Young, consolidated his power, driving white residents, who had voted against him, out of the city by withdrawing services from their neighborhoods. Eventually, Glaeser and Shleifer write, Detroit became “an overwhelmingly black city mired in poverty and social problems”—and shrinking fast.

Steven Malanga is the senior editor of City Journal and a senior fellow at the Manhattan Institute. He is the author of The New New Left.

from the Telegraph of London, 2009-Sep-14, by Henry Samuel:

Nicolas Sarkozy wants to measure economic success in 'happiness'

Nicolas Sarkozy has cemented the French reputation for enjoying the good life by proposing the country's economic progress should be measured in "happiness".

Paris -- The French president has announced a "revolutionary" plan to make joy and wellbeing the key indicators of growth, rather than traditional yardsticks like a country's gross domestic product (GDP).

The new assessment will be based on figures relating to work-life balance, recycling, household chores and even levels of traffic congestion.

Critics have pointed out that measuring "happiness" will make France's struggling economy, famous for its short working week and generous social benefits, look better.

Mr Sarkozy asked US economist Joseph Stiglitz, winner of the 2001 Nobel economics prize and a critic of free-market economists, and Armatya Sen of India, who won the 1998 Nobel Prize for work on developing countries, to come up with the new measures.

Their report recommended a shift in emphasis on gross domestic product to ones which measure wellbeing and "sustainability".

Mr Sarkozy said he would "fight to make all international organisations change their statistical systems by following the recommendations" of the report.

He said: "A great revolution is waiting for us. For years, people said that finance was a formidable creator of wealth, only to discover one day that it accumulated so many risks that the world almost plunged into chaos.'

"The crisis doesn't only make us free to imagine other models, another future, another world. It obliges us to do so."

When the measures are adopted, France will move a step closer to the remote Himalayan kingdom of Bhutan, currently the only country in the world which puts happiness at the heart of government policy.

In Bhutan, the government must consider every policy for its impact on "Gross National Happiness". This has led to a ban on advertising, wrestling channels, plastic bags and traffic lights.

Mr Sarkozy told a packed hall at Paris' Sorbonne university the world could have predicted last year's economic crisis if it had looked at happiness, wellbeing and sustainability.

The French government is now planning to include many of the "happiness" indicators in its regular growth statistics.

His report explains that dry economic statistics alone are no longer sufficient. "Traffic jams may increase GDP as a result of the increased use of gasoline, but obviously not the quality of life," it writes.

The report also suggests "measuring the proportion of one's time in which the strongest reported feeling is a negative one", such as pain or worry. Conversely, positive emotions such as joy should also be charted.

Leisure should be part of the equation too as "consuming the same bundle of goods and services but working 1,500 hours a year instead of 2,000 hours a year implies an increase in one's standard of living".

More prominence should be given to the distribution of income and wealth, as well as to access to education and health.

Others aspects to be factored in are hobbies, social relationships and levels of personal debt.

Sustainability is vital, said the report, to factor in countries or individuals who over-consume their economic wealth or damage the environment for the future.

The president is rumoured to have delayed the report's release as he thought discussing happiness in the depths of the economic crisis might have been unpopular.

But with France showing timid signs of recovery, the president decided the world was ready.

from the Wall Street Journal, 2009-Sep-28, by Brian Domitrovic:

Gross Domestic Happiness?
Why the French want to redefine economic growth.

French President Nicolas Sarkozy recently said he wanted the nations of the world to stop using GDP, or gross domestic product, as the main measure of their economic performance. He wants them instead to work up another metric that takes into account not only economic production but such things as environmental quality and even time not spent in traffic—a sort of gross national satisfaction index.

France has excellent reason to suppress GDP statistics. Since 1982, among developed nations, France has been a clear laggard in GDP growth. In the quarter century following 1982, France's GDP growth rate was a mere 2.1% per year in comparison to the U.S.'s 3.3%. Thus the U.S. grew at more than a 50% premium to France per year during that span. When the quarter century elapsed, Americans were one-third richer than the French.

France also lagged Britain, which over the 25-year period grew at 2.8% per year. Germany matched the French rate of 2.1%, but it had a good reason. A few years in, it had to absorb the post-communist economic basket case that was East Germany. About the only thing France can say about its GDP performance since 1982 is that it beat Italy's, which came in at a measly 1.8% per year.

France's poor GDP showing over this period was in stark contrast to the 1950s and 1960s, when it had long stretches of GDP growth at 6% per year. By the early 1980s, its GDP per capita was nearly that of the U.S. In other words, France achieved prosperity equal to what was enjoyed in America and then lost it.

There is a clear reason the inflection point was 1982. At that time, France chose not to participate in an international wave and transform its economy with a free-market revolution. In the early 1980s, Margaret Thatcher in Britain and Ronald Reagan in the U.S. shed governmental regulations on the economy, cut taxes, committed to not manipulating their currencies, and encouraged global trade. Their economies boomed, as did the economies of countries that followed their lead, such as South Korea and Taiwan.

In contrast, countries of "old Europe" such as France and Italy that were content to stand pat with an overregulated private sector and tax rates well above 50% were left in the dust. In 2003, as the Iraq war got going, France complained that the U.S. was the world's "hyperpower." Yet France itself was partly responsible for this fate. Had France committed to achieving high GDP growth via free-market incentives as the U.S. had in the 1980s and 1990s, it would have been appreciably richer in the 21st century, and thus a greater force in international power politics.

If Mr. Sarkozy's statisticians ever come up with their new economic index, they should be sure it includes leisure time—because that is one thing the French economy excels at producing. In 2004, the year he won the Nobel Prize, economist Edward Prescott asked, in the title of a journal article, "Why Do Americans Work So Much More Than Europeans?" The answer, he found, was tax rates.

Tax rates had fallen so much in the U.S. by that year that the American workforce couldn't wait to get on the job—or start a business—because you got to keep so much of what you earned. In contrast, high and progressive French taxes left over from the 1970s lured people away from work, especially as they started doing well. So people came to take seven-hour days and six-week vacations, as well as not show any particular interest in striking out on their own in a work-intensive small business.

The oldest and most pathetic trick in the book when you lose a contest is to try to move the goal posts. GDP statistics of the past quarter century have shamed France but flattered the U.S., Britain and East Asia. Mr. Sarkozy's gambit to paper over this real difference will be lucky to find any takers.

Mr. Domitrovic teaches at Sam Houston State University. He is author of "Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity," just out from ISI Books.

from the Guardian of London, 2009-Nov-2, by Julia Kollewe:

US businesses at risk as lender CIT Group files for bankruptcy

• Restructure enables CIT to cut debt and continue trading
• US taxpayers stand to lose last year's $2.3bn state bailout

Thousands of small and medium-sized businesses in the US face financial difficulties and could go out of business after lender CIT Group filed for bankruptcy protection last night.

Although the company will keep operating, it is unlikely to be able to make the same number of loans as before. CIT provides working capital to small firms such as shops, their suppliers and restaurants, many of whom are already struggling in the recession.

In one of the the biggest corporate failures in US history, CIT made its filing in the New York bankruptcy court yesterday, after a debt-exchange offer to bondholders failed. CIT said most of its bondholders have agreed a prepackaged reorganisation plan which will reduce total debt by $10bn (£6.1bn) while allowing the company to continue to do business.

The collapse is also bad news for US taxpayers, who stand to lose the $2.3bn provided last year to prop up the troubled lender.

Creditors will end up owning the company, while common and preferred shareholders – including the US government – will be wiped out by the plan. This is the government's biggest loss yet through its Troubled Asset Relief Programme (Tarp).

"The decision to proceed with our plan of reorganisation will allow CIT to continue to provide funding to our small business and middle-market customers, two sectors that remain vitally important to the US economy," said CIT's chairman and chief executive, Jeffrey Peek, who will step down by the end of the year.

But retail trade groups are worried that many shops will be left without financing – and stock – ahead of the crucial Christmas season, with traditional banks also cutting back credit.

CIT has provided funding to 2,000 firms that supply merchandise to more than 300,000 stores. About 60% of America's apparel industry depends on CIT for financing.

Harold Reichwald of law firm Manatt, Phelps & Phillips, said CIT's case is likely to force the company's customers to look elsewhere for financing.

"If I was a small businessman, I would say to myself, 'I have to find alternatives'," he said. "In this marketplace, there aren't a lot of alternatives."

from the Wall Street Journal, 2009-Oct-24, by Kimberley A. Strassel:

Business Fights Back
His organization under attack by the White House, the president of the Chamber of Commerce stands by his defense of free enterprise.

"One thing I can tell you: They can go out and chase me and chase the Chamber and put stuff in the newspaper. It only . . . drives more and more support. . . . You think we are going to blink because a couple of people are out shooting at us? Tell 'em to put their damn helmets on."

Them's fighting words, all the more so when delivered in the feisty, New York accent of U.S. Chamber of Commerce President Tom Donohue. The 71-year-old was recruited 12 years ago in order to revitalize a drifting business lobby. And the gregarious chief hasn't disappointed: He's grown the Chamber's membership, tripled its budget, transformed its lobby shop, and increasingly thrust it into the political fray. Most recently he's ginned up opposition to union "card check," the Environmental Protection Agency's (EPA) plans to regulate carbon emissions, and parts of the proposed financial overhaul.

The Obama administration's response has been to treat the Chamber like it has Fox News Channel: with brass knuckles. It has launched a campaign to undermine the organization by making CEOs think twice about associating with it. President Obama has openly criticized the Chamber, while adviser Valerie Jarrett has dismissed it as "old school" and acknowledged that the White House is bypassing it to work individually with CEOs.

When several major companies—including Exelon, Apple and Nike—ostentatiously quit the Chamber several weeks ago, provoking a flurry of unflattering headlines, it seemed no coincidence. Mr. Obama's allies in the unions, the trial bar and green lobbies have targeted the Chamber, some of its members, and Mr. Donohue personally.

For a man who prides himself on working both sides of the aisle, the Chamber these days is not a fun place for Mr. Donohue. Then again, he has an Irish temper and doesn't shrink from a brawl. At least for now, he's showing no signs of muting the Chamber's message.

"I did an interview a couple of week ago, and somebody said, 'Well, the White House says that you've become Dr. No and you are going to lose your seat at the table.' And I said, 'The White House doesn't give out the seats at the table. The seats at the table go to the people who have a rational policy, who have strong people to advance that policy, that have a strong grass-roots system, that have the assets to support their program, and that are willing to play in the political process," Mr. Donohue remarks, sitting in his office, which looks across Lafayette Park to the White House.

"The bottom line is you can't do this job if you are squeaky about all that stuff. My job is to represent the American business community in an honorable way, to present their interests in a way that I really think is good for them and good for this country. And," he adds with a pointed look, "I plan to keep doing it."

One irony of the Obama administration's demonization campaign is that Mr. Donohue is hardly a right-wing ideologue. There was a day, in the 1970s and 1980s, when the Chamber fought for limited government. But starting in the 1990s, the group became more interested in using Washington to forward a narrower corporate self-interest.

Mr. Donohue, who spent 13 years at the head of the American Trucking Association, also points out that the Chamber has done plenty to help the current administration. It supported last year's bailout funds ("we had to stabilize the banks"); the stimulus ("we could have gone into a real depression if there wasn't some confidence, some belief we could get over the next hump"); the auto bailouts ("this was a bellwether of the American company"), and even cash for clunkers.

If anything, the Chamber has irked conservatives with support of key aspects of the Obama agenda. Corporate America wants government to ease health-care costs, and the Chamber lobbied for a bill--at least until August, when it unleashed ads critical of the bloated Democratic proposals. Corporate America also wants the certainty of a cap-and-trade bill, and the Chamber has dutifully pushed for what Mr. Donohue describes as a "rational climate bill that keeps people employed, that uses our technology, that encourages global agreement and that is done by the Congress—not the EPA."

The Chamber, Mr. Donohue says unapologetically, has "built a great deal of goodwill . . . by representing companies on the broad issues that we have defined, and working real hard to come to a common benefit where most people benefit more than 80%." He continues: "People have criticized us for helping industries or individual companies. What the hell do you think we do? That's our business!" If health-care and climate-change legislation do pass, Mr. Donohue argues, they will be "much, much, much better than they ever would have been if we had sat here on our hands."

What really seems to bother the White House is less Chamber ideology than its effectiveness. "They are going to have to go after somebody, right? Of course they are going after the individual ones, the bankers, and the insurers—and that's after they made deals with them. But who would you go after? Companies can't do this themselves . . . When it gets tougher, we get in."

Going after the Chamber is nonetheless a risk. The lobby works with a lot of Congressional Democrats from swing districts. Those pols face tough races next year, and Chamber support can help them raise money and protect against GOP attacks. The White House campaign gives GOP candidates an opening to point out how much Democrats dislike business.

The Obama team has already had one bruising experience with the Chamber's power over card check, Big Labor's priority of getting rid of secret ballots in union elections. The Chamber launched a full-scale campaign against the union-backed bill with the Orwellian name, the "Employee Free Choice Act."

Mr. Donohue is blunt, singling out the SEIU, the Teamsters and other unions: "What they are trying to do is change the rules." Why? "They want a hell of a lot more members, so they can have a hell of a lot more political influence, so they can change the way this country runs."

He takes some credit for the fact that swing-state Democrats have backed away from that vote. "The labor unions spent $240 million . . . and they figured, well, we got the Senate, and we got the House, and we got the presidency, let's go do this thing. What they forgot were 300 million Americans and all kinds of people in this town who represent them, and that a lot of members were elected in red states as Democrats and have got to go back and run again there. So we got into this deal, spent some money—by the way, good manners, high integrity, very aggressive—and it's stuck against the wall right now. Some people are walking around about a compromise. There ain't gonna be a compromise! There's not the votes for that thing."

The Chamber has also irked the White House with its ads against the Consumer Financial Protection Agency, taking on the proposed agency's powers to regulate any business that extends credit to consumers—including butchers and bakers. Mr. Obama denounced the Chamber by name and called the ads "false."

Mr. Donohue says he recently talked to Mr. Obama's economic adviser Larry Summers in Colorado, who was upset about the ads as well. "I looked at those ads, they weren't disingenuous. Maybe they picked out a few things here and highlighted them that weren't the most important things. But those things are gone out of the bill now. When you are in a debate you don't always like what the other guy says."

Where the fight has become especially rough is over climate change. While supporting cap-and-trade legislation, the Chamber opposes the EPA's "endangerment" finding, which would allow the agency to unilaterally regulatecarbon.

The Chamber thinks it bad precedent to allow the EPA to stretch the Clean Air Act to encompass carbon. "It would put them in charge of every major construction and rehab project, every road, every bridge, every port, every big building. I mean, you wanna put people out of work?" Mr. Donohue says. "They'd have to hire an army—which they'd probably unionize—to do the permits."

Last year, the Chamber asked the EPA to hold a hearing on "endangerment." The goal was not to debate overall climate science, but to force the EPA to demonstrate, as a matter of law, that carbon is dangerous. Then in September, the Chamber's senior vice president for environment, Bill Kovacs, made the mistake of suggesting the hearing might be like a "Scopes monkey trial" on the science.

"My first inclination was to cut his head off, but then I remembered that I run my mouth on a regular basis. So I said, we owe you a few, forget it, now shut up and don't say that again. Because we lost the focus on why we are doing this."

The comment gave several companies an excuse to bail. Does he worry others will leave? "Give me a break, will you? We have 300,000 members. We can legally represent three million people," he retorts. "Now, I've been here for 12 years, and we lose four members every week! And we sign up six."

He also notes that the idea that every member is always going to agree on every policy is ludicrous. "Bring 10 people to Thanksgiving dinner. Can you agree on anything? You try to take, let's just say for the hell of it, one thousand core members. Let's get them to agree on where to go to lunch, what day it is, how we should approach global warming or medical care. Holy (bleep)! So we have a system here and it works. And sometimes people aren't always happy, but most companies look at this and say 'Okay, I've got seven major issues. So I have a little disagreement on this one, but I'm getting along well on those.'"

He doesn't dwell on it, but Mr. Donohue has himself been a target, including by the National Resources Defense Council, which has accused him of a conflict of interest because of his seat on the board of directors of Union Pacific, a company that would be affected by climate-change legislation. He thinks "personal attacks" are out of order, vowing "I won't do it to them. We could. I won't."

The White House's war on the Chamber has come just as the group is launching a new $100 million campaign promoting free enterprise.

"We want to encourage and promote and educate and get a bunch of enthusiasm behind . . . the free enterprise system with free capital markets and free trade and the ability to fail and fall right on your ass and get up and do it again!" he says.

The belief in that system, Mr. Donohue says, has been eroded by the recession and subsequent criticism of the free market. "The purpose of this is to get out of the doldrums! Quit sulking and worrying." He hopes the campaign will remind Americans that "We created 20 million jobs in the '90s, we can do it again. We don't have to do it exactly like that—Adam Smith didn't have a BlackBerry—but we ought to pay attention to what made it work."

Some Democrats who have been demagoguing business view the campaign as a poke in the eye, and the White House's Ms. Jarrett has criticized it. "It's not an attack on anyone," he insists. "We're just asking Americans of every form, shape, size, weight and responsibility to take a look at it. If this . . . system works so well, why don't we think about how we could use it to our benefit now."

The Chamber is three years away from its 100th anniversary, and the "Dream Big" campaign is aimed in part at ensuring that birthday is worth celebrating. "The people that started this thing and came here and did it, they left a legacy that can be seen in the American economy and American achievement and I'm not going to screw it up."

He ends our meeting with a grin and cheerful warning: "This is a great place. If you walk on our lawn, we're going to turn on the sprinklers."

from the Wall Street Journal, 2009-Oct-17, p.A12:

Cash for Clubbers
Congress's fabulous golf cart stimulus.

We thought cash for clunkers was the ultimate waste of taxpayer money, but as usual we were too optimistic. Thanks to the federal tax credit to buy high-mileage cars that was part of President Obama's stimulus plan, Uncle Sam is now paying Americans to buy that great necessity of modern life, the golf cart.

The federal credit provides from $4,200 to $5,500 for the purchase of an electric vehicle, and when it is combined with similar incentive plans in many states the tax credits can pay for nearly the entire cost of a golf cart. Even in states that don't have their own tax rebate plans, the federal credit is generous enough to pay for half or even two-thirds of the average sticker price of a cart, which is typically in the range of $8,000 to $10,000. "The purchase of some models could be absolutely free," Roger Gaddis of Ada Electric Cars in Oklahoma said earlier this year. "Is that about the coolest thing you've ever heard?"

The golf-cart boom has followed an IRS ruling that golf carts qualify for the electric-car credit as long as they are also road worthy. These qualifying golf carts are essentially the same as normal golf carts save for adding some safety features, such as side and rearview mirrors and three-point seat belts. They typically can go 15 to 25 miles per hour.

In South Carolina, sales of these carts have been soaring as dealerships alert customers to Uncle Sam's giveaway. "The Golf Cart Man" in the Villages of Lady Lake, Florida is running a banner online ad that declares: "GET A FREE GOLF CART. Or make $2,000 doing absolutely nothing!"

Golf Cart Man is referring to his offer in which you can buy the cart for $8,000, get a $5,300 tax credit off your 2009 income tax, lease it back for $100 a month for 27 months, at which point Golf Cart Man will buy back the cart for $2,000. "This means you own a free Golf Cart or made $2,000 cash doing absolutely nothing!!!" You can't blame a guy for exploiting loopholes that Congress offers.

The IRS has also ruled that there's no limit to how many electric cars an individual can buy, so some enterprising profiteers are stocking up on multiple carts while the federal credit lasts, in order to resell them at a profit later. We should note that some states, such as Oklahoma, have caught on to the giveaway and are debating whether to cancel or limit their state credits. But in Congress they're still on the driving range.

This golf-cart fiasco perfectly illustrates tax policy in the age of Obama, when politicians dole out credits and loopholes for everything from plug-in cars to fuel efficient appliances, home insulation and vitamins. Democrats then insist that to pay for these absurdities they have no choice but to raise tax rates on other things—like work and investment—that aren't politically in vogue. If this keeps up, it'll soon make more sense to retire and play golf than work for living.

from the Wall Street Journal, 2009-Oct-20, p.A20:

Another Hollywood Story
It's in Iowa, but it's no field of dreams.

One of the things we like most about Hollywood is the fact that so many people there share our preference for relatively lower rates of taxation. The big difference is that we say it loud and proud in these columns, and they sneak around in back alleys, so to speak, looking for tax breaks.

The latest evidence appeared on the Journal's front page yesterday, detailing the state of Iowa's hapless tax-credit program to lure Hollywood productions to the state. Needless to say, it worked until it blew up.

Hollywood production companies live out their lives in an Odysseus-like quest for low-tax locations to make films and TV programs. They'll go to Iowa, Louisiana, cross the border to Canada, even do business in New York City, so long as the Big Apple lets Hollywood off the high-tax hook it uses on people who live there.

Hollywood's biggest stars are the political world's biggest thumpers for luxe government and the candidates who will deliver it, except when they have to do real work. Iowa's program lured Tinsel Town with a whopping 50% tax credit for production costs in the state—payroll, food, living expenses. They even let the Rodeo Drive tax refugees apply the credit to the purchase of a car. In this field of schemes, one director bought a new Mercedes. Iowa's cash for clunkers.

Now the Iowa program is falling apart amid allegations of weak oversight and abuse—the usual problems that occur when a tax system loads up its survival on loopholes. Iowa's Democratic Governor Chet Culver has temporarily suspended the tax-credit program, asserting, "Iowans will not be taken for suckers." We knew that, but what about Iowa's politicians?

The larger issue beneath the Iowa fiasco has to do with using tax credits as a policy tool. Almost without exception, we think tax credits are bad policy. Politicians come to think of them almost literally as pots of gold at the end of their favorite rainbow, as the Obama Administration is doing for "green" technology and green everything.

It's an idea that eventually breeds inefficiency, high cost and even corruption. This is where we'd normally propose a lower, flatter, simpler tax system as the alternative to this recurring mess, but oh, never mind.

from the Associated Press, 2009-Oct-29, by Brett J. Blackledge and Matt Apuzzo:

Stimulus jobs overstated by thousands

WASHINGTON - An early progress report on President Barack Obama's economic recovery plan overstates by thousands the number of jobs created or saved through the stimulus program, a mistake that White House officials promise will be corrected in future reports.

The government's first accounting of jobs tied to the $787 billion stimulus program claimed more than 30,000 positions paid for with recovery money. But that figure is overstated by least 5,000 jobs, according to an Associated Press review of a sample of stimulus contracts.

The AP review found some counts were more than 10 times as high as the actual number of jobs; some jobs credited to the stimulus program were counted two and sometimes more than four times; and other jobs were credited to stimulus spending when none was produced.

For example:

—A company working with the Federal Communications Commission reported that stimulus money paid for 4,231 jobs, when about 1,000 were produced.

—A Georgia community college reported creating 280 jobs with recovery money, but none was created from stimulus spending.

—A Florida child care center said its stimulus money saved 129 jobs but used the money on raises for existing employees.

There's no evidence the White House sought to inflate job numbers in the report. But administration officials seized on the 30,000 figure as evidence that the stimulus program was on its way toward fulfilling the president's promise of creating or saving 3.5 million jobs by the end of next year.

The reporting problem could be magnified Friday when a much larger round of reports is expected to show hundreds of thousands of jobs repairing public housing, building schools, repaving highways and keeping teachers on local payrolls.

The White House says it is aware there are problems. In an interview, Ed DeSeve, an Obama adviser helping to oversee the stimulus program, said agencies have been working with businesses that received the money to correct mistakes. Other errors discovered by the public also will be corrected, he said.

"If there's an error that was made, let's get it fixed," DeSeve said.

The White House released a statement early Thursday that it said laid out the "real facts" about how jobs were counted in the stimulus data distributed two weeks ago. It said that had been a test run of a small subset of data that had been subjected only to three days of reviews, that it had already corrected "virtually all" the mistakes identified by the AP and that the discovery of mistakes "does not provide a statistically significant indication of the quality of the full reporting that will come on Friday."

The data partially reviewed by the AP for errors included all the data presently available, representing all known federal contracts awarded to businesses under the stimulus program. The figures being released Friday include different categories of stimulus spending by state governments, housing authorities, nonprofit groups and other organizations.

As of early Thursday, on its recovery.org Web site, the government was still citing 30,383 as the actual number of jobs linked so far to stimulus spending, despite the mistakes the White House has now acknowledged and said were being corrected.

It's not clear just how far off the 30,000 claim was. The AP's review was not an exhaustive accounting of all 9,000 contracts, but homed in on the most obvious cases where there were indications of duplications or misinterpretations.

While the thousands of overstated jobs represent a tiny sliver of the overall economy, they represent a significant percentage of the initial employment count credited to the stimulus program.

Tom Gavin, a spokesman for the White House budget office, attributed the errors to officials as well as recipients having to conduct such reporting for the first time.

In fact, the AP review shows some businesses undercounted the number of jobs funded under the stimulus program by not reporting jobs saved.

Here are some of the findings:

—Colorado-based Teletech Government Solutions on a $28.3 million contract with the Federal Communications Commission for creation of a call center, reported creating 4,231 jobs, although 3,000 of those workers were paid for five weeks or less.

"We all felt it was an appropriate way to represent the data at the time" and the reporting error has been corrected, said company president Mariano Tan.

—The Toledo, Ohio-based Koring Group received two FCC contracts, again for call centers. It reported hiring 26 people for each contract, or a total of 52 jobs, but cited the same workers for both contracts. The jobs only lasted about two months.

The FCC spotted the problem. The company's owner, Steve Holland, acknowledged the actual job count is closer to five and blamed the problem on confusion about the reporting.

The AP's review identified nearly 600 contracts claiming stimulus money for more than 2,700 jobs that appear to have similar duplicated counts.

—Barbara Moore, executive director of the Child Care Association of Brevard County in Cocoa, Fla., reported that the $98,669 she received in stimulus money saved 129 jobs at her center, though the cash was used to give her 129 employees a 3.9 percent cost-of-living raise. She said she needed to boost their salaries because some workers had left "because we had not been able to give them a raise in four years."

—Officials at East Central Technical College in Douglas, Ga., said they now know they shouldn't have claimed 280 stimulus jobs linked to more than $200,000 to buy trucks and trailers for commercial driving instruction, and a modular classroom and bathroom for a health education program.

"It was an error on someone's part," said Mike Light, spokesman for the Technical College System of Georgia. The 280 were not jobs, but the number of students who would benefit, he said.

—The San Joaquin, Calif., Regional Rail Commission reported creating or saving 125 jobs as part of a stimulus project to lay railroad track. Because the project drew from two pools of money, the commission reported the jobs figure twice, bringing the total to 250 on the government report. Spokesman Thomas Reeves said the commission corrected the data Tuesday.

from the Associated Press, 2009-Nov-4, by Brett J. Blackledge and Matt Apuzzo:

STIMULUS WATCH: Salary raise counted as saved job

WASHINGTON — President Barack Obama's economic recovery program saved 935 jobs at the Southwest Georgia Community Action Council, an impressive success story for the stimulus plan. Trouble is, only 508 people work there.

The Georgia nonprofit's inflated job count is among persisting errors in the government's latest effort to measure the effect of the $787 billion stimulus plan despite White House promises last week that the new data would undergo an "extensive review" to root out errors discovered in an earlier report.

About two-thirds of the 14,506 jobs claimed to be saved under one federal office, the Administration for Children and Families at Health and Human Services, actually weren't saved at all, according to a review of the latest data by The Associated Press. Instead, that figure includes more than 9,300 existing employees in hundreds of local agencies who received pay raises and benefits and whose jobs weren't saved.

That type of accounting was found in an earlier AP review of stimulus jobs, which the Obama administration said was misleading because most of the government's job-counting errors were being fixed in the new data.

The administration now acknowledges overcounting in the new numbers for the HHS program. Elizabeth Oxhorn, a spokeswoman for the White House recovery office, said the Obama administration was reviewing the Head Start data "to determine how and if it will be counted."

But officials defended the practice of counting raises as saved jobs.

"If I give you a raise, it is going to save a portion of your job," HHS spokesman Luis Rosero said.

The latest stimulus report, released Friday, significantly overstates the number of jobs spared with money from programs serving families and children, mostly the Head Start preschool program. The report shows hundreds of the programs used nearly $323 million to provide pay raises and other benefits to their existing employees.

The raises themselves were appropriate — the stimulus law set aside money for Head Start salary increases — but converting that number into jobs proved difficult. The Obama administration told Head Start officials to consider a fraction of each employee as a job saved.

"That's more than ridiculous," said Antonia Ferrier, a spokeswoman for Republican House Minority Leader John Boehner.

Many Head Start programs around the country went further, counting everyone who received a raise as a job saved.

"It's a glitch in the system," said Ben Allen, the research director at the National Head Start Association. "There was some misunderstanding among some in the Head Start community about completing the reporting requirements."

Allen said a cost-of-living adjustment "may not be viewed traditionally as a job saved, but one could interpret it that, by providing COLA, you're retaining staff."

The Bergen County Community Action Program in Hackensack, N.J., noted the nearly $213,000 it received went to cover raises for existing staff only, but it also reported saving 85 jobs.

At Southwest Georgia Community Action Council in Moultrie, Ga., director Myrtis Mulkey-Ndawula said she followed the guidelines the Obama administration provided. She said she multiplied the 508 employees by 1.84 — the percentage pay raise they received — and came up with 935 jobs saved.

"I would say it's confusing at best," she said. "But we followed the instructions we were given."

Ed DeSeve, who oversees the stimulus at the White House, said the Head Start numbers "represent a few percent of all jobs reported" and said the problems would probably be balanced out by other errors that underreported jobs.

"So we don't expect any corrections to this data to meaningfully impact the total 640,000 direct jobs," DeSeve said.

More than 250 other community agencies in the U.S. similarly reported saving jobs when using the money to give pay raises, to pay for training and continuing education, to extend employee work hours or to buy equipment, according to their spending reports.

Other agencies didn't count the raises as jobs saved, reporting zero jobs.

Last week's stimulus report claimed 640,000 jobs saved or created by the economic recovery plan so far. Those jobs came from 156,614 federal contracts, grants and loans awarded to more than 62,000 recipients, worth a total of $215 billion.

Obama has promised the stimulus would save or create 3.5 million jobs by the end of next year, and the data released Friday represented the first head count toward that goal.

from the New York Times, 2009-Oct-16, p.A17, by Michael Cooper and Ron Nixon:

Job Program Found to Miss Many States That Need It Most

Businesses with federal stimulus contracts have created few jobs in states with the worst unemployment rates, according to data released Thursday by the federal government.

The new jobs reported Thursday come from a small slice of a sliver of the $787 billion stimulus program: the roughly $16 billion worth of stimulus contracts that were awarded directly by federal agencies, of which about $2.2 billion has been spent so far. But the preliminary data represented the first time that the federal government has reported actual job figures, and not just job estimates, and they provided the most complete snapshot yet of how one component of the sprawling program — direct federal contracts — was shaping up.

One thing was clear: while the federal contracts have created or saved 30,383 jobs, they were not directed to states with the highest jobless rates. Businesses in Michigan, whose 15.2 percent unemployment rate in August was the highest in the nation, reported creating or saving about 400 jobs. Businesses in Nevada, which had the next highest unemployment rate, reported 159. And businesses in Rhode Island, which had the third-highest unemployment rate, 12.8 percent, reported the fewest jobs: just six.

More jobs, by contrast, were reported in some of the states with lowest unemployment rates. Businesses in North Dakota, whose 4.3 percent unemployment rate was the lowest in the nation, reported creating or saving 219. The most jobs were reported in Colorado, whose 7.3 percent unemployment rate was below the national average that reached 9.8 percent last month, and where businesses reported creating or saving 4,695 jobs.

In many cases federal agencies could not steer their contracts to high-unemployment areas: the stimulus act gave the agencies money for existing federal programs and priorities. So the roughly $6 billion that the Department of Energy was given to clean up nuclear sites, for example, which was the biggest source of federal contracts, must be spent where the nuclear waste is.

The data yielded some interesting political tidbits. While no Republicans in the House voted for the stimulus bill, the five Congressional districts that appeared to be getting the most money in federal stimulus contracts so far are all represented by Republicans. And though Democrats control the House, it appeared that more money was being spent for work in districts held by Republicans.

The new jobs figures by themselves did not shed much light on the question of how well the stimulus program was accomplishing President Obama's goal of saving or creating 3.5 million jobs over two years. The administration estimates that the program has already created or saved one million jobs — a figure that includes jobs from money that went through states, which will not be reported until the end of the month; layoffs that were averted when the stimulus gave fiscal relief to states; and jobs that were created or saved when people spent their tax cuts or other aid. But with the unemployment rate at 9.8 percent, Republicans are asserting that the program is failing to create enough jobs.

The data posted Thursday on the stimulus Web site, recovery.gov, was preliminary; recipients can still change errors, and government officials said that based on past experience there were likely to be many. But the Web site is part of a pledge by the Obama administration and Congress to make the stimulus spending transparent. It has a map allowing people to see how many contracts were awarded in their states, their Congressional districts, or even in their ZIP codes, and how many jobs the recipients of those contracts are claiming.

White House officials were sensitive to the gulf between the 30,383 jobs in the report and the goal of creating or saving 3.5 million jobs. Jared Bernstein, the chief economist for Vice President Joseph R. Biden Jr., who oversees the stimulus, issued a statement saying that the jobs figure exceeded their expectations but cautioning that “it is too soon to draw any global conclusions from this partial and preliminary data.”

from the Wall Street Journal, 2009-Oct-20, p.A20:

The State of Joblessness
The tragedy of Jennifer Granholm's Michigan.

State lawmakers will soon face large budget deficits again, perhaps as much as $100 billion across the U.S. Here's some free budget-balancing advice: Steer clear of the Michigan model. The Wolverine state is once again set to run out of money, and it is once again poised to raise taxes even as jobs and businesses disappear.

In 2007 Governor Jennifer Granholm signed the biggest tax increase in Michigan history, with most of the $1.4 billion coming from business. The personal income tax—which hits nonincorporated small businesses—was raised to 4.2% from 3.95%, and the Michigan business tax levied a surcharge of 22%. The tax money was dedicated to the likes of education, public works, job retraining and corporate subsidies. Ms. Granholm and her union allies called these "investments," and the exercise was widely applauded as a prototype of "progressive" budgeting.

Some prototype. Every state has seen a big jump in joblessness since 2007, but with a 15.2% unemployment rate Michigan's jobs picture is by far the worst. Some 750,000 private-sector payroll jobs have vanished since the start of the decade. For every family that has moved into Michigan since 2007, two have sold their homes and left.

Meanwhile, the new business taxes didn't balance the budget. Instead, thanks to business closures and relocations, tax receipts are running nearly $1 billion below projections and the deficit has climbed back to $2.8 billion. As the Detroit News put it, Michigan businesses are continually asked "to pay more in taxes to erase a budget deficit that, despite their contributions, never goes away." And this is despite the flood of federal stimulus and auto bailout cash over the last year.

Following her 2007 misadventure, Ms. Granholm promised: "I'm not ever going to raise taxes again." That pledge lasted about 18 months. Now she wants $600 million more. Among the ideas under consideration: an income tax increase with a higher top rate, a sales tax on services, a freeze on the personal income tax exemption (which would be a stealth inflation tax on all Michigan families), a 3% surtax on doctors, and fees on bottled water and cigarettes. To their credit, Republicans who control the Michigan Senate are holding out for a repeal of the 22% business tax surcharge.

As for Ms. Granholm, she and House speaker Andy Dillon continue to bow to public-sector unions. There are now 637,000 public employees in Michigan compared to fewer than 500,000 workers left in manufacturing. Government is the largest employer in the state, but the number of taxpayers to support these government workers is shrinking. The budget deadline is November 1, and Ms. Granholm is holding out for tax increases rather than paring back state government.

The decline in auto sales has hurt Michigan more than other states, but the state's economy would have been better equipped to cope without Ms. Granholm's policy mix of higher taxes in order to spend more money on favored political and corporate interests. If any larger good can come of the experience, it is that Michigan is teaching other states how not to govern.

from the Wall Street Journal, 2009-Oct-15, p.A16:

Acorn's Ally at the NLRB
Obama appoints an SEIU man with ties to Blago.

One of Big Labor's priorities in Washington is to place allies in key government jobs where they can overturn existing labor policy without battles in Congress. This is a very good reason for the Senate to hold a hearing on the nomination of Craig Becker to the National Labor Relations Board (NLRB).

Mr. Becker is associate general counsel at the Service Employees International Union (SEIU), which is most recently in the news for its close ties to Acorn, the disgraced housing shakedown operation. President Obama nominated Mr. Becker in April to the five-member NLRB, which has the critical job of supervising union elections, investigating labor practices, and interpreting the National Labor Relations Act. In a 1993 Minnesota Law Review article, written when he was a UCLA professor, Mr. Becker argued for rewriting current union-election rules in favor of labor. And he suggested the NLRB could do this by regulatory fiat, without a vote of Congress.

Yet now that he could soon have the power to act on this conviction, Mr. Becker won't tell Congress if this is what he still believes. In written responses to questions from Republican Orrin Hatch, Mr. Becker promised only to "maintain an open mind about whether [his] suggestions should be implemented in any manner." That sounds like his mind is made up but he won't admit it lest it hurt his confirmation.

Mr. Becker also won't give a clear answer about his role in preparing several pro-labor executive orders issued by President Obama shortly after inauguration. Mr. Becker's name was found in at least one of the documents, suggesting that he had written it.

When asked by Sen. Hatch if he was "involved or responsible in any way" for these executive orders, Mr. Becker responded: "I was not responsible for [the specific executive orders] except as described below. As a member of the Presidential Transition Team, I was asked to provide advice and information concerning a possible executive order of the sort described. I was involved in researching, analyzing, preliminary drafting, and consulting with other members of the Transition team." In other words, Mr. Becker was the main author but would rather not say so explicitly.

Why not? Well, perhaps because Mr. Becker seems to have been on the SEIU payroll at the time he did his "drafting." Many people take leaves of absence from their private jobs when serving on a transition team, but Mr. Becker says he was on "vacation." And his "vacation" seems to have been sporadic. "My work on the Transition Team was not full time or continuous . . . When I was not on vacation in order to work on the Transition Team, I continued to perform my regular work for both SEIU and the AFL-CIO." The White House has made a public show of banning paid lobbyists from certain Administration jobs, but it let a paid union operative draft government documents benefiting unions.

There's more. One of the many accusations leveled against former Illinois Governor Rod Blagojevich is that he accepted money from the SEIU in return for taking actions giving collective bargaining rights to Illinois home health-care workers. While Mr. Becker denies any knowledge of, or role in, contributions to the former Governor, he does admit that he provided "advice and counsel to SEIU relating to proposed executive orders and proposed legislation giving homecare workers a right to organize and engage in collective bargaining under state law."

Mr. Becker says he "worked with and provided advice" to SEIU Local 880 in Chicago, a beneficiary of the newly unionized health workers, and one of two SEIU locals currently in the national spotlight for its deep ties with Acorn. Mr. Becker denies working for Acorn or its affiliates, but as recently as April Acorn co-founder Wade Rathke praised Mr. Becker by name, noting "For my money, Craig's signal contribution has been his work in crafting and executing the legal strategies and protections which have allowed the effective organization of informal workers, and by this I mean home health-care workers."

The NLRB has both GOP and Democratic members, and nominees are typically packaged together to avoid hearings. In this case, the GOP nominee is Brian Hayes, an aide to Senator Mike Enzi (R., Wyo.), who is eager to see Mr. Hayes confirmed with Mr. Becker and another Democrat, Mark Pearce. But Mr. Becker would sit with the majority, with the ability to dictate labor policy, and the stakes are too high to let him pass without more Senate and public scrutiny.

from the Wall Street Journal, 2009-Oct-11:

Job Creation 101
A hiring tax credit returns from the dead.

The White House is finally coming to realize that taxes affect job creation. Terrific. Its solution seems to be to bribe employers for hiring new workers, albeit only for a couple of years. Less than terrific.

Alarmed by the rising jobless rate, Democrats are scrambling to "do something" to create jobs. You may have thought that was supposed to be the point of February's $780 billion stimulus plan, and indeed it was. White House economists Christina Romer and Jared Bernstein estimated at the time that the spending blowout would keep the jobless rate below 8%.

The nearby chart compares the job estimates the two economists used to help sell the stimulus to the American public to the actual jobless rate so far this year. The current rate is 9.8% and is expected to rise or stay high well into the election year of 2010. Rarely in politics do we get such a clear and rapid illustration of a policy failure.

This explains why political panic is beginning to set in, and various panicky ideas to create more jobs are suddenly in play. The New York Times reports that one plan would grant a $3,000 tax credit to employers for each new hire in 2010. Under another, two-year plan, employers would receive a credit in the first year equal to 15.3% of the cost of adding a new worker, an amount that would be reduced to 10.2% in the second year and then phased out entirely. Why 15.3%? Presumably because that's roughly the cost of the payroll tax burden to hire a new worker.

The irony of this is remarkable, considering the costs that Democrats are busy imposing on job creation. Congress raised the minimum wage again in July, a direct slam at low-skilled and young workers. The black teen jobless rate has since climbed to 50.4% from 39.2% in two months. Congress is also moving ahead with a mountain of new mandates, from mandatory paid leave to the House's health-care payroll surtax of 5.4%. All of these policy changes give pause to employers as they contemplate the cost of new hires—a reality that Democrats are tacitly admitting as they now plot to find ways to offset those higher costs.

Alas, their new ideas are little more than political gimmicks that aren't likely to result in many new jobs. Congress doesn't want to give up revenue for very long, so it would make the tax credits temporary. Thus anyone who is hired would have to be productive enough to justify the wage or salary after the tax-credit expires—or else the job is likely to end. An employer would be better off hiring a temp worker and saving on the benefits for the same couple of years.

The tax credit would also inevitably go to some employers already planning to hire, or reward companies that lay off some workers only to hire others to take advantage of the tax credit. And it would reward parts of the country that are growing, such as Texas, at the expense of those that aren't, such as Michigan. In other words, it is a very inefficient business subsidy.

We know all this because a new jobs tax credit has already been tried—in the Carter Administration. In 1977 as he entered the White House, Jimmy Carter proposed a jobs credit and a Democratic Congress passed it. Its unfortunate history was recounted in 1980 by then-Treasury official Emil Sunley in a chapter of "The Economics of Taxation," a book edited by Henry Aaron and Michael Boskin for the Brookings Institution.

As Mr. Sunley summarized: "The impact of the credit on jobs was slight. In many firms those who make hiring decisions did not understand the firm's tax status." He added that, "Because the capital stock is fixed in the short run, to increase employment significantly, demand for output must increase. An incremental tax cut tied to employment will not by itself generate that increase in demand. Moreover, a temporary incremental credit is unlikely to affect significantly the long-run substitution of labor for capital." Call this Job Creation 101.

President Obama first floated the hiring credit in January, but it died after opposition from Democrats who seemed to get the joke. "If you have a company and you're selling fewer shingles, $3,000 isn't going to get you to hire somebody when your sales are shrinking," said Senator Chuck Schumer. Yet now even some Republicans, such as House GOP whip Eric Cantor, are saying they're receptive to the idea. Mr. Cantor ought to know better.

The lack of U.S. job creation is a big problem, but the quickest way Washington could help would be to stop imposing more financial burdens on hiring. And if Democrats really want to reduce taxes on labor, the cleanest way would be to reduce the payroll tax rate. They could finance a permanent payroll cut by using the $300-$400 billion or more in unspent stimulus money, rather than continuing with the transfer payments and pork barrel spending that have failed so miserably to create jobs.

from the Wall Street Journal's Political Diary, 2009-Oct-23, by Joseph Rago:

Bending the Curve - Up

Supposedly the whole point of ObamaCare was to "bend the curve" and reduce the growth rate of health-care spending. Everyone now knows it will do the opposite -- as at least one corner of the Obama Administration is willing to admit.

This week, the Office of the Actuary at the Centers for Medicare & Medicaid Services, or CMS, released a cost estimate for the House health bill. Its projections mostly track those issued by the Congressional Budget Office, but CMS does ask some questions that CBO so far hasn't pursued. The results aren't pretty.

CMS estimates the House bill would add 2.1 percentage points to the (already high) annual growth rate of national health spending. In 2019, when the second decade of ObamaCare would kick in, the bill would add 2.7 points to the growth rate.

CMS also observes that the "game changers" President Obama and especially budget chief Peter Orszag used to promote, like comparative effectiveness research and more wellness programs, are actually nonchangers. They'll save a pitiful $2.1 billion over a decade -- about 0.002% of the $1.042 trillion in new spending authorized by the House bill.

Even the good news isn't so good. CMS says spending growth would be even higher except that so many more people will receive their care from government, allowing Washington to economize through "sizable discounts imposed on providers," which is one way of putting it. (Another way of putting it: Expect long lines and shabbier treatment as fewer doctors are willing to treat government-insured patients.) In fact, CMS estimates that seven years after the bill's provisions take effect, government's share of total health-care spending will have risen to 55% from today's 47%. Single payer, here we come. Single payer, here we come.

The White House is telling nervous Democrats to ignore the report, since the House bill will be merged with others before a final product is completed. As one Hill staffer puts it: "Isn't that a bit like saying don't worry about the ingredients of a cigarette because once we roll them all together it will be healthy for you?"

from the Wall Street Journal, 2009-Oct-28, p.A22:

The WellPoint Revelation
Private insurance premiums could triple under ObamaCare.

Washington is captivated by the Senate melodrama over the so-called public option, salivating at the ring of Harry Reid's political bell (see below). But the most important health-care questions continue to be about the policy substance—particularly those that Democrats don't want asked.

Foremost among them is: How will ObamaCare affect insurance premiums in the private health-care markets? Despite indignant Democratic denials, the near-certainty is that their plan will cause costs to rise across the board. The latest data on this score come from a series of state-level studies from the insurance company WellPoint Inc.

At the request of Congressional delegations worried about their constituents—call it a public service—WellPoint mined its own actuarial data to model ObamaCare in the 14 states where it runs Blue Cross plans. The study therefore takes into account market and demographic differences that other industry studies have not, such as the one from the trade group America's Health Insurance Plans, which looked at aggregate national trends.

In all of the 14 states WellPoint scrutinized, ObamaCare would drive up premiums for the small businesses and individuals who are most of WellPoint's customers. (Other big insurers, like Aetna, focus on the market among large businesses.) Young and healthy consumers will see the largest increases—their premiums would more than triple in some states—though average middle-class buyers will pay more too.

Not even two hours after Wellpoint had presented its materials on the Hill, Democrats were already trashing it—which, considering that it runs to some 238 pages and took weeks to prepare, must have required remarkable powers of digestion and analysis.

"This is yet another insurance-industry report that twists the facts to produce a skewed result," averred Linda Douglass, the White House communications director on health care. Said a spokesman for the Senate Finance Committee, "This is akin to the tobacco companies commissioning another study claiming nicotine isn't addictive and cigarettes don't cause cancer." So in its Saul Alinsky fashion, the White House again attacks the messenger so it can avoid rebutting the message.

In fact, what distinguishes the Wellpoint study is its detailed rigor. Take Ohio, where a young, healthy 25-year-old living in Columbus can purchase insurance from WellPoint today for about $52 per month in the individual market. WellPoint's actuaries calculate the bill will rise to $79 because Democrats are going to require it to issue policies to anyone who applies, even if they've waited until they're sick to buy insurance. Then they'll also require the company to charge everyone nearly the same rate, bringing the premium to $134. Add in an extra $17, since Democrats will require higher benefit levels, and a share of the new health industry taxes ($6), and monthly premiums have risen to $157, a 199% boost.

Meanwhile, a 40-year-old husband and wife with two kids would see their premiums jump by 122%—to $737 from $332—while a small business with eight employees in Franklin County would see premiums climb by 86%. It's true that the family or the individual might qualify for subsidies if their incomes are low enough, but the business wouldn't qualify under the Senate Finance bill WellPoint examined. And even if there are subsidies, the new costs the bill creates don't vaporize. They're merely transferred to taxpayers nationwide—or financed with deficits, which will be financed eventually with higher taxes.

The story is largely the same from state to state, though the increases are smaller in the few states that have already adopted the same mandates and regulations that Democrats want to impose on all states. For the average small employer in high-cost New York, for instance, premiums would only rise by 6%. But they'd shoot up by 94% for the same employer in Indianapolis, 91% in St. Louis and 53% in Milwaukee.

A family of four with average health in those same cities would all face cost increases of 122% buying insurance on the individual market. And it's important to understand that these are merely the new costs created by ObamaCare—not including the natural increases in medical costs over time from new therapies and the like.

Democrats have been selling health care as one huge free lunch in which everyone gets better insurance while paying less. But the policy facts simply don't add up, and Democrats are attacking WellPoint because they don't want anyone to understand what their health-care schemes will mean in practice. Democrats know that if the public is given the facts and the time to consider them, Americans might demand that Democrats stop pushing the country off this cliff and start all over.

from FOXNews.com, 2009-Oct-12, by John Lott:

Baucus Bill Encourages Americans to DROP Insurance Coverage

Mr. President, if this is what you meant when you said that you wouldn't "mess" with people's insurance if they were happy with it, we don't need your help.

What if you, and every member of your family, had the chance to save $4,000 each?. Would you be interested? Under the terms of what's being called "the Baucus bill" -- Washington-speak for the bill the Senate Finance Committee will vote on tomorrow -- that is how much you could save by dropping your health insurance.

People might have thought that health care reform would lead to an increase in the number of people getting health insurance coverage. Indeed, the Congressional Budget Office claims the Senate Finance Committee's health care bill will reduce the number of uninsured in 2019 by about 29 million," but the financial rewards are huge for people if they drop their insurance. Amazingly the CBO makes this prediction of 29 million more insured Americans without ever once analyzing the financial incentive for those who are already insured to drop their insurance.

Consider some numbers. In 2008, the average price of an individual insurance policy was $4,704 and it was $12,682 for a family of four. But the Baucus bill explicitly states that insurance companies "would be prohibited from excluding coverage for pre-existing health conditions."

Thus, you may wait until you have been diagnosed with cancer or are pregnant or have some other problem to purchase insurance. True, there is a fine if you do not buy insurance but it is very small compared to the actual price of the insurance. The fine will eventually reach "$750 per adult in the household. This per adult penalty would also be phased in: For 2013, $0; $200 for 2014; $400 for 2015; $600 in 2016 and $750 in 2017." Even if the cost of insurance didn't rise by 2019, which is extremely doubtful, paying the fine and waiting until you're sick before you got insurance would easily save you $4,000 per person insured. -- Every American could save thousands of dollars, every year, by waiting to buy insurance until they are seriously ill or get pregnant. This would affect a lot of people. Although not everyone may immediately feel comfortable dropping their insurance, especially those with minor health problems, many people will. And more and more will do so as the price of the "same" insurance keeps on increasing.

Could you imagine what it would be like if you could buy auto insurance right after you have had an accident and then be allowed to immediately drop it again once the car was fixed? Everyone would understand that's not how insurance works. The "insurance" fee would be the price of what it costs to get the car fixed plus the administrative costs of handling the "insurance."

The same applies to health care. -- The more people who shy away from buying insurance when they are healthy, the higher the price of insurance will be for those who buy it when they are ill. -- There will be a quick unraveling of the insurance system as everyone suddenly realizes that insurance has become something you only need to buy when you are really sick. Of course, this means that insurance companies will stop insuring people and, instead, health care will be transformed into a fee for service system.

The proposed "Baucus bill" health care reform would thus both dramatically reduce the number of people with insurance and dramatically increase insurance premiums. Of course, that's just the opposite of how the program is being sold.

Mr. President, if this is what you meant when you said that you wouldn't "mess" with people's insurance if they were happy with it, we don't need your help.

John R. Lott, Jr. is a FOXNews.com contributor. He is an economist and author of "Freedomnomics."

from the Wall Street Journal, 2009-Oct-20, p.A20:

Health Costs and History
Government programs always exceed their spending estimates.

Washington has just run a $1.4 trillion budget deficit for fiscal 2009, even as we are told a new health-care entitlement will reduce red ink by $81 billion over 10 years. To believe that fantastic claim, you have to ignore everything we know about Washington and the history of government health-care programs. For the record, we decided to take a look at how previous federal forecasts matched what later happened. It isn't pretty.

Let's start with the claim that a more pervasive federal role will restrain costs and thus make health care more affordable. We know that over the past four decades precisely the opposite has occurred. Prior to the creation of Medicare and Medicaid in 1965, health-care inflation ran slightly faster than overall inflation. In the years since, medical inflation has climbed 2.3 times faster than cost increases elsewhere in the economy. Much of this reflects advances in technology and expensive treatments, but the contrast does contradict the claim of government as a benign cost saver.

Next let's examine the record of Congressional forecasters in predicting costs. Start with Medicaid, the joint state-federal program for the poor. The House Ways and Means Committee estimated that its first-year costs would be $238 million. Instead it hit more than $1 billion, and costs have kept climbing.

Thanks in part to expansions promoted by California's Henry Waxman, a principal author of the current House bill, Medicaid now costs 37 times more than it did when it was launched—after adjusting for inflation. Its current cost is $251 billion, up 24.7% or $50 billion in fiscal 2009 alone, and that's before the health-care bill covers millions of new beneficiaries.

Medicare has a similar record. In 1965, Congressional budgeters said that it would cost $12 billion in 1990. Its actual cost that year was $90 billion. Whoops. The hospitalization program alone was supposed to cost $9 billion but wound up costing $67 billion. These aren't small forecasting errors. The rate of increase in Medicare spending has outpaced overall inflation in nearly every year (up 9.8% in 2009), so a program that began at $4 billion now costs $428 billion.

The Medicare program for renal disease was originally estimated in 1973 to cover 11,000 participants. Today it covers 395,000, at a cost of $22 billion. The 1988 Medicare home-care benefit was supposed to cost $4 billion by 1993, but the actual cost was $10 billion, because many more people participated than expected. This is nearly always the case with government programs because their entitlement nature—accepting everyone who meets the age or income limits—means there's no fixed annual budget.

One of the few health-care entitlements that has come in well below the original estimate is the 2003 Medicare prescription drug bill. Those costs are now about one-third below the original projections, according to the Medicare actuaries. Part of the reason is lower than expected participation by seniors and savings from generic drugs.

But as White House budget director Peter Orszag told Congress when he ran the Congressional Budget Office, the "primary cause" of these cost savings is that "the pricing is coming in better than anticipated, and that is likely a reflection of the competition that's occurring in the private market." The Centers for Medicare and Medicaid Services agrees, stating that "the drug plans competing for Medicare beneficiaries have been able to establish greater than expected savings from aggressive price negotiation." It adds that when given choices "beneficiaries have overwhelmingly selected less costly drug plans."

Yet liberal Democrats fought that private-competition model (preferring government drug price controls), just as they are trying to prevent private health plans from competing across state borders now.

The lesson here is that spending on nearly all federal benefit programs grow relentlessly once they are established. This history won't stop Democrats bent on ramming their entitlement into law. But every Member who votes for it is guaranteeing larger deficits and higher taxes far into the future. Count on it.

from the Los Angeles Times, 2009-Oct-20, by Kim Geiger:

Bill would halt reductions of Medicare payments to doctors

The legislation is designed to bridge the almost $250-billion gap between the healthcare overhaul proposals by the House and the Senate.

Reporting from Washington - In an effort to reconcile a nearly $250-billion difference between the House and Senate approaches to overhauling healthcare, Senate Majority Leader Harry Reid (D-Nev.) is pushing a bill to halt scheduled reductions in Medicare payments to physicians.

The measure, introduced last week by Sen. Debbie Stabenow (D-Mich.), would end the cuts and set Medicare payment rates at current levels. Doing so would allow Democrats to maintain the American Medical Assn.'s support for an overhaul without having to absorb the cost of higher doctor payments in the final healthcare bill.

The current formula imposes cuts to doctors when Medicare spending outpaces growth in the gross domestic product. Each year, Congress intervenes to ignore the cuts -- it sometimes has even increased payment rates -- at the behest of the AMA and other physician groups. The result has been an accumulation of rate cuts totaling 21% next year.

While there is consensus in Congress that the payment system should be fixed, Republicans and some conservative Senate Democrats have said they won't support a bill that adds to the nation's red ink. The proposed change would cost about $245 billion.

"They're doing it so they can say their healthcare plan doesn't add to the deficit," Senate Minority Leader Mitch McConnell (R-Ky.) said Monday. "It's a gimmick, and a transparent one at that."

The House healthcare bills included the fix, which explains in part its $1.042-trillion price tag over 10 years. The bill that passed last week in the Senate Finance Committee instead assumed that the rate cuts would take place in future years, resulting in its $829-billion tab.

Republicans blasted the finance committee bill as disingenuous, and House Majority Leader Steny H. Hoyer (D-Md.) called it a "facade."

To solve the doctor payment issue separately would put the House and Senate healthcare bills on a fairly even footing when it comes to estimating their effect on the deficit.

But the Stabenow approach would simply halt the cuts without any way to offset the cost. Passing such a bill would require 60 votes, which is considered unlikely. Some Democrats, such as budget committee Chairman Kent Conrad (D-N.D.), have said they would withhold their support until Stabenow and Reid can show how they'll pay for it.

On Monday, Reid was negotiating with Senate Republicans to allow some amendments to the Medicare payment bill before bringing it to a vote on the floor. Republicans plan to offer amendments that would help pay for the bill, but could result in another short-term, rather than permanent, fix.

The AMA, which has spent millions of dollars lobbying to eliminate or at least postpone the cuts, has argued that they would force many doctors out of business and would cause others to turn away Medicare patients.

"It's something we've been working for the last seven years," said Dr. J. James Rohack, who heads the AMA. "And Congress has only put temporary Band-Aids on it."

from the Wall Street Journal, 2009-Oct-21:

The Doctor Fix Is In
Adding lots of 'dimes' to the deficit.

President Obama has made serial promises that he will not sign a health-care bill that "adds one dime to our deficits, either now or in the future, period." This was never plausible, but now we can begin to understand what he meant: Democrats plan to make ObamaCare "deficit-neutral" by moving nearly a quarter-trillion dollars off the books, in the fiscal deception of the century.

Later this week, or maybe next, Senate Democrats plan to vote on a stand-alone bill that strips a formula that automatically cuts Medicare physician payments out of "comprehensive" health reform. Rather than include the pricey $247 billion plan known on Capitol Hill as the "doc fix" as part of ObamaCare, they'll instead make this a separate contribution to the deficit, without compensating tax increases or spending cuts. Majority Leader Harry Reid explained at a press conference last week that "All we're doing is wiping the slate clean by adjusting the baseline to what is current policy. This is not new policy."

Wiping the slate is right.

It's true that Congress likes to pretend that the "sustainable growth rate," or SGR, is real. Created in 1997, the SGR slashes Medicare reimbursements if costs rise too steeply, as they always do. In January, doctors fees are scheduled to fall by 21.5%, and 40% over the next five years. That would force many doctors to stop seeing Medicare patients, so Congress intervenes every year and temporarily overrides the cuts.

The American Medical Association's asking price for supporting ObamaCare is scrapping the SGR. House Democrats did just that, but it pushed the total cost of their bill above $1 trillion, a political red line. The Senate Finance Committee chose the subterfuge of fixing the problem for only one year, which is how Chairman Max Baucus could claim he had done the miracle-work of designing an entitlement that reduces the deficit over 10 years. The AMA wasn't pacified.

So now Democrats are simply going to "untether" this spending on doctors from ObamaCare, hiding even more of its true costs. At a meeting on the Hill last week, Mr. Reid and White House Chief of Staff Rahm Emanuel made the quid pro quo explicit, telling the AMA and about a dozen specialty societies that in return for this dispensation they expect them to back ObamaCare, no questions asked.

It turns out the AMA is a cheap date. President J. James Rohack now looks ready to embrace whatever else Democrats offer up, even though the new bill only delays the SGR cuts for 10 years instead of doing away with the formula permanently. Never mind that the AMA's other legislative priority—tort reform—is dead on arrival. ObamaCare is stocked with other provisions that punish doctors, such as a Medicare commission tasked with cutting spending but barred from raising the eligibility age or reducing benefits. In practice, this means it will only be allowed to crank down Medicare's price controls on providers.

Like other industry lobbies, Mr. Rohack seems prepared to trade away his members for a sack of magic beans. We agree that the SGR is a farce that nonetheless has very damaging effects on physician practices, but the least the AMA can do is use its political leverage for something more lasting than a 10-year promise that is bound to be revoked when ObamaCare's costs run off the rails.

The press corps will mostly ignore all of this because it is complicated and boring policy, as opposed to the epic drama of Anita Dunn vs. Glenn Beck. This doctor maneuver is such a cleverly dishonest solution to their many contradictory promises that we're surprised Democrats didn't think of it sooner.

from the Wall Street Journal, 2009-Oct-19, by William Mcgurn:

What Singapore Can Teach the White House
Its health care is first class, cheap and market-driven.

Singapore

Critics of this island-nation often have fun referring to it as the "nanny state" for its laws against spitting, littering, or leaving behind an unflushed loo.

When it comes to health care, however, Uncle Sam has better claim to the nanny title. From our federal price "negotiations" and state regulations to discrimination in the tax code, government distortions prop up a system that puts key health-care decisions in the hands of everyone but the patient. Each new government intrusion, moreover, begets only higher costs—and a call for more intervention to fix the problem.

In Singapore, by contrast, they already have universal coverage. They also have world-class quality care at world-competitive prices. And in a week when White House chief of staff Rahm Emanuel is meeting behind closed doors with Senate Majority Leader Harry Reid, Singapore's example might have something to teach them about the kind of reform Americans really need.

"When I'm asked to describe the differences between the U.S. and Singapore systems, my one-word answer is 'complexity,'" says Dr. Jason Yap, director of marketing for Raffles Hospital, a leading private care facility in downtown Singapore. "There are so many parties in the American system that do not really contribute to care."

Dr. Yap is referring to the higher costs that come from an American system that depends on regulation and oversight to accomplish what Singapore tries to do with competition and choice. At the Raffles lounge for international patients, he shows me an example of the latter. It's a one-page, easy-to-read list of fees.

At the high end of accommodation, a patient can choose the Raffles/Victory suite for about $1,438 per night. That price includes a 24-hour private nurse, a refrigerator stocked with drinks, and an adjoining living room to entertain. At the other end of the scale, a bed in a six-person room goes for just $99.

As Dr. Yap points out, the actual care is the same whether a patient decides to stay in a deluxe suite or a dormitory-style room. But the choice is the patient's; the financial incentives encourage the patient to think about those choices; and the low-priced options help keep the overall costs down.

This is no accident. Like ours, Singapore's system is a mix of public and private care and financing. Unlike ours, Singapore's system is anchored, as the Ministry of Health puts it, "on the twin philosophies of individual responsibility and affordable health care for all."

"Individual responsibility" is not just a buzzword. All but the abjectly poor have to pay for some of their care, another downward pressure on prices. Perhaps most important, almost all working Singaporeans are required to put money in a medical savings account that they use for out of pocket expenses. It's their money, and they control it. As a result, they are careful about spending it.

"In Singapore almost everyone has to pay something for their care," says Dr. Yap. "When it's your money, you really ask yourself: Do I really need this?"

It seems to be working. According to a Raffles Hospital official, a knee replacement surgery runs between U.S. $12,000 and $14,000. Spinal fusion runs between $10,500 and $14,000, and a heart bypass (coronary artery bypass graft) from $23,000 to $26,500. Conservatively speaking, these prices are less than a third of what the same procedure would cost in the U.S.—that is, when you can even get the price.

As any American who has ever tried to make sense of a hospital bill or haggled with his insurance company over a payment can tell you, even for those who have decent coverage our system can be a bureaucratic nightmare. Singapore's system isn't perfect. It does suggest, however, that the Average Joe stands more to gain from a system where hospitals and doctors compete for patients, where patients have different price options for their hospital stays and appointments, and where they pay for some of it out of pocket.

Yes, a city-state with three million citizens has some advantages over a nation of more than 300 million people in 50 states. Yes, health care in Singapore is hardly the laissez-faire ideal. Still, there's intervention and there's intervention: What makes Singapore's health care work is that it is designed to swim with the market and not against it.

In macro terms, that means Singaporeans spend only about 4% of GDP on health care—against 17% for the United States. At the same time, Singapore scores better than the U.S. on life expectancy, infant mortality, and other key international measures.

In his address to Congress last month, President Obama complained that "we spend one and a half times more per person on health care than any other country, but we aren't any healthier for it." That's a good point. And the lessons Singapore has to offer suggests that what Americans need most in Washington today are fewer closed-door meetings and more open minds.

from the Wall Street Journal, 2009-Oct-13:

At the Table, but on the Menu
The health-care industry learns the price of appeasing Congress.

The Senate Finance Committee holds its big health-care vote today, but the bigger story is that the health-care industry may finally be coming to its senses. After months of serving as Rose Garden props, insurers, doctors and hospitals are discovering they've been taken for a ride on ObamaCare. Too bad it may be too late to stop the train.

The best scales-from-the-eyes moment comes courtesy of America's Health Insurance Plans, the industry lobby. Yesterday AHIP released an important PricewaterhouseCoopers study showing that the Finance bill would on average add some $1,700 a year to the cost of family coverage in 2013. A decade from now, family premiums would cost $4,000 more than if Congress did nothing, and singles would pay about $1,500 more. Hardest hit would be the individual market, with rates rising by 49%, but even the largest employers would see increases between 9% and 11%.

The study's findings won't shock anyone who's read the bill's details, but its provenance might: In a deal cut earlier this year, the insurance industry acquiesced to rules requiring them to take all comers, regardless of health status or history, and also charge them more or less the same premiums. In return, Congress would subsidize individuals to buy their products and provide new customers by requiring everyone to buy insurance or pay a tax penalty.

A spokesman for Finance Chairman Max Baucus dismissed the AHIP report as a "hatchet job . . . bought and paid for by the same health insurance companies that have been gouging too many consumers for too long as they stand in the way of reform yet again." Talk about ungrateful. If insurers really had been standing in the way, —or even willing to educate the public about an agenda that will raise consumer prices—ObamaCare might not now be rushing to passage.

The irony is that AHIP is now arguing for a more left-wing bill, claiming the Baucus plan isn't "universal" enough. The Congressional Budget Office thinks it will cover only 91% of the population, in part because Democrats reduced the "individual mandate" tax on people who don't buy insurance.

Now they'll pay only $750 after eight years of noncompliance, from an original maximum of $3,800 in the first year, because taxing people looked bad politically. But without this brute tax force, healthier people will opt out of expensive insurance pools and only buy coverage when they need it. It doesn't take a consulting firm to prove that this is an adverse-selection disaster waiting to happen.

The AHIP study also illuminates the other taxes and regulations that will increase insurance costs and weren't part of the bargain. The 40% excise tax on "Cadillac" health plans—above $8,000 for individuals and $21,000 for families—is structured so that it will ultimately hit the Chevy plans too, much like the alternative minimum tax. Reductions in Medicare payments mean that doctors and hospitals will be forced to raise prices in the private market, which will cause a 1.2% increase in the underlying health costs that drive premiums.

Speaking of providers, the hospitals agreed to $155 billion in Medicare and Medicaid cutbacks, on the theory that they, like the insurers, would also make the revenue up on volume. But since the coverage mandate has become swiss cheese, both the Federation of American Hospitals and the American Hospital Association are also growing more combative behind the scenes.

The American Medical Association may also be having second thoughts. The doctors lobby had endorsed the House health bill because it eliminated the "sustainable growth rate," or SGR, a formula that automatically reduces Medicare payments to doctors when costs run too high. The SGR has been overturned every year since 2003, however, because Medicare price controls are already stringent. Yet eliminating the SGR will cost some $245 billion, and Mr. Baucus wanted to preserve the fiction that his new entitlement will reduce the deficit. So to game the 10-year budget math, he patches the problem only for a single year.

The AMA didn't even play hard to get, but apparently it didn't realize that Democrats want to keep this formula in place. Pretending that doctors will eat a 25%-plus pay cut makes Medicare's fiscal condition seem less dire, and the annual fire drill on the "doctors fix" ensures that campaign contributions keep coming. And here we thought you had to be smart to get into med school.

All of these lobbies should have known better. The insurers have been especially foolish, given that ObamaCare has all along been about converting them into public utilities. Washington will design benefits and set prices—and now there's even talk in the House of a windfall profits tax. The CEOs of Aetna, WellPoint, UnitedHealthcare and the rest deserve to be sued for destroying shareholder value through political malpractice. If nothing else, this exercise provides an object lesson in the wisdom of the Washington adage that "if you're not at the table, you're on the menu." The industry is "at the table"—as the main course.

The tragedy is that the biggest losers will be average Americans, who thanks to this political collusion are likely to end up with insurance that is more expensive and less flexible than even the status quo.

from Politics Daily, 2009-Oct-8, by Wendy Button:

Health Care Speechwriter for Edwards, Obama & Clinton Without Insurance Now

For the first time in my life, I am without health insurance and it is a terrible feeling.

In the past, I paid attention to the health care debate as a speechwriter who prepared speeches, talking points, op-eds, and debate prep material on the topic at different times for John Edwards, Barack Obama, Hillary Clinton and others. Now, I'm paying attention because I'm a citizen up the creek without a paddle.

Throughout my life, I have been very lucky because my insurance has always been there whenever I had a crisis. When my 10-speed hit a patch of leftover winter sand, and I went flying into a telephone pole, it covered the x-rays and stitches and concussion diagnosis. When a half a ton of sheet rock fell on me, my insurance paid for the cast on my foot. When my depression kicked in and I was hospitalized and painting ceramic pieces in art therapy to boost my self-esteem (sheesh), it made sure that when I got home my medical bills didn't make me reach for a razor. And when there were growths in my uterus, it covered that medical procedure and every regular check-up, lab test, broken bone, sports injury, and antibiotic prescription in between.

Since I care more about my country than my personal pride, here's how I lost my insurance: I moved. That's right, I moved from Washington, D.C., back to Massachusetts, a state with universal health care.

In D.C., I had a policy with a national company, an HMO, and surprisingly I was very happy with it. I had a fantastic primary care doctor at Georgetown University Hospital. As a self-employed writer, my premium was $225 a month, plus $10 for a dental discount.

In Massachusetts, the cost for a similar plan is around $550, give or take a few dollars. My risk factors haven't changed. I didn't stop writing and become a stunt double. I don't smoke. I drink a little and every once in a while a little more than I should. I have a Newfoundland dog. I am only 41. There has been no change in the way I live my life except my zip code -- to a state with universal health care.

Massachusetts has enacted many of the necessary reforms being talked about in Washington. There is a mandate for all residents to get insurance, a law to prevent insurance companies from denying coverage because of a pre-existing condition, an automatic enrollment requirement, and insurance companies are no longer allowed to cap coverage or drop people when they get sick because they forgot to include a sprained ankle back in 1989 on their application.

Even if the economy was strong and I was working more, I still couldn't afford my premium. I am not alone; I've got 46 million friends in a similar situation. We wake up every day worried that a bad cough, an accident while walking the dog, or that dreaded pain on the right side of the abdomen will send us into complete financial ruin.

As luck would have it, I didn't schedule a physical before I left D.C. I thought I could get that taken care of when I moved -- after all they had reforms, automatic enrollment, and universal coverage in Massachusetts, all the things I'd written about for politicians. Health care would be affordable. It didn't dawn on me that it would just be affordable for other people.

Now, sharing my experience doesn't make me an expert in health care policy anymore more than my knowledge that Kajagoogoo sings "Too Shy" makes me an expert in music. What my story does is serve as a cautious reminder that we need to get this right, not right away. A rushed bill will have consequences. Reforms will not be cheap and some people may be priced out.

How could all of these weeks and months go by and no one is examining and talking about what has worked and what hasn't worked in Massachusetts?

While the state has the lowest rate of uninsured, a report by the Commonwealth Fund states that Massachusetts has the highest premiums in the country. The state's budget is a mess and lawmakers had to make deep cuts in services and increase the sales tax to close gaps. The number of people needing assistance has at times overwhelmed the state. The mandate means that some people who can't afford insurance are now being slapped with a fine they also can't afford. There is no "public option" in the way the president describes it, no inter-state competition, no pool for small businesses and self-employed individuals like me to buy into groups that negotiate cheaper rates. So far I haven't found any "death panels," but if I get sick and need a hospital, I sure hope I can find one and a feisty granny to pull my plug.

What makes this a double blow is that my experience contradicts so much of what I wrote for political leaders over the last decade. That's a terrible feeling, too. I typed line after line that said everything Massachusetts did would make health insurance more affordable. If I had a dollar for every time I typed, "universal coverage will lower premiums," I could pay for my own health care at Massachusetts's rates.

So far, the most informed and civil discussion I've had about this issue has been with some of the sales representatives with the top providers in Massachusetts as I searched for an affordable plan. Each person I talked to was kind and considerate and truthful. One man said that he prepares everyone for the "sticker-shock," whether they are a family of four or an individual.

Right now, the truth is if I could buy my health plan from D.C., then I would. If I could buy into a public option, co-op, or trigger plan, whatever they want to call it, then I would. If I qualified for the new exchange, then I'd get into that, too, but four years is a long time to go without a physical, pap smear, and to have this mole checked. If someone were to put Medicare for All back on the table, then I would be fine with that too. Honestly, it's starting to make the most fiscal sense: $450 billion we pay to insurance companies could be redirected to Medicare, $350 billion in savings in paper work, and of course that $500 billion in savings for "waste, fraud, and abuse."

If this country is about to gamble a trillion dollars plus -- and it will be a big plus no matter what the Congressional Budget Office projection is -- then why not use a system that already exists? [Ms. Button still doesn't get it at all. -AMPP Ed.] My experience in politics has been any time a politician says $500 billion will come from "waste, fraud, and abuse" that's a fancy way of saying, "Hold on to your wallet; we'll pay for it later."

We have to be careful about how we spend this trillion dollars. Right now, we are $1.4 trillion in the hole and the Senate has been asked to raise the country's debt ceiling to $12 trillion. We are fighting two wars and may increase troop levels in one. We have 250 new Iraq and Afghanistan veterans seeking care from VA facilities every day, and unemployment is headed north, past 10 percent. Has anyone else thought, "Hey wait a minute? Why are we proposing to spend so much on a mess of a plan?"

Why can't Washington look north to Massachusetts? What's the lesson for the nation in its successes and failures: universal coverage first or cost reductions? If health care is a right, then why aren't we starting over with Medicare for All? If health care is a responsibility, then why aren't we changing the system to address that? There is a big red flag planted in the middle of this state and it looks like everyone's just pledging allegiance to it rather understanding the warning in its wave.

For now, I'm going to have to get used to this terrible feeling. I'll eat right. I'll drive 55. I'll keep my dog on a tight heel and pet her to keep my blood pressure down. And I'll hope the economy turns around soon and $6,600 or so a year for health insurance doesn't seem so unaffordable.

I want health care reform. I need it, but I want Washington to start over. It doesn't make me "un-American" or "astroturf" or "racist." I'm a critic because what Washington is talking about doing has made health insurance unaffordable in Massachusetts.

If Washington won't go for a simple clean move to a system like Medicare for All, then it needs to do one reform, one new law, at a time -- not with a 1,000 page bill where strange things can hide. Line up the 80 percent of things we agree on and vote one at a time to change pre-existing conditions, cut that $500 billion in Medicare's "waste, fraud, and abuse," create meaningful lawsuit reform, and add some real competition to insurance companies whether it's a public option or a pilot exchange program. Show the country that this is possible with lower premiums and more efficiency and then go for the tough stuff. Critics like me want something done right because we actually are up the creek without a paddle.

If Congress and the president want to fix health care, then it is time to start over. They need to look at what's worked and what has failed in Massachusetts. They are going to have to actually take former Gov. Sarah Palin's advice and "look north to the future." Who knew that would ever make sense? But if we continue on this current path without looking, it's easy to diagnose what's coming to the country when a health care bill passes.

A mess.

Wendy Button has written for John Edwards, Hillary Clinton, John Kerry, Barack Obama, and Mayor Tom Menino of Boston as well as other national and international leaders, and is working on a book.

from the Boston Globe, 2009-Oct-11, by Liz Kowalczyk:

State plan may place limits on patients' hospital options

The state's ambitious plan to shake up how providers are paid could have a hidden price for patients: Controlling Massachusetts' soaring medical costs, many health care leaders believe, may require residents to give up their nearly unlimited freedom to go to any hospital and specialist they want.

Efforts to keep patients in a defined provider network, or direct them to lower-cost hospitals could be unpopular, especially in a state where more than 40 percent of hospital care is provided in expensive academic medical centers and where many insurance policies allow patients access to large numbers of providers.

But a growing number of hospital officials and physician lead ers warn that the new payment system proposed by a state commission would not work without restrictions on where patients receive care - an issue some providers say the commission and the Patrick administration have glossed over.

“You can't reap these savings without limiting patients' choices in some way,'' said Paul Levy, chief executive of Beth Israel Deaconess Medical Center. “It's a huge issue, it's huge.'' Dr. James Mongan, president of Partners HealthCare, a Beth Israel Deaconess competitor, agreed that it wouldn't “work without some restriction on choice.''

A state commission recommended in July that insurers largely scrap the current fee-for-service system - in which insurers pay doctors, hospitals, and other providers a negotiated fee for each procedure and visit - and instead pay providers a per-patient annual fee to cover all of the patient's medical care.

This new system of “global payments'' would discourage overuse of expensive medical services, force providers to live within a budget, and improve coordination of care for patients, supporters argue.

There is little doubt that the state's current system of broad choice and sometimes uncoordinated care has helped push Massachusetts health care costs above the national average. It can lead to unnecessary duplication of medical tests, when patients see multiple providers, each often unaware of what the others have done. And thousands of residents get knee replacement surgery, have babies at teaching hospitals, or other care, when often a less-expensive hospital would be more economical and provide good-quality care.

In 1990, 36 percent of Massachusetts hospital patients were treated at teaching hospitals, but by 2007 the percentage climbed to 44 percent - more than twice the national average of 19 percent. The percentage of Massachusetts births at teaching hospitals also has increased. Some of this expanded use of teaching hospitals is understandable, because for many Boston residents academic medical centers in their neighborhoods are their community hospitals. In other cases, residents bypass less-expensive community hospitals, but this is a freedom many patients desire.

The Massachusetts proposal would involve a more ambitious restructuring of health care than any of the cost-cutting ideas being discussed in Washington. Under a global payment system, doctors, hospitals, nursing homes, and other providers would form large networks, called accountable care organizations, that would provide most of the care for individual patients and divvy up the payments. Doctors would try to coordinate patients' care within these networks, which would share electronic medical records and treatment plans. And to manage costs, they would try to direct patients to the hospital within the network that could provide good-quality care at the lowest cost, while generally using teaching hospitals for advanced care.

The release of the report sparked a lobbying campaign by Massachusetts health care executives, who are urging Governor Deval Patrick's administration and state legislators to move cautiously because they fear a new payment system could bankrupt some providers and compromise patient care. Many changes recommended by the commission would have to be approved by the Legislature before being put in place.

In its report, the commission, which includes high-ranking Patrick administration officials and legislators, said patients wouldn't necessarily be restricted to providers within their primary care doctor's accountable care organization. And, during a hearing at the State House Thursday, Dr. JudyAnn Bigby, secretary of Health and Human Services, said “the people benefiting from the new system should not even notice it.''

Writing in the New England Journal of Medicine last month, staff writer Dr. Robert Steinbrook said the state commission failed to address the choice issue head-on. Global payments would save money only if networks “limited the volume of services, and denied certain requests from patients and providers,'' among other measures, he wrote. “Since patient choice is such a sensitive issue, the commission waffled.''

But Sarah Iselin, head of the state Division of Health Care Finance and Policy and cochair of the payment commission, said the panel understood the importance of addressing the effect of its recommendations on patient choice, but “felt these issues could be figured out'' later by a board that would be created to oversee the transition to a new payment system.

The commission recommended that all residents choose a primary care doctor, because many patients will listen to their doctor's recommendations about where to get care, she said. Under global payments, those doctors would have an incentive to refer patients within their organization. And, she said, educating patients about low-cost, high-quality providers also will play a major role, and may preclude the need for forced restrictions on choice. “Over time, patients may very well be inclined to go there all by themselves,'' Iselin said.

Even if patients continue to seek basic care at teaching hospitals and go outside their doctors' networks, she said, global payments have the potential to save money in other ways. The state estimates, for example, that reducing preventable hospital stays and emergency room visits would save $1 billion a year.

But Lynn Nicholas, president of the Massachusetts Hospital Association, pointed out that even saving money in these areas requires more coordinated care. One way to address the issue and still give people choices, she said, is for insurers to offer plans that charge higher premiums for unlimited access to providers, and lower premiums for members willing to stay within a defined network.

Many insurers offer these types of limited networks now - premiums are about 15 percent lower than in plans with unlimited access - but they haven't been popular among employers and employees.

Nicholas said that may be because the financial incentives to join plans with limited networks aren't strong enough. She wants providers, insurers, and employers to work together to develop benefit programs that will encourage patients to stay within limited networks.

Another way to cut the cost of academic medical centers is to reduce the prices they are paid. In an analysis done for the state this summer, the RAND Corporation estimated Massachusetts could save $1.3 billion to as much as $18 billion over 10 years if teaching hospital payments for certain conditions were set at average community hospital rates, depending on how many conditions are included.

It's unclear whether the Legislature or the board that would oversee the new payment system would embrace such a controversial change. But the payment commission recommended that the board address in some way the issue of hospitals being paid vastly different amounts for similar care.

During her testimony, Bigby, the state Health and Human Services secretary, said that in the transition to global payments, “we must be careful . . . not to enshrine the inequities that exist in the current system.''

from the Wall Street Journal, 2009-Oct-8, by Kimberley A. Strassel:

States of Personal Privilege
Senators aren't counting on reform savings when it comes to their constituents.

How good is Sen. Max Baucus's health reform bill? So good that Democrats have made sure some of the most costly provisions don't apply to their own states.

The Senate Finance Committee is gearing up for a final vote next week, and Chairman Baucus now appears to have the Democratic votes to pass his bill. Getting this far has of course meant cutting deals, and those deals, it turns out, are illuminating. The senators are all for imposing "reform" on the nation, so long as it doesn't disadvantage their constituents.

A central feature of the Baucus bill is the vast expansion of state Medicaid programs. This is necessary, we are told, to cover more of the nation's uninsured. The provision has angered governors, since the federal government will cover only part of the expansion and stick fiscally strapped states with an additional $37 billion in costs. The "states, with our financial challenges right now, are not in a position to accept additional Medicaid responsibilities," griped Democratic Ohio Gov. Ted Strickland.

Poor Mr. Strickland. If only he lived in . . . Nevada! Senate Majority Leader Harry Reid, who is worried about losing his seat next year, worked out a deal by which the federal government will pay all of his home state's additional Medicaid expenses for the next five years. Under the majority leader's very special formula, only three other states—Oregon, Rhode Island and Michigan—qualify for this perk, on the grounds, as Mr. Reid put it recently on the Senate floor, that they "are suffering more than most."

Tell that to Mr. Strickland, who is still trying to figure out how to close an $850 million budget hole, in a state with near 11% unemployment. And tell it to Republican Sen. Lamar Alexander, who quipped: "I wonder how citizens in Wyoming, in California and Florida and other states will feel if they pay more taxes so that Nevadans can pay less taxes."

To pay the bill for his version of ObamaCare, Mr. Baucus's legislation would tax high-value insurance plans—a 40% tax on plans that cost more than $21,000 a year. Democrats argue it is reform to make those who can afford "luxury" health care chip in for those who can't afford any at all.

That is, unless you live in a state such as New York. That state, along with some others, has many high-value plans—in part because it boasts a lot of union members with "Cadillac" plans, in part because the state has imposed so many insurance regulations that even skimpy plans are expensive. Sen. Chuck Schumer didn't want a lot of angry overtaxed New Yorkers on his hands, so he and other similarly situated Democrats carved out a deal by which the threshold for this tax will be higher in their states. If you live in Kentucky, you get taxed at $21,000. If you live in Massachusetts you don't get taxed until $25,000. This carve-out is at least more sweeping, applying to 17 (largely blue) states, though that's cold comfort if you live in Louisville.

Mr. Baucus will also pay for his bill by socking it to pharmaceutical companies, on the principle that drug companies are filthy rich and should have to contribute to health care. The view is a bit different in New Jersey. The state's Web site boasts it is the "global epicenter" of the drug industry, where "15 of the world's 20 largest pharmaceutical companies have major facilities." And Sen. Bob Menendez, of the Garden State, seems concerned that his home-state employers are going to struggle to both pay their federal liabilities and to continue to grow and innovate. Thus Mr. Menendez's quiet deal for a $1 billion tax credit for companies investing in drug R&D.

The Baucus bill, we are assured by many Dems, will successfully "bend down" the health-care cost curve. Michigan Sen. Debbie Stabenow isn't counting on it when it comes to her constituents. She and Massachusetts Sen. John Kerry included $5 billion in the bill for a reinsurance program designed to defray the medical costs of union members.

"This will help our employers, whether it's the auto industry or whether it's other industries, be able to lower their costs for early retirees," said Ms. Stabenow. She is apparently unaware that this is what the broader bill is supposed to do, even without $5 billion in union slush money.

So, health-care "reform" is good, smart and necessary, so long as it isn't fully applied to the states of the senators who are pushing it. The Democrats' growing problem is that somebody is ultimately going to have to pay, and Mr. Reid's bad example has given every one the same idea. "If Colorado has a fair claim on being treated the same way Nevada has been, of course we're going to ask to have that kind of treatment," promised Sen. Mark Udall, upon news of the Reid deal.

Most senators are saving up their special state demands for when the bill hits the Senate floor. At that point, we'll get an even better idea of how much health-care change Democrats truly believe in.

from the Wall Street Journal, 2009-Oct-9, by Wendy Williams:

Paying the Health Tax in Massachusetts
Be warned: Even people with good insurance will risk fines if mandatory insurance becomes the national law.

Cape Cod, Mass.

My husband retired from IBM about a decade ago, and as we aren't old enough for Medicare we still buy our health insurance through the company. But IBM, with its typical courtesy, informed us recently that we will be fined by the state.

Why? Because Massachusetts requires every resident to have health insurance, and this year, without informing us directly, the state had changed the rules in a way that made our bare-bones policy no longer acceptable. Unless we ponied up for a pricier policy we neither need nor want—or enrolled in a government-sponsored insurance plan—we would have to pay $1,000 each year to the state.

My husband's response was muted; I was shaking mad. We hadn't imposed our health-care costs on anyone else, yet we were being fined ("taxed" was the word the letter used).

We've spent much of our lives putting away what money we could for retirement. We always intended to be self-sufficient. We've paid off the mortgage on our home, don't carry credit-card debt, and have savings in case of an emergency. We also have a regular monthly income of about $3,000, which includes an IBM pension. My husband, 61, earns a little money on the side, sometimes working as an electronics consultant on renewable energy projects. I'm 58 and make some money writing science books. We are not wealthy, but we aren't a risk of becoming a burden on society either. How did we become outlaws?

The turning point was three years ago, when then-Republican Gov. Mitt Romney pushed through the state legislature a health-care plan that he promised would provide universal coverage while lifting from the middle-class the burden of having to pay for those who do not have insurance. His argument was that the uninsured drove up the cost of health care for everyone by seeking care at emergency rooms and then skipping out on their medical bills. Hospitals make up for those unpaid bills by charging everyone else more than they otherwise would.

The central plank of the Romney plan was a mandate that required everyone to buy health insurance or pay a fine for posing a risk to society by walking around without coverage. There would be subsidies for those who couldn't afford insurance, and residents would be required to buy a minimum amount of health insurance, on the grounds that they might buy a policy that doesn't cover the cost of their care and end up skipping out on their medical bills. "We insist that everybody who drives a car has insurance, and cars are a lot less expensive than people," Mr. Romney told the Boston Globe in 2006.

Mr. Romney and Sen. Ted Kennedy publicly promised that the middle class—that is, people like us—would not be taxed and that our health-care costs would actually decrease if the plan became law.

My husband and I weren't convinced. It all seemed inane, but we are neither politically or socially conservative and figured the plan wouldn't affect us much. Besides, who could be against a plan that covers more people for less money?

For the first two years of the mandate, our IBM health insurance was seen as acceptable in the eyes of the state. This year the rules changed. The state requires that health plans cap out-of-pocket expenses for individuals (not including monthly premiums) at $2,000 a year. Our plan's cap is $2,500.

Ten years ago, we had excellent coverage through a more gold-plated plan. But we found that it was no longer worth paying the premiums and scaled back to a more modest policy. Today, we pay about $300 a month for catastrophic care. If we went with the next step up in plans offered to us by IBM, our monthly premium would increase to $800. We simply don't need to pay that kind of money for the amount of health care we actually consume.

Nonetheless, we now owe the state an extra $1,000. Ironically, that's about the extra amount we would pay out-of-pocket under our current plan if both of us actually fell ill in the same year.

We could choose a state-sponsored plan. It would mean paying more than what we pay now, but less than what IBM's next step up would cost. But we don't want to.

IBM seems like a rock of stability compared to the state of Massachusetts. It's apparent that state health-care policies can change at the whim of politicians in Boston, and we might not be able to adjust to the new rules. The way we figure it, if we sign up for a state-subsidized plan we will be at the mercy of the state.

So we are sticking with our plan and paying the tax. But what bothers me most is that a similar health-care mandate is being proposed in Washington, and some of the same promises that were made here are being made again—such as that the mandate will never hit middle-class folks with a new tax. When asked about the mandate, Maine Republican Sen. Olympia Snowe said recently, according to the New York Times, "It surprises me that we would have these high-level penalties on average Americans."

Well, I don't find it surprising. The mandate in Massachusetts was sold as something that wouldn't penalize people like my husband and me. But those political promises were only good for as long as it took to get the mandate enacted into law.

Mrs. Williams is co-author of "Cape Wind: Money, Celebrity, Class, Politics and the Battle for Our Energy Future" (PublicAffairs, 2007).

from the Wall Street Journal's Political Diary, 2009-Oct-5, by Holman W. Jenkins Jr.:

Welcome to the Future in Connecticut

"Slippery slope" arguments always sound like scare talk -- until they come true.

Kenneth Feinberg, the Obama-appointed "pay czar" for banks and auto companies on the taxpayer dole, recently met with senior executives of 20 firms, none of which had received a taxpayer bailout, to assure them that Team Obama didn't intend to expand its remit to regulate their pay too. A ridiculous concern? Consider a case in Connecticut that shows that when government gets a taste for reaching inside businesses to alter decisions that politicians don't like, officials are likely to keep pushing past all previously known limits.

As today's Hartford Courant reports, utility regulators in the state last month "did something they had never tried before, something that lawyers of long experience said they have rarely, if ever, seen any government agency do. Regulators forbade private companies from laying off some of their own workers." Two companies, Connecticut Natural Gas and Southern Connecticut Gas, were banned temporarily from proceeding with 67 planned layoffs, on grounds that the cuts might affect the "reliability" of gas deliveries. Though labor lawyers acknowledged such a step was unprecedented, they roundly dismissed the idea that, even under an Obama administration dominated by union interests, such interventions would become widespread. "The corporate community would go ballistic at the mere proposal of widespread use of a mechanism like this to block layoffs," Cornell University labor expert Lance Compa told the Courant.

Of course, it was just a few weeks ago that Connecticut Attorney General Richard Blumenthal asked the same state regulatory commission to block 75 job cuts by AT&T in the state. Mr. Blumenthal later joined with local labor leaders in holding a protest against the layoffs, though one might think an AG has no business hectoring companies about perfectly legal actions. Mr. Blumenthal's own assurances to the paper were hardly reassuring: "I am not predicting an avalanche of regulatory actions that ban layoffs. If it becomes more common, it will be only because the companies themselves fail to fulfill their public trust."

from the Wall Street Journal, 2009-Oct-4:

Clunkers in Practice
One of Washington's all-time dumb ideas.

Remember "cash for clunkers," the program that subsidized Americans to the tune of nearly $3 billion to buy a new car and destroy an old one? Transportation Secretary Ray LaHood declared in August that, "This is the one stimulus program that seems to be working better than just about any other program."

If that's true, heaven help the other programs. Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

Cash for clunkers had two objectives: help the environment by increasing fuel efficiency, and boost car sales to help Detroit and the economy. It achieved neither. According to Hudson Institute economist Irwin Stelzer, at best "the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day's gasoline use." Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, "Economics in One Lesson," you can't raise living standards by breaking windows so some people can get jobs repairing them.

In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.

from CBS 13 of Sacramento California, 2009-Oct-20, by Sam Shane:

On The Money: Big-Screen Ban?

California could become the first state to ban energy-hogging big screen TVs, but not without a fight. At stake is the future of your television, and a very important sector of the California economy.

"It's amazing, that's our 3D demonstration," says Leon Soohoo, Paradyme Sound & Vision.

Leon Soohoo used to be excited about the future of television, but now the picture is changing. California plans to impose new energy guidelines on TVs , and that makes retailers like Leon Soohoo wonder if he can stay in business.

"Our customers who read the reviews and really watch the latest gadgets will probably order it online, out of state retailers, and there is no way the State of California can stop that," says Soohoo.

The California Energy Commission wants all TV sets under 58 inches, to consume one-third energy in just two years time, and cut energy in half in four years.

"Your television consumes 10 percent of your home's residential utility bill. That's a lot. It's growing," says Adam Gottlieb, California Energy Commission.

Californians buy four million televisions every year. The Energy Commission says the new standards will cancel the need for a new power plant, and save the average consumer $30 per year per television over the life of the set.

And while some manufacturers endorse the new standards, the Consumer Electronics Association is fighting them ferociously arguing the regulations would ban 25 percent of televisions on the market today and that would be bad for California.

"It's also going to cost the California economy money in lost tax revenues. One estimate is as much as $50 million," says Jim Barry, Consumer Electronic Association.

Millions of dollars and more than 4,000 California jobs lost, according to the Consumer Electronics Association, if the regulations are adopted.

"These regulations are unnecessary and harmful for businesses in the State of California," says Soohoo.

But the Energy Commission is expected to approve the new standards in mid-November.

"At the time when we're trying to hold on to every single dollar, this is gonna put more money into consumer pockets rather than giving it to the utility company," says Gottlieb.

The California Energy Commission says the new regulations will save enough power to light up nearly one million single-family homes in California each year.

But critics say the new guidelines will harm the electronics industry and prevent manufacturers from developing new products that use less energy.

from NewScientist.com, 2009-Oct-15, by Jim Giles:

US steel-makers temper climate deal hopes

AMERICA's giant steel-makers could be about to torpedo an international agreement on climate change.

Following lobbying by heavy industries, the US Congress is considering imposing tariffs on imports from China and other developing nations. That could be a deal-breaker for poor nations at December's climate change talks in Copenhagen.

If Congress passes laws imposing a limit on US greenhouse gas emissions, energy-intensive sectors such as steel-making and cement manufacture would almost certainly face increased costs. Competitors in China and other developing nations not subject to similar restrictions - and China has said that it will not set itself an emissions target - might be able to produce steel more cheaply, and take business away from US firms.

That logic has found its way into two climate bills now before Congress. The first, passed by the House of Representatives in June, would effectively impose tariffs on goods from companies in countries that do not have emissions targets. The newly introduced bill in the Senate so far contains only vague language about the need for a "border measure", but senators from states with heavy industry will push for something similar.

That sets the stage for a showdown that could derail progress towards an agreement on climate change. In August, 10 pro-tariff senators, all of them Democrats, told President Barack Obama that it was "essential" that climate change legislation include some form of tariff. Without the support of most or all of these senators, the climate bill appears likely to collapse, and if that happens Obama will have little to offer in Copenhagen.

If the tariffs remain in the bill, even in a draft form, key players like China and India will be alienated before the talks start. "China would be very frustrated and angry if the final bill includes carbon tariffs," says Zhang Haibin of Peking University, an adviser to China's Ministry of Commerce.

There is still a way out of this bind, according to Jake Caldwell of the think tank Center for American Progress in Washington DC. Although China will not set itself emissions targets, it has said it will commit to reducing its carbon intensity - the amount of carbon emitted per unit of energy used or dollar of wealth created. If the goals are tough enough, Chinese industries would have to invest in cleaner technology, like their US counterparts. That might be enough to persuade the senators to soften their stance on tariffs.

from the Wall Street Journal, 2009-Oct-4:

The 'Absurd Results' Doctrine
Turning the carbon screws on businesses so they lobby Congress for cap and trade.

'In recent years, many Americans have had cause to wonder whether decisions made at EPA were guided by science and the law, or whether those principles had been trumped by politics," declared Lisa Jackson in San Francisco last week. The Environmental Protection Agency chief can't stop kicking the Bush Administration, but the irony is that the Obama EPA is far more "political" than the Bush team ever was.

How else to explain the coordinated release on Wednesday of the EPA's new rules that make carbon a dangerous pollutant and John Kerry's cap-and-trade bill? Ms. Jackson is issuing a political ultimatum to business, as well as to Midwestern and rural Democrats: Support the Kerry-Obama climate tax agenda—or we'll punish your utilities and consumers without your vote.

The EPA has now formally made an "endangerment finding" on CO2, which will impose the command-and-control regulations of the Clean Air Act across the entire economy. Because this law was never written to apply to carbon, the costs will far exceed those of a straight carbon tax or even cap and trade—though judging by the bills Democrats are stitching together, perhaps not by much. In any case, the point of this reckless "endangerment" is to force industry and politicians wary of raising taxes to concede, lest companies have to endure even worse economic and bureaucratic destruction from the EPA.

Ms. Jackson made a show of saying her new rules would only apply to some 10,000 facilities that emit more than 25,000 tons of carbon dioxide each year, as if that were a concession. These are the businesses—utilities, refineries, heavy manufacturers and so forth—that have the most to lose and are therefore most sensitive to political coercion.

The idea is to get Exelon and other utilities to lobby Congress to pass a cap-and-trade bill that gives them compensating emissions allowances that they can sell to offset the cost of the new regulations. White House green czar Carol Browner was explicit on the coercion point last week, telling a forum hosted by the Atlantic Monthly that the EPA move would "obviously encourage the business community to raise their voices in Congress." In Sicily and parts of New Jersey, they call that an offer you can't refuse.

Yet one not-so-minor legal problem is that the Clean Air Act's statutory language states unequivocally that the EPA must regulate any "major source" that emits more than 250 tons of a pollutant annually, not 25,000. The EPA's Ms. Jackson made up the higher number out of whole cloth because the lower legal threshold—which was intended to cover traditional pollutants, not ubiquitous carbon—would sweep up farms, restaurants, hospitals, schools, churches and other businesses. Sources that would be required to install pricey "best available control technology" would increase to 41,000 per year, up from 300 today, while those subject to the EPA's construction permitting would jump to 6.1 million from 14,000.

That's not our calculation. It comes from the EPA itself, which also calls it "an unprecedented increase" that would harm "an extraordinarily large number of sources." The agency goes on to predict years of delay and bureaucratic backlog that "would impede economic growth by precluding any type of source—whether it emits GHGs or not—from constructing or modifying for years after its business plan contemplates." We pointed this out earlier this year, only to have Ms. Jackson and the anticarbon lobby deny it.

Usually it takes an act of Congress to change an act of Congress, but Team Obama isn't about to let democratic—or even Democratic—consent interfere with its carbon extortion racket. To avoid the political firestorm of regulating the neighborhood coffee shop, the EPA is justifying its invented rule on the basis of what it calls the "absurd results" doctrine. That's not a bad moniker for this whole exercise.

The EPA admits that it is "departing from the literal application of statutory provisions." But it says the courts will accept its revision because literal application will produce results that are "so illogical or contrary to sensible policy as to be beyond anything that Congress could reasonably have intended."

Well, well. Shouldn't the same "absurd results" theory pertain to shoehorning carbon into rules that were written in the 1970s and whose primary drafter—Michigan Democrat John Dingell—says were never intended to apply? Just asking. Either way, this will be a feeble legal excuse when the greens sue to claim that the EPA's limits are inadequate, in order to punish whatever carbon-heavy business they're campaigning against that week.

Obviously President Obama is hellbent on punishing carbon use—no matter how costly or illogical. And of course, there's no politics involved, none at all.

from the Wall Street Journal, 2009-Nov-11, by Holman W. Jenkins, Jr.:

The Economic Uses of Al Gore

Last spring Tennessee Republican Congresswoman Marsha Blackburn asked Al Gore during a House hearing if his investments in green energy meant he would benefit personally from cap and trade.

"If you believe that the reason I have been working on this issue for 30 years is because of greed, you don't know me," Mr. Gore responded (and, yes, according to two reporters present, he sighed).

Mr. Gore is quite right that his arguments should be judged on their merits, not on his investments. He's wrong to think his investments are irrelevant, and, even more, that sincerity is dispositive of anything. Sincerity is no substitute for disinterestedness.

Here are a couple questions: When so much of his position and prestige are invested in a predicted climate crisis, is Mr. Gore likely to be open to contrary evidence? Is he likely to be particularly fastidious about whether proposed steps will actually have an effect on global warming if they also happen to benefit his investments?

Ms. Blackburn's challenge was in a sense late. Mr. Gore long ago jumped over to the side where salesmanship, by whatever means, was the trumping priority. As far back as 1989, he insisted there was "no dispute worthy of recognition" about the danger of manmade climate change. By now, he titularly heads a vast establishment with a stake in one side of the argument.

Notice, for instance, after a decade in which the earth appears to have stopped warming and even cooled, that global warming advocates have rushed to embrace a computer simulation that predicts this cooling (in retrospect, of course) and allows for indefinite future cooling, even while assuring that the world is destined to face disastrous warming anyway. Isn't this what forecasters of doom have done since time immemorial when their deadlines for doom haven't been met?

Mr. Gore's own predictions of a climate catastrophe have not lessened, but every time he opens his mouth, the costs of meeting the emergency become easier and easier to swallow. They aren't even costs anymore; as he says in his new book, they are "profits."

All policy salesmanship naturally defaults toward the proposition of huge benefits and negligible costs (i.e., free lunchism). Isn't that where Al Gore is today?

Mr. Gore notes that he has poured his own money into two climate action nonprofits, but, whatever his self-felt motives, aren't these nonprofits functionally propaganda arms (i.e., advertising) that benefit his for-profit investments?

The truth is, evidence of man's impact on climate remains maddeningly elusive, in part because man's impact on climate is so small as to be hard to disentangle from natural variability. This is not Mr. Gore's position, of course. If anything, however, the case for action has become less closed since he pronounced it closed in 1989, if only because of the huge sums and manpower poured into the subject to little avail.

In retrospect, a significant moment was the falling apart or debunking of two key attempts seemingly well-suited to clinch matters for a scientifically literate public. One, the famous hockey stick graph, which suggested the temperature rise of the past 100 years was unprecedentedly steep, was convincingly challenged. The other, a mining of the geological record to show past episodes of warming were sharply coupled with rising CO2 levels, fell victim to a closer look that revealed that past warmings had preceded rather than followed higher CO2 levels.

These episodes from a decade ago testified to one important thing: Even climate activists recognized a need for evidence from the real world. The endless invocation of computer models wasn't cutting it. Yet today the same circles are more dependent than ever on predictions made by models, whose forecasts lie far enough in the future that those who rely on them to make policy prescriptions are in no danger of being held accountable for their reliability.

For a while the media could patch over the scientific shortfall by reporting evidence of warming as if it were evidence of what causes warming. Inconveniently, however, just as temperature-measuring has become more standardized and disciplined and less reliant on flaky records from the past (massaged to the Nth degree), the warming trend seems to have faded from the recent record.

We could go on. But from our first column on this subject, we have been convinced that the scientific questions are interesting and irrelevant, since it was never in the cards that Western societies (or Brazil or India or China) would sacrifice economic growth for the uncertain benefits of fighting climate change. Unable to do anything meaningful about climate change, policy would therefore default to satisfying the demand of organized interests for climate pork.

Isn't that, however much he may be distracted by feelings of sincerity, exactly the economic function of Mr. Gore today?

from the Wall Street Journal, 2009-Oct-20, by Pete du Pont:

Time for Inaction on Global Warming
Congress should consider the costs before passing "cap and trade."

"Global" and "warming" are perhaps the two most important words used to justify the approaching governmental control of our economy. In reality, global warming is barely occurring: In the 30 years starting in 1977, warming amounted to 0.32 degree Fahrenheit per decade, and in the next hundred years it is estimated to be about half a degree per decade.

So global warming looks like neither the alarmists' serious threat, nor an immediate crisis that requires governmental control of America's economy to reduce it. Nevertheless the government solution to these increases--the Waxman-Markey bill, which passed the House earlier this year--is estimated to lower global temperatures only about 0.18 degree Fahrenheit in the next 90 years.

And now comes the new Boxer-Kerry Senate bill, which would require a 20% reduction in greenhouse-gas emissions by 2020.

As a practical matter, what would such a reduction mean to us and our economy? Steven Hayward of the American Enterprise Institute calculates that a 20% reduction would mean cutting America's greenhouse gas emissions to our 1977 levels, and that would radically change both the U.S. economy and our personal lives.

As Mr. Hayward notes, we had 220 million people in America then; today we have 305 million. In 1977 our economy was produced $7.2 trillion (in 2008 dollars); today it is twice as large, at $14.2 trillion. Back then we had 145 million vehicles on the road; today we have 251 million. America has substantially grown, and our energy needs have grown as well.

So what would we have to do get back to 1977 emission levels and meet the Boxer-Kerry requirement? First, car and truck miles travelled would have to be reduced by one-third (or fuel efficiency improved by one-third, hard to do in 10 years), which would seriously reduce travel and transportation, and likely force changes in automobile design that consumers would not like.

Next, the amount of coal burned to generate electricity would have to be cut in half. So we would close more than 200 of our coal-fired power plants, and as Mr. Hayward says that would reduce our electricity supply by some 800 million megawatts. To replace those millions of megawatts with non-hydro renewable power sources like wind, solar and geothermal power would be virtually impossible. We have about 130,000 megawatts generated by them now, and the growth rate of these power sources over the last five years suggests it would take 97 years to make up for the shutdown of 200 coal-fired plants.

Nevertheless, the Boxer-Kerry bill, at least in its draft form, is an improvement over Waxman-Markey. It is in favor of nuclear power--which, in Sen. John Kerry's words, "needs to be a core component of electricity generation if we are to meet our emission reduction targets"--though it does not mention the construction of the 70 to 100 nuclear plants we would need to add to the 104 we now have in order to reduce carbon dioxide emissions. It is also in favor of expanding offshore drilling and natural-gas exploration and production, something that Waxman-Markey does not support.

On the other hand, Boxer-Kerry would be as bad for our economy as Waxman-Markey in two respects. First, it too contains the protectionism of the Waxman "border adjustment program" to begin a new American policy of putting tariffs on goods imported from counties that do not adopt acceptable environmental standards, which surely would result in retaliation tariffs on our exported goods.

And the bill aims to achieve targeted emission declines through a similar cap-and-trade program involving carbon permits. This is said to cover only 2% of U.S. businesses, but it would drive up the cost of electricity, food and other goods for all households and businesses, and its 20% emission reduction is even larger than the 17% in that bill (our current recession has already reduced emissions by 6%, which Sens. Kerry and Barbara Boxer apparently think is real progress). The bill would reduce the portion of emissions covered by the caps, eliminating regulation of methane emissions from coal mines, landfills, and oil and gas pipeline distribution.

Both bills include offsets which would allow emitters (and the politicians in Washington) to claim we are hitting our reduction targets while actually emitting more carbon by "investing" in projects in the U.S. and other countries that ostensibly reduce carbon (whether or not they actually do)--a process that is fraught with potentials for fraud and abuse.

And both bills suffer from the flawed logic of thinking a cap-and-trade system would actually work, when we know it has not worked in Europe, and that the only way a cap-and-trade system could meet its emission targets in the U.S. is by shrinking our economy.

Congressional Budget Office director Douglas W. Elmendorf testified last week before the Senate Energy and Natural Resources Committee that the cap-and-trade provisions of the House bill would reduce the U.S. gross domestic product by 0.25% to 0.75% in 2020 ($60 billion to $180 billion), and by 1.0% to 3.5% in 2050.

Like Waxman-Markey, Boxer-Kerry would expand the control the government has over the American economy, businesses, and individuals. It would have little impact on reducing global warming but would significantly depress our economy. One wonders if the purpose of the Boxer-Kerry bill is really just to give the U.S. something to take to Copenhagen for the United Nation's Climate Change Conference in December.

High-cost policies with low-impact results are not in America's best interests, so we should postpone both bills and think through more clearly our desired energy policies.

from the San Jose Mercury News, 2009-Oct-5, by Dana Hull:

Apple quits U.S. Chamber of Commerce over global warming views

Adding momentum to the revolt against the U.S. Chamber of Commerce, Apple on Monday resigned from the business group because of its opposition to federal efforts to limit greenhouse gases.

Apple is the fourth company and the largest, as well as the first tech company, to part ways with the chamber as the debate over global warming legislation heats up in Congress. It is also the most significant defector because Apple is a leading American brand and consumers strongly identify with its products.

"Apple's departure is a clear signal that more and more of the chamber's members want it to download a new tune when it comes to climate change," said Peter Altman of the National Resources Defense Council.

"There is a growing recognition in the business community that strong clean-energy and climate legislation is the way to strengthen our economy, reduce our oil imports and reduce pollution, but the chamber is turning a deaf ear to the trend."

The chamber is the world's largest business federation, representing 3 million dues-paying businesses large and small. It has a formidable lobbying operation in Washington, touting on its Web site that it "consistently leads the pack on lobbying expenditures." Membership is voluntary and there are no concrete consequences for quitting.

The group has come under fire for opposing an Environmental Protection Agency plan, announced last week, that would allow the EPA to regulate greenhouse gas emissions from nearly 14,000 coal-burning power plants. The chamber also actively opposed the Waxman-Markey energy bill that was passed by the House in June. And a senior chamber official recently drew ridicule when he called for a "Scopes monkey trial of the 21st century" to evaluate evidence of global warming, referring to the 1925 trial of Tennessee teacher John Scopes, who was convicted of teaching evolution. Environmentalists called it a stalling tactic, saying the scientific evidence of climate change is overwhelming.

"Apple is committed to protecting the environment and the communities in which we operate around the world," Catherine Novelli, Apple's vice president of worldwide government affairs, said in a letter to Thomas Donahue, the U.S. Chamber of Commerce president and CEO. "We strongly object to the Chamber's recent comments opposing the EPA's effort to limit greenhouse gases."

The move comes amid efforts by Apple to burnish its green image. The Cupertino-based company revealed its carbon footprint — or total greenhouse-gas emissions — for the first time last month, announcing on its Web site that 53 percent of the 10.2 million tons of annual carbon emissions it takes responsibility for comes from consumer use of its products.

The company has taken a broad view of greenhouse gas emissions, using a "life-cycle analysis" to calculate greenhouse gas emissions for each product, from production to transportation, consumer use and recycling.

"We believe it has resulted in the broadest possible measure of the carbon footprint for each of our new products," Apple said in response to a lengthy questionnaire by the Carbon Disclosure Project, which publishes emissions data for the world's largest corporations. "No other electronics company reports this information at the product level, but we think they should."

Barbara Kyle, national coordinator of the Electronics TakeBack Coalition, which promotes recycling, said Apple has made great strides in recent years. Many of the casings of its products are now made not of plastic but aluminum, which is easier to recycle. Apple also has improved the energy efficiency of its products and has increased its recycling efforts. And it has phased out some of a the worst toxics, including brominated flame retardants (BFRs) and polyvinyl chloride (PVC).

"Apple is not waiting for legislation to ban these substances," the company boasts on the detailed "Environment" section of its Web site. "Not only is every Mac, iPod, and iPhone free of PVC2 and BFRs, we are also qualifying thousands of components to be free of elemental bromine and chlorine, putting us years ahead of anyone in the industry."

The exodus from the chamber began last month, when PG&E announced it was leaving because of the group's "obstructionist tactics" over efforts to regulate global warming. Two other utility companies — PNM of New Mexico and Chicago-based Exelon — followed PG&E's lead. Athletic shoemaker Nike resigned from the chamber's board of directors but has chosen to remain a member in hopes of changing the federation's climate-change policy from within.

As pressure on the chamber has mounted, speculation had grown about which Silicon Valley company would be the first to quit.

Former Vice President Al Gore, who was awarded the 2007 Nobel Peace Prize for his work fighting global warming, has been on Apple's board of directors since 2003. Apple declined to comment about Gore's role, if any, in its latest green efforts and decision to leave the Chamber of Commerce. Gore's personal office in Tennessee declined to comment.

from the Wall Street Journal, 2009-Oct-14, p.A22:

Apple, Nike and the U.S. Chamber
Putting green politics above the interests of shareholders.

The recent corporate resignations from the U.S. Chamber of Commerce have played in the media as a case of enlightened corporate stewardship vs. blinkered old businesses. But there's far more to this story—not least the way that Apple and Nike are putting green political correctness above the long-term interests of their own shareholders.

The Chamber needs "a more progressive stance on this issue" of climate change, declared Apple Vice President Catherine Novelli in a letter of resignation from the business lobby on October 5. Added Nike, announcing its resignation on September 30 from the Chamber board though retaining its membership: "US businesses must advocate for aggressive climate change." Both decisions were ostentatiously leaked to the media.

The first point to understand is the role of Al Gore, who is a member of the Apple board and perhaps the leading supporter of President Obama's cap-and-tax anticarbon legislation. Mr. Gore has also invested in renewable energy technologies that could make him even richer than he already is if new climate rules make renewables more competitive with carbon energy.

Meanwhile, Apple's Chief Operating Officer Tim Cook happens to sit on the board of . . . Nike. We're told that Nike CEO Mike Parker didn't discuss the Chamber move with his full board of directors before it was announced, and Nike didn't return our phone call asking for comment. In any case, we doubt it's an accident that Nike and Apple acted against the Chamber at the same time—and just when Democrats are trying to build new momentum for cap and trade in the Senate.

Both companies may figure they can afford a U.S. carbon tax because most of their manufacturing is done outside the U.S. Apple has an enormous "carbon footprint" of some 10 million annual tons of emissions to make and use its power-hungry gadgets. But nearly all of those products are made in China and other Asian countries where there are no carbon limits and aren't likely to be any time soon, if ever. According to calculations based on Apple's emissions figures, were the company to manufacture in the U.S., the Boxer-Kerry bill pending in the Senate would hit Apple with carbon taxes between $43 million and $108 million a year.

Nike, meanwhile, makes most of its shoes and apparel in 700 contract factories in countries such as South Korea and Vietnam—which also won't sign up for the Boxer-Kerry energy tax. The larger point is that neither Apple nor Nike would pay as much under a cap-and-trade bill as, say, the maker of Bobcat excavators in Bismarck, N.D., or your average Midwest natural gas utility. Green virtue is easier when someone else is paying for it.

Yet even this self-interested calculation is likely to be short-sighted for both companies. Since climate change is a global issue, green activists won't stop their carbon pursuit at the U.S. border. It wouldn't be long after cap and trade passed in the U.S. that Nike and Apple were pressured to move their manufacturing out of countries that haven't signed Kyoto II. That would threaten their production lines and cost structure, with potential damage to sales and competitiveness.

And if the companies fail to relocate, the next anticarbon lobbying policy step will be a carbon tariff against products made in China or Vietnam and sold in the U.S. A carbon tariff is already part of the House cap-and-trade bill and is gaining currency among Congressional protectionists, most recently Senator Lindsey Graham (R., S.C.). As companies that import nearly all of their products, Apple and Nike would be especially vulnerable. We wonder if Messrs. Cook and Parker thought through any of this before committing their employees and investors to this crusade.

The Chamber's great sin, according to Nike and Apple, is that it questioned the Environmental Protection Agency's right to regulate all greenhouse gases without new legislation. The Chamber has said that while it supports Congressional efforts to regulate emissions, it opposes EPA's attempt to grab that power for itself on the basis of an elastic reading of the Clean Air Act. This is a major issue for many Chamber members.

If companies are going to dump the Chamber over a single dispute, then the overall influence of business in Washington is likely to decline. The Chamber's job isn't to favor one company's agenda over another but to stand broadly for free trade, low taxes and limited regulation—principles that help U.S. business as a whole.

Having abandoned their business allies on climate change, Apple and Nike might wake up one day to discover they need those friends on one of their crucial issues. It will serve them right if they find themselves alone in the Beltway square.

from the Wall Street Journal, 2009-Oct-6, p.A22:

The War on Specialists
ObamaCare punishes cardiology and oncology to finance GPs.

In President Obama's Washington, medical specialists are slightly more popular than the H1N1 virus. Compared to bread-and-butter primary care doctors, specialists cost more to train and make more use of expensive procedures and technology—and therefore cost the government more money. Even so, the quiet war Democrats are waging on specialists is astonishing.

From Senate Finance Chairman Max Baucus's health-care bill to changes the Administration is pushing in Medicare, Democrats are systematically attacking specific medical fields like cardiology and oncology. With almost no scrutiny, they're trying to engineer a "cheaper" system so that government can afford to buy health care for all—even if the price is fewer and less innovative ways of extending and improving lives.

***

Take a provision in the Baucus bill that would punish any physician whose "resource use" is considered too high. Beginning in 2015, Medicare would rank doctors against their peers based on how much they cost the program—and then automatically cut all payments by 5% to anyone who falls into the 90th percentile or above. In practice, this rule will only apply to specialists.

Since there will always be a missing chair when the music stops, every year one of 10 physicians will be punished if he orders too many tests, performs too many procedures or prescribes too many drugs—whether or not the treatments result in better patient outcomes. The 5% fine is substantial given that Medicare's price controls already pay only 83 cents on the private dollar.

In Medicare, meanwhile, the Administration is using regulation to change how doctors are paid to benefit general practitioners, internists and family physicians. In next year's fee schedule, they'll see higher payments on the order of 6% to 8%. The loose consensus is that the U.S. does have too few primary care doctors—less than 5% of medical students are entering the field—in part because they're underpaid.

Fair enough. But this boost for GPs comes at the expense of certain specialties. The 2010 rules, which will be finalized next month, visit an 11% overall cut on cardiology and 19% on radiation oncology. They're targets only because of cost: Two-thirds of morbidity or mortality among Medicare patients owes to cancer or heart disease.

The way Medicare works is that Congress decides each year how much it wants to spend on doctors, period. If one area of medicine receives a larger slice of this pie, another must accept a smaller one. The portion sizes are determined using a formula known as Relative Value Units, or RVUs. Medicare assigns an RVU to each of 7,500 billable services—in 2008, a colonoscopy earned 5.64 of these units, a hip replacement 37.66. Then it multiplies a doctor's total RVUs by some dollar factor, currently about $36, and cuts a check.

The chunks Team Obama took out of cardiology RVUs are especially drastic. The basic tools of heart specialists—echocardiograms (stress tests) and catheterizations—are slashed by 42% and 24%, respectively. Jack Lewin, who heads the American College of Cardiology, said in an interview that the crackdown will cause "a horrible disruption" that will force many community and independent practices to close their doors, lay off staff or make senior patients wait days or weeks for tests and services.

Cancer doctors get hit because the Administration believes specialists order too many MRIs and CT scans. Certain kinds of diagnostic imaging lose 24% under new assumptions that machines are in use 90% of the time, up from 50%. There isn't a radiologist in America running an MRI 10.8 hours out of 12, unless he's lining up patients on a conveyor belt. But claiming scanners are used far more often than they really are lets the Administration "score" spending cuts.

And this change is applied to all expensive equipment, not just MRIs and CTs, so payments for antitumor radiation therapy will fall by up to 44%. The American Society for Radiation Oncology says it "will have a devastating effect on cancer patients' access to care."

One priority of the Baucus bill is to require the executive branch to wreak this kind of devastation every year, not just when a Democrat is President. It directs the Secretary of Health and Human Services to search out "potentially misvalued" RVUs, meaning those "for which there has been the fastest growth" or "that have experienced substantial changes in practice expenses." In other words, any specialty that grows too much must be targeted.

It's important to understand that these are "cuts" that don't actually cut any spending; the RVUs merely redistribute it from one medical bucket to another. In this case, Team Obama is sending a message to the medical community about its political priorities. The fee schedule is designed to avoid wild year-over-year payment swings, but HHS justified its decision with a flimsy survey whose data it won't release and whose results can't be replicated. Dr. Lewin told us that both HHS Secretary Kathleen Sebelius and budget director Peter Orszag refuse to meet with him to discuss the topic.

We have nothing against primary care physicians, and clearly the country could use more of them. But then, it could probably use a lot more doctors, including specialists, as the boomers age and the prevalence of obesity, diabetes and other chronic diseases rises. The increase in specialists has tracked advances over 50 years in medical science and technology. Democrats look at these advancements and see only the costs, not the benefits.

***

Markets are supposed to determine the composition of the workforce, not a command medical economy run out of Washington. It is perfectly insane to support one type of doctor by punishing others on a flawed theory about cost-control. The press passes all this off as routine when it bothers to notice, but we suspect our media colleagues would show more interest if Messrs. Obama and Baucus were deciding how much journalists should be paid and what they should cover.

If Democrats are going to stomp on specialists, they should at least be open about it. Then again, all Americans might take a different view of health-care "reform" if they understood that it means snuffing out the best medicine.

from RealClearMarkets.com, 2009-Sep-23, by Wendy Milling:

H.R. 3200 Will Collapse Global Medicine

What has been missing from the national discussion on health reform is an analysis of the dynamic consequences of significantly increasing the level of statism in the medical field.

If the United States implements H.R. 3200, the resulting conditions will not come to resemble that of any current Western medical system or bestow any of their purported advantages. The U.S. medical system will collapse, and it will take down every major medical system throughout the world with it.

H.R. 3200 would enact a series of synergistic causal sequences. This would start with an instantaneous increase in demand as new consumers enter the system or existing consumers demand more medical goods and services.

Clinics, practices, and hospitals currently rely on higher private insurance payouts to make up for the low reimbursement rates from Medicare. Under the new system, they would not receive it, either from the government plan or the private insurers. The government will not pay it. Insurance companies, required to cover pre-existing conditions, maintain coverage unconditionally, and cap premiums, will have no choice but to cut payments to providers.

This would quickly cut the profit margins of medical providers to unsustainable lows or convert them into losses. Many will go out of business in the short term, even if their industry representatives in Washington see no problem with conceding $150 billion "as an industry" to the government. This means a decreased supply of medical care.

The law of supply and demand will necessitate price increases for medical goods and services, but as providers, drug companies, and equipment manufacturers attempt to push up price levels in various ways, government will counter by imposing further price caps and limiting reimbursements to keep costs under control.

A quick glance at the pharmaceutical industry reveals an oncoming danger to global medicine here. The industry is one of the most profitable in the U.S. This profitability attracts investment capital, which is the stock seed planted to further advance pharma. The U.S. market makes up almost half of the sales of prescription drugs. This market is critical, because it makes up for the shortages incurred by drug price controls elsewhere.

With price caps imposed in the U.S., pharmaceutical, biotech, and medical equipment producers will raise the cost of future drugs and medical equipment, continuing their economic arms race with the government. The caps and limitations will also accelerate hospital, clinic, and private practice closings, exacerbating the cycle of increasing demand and decreasing supply in a positive feedback loop.

As the demand for medicine grows and the supply of it contracts, what is needed to keep the medical economy afloat is increased productivity. New technology and more efficient and effective techniques will have to come into existence to act as a downward force on prices and to satisfy demands that cannot now be met. Who will create them?

In a capitalist system, where capital and opportunity are plentiful, individual doctors pioneer new methods of surgery and treatment. Scientists conduct research, make discoveries, and use the knowledge to create novel drugs. Engineers develop new medical equipment or improve upon the old to aid doctors in their clinical practice. Businessmen create new management and insurance models to make the healthcare industry more productive, which in turn makes healthcare more affordable for the consumer.

The demolition of profits and a more austere and coercive environment will result in the flight of significant numbers of these people from the medical field. As the profits in the industry disappear, so will the supply of mental capital, as the best minds that would otherwise fuel the advancement of the sector will leave it for more profitable ones. It is worth noting here that the term "brain drain" was coined to describe such a loss from Great Britain after socialized medicine was instituted there in the 1950s.

This will be seen in many forms. There will be decreased interest in medical school among the best and brightest youth. There will be early retirements by experienced but frustrated doctors. The caps on prices and reimbursements will squeeze medical equipment manufacturers, who will lay off engineers and decrease their product development. Pharmaceutical and biotech companies will make cuts in research and development and lay off scientists, and their drug pipelines will become empty. Fewer smart people will choose a career in healthcare management or allied industries.

There will be no rescue of the medical system by productivity. Productivity in medicine will itself be in need of rescue.

The United States is the engine of medical innovation in the world. The collectivist medical systems in other countries cannot generate wealth by themselves; the net effect of statism is wealth destruction. They survive by a de facto free rider strategy on the profits and innovation in freer countries. Without the capital and the technological breakthroughs from the United States, their systems would be instantly unviable.

Other countries also strain to keep their socialized medical systems alive by initiating force against the private sector in every way permitted by modernity. They ration care or disallow treatments that are routine in the U.S. The imposition of drug price caps is widespread. France extracts massive sums of money from its people, including a 12.8% employer tax, a 5.25% income tax, and various other targeted taxes. Britain's NHS runs a £1.3 billion deficit ($2.1 billion). Its annual budget is £100 billion ($160 billion, or $1.6 trillion over 10 years), serving a population one-fifth the size of that of the United States.

While other countries decry the selfishness of the U.S., out of necessity, they cheat on their own philosophy of collective welfare by cutting slack to the private sector in ways that would be intolerable to the proponents of H.R. 3200. This includes the capping of legal liabilities and allowing drugs to be brought to market cheaper and more quickly than current Food & Drug Administration standards would allow. Such allowances are right, but they highlight the fact that these systems are a house of cards.

Precipitated by the decline in the U.S., the collapse of medicine across the globe would not be dramatic and loud, culminating in the cessation of all activity. There would still be doctors, patients, private companies, and motion between them. Instead, after initial and periodic convulsions-rapid adjustments and realignments, like an exothermic reaction leaving the world in a lower energy state-decay would set in.

The decay would be characterized by a pervasive increase in doctor shortages, unmotivated and incompetent doctors, overworked medical professionals, expensive and virtually useless public and private insurance plans, poor quality and deteriorating medical products and services, few biomedical advancements, desperate patients, black markets, unsafe medical tourism, physically and psychologically incapacitated patients, and foreshortened lives.

In such a state, world medicine would be vulnerable to powerful stressors that could push it past the breaking point. That stressor would likely be the onset of a flood of end-of-life demand by the Baby Boomer demographic, at which point the system would become irreversibly overwhelmed. At current life expectancies for U.S. males, this would occur around the year 2021.

At some point, all national plans would go bankrupt, necessitating either a move toward laissez-faire, or a descent into sub-industrial medicine.

Regardless of the details of the overhaul and the exact course of its implementation, we can know in advance that many people will die who otherwise would have survived. A major way that the laws of nature restore equilibrium in a new collectivist system is by killing off human beings. Human deaths are causally given because production decreases, and the disappearance of medical resources must lead to the ending of the lives which depend on those resources. Collectivism transforms a free medical system from a human safety net forever increasing in size, scope, and capabilities, into a game of musical lives, all the while its advocates croon about compassion and cost-savings.

Collectivism in medicine is a vain attempt to defy the law of causality and to substitute it with whim and want. All of the current proposed plans in Congress are premised upon collectivism. As such, they are unworkable, thoroughly incorrigible, and should be scrapped in their entireties. Only a move in the reverse direction, toward more freedom in medicine, can both save medicine and claim the mantle of morality.

from City Journal online, 2009-Sep-22, by Benjamin A. Plotinsky:

The Pharmaceutical Umbrella
One reason European health care works: America

To understand one of the most persistent myths in our health-care debate, forget for a moment about public options, health co-ops, and loopholes for illegal immigrants. Instead, imagine that it’s 1962, the hottest point of the Cold War, and that you’re reading a report comparing two countries’ strategies for resisting the Soviet menace. The United States, the report points out, spends billions of dollars a year on troops, tanks, warships, and missiles, while France spends a tiny fraction of that. Nevertheless, France and America are both unscathed by Soviet bombs. Therefore, the report concludes, France’s Cold War strategy is far more efficient than America’s. And you snicker at the obvious flaw in the reasoning, since you know that what has kept the Soviets away from France is precisely America’s enormous military budget. If not for the nuclear umbrella that the United States has unfurled over the Continent, Volgas might be cruising down the Champs Elysées.

What does this have to do with health care in 2009? In a recent paper widely circulated on the Internet (“the best paper you’ll read today,” blogger Ezra Klein calls it), Urban Institute researchers Elizabeth Docteur and Bob Berenson review various studies that compare health care in America and in other developed countries, most with nationalized systems. “The evidence suggests that other developed countries achieve comparable quality of care while devoting at most two-thirds the share of their national income,” the authors write. This should give pause, they continue, to those who oppose proposals to reform American health care “in ways similar to those used in other countries.” They conclude: “One can surely argue that U.S. health care quality is not at risk from the kinds of health reform proposals receiving attention.”

Authors of studies like this base most of their conclusions on “outcomes” in different countries—mortality rates, survival rates for various diseases, and so forth. One common objection to this approach is that these outcomes don’t always reflect the quality of health care, because so many other factors—diet, exercise, environment—enter into the equation. If Americans eat a lot of fast food, say, it stands to reason that they will suffer from a lot of heart attacks, no matter how good their cardiologists are.

But another, less widely heard objection is that studies like Docteur’s and Berenson’s don’t consider what we might call the pharmaceutical umbrella that America spreads over the developed world. “Drugs supply almost all the real health care these days,” Peter Huber has written in City Journal. And as a 2006 article by Henry G. Grabowski and Y. Richard Wang in the peer-reviewed journal Health Affairs makes plain, the lion’s share of new chemical entities (NCEs)—that is, genuinely new drugs—are invented in the United States. Between 1993 and 2003, the authors found, 437 NCEs were introduced around the world. America was responsible for 152 of them—far more than any other country—with Japan coming in second with 88 and Germany a distant third with 42. The United States also led the world in the introduction of “global NCEs,” drugs “introduced in a majority of the world’s leading drug markets.” (A chart makes these numbers clear.)

Just last month, Health Affairs released a reexamination of Grabowski’s and Wang’s work by Donald W. Light, who boldly claimed that the very same research actually “shows that the United States never overtook Europe in research productivity.” Light’s argument, however, is simply that the European Union as a whole was still producing slightly more NCEs than the United States was between 1993 and 2003—183, versus America’s 152—and that European drug production did better than American if you factor in how much less was spent on research and development in Europe. More recent figures, however, show that starting around the beginning of this century, the United States finally overtook all of Europe in new drug production. As for the scarcity of R&D money in Europe, it hardly seems something for the Continent to celebrate.

And the Europeans know it. A 2000 study prepared by Alfonso Gambardella, Luigi Orsenigo, and Fabio Pammolli for the European Commission—a “seminal report that has shaped European policy,” Light says—agrees that “the European industry has been losing competitiveness as compared to the USA.” Further, the drugs that European companies do invent probably aren’t the most useful ones, judging from their sales. “In 1999 more than 80 percent of the total sales of the world top 15 drugs was originated by US companies,” the Gambardella paper found. “US firms are now the dominant source of innovation and innovative drugs, with Europe lagging behind.”

Why is this important? One reason for America’s drug dominance (though far from the only one) is America’s unsocialized medicine. Here, with the exception of a few programs like Medicaid and the VA system, the government doesn’t regulate the price of drugs, so when a company invents something big—the latest miracle cancer drug, say—it strikes it rich, making its executives hunger for more. Take away the profit motive, as government-run medicine often does by forcing drug companies to sell at discounted prices, and innovation will dry up. “EU policy has kept pharmaceutical price inflation equal to average consumer price inflation over the last 19 years,” write Joseph Golec and John Vernon in a 2006 paper for the National Bureau of Economic Research—“with real costs of about $5 billion in foregone R&D spending, 1,680 fewer research jobs and 46 foregone new medicines.” True, America’s unregulated environment benefits any drug company that sells here, regardless of its nationality—but American companies profit most, since even in today’s global economy, a higher proportion of their sales than of European companies’ sales takes place in America.

So socialist Europe, by using American drugs (especially the “global NCEs” that Grabowski and Wang identify), is profiting from good old-fashioned American free enterprise. Europe doesn’t pay its way, either. As Guy Sorman wrote recently in City Journal, France’s socialized health-care system bullies American pharmaceutical companies into accepting bargain-basement prices for their wares. The companies make up for the loss by charging Americans more.

But the lesson here isn’t that America should be stingy about subsidizing French health care. If American consumers and drug companies play a disproportionate role in protecting the world from dangerous microbes—just as America did in protecting it from Soviet missiles—we should be proud. (It would be too much to hope that this good deed will go unpunished among European elites.) No, the lesson is to be skeptical of reports speaking glowingly of socialized health-care systems, because those systems wouldn’t work nearly as well as they do without unsocialized American medicine.

Benjamin A. Plotinsky is the managing editor of City Journal.

from USA Today, 2009-Sep-27, by John Fritze:

Sen. Rockefeller seeks to extend health bill's protections

WASHINGTON — More than 70 million people who work at large companies would not get health insurance protections sought by President Obama under a closely watched Senate health care bill, a Democratic lawmaker involved in the debate says.

The proposed rules, which Obama said will "make the insurance you have work better for you," would prohibit insurers from denying coverage because of pre-existing conditions or imposing limits on how much will be paid out to sick patients.

However, under legislation in the Senate Finance Committee, the new rules would not apply to people who work for large companies that self-insure, meaning the employer pays health care claims out of its revenue rather than relying on a private insurer, says Sen. Jay Rockefeller, D-W.Va.

"They can be cut off; there are no caps," says Rockefeller, the second-highest-ranking Democrat on the committee. "I'm determined to fix it."

OPINION: To cover the uninsured, go where the money is

Rockefeller has proposed expanding the insurance regulations to cover everyone in an amendment he hopes will be considered this week.

A spokeswoman for Sen. Max Baucus, D-Mont., who drafted the bill, said the protections are targeted to employees of small businesses and people who buy insurance on their own because they have the most trouble obtaining good coverage.

"Health care reform is about building on what works in our system and fixing what doesn't," Baucus spokeswoman Erin Shields said in a statement. "The biggest problems exist today for people who don't have employer-sponsored insurance."

As many as 73 million people, or 55% of those who get insurance through private-sector jobs, are covered in self-insured plans, according to the non-partisan Employee Benefit Research Institute. Workers are often not aware their plans are self-insured because employers hire insurance companies to process claims.

Business groups have resisted the new regulations for large companies. In an e-mail to local chapters, U.S. Chamber of Commerce lobbyist R. Bruce Josten called the Rockefeller amendment "dangerous," arguing that it would "significantly and adversely impact larger employers."

In most states, large employers are defined as those that have more than 50 employees.

The Finance Committee continues work this week on the health care bill, which would cost $900 billion in the first 10 years and require everyone to buy a health care policy.

Other versions of the bill in Congress offer more of the protections for workers who receive health insurance through large employers, said Ron Pollack, executive director of non-partisan Families USA, which supports changing the health care system. Still, Pollack credited Baucus for focusing on small-business employers and individuals buying insurance outside of work because, he said, those are "the insurance markets that have the done the least to protect people."

Among the protections under consideration in the Senate Finance bill:

• Capping how much insurers will pay over a year or lifetime would end for small business and individual policies, but insurers would be barred only from imposing "unreasonable" caps for larger companies.

• Employees hired at small businesses could not be denied coverage for a pre-existing condition. For larger companies, current law would apply, which allows companies to deny claims for pre-existing conditions up to a year if the new employee allowed previous coverage to lapse.

• Insurers could no longer consider gender, health status and other risk factors when setting premiums for individual and small-business policies. Those factors could still be considered for larger employers.

Clifford Roberti, a lobbyist for the Self-Insurance Institute of America, said most large employers have "the most generous benefits out there."

"The self-insured plans are the area of insurance that's working," he said.

from the Wall Street Journal, 2009-Sep-10, p.A21, by Mark Mix:

Read the Union Health-Care Label
Get ready for Detroit-style labor relations in our hospitals.

In the heated debates on health-care reform, not enough attention is being paid to the huge financial windfalls ObamaCare will dole out to unions—or to the provisions in the various bills in Congress that will help bring about the forced unionization of the health-care industry.

Tucked away in thousands of pages of complex new rules, regulations and mandates are special privileges and giveaways that could have devastating consequences for the health-care sector and the American economy at large.

The Senate version opens the door to implement forced unionization schemes pursued by former Govs. Rod Blagojevich of Illinois in 2005 and Gray Davis of California in 1999. Both men repaid tremendous political debts to Andy Stern and his Service Employees International Union (SEIU) by reclassifying state-reimbursed in-home health-care (and child-care) contractors as state employees—and forcing them to pay union dues.

Following this playbook, the Senate bill creates a "personal care attendants workforce advisory panel" that will likely impose union affiliation to qualify for a newly created "community living assistance services and support (class)" reimbursement plan.

The current House version of ObamaCare (H.R. 3200) goes much further. Section 225(A) grants Secretary of Health and Human Services Kathleen Sebelius tremendous discretionary authority to regulate health-care workers "under the public health insurance option." Monopoly bargaining and compulsory union dues may quickly become a required standard resulting in potentially hundreds of thousands of doctors and nurses across the country being forced into unions.

Ms. Sebelius will be taking her marching orders from the numerous union officials who are guaranteed seats on the various federal panels (such as the personal care panel mentioned above) charged with recommending health-care policies. Big Labor will play a central role in directing federal health-care policy affecting hundreds of thousands of doctors, surgeons and nurses.

Consider Kaiser Permanente, the giant, managed-care organization that has since 1997 proudly touted its labor-management "partnership" in scores of workplaces. Union officials play an essentially co-equal role in running many Kaiser facilities. AFL-CIO President John Sweeney called the Kaiser plan "a framework for what every health care delivery system should do" at a July 24 health-care forum outside of Washington, D.C.

The House bill has a $10 billion provision to bail out insolvent union health-care plans. It also creates a lucrative professional-development grant program for health-care workers that effectively blackballs nonunion medical facilities from participation. The training funds in this program must be administered jointly with a labor organization—a scenario not unlike the U.S. Department of Labor's grants for construction apprenticeship programs, which have turned into a cash cow for construction industry union officials on the order of hundreds of millions of dollars each year.

There's more. Senate Finance Committee Chairman Max Baucus has suggested that the federal government could pay for health-care reform by taxing American workers' existing health-care benefits—but he would exempt union-negotiated health-care plans. Under Mr. Baucus's scheme, the government could impose costs of up to $20,000 per employee on nonunion businesses already struggling to afford health care plans.

Mr. Baucus's proposal would give union officials another tool to pressure employers into turning over their employees to Big Labor. Rather than provide the lavish benefits required by Obamacare, employers could allow a union to come in and negotiate less costly benefits than would otherwise be required. Such plans could be continuously exempted.

Americans are unlikely to support granting unions more power than they already have in the health-care field. History shows union bosses could abuse their power to shut down medical facilities with sick-outs and strikes; force doctors, nurses and in-home care providers to abandon their patients; dictate terms and conditions of employment; and impose a failed, Detroit-style management model on the entire health-care field.

ObamaCare is a Trojan Horse for more forced unionization.

Mr. Mix is president of the National Right to Work Committee.

from the Wall Street Journal, 2009-Oct-1, by Kimberley A. Strassel:

Rent-Seekers Inc.
Climate-change legislation helps a few big utility companies, but costs most Americans.

It isn't often an energy company (of all things) gets to present itself as an environmental crusader, cozy up to Washington rulemakers, buy political protection, and pad its bottom line—all in one neat little announcement. So give Pacific Gas & Electric, PNM and Exelon credit for going for the gold.

The three utility giants have made news recently by quitting the U.S. Chamber of Commerce. Their finer sensibilities, they explained, would no longer allow them to associate with an organization lacking in environmental fervor. How dare the Chamber demand the Environmental Protection Agency be transparent about the science it is relying on to regulate all carbon energy use. Heresy! "As a company with a clear and strong position on the importance of addressing climate change," we must go our own way, lamented PG&E's CEO Peter Darbee.

Fortunately for Mr. Darbee, that way leads to the bank. As much as supporters of cap and tax would like to spin this as a new corporate ethic, the reality is less edifying. The lesson here is that big business political rent-seeking is alive and thriving.

"The carbon-based free lunch is over," declared Exelon CEO John Rowe, neglecting to mention that his company's free lunch is only beginning. Under the House's climate-change bill, a few utilities—primarily those that have made big bets in renewable and nuclear energy—are poised to clean up once Congress hands them carbon emission credits. The bill sets aside 35% of the free credits for utilities. Exelon and other "renewable" utilities will get a huge piece of that pie.

An internal memo produced by Bernstein Research in June described how Mr. Rowe met with investors to rejoice that the House legislation will allow Exelon to rake in additional revenue—by some estimates, up to $1.5 billion a year. Others will pay for this Exelon privilege, of course—notably, Midwestern customers of traditional coal utilities who will see their energy prices double. But hey, all's fair in love and lobbying.

"Seeking greater competitive advantage through regulatory means is, lamentably, an entrenched fact of life in some corporate boardrooms . . . But breaking with an organization and creating a public stage on which to tout a company's green credentials is overwrought. This is about profit, not Gaia," says Oklahoma Sen. Jim Inhofe.

Speaking of senators, the utility exodus conveniently came only days before Sen. Barbara Boxer released her own draft climate bill. And Mrs. Boxer, also conveniently, left blank the portion allocating credits—all the better to bribe support out of key industry players by dangling precious goods in front of them. Emancipated from the Chamber, Exelon and others are free to play ball. The EPA's new emissions rules were also announced this week in tune with the Boxer bill, reminding companies that if they don't work with Congress, the EPA will make them pay without any compensating emissions credits.

Let's also not forget that Chicago-based Exelon and employees, including Mr. Rowe, contributed tens of thousands of dollars for their home-city presidential aspirant. And that Mr. Obama's senior adviser, David Axelrod, was once a consultant to Exelon. In an energy world in which winners and losers are picked on the Potomac, there is no harm in reminding the president who his friends are.

The move also keeps the mob at bay. Caught flat-footed by public outrage over health care, liberal interest groups are now attacking opponents of the Democratic agenda in personal terms. For the crime of talking straight about ObamaCare, former House leader Dick Armey and former New York Lt. Gov. Betsy McCaughey have been targeted and lost jobs in the private sector. The Natural Resources Defense Council is attempting a similar takedown of Chamber President Tom Donahue, in retribution on climate. The utility execs hope to avoid that bull's-eye. As extra insurance, Mr. Rowe this spring taped an ad with the Environmental Defense Fund, the smoothest of the green lobbies, to plump for climate legislation.

The Chamber's sin was giving the utilities the excuse to bolt by suggesting there be a "trial" on the science. The organization is doing its job, representing all its other members that will foot the climate bill. More astonishing than the exits from the Chamber is the news that the administration won't grant the business community's simple request to be transparent on its science. This obfuscation is becoming habit.

The stonewalling of the Chamber follows the muzzling of a career EPA scientist—Alan Carlin—who had questioned the scientific basis of the agency's moves. The agency is now considering shuttering Mr. Carlin's entire department—whose job it is to examine the economic consequences of agency rules. Treasury only reluctantly released climate documents demanded by the Competitive Enterprise Institute, and only after redacting a section about cost. Under pressure, it recently released the complete documents. So only now are we discovering that Team Obama believes a climate bill could cost the economy up to $300 billion annually.

The favored utilities don't mind this lack of transparency, since the more consumers realize how much they will pay for climate legislation, the less they support it. And save a few lucky utilities, pay America will.

from Dow Jones Newswires via WSJ.com, 2009-Sep-28, by Cassandra Sweet:

UPDATE: Exelon Latest To Leave US Chamber Over Climate Policy

SAN FRANCISCO--Power company Exelon Corp. (EXC) on Monday joined a stream of companies quitting the U.S. Chamber of Commerce over the chamber's stance against federal climate-change legislation.

The decision by Exelon, the nation's biggest nuclear power plant operator, follows similar moves last week by utilities PG&E Corp. (PCG) and PNM Resources Inc. (PNM), and highlights a growing rift in the nation's power sector and in other industries over climate policy. The U.S. government is under pressure, both from other countries and from U.S. states, to commit to reductions in greenhouse-gas emissions, particularly with the approach of a key global climate-change treaty summit in Copenhagen in December.

Chicago-based Exelon said the U.S. government needs to set climate-change policy promptly so companies can "put a price on carbon" and figure out how much it will cost to cut their emissions. The U.S. House of Representatives in June passed a landmark bill that would require the U.S. to cut greenhouse-gas emissions 17% from 2005 levels by 2020, and create a market-based program called cap-and-trade in which companies could buy and sell the right to emit carbon dioxide.

"The carbon-based free lunch is over," Exelon Chairman and Chief Executive John W. Rowe said in a statement. "But while we can't fix our climate problems for free, the price signal sent through a cap-and-trade system will drive low-carbon investments in the most inexpensive and efficient way possible."

The companies' departures are unlikely to change the Chamber's position on climate-change policy, said David Chavern, the group's chief operating officer. He added that although the Chamber opposed the House bill and it disagrees with plans by the U.S. Environmental Protection Agency to begin regulating greenhouse-gas emissions, the group isn't opposed to U.S. climate-change legislation.

"Congress should do everything it can to promote and incentivize technology development and other policies that allow us to control carbon in ways that don't trash the economy," Chavern said.

Exelon, PG&E and PNM all operate nuclear power plants and emit far less carbon dioxide than some of their peers, particularly companies that operate large fleets of coal-fired power plants. Coal plants produce roughly twice the greenhouse-gas emissions of similarly sized natural gas-fired plants. Nuclear power plants emit almost no greenhouse-gas emissions.

Despite their differences, U.S. power companies, represented by the lobbying group Edison Electric Institute, banded together in support of the climate-change legislation that passed the House.

The U.S. Chamber opposed that bill, sponsored by Reps. Henry Waxman, D-Calif., and Edward Markey, D-Mass. It also recently suggested that the U.S. hold a "Scopes-like" trial to debate evidence that climate change is man-made, in response to a proposed finding by the EPA that global warming poses a danger to public health.

The EPA's proposed finding and potential greenhouse-gas rules are in response to a 2007 Supreme Court ruling that directed the agency to determine whether greenhouse gases are pollutants that should be regulated under the Clean Air Act.

California Gov. Arnold Schwarzenegger last week criticized federal lawmakers for delaying action on climate-change legislation and urged them to ignore what he called "naysayers" who oppose such legislation.

California's 2006 climate-change law requires energy and other companies to cut their greenhouse-gas emissions starting in 2012. Ten Northeastern states, including New York and New Jersey, require power companies to cut their greenhouse-gas emissions under a program called the Regional Greenhouse Gas Initiative.

U.S. Sen. Barbara Boxer, D-Calif., is expected to unveil a climate-change bill shortly.

from the Wall Street Journal, 2009-Oct-8, p.A16:

Another Scary Czar
Some Blue Dogs have a better way to protect financial consumers.

The time of year has arrived again when the stores fill up with the masks and costumes of Halloween. Some folks probably think Washington has spent most of the past year creating scary things, from the Stimulus Monster to the Trillion Dollar ObamaCare castle. But wait, there's more. Moderate Democrats in Congress, small-town bankers and their customers are now trying to protect themselves from yet another Beltway "czar."

The name of this proposed Frankenstein is the Consumer Financial Protection Agency, or CFPA. Under the current draft in Barney Frank's Committee on Financial Services, the consumer czar would have the authority to collect fees from financial firms and dictate the "manner, settings and circumstances for the provision of any consumer financial products or services." The agency could require lenders to submit an unlimited amount of information, as often as the czar demands.

America's new regulator of lending would have the power to declare products and services "unfair" and "abusive." Obviously any such designation by a federal agency would create massive liability for services that were legal at the time they were offered. There will be no escape from the lawyers and their pitchforks: The lending czar could prohibit consumers and companies from agreeing to settle their disputes with arbitration instead of litigation. Boo.

The CFPA would get an oversight board made up of the heads of other financial regulatory agencies. But this is merely an apparition: The legislation explicitly states that the board has no executive authority. None. It can only "advise" [in Russian, “soviet” -AMPP Ed.] the director. This absence of effective checks and balances doesn't exactly fit with the mantra of responsibility in Washington these days.

The nominal point of this effort is to again punish the Wall Street titans for their sins.The good news is that it is dawning on Members of both parties in Congress that the CFPA monster is likely to damage the availability of consumer credit for their constituents. As analyst Meredith Whitney recently wrote in these pages, credit card lines have dropped 25% since last year. Credit lines available via credit cards are a critical source of financing for small businesses.

Is this decline entirely the result of the financial crisis, or are card issuers responding to new Federal Reserve regulations finalized in December? The Fed rules make it harder to change credit terms on existing customers. Congress and the President went further this past spring, enacting new restrictions on the ability of card issuers to raise rates, including on customers who don't pay on time.

This means that many former customers are simply no longer going to be profitable for banks. Expect more reductions in credit lines as the issuers try to adapt.

Undeniably it would benefit both lenders and borrowers if less credit were the result of stronger underwriting. That would prevent loans destined for default. But the consumer-protection diktats of the CFPA czar in far-off Washington will be explicitly divorced from considerations of bank safety and soundness.

Moderate Democrats, making yet another run to protect their constituents back home, have been circulating an alternative to the Frank proposal. They would immediately assign the existing federal regulators to a council that would ensure consistent rules for serving consumers across all institutions. They would also add state financial and insurance officials, elected by their peers among state regulators, to benefit from their expertise. The council would set broad rules on consumer protection and disclosure to eliminate perceived regulatory gaps.

Mr. Frank wants his committee to throw the switch on his own CFPA bill next week. Does he have the votes? As always, moderate Democrats fear that crossing the Chairman would mean the end of their influence.

Supporting Mr. Frank also has a cost, however. Rural members are hearing from community bankers that their strapped institutions can't afford new layers of Washington regulation to pay for the sins of Wall Street. In truth, many smaller banks also bet heavily on real estate, but are in no shape to take another hit to profitability.

The President has been giving speeches lately about all he's done to help the economy. Efforts like the CFPA monster, however, look more and more as if the crisis is being used simply to send more bureaucracy in the direction of an economy that can scarcely afford it.

from the Wall Street Journal, 2009-Sep-25, p.A14:

Fifty Eliot Spitzers
That's what the Frank-Obama proposal would unleash on banks.

Congress and the Treasury have been forced to peel back their financial reform ambitions, which is some cause for relief. But not nearly enough, because their plan for a new Consumer Financial Protection Agency would still unleash 50 state attorneys general to harass America's banks. Think Eliot Spitzer, without the self-restraint.

Under pressure from community bankers and Blue Dog Democrats, Barney Frank has been forced to eliminate the requirement that all credit terms be "reasonable"—whatever that means, other than an invitation to lawsuits. The House Financial Services Chairman has also dropped a demand that all banks offer "plain vanilla" financial products designed by a federal bureaucracy.

But the Frank-Obama proposal still contains the Treasury's not-so-bright idea to require all banks to comply with national rules, plus a different set of regulations in each state where they operate. The regulatory possibilities are endless, starting with the fact that each state could impose different rules for pricing, product features, repayment schedules, bank capital requirements, consumer disclosure, regulatory reporting requirements, and so on. If each state can set its own rules, expect endless legal confusion over which law prevails when a bank in one state serves a customer in another.

If a particular product is legal in New York, but illegal in New Jersey, can it be advertised in the New York media market? Will a family moving from Washington, D.C. to the Virginia suburbs be required to change all of the financial products they use? Comptroller of the Currency John Dugan warned in a speech yesterday of the chaos to come: "This radical change is fundamentally at odds with the concept of efficient national standards for national products and services offered across state lines."

The framers created the Commerce Clause of the Constitution precisely to prevent local and state governments from strangling free trade among the states. But the framers left it up to Congress to decide when to pre-empt state authority. Therefore the Frank-Obama plan is probably not unconstitutional. It merely overturns an 1864 judgment made by Abraham Lincoln and Congress that has allowed a national market in banking to flourish ever since.

The Frank-Obama rewrite of the National Bank Act would give state AGs the kind of enforcement power that even Mr. Spitzer, the former New York enforcer, probably never imagined. Not only could 50 attorneys general sue to enforce their new state laws; they would also gain the power to enforce federal laws. So even a practice deemed legal under federal law by federal authorities would still be open to 50 other interpretations, with the inevitable cost and confusion that would result.

A lawyer assault on interstate banking may sound like an assault on just the biggest national banks, but hundreds of banks have business in more than one state. If this is intended to be populist payback against Citigroup and the other big banks that had to be saved by the taxpayer, it misses the mark. The big banks are fighting the proposal, but they will learn to love it, as it impedes upstarts seeking to compete with the too big to fail crowd. Anyone starting an Internet bank, for example, would need to throw out the old business plan and contemplate the compliance costs inflicted by 51 separate regulators—52 if a customer logs on from Washington, D.C.

For all of this hassle and expense, we'd like to see the evidence that consumers will be better off when state bureaucracies start regulating interstate commerce. It is true that the distortions and subsidies dictated by federal regulators helped to create the credit crisis, but that doesn't mean that more state regulation would be an improvement. The Office of the Comptroller of the Currency has compiled a list of the worst mortgage companies measured by foreclosures on loans originated from 2005 through 2007. Of the worst 20 on the Comptroller's list, 14 were regulated by states.

This message is beginning to get through to Congress, and Mr. Frank told reporters Wednesday that he's willing to consider other views on whether to unleash state regulators. "It is something under discussion," said Mr. Frank. "It is going to be a collegial decision." That would be a first for this Congress, but after walking the Nancy Pelosi plank on so much bad and unpopular legislation, rank-and-file Democrats are finally starting to think for themselves.

The best outcome would be to defeat the new consumer agency entirely. Even a financial version of the Consumer Product Safety Commission—with ex post facto enforcement power—would only mean more expensive products, and fewer of them. That's no way to protect consumers or taxpayers.

from Commentary Magazine, 2009-Oct, by John Podhoretz:

The Return of Bad Ideas

These days, one of the strangest places on earth is Times Square, but not for the reasons one would have expected a mere 15 years ago. Its odd atmosphere is not due to transvestite hookers like the ones who worked on the corner of 46th and Eighth when I lived down the block in the early 1980s, nor the dozens of porn theaters that overtook the neighborhood in the 1970s like swine flu through a middle school. The neighborhood is so improved that faux-boho nostalgists are constantly bemoaning the loss of the delightful local color that wasn’t delightful at all if you had the misfortune to be resident in the midst of it.

No, the new strangeness is due to the fact that Broadway, the Great White Way itself, has been denuded of automobile traffic by order of the mayor, Michael Bloomberg, in June. Under the billboards and the neon, the street itself has been painted a weak ochre with outdoor furniture—chairs and tables and divans—sitting around in place of taxicabs and trucks and cars. Cars still move down Seventh Avenue, which is right next to it, but a wide expanse that is neither park nor street suddenly took Broadway’s place.

The overall effect is bizarre. Pedestrians don’t quite know what to do with the extra space; they mill about confusedly. While the sidewalks of Times Square did suffer at times from grievous overpopulation, especially in the hours before and after the Broadway theaters plied their wares, most of the time they were no more than vibrantly busy. The spillover from the sidewalk to the street occasioned by the removal of automobiles is unnatural and discomfiting.

The stated motivation for the street closure is a peculiar one. Bloomberg’s administration claims that by eliminating several key blocks from the automotive grid and making the passage by car through Manhattan’s midtown more difficult, the end result will be a net improvement in the city’s horrible traffic. This is another species of the absurd but longstanding argument that road improvements worsen congestion—and, by logical extension, that making it more difficult to use roads for traversal will somehow reduce it. It is true that taxi and truck drivers are avoiding Broadway like the plague in the half-mile north of the closure. Which means they are taking Fifth, Seventh, Ninth, and Eleventh Avenues on their way downtown instead, thus oozing the supposed traffic crisis from Times Square throughout the West Side and wreaking havoc elsewhere.

In the meantime, the new plan is a havoc of its own. Steve Cuozzo of the New York Post is appropriately withering on the subject, calling the new street pattern “an unconscionable tampering with the chemistry of the city’s most iconic place, with results already visibly disastrous.”

But surely the oddest thing about the Times Square disaster is that it was entirely predictable, based on hard-won wisdom of the effects of these sorts of measures on cities across the country—including New York City. And it is surely instructive that, in 2009, that hard-won wisdom was simply forgotten or ignored by a resourceful, overconfident, and high-handed politician intent on leaving a dramatic thumbprint on his town no matter what.

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Perhaps the craziest of the great urban-planning crazes from the late 1950s onward was the conversion of troubled center-city areas into pedestrian malls.¹ From Kalamazoo, Michigan, in 1959, to Sacramento, California, in 1969, to Chicago’s State Street in 1979, Brooklyn’s own Fulton Street in the 1970s, and dozens of others, cities went on a street-closing binge in their downtowns in an attempt to reverse the slide in the fortunes of once vital shopping districts. The results were catastrophic. In nearly every instance, the pedestrian mall only hastened the neighborhood’s decline, and in city after city the streets were eventually restored to their original condition—though in the cases of Kalamazoo, Sacramento, and Chicago, the reversal literally took decades to effect.

By the time the consensus changed and the street patterns were restored, politicians were literally involving themselves in the destruction of the barriers to cars. In Chicago, Mayor Richard Daley manned a jackhammer on the morning in 1996 when State Street’s concrete blocks were removed. “As mayor,” he said, “I have found it difficult to find out whose idea this was in the first place.” And indeed, State Street’s restoration was the hinge moment in the revival of Chicago’s Loop, with grimy office buildings retrofitted into luxury condominiums and the creation of a magnificent new park just blocks away, the sort of place that welcomes rather than repels foot traffic.

As Dave Feehan of the International Downtown Association described the malls:

They were designed in some ways after European cities that had pedestrian streets. However, we made several mistakes in doing this in the U.S. We didn’t look at the way European streets work or are designed.

European streets were, of course, “designed” in the centuries that preceded the invention of the automobile, and those areas where cars cannot really tread have an organic feel to them. But this nation’s great cities either anticipated the arrival of the car or were explicitly laid out with the car in mind. An American street can be turned into a semi-park only by political fiat—and a semi-park is all Broadway can be anyway, since Bloomberg’s Broadway mall is interrupted every hundred feet by an intersection with a numbered street to afford through-passage to . . . automobiles.

 Bloomberg can argue that the Broadway -experiment differs from what came before because the change is not an attempt to reverse the decline of Times Square but to manage the consequences of its roaring success. Whatever its purpose, the effect is already negative, as Cuozzo writes:

Two Times Square restaurants told me on a not-for-attribution basis that business has been down since the plazas were set up after Memorial Day—a fact that’s counterintuitive until you realize that a horde of milling, idling tourists can chase away purposeful strollers looking for a place to eat. In fact, leading businesspeople are alarmed over the damage the scheme threatens to do to Times Square’s office buildings, stores, hotels, restaurants and theaters—all industries reeling from the recession.

No matter. Bloomberg has a habit of ignoring the lessons of recent history when they do not comport with his desires. At the same time that he introduced the Broadway closure, Bloomberg initiated an aggressive new system of bike lanes in various parts of Manhattan, despite the fact that exactly the same thing was tried under Mayor Ed Koch in 1981 and abandoned almost immediately when it became apparent they were taking up 10 percent of the avenues but hosting only a few hundred cyclists a day.

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What will happen with Times Square and the bike lanes is anybody’s guess; supposedly the matter is being studied through the end of the year, and no final decision to keep them has been made. But the larger lesson here has to do with the nature of political ideas in a democracy. The pedestrian mall was an idea; the notion of limiting traffic to improve traffic is yet another idea; the replacement of cars by bicycles still another idea. They were and are interesting ideas, innovative ideas, ideas that are fun to discuss and even more entertaining to design. The one complicating factor is that there are ideas that have actually been made flesh.

In practice, they proved to be, and still prove to be, bad ideas. And now these ideas are again in force—just as Barack Obama is in force with a panoply of statist ideas that had seemed to have landed on the ash-heap of history in 1996, when Bill Clinton declared that the “era of big government is over.”

In a democracy, nothing is ever over. Bad ideas come roaring back, and good ones are tossed aside in fits of boredom and an excessive hunger for social and political experimentation. To which one can only invoke the wisdom of Solomon and say, “This too shall pass.” The only question is how much damage is done before it does.

from the Wall Street Journal, 2009-Oct-3, p.A12:

The Young and the Jobless
The minimum wage hike has driven the wages of teen employees down to $0.00.

Yesterday's September labor market report was lousy by any measure, with 263,000 lost jobs and the jobless rate climbing to 9.8%. But for one group of Americans it was especially awful: the least skilled, especially young workers. Washington will deny the reality, and the media won't make the connection, but one reason for these job losses is the rising minimum wage.

Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers.

The September teen unemployment rate hit 25.9%, the highest rate since World War II and up from 23.8% in July. Some 330,000 teen jobs have vanished in two months. Hardest hit of all: black male teens, whose unemployment rate shot up to a catastrophic 50.4%. It was merely a terrible 39.2% in July.

The biggest explanation is of course the bad economy. But it's precisely when the economy is down and businesses are slashing costs that raising the minimum wage is so destructive to job creation. Congress began raising the minimum wage from $5.15 an hour in July 2007, and there are now 691,000 fewer teens working.

As the minimum wage has risen, the gap between the overall unemployment rate and the teen rate has widened, as it did again last month. (See nearby chart.) The current Congress has spent billions of dollars—including $1.5 billion in the stimulus bill—on summer youth employment programs and job training. Yet the jobless numbers suggest that the minimum wage destroyed far more jobs than the government programs helped to create.

Congress and the Obama Administration simply ignore the economic consensus that has long linked higher minimum wages with higher unemployment. Two years ago Mr. Neumark and William Wascher, a Federal Reserve economist, reviewed more than 100 academic studies on the impact of the minimum wage. They found "overwhelming" evidence that the least skilled and the young suffer a loss of employment when the minimum wage is increased. Whatever happened to President Obama's pledge to follow the science? Democrats prefer to cite a few outlier studies known to be methodologically flawed.

State lawmakers are also at fault. At least 10 states have raised their minimum wages above the federal level in the last decade, largely in response to union lobbying and in the name of helping the working poor. Four states with among the highest wage rates are California, Massachusetts, Michigan and New York. Studies have shown in each case that their wage policies killed jobs for teens. The Massachusetts teen employment rate sank by one-third when the minimum wage rose by 88% between 1995 and 2008.

According to new numbers from the Labor Department, in 2008 only 1.1% of Americans who work 40 hours a week or more even earned the minimum wage. In other words, 98.9% of 40-hour-a-week workers earn more than the minimum. The data also show that teenagers are five times more likely to earn the minimum wage than adults. Minimum wage jobs are nearly all first-time or part-time jobs, and an estimated two of every three minimum wage workers get a pay raise within a year on the job.

Study after study reveals that there are long-term career benefits to working as a teenager and that these benefits go well beyond the pay that these youths receive. A study by researchers at Stanford found that those who do not work as teenagers have lower long-term wages and employability even after 10 years. A high-wage society can only come by making workers more productive, and by destroying starter jobs the minimum wage may reduce long-term earnings.

Another recent study across 17 OECD nations, also by Messrs. Neumark and Wascher, found a highly negative association between higher minimum wages and youth employment rates. But it also concluded that having a starter wage, well below the minimum, counteracts much of this negative jobs impact. If Congress won't suspend its recent minimum wage hike, it should at least create a teenage wage of $4 or $5 an hour to help put hundreds of thousands of teens back to work. White House chief economic adviser Larry Summers has endorsed this in the past. Without this change, expect the teen unemployment to remain very high for a long time.

The wonder of it all is that liberals still call "progressive" a policy that has driven the wages of hundreds of thousands of the lowest skilled workers down to $0.00.

from the Wall Street Journal, 2009-Sep-17, p.A22:

A Gift for Labor
Union 'card check' isn't dead yet, and it may be getting worse.

The AFL-CIO crowned a new king yesterday at the labor federation's convention in Pittsburgh. Now some Democrats are rushing to pay the union's new president, Rich Trumka, tribute by reviving Big Labor's top legislative priority, the "card check" legislation.

First in line: Senator Arlen Specter (version 2009, Democrat), who turned up in Pittsburgh to tout new wrapping for the same old bill that got waylaid in the face of opposition from moderate Democrats and the GOP. When Mr. Specter was a Republican, lo, these many weeks ago, he opposed rigging the rules to ease unionization and reverse a decades-long free fall in membership. Now, as a Democrat, he needs labor to keep his seat in next year's Pennsylvania Senate Democratic primary. Mr. Specter is nothing if not adaptable, and he gave the misnamed Employee Free Choice Act enthusiastic support and claimed a breakthrough to pass the bill "before the year is up."

Mr. Specter's revised bill would accomplish the same goals as the old "card check" by slightly different means. He said a new proposal negotiated among a small group of Senators, yet to be unveiled, drops the provision to end the secret-ballot in union elections. In place of this proposal to automatically unionize if more than half the employees sign union cards, they are proposing an election within a week or so of a minority of employees petitioning for a union. This shotgun vote is intended to deny employees the kind of educated choice that comes with a proper discussion of the merits of unionization informed by both management and labor.

The new old "card check," according to Mr. Specter, also gives unions unprecedented access to the workplace and meetings between employers and employees before a vote to unionize. Last we checked the Constitution, even in the age of Obama private companies haven't signed away their property rights.

An equally problematic binding arbitration provision stays in. This idea would let a federal arbitrator impose a contract if the employer and a newly organized union aren't able to agree within three months. In other words, a government-sponsored agent would decide what salaries and benefits management will have to pay its employees. Throw in the expanded access to company property, and this so-called compromise bill may be worse than the original.

Mr. Specter claimed that moderate Democrats who have opposed "card check" such as Nebraska's Ben Nelson and Arkansas's Blanche Lincoln would now vote to stop what is certain to be a Republican filibuster attempt. Rather than take his word for it, we checked with them. Senator Lincoln's office said "her position has not changed." Mr. Nelson's office says he "doesn't have much to say" until a bill actually comes before the Senate.

Sixty votes are needed to make this long-held dream of the labor chieftans come true. That won't be easy. But Mr. Specter's latest flip and President Obama's repeated support for "card check" are noteworthy reminders that after health-care reform, the Democrats have other big outstanding debts to their left, which they intend to settle.

from the Wall Street Journal, 2009-Oct-2, by Paul Ingrassia:

Saturn Couldn't Escape GM's Dysfunctional Orbit
Union leaders hated the flexible work rules and eventually got rid of them.

General Motors and the United Auto Workers union have waged war against each other—sometimes hot, sometimes cold—for most of the past 80 years. One of the few things on which they collaborated, sadly, was undermining Saturn, which began as the boldest effort to reform the dysfunctional dynamics of their relationship.

On Wednesday, what appears to be Saturn's death knell sounded when Roger Penske, the legendary automotive entrepreneur, abandoned his plan to buy Saturn from GM and run it as an independent car company. Mr. Penske's plan was a long shot anyway. He had intended to make Saturn a distributor and retailer only, procuring the vehicles from auto makers—initially GM and then France's Renault—on a contract basis.

One inherent problem was that the companies making cars for Saturn also would be its competitors, if only indirectly in Renault's case. (Renault controls Nissan, which competes head-to-head with Saturn in the U.S.) So it was little surprise when Mr. Penske couldn't reach acceptable terms with Renault and pulled out of the deal. Barring a miracle, GM now will "move quickly to wind down Saturn," as GM Treasurer Walter Borst said Thursday at an analysts' conference in Scottsdale, Ariz., and many dealers likely will shut their doors soon.

But make no mistake: The failure here isn't Mr. Penske's. Saturn was killed by its creators, GM and the UAW. The company starved Saturn for new products, and the union waged war against Saturn's labor reforms to keep them from spreading to other GM factories.

The story began on Jan. 8, 1985, when GM announced Saturn at a press conference in Detroit. It would be GM's first new brand in 70 years and operate as a separate subsidiary, with its own labor contract, to develop a small car fully competitive with the imports. Chairman Roger B. Smith assigned Saturn a historic mission: to "affirm that American ingenuity, American technology and American productivity can once again be the model and the inspiration for the rest of the world."

Those stirring words were echoed seven months later in a Memorandum of Understanding between GM and the UAW: "We believe that all people want to be involved in decisions that affect them, care about their jobs . . . and want to share in the success of their efforts." Saturn became not just a company but a cause. Its factory would be in Spring Hill, Tenn., a bucolic town 45 miles south of Nashville and hundreds of miles from the hidebound headquarters of GM and the UAW in Detroit.

Saturn's chief UAW apostle was Donald Ephlin, the visionary head of the union's GM department who passed away in 2000. Ephlin strongly believed that Detroit's auto makers and the UAW had to change from confrontation to collaboration.

Thus the Saturn contract, built on the Memorandum of Understanding, eliminated most of the work rules that strictly limit the tasks UAW members can perform. Workers would be called "technicians" and get just 80% of standard UAW wages but would share in Saturn's profits, allowing them to earn more if Saturn succeeded. Most Saturn executives and managers would be assigned a UAW counterpart, and the two would share in key decisions.

The latter provision was overly idealistic, but certainly an improvement over constant and costly combat. Nonetheless, Saturn's labor innovations were attacked by UAW traditionalists, who coined the term "Ephlinism" to describe Saturn's heresies. Ephlin retired, on the defensive, in 1989. Mr. Smith retired a year later, his reputation besmirched by GM's chronic underperformance, just before Saturn built its first cars.

The cars were pretty ordinary, causing Honda engineers to scoff when they disassembled one. But the engineers couldn't see Saturn's emotional appeal, reinforced with advertising about labor-management cooperation amid the down-home values of Spring Hill. One ad featured a technician kneeling next to his Irish setter and saying: "What's happened here is something I'd like my grandchildren to know about."

Saturn dealers were awarded broad area franchises, freeing them to focus on customers instead of competing with dealers down the block. Customers loved the no-haggle pricing and being cheered by employees when they drove their new car off the lot. More than 40,000 Saturn owners attended the June 1994 Saturn Homecoming in Spring Hill, where they were treated to factory tours, country-music concerts, and picnics with the workers who built their cars.

In June 1993, Vice President Al Gore visited Spring Hill and said he wanted to "Saturnize" the federal government, whatever that meant. The Age of Aquarius was meeting the automotive assembly line. Saturn sales peaked at 286,000 cars in 1995.

But that year saw another, more menacing development. The UAW elected as its new president Stephen P. Yokich, a militant firebrand with an explosive temper who hated Saturn. Before his death in 2002, he opposed profit-sharing, the elimination of work rules, and the flexible factory shifts that improved Saturn's efficiency.

Yokich convinced GM to assign a new Saturn model to a factory in Delaware instead of Spring Hill. He worked to unseat Mike Bennett, an Ephlin protégé, as president of UAW Local 1853 at Saturn. Mr. Bennett was defeated for re-election in 1999.

Meanwhile, Saturn wasn't faring much better at the hands of management. After GM almost went bankrupt in 1992, the cash-strapped company didn't give Saturn money to update its cars. The decision was understandable but unfortunate. By the time new models finally arrived, Saturn's sales had fallen dramatically and Saturn didn't seem so special any more.

In 2003 the Spring Hill technicians—now workers again—voted to scrap Saturn's special agreement and return to the UAW's standard contract with GM. Spring Hill became a regular GM factory after the last Saturn was built there two years ago. Ironically, the town of Spring Hill still has a street called Stephen P. Yokich Parkway.

GM is cagey about whether Saturn ever was profitable; the answer likely depends on accounting allocations for corporate overhead and the like. But in recent years Saturn, like the rest of GM, clearly was losing money. Without a special labor contract or any unique vehicles, Saturn was a clear candidate for closure when President Barack Obama's automotive team forced GM to downsize in the government bailout.

Mr. Penske then attempted to save Saturn by buying the brand and creating an automotive Costco that would procure cars from various manufacturers. Saturn always had portrayed itself as "a different kind of company," but this was too different to succeed.

Last week I went to Tennessee to speak to the Republican Women's Club of Williamson County, home of the former Saturn factory. Some of the attendees were former Saturn workers, good people who really tried to create something different at Spring Hill but were let down by their company and their union. Perhaps the new GM and the UAW will forge a different relationship in the future. Meanwhile, the Saturn workers' sense of loss is expressed poignantly by Mike Bennett, their former union leader, who says, "I wake up at night sick, thinking about all the things that might have been."

Mr. Ingrassia is a Pulitzer Prize-winning former Detroit bureau chief of this newspaper. His book "Crash Course: the American Automobile Industry's Road from Glory to Disaster," will be published by Random House in January.

from the Wall Street Journal, 2009-Sep-12:

A Protectionist Wave
Obama invites a rush of similar claims with his tariffs on Chinese tires.

The White House leaked word late Friday evening that the U.S. will impose a 35% tariff on imported Chinese tires used by millions of low-income Americans. We wonder if President Obama understands the political forces he's unleashing with this blatant protectionism.

Mr. Obama is setting a precedent in the tire case because he is applying a previously unused part of the trade law known as Section 421. This allows U.S. industries or unions to seek protection from "surges" of Chinese imports, with a lower burden of proof than normal antidumping or countervailing duty cases. President Bush nixed the four Section 421 petitions that reached his desk, citing the national economic interest. Domestic lobbies had lobbied Mr. Obama hard to reverse that pattern and set a new protectionist precedent.

Eleven Senators, including Sherrod Brown (D., Ohio) and Debbie Stabenow (D., Mich.), sent a letter to President Obama in July advocating the tariff on Chinese tires. "We firmly believe that providing this specific measure of relief would send a powerful message to the American people that you intend to keep your promise to enforce trade laws fully," they wrote.

Then there are companies that face competition from lower-cost Chinese imports and want to push their antitrade agenda forward. Take the Committee to Support U.S. Trade Laws, which lobbed a pro-tariff letter into the White House this month. The umbrella group includes the American Furniture Manufacturers Committee for Legal Trade; the California Fresh Garlic Producers Association; the U.S. Beekeepers; the Florida Fruit & Vegetable Association; and the Flower Growers of Puget Sound. "This case is being watched closely to see whether Section 421 is an effective law or a dead issue,"committee executive director David A. Hartquist wrote to Mr. Obama.

This threat will now be realized as other industries pursue the 421 solution to reducing competition. Some of the product categories that have seen import surges include shoes, lawn mowers, television monitors, hearing aids, musical instruments like keyboards and guitars, women's underwear, blouses and t-shirts, according to Greg Rushford, editor of a newsletter on trade policy. Oh, and trousers, women's knit shirts and bras, according to Cass Johnson, president of the National Council of Textile Organizations—another lobby that must be gleeful that Mr. Obama has unleashed Section 421.

As a candidate, Mr. Obama courted union support, and the United Steelworkers filed the tire case anticipating he would pay them back. Some in the business and policy communities thought Mr. Obama didn't really mean it, and that like Bill Clinton he would stand for the national economic interest in open trade once he became President. Mark that down as another misjudgment. In his first big trade test in the White House, Mr. Obama has allied himself with the protectionists, and the world will see his political surrender and rush to exploit it.

from the Wall Street Journal Asia, 2009-Sep-24:

The Obama Tire Tax
What U.S. consumers will pay to appease his union base.

Remember that 35% tariff President Obama imposed on tires imported from China this month? American drivers will sure find it hard to forget, as the higher costs start trickling down to U.S. consumers.

Since the tariff announcement on September 11, U.S. tire wholesalers have been warning that their sales prices to retailers will increase by about 15% on average. In some cases, the hikes are as high as 28%, according to industry sources. The only reason prices haven't risen by the full 35% tariff rate yet is that wholesalers still have some pre-tariff inventory stocks in their warehouses.

Eventually, this Obama tire tax will squeeze consumers hard because wholesalers and retailers have margins too thin to absorb much of the impact themselves. It may take a few months, Bill Trimarco of Hercules Tire in Ohio told us, but the price hikes are coming.

Low-income Americans will bear the brunt of the pain because Chinese tiremakers sell the cheapest tires, retailing for about $50 a piece at the lowest. An extra $15 for two replacement tires or $30 for four—and up to $70 more once the full tariff cost hits the market—might not sound like much. But for Americans scraping by on tight budgets, or who have lost their jobs in the recession, that amounts to school supplies for the kids, some new clothes or a tank or two of gasoline. Or consumers can just take the safety risk of driving a little longer on worn-out tires before replacing them.

Mr. Obama's political sop to the United Steelworkers union that requested this tire protectionism will be expensive for the economy overall, too. Rutgers economist Thomas J. Prusa, who had estimated the potential impacts of tariffs at the request of tire importers, calculates that the 35% tariff will cost the economy about 20,000 jobs in the tire distribution and retail sector while "saving" only 1,000 jobs at domestic manufacturing plants. U.S. consumers will pay $330,000 in higher tire prices for each of those 1,000 jobs.

Perhaps Mr. Obama thought setting the rate at 35% would be a good compromise since the International Trade Commission had proposed a tariff of 55%. The reality is that industry margins are so thin and consumer budgets are so tight that even a 35% tariff will hurt the economy. Mr. Obama's first big trade-policy call is turning out to be a very expensive mistake.

from the Wall Street Journal, 2009-Sep-17, p.A23, by John F. Cogan, John B. Taylor and Volker Wieland:

The Stimulus Didn't Work
The data show government transfers and rebates have not increased consumption at all.

Is the American Recovery and Reinvestment Act of 2009 working? At the time of the act's passage last February, this question was hotly debated. Administration economists cited Keynesian models that predicted that the $787 billion stimulus package would increase GDP by enough to create 3.6 million jobs. Our own research showed that more modern macroeconomic models predicted only one-sixth of that GDP impact. Estimates by economist Robert Barro of Harvard predicted the impact would not be significantly different from zero.

Now, six months after the act's passage, we no longer have to rely solely on the predictions of models. We can look and see what actually happened.

Consider first the part of the package that consists of government transfers and rebates. These include one-time payments of $250 to eligible individuals receiving Social Security, Supplemental Security Income, veterans benefits or railroad retirement benefits and temporary reductions in income-tax withholding for a refundable tax credit of up to $400 for individuals and $800 for families with incomes below certain thresholds. These payments, which began in March of this year, were intended to increase consumption that would help jump-start the economy. Now that a good fraction of these actions have taken place, we can assess their impact.

The nearby chart reviews income and consumption through July, the latest month this data is available for the U.S. economy as a whole.

Consider first the part of the chart pertaining to the spring of this year and observe that disposable personal income (DPI) — the total amount of income people have left to spend after they pay taxes and receive transfers from the government — jumped. The increase is due to the transfer and rebate payments in the 2009 stimulus package. However, as the chart also shows, there was no noticeable impact on personal consumption expenditures. Because the boost to income is temporary, at best only a very small fraction was consumed.

This is exactly what one would expect from "permanent income" or "life-cycle" theories of consumption, which argue that temporary changes in income have little effect on consumption. These theories were developed by Milton Friedman and Franco Modigliani 50 years ago, and have been empirically tested many times. They are much more accurate than simple Keynesian theories of consumption, so the lack of an impact should not be surprising.

Indeed, one need not have looked any further than the Bush administration's Economic Stimulus Act of 2008 to find plenty of evidence that temporary payments of this kind would not jump-start consumption. That package made one-time payments and rebates to people in the spring of 2008, but, as the chart shows, failed to stimulate consumption as had been hoped. Some argued that other factors such as high oil and gasoline prices caused consumption to fall during this period and that consumption would have been even lower without the stimulus, but no significant impact of these rebates is found even after controlling for oil prices.

Consider next the government-spending part of the stimulus package. The Obama administration points to the sharp reduction in the decline in real GDP from the first to the second quarter of 2009 as evidence that the package is working. Economic growth was minus 6.4% in the first quarter and minus 1% in the second quarter, so the implied improvement of 5.4 percentage points is indeed big. But how much of that improved growth rate can be attributed to higher government spending due to the stimulus? If we rely on predictions of models, again we see disagreement and debate. According to our research with modern macroeconomic models, the increase in government spending would add less than a percentage point, a relatively small portion. The model predictions cited by the administration's economists suggest a much larger portion: two to three percentage points. Prof. Barro's model predicts zero.

So let's look at the data on the contributions of government spending and other components of GDP to the 5.4 percentage-point improvement. By far the largest positive contributor to the improvement was investment which went from minus 9% to minus 3.2%, an improvement of 5.8% and more than enough to explain the improved GDP growth. Investment by private business firms in plant, equipment and inventories, rather than residential investment, were the major contributors to the investment improvement. In contrast, consumption was a negative contributor to the change in GDP growth, because consumption growth declined following the passage of the stimulus package.

One is hard put to see what specific items in the stimulus act could have arrested the decline in business investment by such a magnitude. When one looks at monthly investment indicators such as new orders for nondefense capital goods one sees a flattening out starting early in the first quarter of 2009, well before the package went into operation. The free fall of investment orders caused by the financial panic last fall stabilized substantially by January, and investment has remained relatively stable since then. This created the residue of a very large negative growth rate from the fourth quarter of 2008 to the first quarter of 2009, and then moderation from the first quarter to the second of 2009. There is no plausible role for the fiscal stimulus here.

Direct evidence of an impact by government spending can be found in 1.8 of the 5.4 percentage-point improvement from the first to second quarter of this year. However, more than half of this contribution was due to defense spending that was not part of the stimulus package. Of the entire $787 billion stimulus package, only $4.5 billion went to federal purchases and $17.7 billion to state and local purchases in the second quarter. The growth improvement in the second quarter must have been largely due to factors other than the stimulus package.

Incoming data will reveal more in coming months, but the data available so far tell us that the government transfers and rebates have not stimulated consumption at all, and that the resilience of the private sector following the fall 2008 panic — not the fiscal stimulus program — deserves the lion's share of the credit for the impressive growth improvement from the first to the second quarter. As the economic recovery takes hold, it is important to continue assessing the role played by the stimulus package and other factors. These assessments can be a valuable guide to future policy makers in designing effective policy responses to economic downturns.

Mr. Cogan, a senior fellow at the Hoover Institution, was deputy director of the Office of Management and Budget under President Ronald Reagan. Mr. Taylor, an economics professor at Stanford and a Hoover senior fellow, is the author of "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" (Hoover Press, 2009). Mr. Wieland is a professor of monetary theory at Goethe University in Frankfurt, Germany.

from the Wall Street Journal, 1979-Apr-18, republished 2003-Dec-15, by Robert L. Bartley:

Down With Big Business

(Editor's note: This editorial appeared in The Wall Street Journal, April 18, 1979. It was written by Robert L. Bartley, who died last week, and was among the works that won him the 1980 Pulitzer Prize for editorial writing.)

Our suspicion of big business has been soaring ever since the great catalytic converter debate, in which General Motors and Ed Muskie ganged up on Chrysler. Back in 1973, Chrysler was seeking a delay in auto emission standards to avert the catalyst. Its arguments had Senator Muskie backed into a corner, but GM had already bought its platinum and tooled up to sell catalysts. So GM came out for "clean air" and gave us the catalyst.

As a result: Consumers have had to shell out millions more for their autos, and the auto marketplace has become increasingly difficult. Cars now get rid of extra hydrocarbons by burning them in a catalyst, where they become waste heat. The development of auto engines has been diverted away from then-promising lines, such as the stratified-charge engine, which would have burned "excess" hydrocarbons in the cylinder, where they become energy. Cars now need unleaded gasoline, which takes more Arab crude to make, and which was hard to find last Sunday. The hydrocarbon emission standards have been met, but whether the air is cleaner depends on whether you like the sulphur mists catalysts produce.

GM prospers. Chrysler is on the ropes.

All this is brought to mind by General Motors' current corporate-citizenship campaign. GM is telling us how to lick inflation. "A voluntary program will work, if everyone volunteers," GM Chairman Thomas A. Murphy has written chief executives of the rest of the Fortune 500 to urge compliance with President Carter's wage-price guidelines. And GM has taken out newspaper ads to exhort the populace and brag about its own "commitment" to mother, flag and the Council on Wage and Price Stability.

Now, this may seem like a strange time to start campaigning for the wage-price control program. It's one thing to board the Titanic as it leaves port, but quite another to come on board when the water is coming over the gunwales. In its ads, GM was thoughtful enough to clear up this mystery quickly, etching in boldface the following words:

"We have written to our suppliers, informing them of GM's commitment and asking them all to make the same commitment."

So this time, GM and Jimmy Carter are ganging up on the XYZ Bumperlight Lens Co. Five years from now, with the help of Mr. Carter, Mr. Kahn and so on, XYZ Bumperlight Lens will be the XYZ plant of the lens section of the light division of the bumper arm of the manufacturing subsidiary of guess who?

These insights are gradually helping us to understand why the very biggest businesses are such unreliable allies in the fight to preserve a free enterprise economy. We're sure, of course, that Mr. Murphy thinks of himself as a capitalist, and can give as stirring an "economic education" speech as anyone around. We're sure that it has never even occurred to him that since GM has a bigger cushion than its suppliers, it can grind them down if the economy is locked up in price standards. We're sure that he and other GM officers have persuaded themselves that the government is waging fiscal and monetary restraint, and sincerely believe that wage-price voluntarism will help it work faster.

For all that, self-interest finds a way to get itself expressed, and the business giants have rather equivocal interests in free enterprise. They always have the option of doing everything left-handed and backwards if that's what the government wants; indeed, that kind of regulation gives them an advantage over less durable competitors. A lot of little guys can make nuisances of themselves if they start resigning from giant research, inventing things, and raising money to form their own companies that compete with the gidget section of the widget division. And GM and du Pont and Exxon and GE are so big even the government has to come to terms with them, or so at least they can believe. And what could be so bad about becoming a public utility and being allowed 8% or so on whatever you invest; it works for Ma Bell?

This is of course a caricature of big corporations, their executives and their motives. But it is a caricature drawn to highlight an impulse that we do think accounts for otherwise inexplicable parts of their attitudes toward free enterprise. Historically capitalist economies have prospered through competition, innovation and particularly a sensitive price mechanism transmitting unimaginably efficient signals for less production here and more investment there. If you freeze the system you will lose its thrust toward progress. But in many ways GM's life will be easier. So don't look to big business for unequivocal defenses of capitalism. We guess that's up to the folks at XYZ Bumperlight Lens.

from the Wall Street Journal, 2009-Oct-1, by Matt Miller:

A Real Employee Free Choice Act
Big business is fighting the most important health-care reform.

As health reform legislation hurtles toward its finale, corporate America has rushed to the barricades to make sure that big business remains at the heart of the welfare state. The Business Roundtable, the Chamber of Commerce and the National Association of Manufacturers are united in their belief that Sen. Ron Wyden's (D., Ore.) "free choice amendment" must be stopped.

Mr. Wyden's measure, which is being offered as an amendment to the Baucus bill in the Senate Finance Committee, would come into play if employers failed to offer their workers meaningful choice of affordable plans. In that case, employees would be allowed to turn the cash employers currently spend on their health benefits into vouchers with which they could buy coverage from newly created insurance exchanges.

Big business thinks that giving employees this choice would be a calamity. To which one can only ask: Have these business lobbies lost their minds?

When the post-mortems on the health-care reform debate are written, the biggest mystery will be why big business fought so hard to stay in the health-care business even as soaring health costs surpassed corporate profits and diverted executive time better devoted to actually running companies.

America's employer-based health-care system may have made sense 50 years ago, when care was cheap, U.S. business faced little global competition, and fending off socialism was a Cold War priority. Circumstances have changed radically since that time. Yet corporate America—egged on by human resources executives threatened by change—remains caught in a time warp.

It's bad enough that business didn't do the smart thing up front and urge President Barack Obama to move the nation beyond employer-based care. That was major lost opportunity No. 1.

But on what possible theory does big business now assert that the 175 million Americans who get coverage on the job deserve no new choices? Most firms offer just one insurance plan, or narrow set of plans, to their workers. Why shouldn't these Americans also benefit from the myriad options that will become available from newly established competitive insurance exchanges?

The language used in a letter sent Tuesday to the Senate Finance Committee from something called the "National Coalition on Benefits"—a body controlled by corporate HR execs—reveals the confusion and paternalism still permeating the executive suite when it comes to the employer's role.

Mr. Wyden's proposal, the coalition asserts, would "fundamentally frustrate employers' attempts to administer integrated health improvement strategies." As a factual matter, this is incorrect. But why should "health improvement strategies" be the job of American businesses? Sounds more like a job for American doctors, in conjunction with their patients.

The status quo crowd also writes that Mr. Wyden's measure "would likely harm employer-employee relations because most employees have a longstanding expectation that their employer will be their primary source for health coverage." But employees already chafe at the shrinking coverage now available on the job. And who wouldn't want more options?

It's clear to anyone who looks that the edifice of employer-based coverage is crumbling. A recent survey sponsored by the Committee for Economic Development, a business-led think tank, showed that 62% of senior executives think the system is unsustainable. While the under-65 population has grown by 25 million since 1999, the number of people who get health care from their employers has declined. Numerous CEOs have told me privately that they'd just as soon get out of the benefits business altogether, which makes one wonder who the National Benefits Coalition really represents.

Mr. Wyden's measure would strike a modest but meaningful blow for modernity by making it possible, for the first time, for American workers to access group coverage outside their jobs. Once the infrastructure of these insurance exchanges is established, more firms will offer more people more choices over time. If business is smart, it will then strike a grand bargain in which government picks up the costs of the health-care voucher in exchange for business lending its support to the modest consumption tax needed to replace the corporate money being withdrawn from the system.

If this plays out as it should, the result will not be the single-payer system of Britain or Canada, but an American version of the Swiss or Dutch model of universal coverage in which private insurers and providers organize and deliver care. A decade or so from now, finally freed from this antiquated health-care system, everyone in corporate America should be happy.

Except for HR executives at big companies, who will have surrendered the commanding heights of the welfare state. So here's a thought, Sen. Wyden: Sweeten your amendment with a generous buyout plan for HR chiefs at the Fortune 500. And watch opposition to more freedom and choice for millions of Americans melt away.

Mr. Miller, a management consultant, is the author of "The Tyranny of Dead Ideas: Letting Go of The Old Ways of Thinking To Unleash a New Prosperity," (Times Books, 2009).

from Life and Health Insurance News, 2009-Sep-18:

Employers Say `No' To Extra Costs

Many employers say they will not absorb any additional costs resulting from Federal health care reform, according to a new survey.

The survey sampled views of 433 human resource and benefit executives from midsize and large U.S. organizations. It was conducted by Towers Perrin, Stamford, Conn., in July.

To avoid absorbing additional costs resulting from reform, employers say they would cut back on benefits, raise prices for customers or reduce head count.

The survey also found 89% plan to reexamine their health benefit strategies for active employees in response to the passage of health care reform legislation. (At the time of the survey, 94% of employees at the surveyed companies were eligible to receive health benefits, and 81% were enrolled in company-sponsored benefit programs, says Towers Perrin.

Employers also said they do not expect that reform as currently proposed would address some of the fundamental sources of health care costs. For example, 65% believe that health care reform will have little or no impact on consumer behaviors, according to Towers Perrin.

Cost containment was listed as the most important health care reform goal for 90% of the employers, observes Dave Guilmette, managing director of the Towers Perrin Health and Welfare practice.

Many large employers, however, “feel that current reform proposals are focused on other health care issues—such as expanding coverage and reforming certain insurance practices—and [the employers] feel they have already addressed these issues within their own workforces,” he said.

As for health care proposals currently on the table, 53% of respondents said they believe that research on effectiveness of alternative treatments would have a positive impact on their business by influencing the quality of care over time. And 44% believe that reforming the health insurance market to ensure guaranteed access to coverage regardless of health status will have a positive impact.

However, 47% believe that an employer “pay or play” mandate would have a negative impact on business, Towers Perrin says.

“The way employers would respond to reform proposals that raise or lower their costs is one of our most telling findings—one that could conceivably impact economic recovery,” says Guilmette. “With companies struggling to manage rapidly escalating health care costs and reclaim profits, only 11% of companies would agree to absorb increased health care costs by reducing their profits. The overwhelming majority of companies would respond to higher costs by reducing the benefits their employees receive.”

Other findings of the survey:

—61% say they would stand by their commitments to employee wellness and health promotion programs, even if they no longer offered medical benefits (under the “pay” option of a pay-or-play mandate, for example).

—Among employers based in Massachusetts (which has a pay-or-play mandate on employers and a coverage mandate on individuals), most say they have seen little or no change in employee or employer health care costs or access to or quality of care, but over 66% report their administrative burdens have increased.

Employers surveyed expect they would respond to a pay-or-play mandate in these ways: 37% would provide company-sponsored health coverage that substantially exceeds the standard; 29% would discontinue company-sponsored health coverage and pay the assessment if the per-employee costs of payments to the federal government were substantially lower than their current costs; and 26% would provide company-sponsored health coverage at the level of the minimum standard required.

from the Wall Street Journal, 2009-Sep-25, p.B6, by Josh Mitchell and Stephen Power:

Gore-Backed Car Firm Gets Large U.S. Loan

WASHINGTON -- A tiny car company backed by former Vice President Al Gore has just gotten a $529 million U.S. government loan to help build a hybrid sports car in Finland that will sell for about $89,000.

The award this week to California startup Fisker Automotive Inc. follows a $465 million government loan to Tesla Motors Inc., purveyors of a $109,000 British-built electric Roadster. Tesla is a California startup focusing on all-electric vehicles, with a number of celebrity endorsements that is backed by investors that have contributed to Democratic campaigns.

The awards to Fisker and Tesla have prompted concern from companies that have had their bids for loans rejected, and criticism from groups that question why vehicles aimed at the wealthiest customers are getting loans subsidized by taxpayers.

"This is not for average Americans," said Leslie Paige, a spokeswoman for Citizens Against Government Waste, an anti-tax group in Washington. "This is for people to put something in their driveway that is a conversation piece. It's status symbol thing."

DOE officials spent months working with Fisker on its application, touring its Irvine, Calif., and Pontiac, Mich., facilities and test-driving prototypes.

Matt Rogers, who oversees the department's loan programs as a senior adviser to Energy Secretary Steven Chu, said Fisker was awarded the loan after a "detailed technical review" that concluded the company could eventually deliver a highly fuel-efficient hybrid car to a mass audience. Fisker said most of its DOE loan will be used to finance U.S. production of a $40,000 family sedan that has yet to be designed.

"It's the ability to drive significant change in fuel economy across a large market segment" that swayed the department to approve the Fisker loan, Mr. Rogers said. "We got quite excited."

Henrik Fisker, who designed cars for BMW, Aston Martin and Tesla before starting his Fisker Automotive in 2007, said his goal is to build the first plug-in electric hybrids that won't sacrifice the luxury, performance and looks of traditional gas-powered luxury cars.

The Karma will target an exclusive audience -- Gore was one of the first to sign up for one. Mr. Fisker says all new technology starts out being expensive. He pointed to flat-screen televisions that once started at $25,000 but are now affordable to the mass market.

The four-door Karma, powered by a lithium-ion battery, will be able to run solely on electric power for 50 miles, and will achieve an average fuel economy of 100 mpg over the span of a year, the company says. Production is scheduled to start in December, with about 15,000 vehicles a year expected to hit the U.S. market starting next June.

Many of the 1,500 people who have made deposits on the Karma are former BMW and Mercedes owners who want an environmentally friendly car without sacrificing luxury, Mr. Fisker said.

He said he pitched the Karma to Mr. Gore at an event hosted by KPCB last year, and that the former vice president almost immediately submitted a down payment for the car.

Kalee Kreider, a spokeswoman for Mr. Gore, confirmed that the former vice president backs Fisker and purchased a Karma. "He believes that a global shift of the automobile fleet toward electric vehicles, accompanying a shift toward renewable-energy generation, represents an important part of a sensible strategy for solving the climate crisis," she said in a statement.

Fisker's top investors include Kleiner Perkins Caufield & Byers, a veteran Silicon Valley venture-capital firm of which Gore is a partner. Employees of KPCB have donated more than $2.2 million to political campaigns, mostly for Democrats, including President Barack Obama and Hillary Clinton, according to the Center for Responsive Politics, a nonpartisan group that tracks campaign contributions.

Officials at Kleiner Perkins didn't return requests for comment.

Asked whether Mr. Gore had any influence on Fisker's application, the DOE's Rogers said, "None at all."

"This is a very attractive, very across-party-lines kind of vehicle," Mr. Rogers said. "All of the detailed due diligence [was] done by independent review teams."

Other Fisker investors include Eco-Drive (Capital) Partners LLC, an investment consortium, and Qatar Investment Authority, a state-run investor based in Qatar.

Fisker's government loans will come from a $25 billion program established by Congress in 2007 to help auto makers invest in the technology to meet a new congressional mandate to improve fuel efficiency. In June, the DOE awarded the first $8 billion from the program to Ford Motor Co., Nissan Motor Co., and Tesla, which are all developing electric cars.

Some companies that have been turned down for loans from DOE say they did not get much feedback from the department about their applications. O. John Coletti, president of EcoMotors International of Troy, Mich., said his company applied for a $20 million loan from the agency last December, and last month got a one-page rejection letter from the loan program's director, Lachlan Seward. EcoMotors' lead investor is Vinod Khosla, himself a former Kleiner Perkins partner and a longtime campaign contributor to Republicans and Democrats alike.

"I don't have an issue with the winners … it's possible somebody has better ideas than us," Mr. Coletti said. At the same time, he said, "More feedback from DOE on a timely basis would be wonderful. When you're running a business you'd like to know whether you're going to be able to take advantage of this opportunity."

Mr. Coletti's company -- which makes diesel engines and is still waiting to hear from the Department on a separate loan application to help it build a manufacturing facility -- isn't without politically well-connected patrons, either. Its major investor is Vinod Khosla, himself a former Kleiner Perkins partner who has donated to campaigns.

Scott Redmond, CEO of XP Vehicles Inc., said he met with DOE officials twice in Washington after applying for a $40 million loan to develop a $15,000 to $25,000 hybrid, and that both times he was told his application looked good. Since receiving a rejection letter from DOE in August, Redmond said, he has been unable to get a full explanation as to why his request was turned down.

Mr. Rogers said he was not at liberty to discuss individual applications that had been turned down, but said the process has been handled fairly and objectively.

from the Wall Street Journal, 2009-Sep-8, p.A20:

Whoa, Trigger
The latest gimmick to disguise a health-care 'public option.'

President Obama has decided that another oration will rejuvenate his health-care agenda—despite having given 27 speeches entirely on health care, and another 92 in which it figured prominently. We'll see how tomorrow night's Congressional appeal works out, but the important maneuvers are taking place in the cloak rooms, as the White House tries to staple together a majority.

The latest political gimmick is the notion of a "trigger" for the public option: A new government program for the middle class would only come on line if private insurance companies fail to meet certain benchmarks, such as lowering overall health spending or shrinking the number of the uninsured. This is supposed to appeal to Maine Republican Olympia Snowe, who could end up as ObamaCare's 60th Senator, while still appeasing the single-payer left.

Liberals should love the idea because a trigger isn't a substantive concession; it merely ensures that the public option will arrive eventually, instead of immediately. Democrats will goose the tests so that private insurers can't possibly meet them, mainly by imposing new regulations and other costly burdens.

Keep in mind that every version of ObamaCare now under consideration essentially turns all private insurers into subsidiaries of Congress. All coverage will be strictly regulated down to the fine print, and politics will dictate the level of benefits as well as premiums, deductibles and copays. Under the House bill, a "health choices commissioner" will have the final say, no doubt with Democrats Henry Waxman and Pete Stark at his elbow, if not another part of his anatomy.

The same bill also rewrites the 1974 federal law known as Erisa that lets large and mid-sized employers offer insurance with little regulation. Many businesses—including Safeway, General Mills and Marriott—are finding innovative ways to drive down spending, largely with worker incentives to live healthier and be more sensitive to the costs of care. Many Democrats call this discriminatory.

In the individual insurance market, Democrats intend to outlaw medical underwriting: Everyone must be charged the same rate or close to it for the same policies, regardless of health status or history. But this "community rating" tends to price younger and low-risk consumers out of the market. In a 2006 NBER paper, Bradley Herring of John Hopkins and Mark Pauly of the University of Pennsylvania found that community rating results in an overall increase in the uninsured in the individual market, maybe as high as 7.4%. For that reason, 35 states have no community rating at all, and another six allow very wide variations.

The larger reality is that private insurance won't be less expensive until overall health-care costs go down. Democrats may be confused on this point because government, which paid nearly 47 cents of every medical dollar in 2007, simply sets lower prices when Congress feels like it. On average, doctors and hospitals are forced to accept 20% to 30% less for their services in Medicare. That's another reason insurers wouldn't meet a trigger's thresholds, given that providers shift costs onto private under-65 patients to make up government shortfalls.

Conceivably insurers could make their products more affordable by cracking down on treatments and refusing payment more often, much as HMOs held down spending in the 1990s. But both patients and doctors hated this "managed care"—and in any case, Democrats would find a new rationale for the public option in the inevitable voter outcry about private "rationing."

It's true that there was a trigger in the Medicare prescription drug benefit and the world didn't end. But recall the dynamics in 2003: The GOP decided that private stand-alone or Medicare Advantage plans should manage the benefit. As a concession to Democrats, they agreed to trigger a "public option" for drugs—in which the government would have bought them directly, with its typical "negotiating" tactics—if seniors didn't have more than two plans in a given region.

Today, there are 1,689 stand-alone and 2,099 Advantage plans, and on average seniors have 50 to choose from—and costs in 2007 were $26 billion lower than expected. For all its problems, the Medicare drug plan created more choice for seniors and more competition among providers to offer packages that they found most attractive, holding down costs. In short, it created the incentives for multiple "private options."

ObamaCare doesn't bother with incentives, instead merely increasing government command and control of private insurance while making it more expensive in the process. That's why a trigger will inevitably lead to the public option, and also why ObamaCare will make all of our current health problems worse.

from Reuters, 2009-Sep-14, by Peter Henderson and Laura Isensee:

California feud breaks out on clean energy plan

SAN FRANCISCO/LOS ANGELES - California Governor Arnold Schwarzenegger will veto a bill requiring the state to get a third of its electricity from solar, wind and other renewable sources, his staff said on Monday in a fight that shows the difficulties of addressing climate change fast.

Schwarzenegger, whose legacy is largely pinned on driving California's response to global warming, believes the bill passed in the last hours of the legislative session on Friday would make it more difficult to build solar plants in the state and to buy power from neighbors.

California's rank as the largest market for renewable power makes any decision important, and as the U.S. Congress struggles to put together a federal plan, the state's leadership and failures could shape a national plan.

"The industry and regulators are going to wind up spending the next few years wrangling about how to implement the bill as opposed to actually putting steel in the ground," said Public Utilities Commission Deputy Director Nancy Ryan on a call sponsored by the governor.

She said more flexibility was needed, while the bill's main sponsor said curbs on buying power from out of state would ensure jobs were kept in California and give needed weight to the 33 percent goal, which state agencies have already set.

"I'm still holding out hope that the governor will rethink that position" of a veto, State Senator Joe Simitian said in a conference call with reporters that overlapped with Ryan's.

CHALLENGES

While many states debate whether so-called green jobs are real and if the cost of cutting carbon is worth the price, Californians focus mostly on how and how fast to move.

Both sides in California want the state to get 33 percent of its electricity from solar, wind and other alternative energy by 2020.

A study by the state's utilities commission says that is unlikely in almost any circumstances due to the complexity and cost of the project, while a 2010 goal of 20 percent renewables is judged impossible to hit on time.

Schwarzenegger's administration plans a Tuesday executive order for the state's climate change lead, the Air Resources Board, to implement the 33 percent standard, and the agency chief said that could be done by the middle of next year.

But the governor's order could be canceled by the winner of the 2010 ballot race to succeed Schwarzenegger, which Simitian was concerned would limit its effectiveness and raise legal challenges.

Industry lined up on both sides. Solar company First Solar lined up in favor of the bill, as did the California Wind Energy Association.

"If the governor does not sign the bill ... we fear that there will be uncertainty and chaos in this market for years," said the wind group's executive director, Nancy Rader.

"We will completely fail to meet the overall 33 pct renewable portfolio," responded Jan Smutny-Jones, executive director of trade group Independent Energy Producers. "This kind of failure is not an acceptable outcome for those of us in the renewable energy industry."

from the Wall Street Journal, 2009-Jul-26, by Pete du Pont:

Waxman-Markey Deserves to Die
The economy-destroying measure ekes out a House victory.

The fresh news about Washington--the White House and Congress--is that things are not going very well. A new president in full command of public-policy matters is having problems, from health care to taxes to massive federal spending and now to the Waxman-Markey bill, one of the oddest and most far-reaching pieces of legislation advocated by the new administration.

It passed the House a few weeks ago by a 219-212 vote--not much of a margin. Most interesting was the fact that of America's 50 state delegations in the House, 28 voted no and 22 aye, and one quarter of the 219 majority votes came from New York and California. Most of America's states and communities didn't much like the bill.

No wonder, for it would regulate many things--energy, wages, imported goods, corporations, states, cities, buildings and houses, snowmobiles, lawn mowers, light fixtures, candelabra base lamps and many others--while containing broad exemptions for regulation of agribusiness, ethanol and biofuels. The Waxman-Markey bill would be without question the biggest expansion of federal government control over our economy since the 1930s.

The Heritage Foundation concludes it would reduce America's real gross domestic product by $400 billion each year--a cumulative loss of $9.4 trillion by 2035--leading to almost 2.5 million job losses, and raise inflation-adjusted electricity rates by 90%. For a household of four, it would cost on average $2,979 annually and in 2035 the total family cost would be over $4,600 for everything, including power, food, supplies, gasoline and transportation.

Our federal government would have full control over global-warming matters. States would not be permitted to create their own cap-and-trade programs, but could be given emission allowances by the federal government which they could sell to generate funds for clean energy programs.

The federal government would also have control over the carbon permit process. It would give away 85% of the permits to utility companies, refineries and other politically connected businesses, and these no-cost permits could be used by companies to continue to crank out historically high CO2 emission levels, or be sold to other companies for real money.

Next would come the expansion of American protectionism. China and India have declined to participate in global-warming control, so under Waxman-Markey we would be able to impose tariffs on their goods coming into America, something India's environmental minister pointed out to Secretary of State Hillary Clinton a few days ago. The other side of that coin is of course that they could impose tariffs on our exports too. That would hurt American businesses and expand government control of our economy, products and businesses, all in the name of fighting global warming.

Of course we have seen the predecessor of the Waxman-Markey bill in the European Union's cap-and-trade regulation, a political failure as well as an economic one. As Heritage's Ben Lieberman has pointed out, it has not worked in various countries, and is now being opposed by nations that need to burn coal for their electricity generation. As the Washington Post wrote last February, European “emission targets were set too high. Too many pollution allowances were given away to industry. . . . Companies made windfall profits by charging customers more for energy while selling allowances they didn't need. And the Europeans have not had much success in reducing greenhouse gas emissions.”

As Lieberman observes, “To the limited extent European nations have reduced emissions below business-as-usual levels it has hurt their economies. . . . Far from seeing evidence of the bright new green economy some are now promising, we are seeing that cap and trade has contributed to the harm.” Waxman-Markey would operate much the same way with many of the same results in America, and that means central government planning would pull America down to European levels.

So who is in favor of this massive expansion of governmental authority in America? Labor unions of course, for tucked away is the requirement that any project receiving grants from the billions of giveaways in the Waxman-Markey bill would be required to apply Davis-Bacon union wage rules.

Environmentalists like it too, but as climate researcher Chip Knappenberger pointed out in May, neither Henry Waxman nor Ed Markey nor anyone else in Congress is arguing that “the bill is going to save the earth from human-caused climate apocalypse.” It won't, and it “will have virtually no impact on the future course of the earth's climate.” The Waxman-Markey reduction of U.S. greenhouse gas emissions, Mr. Knappenberger concludes, would reduce temperatures by less than one-tenth of a degree Fahrenheit by 2050.

The real purpose of Waxman-Markey is to vastly expand the scope, power and authority of the federal government. Washington would permanently regulate and dictate the performance of the U.S. economy, reward constituencies it favors and punish those it doesn't, and make more and more Americans dependant upon federal largesse.

from the Wall Street Journal, 2009-Sep-3, p.A16:

Terms of 'Endangerment'
The EPA's anti-carbon rule is an admission that CO2 limits hurt the economy.

Cap and trade may be flopping around like a dying fish in Congress, but the Obama Administration isn't about to let the annoyance of democratic consent interfere with its climate ambitions. Almost as bad is the new evidence that it understands how damaging its carbon regulations and taxes will be and is pressing ahead anyway.

The White House is currently reviewing the Environmental Protection Agency's April "endangerment finding" that as a matter of law CO2 is a pollutant that threatens the public's health and must therefore be subject to regulation under the Clean Air Act. Such a rulemaking would let the EPA impose the ossified command-and-control regulatory approach of the 1970s across the entire economy, even if Democrats never get around to passing a cap-and-tax bill.

Yet a curious twist is buried in the EPA's draft rule. The trade press is reporting that the agency thinks it enjoys the discretion to target the new rules only to major industrial sources of carbon emissions, such as power plants, refineries, factories and the like. This so-called "tailoring rule" essentially rewrites clear statutory language of the Clean Air Act by bureaucratic decree.

Because the act was never written to apply to today's climate neuroses, clean-air regulation is based on an extremely low threshold for CO2 emissions that will automatically transfer hundreds of thousands of businesses into the EPA's ambit. The agency is required to regulate sources that emit more than 250 tons of a given air pollutant annually, which may be reasonable for conventional pollutants like NOX or SOX.

But this is a very low limit for ubiquitous CO2, and so would capture schools, hospitals, farms, malls, restaurants, large office buildings and many others. To exempt these sources, the tailoring rule unilaterally boosts the rule for greenhouse gases from 250 tons to 25,000 tons, an increase of two orders of magnitude.

Well, well. In a speech in February, Obama EPA Administrator Lisa Jackson ridiculed those of us who warned about these consequences, saying that it was "a myth" that "EPA will regulate cows, Dunkin' Donuts, Pizza Hut, your lawnmower and baby bottles. . . . Somebody said to me today, 'kittens,' I like that one." Her routine got a big laugh from the like-minded Georgetown audience, but the new draft rule is a flat-out admission that the critics are right.

The endangerment finding was prompted by the 5-4 2006 Supreme Court Mass. v. EPA decision, which relied on an extremely literal interpretation of the Clean Air Act to crowbar CO2 into the law. That decision has been a political windfall for cap-and-tax advocates because it has driven utilities and other businesses to the bargaining table as they've concluded that some carbon limits are inevitable.

Yet the Supreme Court said nothing that would let the EPA simply decide on its own to apply the law to some unfavored business while giving others a pass. And the Clean Air Act is explicit about the 250-ton threshold. Team Obama's real motive in "tailoring" this rule is to limit the immediate economic impact of carbon limits to head off a political backlash.

But even businesses that do get a pass shouldn't rest too easily. The green lobby will quickly sue to force the EPA to enforce fully its own rules and go after all carbon sources. And why not? The Obama Administration is deliberately flouting its own legal claims for political reasons. Its cynical political hope is that if Congress won't impose cap and tax, the courts will do it anyway.

President Obama claims that his "new energy economy" will jump start growth and jobs. The EPA endangerment rule repudiates that claim once and for all. If the green future is going to be so bright, why does the White House want to exempt so many businesses from its glories?

from the Wall Street Journal, 2009-May-20, by John Steele Gordon:

Why Government Can't Run a Business
Politicians need headlines. Executives need profits.

The Obama administration is bent on becoming a major player in -- if not taking over entirely -- America's health-care, automobile and banking industries. Before that happens, it might be a good idea to look at the government's track record in running economic enterprises. It is terrible.

In 1913, for instance, thinking it was being overcharged by the steel companies for armor plate for warships, the federal government decided to build its own plant. It estimated that a plant with a 10,000-ton annual capacity could produce armor plate for only 70% of what the steel companies charged.

When the plant was finally finished, however -- three years after World War I had ended -- it was millions over budget and able to produce armor plate only at twice what the steel companies charged. It produced one batch and then shut down, never to reopen.

Or take Medicare. Other than the source of its premiums, Medicare is no different, economically, than a regular health-insurance company. But unlike, say, UnitedHealthcare, it is a bureaucracy-beclotted nightmare, riven with waste and fraud. Last year the Government Accountability Office estimated that no less than one-third of all Medicare disbursements for durable medical equipment, such as wheelchairs and hospital beds, were improper or fraudulent. Medicare was so lax in its oversight that it was approving orthopedic shoes for amputees.

These examples are not aberrations; they are typical of how governments run enterprises. There are a number of reasons why this is inherently so. Among them are:

1) Governments are run by politicians, not businessmen. Politicians can only make political decisions, not economic ones. They are, after all, first and foremost in the re-election business. Because of the need to be re-elected, politicians are always likely to have a short-term bias. What looks good right now is more important to politicians than long-term consequences even when those consequences can be easily foreseen. The gathering disaster of Social Security has been obvious for years, but politics has prevented needed reforms.

And politicians tend to favor parochial interests over sound economic sense. Consider a thought experiment. There is a national widget crisis and Sen. Wiley Snoot is chairman of the Senate Widget Committee. There are two technologies that are possible solutions to the problem, with Technology A widely thought to be the more promising of the two. But the company that has been developing Technology B is headquartered in Sen. Snoot's state and employs 40,000 workers there. Which technology is Sen. Snoot going to use his vast legislative influence to push?

2) Politicians need headlines. And this means they have a deep need to do something ("Sen. Snoot Moves on Widget Crisis!"), even when doing nothing would be the better option. Markets will always deal efficiently with gluts and shortages, but letting the market work doesn't produce favorable headlines and, indeed, often produces the opposite ("Sen. Snoot Fails to Move on Widget Crisis!").

3) Governments use other people's money. Corporations play with their own money. They are wealth-creating machines in which various people (investors, managers and labor) come together under a defined set of rules in hopes of creating more wealth collectively than they can create separately.

So a labor negotiation in a corporation is a negotiation over how to divide the wealth that is created between stockholders and workers. Each side knows that if they drive too hard a bargain they risk killing the goose that lays golden eggs for both sides. Just ask General Motors and the United Auto Workers.

But when, say, a school board sits down to negotiate with a teachers union or decide how many administrators are needed, the goose is the taxpayer. That's why public-service employees now often have much more generous benefits than their private-sector counterparts. And that's why the New York City public school system had an administrator-to-student ratio 10 times as high as the city's Catholic school system, at least until Mayor Michael Bloomberg (a more than competent businessman before he entered politics) took charge of the system.

4) Government does not tolerate competition. The Obama administration is talking about creating a "public option" that would compete in the health-insurance marketplace with profit-seeking companies. But has a government entity ever competed successfully on a level playing field with private companies? I don't know of one.

5) Government enterprises are almost always monopolies and thus do not face competition at all. But competition is exactly what makes capitalism so successful an economic system. The lack of it has always doomed socialist economies.

When the federal government nationalized the phone system in 1917, justifying it as a wartime measure that would lower costs, it turned it over to the Post Office to run. (The process was called "postalization," a word that should send shivers down the back of any believer in free markets.) But despite the promise of lower prices, practically the first thing the Post Office did when it took over was . . . raise prices.

Cost cutting is alien to the culture of all bureaucracies. Indeed, when cost cutting is inescapable, bureaucracies often make cuts that will produce maximum public inconvenience, generating political pressure to reverse the cuts.

6) Successful corporations are run by benevolent despots. The CEO of a corporation has the power to manage effectively. He decides company policy, organizes the corporate structure, and allocates resources pretty much as he thinks best. The board of directors ordinarily does nothing more than ratify his moves (or, of course, fire him). This allows a company to act quickly when needed.

But American government was designed by the Founding Fathers to be inefficient, and inefficient it most certainly is. The president is the government's CEO, but except for trivial matters he can't do anything without the permission of two separate, very large committees (the House and Senate) whose members have their own political agendas. Government always has many cooks, which is why the government's broth is so often spoiled.

7) Government is regulated by government. When "postalization" of the nation's phone system appeared imminent in 1917, Theodore Vail, the president of AT&T, admitted that his company was, effectively, a monopoly. But he noted that "all monopolies should be regulated. Government ownership would be an unregulated monopoly."

It is government's job to make and enforce the rules that allow a civilized society to flourish. But it has a dismal record of regulating itself. Imagine, for instance, if a corporation, seeking to make its bottom line look better, transferred employee contributions from the company pension fund to its own accounts, replaced the money with general obligation corporate bonds, and called the money it expropriated income. We all know what would happen: The company accountants would refuse to certify the books and management would likely -- and rightly -- end up in jail.

But that is exactly what the federal government (which, unlike corporations, decides how to keep its own books) does with Social Security. In the late 1990s, the government was running what it -- and a largely unquestioning Washington press corps -- called budget "surpluses." But the national debt still increased in every single one of those years because the government was borrowing money to create the "surpluses."

Capitalism isn't perfect. Indeed, to paraphrase Winston Churchill's famous description of democracy, it's the worst economic system except for all the others. But the inescapable fact is that only the profit motive and competition keep enterprises lean, efficient, innovative and customer-oriented.

Mr. Gordon is the author of "An Empire of Wealth: The Epic History of American Economic Power" (HarperCollins, 2004).

from the New York Times, 2009-Sep-21, p.A20, by David D. Kirkpatrick:

Health Bill Could Assist Four Cancer Centers

WASHINGTON — The Nevada Cancer Institute, in Las Vegas, may not have a national reputation as a clinic or a research facility. But it does have the ear of its state's senior senator, Harry Reid, the Democratic leader. And that is why the four-year-old institute could reap a big gain in federal reimbursements as part of the health care overhaul.

After months of noisy public debates over big policy ideas like universal coverage and a public insurance option, the health care legislation is getting down to the fine print. This is the time when powerful members of Congress customarily tuck in their pet projects, either to please their constituencies or as sweeteners to win the votes of lawmakers who may be sitting on the fence.

Senator Blanche Lincoln of Arkansas, a wavering Democrat on the Senate Finance Committee, has proposed expanding Medicare coverage of home infusion therapy, a form of treatment for a variety of purposes that is championed by a medical entrepreneur in her state. Senator Orrin G. Hatch, a Utah Republican on the panel, is seeking a health care tax break for any state that “begins with the letter U.”

But few proposed amendments to the health care bill now before the Finance Committee better exemplify the process than one that would help out the Nevada Cancer Institute. Known in Congressional parlance as a “rifle shot” — the narrowly focused tax or policy equivalent of a spending earmark — the proposal would provide more favorable Medicare payment rates to just a handful of specific medical facilities.

Three of them — a hospital under construction in Cleveland, a venerable center in Detroit and, apparently, another in New Jersey — are among some 40 “comprehensive cancer centers” that have received grants with that designation from the government's National Cancer Institute. The young Nevada institute has not earned that status. It aspires to it, though, its Web site says.

In addition to the favor of the top Senate Democrat, the amendment has the sponsorship of two other members of the party leadership, Senators Debbie Stabenow of Michigan and Robert Menendez of New Jersey, suggesting it is a rifle shot with some velocity. A spokesman for Ms. Stabenow called the provision a “typical rifle shot.”

The identities of the beneficiaries are hard to determine on first reading. The text of the amendment describes its purpose only as ensuring “access to high quality cancer care.”

Then, in classic rifle-shot style, the text masks the names of the beneficiaries by using, in a kind of code, the dates they first received “comprehensive cancer center” grants from the National Cancer Institute. The amendment would cover “certain hospitals” if they “received N.C.I. comprehensive cancer care designation on July 27, 1978, February 17, 1998, June 13, 2000.”

The first date turns out to refer to the Karmanos Cancer Center in Detroit. A government relations official there said the hospital had been seeking such an exemption for about six years through Senator Stabenow and its local congressman, Representative Sander M. Levin. Mr. Levin, a Democratic member of the House Ways and Means Committee, is among the outspoken supporters of a public insurance plan whom the president and Senate leaders may try to woo to a compromise.

The second date refers to University Hospitals in Cleveland, which is building a new cancer hospital and has lobbied hard for such treatment. (One of Ohio's senators, Sherrod Brown, a Democrat, helped write the public insurance option in the Senate health committee's bill.)

The third date is more of a mystery, or perhaps a result of a drafting error. A spokeswoman for the National Cancer Institute could find no record of a hospital that received a “comprehensive cancer center” grant on June 13, 2000. But the date appears intended to refer to the Cancer Institute of New Jersey and an affiliate, Robert Wood Johnson Medical School.

A spokesman for the institute's congressman, Representative Frank Pallone Jr., a Democrat who heads the House Energy and Commerce Subcommittee on Health, said he believed the Stabenow-Menendez amendment covered that cancer center. Mr. Pallone has long tried to win such treatment for the center, to help it compete with regional rivals.

The amendment also covers one more cancer center, in similar code: “designated on June 10, 2003, as the official cancer institute of its state.” That is the date the Nevada Legislature voted to assign that title to the Nevada Cancer Institute, which was then still under construction.

The substance of the amendment would exempt each of the centers from the Medicare “prospective payments” system, which compensates hospitals on the basis of diagnoses rather than treatments they actually provide. The exemptions would add to these centers' income and the cost to taxpayers, although, in an apparent nod to the narrow scope of the amendment, the authors note that it would be unlikely to add much to that cost, because it “is unlikely to affect a large number of hospitals.”

Hospital officials pushing for the exemption argue that the prospective payments system is inadequate to cover the high costs of cancer treatment. They note that about 10 of the 40 comprehensive cancer centers already have exemptions, giving them a competitive advantage.

The Nevada Cancer Institute has spent about $115,000 on federal lobbying fees this year. Jennifer McDonnell, a spokeswoman there, said the institute could not have sought the exemption in any way other than Congressional action, because at present that is the only way for a hospital to attain it.

As for the majority leader, his spokesman, Jim Manley, said only, “Senator Reid has supported efforts in the past to help the Nevada Cancer Institute and will continue to do so in the future.”

from Cato At Liberty, 2009-Aug-24, by Chris Edwards:

Federal Pay Continues Rapid Ascent

The Bureau of Economic Analysis has released its annual data on compensation levels by industry (Tables 6.2D, 6.3D, and 6.6D here). The data show that the pay advantage enjoyed by federal civilian workers over private-sector workers continues to expand.

The George W. Bush years were very lucrative for federal workers. In 2000, the average compensation (wages and benefits) of federal workers was 66 percent higher than the average compensation in the U.S. private sector. The new data show that average federal compensation is now more than double the average in the private sector.

Figure 1 looks at average wages. In 2008, the average wage for 1.9 million federal civilian workers was $79,197, which compared to an average $49,935 for the nation's 108 million private sector workers (measured in full-time equivalents). The figure shows that the federal pay advantage (the gap between the lines) is steadily increasing.

Figure 2 shows that the federal advantage is even more pronounced when worker benefits are included. In 2008, federal worker compensation averaged a remarkable $119,982, which was more than double the private sector average of $59,909.

What is going on here? Members of Congress who have large numbers of federal workers in their districts relentlessly push for expanding federal worker compensation. Also, the Bush administration had little interest in fiscal restraint, and it usually got rolled by the federal unions. The result has been an increasingly overpaid elite of government workers, who are insulated from the economic reality of recessions and from the tough competitive climate of the private sector.

It's time to put a stop to this. Federal wages should be frozen for a period of years, at least until the private-sector economy has recovered and average workers start seeing some wage gains of their own. At the same time, gold-plated federal benefit packages should be scaled back as unaffordable given today's massive budget deficits. There are many qualitative benefits of government work—such as extremely high job security—so taxpayers should not have to pay for such lavish government pay packages.

Update: I respond to some criticisms of this post here.

Update 2: Compensation data for federal workers vs. other industries here.

from the Wall Street Journal, 2009-Sep-4 (web-posted 2009-Sep-3), by Bill Tomson:

U.S. Buys Pork to Support Industry

WASHINGTON -- The Agriculture Department, in a bid to help the ailing pork industry, said Thursday it will buy another $30 million of pork in an effort to boost prices.

The USDA already has pledged to purchase $121 million of pork this year for government food-assistance programs, but producers continue to struggle.

"This action will help mitigate further downward prices, stabilize market conditions, stimulate the economy, and provide high-quality, nutritious food to recipients of USDA's nutrition programs," USDA Secretary Tom Vilsack said.

The National Pork Producers Council has been lobbying the USDA hard this year to buy more pork, but the group was turned away repeatedly.

Mr. Vilsack told lawmakers during a May hearing that the group was asking for an additional $50 million purchase, but the USDA didn't have the money in its budget. The council upped the pressure in August, though, holding a media event to publicize its plea to the Obama administration for "immediate financial assistance."

Falling U.S. consumer demand coupled with strong production over the past two years has resulted in $4.6 billion in losses for producers, according to the group.

Weak pork prices and rising production costs have hurt producers deeply, NPPC spokesman Dave Warner said in a recent interview, "but the real problem is there's just too much pork out there."

About 115 million pigs were slaughtered in the U.S. last year, a continuous increase from 2007 and 2006, Warner said.

from the Reporter of Vacaville, CA, 2009-Aug-16, by George Miller:

What the congressman is trying to say about health care

Americans are struggling with soaring health care costs, decisions about medical care being made by insurance companies and the risk of losing their insurance every day. These problems have plagued our country for decades.

That's why President Obama made health insurance reform the top priority of his administration. And now, Congress is making significant progress on reforms that will benefit every American -- those with insurance and those still without it.

As one of the primary authors of America's Affordable Health Choices Act (HR 3200), a reform bill in the House of Representatives, I want you to know exactly what this bill would mean for you and your community.

Our plan means:

• Lowering health-care costs.

• Stopping insurance companies from denying coverage based on so-called pre-existing conditions.

• Guaranteeing that you will never again be at risk of losing your health insurance if you lose or change a job.

• Protecting your choices of doctors and health plans.

• Ensuring all Americans have access to affordable and quality care.

And we would do all of this without increasing the federal budget deficit.

Under America's Affordable Health Choices Act, consumers also would be guaranteed:

• No denial of insurance for people with pre-existing conditions, such as diabetes, a heart condition, or cancer.

• No dropping of your coverage because you become sick.

• No refusal to renew your coverage if you've paid in full and become ill.

• No more basing job or life decisions on loss of coverage.

• No need to change doctors or plans if you like the coverage you have.

• No co-pays for preventive and wellness care.

• No excessive out-of-pocket expenses, deductibles or co-pays.

• Yearly caps on what you pay.

• No yearly or lifetime cost caps on what insurance companies cover.

In addition, under our bill:

• Employers are required to offer health insurance to employees or pay a fee, and individuals are required to purchase insurance or pay a fee.

• Individuals and small businesses that cannot afford insurance will receive assistance.

• The cost of the bill is paid for through reducing wasteful spending -- more than $500 billion in savings -- and through a surcharge on the wealthiest 1 percent of Americans -- families making more than $380,000 per year in adjusted gross income.

• A strong public health insurance option will be established to help keep insurance companies honest and competitive. This option is just one of your choices among the many private options, and it will help lower costs for everyone.

Our bill offers significant benefits to residents and businesses of my congressional district in Contra Costa and Solano counties. For example, 12,000 small businesses in my district could receive tax credits to help them offer health insurance to their employees; 8,600 seniors would avoid the so-called "doughnut hole" of prescription drug coverage in Medicare Part D; more then 51,000 residents without insurance would have access to it; thousands of families could avoid bankruptcy caused by high medical bills; and area hospitals and providers would receive $148 million per year to cover the cost of uncompensated care.

Those are benefits worth fighting for.

If we fail to enact these reforms, insurance companies will continue to call the shots -- not you and not your doctor. Premiums and out-of-pocket costs will continue to rise faster than inflation. People with insurance will see their costs rise by an average of $1,800 per year, every year. And insured people will remain at risk of losing coverage at any moment or having claims denied because of so-called pre-existing conditions.

There is too much at stake to allow this effort to fall victim to lies and unfounded criticisms, the exact type of attacks that have killed health reform efforts for generations. I encourage everyone interested in learning more about health insurance reform to visit my Web site, www.georgemiller.house.gov.

Today's health insurance system hurts everyone -- except insurance companies. Our reforms will help every American and strengthen our economy.

The author chairs the House Education and Labor Committee and serves as the congressman from California's 7th District, which includes much of Solano County.

[All bolding of text in the above is by me. Imagine you are a health insurer subject to market forces, operating either for profit, or as a not-for-profit co-op, or some other arrangement, but in any case, paying claims out with money paid in as premiums. Now imagine you are constrained as Rep. Miller describes in the text bolded above. Obviously, you are doomed as an insurer, and you leave the marketplace. All your policyholders then lose their insurance coverage. The same fate befalls all other non-government insurers and their policyholders. In the alternative, imagine that the Federal government steps in to backstop incumbent insurers, acting as a universal reinsurer and subsidizer to protect existing insurers from the ruinous impact of the new rules. Either explicitly or effectively, only one insurer remains — the Federal government. Once the Federal government is the only insurer, all health care paid for by health insurance will be subject to the whimsy of the Federal government — the same government whose most prominent personal interactions with the public are carried out by TSA agents. The government will no longer be able to perform its former role as impartial referee enforcing contractual terms on insurers reluctant to pay out on claims. Instead, it will be both counterparty and referee. This is an irredeemable conflict of interest. The result — particularly given the reliably change-averse and risk-averse decisionmaking process endemic to government bureaucracies — would be a relentless and eventually ruinous decline in the abundance, quality, and advancement of medical technology and services, and so of health itself. -AMPP Ed.]

from the Wall Street Journal, 2009-Aug-23:

The Competition Cure
A better idea to make health insurance affordable everywhere.

"Competition" has become a watchword of Team Obama's push for its health-care bill. Specifically, the Administration has defended its public insurance option as a necessary competitive goad to the private health insurance industry.

Health and Human Services Secretary Kathleen Sebelius routinely calls for more choice and competition in health care. In his weekly address this past weekend, President Obama raised the issue directly: "The source of a lot of these fears about government-run health care is confusion over what's called the public option. This is one idea among many to provide more competition and choice, especially in the many places around the country where just one insurer thoroughly dominates the marketplace." We take it this refers to a state in which one insurer holds most of the business.

It is no secret that this page is all for competition in the marketplace. If indeed that's the goal, allow us to suggest a path to it that will be a lot easier than erecting the impossible dream of a public option: Let insurance companies sell health-care policies across state lines.

This excellent idea has been before Congress since at least 2005, when Rep. John Shadegg of Arizona proposed it. It came up again recently in an exchange between Chris Wallace of Fox News Sunday and John Rother, executive vice president of AARP.

Mr. Wallace: "If you really want competition why not remove the restriction which now says that if I live in Washington, D.C. I've got to buy a D.C. health plan, and instead create a national market for health insurance, so that if there's a cheaper plan in Pennsylvania, I could buy in Pennsylvania?"

Mr. Rother: "There are states and localities where health care is much less expensive than others, and if we allow people to buy all their insurance from those places, it will raise the rates there. And it's called risk selection. It's a real problem, given the fact that health care costs can vary substantially from one place to another. So I think while the idea sounds appealing, the consequence would be it would make health care more expensive for those people who live in those low-cost areas."

How did Mr. Rother arrive at this conclusion?

His claim assumes that what makes insurance expensive in places like New Jersey—where the annual cost of an individual plan for a 25-year-old male in 2006 was $5,880—is merely the higher cost of medical services in the Garden State. He sounds an alarm in the rest of the country by suggesting that an individual living in, say, Kentucky—where an annual plan for a 25-year-old male cost less than $1,000 in 2006—would be asked to subsidize plan members living in high-priced states.

That's not how interstate insurance would work. Devon Herrick, a senior fellow with the National Center for Policy Analysis who has written extensively on this subject, notes that insurance companies operating nationally would compete nationally. The reason a Kentucky plan written for an individual from New Jersey would save the New Jerseyan money is that New Jersey is highly regulated, with costly mandated benefits and guaranteed access to insurance.

Affordability would improve if consumers could escape states where each policy is loaded with mandates. "If consumers do not want expensive 'Cadillac' health plans that pay for acupuncture, fertility treatments or hairpieces, they could buy from insurers in a state that does not mandate such benefits," Mr. Herrick has written.

A 2008 publication "Consumer Response to a National Marketplace in Individual Insurance," (Parente et al., University of Minnesota) estimated that if individuals in New Jersey could buy health insurance in a national market, 49% more New Jerseyans in the individual and small-group market would have coverage. Competition among states would produce a more rational regulatory environment in all states.

This doesn't mean sick people who have kept up their coverage but are more difficult to insure would be left out. Congressman Shadegg advocates government funding for high-risk pools, noting that their numbers are tiny. The big benefit would come from a market supply of affordable insurance.

Mr. Rother also said "risk selection" is a problem. But the coverage mandates cause that. As more healthy people opt out of health insurance because it is too expensive relative to what they consume, the pool transforms into a group of older, sicker people. Prices go higher still and more healthy people flee. High-mandate states are in what experts call an "adverse selection death spiral."

Interstate competition made the U.S. one of the world's most efficient, consumer driven markets. But health insurance is a glaring exception. When the competition caucus in Team Obama has to look for Plan B, this is it.

from the Wall Street Journal, 2009-Aug-23:

All Clunkered Out
The dealers may, or may not, get their money.

The Transportation Department is ending its "cash for clunkers" program today, but the deadline shouldn't pass without recording a few economic and political lessons. To wit, the feds can't even give away money very well.

The $3 billion plan is being hailed in Washington as a great success because so many Americans sought to get a $3,500 to $4,500 check financed by other taxpayers in return for trading in their old car. Transportation Secretary Ray LaHood boasts that the program has been wildly popular and provided "a lifeline to the automobile industry, jump starting a major sector of the economy and putting people back to work.'' But it's hardly miraculous that some Americans would be willing to apply for "free" money to do what they probably would have done eventually anyway.

Meanwhile, the program has proven to be an administrative fiasco, as the central planners at Transportation vastly underestimated how many people would apply, assigned too few people to process applications, and had to scramble to borrow workers from the likes of the Federal Aviation Administration to process claims. Auto dealers have nonetheless told of having to front the money to car buyers as they wait and wait for Uncle Sam to get around to paying them.

The Milwaukee Journal Sentinel quoted Brad Schlossmann last week as saying that he had received "no payment whatsoever" on 120 clunker deals at his Milwaukee Honda dealership. Russ Darrow, who owns 15 Wisconsin dealerships, reported having done 400 or so clunker deals and been paid only for a few of them. That story has been repeated from coast to coast. And now that the program is ending in a rush, things could get worse. As buyers sprint to meet the deadline, dealers can't be sure they'll get their paperwork in before the $3 billion runs out. Some dealers, and even the likes of General Motors, could have to write off clunker credits if they aren't reimbursed.

"We do not know how many deals are in the pipeline. We don't know how many dollars are left in the program at this very moment," Ted Smith, president of the Florida Automobile Dealers Association, told the Associated Press this weekend. "That's fundamental to the health of the dealerships that are participating. If you run out of money before you run out of deals, that's not a good situation." Welcome to the vagaries of politically motivated—and subsidized—sales. The politicians care mainly about getting credit for the giveaway, not if some hapless dealers are left holding worthless paper when the money runs out.

As for helping the auto industry, the proof will be whether Mr. LaHood's jump start to sales is sustainable. The idea that a temporary subsidy program will launch the auto industry onto some new, higher sales and production plane defies logic. More likely, the program will merely have concentrated sales over a shorter period, as buyers either postponed purchases once they learned the program was in the works, or accelerated them to meet the subsidy deadline. The program is another bow to the now-reigning Washington policy illusion that the key to prosperity is force-feeding consumer spending, rather than creating incentives for Americans to invest and take risks.

We keep hearing this is a brave new era of public confidence in the virtues of government planning. But the lesson of cash for clunkers is that if this government can't manage a free lunch, it can hardly be trusted to decide whether you can have a hip replacement, and how much it will pay for it.

from the Washington Examiner, 2009-Aug-23, by David Freddoso:

Why the Post Office will never make money (and a lesson for health insurance)

Consider this letter, sent Friday by Sen. Bob Casey, D-Pa. to the Postmaster General.

Dear Postmaster General Potter: I am writing to express my deep concern regarding the recent announcement that the United States Postal Service (USPS) is considering closing 37 post offices in Pennsylvania. I am well aware of the financial challenges that the USPS faces, and I am committed to working with the Postal Service to overcome these challenges while preserving jobs and the services on which thousands of Pennsylvanians depend....

Casey's letter could be viewed as either a kind offer of help or a threat. Either way, it represents a non-market pressure on the business dealings of the USPS. Could Federal Express or UPS survive, let alone make a profit, if they had politicians breathing down their necks regarding essential business decisions? Could any private business survive in a competitive marketplace under these circumstances? The likely answer is no.

This applies in the case of nearly every quasi-governmental venture. Politicians from both parties, beginning with President Clinton and including President Bush, prodded Fannie Mae and Freddie Mac to expand the pool of mortgages whose risk they would assume to include the credit-unworthy. We have since reaped the disastrous results of this business decision made for political reasons.

The lesson: hybrid government-business ventures have political aims which inevitably come to cross-purposes with their business goals.

Along the same lines, consider the much-debated government-run "public option" health insurance plan. Assume, generously, that it will not gouge and ultimately destroy its private competition through predatory pricing. How many lawmakers will pen letters like Casey's, in hopes of micromanaging this government-run insurance company's insurance activities? Can anyone take seriously the Obama administration's claim that a government-run insurance company will not begin receiving taxpayer subsidies, the moment its clients begin demanding additional services from their congressmen?

from the Wall Street Journal, 2009-Aug-22:

A Better Way to Go Postal
The justification for the Postal Service's monopoly is long past.

Whatever possessed President Obama to mention the travails of the post office while discussing health care the other day, his timing was certainly apt. The Postal Service is headed toward a loss of $7 billion this year and another $7 billion in 2010. Naturally, Congress is planning another bailout rather than the kind of reform that would recognize how technology has transformed modern communications.

Most mail today is delivered electronically via email. Traditional postal mail volume has fallen by nearly 20% since 2000, and the average household gets one-third fewer letters than a decade ago. But this is only the first stage of the decline. The transition to Internet communications means that the Postal Service's core business—from paying bills, to sending birthday greetings, to delivering magazines—is slowly vanishing. This is on top of the package business that has already been transformed by Federal Express and UPS.

Not that the Postal Service has ever been a paragon of efficiency. If the cost of a postage stamp had risen at merely the rate of inflation since 1950 when a stamp cost two cents, today you could send a first-class letter for 30 cents. Instead the cost rose in May to 44 cents from 42 cents.

These higher prices have corresponded with worsening service. The mailman used to deliver twice a day in urban areas, but now Postal Service Chief Executive John Potter says he wants to stop Saturday service to reduce costs. No private business in America could continually raise prices, lose billions of dollars and then hope to win back customers by promising poorer service.

Here's a secret Washington doesn't want to admit: That 14 cent per letter cost hike after inflation over the past 60 years imposes a $20 billion a year toll on the U.S. economy. The government mail system is essentially a $20 billion annual income transfer from businesses and households to the postal unions.

About 80 cents of every postal dollar pays for employee salaries and benefits (compared to less than 50 cents for Fed Ex and UPS). What that means is that if you want to cut costs at the post office, you have to slash labor expenses. Mr. Potter has reduced Postal Service employment to 650,000 from 800,000 the past four years, largely through attrition. But he still employs 650,000 workers who have among the best wages and benefits in all of American life.

Most employees have no-layoff clauses, the starting salaries are about 25% to 30% higher than for comparably skilled private workers, and the fringe benefits are so expensive that the Government Accountability Office says $500 million a year could be saved merely by bringing health benefits into line with those of other federal workers. Mr. Potter has to set aside $5 billion a year just to pay for health insurance. Postal management now wants to "save" money by not advance-funding those obligations, and Congress is likely to say yes. But that doesn't save a dime; it simply creates even larger unfunded liabilities down the road.

The four biggest postal-carrier union contracts come up for renewal in 2010 and 2011, and Congress and the Obama Administration can best serve the public by using the negotiations to promote a major restructuring. One priority should be closing thousands of obsolete post offices around the country; many post offices now serve towns with fewer than 250 people. This is something Mr. Potter has long wanted to do, but thanks to Congressional meddling, closing a small town post office can be harder than shutting a military base.

The most overdue reform is to strip away the Post Service's monopoly on first-class mail and bulk mail. Competition is the key ingredient to innovation, low prices and good service. This was Mr. Obama's insight at his recent health-care town hall when he noted that "UPS and FedEx are doing just fine, right? No, they are. It's the Post Office that's always having problems."

The argument has been made for 200 years that the postal monopoly is necessary to "bind the nation together." Once that was at least plausible. But today the Internet delivers to the most remote corners of Alaska and the Badlands at one-one-hundredth the cost of snail mail. The sooner Congress requires the Postal Service to shrink and adapt to this reality, the smaller will be the losses imposed on taxpayers.

from Red Green and Blue, 2009-Aug-25, by Joe Walsh:

'Cash for Refrigerators' Debuts in Fall. Really.

Before heading home to face the anger at the now infamous health care "town halls," Congress rushed through an extension to what was then considered a popular program: Cash for Clunkers. Then, like much of the August break, Cash for Clunkers went sideways as critics picked apart the program's weaknesses, consumers stopped showing up with so many clunkers, and dealers started making noise about something as simple as when they might actually get the rebate money that the government promised.

So, what do you do when you have a poorly-conceived and ill-managed project winding down (Clunkers expires at 8 p.m. eastern on August 24)? Kick off another one, even more poorly thought out, and gloss it with an equally catchy name: Cash for Refrigerators. Beginning in the fall, consumers will have access - through existing state-level energy efficiency incentive programs - $300 million in stimulus funds made available as rebates for energy efficient appliances.

So far, so good. If a consumer is out buying an appliance to replace an existing or broken-down one, it is better that they choose an energy efficient model. But, what about special incentive program purchases? Who is the buyer and why are they buying?

The answer is that the most well-educated and most discerning consumers become aware of and make use of special rebate programs for energy efficient appliances. These are not impulse buyers. Some may actually be committed to greening their kitchen and just waiting for the right incentive push, but I doubt it. In other words, my perception is that most of the $300 million will go to middle-class households that already may have a relatively efficient refrigerator, like Clunkers, it won't get at the really dreadful stuff in use in the lowest income households.

Worse still, this program does not borrow one component from Clunkers that would actually have been effective: there is no requirement to take the old appliance offline. Odds are that many of the middle class households claiming the rebate will use the new appliance in the kitchen, and move the old one to the basement, the garage, or the back porch, where it will be pressed into service storing extra beer and the overflow from Costco. The old fridge remains on the grid and we add in the new appliance too. Does that sound like a good environmental deal?

Granted, it would be very difficult to have consumers truck their old fridge in to dispose of it and claim eligibility for the program, but why not make disposal of the appliance part of the program and use some of the $300 million to fund existing programs in cities around the U.S. which haul away old appliances and make sure that they are disposed of properly - or, at all.

Without some guarantee that the old appliance is coming offline, there is no telling what the efficiency gains of this kind of spending might actually be. With appliances that are unlikely to find duplicate use in the house (i.e., a dishwasher), the program may return some value in kwH reduction; but, without a guarantee in place, we might just have given the cash directly to the appliance manufacturers and saved a lot of administrative difficulty.

from the Wall Street Journal, 2009-Aug-30, by Howard M. Brandston:

Save the Light Bulb!
Compact fluorescents don't produce good quality light.

The Energy Independence and Security Act of 2007 will effectively phase out incandescent light bulbs by 2012-2014 in favor of compact fluorescent lamps, or CFLs. Other countries around the world have passed similar legislation to ban most incandescents.

Will some energy be saved? Probably. The problem is this benefit will be more than offset by rampant dissatisfaction with lighting. We are not talking about giving up a small luxury for the greater good. We are talking about compromising light. Light is fundamental. And light is obviously for people, not buildings. The primary objective in the design of any space is to make it comfortable and habitable. This is most critical in homes, where this law will impact our lives the most. And yet while energy conservation, a worthy cause, has strong advocacy in public policy, good lighting has very little.

Even without taking into account people's preferences, CFLs, which can be an excellent choice for some applications, are simply not an equivalent technology to incandescents in all applications. For example, if you have dimmers used for home theater or general ambience, you must buy a compatible dimmable CFL, which costs more, and even then it may not work as desired on your dimmers. How environmental will it be for frustrated homeowners to remove and dispose of thousands of dimmers? What's more, CFLs work best in light fixtures designed for CFLs, and may not fit, provide desired service life, or distribute light in the same pleasing pattern as incandescents. How environmental will it be for homeowners to tear out and install new light fixtures?

None of these and other considerations appear to have been included in the technical justification for this law. Instead, the decision appears to have been made entirely based on a perception of efficiency gains. Light-source efficacy, expressed as lumens of light output per watt of electrical input, has been used as a comparative metric justifying encouragement of CFLs. But this metric is flawed for one simple reason: It is a laboratory measurement and a guide, not a truth, in the field; actual energy performance will depend on numerous application characteristics and product quality.

If energy conservation were to be the sole goal of energy policy, and efficacy were to be the sole technical consideration, then why CFLs? If we really want to save energy, we would advocate high-pressure sodium lamps—those large bulbs that produce bright orangish light in many streetlights. Their efficacy is more than double what CFLs can offer. Of course this would not be tolerated by the public. This choice shows that we are willing to advocate bad lighting—but not horrible lighting.

Not yet, at least. Energy regulations pending in Washington set aggressive caps on power allowances for energy-using systems in commercial and residential buildings. These requirements have never been tested.

Here's my modest proposal to determine whether the legislation actually serves people. Satisfy the proposed power limits in all public buildings, from museums, houses of worship and hospitals to the White House and the homes of all elected officials. Of course, this will include replacing all incandescents with CFLs. At the end of 18 months, we would check to be certain that the former lighting had not been reinstalled, and survey all users to determine satisfaction with the resulting lighting.

Based on the data collected, the Energy Independence and Security Act and energy legislation still in Congress would be amended to conform to the results of the test. Or better yet, scrapped in favor of a thoughtful process that could yield a set of recommendations that better serve our nation's needs by maximizing both human satisfaction and energy efficiency.

As a lighting designer with more than 50 years of experience, having designed more than 2,500 projects including the relighting of the Statue of Liberty, I encourage people who care about their lighting to contact their elected officials and urge them to re-evaluate our nation's energy legislation so that it serves people, not an energy-saving agenda.

Mr. Brandston (www.concerninglight.com) is a lighting consultant, professor and artist.

from the Wall Street Journal, 2009-Jul-14, by Mortimer Zuckerman:

The Economy Is Even Worse Than You Think
The average length of unemployment is higher than it's been since government began tracking the data in 1948.

The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad.

The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:

- June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

- More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.

- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

- The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.

- The goods producing sector is losing the most jobs -- 223,000 in the last report alone.

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period.

Can we find comfort in the fact that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power since employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook.

How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today.

About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.

It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn't. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.

Another $150 billion, which was allocated to state coffers to continue programs like Medicaid, did not add new jobs; hundreds of billions were set aside for tax cuts and for new benefits for the poor and the unemployed, and they did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.

Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. State and local governments, representing about 15% of the economy, are beginning the worst contraction in postwar history amid a deficit of $166 billion for fiscal 2010, according to the Center on Budget and Policy Priorities, and a gap of $350 billion in fiscal 2011.

Households overburdened with historic levels of debt will also be saving more. The savings rate has already jumped to almost 7% of after-tax income from 0% in 2007, and it is still going up. Every dollar of saving comes out of consumption. Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees. After the 1990-91 recessions, consumers went out and bought houses, cars and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.

This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed. Until then, the economy will be deprived of adequate profits and cash flow, and businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.

No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.

Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.

from the Wall Street Journal Europe, 2009-May-20, by Alberto Mingardi:

Our Brave New Competitive World
Companies considered too big to fail get state aid while companies considered too big to succeed get cut down by state agents.

When competition becomes unpopular, what happens to competition policy?

The question resonates on both sides of the Atlantic. The new U.S. antitrust chief, Christine Varney, last week announced plans to toughen competition policy, or, to be more precise, revise it in Europe's image. Meanwhile, America's new antitrust role model showed how it's being done. Neelie Kroes's swan song as European Commissioner was to dish out last week a record fine to microchip giant Intel. With a roughly 76% share of the microprocessor market, the alleged abuse of its dominant position will cost Intel some €1.06 billion.

This regulatory energy to punish Intel is astounding given that the ruling stands on debatable legal grounds. The Commission fined Intel for alleged abuses related to rebates and discounts the company gave to computer-makers and retailers. Intel's arguments that innovation over the last decade was vibrant, that the market share of its main rival, AMD, actually increased, and the market consolidation into two big players didn't harm consumers, counted for little.

The large fine and tougher antitrust enforcement are likely to further hamper economic recovery. No matter how convincing the legal arguments may be, the fine -- both for its target and its magnitude -- will be interpreted as a "tax" on innovation. And innovation, we keep hearing from both sides of the Atlantic, is the key to future growth and prosperity. The pursuit of innovation is perhaps one of the few features of business operations that is appreciated across the political spectrum.

But innovation requires investments, which are not easily made without a reasonable prospect of return. It is here that our societies become tight-fisted. To be innovative, it may be that businesses need to be big in order to take advantage of economies of scale. Or, innovative practices may simply result in a big, dominant company. By targeting big business qua big, antitrust hobbles innovative economic players. Perhaps "big" is not good per se -- but the ambition to get bigger, i.e. to succeed, is capitalism's lifeblood and enriches society as a whole.

This conflict between antitrust policy and economic incentives may be as old as antitrust itself. Competition policy is genetically biased in favor of the little guy. But the tone of antitrust discussion had softened greatly in the last decades, especially in the U.S.

Skeptics of traditional competition policy managed to change the discourse as trust-busters were asked to first understand what entrepreneurs do and the markets in which they operate before casting stones. Antitrust skeptics also encouraged a little more cynicism toward lawsuits brought by competitors. Competition by litigation is often a viable strategy for weaker market players. A consensus emerged in the Reagan era that it was more efficient to let the market, rather than regulators, choose winners and losers. A more interventionist antitrust policy goes hand in hand with the current resurgence of big government. As this economic crisis has undermined the public's faith in capitalism, the regulators are called in to prove themselves useful, i.e. to be ready to correct the market's verdicts.

The government's distrust of successful big businesses stands in contrast to its unwavering support for failed big businesses. U.S. and European governments have bailed out large banks exactly because of their size and with the tacit consent of antitrust authorities. These competition watchdogs zoom instead on innovative business giants -- such as Intel or Microsoft -- that create jobs and prosperity. We face an absurd situation of government intervention: Companies considered too big to fail are kept alive by state aid while companies considered too big to succeed are cut down by state agents until they are too small or too intimidated to innovate.

We will pay the first bill as taxpayers, the second as consumers.

Mr. Mingardi is director general of Istituto Bruno Leoni.

from the Wall Street Journal, 2009-Aug-21:

Sugar Land
Obama's slow roll on free trade.

President Obama will need more than sweet talk to smooth his way through this year's trade dilemmas. Last week, food companies sent a letter to Agriculture Secretary Tom Vilsack to warn that a sugar shortage is possible if the department doesn't raise import quotas. How the Administration resolves the dispute will send a message about Mr. Obama's view of protectionist policies amidst a recession.

So far, the prospects don't look good. In early August, Agriculture Undersecretary Jim Miller announced that if the department planned to raise the annual quota on sugar imports, it would do so within two weeks. That date passed without action on Monday, and so sent a friendly wink to the sugar lobby. Noting that he considered the market "adequately supplied" and that changes later in the year would be impractical for deliveries, Mr. Miller told CongressDaily, making such an adjustment was "unlikely."

Mark it as an early retreat by the Obama Administration to a small group of domestic producers who wield an outsized political influence in the fight against trade liberalization. In states from Florida to Minnesota, sugar producers have their profits guaranteed by a price floor created by the import restrictions. Anyone who doubts their influence in Washington need only review the battle over the Central American Free Trade Agreement, which the sugar growers nearly throttled over the prospect of a 1% increase in annual import quotas.

Each year, the amount of foreign sugar that manufacturers may use is limited to protect U.S. sugar farmers who benefit from artificially higher prices on the domestic market. According to the letter to Secretary Vilsack, signed by companies like Kraft, Hershey and Mars, without some easing "consumers will pay higher prices [and] food manufacturing jobs will be at risk." But scarcity is only half the issue. The other half is a protectionist program that distorts trade and has negative economic consequences.

The costs have been a sticky issue for years. According to a 2006 study by the U.S. International Trade Administration, each sugar job saved by propping up domestic producers costs three jobs in manufacturing, with many companies relocating to countries such as Canada and Mexico where the price of sugar can be one-half to two-thirds the rate in the U.S. So instead of importing sugar, the U.S. brings in more sugary finished products, with imports rising to $18.7 billion in 2004 from $6.7 billion in 1990.

The Administration's reluctance to take on the sugar lobby comes in the context of what is beginning to look like a slow roll by the President on free-trade principles. In September, the Administration must also decide whether to allow tariffs or quotas on imported car tires from China. Standing for free trade would require the administration to stand up to some powerful unions. So far, no evidence of that.

In a recent Pittsburgh speech, U.S. Trade Representative Ron Kirk spoke primarily about trade enforcement issues, but the Administration has quietly encouraged protectionist policies. According to U.S. Chamber of Commerce Vice President John Murphy, the "Buy American" requirements of the stimulus package are stalling projects in some states and municipalities struggling to comply.

Challenging the status quo may be tough for President Obama, but a commitment to embrace standards of free trade early in his Presidency would be a boon to U.S. trade leadership. Big Sugar has long been the recipient of one of Washington's most destructive policies, and the continued price manipulation has no place in a recession. President Obama should increase the quotas and end American sugar's sweet deal.

from the Wall Street Journal's Political Diary, 2009-May-18, by John Fund:

Caveat Emptor

Word is that a compromise may be in the works on union-backed "card check" legislation that would dramatically expand union power. For one thing, the bill would make it easier to eliminate secret ballot elections to organize a workplace. That makes three Chicago billionaires who supported hometown favorite Barack Obama nervous.

Bloomberg News reports that Penny Pritzker, Mr. Obama's campaign finance chairman last year, is very worried the bill will undermine her ability to keep her Hyatt Hotel empire competitive. She has personally expressed her opposition to Mr. Obama. Other opponents of card check are Neil Bluhm, a partner in Walton Street Capital, Inc., and Lester Crown, chairman of Henry Crown & Co. Voting privately is "an American prerogative and shouldn't be overturned," Mr. Crown told Bloomberg. "The recommended legislation is absolutely the wrong thing to do."

"Card check is a gut check on support for their hometown [president]" among Chicago's once-enthusiastic business leaders, says Bloomberg.

That may be true, but Mr. Obama was on record endorsing card check years ago and has never wavered in his support. For all the money Ms. Pritzker and her fellow billionaires raised for Mr. Obama, their donations are dwarfed by the money and manpower that labor unions put behind his candidacy last year. The Chicago Three may have thought they would have seats at the Obama table. They are likely only to get table scraps of influence compared to organized labor.

from the Wall Street Journal, 2009-May-21, p.A19, by Bjorn Lomborg:

The Climate-Industrial Complex
Some businesses see nothing but profits in the green movement.

Some business leaders are cozying up with politicians and scientists to demand swift, drastic action on global warming. This is a new twist on a very old practice: companies using public policy to line their own pockets.

The tight relationship between the groups echoes the relationship among weapons makers, researchers and the U.S. military during the Cold War. President Dwight Eisenhower famously warned about the might of the "military-industrial complex," cautioning that "the potential for the disastrous rise of misplaced power exists and will persist." He worried that "there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties."

This is certainly true of climate change. We are told that very expensive carbon regulations are the only way to respond to global warming, despite ample evidence that this approach does not pass a basic cost-benefit test. We must ask whether a "climate-industrial complex" is emerging, pressing taxpayers to fork over money to please those who stand to gain.

This phenomenon will be on display at the World Business Summit on Climate Change in Copenhagen this weekend. The organizers -- the Copenhagen Climate Council -- hope to push political leaders into more drastic promises when they negotiate the Kyoto Protocol's replacement in December.

The opening keynote address is to be delivered by Al Gore, who actually represents all three groups: He is a politician, a campaigner and the chair of a green private-equity firm invested in products that a climate-scared world would buy.

Naturally, many CEOs are genuinely concerned about global warming. But many of the most vocal stand to profit from carbon regulations. The term used by economists for their behavior is "rent-seeking."

The world's largest wind-turbine manufacturer, Copenhagen Climate Council member Vestas, urges governments to invest heavily in the wind market. It sponsors CNN's "Climate in Peril" segment, increasing support for policies that would increase Vestas's earnings. A fellow council member, Mr. Gore's green investment firm Generation Investment Management, warns of a significant risk to the U.S. economy unless a price is quickly placed on carbon.

Even companies that are not heavily engaged in green business stand to gain. European energy companies made tens of billions of euros in the first years of the European Trading System when they received free carbon emission allocations.

American electricity utility Duke Energy, a member of the Copenhagen Climate Council, has long promoted a U.S. cap-and-trade scheme. Yet the company bitterly opposed the Warner-Lieberman bill in the U.S. Senate that would have created such a scheme because it did not include European-style handouts to coal companies. The Waxman-Markey bill in the House of Representatives promises to bring back the free lunch.

U.S. companies and interest groups involved with climate change hired 2,430 lobbyists just last year, up 300% from five years ago. Fifty of the biggest U.S. electric utilities -- including Duke -- spent $51 million on lobbyists in just six months.

The massive transfer of wealth that many businesses seek is not necessarily good for the rest of the economy. Spain has been proclaimed a global example in providing financial aid to renewable energy companies to create green jobs. But research shows that each new job cost Spain 571,138 euros, with subsidies of more than one million euros required to create each new job in the uncompetitive wind industry. Moreover, the programs resulted in the destruction of nearly 110,000 jobs elsewhere in the economy, or 2.2 jobs for every job created.

The cozy corporate-climate relationship was pioneered by Enron, which bought up renewable energy companies and credit-trading outfits while boasting of its relationship with green interest groups. When the Kyoto Protocol was signed, an internal memo was sent within Enron that stated, "If implemented, [the Kyoto Protocol] will do more to promote Enron's business than almost any other regulatory business."

The World Business Summit will hear from "science and public policy leaders" seemingly selected for their scary views of global warming. They include James Lovelock, who believes that much of Europe will be Saharan and London will be underwater within 30 years; Sir Crispin Tickell, who believes that the United Kingdom's population needs to be cut by two-thirds so the country can cope with global warming; and Timothy Flannery, who warns of sea level rises as high as "an eight-story building."

Free speech is important. But these visions of catastrophe are a long way outside of mainstream scientific opinion, and they go much further than the careful findings of the United Nations panel of climate change scientists. When it comes to sea-level rise, for example, the United Nations expects a rise of between seven and 23 inches by 2100 -- considerably less than a one-story building.

There would be an outcry -- and rightfully so -- if big oil organized a climate change conference and invited only climate-change deniers.

The partnership among self-interested businesses, grandstanding politicians and alarmist campaigners truly is an unholy alliance. The climate-industrial complex does not promote discussion on how to overcome this challenge in a way that will be best for everybody. We should not be surprised or impressed that those who stand to make a profit are among the loudest calling for politicians to act. Spending a fortune on global carbon regulations will benefit a few, but dearly cost everybody else.

Mr. Lomborg is director of the Copenhagen Consensus, a think tank, and author of "Cool It: The Skeptical Environmentalist's Guide to Global Warming" (Knopf, 2007).

from the Wall Street Journal, 2009-Sep-23, p.A23, by Robert D. Kaplan:

A Gusher Of Trouble
Why nations rich in oil are often plagued by poverty and corruption.

Just as there was the Bronze Age and the Iron Age, there is now the Oil Age, and we are living through its last waning decades. Juan Pablo Perez Alfonzo, a former Venezuelan oil minister who came up with the idea for a cartel in the 1960s, called oil the "devil's excrement." Peter Maass, in "Crude World," a spare, engaging work of reporting and travel writing, calls oil "black oxygen." It is a neat phrase because, as Mr. Maass demonstrates, oil is almost as essential to our lives as the air we breathe, yet its effect on the countries that produce it, and on the super-alpha males who run the oil industry, is quite sinister. This is a dark book, though not because Mr. Maass is a pessimist—he isn't. It's just that his itinerary (Equatorial Guinea, Nigeria, Russia, and other benighted locales) lends itself to deep foreboding about the human condition.

Oil corrupts, Mr. Maass says, because it is an "extractive" industry. The computer business and other industries actually design and produce something, but oil is simply taken out of the ground. Thus power lies in the hands of the king, dictator or prime minister who controls the real estate and with whom all sorts of unsavory deals can be struck. Extractive industries "do most of their business in compromise-inducing countries," Mr. Maass explains. "The problem is not that extractive industries have lower principles than other industries. The problem is that they must have better principles"—something that shareholders do not necessarily encourage. Because the number of oil fields on the planet is finite, and the oil in many of them is difficult to extract, the industry is governed by a zero-sum and aggressive realism of the bleakest sort.

Crude World By Peter Maass Knopf, 276 pages, $27

Take Vagit Alekperov, the president of Russia's Lukoil, with a stocky build and "laser stare that could melt a glacier." On his way to the industry's top rung, he lived on dangerous offshore rigs and bribed a Central Asian president with an airplane. And yet nowadays the oil man keeps a picture of Russian strong man Vladimir Putin on his desk, an indication that even a thuggish presence like Mr. Alekperov knows who's boss. Just as the discovery of Siberian oil kept the Soviet Union afloat for decades longer than it deserved, Mr. Maass notes, skyrocketing oil prices in this decade have buttressed Mr. Putin's neo-czarist authoritarianism.

The moral pit of the oil world is not Russia but Equatorial Guinea, a country in west-central Africa ruled by the violent dictator and torturer Teodoro Obiang, with whom Big Oil made a deal in the 1990s. The hundreds of millions of dollars spent to extract oil from the country has done nothing for the local economy, which remains one of the poorest on Earth. Mr. Maass's visit to a Marathon natural-gas facility in Equatorial Guinea is like a visit to another planet. Everything is imported, even the South Asian labor. The cement for construction is produced on site; the facility has its own water-purification and sewage system. There is almost no contact with the host country. The profits go to Marathon, a Houston company, and to Mr. Obiang's private bank accounts. A man given to excess, Mr. Obiang once bought, for $49.5 million, a Boeing 737, in which the bathroom fixtures were gold-plated.

Then there is Nigeria, which has earned $400 billion from oil profits in recent decades; yet, as Mr. Maass tells us, "nine out of ten citizens live on less than $2 a day, and one out of five children dies before his fifth birthday." Senegal, which exports fish and nuts, beats Nigeria in per capita income. According to the World Bank, 1% of the Nigerian population—presidents, generals, executives, middlemen and so on—have grabbed 80% of the country's oil wealth. This is how an extractive industry operates in a politically fractured land of weak and nonexistent institutions.

Whether Mr. Maass is in the primeval, environmentally ruined Niger Delta region of southern Nigeria, or in a Venezuelan slum where "even the jobless are mugged," or in a menacing and soulless Moscow high-rise, or among wayward, spoiled-brat Saudi youth, he shows how the trail of oil leads a traveler to either grim poverty or repulsive wealth. Oil, he seems to say, exaggerates the worst human tendencies.

Iraq is also part of the author's itinerary. Mr. Maass acknowledges that the idea of the Iraq war being waged for oil is largely a conspiracy theory. But he suggests that behind the established motives of the Bush administration—finding weapons of mass destruction, instilling democracy, ridding the world of one of its worst dictators—the war in Iraq, on a deeper geopolitical and historical level, was indeed about oil. And I agree with him; for without oil, the importance of Iraq greatly diminishes. Without oil, there could not have been a WMD program, real or imagined, in the first place. It was oil wealth that gave Saddam Hussein such sway over the Arab masses. It was oil that held out the promise of a prosperous and democratic Iraq in the minds of those who favored regime change.

The problem is that Mr. Maass doesn't elaborate sufficiently on his Iraq argument. He never really nails it down as he does so many other points in the book. Nor does he give us a hint of what the geopolitical landscape will be as oil production comes off its peaks and continues to diminish. He ends "Crude World" with a vision of windmills in Southern California—an icon of new energy sources. But as that future slowly arrives, what will be the fate of the places on his itinerary? What will the Middle East or the Gulf of Guinea look like politically and cartographically? He doesn't address the question. But his dogged travels make one yearn to know the answer.

Mr. Kaplan is a senior fellow at the Center for a New American Security and a national correspondent for The Atlantic.

from Creators Syndicate Inc. via RasmussenReports.com, 2009-May-27, by Tony Blankley:

Economic Reality of 5 Million Green Jobs

In 1845, the French economist Frederic Bastiat published a satirical petition from the "Manufacturers of Candles" to the French Chamber of Deputies, which ridiculed the arguments made on behalf of inefficient industries to protect them from more efficient producers: "We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us.

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds -- in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country."

This famous put-down highlights the problem of claiming that protecting inefficient producers creates good jobs. Obviously, the money the French would have wasted on unneeded candles could have been spent on needed products and services -- to the increased prosperity of the French economy.

I mention this in the context of the Obama administration's assertion that by subsidizing alternative energy sources, it will create 5 million green jobs. To that end, Congress passed in the stimulus bill $110 billion to subsidize and otherwise support such green efforts. And in conceptual support of that argument, the administration has referred to "what's happening in countries like Spain, Germany and Japan, where they're making real investments in renewable energy."

Well, in March, one of Spain's leading universities, Universidad Rey Juan Carlos, published an authoritative study "of the effects on employment of public aid to renewable energy sources." The report pointed out: "This study is important for several reasons. First is that the Spanish experience is considered a leading example to be followed by many policy advocates and politicians. This study marks the very first time a critical analysis of the actual performance and impact has been made. Most important, it demonstrates that the Spanish/EU-style 'green jobs' agenda now being promoted in the U.S. in fact destroys jobs, detailing this in terms of jobs destroyed per job created."

The central finding of the study is that -- treating the data optimistically -- for every renewable-energy job that the government finances, "Spain's experience . reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created."

Despite expensive and extensive green-job policies, a surprisingly low number of jobs were created. And about two-thirds of those "green" jobs were just to set up the energy source, in construction, fabrication, installation, marketing and administration. Only 10 percent of the green jobs created were permanent jobs actually operating and maintaining the renewable sources of energy.

Each wind industry job created in Spain required a subsidy of about $1.4 million. Overall, the average subsidy cost for each green job was about $800,000 (571,138 euros). And to create about 50,000 green jobs, Spain lost 110,000 jobs elsewhere in the economy, principally in metallurgy, nonmetallic mining and food processing and in the beverage and tobacco industries.

Each green megawatt brought on line destroyed 5.28 jobs elsewhere in the economy (8.99 by photovoltaics, 4.27 by wind energy and 5.05 by mini-hydropower). The total higher energy cost -- the higher cost of renewable energy over the market price of carbon-based energy -- between 2000 and 2008 was about $10 billion. Moreover, the report concluded, "These costs do not appear to be unique to Spain's approach but instead are largely inherent in schemes to promote renewable energy sources."

The high cost of green energy predictably drove energy-intensive Spanish companies and industries out of Spain to countries with cheaper carbon-based energy, while the cost to Spanish taxpayers of renewable-energy subsidies was "enormous . 4.35 percent of all (value-added taxes) collected, 3.45 percent of the household income tax, or 5.6 percent of the corporate income tax."

There is much more in the report, which at about 50 pages in length would make useful reading for our elected representatives. Those who are worried about global warming may, after studying this report, still want to subsidize renewable-energy production. But it will be hard for such people to honestly continue to believe that they can think they are addressing global warming while creating millions of net new jobs.

Tony Blankley is executive vice president of Edelman public relations in Washington.

from the Wall Street Journal, 2009-Aug-28, by Ann Davis and Russell Gold:

U.S. Biofuel Boom Running on Empty

The biofuels revolution that promised to reduce America's dependence on foreign oil is fizzling out.

Two-thirds of U.S. biodiesel production capacity now sits unused, reports the National Biodiesel Board. Biodiesel, a crucial part of government efforts to develop alternative fuels for trucks and factories, has been hit hard by the recession and falling oil prices.

The global credit crisis, a glut of capacity, lower oil prices and delayed government rules changes on fuel mixes are threatening the viability of two of the three main biofuel sectors -- biodiesel and next-generation fuels derived from feedstocks other than food. Ethanol, the largest biofuel sector, is also in financial trouble, although longstanding government support will likely protect it.

Earlier this year, GreenHunter Energy Inc., operator of the nation's largest biodiesel refinery, stopped production and in June said it may have to sell its Houston plant, only a year after politicians presided over its opening. Dozens of other new biodiesel plants, which make a diesel substitute from vegetable oils and animal fats, have stopped operating because biodiesel production is no longer economical.

Producers of next-generation biofuels -- those using nonfood renewable materials such as grasses, cornstalks and sugarcane stalks -- are finding it tough to attract investment and ramp up production to an industrial scale. The sector suffered a major setback this summer after a federal jury ruled that Cello Energy of Alabama, a plant-fiber-based biofuel producer, had defrauded investors. Backed by venture capitalist Vinod Khosla, Cello was expected to supply 70% of the 100.7 million gallons of cellulosic biofuels that the Environmental Protection Agency planned to blend into the U.S. fuel supply next year. The alleged fraud will almost certainly prevent the EPA from meeting its targets next year, energy analysts say.

The wave of biodiesel failures and Cello's inability to produce even a fraction of what it expected have spooked private investors, which could further delay technology breakthroughs and derail the government's green energy objectives.

"If your investors are losing money in first-generation biofuels, I guarantee you they'll be more reluctant to put money into more biofuels, including next-generation fuels," says Tom Murray, global head of energy for German bank WestLB, one of the leading lenders to ethanol and biodiesel makers.

Domestically produced biofuels were supposed to be an answer to reducing America's reliance on foreign oil. In 2007, Congress set targets for the U.S. to blend 36 billion gallons of biofuels a year into the U.S. fuel supply in 2022, from 11.1 billion gallons in 2009. That would increase biofuels' share of the liquid-fuel mix to roughly 16% from 5%, based on U.S. Energy Information Administration fuel-demand projections.

Corn ethanol, which has been supported by government blending mandates and other subsidies for years, has come under fire for driving up the price of corn and other basic foodstuffs. While it will continue to be produced, corn ethanol's dominant role in filling the biofuels' blending mandate was set to shrink through 2022. Cellulosic ethanol, derived from the inedible portions of plants, and other advanced fuels were expected to surpass corn ethanol to fill close to half of all biofuel mandates in that time.

But the industry is already falling behind the targets. The EPA, which implements the congressional blending mandates, still hasn't issued any regulations to allow biodiesel blending, though they were supposed to start in January. The mandate to blend next-generation fuels, which kicks in next year, is unlikely to be met because of a lack of enough viable production.

"I don't believe there's a man, woman or child who believes the industry can hit" the EPA's 2010 biofuel blending targets, says Bill Wicker, spokesman for Sen. Jeff Bingaman of New Mexico, chairman of the Senate Energy Committee.

The business models for most biofuel companies were predicated on a much higher price of crude oil, making biofuels more attractive. A government-guaranteed market was also central to business plans.

But once blending mandates were postponed, oil prices plunged and the recession crushed fuel demand, many biodiesel companies started operating in the red. Even ethanol producers, which have enjoyed government subsidies and growing federal requirements to blend it into gasoline, have been operating at a loss over the past year. Numerous established producers have filed for Chapter 11 bankruptcy-court protection.

Critics of the biofuels boom say government support helped create the mess in the first place. In 2007, biofuels including ethanol received $3.25 billion in subsidies and support -- more than nuclear, solar or any other energy source, according to the Energy Information Administration. With new stimulus funding, this figure is expected to jump. New Energy Finance Ltd., an alternative-energy research firm, estimates that blending mandates alone would provide over $33 billion in tax credits to the biofuels industry from 2009 through 2013.

Not all biofuels may be worth the investment because they divert land from food crops, are expensive to produce and may be eclipsed by the electric car. One fact cited against biofuels: If the entire U.S. supply of vegetable oils and animal fats were diverted to make biodiesel, production still would amount to at most 7% of U.S. diesel demand.

Producers and investors now are pushing for swift and aggressive government help. Biodiesel makers are lobbying to kick-start the delayed blending mandates immediately and extend biodiesel tax credits, which expire in December.

On Aug. 7 more than two dozen U.S. senators wrote to President Barack Obama to warn that "numerous bankruptcies loom" in the biodiesel sector. "If this situation is not addressed immediately, the domestic biodiesel industry expects to lose 29,000 jobs in 2009 alone," the senators wrote, using estimates by the National Biodiesel Board.

Mr. Obama, who supported biofuels throughout his campaign, is working to roll out grants and loan guarantees for bio-refineries and green fuel projects, said Heather Zichal, a White House energy adviser. The pace of the disbursements should speed up this fall, administration officials say.

Obama officials defended the delay in biodiesel mandates. The EPA in May proposed rules that penalize soy-based diesel under the blending mandates, because deforestation from soybean cultivation is thought to offset the fuel's environmental benefits. Obama officials say the EPA must perform a thorough environmental review before it can issue rules. The amount of biodiesel that was to have been blended in 2009 will be added to the amount required for 2010, so that no volume is lost, they add.

Any state help might be too late for GreenHunter Energy. In 2007, the company, led by energy exploration executive Gary Evans, acquired a Houston refinery that processed used motor oil and chemicals and retrofit it to make 105 million gallons of biodiesel a year from all manner of feedstocks, from soybean oil and beef tallow to, potentially, inedible plant matter. GreenHunter's business model hinged on selling to a government-guaranteed buyer: GreenHunter has the capacity to make 20% of the 500 million gallons of biodiesel that Congress wanted to be blended into the 2009 fuel supply.

Until the mandate kicked in, GreenHunter and other biodiesel makers counted on exporting their output to Europe, a much bigger user of diesel.

GreenHunter opened in June 2008 as oil prices skyrocketed. By then, soybean oil prices were soaring, too, pinching refiners that had banked on using soy. Mr. Evans switched to inedible animal fats.

For about a month, when oil hovered above $120 a barrel and traditional diesel ran over $4 a gallon, GreenHunter says profit margins on turning animal fat into diesel rose as high as $1.25 a gallon. It wasn't sustainable. The price of animal fat soared too, cutting margins again.

As the EPA continued to delay the blending mandates, the global downturn obliterated demand for regular diesel. Prices cratered. GreenHunter's plant took a direct hit from Hurricane Ike in September. By the time the plant reopened in late November, the price of diesel had dropped by more than half, and GreenHunter was losing money on every gallon of fuel.

The European Union dealt the final blow this spring when it slapped a tariff on U.S. biodiesel, killing what had been the industry's main sales outlet.

GreenHunter has since stopped producing biodiesel. The American Stock Exchange informed GreenHunter in May that the company was out of compliance with some listing requirements; the firm has submitted a plan to remain listed. Its stock has sunk to about $2 a share from a high of $24.75 in May 2008.

Bio-refinery carcasses are everywhere. GreenHunter's lender, West LB, arranged $2 billion in ethanol and biodiesel loans, selling them to various investors beginning around 2006. Today, half of the $2 billion in loans have defaulted or are being restructured, according to people familiar with the portfolio. Publicly traded Nova Biosource Fuels Inc. filed for Chapter 11 bankruptcy reorganization in March.

Imperium Renewables, a biodiesel maker in Washington, is trying to hang on as a storage depot, its founder says. Evolution Fuels, an outfit that used to sell a biodiesel brand licensed by country singer Willie Nelson, has stopped production and said in a securities filing it may not be able to continue as a going concern. The company didn't return calls for comment.

Some senators have introduced a bill to extend biodiesel tax credits. A provision passed in the House grandfathers soy-based biodiesel into the blending mandates for five years.

Second-generation biofuels have had their own setbacks.

When seeking investors for Cello Energy in 2007, Jack Boykin, an entrepreneur with a background in biochemistry, said Cello had made diesel economically in a four-million-gallon-a-year pilot plant from grass, hay and used tires. What's more, he told investors he had successfully used the fuel in trucks, according to testimony in a federal court case in Mobile, Ala. He said he had invested $25 million of his own money. An Auburn University agronomy professor advising the Bush administration on green energy endorsed his technology.

Alabama paper-and-pulp executive George Landegger and Mr. Khosla, the venture capitalist, separately invested millions in seed money into Cello and had plans to invest or lend more.

A lawsuit disputing the ownership stakes of investors produced Mr. Boykin's revelation, in a 2008 deposition, that he had never used inedible plant material such as wood chips or grass in his pilot plant, despite claims otherwise. Construction of his full-scale facility in rural Alabama moved forward anyway.

This year, Khosla representatives took samples of diesel produced at the new Cello plant and sent them off for testing. The results showed no evidence of plant-based fuel: Carbon in the diesel was at least 50,000 years old, marking it as traditional fossil fuel.

The EPA wasn't told about the test, and continued to rely on Mr. Boykin's original claims when it asserted in the Federal Register in May that Cello could produce 70% of the cellulosic fuel targets set by Congress that are due to take effect next year.

The jury returned a $10.4 million civil fraud and breach-of-contract verdict against the Alabama entrepreneur in favor of Mr. Landegger, one of the investors. Work on the plant has been suspended. Several weeks after the verdict was delivered, Mr. Boykin presented evidence that he had tested fuel from the plant and it did contain cellulosic material. He is seeking a new trial.

Mr. Boykin declined to comment, but his lawyer, Forest Latta, said his client denies committing fraud. The carbon testing, he said, reflected only an early stage quality-control test during startup trials. It would be premature to conclude, Mr. Latta said in an email, that Cello's fuel-making process is a failure. "This is a first-of-its-kind plant in which there remain some mechanical issues still being ironed out," he wrote.

Margo Oge, director of the EPA's office on transportation and air quality, says the agency is "looking into the whole case of Cello." Mr. Khosla declined to discuss Cello, but said he doubts the 2010 cellulosic fuel mandates can be met. "All projects, even traditional well-established technologies, are being delayed because of the financial crisis," he said in an interview.

from Green Hell Blog, 2009-May-20, by Steve Milloy:

Obama’s Economic Recovery ‘Advisory’ Board: Little dissent, lots of self-dealing on climate

President Obama’s so-called Economic Recovery Advisory Board held its first quarterly meeting today — it was a spectacle of the sort of self-dealing and corruption that we may rightly expect to become routine if cap-and-trade legislation passes.

After the meeting, CNBC’s Becky Quick interviewed ERAB board member John Doerr, head of the venture capital firm of Kleiner Perkins — that’s right, the very same Kleiner Perkins that has invested more than $1 billion in 40 cap-and-trade-dependent business ventures and that has Al Gore as a partner.

Doerr said that ERAB talked about the need for:

• Green technologies;
• Cap-and-trade; and
• Rewarding electric utilities for selling less electricity.

Doerr also told Quick that an EPA analysis showed that cap-and-trade would cost Americans less than $100 per year. (LOL!)

But we have no reason to believe that Doerr wouldn’t say and do absolutely anything to help ram through cap-and-trade legislation that would enable his firm to steal billions of dollars from consumers and taxpayers through bogus Al Gore-endorsed “green technologies.”

If you’re thinking that Doerr is only one voice on the ERAB and that less-biased heads will prevail, think again. Here are the other ERAB members and their interests/positions on cap-and-trade:

• Austan Goolsbee as staff director and chief economist (Obama administration);
• William H. Donaldson, SEC Chair, 2003-05 (Obama supporter who has spoken in support of climate legislation);
• Roger W. Ferguson, Jr., president and CEO, TIAA-CREF (TIAA-CREF promotes climate change legislation through shareholder activism and possibly stands to benefit from “green” investments);
• Robert Wolf, chairman and CEO, UBS (sells climate change-related financial products);
• David F. Swensen, CIO, Yale University (Yale supports climate change legislation);
• Mark T. Gallogly, founder and managing partner, Centerbridge Partners L.P. (early Obama supporter);
• Penny Pritzker, chairwoman, Pritzker Realty Group (Obama campaign finance chairman);
• Jeffrey R. Immelt, CEO, GE (parent company of NBC News) (lobbying for climate legislation through USCAP);
• John Doerr, partner at Kleiner, Perkins, Caufield & Byers (lobbying for climate legislation through Al Gore);
• Jim Owens, chairman and CEO, Caterpillar Inc. (lobbying for climate change legislation through USCAP);
• Monica C. Lozano, publisher & chief executive officer, La Opinion (her newspaper endorsed Obama);
• Charles E. Phillips, Jr., president, Oracle (wants to use Oracle technology to ration electricity to consumers through a “smart grid”);
• Anna Burger, chairwoman, Change to Win (union group that supports green jobs);
• Richard L. Trumka, secretary-treasurer, AFL-CIO (the union has joined with greens to lobby for climate legislation);
• Laura D’Andrea Tyson, dean, Haas School of Business at the University of California at Berkeley (Obama supporter who has advocated climate change legislation);
• Martin Feldstein, professor of Economics, Harvard (opposes cap-and-trade)

So of the 16 members of Obama’s Economic Recovery Advisory Board, only one (Feldstein) opposes cap-and-trade. At least six (Immelt, Owens, Doerr, Ferguson, Wolf, Phillips) expect direct financial benefits from cap-and-trade. The remaining members are either Obama supporters/employees or union representatives. Taxpayers, consumers and non-rent-seeking businesses have been left out in the cold.

Click here for the Quick-Doerr interview. Don’t miss Green Hell endorser Larry Kudlow’s anti-green fusillade at the end.

from the Wall Street Journal, 2009-May-21, web-posted 2009-May-20, by Joseph B. White with Judith Burns and Josh Mitchell contributing:

Industries are Grappling With New Bill on Climate

WASHINGTON -- The "American Clean Energy and Security Act" is one of the most ambitious efforts to re-engineer American social and economic behavior in decades, presenting risks and opportunities for a wide array of businesses from Silicon Valley to the coal fields of the Appalachians.

The legislation, better known as the Waxman-Markey bill, isn't yet law and has big hurdles to clear. A critical vote looms this week in the House Energy and Commerce Committee. But even with its chances of passage uncertain, the measure has become the basis for debate in Washington over how the U.S. should respond to pressure to slash its carbon emissions.

At a White House meeting Wednesday, members of President Barack Obama's Economic Recovery Advisory Board endorsed the central idea of the 900-plus page measure -- to cap carbon emissions and require businesses to buy tradeable permits to pollute. The measure could create "green" jobs in the U.S. while reducing harmful pollution that might be causing global climate change, executives in the group said. They included General Electric Co. Chief Executive Jeffrey Immelt, who sat next to the president.

Mr. Obama said he's "excited about the opportunity" to develop such a system and that "we've seen some great progress this week" in the U.S. House of Representatives.

The bill has been put forward by U.S. Reps. Henry A. Waxman, (D., Calif.) and Edward J. Markey (D., Mass.). It's [sic -AMPP Ed.] prospects look good in the House, but it could face a tougher time in the Senate. Still, the bill is the most viable yet to tackle climate change.

If adopted, it would confront big sectors of the economy with potentially costly challenges. The bill requires that emissions of carbon dioxide, methane and other gases linked to climate change be cut by 83% from their 2005 levels by 2050, long after most current members of Congress will have left office. The planned reduction is all the more ambitious considering that U.S. greenhouse gas emissions grew by 17% between 1990 and 2007.

To drive businesses and power generators to use less oil and coal and slash emissions of other gases, the Waxman-Markey bill would make businesses acquire pollution permits, which they could use to cover their emissions and sell any spares.

The current draft of the bill would give away up to 85% of those permits over the next 20 years. Still, instituting a cap and trade system would start the process of putting a price on emitting carbon dioxide. The bill's supporters say that is enough to start driving the technological innovation and investment needed to move away from fossil fuels.

"Putting a price on carbon is the most important thing we can do," Silicon Valley venture capitalist John Doerr told reporters after the meeting of the president's advisory board. Mr. Doerr, a partner at, Kleiner, Perkins, Caufield & Byers, is one of a number of tech figures who have invested some of the wealth they earned during the Internet boom in clean-energy ventures that could get a boost from the Waxman-Markey proposal.

Critics of Waxman-Markey, most of them Republicans but also some Democrats, say it is a tax by another name applied in a complex and costly way.

A Congressional Budget Office analysis of climate change policy estimated that price increases associated with a 15% cut in carbon dioxide emissions would cost the average U.S. household $1,600 a year. The CBO analysis said low income households would shoulder a larger burden, as would families in coal dependent regions such as the Ohio Valley.

Harvard University economics professor Martin Feldstein questioned during the meeting with Mr. Obama whether the price might be too high for U.S. consumers, but said giving away too many pollution credits to utilities could undermine the goal of reducing emissions.

"You have to raise the price to consumers to get them to cut back," Mr. Feldstein said. "I have a hard time understanding the give-away strategy."

Lawmakers say they would compensate consumers for the added burden through tax credits and direct government subsidies. The Waxman-Markey bill would use the states to funnel monthly payments to low-income households, defined as those eligible for food stamps or with gross income up to 150% of the poverty line.

But the Waxman-Markey bill is more than just cap and trade. The proposal would establish requirements that utilities buy at least 12% of their electricity from renewable sources such as windmills, solar panels and geothermal technology.

Another section promotes "large scale" programs to spur demand for electric vehicles with incentives for buying plug-in cars and building charging stations.

The proposed bill offers auto makers several forms of assistance to make the shift to lower-carbon cars. They include as much as $50 billion in loans under an Energy Department program to spur advanced vehicle development and up to $4 billion for subsidies to consumers who trade in older vehicles for more efficient models.

In addition, auto makers would get 3% of the free pollution allowances through 2017 and 1% from 2018 through 2025 -- tied to investments in electric vehicles and other advanced technology.

The proposal would offer rebates to spur demand for appliances that are not only energy efficient, but also come equipped with "smart grid" technology that would allow a dishwasher to know the most economical time of day to run based on variable electric rates. Retailers would get incentives to push highly efficient appliances to consumers.

The act would order the Department of Energy to see to it that building codes are amended to make new buildings 30% more efficient by 2010 and 50% more efficient by 2016. The act would even establish new efficiency standards for "portable light fixtures," also known as lamps.

from the American Scene, 2009-May-20, by Jim Manzi:

Waxman-Markey Cost-Benefit Analysis

There has been widespread agitation in the influential blogosphere for a cost-benefit analysis of the Waxman-Markey cap-and-trade proposal. This sure seems like a reasonable request to me, and you have to wonder why the sponsors and advocates of this bill – who are, after all, proposing an enormous commitment of resources – haven't provided one. So I tried to do a quick version of it. I have a longer and more complete version of this coming in the next National Review, but wanted to get the bones of the analysis out for discussion as rapidly as possible.

Background Analysis

According to the authoritative U.N. Intergovernmental Panel on Climate Change (IPCC), under a reasonable set of assumptions for global economic and population growth, the world should expect (Table SPM.3) to warm by about 2.8°C over the next century. Also according to the IPCC (page 17), a global increase in temperature of 4°C should cause the world to lose about 3 percent of its economic output. So if we do not take measures to ameliorate global warming, the world should expect to be about 3 percent poorer sometime in the 22nd century than it otherwise would be. This is very far from the rhetoric of global destruction. Because of its geographical position and mix of economic activities, the United States is expected (Table 3) to experience no net material economic costs from such warming through the end of this century, and to begin experiencing net costs only thereafter.

A government program to force emissions reductions to avoid some of these potential future losses would impose a cost of its own: the loss in consumption we would experience if we used less energy, substituted higher-cost sources of energy for fossil fuels, and paid for projects—which are termed “offsets”—to ameliorate the effect of emissions (an example would be planting lots of trees). It's complicated to estimate the cost of an emissions-reduction program, but the leading economists in this area generally agree that it would be large, and that we should simply let most emissions happen, because it would be more expensive to avoid them than to accept the damage they would cause. This makes sense, if you consider that most such plans (for example, Waxman-Markey) call for eliminating something like 80 percent of carbon dioxide emissions within the next 40 years or so. Even if the economy becomes more efficient over this period, such a quick transition away from our primary fossil-fuel sources will be expensive.

If a) the total potential benefit of emissions abatement is about 3 percent of economic output more than 100 years from now, b) we can avoid only some of this damage, and c) it's expensive to prevent those emissions that we can prevent, the net benefit of emissions reduction will likely be a very small fraction of total economic output. William Nordhaus, who heads the widely respected environmental-economics-modeling group at Yale, estimates (page 84) the total expected net benefit of an optimally designed, implemented, and enforced global program to be equal to the present value of about 0.2 percent of future global economic consumption. In the real world of domestic politics and geostrategic competition, it is not realistic to expect that we would ever have an optimally designed, implemented, and enforced global system, and the side deals made to put in place even an imperfect system would likely have costs that would dwarf 0.2 percent of global economic consumption. The expected benefits of emissions mitigation do not cover its expected costs. This is the root reason that proposals to mitigate emissions have such a hard time justifying themselves economically. (If interested, you can read much more about this here).

Costs vs. Benefits of Waxman-Markey

Let's start with the costs. The Environmental Protection Agency (EPA) has done the first cost estimate for Waxman-Markey. It finds (page 17) that by 2020 Waxman-Markey would cause a typical U.S. household to consume about $160 less per year than it otherwise would, and about $1,100 less per year by 2050 (before any potential benefits from avoiding warming). That doesn't sound like the end of the world, but this cost estimate is based on a number of assumptions that seem pretty unrealistic, to put it mildly.

First, it assumes that every dollar collected by selling the right to emit carbon dioxide will be returned to taxpayers through rebates or lowered taxes. Waxman-Markey establishes this intention but doesn't (as of the time I'm writing this) describe how it would be achieved, which reflects the political difficulty of achieving it. Second, it assumes no costs for enforcement and other compliance measures, which would be awfully nice. Third, it assumes that large numbers of foreign offsets will be available for purchase; without these, costs would be far higher. Fourth, it assumes that the rest of the world will begin similar carbon-reduction programs. Lack of such foreign action would either increase U.S. costs or risk a trade war if we tried to compensate for lack of international cooperation with targeted tariffs. Fifth, it assumes that there will be no exemptions or other side deals—that is, no economic drag created by the kind of complexity that has attached to every large, long-term revenue-collection program in history. And so on.

The EPA forecast is something like an estimate of the pure loss in economic productivity from replacing some fossil fuels with less economically efficient fuels or conservation in a laboratory setting; in the real world, expected costs are far above 0.8 percent of economic consumption by 2050. The EPA does not forecast costs beyond 2050.

Remember that the U.S. should not expect any net economic damage from global warming before 2100. That is, the bill's benefits would accrue to U.S. consumers—who are also bearing its costs—sometime in the next century. The EPA underestimate has costs rising from zero to 0.8 percent of consumption between now and 2050, and offers no projection beyond that year; but to what level would costs rise over the more than 50 years between 2050 and the point in 22nd century when we might actually expect some net economic losses from global warming? The answer is likely to be much higher.

Now consider the benefits. Climatologist Chip Knappenberger has applied standard climate models to project that, under the scenario for global economic and population growth referenced above (A1B), Waxman-Markey's emissions reductions would have the net effect of lowering global temperatures by about 0.1°C by 2100. Remember that the estimated cost of a 4°C increase in temperature (40 times this amount) is about 3 percent of global economic output. Assume for the moment that global warming has the same impact on the U.S. as a percentage of GDP as it does on the world as a whole (an assumption that almost certainly exaggerates the impact on the U.S.). A crude estimate of the U.S. economic costs that Waxman-Markey would avoid sometime later than 2100 would then be about one-fortieth of 3 percent, or about 0.08 percent of economic output. This number is one-tenth of 0.8 percent, the EPA's estimate of consumption loss from Waxman-Markey by 2050. To repeat: The costs would be more than ten times the benefits, even under extremely unrealistic assumptions of low costs and high benefits. More realistic assumptions would make for a comparison far less favorable to the bill.

I've had to rely on informal studies and back-of-envelope calculations to do this cost/benefit analysis. Why haven't advocates and sponsors of the proposal done their own? Why are they urging Congress to make an incredible commitment of resources without even cursory analysis of the net economic consequences? The answer should be obvious: This is a terrible deal for American taxpayers.

Two Potential Objections

One potential objection to my analysis is that the bill is part of a global drive for all countries to reduce emissions, and that the U.S. needs to “show leadership.” By this logic, we should ascribe much larger benefits to the Waxman-Markey bill—specifically, the benefits to American consumers of the whole world's engaging in similar programs. There are two obvious problems with this argument, however. First, ascribing all of the benefits of a global deal to reduce emissions to a specific bill that does not create such a commitment on the part of any other countries is loading the dice. The benefit we should ascribe to the bill is rather that of an increase in the odds of such a global deal. But would Waxman-Markey actually increase them, or would it decrease them instead? Whenever one nation sacrifices economic growth in order to reduce emissions, the whole world can expect to benefit, because future temperature should decrease for the entire globe. Every nation's incentive, therefore, is to free ride on everybody else. Our most obvious leverage with other emitting nations would be to offer to reduce our emissions if they reduced theirs. Giving up this leverage and hoping that our unilateral reductions would put moral pressure on China, Russia, Brazil, and similar countries to reduce their emissions reveals a touchingly sunny view of human nature, but it strikes me as a poor negotiating strategy. Second and more fundamentally, even if the whole world were to enact similar restraints on emissions, the cost / benefit economics would still not be compelling, for the reasons outlined at the beginning of this post.

A second and more serious potential objection to my analysis is that while Waxman-Markey may not create benefits if the projections I offered above turn out to be accurate, climate science is highly inexact, and the bill is an insurance policy against higher-than-expected costs. Now, climate and economics modelers aren't idiots, so it's not as though this hadn't occurred to them. Competent modelers don't assume only the most likely case, but build probability distributions for levels of warming and associated economic impacts (e.g., there is a 5 percent chance of 4.5°C warming, a 10 percent chance of 4.0°C warming, and so on). The economic calculations that compose, for example, the analysis by William Nordhaus that I cited earlier are executed in just this manner. So the possibility of “worse than expected” impacts means, more precisely, the possibility of “impacts worse than those derived from our current probability distribution.” That is, we are concerned here with the inherently unquantifiable possibility that our entire probability distribution is wrong.

This concept has been called, somewhat grandiosely, the “Precautionary Principle.” Once you get past all the table-pounding, this is the crux of the argument for emissions abatement. It is an emotionally appealing political position, as it easy to argue that we should reduce some consumption now to head off even a low-odds possibility of disaster. The most compelling version of this argument, by far, has been presented by Martin Weitzman. You can read my detailed response here (note that this was to a slightly earlier edition of the paper). The essence of my response is that in order to drive a decision, Weitzman must take his argument from the conceptual idea of a “fat-tailed distribution” of danger to a numerical estimate of risk. He recognizes that the logic of his argument entails this. In his article, he ends up having to do the kind of armchair climate science that has been the bane of the “global warming is all a hoax” set. He uses a couple of ice bore studies to develop his own probability distribution for potential warming that calls for a 1% chance of 22.6C or more of warming by 2100. To put this in perspective, a 22.6C increase in the earth's temperature would mean that the average global year-round temperature would be the same as summertime Death Valley is today. If you could convince me that there was a reliably-quantified 1% chance of this happening, you wouldn't need all of the mathematical formalism of Weitzman's paper – I'd be the biggest emissions mitigation proponent on earth. The problem is that the IPCC has already built a distribution of potential temperature changes (see Figure 10.28, page 808) that looks nothing like this. If you don't want to believe me, read Cass Sunstein's book about why the Precautionary Principle, even in sophisticated form, is a very bad decision rule.

In the end, clarity about costs and benefits is the enemy of Waxman Markey. It is hard to get around the conclusion that it can not be justified rationally based on the avoidance of climate change damages.

from the Los Angeles Times, 2009-May-20, by Jim Tankersley, with Christi Parsons, Jim Puzzanghera and Richard Simon in the Washington bureau contributing:

Behind the scenes of the auto emissions deal

The agreement for a strict nationwide standard for U.S.-sold cars by 2016 took a mix of firm demands and major concessions from the government. Obama sees the talks as a 'template for more progress.'

Reporting from Washington -- It had taken weeks of hardball negotiations, but on Sunday afternoon, White House officials thought everything was falling into place. In less than 48 hours they would unveil a landmark deal with U.S. automakers to impose sharply higher fuel-efficiency standards on new cars and trucks.

A senior Ford executive said the company had run the numbers again and concluded it might not survive if it accepted the deal. If Ford pulled out, it would mean a major setback for two of President Obama's signature goals -- combating global warming and reducing the nation's appetite for foreign oil.

In the end, with more number-crunching and another application of White House pressure, Ford did not bolt. And when Obama stepped into the Rose Garden on Tuesday afternoon to announce the deal with the auto industry and the state of California, he hailed it as a road map for progress on other knotty issues.

Yet the near-collapse of the effort was a dramatic reminder of how hard it can be to break through years of stalemate and build a consensus for action on a problem that has pitted some of the country's most powerful interests against each other.

"Everybody at some point, from California to the companies, had a moment of going, 'Uh-oh, what am I thinking?' " said Carol Browner, director of the White House Office of Energy and Climate Change Policy.

The push to keep the automaker on board involved a key official on a cellphone who mapped strategy while huddled in the relative quiet of a bathroom at the Washington Nationals baseball stadium. Another broke away from a birthday party in New York.

What made the agreement possible was a combination of unyielding demands by the federal government on some points and a willingness to make major concessions on what it considered smaller ones, said officials involved who requested anonymity when discussing the negotiations. With the U.S. auto industry on the brink of collapse, its leaders came to see that they could no longer forestall action -- and would be better off with a single, strict national rule than a state-by-state patchwork.

"We were able to convince everybody to keep their eye on the ball -- a national standard -- and work on the way we get there," said Browner, who spearheaded the effort.

Obama basked in the success on Tuesday. "All the people who have gathered here today . . . they've created the template for more progress in the months and years to come," he said. "Everything is possible when we're working together, and we're off to a great start."

The agreement announced at the White House will lead to a 30% reduction in carbon dioxide and other emissions by 2016 from vehicles sold in the U.S.

To meet that standard, according to the White House, new vehicles sold in the U.S. seven years from now will have to average 35.5 mpg, up from 25 mpg today. The agreement, coupled with increased fuel-efficiency requirements Congress approved in 2007, would add $1,300 to the price of a new car in 2016, the administration estimated.

The plan does not spell out specific mileage requirements, but effectively would require them by capping the greenhouse gas emissions that scientists blame for global warming. The new limits are projected to reduce U.S. oil consumption by about 5% a year from 2011 to 2016. The nation currently uses about 7.1 billion barrels a year.

As the deal was being crafted, domestic and foreign carmakers trooped throughout the month of April to the Eisenhower Executive Office Building. Administration officials greeted them with a message: We're setting national limits on climate-altering emissions from cars and trucks. The limits aren't negotiable. Tell us what you need to meet them.

One by one, 10 automakers signed on -- after securing promises to make the limits more flexible. A Ford spokesman said the company had "worked closely with the administration to make sure we understood the agreement."

So did California, which since 2002 has sought to impose tougher emissions standards on its own. The Obama plan would achieve comparable cutbacks, but give automakers more time to adapt. As a result, the automakers agreed to drop their legal challenges to California's standards.

The United Auto Workers union also agreed to the administration's plan, after being assured that the rules wouldn't push factory jobs overseas.

On Tuesday, Ford Chief Executive Alan Mulally stood by Obama's side. "The president is going to continue to work toward an integrated energy policy in the United States, and the consumer is going to be involved," Mulally told reporters at the White House. "We're all going to move forward, I believe, on this journey to energy independence, energy security and long-term stability."

The deal, which does not require congressional approval, will unify an array of Environmental Protection Agency and Department of Transportation regulations. To complete it, the administration will need to finalize several pending decisions, at which point automakers will drop their lawsuits against California's proposed emissions limits.

Many Republicans criticized the agreement, saying it would kill jobs, raise car prices and reduce consumer choices.

Rep. John Campbell (R-Irvine) said automakers only signed on "because they're owned by the government" -- a reference to Obama's recent moves to prop up troubled Chrysler and General Motors.

"These exact companies were fighting this . . . tooth and nail six months ago, and now suddenly they love it?" Campbell said. "No, they don't love it. This is what this administration is doing: This administration is autocratically forcing people to do whatever it wants."

California Gov. Arnold Schwarzenegger, a high-profile supporter of the agreement, suggested Tuesday that the federal financial assistance had given Obama's team leverage to force automakers to accept the emissions limits.

"All of a sudden, the car manufacturers needed . . . the taxpayers' money," he said. "So in order to get that help, I'm sure that President Obama said: 'OK . . . here's what you need to do.' "

from CNBC.com, 2009-May-20, by Dennis Kneale:

New CAFE Menu Will Give Detroit Heart Attack

When you're as wildly popular as President Obama, who needs Congress? So it is that the rookie in the White House imposes a go-green-or-die fiat on the filthy and woeful auto industry.

The White House's new and tougher gas-mileage rules force a 42 percent increase in new cars' miles-per-gallon, and a 30 percent rise for trucks, by 2016. All to curb gasoline usage by 1.6 percent—by the year 2020.

Will someone please tell me what the hell we're thinking here?

This amounts to one of the most severe and sweeping enviro-reforms ever mounted by government. And look Ma—no hands in Congress had to lift a finger to vote. This is all bureaucracy, baby, courtesy of the Environmental Protection Agency and the U.S. Department of Transportation.

Obama said yesterday that the new CAFE (Corporate Average Fuel Economy) rules would fuel Detroit on a (dubious) crusade to develop and sell greener cars. (Ahem, at a time of still-cheap gasoline.)

It will mean "certainty" for the Motor City, Bam says. Yeah—the certainty of a heart attack.

This extra burden comes at the worst possible time for GM, Chrysler and Ford. And it won't work—it just looks good. Which kinda sums up a lot of new moves coming out of Washington these days. We debated this last night on CNBC Reports.

The president proudly unveiled his new diktat yesterday, flanked by a gaggle of grinning yes-men: governors and greenies and execs from carmakers American and foreign.

The GM and Chrysler guys had no choice but to be there, wincing beneath the grins: They just guzzled through $25 billion (CHK) in TARP taxpayer loans in a last-gasp bid to survive. Would they ever dare differ with Bam on his bid to annex their product-design labs—especially when they need billions more?

So let me point out some fatal flaws in this green decree:

• It will result in Americans driving more not less. When we get better mileage, we drive more than usual, negating much of the savings, says Penn State's Andrew N. Kleit, who has written widely on the topic.
• The key to better mileage is lighter-weight cars—in which people die more often in traffic accidents. Since CAFÉ passed in 1975, smaller cars have killed almost 50,000 more people than otherwise would have died on the roads, the National Highway Traffic Safety Administration reported in 2002. CAFE kills up to 3,900 extra people each year, a study by Harvard and the Brookings Institition states. It finds that for every 100 pounds less that an auto weighs, up to 780 more people die in traffic accidents in a year.
• It will add $600 to the price of a car, further worsening the Big 3's already sizable cost disadvantage. Toyota, Honda and Hyundai already pretty much meet the stricter standards.
• It will force Detroit to build wimpy li'l cars most consumers don't want to buy. CAFÉ rules long have distorted industry production. Automakers churn out loss-leader subcompacts purely to lower the average mileage for their entire fleet, freeing them to make higher-profit SUVs. At Ford, the F-150 truck provided 120% of profits, back when it had profits.

I know, guys: We gotta fix this fuel problem sooner rather than later, we have to end our reliance on foreign oil. Blah blah blah. Sure we do—but not by Presidential fiat, not by way of a self-perpetuating bureaucracy. We need a free-market solution: Make better, cheaper, safer lower-fuel cars that we want to buy, and we're happy to start driving them.

Not because Bam said we should, but because we choose to do so.

from KeithHennessey.com, 2009-May-19, by Keith Hennessey:

Understanding the President's CAFE announcement

(Editorial note: I was doing so well moving to shorter posts. I fail miserably in achieving that goal here. I went the comprehensive route instead. I promise to return to shorter posts in the future. Buckle up – this is a long ride. I hope you find it's worth it.)

(Update: There’s an important correction in #3 below. The estimated job loss for the option I think most closely approximates the Administration’s proposal should be about 50,000 over five years, rather than about 150,000 over five years. I apologize for the error.)

There is not yet much data available on the President's CAFE announcement. Luckily, we have a huge base of analysis that the National Highway Traffic Safety Administration (NHTSA) did in 2008 that allows us to infer a lot from what was announced. Here are the specific data points we have from the President's announcement:

• The average fuel economy standard will be 35.5 mpg in 2016. That's a weighted average of all cars and light trucks sold in the U.S.
• Assuming that the Wall Street Journal's reporting is accurate, they would require cars to hit 39 mpg by 2016, and light trucks to hit 30 mpg by 2016.

These fuel standards are the implementation of a law proposed by President Bush in January 2007, and passed by (a Democratic majority) Congress and signed by President Bush in December, 2007. The Bush Administration developed rules to implement the law and brought them right up to the goal line, but did not finalize them before the end of the Administration. The Obama Administration has now significantly modified the Bush rules.

Technically the Administration is today announcing that they will release a new proposed rule. While the news coverage makes it sound like this is a done deal, this is the beginning of a regulatory process, not the end. Still, the starting point is extremely important.

In developing the Bush proposal, NHTSA developed six options. I will show you four of those. Conveniently, what we know about President Obama's proposal lines up almost perfectly with one of those options. This allows us to use NHTSA analysis of this option to make some initial estimates of the effects of the President's new proposal. As always, you can click on the graph to see a larger version.

This graph shows the fuel economy requirements, in miles per gallon (mpg), for a nationwide fleet average. In actuality there will be two standards, one for cars and one for light trucks (SUV's are light trucks). It gets even more complex than that, because the standard adjusts for vehicle footprint (the shadow made by the vehicle when the sun is directly overhead). This incorporates an element of vehicle size in the requirement as a proxy for safety. If everyone just moved to tiny little vehicles, we would get much better fuel economy, but we would also have more highway fatalities. So the NHTSA methodology balances fuel efficiency and safety. The “S” in NHTSA stands for Safety. For reasons that I fail to understand, safety sometimes gets taken for granted in the Beltway policy debate relative to fuel efficiency, environmental benefits, and economic costs.

The four lines are from NHTSA's analysis for the rule that we (the Bush Administration) did not quite finalize:

• Green is the baseline – what the standard would be if the Administration did nothing.
• Yellow shows the Bush proposal. This line is the result of a methodology that tries to maximize net societal benefits (= total societal benefits minus total societal costs).
• Blue shows a different methodology, in which the standard is raised until total societal costs equal total societal benefits, so net societal benefits equals zero. This is the highest you can go before the model says that the rule is making society (in the aggregate) worse off, taking into account all costs and benefits. This line and option are labeled TC=TB.
• The red line is the extreme upper end of what NHTSA thinks can be done if all manufacturers use every fuel economy technology available, without regard for cost. No one suggests it is a viable policy option, but it is a useful reference.

The purple dot is what we know about the Obama proposal. We only have a 2016 figure, which is conveniently right in line with the TC=TB option analyzed by NHTSA last year. So I'm going to make an assumption that the Obama proposal roughly matches this blue line in the intervening years. When I compare the separate numbers we have from the Administration for cars and light trucks with the six NHTSA options, they line up in a similar fashion with the TC=TB option, reinforcing my view that this is a solid assumption. This means I will use the NHTSA estimates of the TC=TB blue line option as a proxy for the effects of the Obama proposal. Technically, someone can quibble that it's not precisely identical, but until I see data to the contrary, that's just quibbling.

This means the Administration can dismiss the entire analysis that follows by saying their proposal differs from the TC=TB option. I cannot disprove such a claim if they make it, but my response would be, “How different? Show me.” I feel quite comfortable using this option for my own analysis, and will do so until presented with an alternate set of numbers by the Administration. (I helped coordinate much of this policy process for President Bush in 2007 and 2008.)

Here are ten things you might want to know about President Obama's new fuel economy proposal. I will reference some tables and analysis from the NHTSA analysis done for the near-final Bush rule. This is a long list, so this summary will let you skip around as you like:

1. It's aggressive.
2. Rather than maximizing net societal benefits, this proposal raises the standard until (total societal benefits = total societal costs), meaning the net benefits to society are roughly zero. This is not an invalid framework for making a policy decision, but it is unusual. It represents a different value choice.
3. NHTSA estimated that a similar option would cost almost 150,000 50,000 U.S. auto manufacturing jobs over five years.
4. NHTSA guesses that under a similar option, manufacturers will make huge increases in dual clutches or automated manual transmissions, a big increase in hybrids, and medium-sized increases in diesel engines, downsizing engines, and turbocharging.
5. It will have a trivial effect on global climate change.
6. The national standard = the California standard (roughly).
7. The auto manufacturers got rolled by the Governator.
8. Granting the California waiver means California has leverage for next time.
9. In Washington, EPA is now in the driver's seat, not NHTSA.
10. Today's action will accelerate EPA's regulation of greenhouse gas emissions from stationary sources. While Congress is futzing around on a climate change bill, EPA is getting ready to bring their “PSD” monster to your community soon.

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1. It's aggressive.

You can see this from the graph above. Within the Bush Administration we considered a range of options that would raise average fuel economy by between 1% per year and 4% per year. Our near-final rule would have raised this combined car/truck average about 4.7% per year from 2010 through 2015. My math shows that the Obama proposal would raise this same measure about 5.8% per year through 2016. That's really aggressive. (In this post all years are Model Years for vehicles.)

Note: The press is reporting that Team Obama says they're doing about +5% per year. They're measuring starting in 2011. I use 2010 so I can compare Bush and Obama.

2. Rather than maximizing net societal benefits, this proposal raises the standard until (total societal benefits = total societal costs), meaning the net benefits to society are roughly zero. This is not an invalid framework for making a policy decision, but it is unusual. It represents a different value choice.

The NHTSA analyses look at a range of benefits to society, including economic and national security benefits from using less oil, health and environmental benefits from less pollution, and environmental benefits from fewer greeenhouse gas emissions (this is new). They also consider the costs, primarily from requiring more fuel-saving technologies to be included by manufacturers. NHTSA assumes these increased costs are passed on to consumers. More expensive cars mean that fewer cars are sold, which means that fewer auto workers are needed. NHTSA calculates economic costs to car buyers and to society as a whole, and job losses among U.S. auto workers.

A standard rule-making methodology is to look at all the costs to society, and all the benefits, and make them comparable (by converting them into dollar equivalents). You then ask, “What policy will maximize the net benefit to society as a whole, taking into account all costs and benefits?” This is the approach NHTSA used in building the yellow line.

The blue line represents a different approach. (See the TC=TB line on Table VII-6 on page 613 of the NHTSA analysis.) You take the same analysis of costs and benefits, but instead ask, “How much can we increase fuel economy before the costs to society as a whole outweigh the benefits to society as a whole?” This results (in theory) in no net benefit (and no net cost) to society, but allows you to maximize the fuel economy subject to this constraint.

The Obama Administration's numbers are in line with this latter approach. It's not wrong. The Obama approach is quite different. It represents a different value choice, in which a higher priority is placed on the benefits of increased fuel economy, and lower priorities are placed on increased costs to car buyers and job loss in the auto industry.

3. NHTSA estimated that a similar option would cost almost 150,000 50,000 U.S. auto manufacturing jobs over five years.

Update: I was sloppy and missed the note on page 585 which said that table VII-1 shows cumulative job losses. Thus, the total over five years is 48,847 (which I’ll write as “almost 50,000″), and not the 148,340 I earlier calculated. I apologize for the error, and thank James Kwak for catching my mistake.

See Table VII-1 on page 586 of the NHTSA analysis. NHTSA estimated that the TC=TB option, which I'm using as a proxy for the Obama plan, would result in the following job losses among U.S. auto workers:

MY 2011	MY 2012	MY 2013	MY 2014	MY 2015	5-yr total
8,232	24,610	30,545	36,106	48,847	148,340

Compared to the Bush draft final rule, this is 118,000 37,000 more jobs lost.

Since I know this table is inflammatory, I will anticipate some of the responses:

• This is an estimate for the job loss from the TC=TB option analyzed by NHTSA in 2007. This is the closest proxy for the Obama rule, and I'm convinced it's a good proxy until someone demonstrates otherwise. But technically, it's not a job loss estimate for the Obama proposal.
• This estimate was done in a different economic environment (late 2008), and before the U.S. government owned 1.5 major U.S. auto manufacturers. My guess, however, is that these changed conditions should push the estimated job loss up from the above estimate, rather than down.
• There's a false precision in the above table. It's just what NHTSA's model spits out. I draw this conclusion: The Obama plan will increase costs enough to further suppress demand for new cars and trucks. This will cause significant job loss, and probably in the 150K range over 5-ish years, with a fairly wide error band. I don't put any weight on the precise annual estimates.

4. NHTSA guesses that under a similar option, manufacturers will make huge increases in dual clutches or automated manual transmissions, a big increase in hybrids, and medium-sized increases in diesel engines, downsizing engines, and dialing back turbocharging.

NHTSA does a detailed analysis of the costs of new technologies to improve fuel efficiencies, and they talk to the manufacturers and examine their product plans. They then guess what technology changes the manufacturers might make to comply with a higher fuel efficiency standard. Here are their estimates for increased penetration in MY 2015 for various technologies under the TC=TB / Obama proxy option. This is from Table VII-7:

	Baseline	TC = TB (Obama proxy)	Increased penetration
Dual clutch or Automated manual transmission	8%	60%	+52%
Hybrid electric vehicles	0%	24%	+24%
Turbocharging & engine downsizing	11%	24%	+13%
Diesel engines	0%	12%	+12%
Stoichometric gasoline direct injection	30%	39%	+9%

It would be great it if a commenter could educate us a little on these technologies.

5. The proposal will have a trivial effect on global climate change.

I always chuckle when elected officials boast about the number of tons of carbon that a policy proposal will not inject into the atmosphere. The White House is doing so today, emphasizing “a reduction of approximately 900 million metric tons in greenhouse gas emissions.” That sounds like a a lot, but who the heck knows?

We are fortunate that NHTSA analyzed the climate effects of all six options in terms more amenable to our comprehension. Here are their estimates for baseline, the Bush option, and the TC=TB (Obama proxy) option. This data is from Table VII-12 in the NHTSA analysis:

	CO2 concentration (ppm)				Global mean surface temperature increase (deg C)				Sea-level rise (cm)
	2030	2060	2100		2030	2060	2100		2030	2060	2100
Baseline	455.5	573.7	717.2		0.874	1.944	2.959		7.99	19.30	37.10
Bush	455.4	573.2	716.2		0.873	1.942	2.955		7.99	19.28	37.06
TC=TB (Obama proxy)	455.4	573.0	715.6		0.873	1.941	2.952		7.99	19.27	37.04

OK, this still doesn't mean a lot to me. Let's take some more data from the same NHTSA table, and see the change from the baseline of not raising fuel economy standards at all. Now we can see the direct climate benefits of these proposals:

	CO2 concentration (ppm)				Global mean surface temperature increase (deg C)				Sea-level rise (cm)
	2030	2060	2100		2030	2060	2100		2030	2060	2100
Bush	–.1	-.5	-1.0		-.001	-.002	-.004		0	-.02	-.04
TC=TB (Obama proxy)	–.1	–.7	–1.6		-.001	-.003	-.007		0	-.03	-.06

Ah ha! This is useful information. As you can see, the effects are trivially small:

• Both options would reduce the global mean surface temperature by one-thousandth of one degree Celsius by 2030. The Obama option would reduce the global temperature by seven thousandths of a degree Celsius by the end of this century.
• The effects on sea level are too small to measure by 2030. By 2100, the Obama proposal (technically, the TC=TB proxy) would reduce the sea-level rise by six hundredths of a centimeter. That's 0.6 millimeters.

Hmm. That's not too much, especially when you consider this is the policy that will affect the #2 source of greenhouse gas emissions in our economy. (#1 is power production.)

In anticipation of some pounding by the climate change crowd:

• These are NHTSA's calculations using the MAGICC model, not mine. I'm just reporting their results.
• If you have different estimates, I'm happy to consider posting them for comparison. I am less open to arguments about why the MAGICC model is wrong, or why NHTSA's inputs into that model are wrong. I don't know the model well enough to debate the points.

Again, the point is not the precise estimates. It's the order of magnitude. Please don't tell me this model is flawed. If you disagree with these calculations or this model, give me some numbers you think are better, and that lead to a different conclusion.

Imagine if the President had instead said today, “This new fuel economy and greenhouse gas emissions rule will slow the increase in future global temperature seven thousandths of a degree Celsius by the end of this century, and it means the sea will rise six tenths of a millimeter less than it otherwise would over the same timeframe.” It loses some of its punch, no?

Similarly, when the Supreme Court pushed in Massachusetts v. EPA toward regulating greenhouse gases from new cars and trucks to protect the public health and welfare from “endangerment,” I wonder if they understood that an aggressive proposal would reduce the future sea level increase by 0.6 mm?

6. The national standard = the California standard (roughly).

Technically, the Administration will be setting two standards: one for fuel economy, and another for CO2 emissions from tailpipes. In theory, the two will (basically) match up, hand-waving past a lot of second-order things like flexible fuel vehicle credits and new vehicle air conditioning standards.

During the Bush Administration there was a tussle between California and the federal government. California wanted a waiver to be able to set their own standards for CO2 emissions from cars and light trucks. Another 13 or so States wanted to follow a new California standard. The proposed California standard was significantly more aggressive than anything discussed in Washington.

We argued that having multiple emissions standards would be inefficient. Auto manufacturers would then have either to make cars to meet two different standards, or just dial up the fuel efficiency on all vehicles, so that the California standard would become the de facto national standard.

The President resolved this today by (basically) setting one national standard for fuel economy, and a roughly parallel standard for CO2 tailpipe emissions, that approximate the higher California standard. California is happy that they got their higher numbers. The auto manufacturers avoid the inefficiencies of multiple standards, while having to eat (actually, pass on to customers) the higher costs of making even more fuel efficient vehicles.

7. The auto manufacturers got rolled by the Governator.

The heads of several auto manufacturing firms stood with the President today and smiled. They lost this fight. They pushed incredibly hard during the 2007 legislative battle, and during the subsequent regulatory process, for a fuel economy standard that rose about 2% per year. They dug in hard against a growth rate greater than 3% per year, and told us that 4% per year would destroy them. Our near-final rule averaged about 4.7% per year. The Obama rule averages about 5.8% per year. Either way, this is way, way more than the auto manufacturers wanted.

They had no leverage, of course, and an outcome similar to this was predictable after the November election. So they're putting the best face they can on it. Interestingly, the press statement from Ford CEO Alan Mulally does not say that he endorses the specific numbers proposed by the President, but instead (emphasis is mine):

Today's announcement signals the achievement of a crucial milestone – an agreement in principle on a national program for increased fuel economy and reduced greenhouse gases. …

This national program will allow us to move forward toward final regulations that all stakeholders can support. We salute the cooperative efforts of the Obama Administration, the state of California, environmental groups and others that played a constructive role in this process.

The framework of the national program will give us greater clarity, certainty and flexibility to achieve the nation's goals. We will continue to work with the federal agencies to finalize the standards that we are committed to meeting.

Tip for reporters: Ask Ford (and the other manufacturers) if they support the specific numbers proposed by the President today. The statement above is trying to leave Ford wiggle room to argue for smaller numbers in the rulemaking process. If the auto manufacturers wiggle, then you have a repeat of the situation from last week's health care announcement.

And of course, 1-2 of the U.S. auto manufacturers are now controlled by the U.S. government.

8. Granting the California waiver means California has leverage for next time.

As I understand it, the Administration is technically granting California its EPA waiver, and California has agreed not to invoke it for this process (MY 2011 – MY 2016). Assuming the waiver doesn't get un-revoked (can it be?) by a future Administration, this means that next time around California will begin the process with the authority to set its own tailpipe emissions standard.

This means that, when we do this again in about five years, California holds all the cards. To quote the Governor in another context (wait for it), “I'll be back.” California will have leverage to set its own standard, which means they can again dictate the national standard. The Obama Administration has moved the primary decision-making locus for future vehicle fuel efficiency rules from Washington DC to Sacramento.

9. In Washington, EPA is now in the driver's seat, not NHTSA.

The Administration has said there will be two rules. NHTSA will set a fuel economy rule, and EPA will set a tailpipe emissions rule. We know that EPA will always be more aggressive than NHTSA. This means that, to the extent Washington remains involved in future standards (see #8 above), the primary decision-maker becomes EPA rather than NHTSA, since auto manufacturers will have to comply with the more aggressive of the two. NHTSA does not become irrelevant, but the bureaucratic strength is definitely shifting.

This bureaucratic power shift suggests a higher priority will be placed in the future on environmental benefits, and a lower priority on economic costs and safety effects, as we see with today's proposal.

10. Today's action will accelerate EPA's regulation of greenhouse gas emissions from stationary sources. While Congress is futzing around on a climate change bill, EPA is getting ready to bring their “PSD” monster to your community soon.

EPA is in the midst of taking comments on an “endangerment finding” that is a huge deal in the climate change policy world. If the EPA Administrator finds that greenhouse gas emissions from new cars and trucks “endanger public health and welfare,” then it starts a regulatory process. It appears the President is prejudging the result of this regulatory comment process: “… the Department of Transportation and EPA will adopt the same rule…”

As a former colleague has taught me, a proposal to regulate greenhouse gases (under section 202 of the Clean Air Act) would greatly accelerate when greenhouse gases become “subject to regulation” under the Clean Air Act. This would trigger ramifications that reach far beyond cars and trucks. As early as this fall, greenhouse gases could become “regulated pollutants” under the Clean Air Act. Once something becomes a “regulated pollutant,” a whole bunch of other parts of the Clean Air Act kick in, and EPA is off to the races in regulating greenhouse gases from a much (much) wider range of sources, including power plants, hospitals, schools, manufacturers, and big stores.

One of the scariest elements of this is called the “Prevention of Significant Deterioration” permitting system. In effect, EPA could insert itself (or your State environmental agency) into most local planning and zoning processes. I will write more about this in the future. It terrifies me.

Thanks for making it to the finish line!

from the Economist, 2009-Mar-21:

Cap and trade, with handouts and loopholes

The first climate-change bill with a chance of passing is weaker and worse than expected

AL GORE calls it “one of the most important pieces of legislation ever introduced in Congress”. Joe Barton, a Republican congressman and global-warming sceptic, says it will put the American economy in a straitjacket. For something that practically no one has read, the American Clean Energy and Security Act provokes heated debate. It would establish a cap-and-trade system for curbing carbon-dioxide emissions, thus transforming the way Americans use energy.

President Barack Obama has long argued that America should join Europe in regulating planet-cooking carbon. But he has left the details to Congress. And the negotiations to craft a bill that might actually pass have not been pretty. The most straightforward and efficient approach to reducing carbon emissions—a carbon tax—was never seriously considered. Voters do not like to hear the word “tax” unless it is followed by the word “cut”.

So Mr Obama proposed something very similar to a carbon tax, albeit slightly more cumbersome. Industries that emit carbon dioxide would have to buy permits to do so. A fixed number of permits would be auctioned each year. The permits would be tradable, so firms that found ways to emit less than they were entitled to could sell some of their permits to others. The system would motivate everyone to reduce emissions in the most cost-effective way. It would raise energy prices, which is the point, but it would also raise hundreds of billions of dollars, most of which Mr Obama planned to give back to voters. Alas, that plan looks doomed.

On May 15th Henry Waxman and Edward Markey, the Democratic point-men on climate change in the House of Representatives, unveiled a bill that would give away 85% of carbon permits for nothing, with only 15% being auctioned. The bill's supporters say this colossal compromise was necessary to win the support of firms that generate dirty energy or use a lot of it, and to satisfy congressmen from states that mine coal or roll steel.

Giving away permits creates several problems. First, it generates no money, thereby royally messing up Mr Obama's budget. Second, it means that the permits go not to those who value them most (as in an auction) but to those whom the government favours. Under Waxman-Markey, electricity-distributors would get the largest share, with the rest divided between energy-intensive manufacturers, carmakers, natural-gas distributors, states with renewable-energy programmes and so on. Oil firms, with only 2% of the permits, feel hard done by. But most polluters, having just been promised hundreds of billions of dollars' worth of permits for nothing, are elated. So it is not just the owners of ski resorts and businesses with negligible carbon footprints that are queuing up to praise the bill. Duke Energy, a power generator with lots of coal-fired plants, is also enthusiastic.

The grand handout to shareholders is meant to last until around 2030, by which time all permits will be auctioned. In the meantime, the bill's supporters say that consumers will be protected from higher energy prices because the largest chunk of the free permits will go to tightly regulated electricity distributors. Regulators can simply order these firms to keep prices low. Problem solved.

Not so, says Alan Viard, an analyst at the American Enterprise Institute, a conservative think-tank. If electricity is cheap, Americans will buy more of it, generating more emissions than would otherwise have been the case. Other industries will accordingly have to cut their emissions more, since there are a fixed number of permits. The cost of this will be passed on to consumers. Overall, ordinary Americans will endure price hikes just as severe as they would have under Mr Obama's plan, while receiving far less compensation. Mr Viard likens giving permits to polluters to handing the proceeds of a tobacco tax to the shareholders of Philip Morris.

Another problem with Waxman-Markey is its complexity. At 932 pages, it is half as long again as an already-bloated previous draught. It includes a dizzying array of handouts, mandates and technical standards for everything from hot-food-holding cabinets to portable spas. It allows for a huge increase in “offsets”—where a polluter pays someone else to stop polluting instead of curbing his own emissions. These are open to abuse, as Europe's experience shows. There is little to stop foreign factories from starting to pollute just so that someone will pay them to stop.

Among environmentalists, support for the bill varies. Some denounce it for doing less to curb greenhouse gases than was once promised. It aims to cut emissions by 17% below the level in 2005 by 2020, instead of 20%. Greenpeace's American arm says it cannot support the bill in its current state. Other greens reckon that if this is the strongest bill that can pass, the best idea is to pass it now and tighten it later.

That is the most likely outcome, though far from certain. Mr Waxman wants his bill to pass through the House energy committee this week. Republicans such as Mr Barton could slow it down by offering hundreds of amendments or forcing it to be read aloud. (Mr Waxman has hired a speed-reader, just in case.) But they probably do not have enough votes to stop it, either in committee or when it eventually comes before the full House.

The next step will be the Senate, where the minority has more power. It is hard to predict what will happen there. Republicans plan to berate the bill as both a job-destroyer and a handout to big business. Some will also argue that it will make little difference to the climate if China and India do not also curb their emissions.

The bill's supporters retort that both countries will come on board only if America sets a good example. Time is running out before the big global climate conference in Copenhagen in December. If the United States does not have a cap-and-trade law in place by then, the chance of a global agreement will plummet. The bill may be imperfect, says Steve Tripoli of Ceres, a green business group, but having no bill at all would be unthinkable.

Meanwhile, Mr Obama continues to attack climate change from other angles. On May 19th he announced that he would impose tougher fuel-efficiency standards. Carmakers will have to produce vehicles that go eight miles farther on a gallon of petrol by 2016. Cars must eke out 39 miles (63km) per gallon, on average; light trucks must manage 30 miles. Carmakers, some of whom would be bankrupt if Mr Obama was not pumping them full of taxpayers' money, meekly applauded. In the past an agreement such as this would have been thought impossible, the president crowed.

Mr Obama admitted that more fuel-efficient cars might cost more. But he promised that motorists would save thousands of dollars by cutting their fuel bills. In fact, they can already cut their fuel bills by buying smaller cars, but most choose not to. Mr Obama could discourage petrol use more directly and efficiently by taxing the stuff, but that would be unpopular. Ideally, politicians who want to save the planet would be honest with voters about how much this will cost. But America's leaders do not seem to think Americans are ready for straight talk about energy.

from the Wall Street Journal, 2009-May-20, p.A15, by Holman W. Jenkins, Jr.:

Obama at the Auto Buffet
With no resistance, he ate the whole thing.

With his latest installment of ever-higher fuel mileage requirements for the auto industry, Barack Obama embraces a momentary, crisis-spawned expansion of the art of the possible, unleavened by any art of the rationally desirable.

Detroit is dependent on Washington loans for survival. The industry's lobbyists and its congressional allies have collapsed in a heap, offering no resistance. So why not go for broke? If you're alone in front of the shrimp buffet, why not eat all the shrimp -- even if it makes you barf later?

Defenders of the Obama administration's Chrysler bankruptcy finagle misguidedly argue that, if not for taxpayer money, the company's secured creditors would have gotten as little or less than they did in the imposed settlement.

They miss the point. Anyone can always imagine an outcome more "fair" than the outcome provided by people duly exercising -- and the legal process duly upholding -- their rights. Fairness in a law-abiding society is due process. In the Chrysler bankruptcy, the administration hijacked the legal forms for a political end that it could have delivered honestly by the government buying Chrysler out of liquidation and handing it to the UAW.

But then Mr. Obama's purposes would have been exposed a little too nakedly for public consumption.

Already, of course, the swim of events has moved on, into deeper and more chaotic waters. The union will own 55% of Chrysler, and it would be quite rational to prefer an additional dollar of wages and benefits to 55 cents of earnings (55 cents being the union's share of a dollar of earnings).

Even this overstates the union's incentive to concern itself with the auto maker's profitability. The Chrysler stake would actually be owned not for the benefit of current workers but for retirees, since its ostensible purpose is to fund retiree health care. Yet power would still rest with a union chief elected exclusively by active members.

The administration at least understands the conflict it has set in motion. Under a reported new Chrysler contract dictated by the White House, the union surrenders its right to strike for the next six years. A redolent fact, though, is that Ron Bloom, the administration's real acting car czar in this case, was a principal in the now-defunct investment banking firm of Keilin & Bloom, which secured the 55% stake for the unions in United Airlines in the mid-1990s.

United's pilots did not strike in pursuit of what eventually became the richest contract in the industry. They did engage in work slowdowns that led to thousands of canceled and delayed flights and ferocious anger among the airline's customers. Pilot leader Rick Dubinsky told management in 2000: "We don't want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg." United filed for bankruptcy two years later.

So far, the Obama administration has yet to lay out its magical thinking on how the homegrown auto makers are to become "viable" when required to subordinate every auto attribute that consumers find desirable in favor of achieving a passenger-car average of 39 miles per gallon by 2016. Nonetheless the answer has quietly seeped out: Taxpayers will write $5,000 or $7,000 rebate checks to other taxpayers to bribe them to buy hybrids and plug-ins at a price that lets Detroit claim it's earning a "profit" on its Obamamobiles.

Mr. Obama was supposed to be smart. His administration was supposed to be a smart administration. But the policy coming out has not been smart. It has been a brute shifting of power to the president's political allies, justified by the shibboleths of copybook liberalism (though Mr. Obama is clever enough to know that nothing he's done will have a meaningful effect on atmospheric carbon or climate change or the country's need for oil imports).

With no overarching philosophy in evidence, the art of the possible has come to define the Obama administration. One thing that has proved possible is an untrammeled power grab over the auto industry. Yet it all seems mainly to testify to the limitations of Saul Alinsky as a political philosopher. The doyen of community organizing, his views profoundly influenced Mr. Obama. The late Alinsky was unsentimental about power, and about accumulating it in order to extract from "the system" benefits for his constituents.

But a president also has to represent the system. He has to care about whether the setup is sustainable and ultimately meets a nation's needs and reflects its values. In delivering unlimited sway over the domestic auto makers to the greens and labor, Mr. Obama is creating a catastrophically unbalanced "system" with no effective pushback on behalf of profits (aka "viability") -- that is, except from consumers, who ultimately will doom his attempt. How so? By declining to pay enough for the forthcoming Obamamobiles to cover the cost of designing and building them.

from the Wall Street Journal, 2009-May-27, p.A17, by Dennis Buchholtz:

GM Bondholders Are People Like You and Me
The government is punishing one group of workers to reward another.

I am an American retiree. Like many small investors, I am relying on "safe" investments such as bonds backed by America's largest companies to fund my retirement. One of these companies is General Motors.

First, let's set the record straight about who owns GM's bonds. We are hardworking families, individual investors and retirees who purchased billions of these bonds in $25, $50 and $100 increments. Many bonds were bought directly and others are held in our pension funds, 401(k) plans and other retirement programs.

I purchased GM bonds in 2005 and own $91,000 worth. These bonds account for a very sizeable portion of my retirement income, and so it is absolutely devastating to watch GM's problems bring the once venerable company to the brink of failure. My standard of living is truly in jeopardy.

Despite the terrible position my fellow bondholders and I are in, we are being portrayed as the cause of GM's problems and inability to restructure.

Who is perpetrating this myth? The American government, which is at once encouraging investment in U.S. companies and vilifying those who have already invested. Billions upon billions of taxpayer dollars have been used to stabilize companies to restore investor confidence. But how can investors be confident when they're at risk of ending up on the wrong end of the government's stick?

Even more disturbing: The government's proposed restructuring plans benefit one class of retirees at the expense of another. I understand that we each have equal claims in bankruptcy. However, under the current plan GM's union retirees will receive 39% of the restructured company and $10 billion in cash in exchange for $20 billion in claims. Bondholders, however, receive a mere 10% for $27 billion in claims in the form of stock (and no cash).

I am a retired dye-making trade worker and even worked in the auto industry during my career. I don't understand why the government is penalizing people like me just for having funded my retirement with GM bonds. Bondholders, especially small bondholders, are being ignored in negotiations and singled out to bear the greatest share of the cost of restructuring GM.

We are not an unreasonable group. We understand that to save GM everyone will need to endure economic pain. But we are very troubled by the government's decision to give UAW retirees -- equal members, with the bondholders, of the unsecured creditor class -- preferential treatment. The government cannot be permitted to rewrite bankruptcy rules on a whim to selectively benefit equal groups.

Small bondholders use the interest from GM bonds for everyday living expenses and cannot afford to see GM go bankrupt. And though we've been branded as an obstacle, small investors like me are in fact the solution. Our continued investment in U.S. companies and markets is critical to an economic recovery.

By treating investors fairly, GM could take the lead in making the market attractive once again.

Mr. Buchholtz is a retired trade worker from Warren, Mich.

from the Wall Street Journal, 2009-May-21, p.A18:

About Those 'Speculators' . . .
Pension funds also got whacked by Uncle Sam.

Remember how President Obama blamed Chrysler's bankruptcy filing last month on "a small group of speculators" who turned down Treasury's $2 billion final offer for their $6.9 billion in debt? Well, it turns out that hedge funds and other short sellers weren't the only secured creditors who got a raw deal from Uncle Sam.

Indiana Treasurer Richard Mourdock revealed this week that his state's police and teacher pension funds have lost millions of dollars in the Chrysler "restructuring." Indiana's State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher's Retirement Fund "suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government," reports Mr. Mourdock.

Far from being speculators, these funds represent retired public employees, including cops and teachers. The funds paid a premium to buy "secured" status, only to discover that they were politically outranked by the United Auto Workers in the White House hierarchy.

"In the past, to be 'secured' meant an investor was 'first in line' in the event of a bankruptcy and 'non-secured' creditors would receive value after secured-creditors were paid," Mr. Mourdock says. "In the Chrysler bankruptcy, however, secured creditors received $.29 on the dollar even as non-secured creditors received higher values and ended up with a 55% ownership of the new company, which is fundamentally wrong and a dangerous precedent to the capital markets."

We've worried that the Chrysler sandbagging would discourage bond investment. And, sure enough, Mr. Mourdock says that from now on no funds under his control will invest in the secured debt of "General Motors, other manufacturing companies, or those insurance companies who have or will be receiving bailout funds." Given the recent actions by the feds, he adds, "the risk is too great for any prudent investor to accept."

This isn't political grandstanding. Public investment officials like Mr. Mourdock have a fiduciary duty to seek maximum returns for retirees. The question for all public officials responsible for investing pension money is whether they too should conclude that investing in U.S.-aided companies now carries so much political risk that it violates their legal obligations. Such are the wages of White House disdain for legal contracts.

from the Washington Post, 2009-May-22, by David Cho, Peter Whoriskey and Kendra Marr, with Tomoeh Murakami Tse in New York contributing:

U.S. to Steer GM Toward Bankruptcy
Filing Expected as Chrysler Set to Emerge

The Obama administration is preparing to send General Motors into bankruptcy under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and reemerge as a global competitor, sources familiar with the discussions said.

The move comes as the administration prepares to lift the nation's other faltering car company, Chrysler, from bankruptcy protection as soon as next week, industry sources said.

The shifts into and out of bankruptcy are landmarks in the Obama administration's attempt to broker a historic restructuring of the American auto industry in the space of months.

The legal tactic is viewed by some as the best means of reviving the companies. But the speed of the government-led transformation has triggered complaints that the rights of investors and dealers are being trampled. Meanwhile, fears that a bankruptcy could lead to cascading business failures are spreading throughout GM's vast chain of suppliers.

Under the GM draft bankruptcy plan, the company would receive just short of $30 billion in additional federal loans, a source said.

The figure is a starting point in negotiations between the government and the company, the source said, and could change as could the timing of a filing. A cash injection that large would boost the U.S. investment in GM to nearly $45 billion.

The government previously indicated that it planned to take at least 50 percent of the restructured company, and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.

The United Auto Workers retiree health fund is set to own as much as 39 percent of the restructured GM, in exchange for giving up its claim to at least $10 billion that the company owes it. Yesterday, the union announced that it reached an agreement with GM that will reduce the company's labor costs.

Still unknown is what part the Canadian government might play in the ongoing GM restructuring.

GM operates several plants north of the border. The Canadians agreed to invest about $3.5 billion in the Chrysler restructuring and control one of the nine board seats.

In the GM negotiations, the Canadians are poised to make a similar investment, but they are seeking assurances that the share of GM production in their country will remain the same.

"China isn't putting up the money, and Mexico isn't putting up the money," said Tony Clement, Canada's Minister of Industry. "But if we're putting up the money, just as the Americans are, then we have the right to protect our production capacity."

Clement added that the Canadian Auto Workers union would have to make more concessions before the government agrees to get involved in the GM rescue.

"We've basically been joined at the hip with U.S. Treasury on our approach with both Chrysler and GM," he said. "We have officials down here in Washington all the time. We basically review the information together. We devise strategy together and execute strategy together."

Both Chrysler and GM have been saddled with too much in debt and labor costs to compete against rivals from Japan and Korea, industry analysts say.

To alleviate the financial burdens, the Obama administration has engaged for months in negotiations with the union, dealers and creditors in hopes of reducing automaker costs without having to resort to bankruptcy court.

But last month, the administration concluded that the only way to free Chrysler of its debt was to file for Chapter 11, and it is now nearing a similar decision with GM.

The chief obstacle to an out-of-court settlement for GM remains: There has been no agreement between the company and the investors who hold $27 billion worth of GM bonds.

Under orders from the Obama administration, GM has offered to give the bondholders a 10 percent equity stake in the restructured company in exchange for giving up their bonds.

So far, however, the investors have resisted that proposal and if no accord is reached by June 1, GM will follow Chrysler into bankruptcy.

The speed with which the Chrysler bankruptcy has proceeded has given the administration more confidence that the best path for GM may be a similar trip, where the claims of disgruntled creditors and dealers can be more easily resolved.

In the Chrysler proceedings, the court has yet to stand in the way of plans to create a new company led by Italian carmaker Fiat. Chrysler's existing assets would be sold to the new company and the new entity could be up and running as soon as next week.

That's because Chrysler is asking U.S. Bankruptcy Judge Arthur Gonzalez to waive the customary 10-day waiting period before the order approving the sale becomes effective. The hearing on the sale is scheduled for next Wednesday at 10 a.m.

Gonzalez has already granted a similar request to expedite proceedings. Time and again in court, Chrysler executives and attorneys have argued -- and the court has agreed -- that Chrysler's core assets are "wasting" and that an immediate sale must take place to preserve value.

"Subject to the closing conditions, a new Chrysler could emerge as soon as the ink is dry on the judge's order," said Scott Van Meter, managing director of LECG, a consulting firm.

The administration is taking steps to prepare. It is drafting the paperwork for a $4.7 billion loan to sustain Chrysler after it emerges from bankruptcy. On Wednesday, the automaker announced that C. Robert Kidder, former chairman of Borden Chemical and of Duracell International will become the company's new chairman. He will succeed Robert L. Nardelli.

Chrysler still could encounter some delays. The company faces a new legal challenge from pension funds representing Indiana teachers and police officers as well as a state construction fund. The investors, who contend that the automaker's sale violates their rights as senior secured lenders to Chrysler, are seeking to move the bankruptcy proceedings to federal district court, which has authority over the bankruptcy court.

A hearing on the matter is scheduled in district court Tuesday.

There are also challenges outside court. Chrysler has moved to close 789 dealerships on June 9. But Sen. Kay Bailey Hutchison (R-Tex.) has introduced legislation that would withhold federal funding if the automaker does not give dealers an extra 60 days to close down operations and sell remaining inventory. Her amendment has won the backing of a number of other senators.

Judiciary Committee chairman Rep. John Conyers Jr. (D-Mich.) said he hopes to meet with White House officials today to discuss changing Chrysler's bankruptcy plan and GM's future. Conyers did not outline what he wanted, but a nine-person panel he assembled for a hearing yesterday offered a hint. Liberal consumer advocate Ralph Nader, a conservative Heritage Foundation analyst and minority auto dealers all criticized the automakers' restructuring.

Conyers and other committee members attacked the administration for abusing bankruptcy laws, unfairly eliminating dealerships and jeopardizing consumer safety.

"GM now stands for Government Motors," said Rep. Lamar Smith (R-Tex.). "While the UAW is cashing in, it's the dealers, creditors and American taxpayers who are being forced to cash out."

from the Wall Street Journal, 2009-May-20:

Car Crazy
Bankrupt companies making 39 mpg autos. Are we nuts?

At the end of his Rose Garden explanation yesterday of the new U.S. fuel-efficiency standards, President Obama remarked on the good that can be accomplished when we are "working together." The President may be getting ahead of himself. Watching the unlikely coalition arrayed behind him as Mr. Obama committed the U.S. to an astonishing passenger-car mileage average of 39 miles per gallon by 2016, it looks truer to say we are merely standing together in this adventure, for better or worse.

Mr. Obama's fleet-mileage partners yesterday included the two auto companies that have fallen into his arms, Chrysler and GM, still-independent Ford, the major foreign manufacturers, United Auto Workers chief Ron Gettelfinger, and beaming representatives from the Sierra Club, Environmental Defense Fund and the Union of Concerned Scientists.

All that's left to arrive at the President's new destination for the American way of driving are huge, unanswered questions about technology, financing and the marketability of cars that will be small and expensive.

Start with technology. The President's proposed standards would raise fuel economy goals higher and faster than even the National Highway Transportation Safety Administration believes is practical. Last year, NHTSA issued a proposed rule making that would have raised fuel economy to 32.2 mpg by 2015 for cars and light trucks combined. Its 376-page report notes that "the resources used to meet overly stringent CAFE standards . . . would better be allocated to other uses such as technology research and development, or improvements in vehicle safety."

The new U.S. fleet will almost certainly be made up of hybrids and electric cars. This comports with the explicit intention of the President and his environmental partners to back out fossil fuels. One may ask: Once Detroit is forced to build these cars, will free Americans want to buy them, at any price?

Unless we outlaw the bigger cars that recent sales figures have shown Americans prefer any time gas prices fall below $4 per gallon, Detroit will need help marketing these small vehicles. As GM's Bob Lutz put it not long ago, "Very few people will want to change what has been their 'nationality given' right to drive big and bigger if the price of gas is $1.50 or $2 or even $2.50. Those prices will put the CAFE-mandated manufacturers at war with their customers."

All solutions to this problem flow from Washington. One would be to give substantial tax subsidies to buyers. Another would be to impose a federal gas tax to jack up the price of gasoline to $4 per gallon and keep it there. This is the solution that keeps Europeans driving small cars with tiny engines. High gasoline prices have become a political third rail in U.S. politics, and the Obama Administration insists it isn't interested in subsidies or taxes.

That puts the burden back on the beleaguered auto makers. The Detroit Three already sell small cars at a loss to meet the current 27.5 mpg fleet average. The car companies may hope that if the whole industry is forced to move up the fuel-economy ladder, consumers will have no choice other than to buy these cars. But experience suggests companies that have specialized in making smaller cars, such as the Japanese-owned auto makers, are more likely to be able to sell them at a profit.

Mr. Obama said a lot yesterday about the promised benefits of all this for the environment but not much about return on investment for the auto sellers. These public goals notwithstanding, it still looks as if Ford, Chrysler and GM will be making cars they can't sell, or can't sell profitably. That might not be a problem if you're now Gettelfinger Motors. But still-independent Ford has private shareholders and creditors to answer. While GM and Chrysler attempt to meet the new standards with taxpayer money, Ford will have to do so on its own.

The real carrot the Administration offered the industry yesterday was a detour from the nightmare of state-mandated standards. California has been seeking a waiver from the Administration to impose its own higher mileage standards, and a number of other states have followed suit. The Obama national proposal indeed offers the industry what he called "consistency."

So yes, it is possible to see why this disparate group came together yesterday. The UAW may soon be the government's partner in ownership of GM and Chrysler, and it has a strong incentive not to bite the hand feeding it a huge equity stake in the car makers. Ford and the other foreign-owned auto makers, which will have to raise private capital to make changes that U.S. taxpayers will fund at Chrysler and GM, no doubt want to maintain their political viability by not standing athwart this regulatory steamroller.

We wish these folks luck "working together" with the Obama auto-design team. One thing seems certain by 2016: Taxpayers will be paying Detroit to make the cars Americans don't want, and then they will pay again either through (trust us) a gas tax or with a purchase subsidy. Even the French must think we're nuts.

from the Times of London, 2009-May-17, by Jeremy Clarkson:

Honda Insight 1.3 IMA SE Hybrid

Much has been written about the Insight, Honda’s new low-priced hybrid. We’ve been told how much carbon dioxide it produces, how its dashboard encourages frugal driving by glowing green when you’re easy on the throttle and how it is the dawn of all things. The beginning of days.

So far, though, you have not been told what it’s like as a car; as a tool for moving you, your friends and your things from place to place.

So here goes. It’s terrible. Biblically terrible. Possibly the worst new car money can buy. It’s the first car I’ve ever considered crashing into a tree, on purpose, so I didn’t have to drive it any more.

The biggest problem, and it’s taken me a while to work this out, because all the other problems are so vast and so cancerous, is the gearbox. For reasons known only to itself, Honda has fitted the Insight with something called constantly variable transmission (CVT).

It doesn’t work. Put your foot down in a normal car and the revs climb in tandem with the speed. In a CVT car, the revs spool up quickly and then the speed rises to match them. It feels like the clutch is slipping. It feels horrid.

And the sound is worse. The Honda’s petrol engine is a much-shaved, built-for-economy, low-friction 1.3 that, at full chat, makes a noise worse than someone else’s crying baby on an airliner. It’s worse than the sound of your parachute failing to open. Really, to get an idea of how awful it is, you’d have to sit a dog on a ham slicer.

So you’re sitting there with the engine screaming its head off, and your ears bleeding, and you’re doing only 23mph because that’s about the top speed, and you’re thinking things can’t get any worse, and then they do because you run over a small piece of grit.

Because the Honda has two motors, one that runs on petrol and one that runs on batteries, it is more expensive to make than a car that has one. But since the whole point of this car is that it could be sold for less than Toyota’s Smugmobile, the engineers have plainly peeled the suspension components to the bone. The result is a ride that beggars belief.

There’s more. Normally, Hondas feel as though they have been screwed together by eye surgeons. This one, however, feels as if it’s been made from steel so thin, you could read through it. And the seats, finished in pleblon, are designed specifically, it seems, to ruin your skeleton. This is hairy-shirted eco-ism at its very worst.

However, as a result of all this, prices start at £15,490 — that’s £3,000 or so less than the cost of the Prius. But at least with the Toyota there is no indication that you’re driving a car with two motors. In the Insight you are constantly reminded, not only by the idiotic dashboard, which shows leaves growing on a tree when you ease off the throttle (pass the sick bucket), but by the noise and the ride and the seats. And also by the hybrid system Honda has fitted.

In a Prius the electric motor can, though almost never does, power the car on its own. In the Honda the electric motor is designed to “assist” the petrol engine, providing more get-up-and-go when the need arises. The net result is this: in a Prius the transformation from electricity to petrol is subtle. In the Honda there are all sorts of jerks and clunks.

And for what? For sure, you could get 60 or more mpg if you were careful. And that’s not bad for a spacious five-door hatchback. But for the same money

you could have a Golf diesel, which

will be even more economical. And hasn’t been built out of rice paper to keep costs down.

Of course, I am well aware that there are a great many people in the world who believe that the burning of fossil fuels will one day kill all the Dutch and that something must be done.

They will see the poor ride, the woeful performance, the awful noise and the spine-bending seats as a price worth paying. But what about the eco-cost of building the car in the first place?

Honda has produced a graph that seems to suggest that making the Insight is only marginally more energy-hungry than making a normal car. And that the slight difference is more than negated by the resultant fuel savings.

Hmmm. I would not accuse Honda of telling porkies. That would be foolish. But I cannot see how making a car with two motors costs the same in terms of resources as making a car with one.

The nickel for the battery has to come from somewhere. Canada, usually. It has to be shipped to Japan, not on a sailing boat, I presume. And then it must be converted, not in a tree house, into a battery, and then that battery must be transported, not on an ox cart, to the Insight production plant in Suzuka. And then the finished car has to be shipped, not by Thor Heyerdahl, to Britain, where it can be transported, not by wind, to the home of a man with a beard who thinks he’s doing the world a favour.

Why doesn’t he just buy a Range Rover, which is made from local components, just down the road? No, really — weird-beards buy locally produced meat and vegetables for eco-reasons. So why not apply the same logic to cars?

At this point you will probably dismiss what I’m saying as the rantings of a petrolhead, and think that I have my head in the sand.

That’s not true. While I have yet to be convinced that man’s 3% contribution to the planet’s greenhouse gases affects the climate, I do recognise that oil is a finite resource and that as it becomes more scarce, the political ramifications could well be dire. I therefore absolutely accept the urgent need for alternative fuels.

But let me be clear that hybrid cars are designed solely to milk the guilt genes of the smug and the foolish. And that pure electric cars, such as the G-Wiz and the Tesla, don’t work at all because they are just too inconvenient.

Since about 1917 the car industry has not had a technological revolution — unlike, say, the world of communications or film. There has never been a 3G moment at Peugeot nor a need to embrace DVD at Nissan. There has been no VHS/Betamax battle between Fiat and Renault.

Car makers, then, have had nearly a century to develop and hone the principles of suck, squeeze, bang, blow. And they have become very good at it.

But now comes the need to throw away the heart of the beast, the internal combustion engine, and start again. And, critically, the first of the new cars with their new power systems must be better than the last of the old ones. Or no one will buy them. That’s a tall order. That’s like dragging Didier Drogba onto a cricket pitch and expecting him to be better than Ian Botham.

And here’s the kicker. That’s exactly what Honda has done with its other eco-car, the Clarity. Instead of using a petrol engine to charge up the electric motor’s batteries, as happens on the Insight, the Clarity uses hydrogen: the most abundant gas in the universe.

The only waste product is water. The car feels like a car. And, best of all, the power it produces is so enormous, it can be used by day to get you to 120mph and by night to run all the electrical appliances in your house. This is not science fiction. There is a fleet of Claritys running around California right now.

There are problems to be overcome. Making hydrogen is a fuel-hungry process, and there is no infrastructure. But Alexander Fleming didn’t look at his mould and think, “Oh dear, no one will put that in their mouth”, and give up.

I would have hoped, therefore, that Honda had diverted every penny it had into making hydrogen work rather than stopping off on the way to make a half-arsed halfway house for fools and madmen.

The only hope I have is that there are enough fools and madmen out there who will buy an Insight to look sanctimonious outside the school gates. And that the cash this generates can be used to develop something a bit more constructive.

The Clarksometer

Honda Insight 1.3 IMA SE Hybrid

Engine 1399cc, four cylinders

Power 87bhp@5800rpm

Torque 89 lb ft @ 4500rpm

Transmission CVT

Fuel 64.2mpg (combined)

CO2 101g/km

Acceleration 0-62mph: 12.5sec

Top speed 113mph

Price £15,490

Road tax band B (£15 a year)

Clarkson's verdict

★ ☆ ☆ ☆ ☆

Good only for parting the smug from their money

from the Detroit News, 2009-May-19, by David Shepardson and Gordon Trowbridge:

UAW backs climate change bill, with industry aid

Washington -- The United Auto Workers Monday blessed House Democrats' plan to limit greenhouse gas emissions, after congressional leaders agreed to add billions of dollars to support struggling automakers.

The endorsement came as House Democrats opened debate on a landmark climate change bill and culminates a steady shift on environmental issues by the UAW, which for decades fought efforts to boost fuel efficiency.

The 946-page draft House climate change bill would provide the struggling auto industry with billions of dollars to develop advanced vehicle technology.

It also requires electric utilities to plan for accommodating large-scale use of plug-in electric vehicles.

"We are especially pleased that this program would require electricity sources, fuel producers and importers, mobile sources and industrial stationary sources to come to the table to participate," Alan Reuther, the UAW's legislative director, wrote in a letter to Congress endorsing the legislation.

State and local governments could apply for financial assistance in creating the infrastructure for plug-ins. Manufacturers could apply for aid in producing them and in buying the expensive batteries that would be the vehicles' heart.

The bill would give automakers 3 percent of the federal government's revenue from carbon emissions permits from 2012 through 2017 -- allowances that could be worth more than $10 billion, according to analysts at consulting firm PointCarbon. That money would be routed through government programs to encourage advanced technology vehicles.

After 2017, and through 2025, the industry would receive 1 percent of allowances.

The climate bill would also double the amount authorized for the auto retooling program to $50 billion. In September, Congress approved $25 billion in low-cost retooling loans, but the Energy Department has yet to award any of the money.

Reuther said the legislation "will help to accelerate the introduction of advanced vehicles while protecting American autoworkers' jobs.

Republicans vow to oppose legislation they say would kill jobs by raising energy prices.

from the Wall Street Journal, 2009-May-13, by Martin Feldstein:

Tax Increases Could Kill the Recovery
The cap-and trade levy would hit low-income earners especially hard.

The barrage of tax increases proposed in President Barack Obama's budget could, if enacted by Congress, kill any chance of an early and sustained recovery.

Historians and economists who've studied the 1930s conclude that the tax increases passed during that decade derailed the recovery and slowed the decline in unemployment. That was true of the 1935 tax on corporate earnings and of the 1937 introduction of the payroll tax. Japan did the same destructive thing by raising its value-added tax rate in 1997.

The current outlook for an economic recovery remains precarious. Although the stimulus package will give a temporary boost to growth in the current quarter, it will not be enough to offset the combined effect of lower consumer spending, the decline in residential construction, the weakness of exports, the limited availability of bank credit and the downward spiral of house prices. A sustained economic upturn is far from a sure thing. This is no time for tax increases that will reduce spending by households and businesses.

Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly. Higher future tax rates on capital gains and dividends will depress share prices immediately and the resulting fall in wealth will cut consumer spending further. Lower share prices will also raise the cost of equity capital, depressing business investment in plant and equipment.

The Obama budget calls for tax increases of more than $1.1 trillion over the next decade. Official budget calculations disguise the resulting fiscal drag by treating Mr. Obama's proposal to cancel the 2011 income tax increases for taxpayers with incomes below $250,000 as if they are real tax cuts. The plan to modify the Alternative Minimum Tax to avoid increases for some taxpayers is also treated as a tax cut.

But those are false tax cuts in which no one's tax bill actually declines. In contrast, the proposed tax increases are very real. And despite the proposed tax increases, the government's new spending and transfer programs would cause the annual budget deficit in 2019 to exceed $1 trillion, or 5.7% of GDP.

Mr. Obama's biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. The nonpartisan Congressional Budget Office (CBO) estimates that the proposed permit auctions would raise about $80 billion a year and that these extra taxes would be passed along in higher prices to consumers. Anyone who drives a car, uses public transportation, consumes electricity or buys any product that involves creating CO2 in its production would face higher prices.

CBO Director Douglas Elmendorf testified before the Senate Finance Committee on May 7 that the cap-and-trade price increases resulting from a 15% cut in CO2 emissions would cost the average household roughly $1,600 a year, ranging from $700 in the lowest-income quintile to $2,200 in the highest-income quintile. Since the amount of cap-and-trade tax rises with income, the cap-and-trade tax has the same kind of adverse work incentives as the income tax. And since the purpose of the cap-and-trade plan is to discourage the consumption of CO2-intensive products, energy or means of transportation by raising their cost to consumers, the consumer-price increases would be the same for a 15% reduction in C02 even if the government decides to give away some of the CO2 emissions permits.

But while the cap-and-trade tax rises with income, the relative burden is greatest for low-income households. According to the CBO, households in the lowest-income quintile spend more than 20% of their income on energy intensive items (primarily fuels and electricity), while those in the highest-income quintile spend less than 5% on those products.

The CBO warns that the estimate of an $80 billion-a-year tax increase could be significantly higher or lower, depending on how the program is designed. The Waxman-Markey bill currently before Congress calls for reducing greenhouse gasses 20% by 2020 and by an incredible 83% by 2050. As the government reduces the amount of CO2 that is allowed, the price of the CO2 permits would rise and the pass-through to consumer prices would also increase.

The next-largest tax increase -- with a projected rise in revenue of more than $300 billion between 2011 and 2019 -- comes from increasing the tax rates on the very small number of taxpayers with incomes over $250,000. Because this revenue estimate doesn't take into account the extent to which the higher marginal tax rates would cause those taxpayers to reduce their taxable incomes -- by changing the way they are compensated, increasing deductible expenditures, or simply earning less -- it overstates the resulting increase in revenue.

Since the projected revenue from this source is already designated to be used for Mr. Obama's health plan, some other tax increases will be needed. Moreover, Mr. Obama's budget characterizes the projected $634 billion outlay for health-care reform as just a down payment on the program. The budget notes that there would be "additional resources and new benefits to be determined with Congress." Those additional resources would no doubt be even higher taxes.

The third major tax increase is the plan to raise $220 billion over the next nine years by changing the taxation of foreign-source income. While some extra revenue could no doubt come from ending the tax avoidance gimmicks that use dummy corporations in the Caribbean, most of the projected revenue comes from disallowing corporations to pay lower tax rates on their earnings in countries like Germany, Britain and Ireland. The purpose of the tax change is not just to raise revenue but also to shift overseas production by American firms back to the U.S. by reducing the tax advantage of earning profits abroad.

The administration is likely to be disappointed about its ability to achieve both goals. Bringing production back to be taxed at the higher U.S. tax rate would raise the cost of capital and make the products less competitive in global markets. American corporations would therefore have an incentive to sell their overseas subsidiaries to foreign firms. That would leave future profits overseas, denying the Treasury Department any claim on the resulting tax revenue. And new foreign owners would be more likely to use overseas suppliers than to rely on inputs from the U.S. The net result would be less revenue to the Treasury and fewer jobs in America.

It's not too late for Mr. Obama to put these tax increases on hold. If he doesn't, Congress should protect the recovery and the longer-term health of the U.S. economy by voting down this enormous round of higher taxes.

Mr. Feldstein, chairman of the Council of Economic Advisers under President Reagan, is a professor at Harvard and a member of The Wall Street Journal's board of contributors.

from the Wall Street Journal, 2009-May-19, p.A16:

How Washington Rations
ObamaCare omen: a case study in 'cost-control.'

Try to follow this logic: Last week the Medicare trustees reported that the program has an "unfunded liability" of nearly $38 trillion -- which is the amount of benefits promised but not covered by taxes over the next 75 years. So Democrats have decided that the way to close this gap is to create a new "universal" health insurance entitlement for the middle class.

Such thinking may be a non sequitur, but it will have drastic effects on the health care of all Americans -- and as it happens, this future is playing out in miniature in Medicare right now. Desperate to prevent medical costs from engulfing the federal budget, the program's central planners decided last week to deny payment for a new version of one of life's most unpleasant routine procedures, the colonoscopy. This is a preview of how health care will be rationed when Democrats get their way.

At issue are "virtual colonoscopies," or CT scans of the abdomen. Colon cancer is the second leading cause of U.S. cancer death but one of the most preventable. Found early, the cure rate is 93%, but only 8% at later stages. Virtual colonoscopies are likely to boost screenings because they are quicker, more comfortable and significantly cheaper than the standard "optical" procedure, which involves anesthesia and threading an endoscope through the lower intestine.

Virtual colonoscopies are endorsed by the American Cancer Society and covered by a growing number of private insurers including Cigna and UnitedHealthcare. The problem for Medicare is that if cancerous lesions are found using a scan, then patients must follow up with a traditional colonoscopy anyway. Costs would be lower if everyone simply took the invasive route, where doctors can remove polyps on the spot. As Medicare noted in its ruling, "If there is a relatively high referral rate [for traditional colonoscopy], the utility of an intermediate test such as CT colonography is limited." In other words, duplication would be too pricey.

This is precisely the sort of complexity that the Democrats would prefer to ignore as they try to restructure health care. Led by budget chief Peter Orszag, the White House believes that comparative effectiveness research, which examines clinical evidence to determine what "works best," will let them cut wasteful or ineffective treatments and thus contain health spending.

The problem is that what "works best" isn't the same for everyone. While not painless or risk free, virtual colonoscopy might be better for some patients -- especially among seniors who are infirm or because the presence of other diseases puts them at risk for complications. Ideally doctors would decide with their patients. But Medicare instead made the hard-and-fast choice that it was cheaper to cut it off for all beneficiaries. If some patients are worse off, well, too bad.

Medicare is already the country's largest purchaser of health care. Private carriers generally adopt its rates and policies, and the virtual colonoscopy decision may run this technology out of the marketplace. Now multiply that by the new "public option" that Democrats favor, which would transfer millions of patients to a new insurance program managed by the federal government. Washington's utilitarian judgments about costs would reshape the practice of medicine.

Initially, the open-ended style of American care will barely be touched, if only for political self-preservation. Health planners will adjust at the margins, as with virtual colonoscopy. But scarcity forces choices. As the Medicare trustees note in their report, the tax increases necessary to fund merely the current benefit schedule for the elderly would cripple the economy. The far more expensive public option will not turn into a pumpkin when cost savings do not materialize. At that point, government will clamp down with price controls in the form of lines and rock-bottom reimbursement rates.

Mr. Orszag says that a federal health board will make these Solomonic decisions, which is only true until the lobbies get to Congress and the White House. With virtual colonoscopy, radiologists and gastroenterologists are feuding over which group should get paid for colon cancer screening. Companies like General Electric and Seimens that make CT technology are pressuring Medicare administrators too. More than 50 Congressmen are demanding that the decision be overturned.

All this is merely a preview of the life-and-death decisions that will be determined by politics once government finances substantially more health care than the 46% it already does. Anyone who buys Democratic claims about "choice" and "affordability" will be in for a very rude awakening.

from the Wall Street Journal, 2009-May-12, p.A16:

Signing On to an Obama 'Dream'
Health providers agree to Obama health plan's notion of cost savings.

At a news conference yesterday, President Obama said, "I will not rest until the dream of health-care reform is achieved in the United States of America." Normally dreams cost you nothing, but Mr. Obama's determination not to rest until his becomes reality is likely to cost plenty. Yesterday a coalition of private health-system providers, seeing no exit from the administration's reform plans, signed on to the dream.

They agreed in principle to try to shave 1.5 percentage points off the growth rate of U.S. health-care costs over the next decade, about $2 trillion. This vague, probably illusory promise isn't much as a matter of policy, but it is a major political development in what is the Obama Presidency's No. 1 priority.

The private groups are calculating that they can better influence this year's bill if they're "partners" instead of villains. They've no doubt seen what happened to Wall Street and Chrysler bondholders. All the same, they must surely know they have made a Faustian bargain that in time will result in price controls and restrictions on care.

The Obama Administration, by contrast, is convinced that it is smart enough to engineer more efficient medical practices out of D.C. The dominant White House voice on health policy is Peter Orszag, the budget chief. He cites research out of Dartmouth that shows health-care spending varies wildly between regions, often with little or no correlation to health outcomes.

Mr. Orszag champions "comparative effectiveness research" -- studying the patterns of clinical practice to determine which drugs and treatments work best. The Administration thinks it can use such analysis to weed out wasteful or unnecessary care by paying more "if the treatment has been shown to be effective and a little less if not," as Mr. Orszag recently told the New Yorker.

The irony is that the history of post-1965 U.S. health care policy is littered with similar government attempts to control health spending, not least comparative effectiveness. The "managed care" movement of the 1990s grew directly out of the peer-review panels created by Congress in 1972 to monitor the quality and appropriateness of care for Medicare and Medicaid patients.

Under managed care, doctors and hospitals had to undergo prior "utilization review" by HMOs to reduce unnecessary hospitalizations, surgeries, tests, prescriptions and so on. This cost-effectiveness gatekeeping disciplined health spending. What happened next to this version of the dream is known to all.

Administrative hassles led to a consumer backlash, with patients feeling they were getting inferior care in return for insurer profits. The political class eventually forced the HMOs to dilute or end most of their cost-control strategies.

Democrats have now acknowledged that the managed care dream will work only if government is the one doing the managing. That is, we can only control costs with a new government entitlement. More is less.

But you can only allocate a scarce resource in two ways: market prices or brute force. In health care the brute force will come as price controls and waiting lines for rationed services. The implicit assumption in the providers' deal announced yesterday seems to be that the private companies will do the price controlling so the government won't have to do it for them.

But when the savings prove illusory, as in the past, the feds will step in and order them to do so. To win a false reprieve for themselves and give cost cover to the politicians, these private CEOs are offering to make themselves even more unpopular with patients. By that point, most patients will have no choice but to assent, since most of them will be in one government program or another.

Lest anyone remains in doubt about the ultimate goal here, Ralph Neas of the leftist National Coalition on Health Care got out a quick statement throwing ice water on the industry's concession. With perfect clarity Mr. Neas said: "Voluntary efforts -- without legislated requirements and enforcement -- have not worked well in the past."

The only benefit here is that it is now possible to see where this issue is headed: A new legislated entitlement for the middle class will ensure that the next great health-care argument to engulf the political system is going to be over how and when to ration care.

from the Wall Street Journal, 2009-May-12, by Scott Gottlieb:

How ObamaCare Will Affect Your Doctor
Expect longer waits for appointments as physicians get pinched on reimbursements.

At the heart of President Barack Obama's health-care plan is an insurance program funded by taxpayers, administered by Washington, and open to everyone. Modeled on Medicare, this "public option" will soon become the single dominant health plan, which is its political purpose. It will restructure the practice of medicine in the process.

Republicans and Democrats agree that the government's Medicare scheme for compensating doctors is deeply flawed. Yet Mr. Obama's plan for a centrally managed government insurance program exacerbates Medicare's problems by redistributing even more income away from lower-paid primary care providers and misaligning doctors' financial incentives.

Like Medicare, the "public option" will control spending by using its purchasing clout and political leverage to dictate low prices to doctors. (Medicare pays doctors 20% to 30% less than private plans, on average.) While the public option is meant for the uninsured, employers will realize it's easier -- and cheaper -- to move employees into the government plan than continue workplace coverage.

The Lewin Group, a health-care policy research and consulting firm, estimates that enrollment in the public option will reach 131 million people if it's open to everyone and pays Medicare rates, as many expect. Fully two-thirds of the privately insured will move out of or lose coverage. As patients shift to a lower-paying government plan, doctors' incomes will decline by as much as 15% to 20% depending on their specialty.

Physician income declines will be accompanied by regulations that will make practicing medicine more costly, creating a double whammy of lower revenue and higher practice costs, especially for primary-care doctors who generally operate busy practices and work on thinner margins. For example, doctors will face expenses to deploy pricey electronic prescribing tools and computerized health records that are mandated under the Obama plan. For most doctors these capital costs won't be fully covered by the subsidies provided by the plan.

Government insurance programs also shift compliance costs directly onto doctors by encumbering them with rules requiring expensive staffing and documentation. It's a way for government health programs like Medicare to control charges. The rules are backed up with threats of arbitrary probes targeting documentation infractions. There will also be disproportionate fines, giving doctors and hospitals reason to overspend on their back offices to avoid reprisals.

The 60% of doctors who are self-employed will be hardest hit. That includes specialists, such as dermatologists and surgeons, who see a lot of private patients. But it also includes tens of thousands of primary-care doctors, the very physicians the Obama administration says need the most help.

Doctors will consolidate into larger practices to spread overhead costs, and they'll cram more patients into tight schedules to make up in volume what's lost in margin. Visits will be shortened and new appointments harder to secure. It already takes on average 18 days to get an initial appointment with an internist, according to the American Medical Association, and as many as 30 days for specialists like obstetricians and neurologists.

Right or wrong, more doctors will close their practices to new patients, especially patients carrying lower paying insurance such as Medicaid. Some doctors will opt out of the system entirely, going "cash only." If too many doctors take this route the government could step in -- as in Canada, for example -- to effectively outlaw private-only medical practice.

These changes are superimposed on a payment system where compensation often bears no connection to clinical outcomes. Medicare provides all the wrong incentives. Its charge-based system pays doctors more for delivering more care, meaning incomes rise as medical problems persist and decline when illness resolves.

So how should we reform our broken health-care system? Rather than redistribute physician income as a way to subsidize an expansion of government control, Mr. Obama should fix the payment system to align incentives with improved care. After years of working on this problem, Medicare has only a few token demonstration programs to show for its efforts. Medicare's failure underscores why an inherently local undertaking like a medical practice is badly managed by a remote and political bureaucracy.

But while Medicare has stumbled with these efforts, private health plans have made notable progress on similar payment reforms. Private plans are more likely to lead payment reform efforts because they have more motivation than Medicare to use pay as a way to achieve better outcomes.

Private plans already pay doctors more than Medicare because they compete to attract higher quality providers into their networks. This gives them every incentive, as well as added leverage, to reward good clinicians while penalizing or excluding bad ones. A recent report by PriceWaterhouse Coopers that examined 10 of the nation's largest commercial health plans found that eight had implemented performance-based pay measures for doctors. All 10 plans are expanding efforts to monitor quality improvement at the provider level.

Among the promising examples of private innovation in health-care delivery: In Pennsylvania, the Geisinger Clinic's "warranty" program, where providers take financial responsibility for the entire episode of care; or the experience of the Blue Cross Blue Shield plans in Pennsylvania, Michigan and Virginia, where doctors are paid more for delivering better outcomes.

There are plenty of alternatives to Mr. Obama's plan that expand coverage to the uninsured, give them the chance to buy private coverage like Congress enjoys, and limit government management over what are inherently personal transactions between doctors and patients.

Rep. Nydia Velazquez (D., N.Y.) has introduced a bipartisan measure, the Small Business Cooperative for Healthcare Options to Improve Coverage for Employees (Choice) Act of 2009, that would make it cheaper and easier for small employers to offer health insurance. Mr. Obama would also get bipartisan compromise on premium support for people priced out of insurance to give them a wider range of choices. This could be modeled after the Medicare drug benefit, which relies on competition between private plans to increase choices and hold down costs. It could be funded, in part, through tax credits targeted to lower-income Americans.

There are also measures available that could fix structural flaws in our delivery system and make coverage more affordable without top-down controls set in Washington. The surest way to intensify flaws in the delivery of health care is to extend a Medicare-like "public option" into more corners of the private market. More government control of doctors and their reimbursement schemes will only create more problems.

Dr. Gottlieb, a former official at the Centers for Medicare and Medicaid Services, is a fellow at the American Enterprise Institute and a practicing internist. He's partner to a firm that invests in health-care companies.

from the Wall Street Journal, 2009-May-14:

Target: Intel, and Competition
Team Obama adopts the European model on antitrust.

The world is returning to the 1970s on most economic policies, so why not antitrust too? Judging by events this week, antitrust enforcement in the U.S. and Europe is in for a major comeback, whether or not consumers benefit.

Yesterday in Brussels, the European Commission imposed a record antitrust fine of $1.45 billion on Intel for the heinous crime of discounting computer chips in its fierce and long-running competition with AMD. Meanwhile on Monday, President Obama's new antitrust chief, Christine Varney, issued a radical revision of the Department of Justice's own antitrust enforcement standards. Ms. Varney's ambition seems to be nothing less than bringing Europe's corporatist approach to competition policy to the U.S. To succeed, she will have to flout or overturn decades of Supreme Court precedent on the limits of U.S. antitrust law.

But Ms. Varney can be sure of a friendly ear in Brussels, which has never let go of the idea that competition is best when there isn't much of it. The Commission's attitude is on full display in the fining of Intel for allegedly abusing its dominant position in the market for computer processors. For years, Intel and AMD have been essentially the only game in town for computer CPUs. The Commission's complaint amounts to little more than a whinge that Intel won more of this business than the Commission would prefer.

This is couched in dark-sounding talk about Intel paying computer makers not to buy AMD chips. But remember there is only so much demand and there are only two major market players. So any order won by Intel by offering a discount or a rebate is, by definition, an order lost by AMD. And yet the Commission bizarrely claims that "millions of Europeans" have been harmed by this price war.

Intel has been able to sell enough chips cheaply enough to maintain an overall market share that has hovered between 75% and 80% for years. And those lower prices help drive down the price of a computer, which is good for consumers. A less competitive market for chips, or one in which Intel is barred from offering discounts to its biggest customers, would mean higher consumer prices. The Commission also suggests that Intel may have sold some chips below its cost, but Intel denies this and claims it can prove it if the Commission would deign to consider its evidence.

The Commission is, as ever, more focused on preserving competitor welfare above consumer welfare, and Ms. Varney at Justice seems to be promoting a similar approach. The American left likes to advertise itself as pro-consumer. But the curious reality about the left's view of antitrust in both Europe and America is that it is often used to assist big business by dampening competition. This corporatist notion seems to be that companies should compete, so long as no one really loses. Ms. Varney paid lip service to the dangers of protecting competitors when she criticized the National Industrial Recovery Act, ushered in by FDR during the Great Depression. That odious piece of industrial policy blessed price collusion between big firms in exchange for a commitment to keep people employed and share some of the collusive profits with labor.

But in her speech, Ms. Varney tries to cast this anticompetitive act as a form of deregulation. In fact, the NIRA was regulation of the worst sort, protecting competitors from competitive harm in the name of some greater good. True deregulation aims at greater competition, while European (and Rooseveltian) corporatism dampens it. This historical obfuscation allows Ms. Varney to argue that it would be good for competition to adopt something like Europe's "abuse of dominant position" standard in place of the consumer-harm test that currently prevails in the U.S.

Europe's Intel case makes the importance of these different tests very clear. By any reasonable application of a consumer-harm test, the antitrust claim that Intel is driving down prices -- and so making computers less expensive -- would be laughed out of U.S. court. The only harm here is to a competitor that can't match Intel's prices. And even at that, AMD isn't exactly going out of business. At times its market share for consumer desktop CPUs has been as high as 50%, and at its most successful the upper bound has been determined as much by AMD's own manufacturing capacity as by Intel's behavior.

When she announced the judgment against Intel Wednesday, European Competition Commissioner Neelie Kroes praised Ms. Varney's new approach to antitrust. And no wonder. Regulators love company, and European regulators in particular love it when their American counterparts help them hamstring the most efficient U.S. companies. Why President Obama should want to punish U.S. multinationals is harder to figure since his political success hangs on economic recovery and a revival in business profits and hiring. But perhaps we should conclude that this is merely one more example of the ways in which this Administration is seeking to remake American capitalism in the image of Continental Europe.

from the Business Insider, 2009-May-5, by John Carney:

New Allegations Of White House Threats Over Chrysler

Creditors to Chrysler describe negotiations with the company and the Obama administration as "a farce," saying the administration was bent on forcing their hands using hardball tactics and threats.

Conversations with administration officials left them expecting that they would be politically targeted, two participants in the negotiations said.

Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.

The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking "end justifies the means" group they have ever encountered. Another characterized Obama was "the most dangerous smooth talker on the planet- and I knew Kissinger." Both were voters for Obama in the last election.

One participant in negotiations said that the administration's tactic was to present what one described as a "madman theory of the presidency" in which the President is someone to be feared because he was willing to do anything to get his way. The person said this threat was taken very seriously by his firm.

The White House has denied the allegation that it threatened Perella Weinberg.

Last week Obama singled out the firms that continue to oppose his plan for Chrysler, saying he would not stand with them. Perella Weinberg says it was convinced to support the plan by this stark drawing of a line between firms that have the president's backing and those that did not. They didn't want to be on the wrong side of Obama. Privately, administration officials have expressed confidence that other firms will switch sides for this reason.

These allegations add to the picture of an administration willing to use intimidation to win over support for its Chrysler plans--and then categorically deny it.

from the Wall Street Journal, 2009-May-11, p.A1, by Neil King Jr. and Jeffrey McCracken:

U.S. Forced Chrysler's Creditors to Blink

President Barack Obama's auto task force heard a blunt message early this spring from J.P. Morgan Chase & Co., the largest lender to Chrysler LLC. In any deal to remake the troubled auto maker, Chrysler would have to repay its lenders all $6.9 billion it owed.

"And not a penny less," said James B. Lee Jr., vice chairman at the bank, in a call to auto task-force boss Steven Rattner on March 29.

The next day, Mr. Obama called the banker's bluff. The president stepped before a podium to announce that Chrysler could face a disorderly bankruptcy or even liquidation. His meaning was clear: If that happened, the lenders would get nowhere near $6.9 billion.

A few hours later, Mr. Lee called Mr. Rattner back. "We need to talk," he said.

The banker's about-face was a vivid example of the government's tightening grip on a humbled financial industry. Pulling a trick from the hedge-fund playbook, the government used its leverage as the sole willing lender to Chrysler, either in bankruptcy court or out, to extract deep concessions from some of the country's biggest banks.

The results of these hardball tactics were on display Friday, as the last resisters of a deal to slash the value of Chrysler debt abandoned their effort to fight it in bankruptcy court. That raised the chances for a relatively swift transit through Chapter 11, producing a new Chrysler 55%-owned by a trust for union retirees, 35% by Fiat SpA -- which hasn't even been a Chrysler creditor -- and not at all by the senior secured lenders.

That conclusion would upend a longstanding tradition concerning rights in a bankruptcy: Senior secured lenders usually get paid in full before lower-priority creditors get anything. Not this time.

The White House's role in restructuring Chrysler has sent a shudder through the community of lawyers and lenders in the field of bankruptcy and corporate workouts. Critics complain that the administration has violated a bedrock principle of American capitalism and unfairly demonized financial firms that are vital to the functioning of the economy and its eventual recovery.

Administration officials reply that the Chrysler crisis required bold action. While Chrysler's suppliers, dealers and unionized workers are critical to its survival -- and so is Fiat, which will contribute high-efficiency engines and foreign distribution -- the creditors were expendable.

"You don't need banks and bondholders to make cars," said one administration official.

The administration could exert such leverage because it was convinced big banks were too tarnished in the public eye to put up a fight. They risked being blamed for Chrysler's demise. And if Chrysler had to liquidate, they and other lenders would have to try to recover their money by selling closed auto plants and other assets that are little in demand.

Mr. Rattner forced the issue during the spring negotiations. More than once, he told Mr. Lee: "You can have the company and run it or liquidate it."

This account of the fight among Chrysler, its lenders and the government is based on interviews with dozens of people involved in the negotiations, including bankers, financial advisers, lawyers, union and Chrysler officials and Obama aides.

The struggle began last year when Chrysler and General Motors Corp. faced a potential meltdown. Chrysler went to the lenders that held 70% of its debt -- J.P. Morgan, Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley. It wanted to know if they would lend more and if they would provide financing in case Chrysler filed for bankruptcy.

When they said no, the auto maker turned to Washington. Just before Christmas, the Bush administration agreed to lend Chrysler $4 billion, as well as $13.4 billion to GM. The Treasury gave Chrysler three months to reduce its debt and forge a cost-cutting agreement with the United Auto Workers union.

Chrysler turned to the lenders it had just been asking for new loans, but now asked them to agree not to get paid in full for their old loans. It wanted them to chop the $6.9 billion debt to $5 billion. At a meeting in early February, Mr. Lee and other bank executives rebuffed the request. With the government getting so involved in supporting Chrysler, the banks held out for talks with federal officials.

The Obama administration's auto task force held scant hope that all of Chrysler's lenders would agree to a compromise. There were 46 debtholders in all, including many small hedge funds and distressed-debt funds. Most of these had acquired their holdings at a discount on the secondary market. With no consumer operations, they had less reputation on the line than the banks did. In addition, unlike banks, they didn't have to worry about saving Chrysler in order to salvage other loans, to parts suppliers and to Chrysler Financial.

The task force's Ron Bloom, a former investment banker and steelworkers-union negotiator, agreed to handle talks with the UAW and Fiat. Mr. Rattner, co-founder of private-equity firm Quadrangle Group, would take on the lenders. He soon butted heads with Mr. Lee. Known on Wall Street for his suspenders, white collars and deep Rolodex, Mr. Lee, as the senior deal maker at J.P. Morgan, has lent more money to more companies than almost anyone else on Wall Street.

J.P. Morgan faced by far the most Chrysler exposure: $2.7 billion of debt. Monitoring the situation, J.P. Morgan Chief Executive Jamie Dimon called Chrysler Chief Executive Robert Nardelli several times.

Mr. Lee's March 29 demand for full repayment reflected a common view among the creditors. "You lend someone $6.9 billion, you would like $6.9 billion back," said one.

Many of the lenders believed the administration wouldn't let Chrysler file for bankruptcy. "The plan was to call the government's bluff. The game was to game the government," said a manager of a distressed-debt fund.

Then came President Obama's tough talk about the possibility of Chrysler going into bankruptcy or even liquidation, which came just hours after the administration pushed out GM's chief executive, Rick Wagoner. Acting like a bank that is a troubled firm's last hope, President Obama sketched out what Chrysler would have to do to get more federal money.

When Mr. Lee spoke to Mr. Rattner again on March 30, the J.P. Morgan man acknowledged the landscape had changed. He sought a meeting that would bring the lenders to Washington.

Chrysler's four main lenders were already indebted to the Treasury as recipients of loans from the Troubled Asset Relief Program, the government's pool of emergency aid to financial-system titans. Citigroup had received $45 billion; J.P. Morgan, $25 billion; and Goldman and Morgan Stanley, $10 billion each.

Obama aides say they were under White House orders not to use TARP as leverage over the banks. Lawmakers weren't so shy. Rep. Gary Peters, a Democrat whose Michigan district includes Chrysler offices, wrote to the bank CEOs listing their TARP loans and asking them to extinguish most of Chrysler's debt.

Mr. Rattner hosted a meeting of senior bank officers on April 2, in an ornate conference room at the Treasury. They heard presentations from Chrysler's Mr. Nardelli and Fiat Chief Executive Sergio Marchionne. The more than 25 listeners were told that deals with Fiat and the UAW were nearly complete.

When the issue of the $6.9 billion in debt came up, Mr. Rattner looked at the lending group and said, "We have in mind for you a much lower number." He silenced the room by proposing they get just $1 billion.

While that wasn't the administration's bottom line, the task force had determined what was: the amount lenders would get in a liquidation of Chrysler assets. A Chrysler analysis in January estimated that at $2 billion. The UAW and Fiat knew about this figure, and also knew that the task force was first going to offer lenders just $1 billion. But the lenders, having waited so long to engage with the Treasury, were in the dark.

The bankers asked the government team for projections of what a combined Chrysler-Fiat alliance would look like. "If you want a response other than 'No,' something like a counteroffer, then we need those new numbers," Mr. Lee said, according to people present in the room.

In the following days, the lenders began to realize their leverage was small and dwindling. Only the government had the ability or willingness to finance a bankruptcy reorganization of Chrysler, while also supporting its warranties and suppliers and recapitalizing Chrysler Financial. None of the lenders, some of which had consumer operations in the Midwest near Chrysler plants, had any desire to take over and liquidate the company.

Mr. Lee had another problem. Unrest was spreading among creditors as some worried that TARP-recipient banks were open to cutting a deal with the Treasury. Some lenders that hadn't gotten TARP money decided to hire their own lawyer. To calm the smaller debtholders, the banks on April 10 allowed three of them on the group's steering committee: OppenheimerFunds, Stairway Capital Management and Perella Weinberg Partners' Xerion Fund.

The Chrysler-Fiat projections sought from the Treasury didn't arrive until Easter, April 12. By then, deals with Fiat and the UAW had largely been hammered out.

The lenders spent a week haggling over how to respond to Mr. Rattner. The big banks at first proposed the group offer to cut the debt in half and get no equity stake. That outraged some hedge funds and distressed-debt firms that didn't face the banks' broader concerns and that were accustomed to fighting in the trenches for their interests. The reply, sent April 20, reflected the hardening position of the hedge funds: The lenders would cut just $2.4 billion in debt, in exchange for 40% of Chrysler's equity.

The offer landed with a thud. Rep. Peters said the lenders were seeking much more than market value for their debt, "which amounts to a taxpayer subsidy." It was just 10 days until the government's deadline to reach agreements with the UAW, Fiat and lenders if Chrysler was to get more government money.

After receiving one more bank counteroffer, the Treasury on April 28 offered what it had planned all along, to buy out the lenders for $2 billion. The only sweetener was that it would be in cash, meaning the lenders didn't have to wait for a reorganized Chrysler-Fiat to pay it.

Mr. Rattner called Mr. Lee: "It's $2 billion, take it or leave it."

The big banks quickly agreed to the deal -- equal to 29 cents on the dollar. Though that offered a profit to a few firms that bought debt as low as 15 cents on the dollar, most of the lenders had paid 50 cents to 70 cents, and the banks 100 cents. News that the big banks were accepting the offer leaked before they had told the smaller lenders. "To say the least, we were floored," says one.

Mr. Lee was nonetheless intent on winning 100% approval from debtholders, to give the government the option of avoiding a Chrysler bankruptcy filing. He asked the Treasury to raise its offer by $250 million, which it grudgingly agreed to do if the lenders answered within 90 minutes. After a flurry of last-minute calls, about 20 firms, mostly small hedge funds, voted no.

At noon the next day, April 30, Mr. Obama said Chrysler would file for bankruptcy. He blamed "speculators" who had turned down the $2 billion offer for their $6.9 billion of debt. A lawyer for holdout firms, Tom Lauria, accused the White House of threatening to destroy the reputation of Perella Weinberg. The White House denied exerting pressure on it. Mr. Lauria's clients took their fight into bankruptcy court last week, imperiling the administration's plan to guide Chrysler into and out of court swiftly. But on Friday, the holdouts abandoned the fight as too costly, financially and politically.

"The overarching sense of political pressure," Mr. Lauria said, "remained out there till the end."

from the Wall Street Journal, 2009-May-11, Paul Ingrassia:

How Ford Restructured Without Federal Help
The company is now at a disadvantage to its less prudent rivals.

Dearborn, Mich.

You're forgiven if you think the Chrysler Bailout is a hot new car that competes with another model called the GM Rescue. Then there is the Ford Forego, brought to us by the only Detroit auto maker to forego government assistance, at least so far.

That's good for the taxpayers and for Ford, right? Well, maybe not. While General Motors and Chrysler will emerge from the government restructuring wringer with significantly reduced debt, Ford will still likely be obliged to repay its lenders. This could put Ford at a competitive disadvantage -- an unfortunate irony for the one Detroit car company that has gotten the decisions mostly right in the last few years.

Ford also might emerge from the current crisis as the largest American auto maker for the first time in more than 80 years. GM had 18.6% of the market in the first quarter of this year to Ford's 14.7%. But GM's lead could be wiped out when the company sheds four or five brands to satisfy President Barack Obama's automotive task force.

True, "Largest American Car Company" might by a pyrrhic title these days. Ford just posted a $1.4 billion loss for the first quarter of 2009, after cumulative losses of $30 billion for the prior three years. During those same three years, however, Ford revamped its product offerings to the point where it soon will have a coherent lineup for the first time in a decade. That's a big turnabout for a company whose auto lineup was so unappealing a few years ago that it almost abandoned cars entirely to focus on SUVs and trucks.

In Ford's last big comeback, its midsize sedan, the Taurus, popularized aerodynamic styling and became the best-selling car in America in the mid-1990s.

What happened next would be criminal, except there aren't laws against corporate stupidity. Ford didn't invest to keep the Taurus competitive. Then it announced in 2004 it would kill the Taurus name -- until new CEO Alan Mulally ordered a stay of execution two years later.

The 2010 Taurus, which debuts next month, is a brand new start with sharp styling and the same $25,995 base price as the old, lackluster model. For more money you can add high-tech gadgetry such as forward-looking radar, adaptive cruise control, and a collision-warning system that applies the brakes when you get too close to the car in front of you. Together, these gizmos will allow you to drive from Detroit to Chicago without hitting either the brake or the accelerator. (I wouldn't suggest trying it, however.)

Ford's new Fusion Hybrid, meanwhile, gets 41 miles to the gallon in the city, versus 33 mpg for the Toyota Camry hybrid (with a similar price tag). The difference comes from lots of little things. Ford narrowed the slots on the wheel covers and changed the design of the fog lights, for example, to reduce aerodynamic drag.

Ford announced last week that it's reconfiguring a truck plant in Wayne, Mich., to build the new Focus compact. And a year from now the high-mileage subcompact Fiesta, engineered in Europe, will hit these shores. The Fiesta trails the Honda Civic and the Toyota Yaris in its time of entry to the U.S. market, but the vehicle's sleek styling will make it the best-dressed girl at the dance.

All this begs the question: How did the company develop all these new cars while losing so much money in recent years? The simple answer is that it borrowed billions from private lenders.

In late 2006, shortly after Mr. Mulally arrived from Boeing, the company mortgaged its factories, its equipment, and its real estate. Much of the impetus for this fund raising came from the company's now-departed chief financial officer, Don LeClair, whose pessimistic prognostications irked his colleagues but who proved prescient nonetheless. The company raised $23.6 billion -- the world's largest "home-improvement loan," as Ford officials said at the time -- to finance a complete product overhaul. That's right. There's wasn't a dime of government assistance.

Rival GM also raised money in 2006. Instead of mortgaging assets, however, the company sold 51% of its GMAC financial-services arm to Cerberus (the same private-equity firm that bought Chrysler a year later).

GMAC is now a bank holding company -- and it is reeling from losses of billions of dollars in the subprime mortgage market. GM, meanwhile, burned through its money faster than Ford, which was making tough decisions that GM ducked. Specifically, Ford sold off such cash-draining operations as Jaguar and Land Rover, while GM held on to its outmoded lineup of eight different U.S. brands. As a result, its standout cars -- such as the Chevy Malibu and Cadillac CTS -- got lost in the clutter.

Last week, GM reported a $6 billion loss for the first quarter. The company wants to wipe away 90% of its $27 billion in unsecured debt as part of its path to viability. But to do that it will almost certainly have to follow Chrysler into bankruptcy court. That will be the cleanest and quickest way for GM to get relief from obligations that it can't afford to meet. Beyond this, GMAC's status as a bank holding company qualifies it for government assistance that Ford's lending arm, Ford Motor Credit, can't get.

You can see where this leaves us. Ford has about $26 billion in automotive debt -- about the same as GM's $27 billion. Ford's debt is secured by its assets. And secured lenders must be repaid -- unless they happen to be Chrysler lenders and get clipped by a company bankruptcy plan that's backed by President Obama.

Ford's repayment schedule will be revealed today when the company files its 10-K, the comprehensive annual performance report, to the Securities and Exchange Commission. So Ford is like a homeowner who planned prudently and can pay his mortgage, while his spendthrift neighbors get their mortgage reduced by some new federal program.

Ford executives are probably fretting about this, but there isn't much that can be done. They already have exchanged some of their debt for equity, and might do more of that. But the bottom line is that we live in a world where wisdom can be punished and where foolishness can be rewarded.

Ford certainly wouldn't want to trade places with GM or Chrysler right now. Let's just leave it at that.

Mr. Ingrassia, a former Dow Jones executive and Detroit bureau chief for this newspaper, is writing "Crash Course," a book about the auto industry's crisis that will be published next year by Random House.

from the Future of Freedom Foundation, 2009-Apr-16, by Jim Powell:

FDR and Compulsory Unionism Destroyed Jobs

For decades, labor unions struggled for power, but until the 1930s they had made little headway.

Unions were based on force and violence, which repelled a substantial number of employees as well as employers. The aim had been to raise the wages of members above market levels, but this was only possible if they went on strike, forcibly prevented employers from hiring other employees, shut down businesses, and ultimately forced employers to accept union demands. Union bosses talked about securing the “right to strike,” but they didn't mean the right to quit which everybody already had. In practice, the “right to strike” meant the right to forcibly prevent others from filling jobs that strikers had left.

Union bosses proclaimed the ideal of “collective bargaining,” even described this as the essence of “industrial democracy,” but what they sought was compulsory unionism — a labor market monopoly. They weren't satisfied if some of a company's employees chose to join one union, while others joined another union, and still others continued to bargain individually on their own. Union bosses demanded a “closed shop” that made union membership a condition of employment.

Until the 1920s, as far as labor issues were concerned, U.S. courts generally respected individual rights. Employers could choose their employees freely, and employees could choose among employers freely, and either could deal with a union or not as they wished. Employers who hired employees on an “at will” basis were free to let them go for any reason or no reason at all, just as “at will” employees could quit for any reason or no reason at all. Terms of employment depended on supply and demand. Because of the growing American economy, wages were in a long-term uptrend before compulsory unionism became a force to reckon with.

When unions were violent, courts sometimes provided equity relief by issuing injunctions to stop the violence. Often injunctions prodded police to do their job of protecting life and limb. Historian Howard Dickman reported, “the lion's share of injunction cases involved physical coercion of the nasty variety.”

On March 23, 1932, President Herbert Hoover signed into law the Norris-LaGuardia Anti-Injunction Act. Among other things, Norris-LaGuardia exempted labor unions from the Sherman Antitrust Act. Even when unions used violence in an effort to stop production or stop the interstate shipment of goods, they couldn't be prosecuted under the Sherman Act for acting “in restraint of trade.” Moreover, Norris-LaGuardia declared that federal courts couldn't protect companies and non-union members from labor union violence by issuing injunctions to cease and desist.

New York Senator Robert F. Wagner, Sr. introduced a bill to promote compulsory unionism. This became the National Labor Relations Act, also known as the Wagner Act, that FDR signed on July 5, 1935. Section 7 provided that employees could be bound by “an agreement requiring membership in a labor organization as a condition of employment.”

The Wagner Act provided that if 30 percent of employees signed a petition for a certification election to determine whether a union would negotiate on behalf of all the workers, it must be held. The Wagner Act did not require periodic elections to determine whether workers wanted to remain with the first union or choose to be represented by another union or no union at all. If this principle were applied to the government sector, we might never have had another election after the first one more than two centuries ago.

Backed by the Wagner Act, labor union bosses moved aggressively to monopolize labor markets in mass production industries. For example, 28-year-old Walter Reuther, a socialist visionary, emerged as a leader of the United Auto Workers. On December 30, 1936, 1,500 UAW members (out of 42,000 employees) seized control of Fisher Body Plant No. 1 owned by General Motors in Flint, Michigan. They stopped the assembly line and staged a sit-down strike. Eventually, the company caved, agreeing to negotiate only with the UAW and let it force all factory employees to become members. The strikers finally left the plants on February 11, 1937. During the next several months, the UAW recruited some 40,000 new members from five GM factories and several dozen smaller companies. Granting the UAW a bargaining monopoly didn't bring peace, however. The union struggled to gain more and more power over wages, seniority, the pace of work and other issues.

Unions succeeded in gaining above-market wages for their members. Wages increased more than 11 percent in 1937 and another 5 percent in 1938 — amidst America's worst depression. But as a result, the unions priced their members right out of the market. Consumers couldn't afford to pay higher car prices that reflected costly union contracts, and sales plunged. Between November 1937 and January 1938, GM dismissed a quarter of its employees. Thousands of unemployed auto workers abandoned the UAW, and by 1939 only 6 percent of GM employees were paying UAW dues.

In one industry after another, union bosses gained bargaining monopolies and negotiated contracts calling for above-market compensation as well as restrictive work rules. But consumers have had the last word. U.S.-based unionized companies in the textiles, garment, steel, automobile, newspaper, and other industries have either gone bankrupt, gone offshore, or are in serious trouble, and private sector union membership is about the lowest it has been in the past half-century. That's why union bosses want the government to bail them out now.

Jim Powell is policy advisor to the Future of Freedom Foundation and a senior fellow at the Cato Institute. He is the author of FDR's Folly, Bully Boy, Wilson's War, Greatest Emancipations, The Triumph of Liberty and other books.

from the Wall Street Journal, 2009-May-7, p.A15, by George S. McGovern:

The 'Free Choice' Act Is Anything But
George Meany and binding arbitration.

The recent news that Pennsylvania Sen. Arlen Specter has become a member of the Democratic caucus has given new life to legislation that many thought had been put to rest for this Congress -- the Employee Free Choice Act (EFCA).

Last year, I wrote on these pages that I was opposed to this bill because it would eliminate secret ballots in union organizing elections. However, the bill has an additional feature that isn't often mentioned but that is just as troublesome -- compulsory arbitration.

This feature would give the government the power to step into labor disputes where employers and labor leaders cannot reach an agreement and compel both sides to accept a contract. Compulsory arbitration is bound to trigger the law of unintended consequences.

Currently, labor law maintains a careful balance between the rights of businesses, unions and individual employees. While bargaining power differs depending on individual circumstances, the rights of the parties are well balanced. When a union and a business enter negotiations, current law requires that both sides bargain "in good faith."

In a contract negotiation, each party typically perceives the other as too demanding. But no one loses their right to contract willingly or suffers being forced to agree to anything. Employees can strike if they feel that they have been dealt with unfairly, but it is a costly option. Employers are free to reject labor demands they find to be too difficult to accept, but running a business without experienced employees is itself difficult. Both sides have an incentive to press their demands, but they also have compelling reasons not to press their demands too far. EFCA would disrupt that balance by enabling government-appointed lawyers to decide what they believe is fair or reasonable.

A federally appointed arbitrator cannot be expected to understand the nuances specific to each business dispute, the competitive market position of the business, or the plethora of other factors unique to each case. Yet fundamental decisions on wages and benefit costs, rules for promotions, or even rules for exiting an unprofitable line of business could fall to federal arbitrators under EFCA.

Many labor contracts can run over 100 pages with their requirements of each party. Compulsory arbitration is, in one sense, government dictating to employees what they will win or lose in the deal, with no opportunity to approve the "agreement." Why should employees pay union dues to get such a contract?

My perspective on the so-called Employee Free Choice Act is informed by life experience. After leaving the Senate in 1981, I spent some time running a hotel. It was an eye-opening introduction to something most business operators are all-too familiar with -- the difficulty of controlling costs and setting prices in a weak economy. Despite my trust in government, I would have been alarmed by an outsider taking control of basic management decisions that determine success or failure in a business where I had invested my life savings.

When it comes to labor disputes, both parties should be guaranteed a real chance for compromise under the joint economic threat of contract breakdowns. George Meany, president of the AFL-CIO for nearly 30 years before retiring in 1979, had it right in condemning mandatory arbitration as "an abrogation of freedom."

My party has well-deserved majorities in both houses of Congress, and I am thankful to have an exceptional president in Barack Obama. But while the Democratic majority in Washington confers the power to reward our loyal supporters, today's problems require solutions that transcend party politics. Even when that means taking unpopular stands.

Mr. McGovern is a former senator from South Dakota and the 1972 Democratic presidential candidate.

from the Wall Street Journal, 2009-Apr-16, by Pete du Pont:

Sapping America's Energy
Global-warming legislation would drive up the cost of everything.

If Americans don't start paying attention to what Congress is up to, our nation's energy policy may seriously change for the worse. A bill styled the American Clean Energy and Security Act, sponsored by Democrats Henry Waxman of California and Edward Markey of Massachusetts, soon goes before the House. The enactment of laws to combat global warming is an established priority of the new administration and Congress, and their impact on the lives and opportunities of America's people would be substantial and detrimental.

As Myron Ebell of the Competitive Enterprise Institute noted last month, "Waxman-Markey would put big government in charge of how much energy people can use. It would be the biggest government intervention in people's lives since the second world war, which was the last time people had to have rationing coupons in order to buy a gallon of gas." And for what? According to the U.N. Intergovernmental Panel on Climate Change, the Earth's average rate of warming in the 30 years from 1977 to 2007 was just 0.32 degree Fahrenheit per decade, and the global surface temperature has remained virtually flat since 1998.

The Waxman-Markey bill contains some serious mistakes. Slighting nuclear power is one. Nuclear plants generate no carbon dioxide or other pollution, and the 104 already in operation provide America with 73% of its CO2-free electricity generation. It is estimated that each new nuclear plant would employ some 2,000 workers to build and 500 to 600 people to operate. America could use some 40 more nuclear plants, but in the Waxman bill and the Obama administration's policies, additional nuclear power plants are likely nonexistent.

Cap-and-trade policies are another part of the bill intended to give the government more regulatory authority over the energy industry and a great deal more money--perhaps trillions of dollars--some of which would be available to grant to favored people and industries. The bill's outline does not say who would the energy allowances free, who would have to pay for them, and how much they would pay, but it does intend to make energy much more expensive and less available to consumers. Electricity, oil and large manufacturing businesses (which are jointly responsible for 85% of America's greenhouse emissions) would have to obtain at some price federal government pollution permits--"tradable federal permits," or "allowances," for each ton of CO2 emitted into the atmosphere. These permits would require reduced plant emissions over time, from a mandate of 3% below 2005 levels in 2012, to 20% in 2020, 42% in 2030, and 83% in 2050.

Another economic mistake at the core of the Waxman bill is the reinstatement of protectionism. Since America's energy restrictions would not apply to manufacturers of goods America imports, unregulated foreign companies could sell their goods in America at lower costs, and thus U.S. manufacturers could be "put at a disadvantage relative to overseas competitors." The Waxman bill would seek to remedy this by making companies eligible for rebates determined and allocated by Washington. If the president found that the rebates "do not substantially correct competitive imbalances" he could establish what Mr. Waxman calls a "border adjustment program" that would require foreign companies to pay for special allowances to "cover" the "carbon contained in U.S.-bound products."

In other words, America would add an international carbon tariff--a global energy tax--to imported goods (just as there was in the Boxer-Lieberman bill that was defeated last year). That would amount to strong protectionism and lead to matching tariffs on goods exported from America.

Not included in the Waxman discussion draft summary is the question of what will become of the cash the government would receive from selling the cap-and-trade allowances. In the Boxer-Lieberman bill, it was estimated that auctioning off half the permits would gain the government some $3.3 trillion by 2050, and that would be handed out by the government to pet projects like "environmental" job training, "wildlife adaptation," international aid, domestic mass transit and so on.

But rather than creating a new subsidy, wouldn't we be better off distributing those revenues to the American people, who would have to pay the carbon tax through higher-priced electricity and manufactured goods? Such an idea was recently offered by author Peter Barnes: send the trillions of dollars received from the companies buying the permits to people as a "cap-and-trade dividend" in the form of equal personal checks for all Americans. The Obama administration thinks the opposite--that a majority of the money raised by cap-and-trade should be sent only to taxpayers making under a certain amount as a part of his Making Work Pay credit.

The Waxman-Markey plan intends to give the federal government near-total control of America's energy supplies and usage. Depending upon how the allowances are organized, it may also create the largest redistribution of money from American families to the federal government since the creation of the American income tax. To keep America prospering, our economy growing, and jobs expanding, we need not less energy, but more of it; not higher energy prices but lower ones; and more energy generation through nuclear power, clean coal and offshore oil and gas as well as possible new energy sources. Waxman-Markey will take us in one direction, but to keep America prospering we need to go in the opposite one.

from Reuters, 2009-Apr-23, by Michael Szabo and Alister Doyle, with editing by William Hardy:

Rich nation greenhouse gas emissions rise in 2007

LONDON/OSLO - Greenhouse gas emissions from industrialized nations rose by nearly one percent in 2007, led by strong gains in the United States, official data showed.

Carbon emissions from countries signed up to the Kyoto Protocol climate pact edged up by 0.1 percent in 2007, mainly due to rises in Japan and Canada.

"The numbers are ... a bit depressing," said Knut Alfsen, research director at the Center for International Climate and Environmental Research in Oslo, saying they showed a failure to shift away from fossil fuels. "It shows that we are not able to de-link economic growth from emissions."

Although 2007 carbon dioxide (CO2) figures from a few economies including Australia and Ukraine were not yet available, comparing like-for-like figures showed emissions from countries with targets under Kyoto were 14 percent below 1990 levels, exceeding their goal of a 5 percent reduction by 2012.

The full 2007 data including the U.S. and Turkey, which do not have targets under Kyoto, showed that industrialized emissions were 2.1 percent below 1990 levels.

Under Kyoto, 40 or so developed countries committed in 1997 to cut their greenhouse gas emissions by an average of 5.2 percent below 1990 levels between 2008-2012. Since then, the U.S., historically the world's biggest emitter, has decided not to ratify the treaty.

U.N. climate scientists warn that rising atmospheric CO2 levels will cause global temperatures to increase, which in turn could trigger widespread disease, famine, flooding and drought.

Experts said global emissions are likely to fall in 2008 and 2009 due to lower industrial production and fossil fuel consumption as a result of the economic downturn, but they stressed that more needs to be done to prevent world temperatures from rising by over 2 degrees Celsius, a dangerous threshold according to scientists.

Barry Brook, a climate change professor at the University of Adelaide in Australia, said that even if the recession cuts emissions in developed nations, global atmospheric CO2 levels will continue to be high and "probably still higher in 2009 than in any other year before."

"The Chinese and Indian economies, for instance, are not contracting -- they're just not growing as fast. It would take a massive and sustained global recession to noticeably curb emissions growth without directed energy policy," he added.

Brook said most nations "have virtually no chance" of meeting cuts of 25-40 percent below 1990 levels by 2020 that UN scientists say are needed to avert the worst of global warming.

RESULTS

The U.N. data showed that like-for-like industrialized emissions grew by 145 million tonnes in 2007, with the U.S. accounting for over 100 million tonnes of that. The U.S. emitted 7.1 billion tonnes of CO2 in 2007.

The biggest percentage increases came from Estonia and Turkey, with emissions up by 14.8 and 12.0 percent respectively.

Germany saw the largest net decrease, cutting its CO2 by 23.9 million tonnes or 2.4 percent, while tiny nation state Liechtenstein and renewable energy leader Denmark made the deepest percentage cuts, chopping CO2 by 10.8 and 6.2 percent.

The 27-nation European Union cut its emissions by 1.4 percent to 5.03 billion in 2007, 12.3 percent below 1990 levels.

Nearly half of signatory nations have already hit their Kyoto goals, though much of this can be attributed to economic restructuring and the closure of industry in eastern Europe following the collapse of the Soviet Union, rather than through investment in cleaner energy or energy efficiency.

Canada's emissions have grown alongside its economy, boosted by stronger energy prices, though Ottawa has said it is unlikely to reach its 6 percent Kyoto reduction target. Canada's emissions rose by 4 percent in 2007, putting the country's CO2 at 29 percent over 1990 levels.

With a rise of 2.3 percent in 2007, Japan is also significantly above its own 6 percent reduction target, but is buying emissions rights from other nations that have cut CO2.

from the Wall Street Journal Asia, 2009-May-8, p.A12:

Cap-and-Trade Backflip
Kevin Rudd realizes how much an emissions-trading scheme will cost Australia.

Kevin Rudd likes to talk about showing moral leadership for the world on climate change. But the better example for other governments to follow is the Australian Prime Minister's backtrack on a costly emissions trading scheme.

Mr. Rudd announced on Monday that he will delay implementation of his trademark cap-and-trade proposal until at least 2011. With luck, that will be after the clouds of a global economic slowdown have started to clear and -- more important for Mr. Rudd's Labor Party -- after the next parliamentary election.

The draft Mr. Rudd floated in March would have imposed total carbon permit costs (read: taxes) of 11.5 billion Australian dollars (US$8.5 billion) in the first two years, starting in 2010. This would have increased consumer prices by about 1.1% and shaved 0.1% off annual GDP growth until at least 2050, according to Australia's Treasury. All for negligible green gain, since Australia accounts for only 1.5% of global greenhouse gas emissions. No wonder it's been hard to win support from business groups and individuals who earlier professed enthusiasm for cap-and-trade.

The proposed delay is widely characterized as a "backflip" and has caused Mr. Rudd a lot of embarrassment this week. He may yet push ahead with legislation in some form -- as he certainly promised to do when running in the 2007 election. But it's becoming clear the proposal won't be a shoo-in, despite all the votes Mr. Rudd won when he campaigned on environmentalism.

This is yet another example for politicians elsewhere toying with cap-and-trade. Support for Australia's plan started fading as the costs became clear. The green left hopes no one will notice inconvenient details like money. But voters do.

from the Associated Press, 2009-Apr-28, by Dina Cappiello with Natasha T. Metzler contributing:

US more optimistic about climate deal after talks

WASHINGTON — The top U.S. negotiator on climate change said Tuesday that he is slightly more optimistic about striking a new international agreement to curb global warming after a two-day meeting with the world's largest emitters of greenhouse gases.

Todd Stern, the U.S. special envoy for climate change, told reporters at a briefing Tuesday that he is "a bit more optimistic" that the U.S. will be able to broker a new deal in Copenhagen in December.

But he warned that it is not going to be easy, since many of the potential sticking points for a new global pact still need to be worked out.

"I walk away more optimistic," Stern said at the conclusion of the Major Economies Forum on Energy and Climate. "It does not change the fact that the issues are extremely difficult, that it is not going to be easy to reach agreement, or we wouldn't be doing this."

The Washington meeting is the first of a series of three called for by President Barack Obama. The goal is to help broker a replacement to the 1997 Kyoto Protocol, the international climate treaty that expires in 2012, and to build support for the development of pollution-reducing technologies.

The U.S. never signed onto Kyoto, citing the costs to the economy and the lack of participation by developing countries like India and China.

Those two issues continue to loom over negotiations more than a decade later. But the Obama administration has said it is committed to overcoming them in order to reach a deal.

At the two-day meeting, the administration showed participants it was serious.

Representatives of the 16 major economies present heard presentations from a host of top-level officials, including Secretary of State Hillary Rodham Clinton, Energy Secretary Steven Chu and White House science adviser John Holdren. Together with the United States, the represented countries account for 80 percent of the global emissions of heat-trapping gases.

Late Monday afternoon they attended a reception at the White House with Obama.

"We come out of it more encouraged about the commitment of all the participants, particularly the United States," said Joao Vale de Almeida, the head of the European Union delegation. "The most important change as we started this meeting was of course the position of the United States. This means the U.S. is fully back in the debate and because of that we are back in business in terms of finding a global solution to a global challenge."

But behind the scenes, two key issues still pose challenges: how much rich countries will pledge to reduce climate-changing pollution and how to raise an estimated $100 billion a year to help poor countries adapt to climate change.

The Obama administration has called for a 14 percent to 15 percent reduction in greenhouse gas emissions from 2005 levels by 2020 and legislation before Congress would reduce such emissions by 20 percent by 2020. Developing countries and the European Union are pressing the U.S. to make deeper cuts.

Stern said these were the two numbers on the table for the U.S.

"What I said to the delegates is that you effectively got a United States number there. It is somewhere in that range," Stern said.

But Yvo de Boer, head of the United Nations climate change secretariat, said that even the reductions being talked about by industrialized nations aren't enough to avoid rising sea levels, harsher storms and droughts. That would require a 25 percent to 40 percent reduction in global emissions.

"It wasn't all sweetness," de Boer said. "Those numbers are still very far from what the scientific community tells us" needs to be done.

Germany's environment minister said Tuesday that the Obama administration's approach to tackling climate change was "the difference between day and night" in comparison with the Bush administration. But Sigmar Gabriel said that the Obama administration's goals for limiting carbon emission were not ambitious enough.

He said the U.S. needed to commit to bigger cuts than than the administration or congressional Democrats have indicated they are considering "The ambitions of the United States targets are too low," he said.

The meeting never got around to addressing the financing issue. They ran out of time.

The next meeting is scheduled for May in Paris.

from Investors Business Daily, 2009-May-8, by Robert J. Samuelson:

Demystifying The Great U.S. Tax Dodge

Like it or not, ours is a world of multinational companies. Almost all of America's brand-name firms (Coca-Cola, IBM, Microsoft, Caterpillar) are multinationals, and the process works both ways. In 2006, the U.S. operations of foreign firms employed 5.3 million workers. Fiat's looming takeover of Chrysler reminds us again that much business is transnational.

For most people, the multinational company is a troubling concept. We like to think "our companies" serve the broad national interest rather than just scouring the world for the cheapest labor, the laxest regulations and the lowest taxes. And the tax issue is especially vexing: How should multinationals be taxed on the profits they make outside their home countries?

But listen to President Obama, and the status quo seems a cesspool. Pervasive "loopholes" engineered by "well-connected lobbyists" let U.S. multinationals skirt taxes and outsource jobs to low-tax countries.

So the president proposes plugging loopholes. Some jobs will return to the United States, and U.S. tax coffers will grow by $210 billion over the next decade.

Sounds great — and that's how the story played. "Obama Targets Overseas Tax Dodge," headlined the Washington Post. But the reality is murkier; the president's accusatory rhetoric perpetuates many myths.

Myth: Aided by those overpaid lobbyists, American multinationals are taxed lightly — less so than their foreign counterparts.

Reality: Just the opposite. Most countries don't tax the foreign profits of their multinational firms at all. Take a Swiss multinational with operations in South Korea. It pays a 27.5% Korean corporate tax on its profits and can bring home the rest tax-free.

By contrast, a U.S. firm in Korea pays the Korean tax and, if it returns the profits to the United States, faces the 35% U.S. corporate tax rate. American companies can defer the U.S. tax by keeping the profits abroad, and when repatriated, companies get a credit for foreign taxes paid. In this case, they'd pay the difference between the Korean rate (27.5%) and the U.S. rate (35%).

Myth: When U.S. multinationals invest abroad, they destroy American jobs.

Reality: Not so. Sure, many U.S. firms have shut factories and opened plants elsewhere. But most overseas investments by multinationals serve local markets. Only 10% of their foreign output is exported back to the U.S. When Wal-Mart opens a store in China, it doesn't close one in California.

On balance, all the extra foreign sales create U.S. jobs for management, research and development (almost 90% of American multinationals' R&D occurs in the U.S.), and the export of components. One study estimates that for every 10% increase in U.S. multinationals' overseas payrolls, their American payrolls increase almost 4%.

from the Wall Street Journal, 2009-May-6, p.A14:

Obama's Global Tax Raid

President Obama revealed Monday that he's half a supply-sider. If only someone could explain to him the other half. We have a tax code, the President said, "that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York." That sounds like a great argument for lowering taxes on the guy creating jobs in Buffalo. Alas, that's not what he has in mind.

Set aside that India is a poor example to make Mr. Obama's point, since its corporate tax rate on foreign-owned companies can be as high as 55%. The President's argument is that U.S. tax-deferral rules make it more expensive for American companies to reinvest overseas profits at home than abroad. This, he claims, creates a perverse incentive for companies to "ship jobs overseas" and reduces investment and job creation in the U.S.

He's right, except that his proposals would only compound the problem. His plan would limit the tax deferral on income earned abroad by tightening the rules, limiting allowable deductions and restricting eligibility for foreign-tax credits. This "solution" is antigrowth, job-destroying, protectionist and unlikely to raise the tax revenue Mr. Obama predicts. Other than that . . .

The current tax-deferral system is a clumsy attempt to deal with the fact that most other countries don't tax their companies' overseas profits. A German firm doing business in Ireland, say, pays no German income tax on its Irish profits, but it does pay Ireland's corporate income tax at its 12.5% rate. The U.S. company competing with that German business in Ireland, by contrast, pays Ireland the same 12.5% on its profits -- and it then pays Uncle Sam up to 35%, minus a credit for what it paid the Irish. And because almost everyone else's corporate tax rates are lower than America's (see nearby table), U.S. companies end up paying higher taxes than their international competitors.

America the Uncompetitive combined (central, regional and local governments) corporate tax rate, 2008 Japan 39.54% U.S. 39.25 France 34.43 Germany 30.18 U.K. 28 Korea 27.50 Netherlands 25.50 Czech Republic 21 Ireland 12.50 Source: OECD

Congress long ago created the corporate tax deferral to compensate for this competitive disadvantage. Under deferral, a company doesn't have to pay the U.S. corporate rate until it repatriates its earnings. It can retain them overseas or reinvest them abroad with no penalty. But if it brings them home or pays them as dividends, the tax bill comes due.

The German company faces no such quandary. It pays the Irish tax, and it's free to invest that money in Ireland or Germany or anywhere else. This territorial tax system, embraced by most of the world, eliminates the perverse incentive to hold money abroad that America's deferral system creates. Adopting a territorial system would be the most obvious and simplest way to eliminate the distortion that tax deferral creates. Alternatively, Mr. Obama could lower the U.S. corporate tax rate to a level that is internationally competitive.

Yes, we know: Few major U.S. companies pay 35% of their profits in taxes because of the foreign tax-deferral and other deductions, credits and loopholes. But that's precisely why Mr. Obama should want to take the better path to corporate tax reform by reducing the rate and removing loopholes. America now has the worst of both worlds -- a high statutory rate and a tax code so riddled with complexity that it is both expensive to administer and inefficient at collecting revenue. And yet Mr. Obama's proposal to limit deferral only layers on the complexity.

In promoting its new global tax raid, the White House fingered the Netherlands, which it lumped with Ireland and Bermuda as "small, low-tax countries" that supposedly account for an outsize share of reported foreign profits of U.S. firms. The Dutch corporate tax rate is 25.5% -- which isn't even all that low by current European standards. And the U.S. is the largest foreign investor in that "small, low-tax country," according to the Dutch Embassy. Perhaps reducing American investment there and slamming the Netherlands as a tax haven is Mr. Obama's way of reaching out to friends and allies.

But the Netherlands won't be the only country hurt. The explicit goal of this plan is to reduce the incentive for U.S. companies to invest abroad, which Mr. Obama derisively calls "shipping jobs overseas." Foreign companies may relish the loss of U.S. corporate competitiveness that his proposal will bring in the short term. But in the long term, reducing U.S. investment globally will hurt everyone. And that investment is a two-way street -- the Netherlands is also the fourth-largest foreign investor in the U.S.

Some of Mr. Obama's advisers understand all this, but then their real goal isn't tax reform or U.S. competitiveness. It's a revenue grab, one made easier by the fact that overseas tax "avoidance" is easily demagogued. To that political end, Mr. Obama conflates tax deferral with the offshoring of jobs -- hence the sly reference to Bangalore, India. With trillions of dollars of new spending, the White House and Treasury are desperate for new tax sources to pay for it all.

But even as a revenue raiser, this is likely to fail. Fewer companies will keep their headquarters in the U.S., especially small or mid-sized firms that can slip away without becoming a political target. Those companies that can't flee will sooner or later demand relief from Congress, which will be happy to create even more loopholes.

If Mr. Obama's proposal has a silver lining, it is that he has embraced the principle that tax rates matter to investment decisions. If his new and short-sighted proposal becomes law, he and all Americans will discover just how much.

from the Wall Street Journal, 2009-May-4, p.A1, by John D. McKinnon and Jesse Drucker:

Firms Face New Tax Curbs
Obama Plan Aims to Limit Use of Offshore Havens by Multinationals and the Wealthy

WASHINGTON -- The Obama administration will roll out details Monday of what aides are calling a far-reaching crackdown on offshore tax avoidance, targeting many U.S.-based multinational corporations and wealthy individuals.

President Barack Obama will flesh out a proposal included in his February budget blueprint seeking to curb the practice of parking foreign earnings in offshore tax havens indefinitely. By some estimates, $700 billion or more in U.S. corporate earnings have accumulated in overseas accounts in recent years.

The plan to be announced Monday will go further. It aims to change the legal treatment of offshore subsidiaries and structures that companies have used to avoid not only U.S. taxes, but taxes in other developed countries as well.

In addition, the administration will strive to tighten rules that have encouraged thousands of Americans to open offshore bank accounts in an effort to duck U.S. taxes. The plan would increase information reporting and tax withholding as well as penalties, and make it harder for foreign account-holders to win cases in court. The administration promised new enforcement tools to crack down on tax-haven abuse.

"What we really have is a system that is in many ways broken," a senior administration official said Sunday, one that "allows people to play games...to almost completely avoid paying taxes on active foreign earnings."

The sweep of the administration's plan took some tax experts by surprise, and foreshadows potential fights with big businesses later this year over some of their most cherished breaks, particularly as Congress looks for revenue to pay for new initiatives.

"There absolutely will be" opposition from business, particularly if the administration doesn't allow a suitable adjustment period, said Phil West, a lawyer with Steptoe & Johnson LLP, who was international tax counsel for the Treasury Department under President Bill Clinton.

The president's announcement comes as he prepares to release a more detailed budget blueprint later this week. And the high-level attacks on big business follow a series of White House broadsides on corporate practices. Mr. Obama riled Wall Street last week by crafting a bankruptcy deal for Chrysler LLC that favored the United Auto Workers union over a series of lenders.

White House officials said the latest proposals simply follow through on Mr. Obama's frequent criticism that current U.S. tax rules encourage multinationals to move jobs overseas. The new tax plan also aims to increase incentives for job creation in the U.S., they said, noting that some of the money raised would be used to cover the cost of extending a soon-to-expire federal tax credit for research costs.

Many of Mr. Obama's proposals will require congressional approval. And while Democrats control both houses of Congress, many members of his own party have expressed reluctance about raising taxes, so prospects for the proposals are uncertain, even though none would take effect until 2011.

A senior Republican aide termed the proposals a "revenue grab," predicting they could end up driving more corporate operations overseas. Some or all of the changes could become fodder for broader tax reform next year.

"If rules are changed on tax deferral and we are taxed in the U.S. on non-U.S. profit, this significant additional U.S. tax cost would adversely impact our ability to invest and grow our business in the U.S....and to compete against our foreign competitors who are not subject to this U.S. tax," said John Earnhardt, a Cisco Systems Inc. spokesman.

The president's tax announcement, to be made with Treasury Secretary Timothy Geithner, is part of an administration plan to raise as much as $210 billion in extra tax revenue over the next decade, in an effort to trim budget deficits and pay for job-creation incentives and other programs.

The plan takes aim at a range of financial practices that have combined to erode the U.S. tax base in recent decades. As money has become more readily transferable -- and aggressive tax planning more widespread -- it has become easier for companies and individuals to take advantage of low taxes as well as lack of transparency in many offshore havens.

In one big change, the administration is aiming to curb a practice commonly known as "deferral," which U.S. multinationals use to shave their tax bills on their overseas operations.

Under current law, U.S. companies can defer taxes indefinitely on the many of the profits they say they have earned overseas until they "repatriate" that money back to the U.S. The administration seeks to sharply limit the tax deductions that companies taking advantage of deferral can take.

Still, the proposal is far less dramatic than what many companies had feared: a complete repeal of the deferral regime.

The proposal to be announced Monday also would clamp down on some other overseas tax-avoidance techniques that are widely used by U.S. multinationals.

The Obama administration wants to overhaul what it describes as a much-abused set of regulations known as the "check-the-box" rules. These give companies great latitude in deciding where exactly their subsidiaries should be taxed. Those rules have encouraged companies to take further advantage of low-tax haven countries with their offshore subsidiaries.

The administration also wants to toughen rules governing the tax credits that the U.S. grants companies to offset taxes they pay to foreign governments. That system has become the subject of elaborate gaming, U.S. tax officials say.

Overall, the deferral proposal would raise about $60.1 billion through 2019, according to the administration's estimates. Unlike a similar proposal in the House, it wouldn't affect research deductions, a likely victory for some industries such as pharmaceuticals. The reform of check-the-box rules would raise about $86.5 billion through the same period. The changes in foreign-tax-credit rules would raise about $43 billion. The changes to crack down on individual bank accounts would raise $9 billion.

The current U.S. rules for corporations carry enormous benefits for companies. Unlike most deferred taxes, those stemming from foreign earnings don't cut into a company's bottom line as long as they are considered "permanently reinvested" overseas.

The result can have a huge impact on a company's bottom line. The pharmaceutical and technology industries are particular beneficiaries.

from the Wall Street Journal, 2009-May-6, p.A13, by Elaine L. Chao:

Obama Tries to Stop Union Disclosure
No more sunshine on how worker dues are spent.

Fifty years ago, Congress passed the landmark Landrum-Griffin Act to protect rank-and-file union members from malfeasance by union leaders. Senate hearings had uncovered serious corruption and other unethical practices inside the labor movement, and a bipartisan coalition emerged to shine the light of disclosure on union practices.

Nevertheless, Democrats in Congress and in the executive branch have often attempted to undercut that law's financial reporting and disclosure requirements. Prior to reforms adopted in the George W. Bush administration, for example, one union could get away with reporting a $62 million expenditure as nothing more than "contributions, gifts, and grants to local affiliates" -- with no further explanation. Unfortunately, the Obama administration is already showing that it wants to return to this nontransparent standard of financial disclosure.

Within days of the inauguration, the new leadership at the Labor Department moved to delay implementing a regulation finalized in January that would have shed much needed light on how union managers compensate themselves with union dues. The regulation required disclosure of receipts for expenditures and for the purchase and sale of union assets -- disclosures that would help deter embezzlement. The administration has since moved even more aggressively, initiating proceedings to rescind this rule and others promulgated when I was secretary of labor.

The Labor Department's Office of Labor Management Standards (OLMS), created to enforce the 1959 law, also recently announced that it would not enforce compliance with the conflict-of-interest disclosure form (the "LM-30" form) that was revised in 2007. Labor's Web site states that "it would not be a good use of resources."

Instead, union managers will be able to file decades-old, less enlightening disclosure forms while the department considers whether to "revise" (i.e., gut) the current disclosure requirements. But what could be a better use of department resources than enforcing the laws under its jurisdiction?

From 2001-2008, the Labor Department secured more than 1,000 union fraud-related indictments and 929 convictions. This enforcement record was accomplished even though the enforcement office accounts for less than 0.1% of the department's budget. OLMS is the lone federal agency with the job of protecting worker interests in how their unions are managed. The last Congress increased President Bush's budget request for the Labor Department by $956 million even as it targeted OLMS for a budget cut.

This repeats the pattern we saw during the last Democratic administration. Under President Bill Clinton, staffing decreased more than 40%. The number of compliance audits dropped no less than 75% from fiscal year 1992 to fiscal year 2000. I would expect the current Congress to once again slash the OLMS budget, with the administration's blessing.

Union membership peaked in the 1950s, when more than one-third of American workers belonged to a union. Today, just 7.6% of American private-sector workers belong to a union. A Rasmussen Research survey conducted in March found that 81% of nonunion members do not want to belong to a union.

The response by union leaders and their Democratic allies to declining union membership is the Employee Free Choice Act. To increase unionization, it would deprive workers of private balloting in organizing elections, and it would substitute a signature-card process that would expose workers to coercion. The bill would also deny workers the right to ratify, or not ratify, labor contracts drafted by government arbitrators when negotiations in newly unionized workplaces exceed the bill's rigid timetable.

The Obama administration likes to say that it is "pro-worker." But something is amiss when its labor priorities are forcing unionization and labor contracts on American workplaces, and denying union members information on how their dues money is spent.

Ms. Chao was secretary of labor from 2001 to 2009 and is now a fellow at the Heritage Foundation.

from Reuters, 2009-May-5, by Kevin Krolicki with editing by Carol Bishopric and Bernard Orr:

UPDATE 2-GM details plans to wipe out current shareholders

*GM to issue up to 60 billion shares to swap for debt

*Current stockholders would get 1 pct of new company

*Plan would proceed with approval from U.S. Treasury (Adds detail from SEC filing, quote from GM CEO, byline)

DETROIT - General Motors Corp on Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union.

The unusual plan, which was detailed in a filing with U.S. securities regulators, would only need the approval of the U.S. Treasury to proceed since the U.S. government would be the majority shareholder of a new GM, the company said.

The flood of new stock issuance that could be unleashed has been widely expected by analysts who have long warned that GM's shares could be worthless whether the company restructures out of court or in bankruptcy.

The debt-for-equity exchanges detailed in the filing with the Securities and Exchange Commission would leave GM's stock investors with just 1 percent of the equity in a restructured automaker, ending a long run when the Dow component was seen as a bellwether for the strength of the broader U.S. economy.

GM shares closed on Tuesday at $1.85 on the New York Stock Exchange. The stock would be worth just over 1 cent if the first phase of GM's restructuring moves forward as described.

Once GM has issued new shares to pay off its debt to the U.S. government, bondholders and its major union, it said it would then undertake a 1-for-100 reverse stock split.

Such a move would take the nominal value of the stock back to near where it had been before the flood of new shares. But in the process, GM's existing shareholders would see their stake in the 100-year-old automaker all but wiped out.

The automaker said it expected to draw another $2.6 billion from the U.S. Treasury before a June 1 deadline set by the Obama administration for it to reach agreements with all of its key stakeholders.

That borrowing would take GM's debt to the U.S. government to $18 billion, and the automaker said it expected to have to borrow a total of nearly $27 billion.

GM has asked its three major creditor groups to write off at least $43 billion in debt in exchange for ownership of a restructured company.

By contrast, the current market value of GM's current 610 million shares is about $1.7 billion.

The stock has lost about 43 percent of its value since the start of the year.

GM bondholders, who are owed $27 billion, have also been offered new stock in exchange for writing off debt in a bond exchange the automaker launched last week.

The automaker is targeting a debt-reduction of at least $24 billion of its bond debt under the plan and has warned that it could be forced into bankruptcy if that cannot be achieved.

Representatives of GM bondholders, who would be given a 10-percent stake in the new company under the automaker's restructuring, have said they are being offered an unfairly low payout. They have asked instead for a majority stake in the restructured company.

But GM has asked the U.S. autos task force to accept a majority stake in a new GM in exchange for at least half of the government debt that the automaker has run up over the past four months.

Chief Executive Fritz Henderson said on Tuesday that the U.S. Treasury, which oversees the task force, was continuing to evaluate the company's restructuring plan and its progress.

"The Treasury will continue their evaluation through the month, which is fine. But we're not waiting, we're implementing. The bond exchange needed to be launched when we launched it," Henderson said. "Now we'll have to see."

In its filing, GM said it was in "ongoing discussions" with the U.S. Treasury on its proposal to swap government debt for equity in the largest U.S. automaker.

Finally, GM is negotiating with the UAW and is seeking to get the union to take GM stock in exchange for $10 billion owed to a trust fund for retiree healthcare.

Those talks were set to resume this week in Detroit, Henderson said.

GM said in its SEC filing that its three-pronged effort to slash debt could take its total authorized share issuance -- including new and existing shares -- to 62 billion shares.

from the Wall Street Journal, 2009-Apr-30, p.A14:

Gettelfinger Motors
The mauling of GM's bondholders reveals Treasury's political hand.

President Obama insisted at his press conference last night that he doesn't want to nationalize the auto industry (or the banks, or the mortgage market, or . . .). But if that's true, why has he proposed a restructuring plan for General Motors that leaves the government with a majority stake in the car maker?

The feds have decided they should own a neat 50% of GM, yet that is not the natural outcome of the $16.2 billion that the Treasury has so far lent to the company. Nor is the 40% ownership of GM that the plan awards to the United Auto Workers a natural result of the company's obligations to the union.

Yet Secretary Timothy Geithner and his auto task force, led by Steven Rattner, have somehow decided that Treasury and UAW chief Ron Gettelfinger will get to own a combined 90% of GM. If there's a reason other than the political symbiosis among the Obama Administration, Michigan Democrats and the auto union, it's hard to discern. From now on let's call it Gettelfinger Motors, or perhaps simply the Obama Motor Company, though in the latter they'd have to change the nameplates.

The biggest losers here are GM's bondholders. According the Treasury-GM debt-for-equity swap announced Monday, GM has $27.2 billion in unsecured bonds owned by the public. These are owned by mutual funds, pension funds, hedge funds and retail investors who bought them directly through their brokers. Under Monday's offer, they would exchange their $27.2 billion in bonds for 10% of the stock of the restructured GM. This could amount to less than five cents on the dollar.

The Treasury, which is owed $16.2 billion, would receive 50% of the stock and $8.1 billion in debt -- as much as 87 cents on the dollar. The union's retiree health-care benefit trust would receive half of the $20 billion it is owed in stock, giving it 40% ownership of GM, plus another $10 billion in cash over time. That's worth about 76 cents on the dollar, according to some estimates.

In a genuine Chapter 11 bankruptcy, these three groups of creditors would all be similarly situated -- because all three are, for the most part, unsecured creditors of GM. And yet according to the formula presented Monday, those with the largest claim -- the bondholders -- get the smallest piece of the restructured company by a huge margin.

This seems to be by political design. GM CEO Fritz Henderson says Treasury insisted that bondholders receive, at most, 10% of the company. "We went to the maximum and offered 10%," Mr. Henderson said. Mr. Rattner's office did not return our calls, so we can't say why Mr. Rattner wanted private risk capital cut out of the ownership of the new GM, but no one has contradicted Mr. Henderson.

Some Treasury officials have told the media that 50% government ownership is important to ensure that taxpayers get repaid for the $16.2 billion in Treasury loans. But this is false logic. Taxpayer-shareholders are likely to be far better off with a smaller stake in a truly private company that is better insulated from political meddling. Private owners are more likely than the Treasury or the unions to try to run the company for profit, and so increase its equity value over time. Treasury says it would be a hands-off owner, but that hardly seems plausible and in any case that would merely leave the UAW in control. At the next labor contract bargaining session, the union would sit on both sides of the table.

GM, the government and the bondholders all insist that a bankruptcy filing would be a disaster. GM's SEC filing on the debt-equity swap also warns darkly that if the requisite 90% of bondholders don't agree to these terms, they may recover little or nothing in bankruptcy court. But given the choice between a 10% stake in Gettelfinger Motors and the independent mercies of a bankruptcy judge, bondholders could be forgiven for taking their chances in court.

Certainly the bondholders deserve to take a haircut like everybody else. But squeezing them in such a blatant fashion has other consequences. Who would be crazy enough to lend GM money in the future? The Treasury also says it wants banks that do poorly in its "stress tests" to try to raise private capital before putting in more public money. The mauling of GM creditors tells investors not to invest in TARP banks because everything this Treasury touches turns to politics.

Monday's offer is so devoid of economic logic or fairness that it confirms the fears of those who said the original bailout would lead to a nationalized GM run for political ends. This fiasco will in part go down on George W. Bush's copybook, since he first decided GM was too big to fail.

But rather than use his early popularity to force hard decisions through the bankruptcy code, President Obama has decided in essence to have the feds run GM and Chrysler. This inevitably means running them for the benefit of the UAW that is so closely tied to the Democratic Party. Next up will be tax changes and regulations intended to coax, or coerce, Americans to buy Gettelfinger Motors cars. This tale of taxpayer woe is only beginning.

from the Wall Street Journal, 2009-May-6, by Holman W. Jenkins, Jr.:

Return of Le Car

"When you buy a car, I hope it will be a Democratic car."

Oops. We have misquoted the president. He said last week he hoped you would buy an "American car" -- though apparently not one built in a red state in a plant owned by Japanese or German investors. He meant a car built by a company headquartered in Detroit, even if the car itself is assembled in Mexico or Canada. How confusing.

Hundreds of shoppers certainly understood him to mean a Chrysler car. They rushed into dealerships last weekend. Never mind that Chrysler isn't technically making cars in the U.S. at the moment -- it shut down its factories -- and when it reopens it will be on a path to ownership by a company based in Turin, Italy.

A year ago, Fiat Chief Sergio Marchionne's big play in the U.S. was to begin reintroducing the Alfa Romeo brand. He fretted about where to get the $100 million to fund the marketing effort. Now, with a global auto depression descending, he gets $6 billion of American and Canadian taxpayer money to lean on.

Don't underestimate the appeal of that cushion for Fiat.

As for Chrysler -- well, you could call this merger made in Washington George Bush's baby as much as Barack Obama's.

Chrysler would be in deep yogurt in any case amid the market collapse, but its other problem is a decent franchise in Jeeps, muscle cars, minivans and pickups -- and nothing to meet Congress's stiff new "corporate average" fuel economy rules, and nobody to supply the billions to develop such vehicles and (inevitably) bribe customers to drive them off the lots.

Daimler, its previous parent, certainly had no desire to fund such profitless extravagance. The Germans took a lot of guff but they're the ones laughing now. They sold their majority stake in Chrysler just months after Democrats took over Congress, and just weeks after President Bush began blathering about "oil addiction" and echoing Democratic demands for stringent new fuel-mileage rules (after opposing them for years).

It's no exaggeration to say the rest of the story is told in Chrysler's bankruptcy filing. In search of a partner to underwrite development of fuel-sipping hybrids and electric cars that would be almost certain to lose money in the U.S. marketplace, Chrysler's Tom LaSorda spent two years seeking alliances with Nissan, GM, Volkswagen, Tata, Magna, GAZ, Hyundai, Honda, Toyota, Beijing Auto and others -- efforts that were "uniformly without success." Fiat, he said in an affidavit, was "Chrysler's last best hope."

Not since Renault teamed up with AMC to bring you Le Car has an odder pairing been seen -- or a less promising one.

Credulous media accounts insist the only challenge now is whether Chrysler can hang on for two years until Fiat begins churning out U.S. versions of its popular European models in U.S. factories. Goodness.

Unless gasoline prices go to $5 a gallon, Mr. Marchionne certainly is not so foolish to believe making and selling teensy eurocars in the U.S. is anybody's route to salvation.

Even in Europe, he has noted, a move to bigger, more powerful cars is underway. Motorists are getting fatter and older -- and unwilling to contort themselves to get in and out of a car.

He also understands that trying to beat Toyota at its own game is a nonstarter. Toyota sets a standard of quality and technology that all must meet -- that's the price of admission. But "what we have that Toyota does not have -- and I say this with all modesty -- is the great historical heritage of the brands."

Look at the Ford Mustang, VW Beetle, Dodge Charger, Chevy Camaro, BMW Mini -- for all the talk of the Toyota way, the real path to success for many lately has been making and selling evocative cars that mean something to consumers. Fiat's own Audrey Hepburnesque "Cinquecento" has been a hit for exactly this reason -- but in southern Europe not northern Europe, which ought to caution against any hope that the pixie car will sell particularly well in the U.S.

About one thing Mr. Marchionne has been unfailingly clear: He sees an auto Armageddon coming and believes survivors must produce at least 5.5 million units a year (Fiat produced just 2.2 million last year).

He's already turned his attention to Opel, GM's European arm, which is on the market. Notice, though, that he's committed no money to Chrysler, only a promise of vehicle technology. As a New York Times story recently trailed off, ". . . at some point, some [Obama auto] task force members acknowledge, the drive for profitability is likely to collide with Mr. Obama's fuel-efficiency and low-emission goals."

Yup. Mr. Marchionne has kept his skin out of the game for a reason. Don't expect him to reach for Fiat's modest checkbook until Team Obama can explain exactly how Chrysler is supposed to make money building the "green cars" Mr. Obama wants it to build. But you already know the answer: You, the taxpayer, have not finished chipping in to keep Fiat-Chrysler alive.

from the Wall Street Journal, 2009-Apr-29, by Holman W. Jenkins, Jr.:

The Truth About Cars and Trucks

Call it a bailout or restructuring. What you're seeing is not a new beginning for the homegrown auto sector. It's the culmination of a decades-old, dishonestly peddled auto policy.

The two parties that turned the Big Three into a perennially limping freak of unwritten industrial policy now will take formal ownership of their handiwork. The United Auto Workers (UAW) would own 39% of GM. The federal government would own 50%. The creditors will be shafted with just 10%. (In the Chrysler plan being discussed, labor would own 55%, making it effectively a subsidiary of the UAW.)

The day after any such settlement is finalized, the clock will start ticking down to the next collective-bargaining session between a monopoly UAW and what remains of the Big Three -- though now the UAW would be sitting on both sides of the table.

Nearly 25 years ago, a Los Angeles Times reporter innocently and accurately invoked the "M" word in describing the domestic auto sector, noting that the arrival of Japanese auto plants was "threatening the UAW's traditional monopoly on labor in the domestic auto industry."

The erosion of the Big Three's market share since then has really been the erosion of the market for monopoly labor-produced cars. The UAW standard tactic, "pattern bargaining," which it pursues without embarrassment, would have gotten Bill Gates thrown in jail under the antitrust laws.

When the L.A. Times wrote, the labor cost differential versus a Japanese plant was about $2,000 per car. Twenty years later, the cost difference was about $2,000 per car. Today's lament is, "The bankers have benefited from a bailout, so why shouldn't auto workers?" But they have, they have -- for decades. For the business model described above could not possibly have survived otherwise.

Chrysler was bailed out directly with government loan guarantees; the Big Three all benefited from Reagan era "voluntary" quotas on Japanese imports to prop up domestic car prices. But these were temporary fixes. For more than 40 years, a 25% tariff has kept out foreign-built pickup trucks even as a studied loophole was created in fuel-economy regulations to let the Big Three develop a lucrative, protected niche in the "passenger truck" business.

This became the long-running unwritten deal. This was Washington's real auto policy.

For three decades, the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress's fuel economy rules to build in high-cost UAW factories. In return, Washington compensated them with the hothouse, politically protected opportunity to profit from pickups and SUVs.

Doesn't sound much like what you hear incessantly from your Congressman, about how Detroit's problems are all due to management "incompetence" in deciding to build "gas guzzling" SUVs, does it?

But then uncertain at this point is whether any legislator (other than John Dingell) remembers or grasps anymore Congress's own role. Yet the muddled, covert bailout continues: Washington's latest fuel-economy rules actually reward manufacturers for increasing the size and weight of some vehicles. The truck tariff remains in place. The fuel-mileage rules continue to protect the UAW monopoly by discouraging the Big Three from shipping small-car production offshore.

Lately some have doted, with wonderment and admiration, on the Obama administration's apparent willingness to drive a hard bargain with the UAW as it tries to impose a stage-managed replica of bankruptcy on GM and Chrysler. Please.

In a real bankruptcy, which is the natural fate of companies unable to meet their obligations, Chrysler and GM would be run (or liquidated) for the benefit of their creditors, not their workers. But, here, "pattern bargaining" will remain the law of the Detroit jungle. The UAW will continue to use its unnaturally augmented clout to extract uncompetitive pay and benefits (it can do no other given its internal incentives). As it has for 40 years, Washington will pitch in with one improvisation after another, disguised as energy policy, trade policy, health-care policy or environmental policy, to stop the rivets from popping off. Politics, especially Democratic electoral politics, will play a more dominant role than ever.

Look closely and the hidden subsidies to keep the dismal beast alive have already started flowing -- tax credits for UAW retirees to make up for reduced health-care benefits, loans to help Detroit "invest in green cars." And plenty more will be needed to sustain Obama Motors on life support, at least through the 2012 election.

The Obama strategy does nothing to change the basic dynamics of the homegrown auto sector -- a labor monopoly combined with endless finagles in Washington to help the Big Three survive competition from Japanese, German and Korean auto makers. But maybe the shock of seeing GM nationalized will at least cause some in politics and the press finally to think about how we got here.

from the Wall Street Journal, 2009-Apr-22, by Holman W. Jenkins, Jr.:

GM Is Becoming a Royal Debacle

It's good to be the king -- until you start tripping over your own robe.

So King Barack the Mild is finding as he tries to dictate the terms of what amounts to an out-of-court bankruptcy for Chrysler and GM. He wants Chrysler's secured lenders to give up their right to nearly full recovery in a bankruptcy in return for 15 cents on the dollar. They'd be crazy to do so, of course, except that these banks also happen to be beholden to the administration for TARP money.

Wasn't TARP supposed to be about restoring a healthy banking system? Isn't that a tad inconsistent with banks just voluntarily relinquishing valuable claims on borrowers? Don't ask.

Kingly prerogative also conflicts with kingly prerogative in the case of GM's unsecured creditors, who are the sticking point in agreeing to a turnaround plan by the drop-dead date of June 1. His retainer, Steven Rattner, has delivered word that the king's pleasure is that these unsecured creditors give up 100% of their claims in return for GM stock.

It may also be the king's pleasure, he advised, to convert at some point the government's own $13 billion in bailout loans into GM stock.

There's just one problem: Why on earth would GM's creditors -- who include not just bondholders but the UAW's health-care trust -- want any part of this deal?

They've already seen that the rights and privileges of shareholders are not worth diddly when the king is throwing his prerogatives around. He dispensed with the services of GM chief Rick Wagoner, though the king owned not a single share of GM stock at the time. His minions communicated the king's pleasure that GM consider discontinuing its GMC brand, maker of pickups and SUVs that offendeth the royal eye -- though these vehicles earn GM's fattest profit margins.

His minions haven't asked GM to give up the Chevy Volt, even after determining it will be a profitless black hole, because of the king's fondness for green.

No wonder the king's mediation of 40 years of stalemated labor and business issues in the auto sector isn't going so well. There's a reason royal discretion has long been outmoded as a way to run an economy: Things just work better if a realm's subjects are left to resolve their own disputes and interests through the impersonal mechanism of the markets and the law.

His current bailout strategy amounts to asking thousands of bondholders and GM retirees to buy stock in a GM that the king's own policies mean they'd be loony to buy. Add the fact that passenger cars and trucks in the U.S. are a trivial source of greenhouse gases in any case -- they could all become carbonless and it would be irrelevant in the face of China's and India's coal use. King Barack has only been on his throne for three months. His policies already have devolved into savage incoherence.

But let's face it, the king is also somewhat lacking in the lion-heartedness department.

He's on record saying that the only sensible way to reduce fossil-fuel dependence is to put a price on it, as with cap and trade. Then why not have the courage of his convictions and do away with the proven ineffectualness and perversity of trying to regulate automotive fuel mileage directly?

He could release GM, Chrysler and Ford to make those cars, and only those cars, consumers would reward with profits (including fuel-efficient cars they might suddenly find desirable if Mr. Obama moves ahead with plans to tax carbon emissions).

He wouldn't be foolishly trying to rewrite GM's labor contracts and splitting negotiating hairs with its lenders. GM -- along with Chrysler and Ford -- might not avoid a trip through the bankruptcy courts. But either way, they'd be better able to meet their obligations to creditors, including UAW retirees, if allowed to focus on making cars the public actually wants to buy.

King Barack could take a leaf from St. Jimmy the Simple, who faced a collapse of the railroad industry. He signed the Staggers deregulation law, returning power to the industry itself to decide what services to provide and which customers to chase. What had previously been an industrial basket case, halfway nationalized already, fixed itself almost overnight.

He might consult with the Sage of Omaha, who has become a fan of the rail business. What would make Sir Warren similarly enthused about investing in GM? The answer, we're guessing, is not more cars like the Chevy Volt. The banks get all the attention, but they have the power to earn their way out of trouble. Not GM, the way things are going. St. Warren could do the king a real service by warning him off a path with Detroit that could end up blighting all the years of his reign.

from Bloomberg, 2009-Apr-28, by John Lippert and Mike Ramsey:

UAW Said to Get 55% Chrysler Ownership, Board Seats (Update1)

Chicago -- The United Auto Workers union's retiree health-care fund will own 55 percent of Chrysler LLC in exchange for cutting in half the automaker's $10.6 billion cash obligation to the trust, people familiar with the matter said.

Under the terms of the contract, the trust would get representation on the company's board of directors, said two people briefed on the deal, who asked not to be named because the matter is private.

The tentative agreement was approved unanimously by UAW leaders yesterday and will be sent to union locals for ratification, one of the people said. Chrysler, operating with $4 billion in U.S. loans, faces an April 30 deadline to restructure its costs or risk losing government support.

“With employees effectively sharing the risks, this could play to the advantage of the ailing company,” said Howard Wheeldon, a senior strategist at BGC Partners LP in London. The UAW role, if confirmed, may be the only “feasible way of moving forward,” he added.

The U.S. Treasury, which still is negotiating on Chrysler's behalf with the company's secured lenders, has little room to give the banks more equity. Fiat SpA would get 20 percent of the company to start, with the ability to increase ownership to 35 percent by hitting performance goals. The Treasury would keep 10 percent.

Shawn Morgan, a spokeswoman for Auburn Hills, Michigan- based Chrysler, declined to comment on the tentative agreement “as it still needs to be ratified,” she said in an e-mail.

`Weak' Chrysler Products

The Fiat connection may not be the best approach for saving Chrysler, though employee ownership through the union may help, BGC's Wheeldon said.

“The weakness remains Chrysler's product base and how quickly this can be adapted with or without Fiat's `help,'” the analyst said.

Instead of contributing $8.8 billion to a retiree health- care trust, Chrysler will give the union trust shares of the company and a promissory note for $4.59 billion that will be paid in installments with 9 percent interest until 2023, one of the people said. This reduces the up-front cash Chrysler would have had to pay under its 2007 contract agreement with the Detroit-based union.

The union's equity in Chrysler is valued at $4.2 billion. If it can sell the shares for more, the Treasury would get the difference, one of the people said.

Workers also agreed to changes in work classifications, including the number of types of skilled trades. The contract also has a provision that all new hires for the company in the factories will make $14 to $16 an hour, up to 25 percent of the total Chrysler-UAW workforce. This increased from 20 percent in an earlier contract.

Separately yesterday, General Motors Corp. said it will be at least half owned by the U.S. government under a plan to slash its debt and cut dealer ranks nearly in half.

from Reuters, 2009-Apr-30, by Nick Carey with additional reporting by David Bailey and editing by Martin Howell and Richard Chang:

Chrysler reaches new low after a very rough ride

DETROIT - Once an icon of American automotive might, Chrysler has reached a new low in its rocky eight-decade history by filing for bankruptcy and cutting its business to a shadow of its former size.

"Chrysler has flirted with bankruptcy on and off since 1954," said automotive historian Bob Elton. "It's been a wild ride between very prosperous periods and serious disasters."

"They have finally qualified as a real failure," he added.

Weighed down by a cost structure that made it uncompetitive against Asian rivals, two years of crumbling auto sales and the credit crisis, Chrysler filed for Chapter 11 bankruptcy protection on Thursday and announced an alliance with Italian automaker Fiat SpA after debt restructuring talks broke down.

That alliance raises a key question: can Chrysler rise Phoenix-like from the ashes when it emerges on the other side of bankruptcy and resurrect a brand once synonymous with American craftsmanship? Or is it too late?

Few industry experts seem to rate the company's chances of longer-term survival highly.

"Chrysler is a company that has been failing for the last 35 years," said University of Michigan Professor Gerald Meyers, a former chairman of American Motors Corp which was acquired by Chrysler in 1987. "There is no economic justification for the existence of the Chrysler Corporation."

Chrysler saw its U.S. market share shrink to 11 percent in 2008 from 13.3 percent in 2002, according to industry tracking firm Edmunds.com. Since February 2007 the firm has announced 22,000 factory job cuts. It now has around 26,800 unionized workers.

The marriage with Fiat also raises the ghost of the Italian automaker's own poor track record in the United States and what that portends for its chances of helping Chrysler to win over American consumers.

CHECKERED HISTORY

Walter P. Chrysler, a onetime vice president of General Motors Corp, formed Chrysler Corp in 1925 out of an amalgamation of other automakers whose origins stretched back to the beginning of the 20th century.

Chrysler quickly became a major power on the U.S. automotive scene, purchasing car and truck maker Dodge Brothers in 1928. It was after that acquisition that the term "The Big Three," was first coined in an editorial in The Automotive Daily News because GM, Ford Motor Co and Chrysler controlled 75 percent of U.S. auto sales between them.

Chrysler survived the Great Depression with well-made, low-cost cars. Its Plymouth, DeSoto and Dodge brands became household names symbolizing American engineering prowess.

"People forget that in the 1920s and 1930s Chrysler was regarded as an engineering powerhouse," said automotive historian Bill Vance.

Like the other automakers, Chrysler turned to military production during World War Two -- Detroit was dubbed the "Arsenal of Democracy" -- cementing its iconic status. Chrysler's Jeep was originally a military vehicle.

But from the late 1940s to the present day, Chrysler has swung between boom and bust.

Historian Elton counts seven near collapses for the company since 1954, punctuated by soaring successes including Chrysler's turnaround under Lee Iacocca in the 1980s -- making Iacocca one of America's first celebrity executives, who was even touted at one stage as a potential presidential candidate.

"Chrysler has always tried anything and everything at once," Elton said. "They shoot for the stars. When they get it right they hit the big time. When they miss, it's ugly."

But an unsuccessful union with Daimler AG -- which bought Chrysler in 1998 and lost billions on the deal -- ended with a sale to private equity group Cerberus Capital Management LP CBS.UL in 2007, which led to the latest and biggest failure.

FIX IT AGAIN, SERGIO

U.S. President Barack Obama summed up the irony of Chrysler's position on Thursday when he said the automaker has been a "pillar of our industrial economy, but, frankly, a pillar that's been weakened by papering over tough problems and avoiding hard choices."

The marriage with Fiat is intended to revive Chrysler's fortunes, bringing the Italian car maker's small-car expertise to boost the American company's truck-heavy lineup.

Fiat is due to eventually own 35 percent of Chrysler under the restructuring plan.

Edmunds.com CEO Jeremy Anwyl said an alliance with Fiat could potentially be more fruitful than Chrysler's clash of cultures with Daimler -- and could be successful like the alliance between Renault and Nissan has been under CEO Carlos Ghosn.

"This is a very different situation," Anwyl said. "It's clear from the get-go that Fiat is in charge and that this will be a much leaner, more efficient company."

But most observers say Fiat's arrival comes too late to save Chrysler after years of lackluster models that haven't appealed enough to the American consumer.

"Fiat can keep a piece of it alive longer, and then if Fiat is very successful maybe they can get some more traction," Meyers said. "But Chrysler as we know it is a dead duck."

Others refer to Fiat's awful track record in the United States in the 1970s and 1980s, which led to an ignominious retreat from the market. Fiat's cars became the butt of jokes, including that Fiat stood for "Fix It Again Tony."

Whether its cars are good or bad, that is the rap that Fiat must overcome, historian Vance said.

"It's hard to win back customers when you've lost them. It takes years," he said. "Still, I'd like them to do well."

"It would be tragic to see a once-respected icon like Chrysler go down," he added.

from Dave Cribbin's blog, 2009-Apr-29, by Dave Cribbin:

White House Gives the Go Ahead to Waterboard Bondholders

If water -boarding of terrorists is torture and as a result criminal , why is it that the financial equivalent of water-boarding is now routinely practiced not by the CIA on terrorists, but by the White House, Treasury and The Fed on bondholders, investors and CEO's.

Water-boarding was part of the enhanced interrogation techniques the CIA used to extract information from enemies of the United States. Enhanced interrogation techniques are performed outside of the normal interrogation process that is used on enemy combatants. When the government chose to restructure the failing automakers outside of the normal process (a bankruptcy proceeding is the normal process when you are insolvent) they did so for a reason, and yesterday that reason became crystal clear.

Keeping the Automakers out of bankruptcy, and thereby removing the necessity that the restructuring move forward based on "The Rule of Law", was paramount if the Unions were to have any hope of securing the payment of their unsecured VEBA health care trust claim. A big win for the Politically savvy and well connected UAW, but a terrible loss for the bondholders and taxpayers who will foot the bill.

Only in the political arena could two unsecured creditors receive vastly different treatment, as have the Bondholders and the Unions. The UAW, whose unsecured VEBA is owed $10 Billion by GM, will receive 39% of the GM stock; the Bondholders, who are owed $28 Billion, will receive 10% of GM stock . Do the math: the Union has received 10 times what the government expects the bondholders to take in this restructuring.

In the Chrysler deal, the Union fared even better, as they were unsecured creditors and the Chrysler bondholders were secured creditors. The bondholders received 28% of the value of their $6.9 billion in bonds in cash; the Union will receive stock worth approximately $4.2 billion, and a note for an additional $4.58 billion, which represents 82% of the value of their claim. Either the government negotiators have dyslexia and have made a terrible mistake in their paperwork, or this is political payoff WRIT LARGE. Is this not the equivalent of financial waterboarding?

And thus we enter a brazen new era of government, when the White House is openly complicit in the theft of, as a matter of fact is directing, the looting of private property from investors. Welcome to the Rule of Man, or as the President calls it, change we can believe in! Where campaign contributions mean everything and the rule of law, not so much.

Exactly what did he mean when the President of the United States said;
"Let me be clear. The United States government has no interest in running GM. We have no intention of running GM." Apparently he meant it's not an interesting job, but we are going to do it anyway!

from the Washington Post, 2009-Apr-24, by Peter Whoriskey:

Auto Retirees Brace for Hardship
Pension and Health Benefits May Suffer Under Bankruptcy

As the Obama administration prepares to send Chrysler into bankruptcy court, with General Motors possibly to follow, one of the biggest losers may be the automakers' current and future retirees, a group of nearly 1 million people who could see their pensions and health-care funds slashed by tens of billions of dollars.

The loss could pose political trouble for the Obama administration, which has pressed both automakers since February to ready themselves for bankruptcy as a means of purging their overwhelming debts.

The GM and Chrysler pension plans together cover 928,000 people, and many of them worry that the industry restructuring already underway could slice their benefits.

A group of nonunion retirees is scheduled to meet with the administration's auto task force this morning to try to save their pensions and health benefits. The United Auto Workers is also negotiating over changes to the benefits, but has yet to reach an agreement with the Treasury Department, a source familiar with the matter said.

"We are going to do what we can to help protect their benefits to the degree that we can," said an administration official, who spoke on condition of anonymity because the discussions are private. "It's premature to speculate on what will happen. This is certainly a constituency that we are focused on, but we have not and cannot rule anything out."

With Chrysler facing an end-of-month federal deadline to reach agreements with its bankers and the union, stakeholders have been trading a flurry of offers and counteroffers.

In recent weeks, members of the task force have struggled to devise rescue plans and a legal strategy that might protect those workers if the companies file for bankruptcy. But experts say an outcome is difficult to predict.

"I feel betrayed," said Vicki Prout, 57, a former executive assistant at Chrysler whose 23-year career there included typing speeches for Lee Iacocca when he was chief executive. "They offered these incentives for us to take early retirement, and I took one. Now it looks like my fixed income wasn't so fixed."

She estimated that her monthly payment would be cut in half if the pension is terminated in a bankruptcy. She has started looking for jobs around her home in Troy, Mich., but said there are not many to find.

"I feel like I've been caught in a storm," she said.

If the GM pension plans are terminated, they would be at least $20 billion underfunded, according to the government's Pension Benefit Guaranty Corp. The federal agency would insure about $4 billion of that gap, leaving the GM pension plans with $100 billion in obligations and only $84 billion in assets.

Likewise, if the Chrysler pension plans are terminated, they would be at least $9 billion underfunded, according to the agency, which would insure about $2 billion of that. This would leave the Chrysler pension plans with $28 billion in obligations and only $20 billion of assets, according to the pension agency.

Those shortfalls in the pension plans would be felt most keenly by the companies' younger retirees, like Prout, many of whom were enticed to take buyouts and now worry that the terms of their buyout deal could be subject to revision.

The end of the pensions would also be a burden to the federal pension agency, which would be charged with administering the programs, according to a Government Accountability Office report released yesterday.

Taking over Chrysler's and GM's pension plans "would likely strain PBGC's resources," the report said, noting that could pressure the federal government into giving the pension agency financial assistance.

In addition to cuts in their pensions, the retirees also face potential reductions in their health benefits. GM owes $20 billion to its union retiree health fund, and Chrysler owes $10 billion to its fund.

In a bankruptcy, at least a portion of those company debts could be extinguished, leaving the retiree health funds with significant shortfalls.

Despite that possibility, members of the auto task force believe that bankruptcy could be the only way to strip the companies of the debt that is weighing them down.

As President Obama moved to aid the auto industry earlier this year, his auto task force ordered GM and Chrysler to reduce the level of their debts and expenses owed to banks, bondholders, retirees and workers.

The companies' first preference is to reduce their debt load by negotiating with all parties. Bankruptcy proceedings, they note, can be difficult to predict and the prospect could stain the brand.

But if the necessary concessions cannot be negotiated, the Obama administration wants the companies to consider a bankruptcy filing, and each company is preparing to do so.

One of the advantages of bankruptcy is that the court proceeding can compel the automakers' creditors -- mainly large banks and other financial firms -- to cut what the automakers owe them by billions of dollars, according to people familiar with the task force's thinking.

In recent weeks, members of the task force have had briefings with the federal pension agency to ask how workers would be treated if the pension benefit is terminated. They've also contacted Daimler, Chrysler's former owner. When Daimler sold Chrysler to the private-equity firm Cerberus in 2007, it agreed to contribute $1 billion to the PBGC if the agency ever had to take over Chrysler's pensions. Daimler might now have to live up to that agreement.

"We spent our whole lives trying to build the company," said Chris Dyrda, 61, a retired engineering manager at Chrysler. "We never thought that in our old age someone else might be playing roulette with our pensions."

from BusinessWeek.com, 2009-Apr-24, by David Kiley:

Pontiac: R.I.P.

General Motors is expected to announce Monday that it plans to kill its Pontiac brand, rather than maintain it as a niche brand with one or two models into the future as had been previously announced by company officials.

The move comes as GM is being forced to make a lot of hard decisions to restructure itself. The automaker has until May 31 to demonstrate to the White House that it has a viable comeback plan that will justify further tax-payer loans.

Most Pontiac showrooms have been combined with GM's GMC and Buick brands. But there are about 40 stand-alone Pontiac stores.

The company killed the Oldsmobile brand in 2000. It currently is in process of closing off its Saab brand, waiting to see if investors want to buy it and keep it going. It is also trying to sell its Hummer and Saturn brands. In Europe, it is in negotiations to possibly sell its Opel and Vauxhall brands.

Pontiac has been almost a lost brand at GM. It once was positioned as the company's performance brand. “We Build Excitement” was a long-standing ad slogan. It's twin-kidney grille design was taken from BMW's. The high-water mark for Pontiac's brand clarity, most agree, was the 1964 Pontiac GTO, which many point to as the start of the muscle car era.

In the 1970s and 80s Pontiac offered the Firebird as a legitimate street rod. But GM got lazy, and began dumping “badge engineered” cars into the showrooms. That meant, for example, Pontiac Grand Ams, Grand Prixes and Sunfires were nothing more than Pontiac-badged versions of the cars that could also be bought at Chevy, Buick and Olds dealerships.

I bought a 1993 Pontiac Grand Prix for myself. It had a flabby ride, and I particularly recall the piece of foam hanging out of the slot in the door where the door opener was situated. Even with the foam stuffed into the whole, the wind whipped through it at me when I was driving at highway speeds.

The drifting identity of Pontiac may have hit its nadir when the automaker gave dealers a minivan, called the Montana, as well as a gawky SUV called the Aztek in 2000. The Aztek has become the poster-car for awful design at GM in the last 20 years.

Hope for Pontiac sprung when Bob Lutz arrived on the scene to take over product development at GM in 2001. He immediately got to work adapting an Australian car GM already built as a new GTO. But it failed to catch on. The first car designed from the ground up under his direction was the Solstice roadster convertible. It has been reviewed well by the auto press, but sold in small numbers due, in part, to the weakness of the Pontiac brand.

A few years ago, GM executives heard advertising pitches on how to reposition Pontiac. One seemingly good idea was to embrace the gritty Detroit roots of Pontiac, and pitch it as a urban Motown muscle and performance brand. GM officials liked the idea, pitched by ad agency Deutsch, which now handles the Saturn account. But those officials realized they didn't have the product lineup to back up the compelling ad idea. It never got off the ground.

Pontiac sold about 42,000 vehicles through the first three months of the year, down 44% from the year before, a bit deeper decline than the industry as a whole. That low sales volume is spread across seven active Pontiac models: G3, G5, G6, G8, Vibe, Solstice and Torrent. Lots of Pontiacs show up at car rental lots, though, which means a big chunk of sales aren't profitable.

There is finally widespread agreement, albeit forced on GM management by the Recession and the White House auto industry task force, that it is madness to maintain so many brands that have so little market share.

GM, through March, had an 18.8% share of the U.S. auto market. But 11.2% of that is Chevy. Saab, Pontiac, Hummer, Saturn—the brands on the auction block or headed for the graveyard--add up to 3% of the market. And a good bit of that has been rental fleet.

GM's pressurized restructuring is not only about manufacturing costs and headcount reduction. It is about opportunity cost. If the company is worried about supplying all these weak brands with new models and ad budgets, it is shorting the real brands that make money and have futures, like Chevy and Cadillac, of the focus and resources those brands need.

So long Pontiac. Say hello to Olds when you get where you are going.

from the Wall Street Journal, 2009-Apr-18, by Max Schulz:

The Ethanol Bubble Pops in Iowa
More evidence the fuel makes little economic sense.

Dyersville, Iowa

In September, ethanol giant VeraSun Energy opened a refinery on the outskirts of this eastern Iowa community. Among the largest biofuels facilities in the country, the Dyersville plant could process 39 million bushels of corn and produce 110 million gallons of ethanol annually. VeraSun boasted the plant could run 24 hours a day, seven days a week to meet the demand for home-grown energy.

But the only thing happening 24-7 at the Dyersville plant these days is nothing at all. Its doors are shut and corn deliveries are turned away. Touring the facility recently, I saw dozens of rail cars sitting idle. They've been there through the long, bleak winter. Two months after Dyersville opened, VeraSun filed for bankruptcy, closing many of its 14 plants and laying off hundreds of employees. VeraSun lost $476 million in the third quarter last year.

A town of 4,000, Dyersville is best known as the location of the 1989 film "Field of Dreams." In the film, a voice urges Kevin Costner to create a baseball diamond in a cornfield and the ghosts of baseball past emerge from the ether to play ball. Audiences suspended disbelief as they were charmed by a story that blurred the lines between fantasy and reality.

That's pretty much the story of ethanol. Consumers were asked to suspend disbelief as policy makers blurred the lines between economic reality and a business model built on fantasies of a better environment and energy independence through ethanol. Notwithstanding federal subsidies and mandates that force-feed the biofuel to the driving public, ethanol is proving to be a bust.

In the fourth quarter of 2008, Aventine Renewable Energy, a large ethanol producer, lost $37 million despite selling a company record 278 million gallons of the biofuel. Last week it filed for bankruptcy. California's Pacific Ethanol lost $146 million last year and has defaulted on $250 million in loans. It recently told regulators that it will likely run out of cash by April 30.

How could this be? The federal government gives ethanol producers a generous 51-cent-a-gallon tax credit and mandates that a massive amount of their fuel be blended into the nation's gasoline supplies. And those mandates increase every year. This year the mandate is 11 billion gallons and is on its way to 36 billion gallons in 2022.

To meet this political demand, VeraSun, Pacific Ethanol, Aventine Renewable Energy and others rushed to build ethanol mills. The industry produced just four billion gallons of ethanol in 2005, so it had to add a lot of capacity in a short period of time.

Three years ago, ethanol producers made $2.30 per gallon. But with the global economic slowdown, along with a glut of ethanol on the market, by the end of 2008 ethanol producers were making a mere 25 cents per gallon. That drop forced Dyersville and other facilities to be shuttered. The industry cut more than 20% of its capacity in a few months last year.

What's more, as ethanol producers sucked in a vast amount of corn, prices of milk, eggs and other foods soared. The price of corn shot up, as did the price of products from animals -- chickens and cows -- that eat feed corn.

Texas Gov. Rick Perry reacted by standing with the cattlemen in his state to ask the Environmental Protection Agency last year to suspend part of the ethanol mandates (which it has the power to do under the 2007 energy bill). The EPA turned him down flat. The Consumer Price Index later revealed that retail food prices in 2008 were up 10% over 2006. In Mexico, rising prices led to riots over the cost of tortillas in 2007. The United Nations Food and Agricultural Organization and other international organizations issued reports last year criticizing biofuels for a spike in food prices.

Ethanol is also bad for the environment. Science magazine published an article last year by Timothy Searchinger of Princeton University, among others, that concluded that biofuels cause deforestation, which speeds climate change. The National Oceanographic and Atmospheric Administration noted in July 2007 that the ethanol boom rapidly increased the amount of fertilizer polluting the Mississippi River. And this week, University of Minnesota researchers Yi-Wen Chiu, Sangwon Suh and Brian Walseth released a study showing that in California -- a state with a water shortage -- it can take more than 1,000 gallons of water to make one gallon of ethanol. They warned that "energy security is being secured at the expense of water security."

For all the pain ethanol has caused, it displaced a mere 3% of our oil usage last year. Even if we plowed under all other crops and dedicated the country's 300 million acres of cropland to ethanol, James Jordan and James Powell of the Polytechnic University of New York estimate we would displace just 15% of our oil demand with biofuels.

But President Barack Obama, an ethanol fan, is leaving current policy in place and has set $6 billion aside in his stimulus package for federal loan guarantees for companies developing innovative energy technologies, including biofuels. It's part of his push to create "green jobs." Archer Daniels Midland and oil refiner Valero are already scavenging the husks of shuttered ethanol plants, looking for facilities on the cheap. One such facility may be the plant in Dyersville, which is for sale. Before we're through, we'll likely see another ethanol bubble.

Mr. Schulz is a senior fellow at the Manhattan Institute.

from the New York Times, 2009-Apt-17, by John M. Broder:

E.P.A. Clears the Way for Regulation of Warming Gases

WASHINGTON — The Environmental Protection Agency on Friday formally declared carbon dioxide and five other heat-trapping gases to be pollutants that threaten public health and welfare, setting in motion a process that for the first time in the United States will regulate the gases blamed for global warming.

The E.P.A. said the science supporting its so-called endangerment finding was “compelling and overwhelming.” The ruling triggers a 60-day comment period before any proposed regulations governing emissions of greenhouse gases are published.

Lisa P. Jackson, the E.P.A. administrator, said: “This finding confirms that greenhouse gas pollution is a serious problem now and for future generations. Fortunately, it follows President Obama's call for a low-carbon economy and strong leadership in Congress on clean energy and climate legislation.”

She said that combatting the emissions that create greenhouse gases would help create millions of new jobs and lessen the nation's dependence on foreign oil by fostering a more fuel-efficient transportation industry.

As the E.P.A. begins the process of regulating these climate-altering substances under the Clean Air Act, Congress is engaged in writing wide-ranging energy and climate change legislation that could pre-empt any action taken by the agency. President Obama and Ms. Jackson have repeatedly said that they much prefer that Congress address global warming rather than have the E.P.A tackle it through administrative action.

The United States has come under fierce international criticism for trailing other industrialized nations in moving to regulate carbon dioxide and other global warming pollutants. With this move, and the parallel action by Congress toward a cap-and-trade system for greenhouse gases, the American government can now point to concrete progress as nations begin to write a new international climate change treaty.

However, the E.P.A.'s announcement on Friday did not include any specific targets for reducing greenhouse gases or new requirements for energy efficiency in vehicles, power plants or industry. Those would emerge after a period of comment and rule-making or in any legislation approved by Congress.

Two years ago this month, the Supreme Court, in Massachusetts v. E.P.A., ordered the agency to determine whether greenhouse gases harm the environment and public health and, if not, to explain why. Agency scientists were virtually unanimous in determining that they do, but top officials of the George W. Bush administration suppressed the finding and took no action.

In his first days in office, Mr. Obama promised to review the case and act quickly if the finding were justified. Friday's announcement is the fruit of that review. The E.P.A. action was approved after two weeks of scrutiny by the White House Office of Management and Budget's regulatory affairs arm.

According to the E.P.A. announcement, the proposed finding was based on rigorous scientific analysis of six gases — carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride — that have been widely studied by scientists around the world. Their studies showed that concentrations of these gases are at unprecedented levels as a result of human activity, the agency said, and these high levels are very likely responsible for the increase in average temperatures and other changes in the earth's climate.

Among the ill effects of rising atmospheric concentrations of carbon dioxide and the other gases, the agency found, were increased drought, more heavy downpours and flooding, more frequent and intense heat waves and wildfires, a steeper rise in sea levels, more intense storms and harm to water resources, agriculture, wildlife and ecosystems.

Environmental advocates applauded a decision that they had sought for years.

“At long last, the E.P.A. has officially recognized that carbon pollution is harmful to our health and to the climate,” said David Doniger, director of the climate center at the Natural Resources Defense Council and one of the lawyers in the Supreme Court case. “The heat-trapping pollution from our cars and power plants leads to killer heat waves, stronger hurricanes, higher smog levels, and many other direct and indirect threats to human health.”

“With this step,” he added, “Administrator Lisa Jackson and the Obama administration have gone a long way to restore respect for both science and law. The era of defying science and the Supreme Court has ended.”

Auto companies, utilities and other emitters have long dreaded this day but reacted with caution because the regulatory process has just begun and they hope to address their concerns in the legislation now before the House Energy and Commerce Committee.

Roger Martella, general counsel at E.P.A. during the Bush administration, said the finding marks the official start of an era of controlling carbon emissions in the United States.

“The proposal, once finalized, will give E.P.A. far more responsibility than addressing climate change,” Mr. Martella said. “It effectively will assign E.P.A. broad authority over the use and control of energy, in turn authorizing it to regulate virtually every sector of the economy.”

The E.P.A. said that it was not immediately proposing any new rules and reiterated the administration's stance that a legislative solution is far preferable.

“Today's proposed finding does not include any proposed regulations,” the agency statement said. “Before taking any steps to reduce greenhouse gases under the Clean Air Act, E.P.A. would conduct an appropriate process and consider stakeholder input.

“Notwithstanding this required regulatory process, both President Obama and Administrator Jackson have repeatedly indicated their preference for comprehensive legislation to address this issue and create the framework for a clean energy economy.”

from the Wall Street Journal Europe, 2009-Apr-16:

Green Joblessness
Spain shows the follow of eco-employment policies.

To little fanfare this month, BP closed a solar-cell factory in Madrid, laying off 480 workers. But wait, aren't "green-collar" jobs the wave of the future -- the kind of employment that will only grow and "can't be outsourced," as President Obama likes to say?

Spain happens to be the country that the President often cites as his role model for the Green Jobs Revolution. It's also the source of an important new study that explains how expensive these jobs are -- and why Spain's renewable-energy business is a bubble waiting to burst. The study, released last month by researchers at Universidad Rey Juan Carlos, uses data from the Spanish government and European Union to demonstrate that each job created in Spain's renewables industry costs as much as 2.2 jobs elsewhere in the economy.

The study's authors calculate that jobs in Spain's solar, wind and hydroelectric power industries were subsidized to the tune of more than €570,000 apiece from 2000 to 2008 -- a total exceeding €28.6 billion. And that figure only includes the extra cost to energy consumers of being forced by the government to buy renewable energy at prices several times higher than market rates for conventional power. The authors didn't calculate direct subsidies, such as grants to build solar farms, because the government doesn't even know how much money it has handed out to the renewables industry. But the direct-subsidies tally is at least €1.1 billion.

Some commentators have reported that Spain has lost 2.2 jobs for each job created by solar, wind or hydroelectric power producers. But the study instead is talking about opportunity cost -- the jobs that weren't created because resources were used inefficiently, or what the French economist Frédéric Bastiat meant by "what is seen and what is not seen."

Yet these "lost" jobs have a real impact, particularly when employment rolls are shrinking elsewhere. They're also politically pernicious, in that it's easier to point to a new green-collar worker than to the two or three people who remain unemployed because other jobs were crowded out.

What hasn't been reported in much detail from the Juan Carlos study is the way Spanish renewable-energy policy created an enormous investment bubble that may already be bursting. In many ways, this is the most important element of the report.

Since 2004, Spain's Socialist government has essentially guaranteed a huge return on any investment in solar, wind or hydro. It's done so by requiring electricity distributors to buy all renewable energy produced in the country, at prices that at times have been 10 times higher than market rates. This is known as a "feed-in price," and it has cost Spanish energy customers an extra €28.6 billion this decade.

Initially, the government set a regulated price for solar power of 575% of market rates for small producers and "only" 300% for larger ones. The result was a series of inefficient solar farms small enough to get the higher subsidy but often owned by the same companies. And not just by power companies: "builders, real estate companies, hotel groups and even truck manufacturers" got in on the action.

In 2007 the government finally tweaked the subsidy schedule to level the playing field for larger solar producers. Yet within four months, regulators realized that the mandated prices were still so generous that 85% of all solar-powered generating capacity due by 2010 was already in place. To rein in the market, Madrid passed still another law that sharply reduced incentives to build new solar capacity.

Firms had one year to get in under the old system, and, boy, did they work overtime to make it: Government data indicate that 83% of Spain's solar capacity was installed in those 12 months. That jump came after solar capacity had already grown by 118% in 2005, 308% in 2006, and 458% in 2007. In all, solar-power capacity in Spain grew by more than 20,000% from 2004 to 2008, a rate surpassed perhaps only by Zimbabwe's inflation.

If that's not a bubble, we don't know what is. And while it will be a few months longer before the effects of the new, stricter solar regime can be measured, it's not hard to predict sluggishness -- if not an outright bust.

Madrid's chosen method of curtailing solar-power growth is to set a quota for new installations, one that equals about 15% of the growth seen in 2008. That means the jolly green job fairy will soon be leaving: Two-thirds of the roughly 50,000 jobs created in renewables have been in construction, manufacturing and installation -- exactly the kind of growth that couldn't be maintained, and which Madrid is explicitly trying to curb now. Trade unions say the new law has already led to 15,000 solar job losses in just a few months -- and that was before the 480 that BP cut.

Some people might be tempted to conclude from Spain's experience that renewable-energy policies must simply be drawn up more tightly to avoid this kind of boom and bust. They'd be wrong.

Spanish policy shows that green dreams like renewable energy are achievable only through massive transfers of money from productive sectors to those seeking to get rich quick thanks to government mandates. And that the few jobs created greatly depend on maintaining impossible levels of growth. Even in Mr. Obama's Washington, you can't print enough greenbacks to pay for these green jobs.

from the Times of London, 2009-Apr-19, by Dominic Lawson:

Beware green jobs, the new sub-prime

When everybody seems to have the same big idea, you just know it can only mean trouble. Remember sub-prime mortgages? Now universally excoriated as the spawn of the devil, the proximate cause of the credit crunch and all that followed, a few years back “sub-prime” was everyone's darling. Financiers loved it because it generated sumptuously high-yielding debt instruments; governments, because it promised to make even the poor into proud property owners.

Now business lobbyists and governments on both sides of the Atlantic have got a new big idea. They call it “green jobs”. Leading the pack is, as you might expect, Barack Obama. The president recently defended a vast package of subsidies for renewable energy on the grounds that it would “create millions of additional jobs and entire new industries”.

In Britain, the business secretary, Lord Mandelson, promises billions in state aid for the same purpose. To add verisimilitude, last week he gave a royal wave from the inside of a prototype electric Mini. Mandelson's chauffeur was a representative of the lower house: the transport secretary, Geoff Hoon.

The occasion for this photo opportunity was the government's proposal to offer a £5,000 subsidy to anyone buying an electric car of a type not yet available: exact details to be given in Alistair Darling's forthcoming budget. The idea is to create a “world-beating” British-based electric-car-manufacturing industry, while also attempting to meet Gordon Brown's promise to have the nation converted to electric or hybrid cars by 2020.

That remarkable prime ministerial pledge predated the recession; its motive was to demonstrate that Britain was “leading the world in the battle against climate change”. We aren't, as a matter of fact; but under new Labour we have certainly led the world at claiming to do so. Mandelson expressed this almost satirically last week when he declared that “Britain has taken a world lead in setting ambitious targets for carbon reduction”.

As ever, new Labour confuses announcements and newspaper headlines with real action. Whenever it becomes obvious even to ministers that Britain will not meet its current carbon reduction target, they replace it with a yet tougher target, only with an extended deadline.

It does not yet seem to have occurred to new Labour that this is making it look ridiculous, especially to the environmentalists whose support it is presumably trying to solicit. Or perhaps it has, but it would rather that than lose our “world leadership” in target-setting.

There is something almost comical in the government's belief that the electric car, dependent as it is on the national grid, is a sort of magic recipe for reducing carbon emissions. Some months ago President Sarkozy of France had an identical idea and commissioned a report on the prospects for turning Renault and Citroën into producers of mass-market electric vehicles. The report concluded that “the traditional combustion engine still offers the most realistic prospect of developing cleaner vehicles simply by improving the performance and efficiency of traditional engines and limiting the top speed to 105mph. The overall cost of an electric car remains unfeasible at about double that of a conventional vehicle. Battery technology is still unsatisfactory, severely limiting performance”.

Note that this crushing verdict came in a country where electricity is for the most part generated by nuclear power, which produces no CO2. In this country, more than three-quarters of the grid's power comes from the fossil fuels of gas and coal. [Note that this paragraph was typographically mangled by the Times and repaired by the AMPP Ed.]

Presumably it is the latter that accounts for the fact that when the London borough of Camden commissioned a study to see whether it should introduce electric vehicles for some of its services, it found that “EVs relying on the average UK mix of energy to charge them were responsible for significantly more particles of soot that lodge deeply in the lungs . . . than the average petrol-powered car”.

If all our electricity were to be generated by wind power, without any fossil-fuel back-up, this criticism would not apply. Then the cars could take days, rather than hours, to recharge (depending on the weather) and would be so expensive to run that driving would become the exclusive preserve of the rich.

A further absurdity is that electric cars are suitable only for short rides within urban areas – precisely where we are being encouraged to abandon cars and use public transport. Ken Livingstone exempted electric cars from his congestion charge as if, in addition to their suppositious environmental benefits, they also had the magical property of being incapable of contributing to congestion. As the Ecologist magazine has reported: “The focus on electric vehicles and the political love they get is totally misguided . . . to have that as the spearhead of government transport carbon-reduction policy is insane.”

The magazine is controlled by Zac Goldsmith, the prospective Conservative candidate for Richmond Park and team Cameron's environmental guru. Last week his colleague George Osborne took a different tack, observing that the absence of plans for a national network of charging points meant that “the Labour plan is like giving people a grant to buy an internal combustion engine, without bothering to set up any petrol stations”. Osborne had his own suggested grant to create “green jobs”: “We will give every household a new entitlement to £6,500 of energy-saving technologies.”

I'm not sure how the Tories came up with the figure of £6,500. It is pointedly bigger than Labour's proposed £5,000 electric car subsidy; but all these figures are preposterous. If you multiply £6,500 by the number of households in the land, you get to £160 billion, bigger on its own than the national debt that Osborne has repeatedly told us is unaffordable.

Electoral bribes apart, there is a more serious misconception behind the idea that ploughing subsidies into the “green economy” is a sure-fire way of boosting domestic employment. At best it will move people from one economic activity to another. Labour's plans would subsidise car production workers to move from making conventional models to electric vehicles, which hardly anyone wants to buy. Osborne's proposals would subsidise the double-glazing and home insulation industry and suck in many workers gainfully employed (without subsidy) elsewhere.

The key to a successful, wealth-generating economy is productivity. Saving energy is what businesses have done already, because it lowers their production costs. The problem with any form of subsidy is that it makes the consumer (through hidden taxes) pay to keep inherently uneconomic businesses “profitable”. Meanwhile, diversified energy companies such as Shell, with plenty of speculatively acquired wind-farm acreage, are salivating at the plans by Obama to introduce cap-and-trade carbon emissions targets for American industry.

Obama's energy secretary, Steven Chu, had some soothing words for US manufacturing companies that complained that the new policy will make them even less competitive with Chinese exporters, since the people's republic has indicated that it has no intention of inflicting a similar increase in energy costs on its own producers. He suggested that America might have to introduce some sort of “car-bon-intensive” tariff on Chinese goods. One of China's envoys, Li Gao, immediately retorted that such a carbon tariff would be a “disaster”, since it could lead to global trade war.

Actually, Mr Li is right: and this is how an achingly fashionable and well-intentioned plan to create “millions of new green jobs” could instead end up making the global economy even sicker than it is already.

from the Los Angeles Times, 2009-Apr-24, by Margot Roosevelt:

California to limit greenhouse gas emissions of vehicle fuels

The Air Resources Board adopts a landmark regulation expected to slash gasoline consumption by 25% and encourage development of low-carbon fuel sources for cars and trucks.

California took aim Thursday at the oil industry and its impact on global warming, adopting the world's first regulation to limit greenhouse gas emissions from the fuel that runs cars and trucks.

The Air Resources Board voted 9 to 1 in favor of the complex new rule, which is expected to slash the state's gasoline consumption by a quarter in the next decade. It seeks to expand the market for electric and hydrogen-fueled vehicles and jump-start a host of futuristic biofuels to replace corn-based ethanol, as well as oil.

Gov. Arnold Schwarzenegger praised the "first-in-the-world low carbon fuel standard," noting that 16 other states are looking to California as a model and that President Obama has called for a national standard.

It will "not only reduce global warming," he said, "it will reward innovation, expand consumer choice and encourage the private investment we need to transform our energy infrastructure."

The regulation requires producers, refiners and importers of gasoline and diesel to reduce the carbon footprint of their fuel by 10% over the next decade. And it launches the state on an ambitious path toward ratcheting down its overall heat-trapping emissions by 80% by mid-century -- a level that some scientists deem necessary to avoid drastic global climate disruption.

Experts say California faces droughts, fresh water shortages, rising sea levels and widespread extinction of plants and wildlife species from growing carbon dioxide emissions worldwide.

Scores of industry executives and environmental activists testified on the hotly debated fuel regulation at a daylong public hearing in Sacramento before the vote. Corn ethanol producers complained that the rule unfairly exaggerated the effects of using food crops for energy. Cattlemen argued that diverting corn to ethanol has upped their feed costs.

Canada's consul general in San Francisco charged that the rule discriminates against oil from Alberta tar sands. And former Gen. Wesley Clark, testifying for the ethanol industry, said the board failed to account for carbon-intensive effects of U.S. military forces protecting oil reserves in the Middle East.

The regulation calculates the life cycle of fuels from their extraction -- or cultivation, in the case of biofuels -- to their combustion. But the indirect effect of replacing cropland used for energy will also be included, and the board's calculations of those land-use effects is strongly disputed by corn ethanol producers.

Meanwhile, U.S. oil industry representatives were also divided. The Western States Petroleum Assn. opposed the rule, disputing the air board's contention that it will lower the cost of fuel to consumers.

"This is the most transforming regulation any of us has ever undertaken," said Catherine Reihis-Boyd, the group's Sacramento lobbyist, noting that it involved "fuels that haven't even been envisioned and certainly not commercialized."

But James Uihlein, a Chevron representative, endorsed the standard, and its indirect land-use provisions, as "sending the right signal to innovators" to produce advanced fuels.

Not all of the alternative fuel companies were in sync, however. An executive from Fulcrum BioEnergy, a Pleasanton, Calif., company that makes cellulosic ethanol from post-recycled garbage, said it will "create a market" for his product. But a representative of Verenium, a cellulosic ethanol company with offices in San Diego, asked the board to hold off on counting land-use effects.

Board members acknowledged that the science of evaluating the carbon footprint of all fuels is still developing. It asked staff to further study the land-use issue and report back in January 2011. The standard is scheduled to take effect in 2012, gradually ramping up to the 10% reduction by 2020.

"We have done a lot to make cars cleaner and more efficient, but the petroleum industry, which has a lot more reserves, has gotten off scot-free with respect to greenhouse gases," said board Chairwoman Mary D. Nichols. "Now we are creating the framework for a new way of looking at automotive fuels. No longer will petroleum be the only game in town."

Some environmentalists who favor a stronger emphasis on electric vehicles said the rule did not go far enough in questioning the land-use effects of ethanol from nonfood crops such as switch grass or farmed trees. Others urged the board to monitor the construction of advanced fuel facilities so they would not increase inner-city air pollution.

Roland Hwang, transportation director of the Natural Resources Defense Council, criticized the board's delay of final action on land-use impacts, which he said were "critical safeguards for our native forests . . . and scenic wild lands."

But he added that the new standard means "the handwriting is on the wall: Big Oil needs to stop investing in dirty, high-carbon fuels and move to produce more advanced biofuels."

from the Wall Street Journal, 2009-Apr-17, by Kimberley A. Strassel:

Alternative Fuel Folly

Every so often Washington throws out a controversy that brilliantly illustrates everything wrong with Washington. Consider the brewing outrage over "black liquor."

This is the tale of how a supposedly innocuous federal subsidy to encourage "alternative energy" has, in a few short years, ballooned into a huge taxpayer liability and a potential trade dispute, even as it has distorted markets and led to greater fossil-fuel use. Think of it as a harbinger of the unintended consequences that will accompany the Obama energy revolution.

Back in 2005, Congress passed a highway bill. In its wisdom, it created a subsidy that gave some entities a 50-cents-a-gallon tax credit for blending "alternative" fuels with traditional fossil fuels. The law restricted which businesses could apply and limited the credit to use of fuel in motor vehicles.

Not long after, some members of Congress got to wondering if they couldn't tweak this credit in a way that would benefit specific home-state industries. In 2007, Congress expanded the types of alternative fuels that counted for the credit, while also allowing "non-mobile" entities to apply. This meant that Alaskan fish-processing facilities, for instance, which run their boilers off fish oil, might now also claim the credit.

What Congress apparently didn't consider was every other industry that might qualify. Turns out the paper industry has long used something called the "kraft" process to make paper. One byproduct is a sludge called "black liquor," which the industry has used for decades to fuel its plants. Black liquor is cost-effective, makes plants nearly self-sufficient, and, most importantly (at least for this story), definitely falls under Congress's definition of an "alternative fuel."

All of which has allowed the paper industry to start collecting giant federal payments for doing nothing more than what it has done for decades. And in fairness, why not? If Congress is going to lard up the tax code with thousands of complex provisions designed to "encourage" behavior, it shouldn't be surprised when those already practicing said behavior line up for their reward, too.

In March, International Paper announced it had received $71 million from the feds for a one-month period last fall. The company is on track to claim as much as $1 billion in 2009. Verso took in nearly $30 million from the operation of just one mill in one quarter of last year. Other giants are gearing up to realize their own windfalls. Wall Street has gone wild, pushing paper-company stocks up dramatically in recent weeks.

Happy as industry is to have this new federal lifeline in the middle of a recession, it is the only one smiling. Foreign competitors are screaming that the subsidy is unfairly propping up the U.S. industry in tough times. They claim the U.S. industry is ramping up production simply to realize more tax money. Canadian forestry firms are already demanding their government file a trade complaint.

In order to qualify for the credit, alternative fuel must be mixed with a taxable one. (The government might want to encourage alternative fuels, but not to the extent that it loses its gas-tax revenue.) This means that to qualify, the paper industry must mix some diesel with its black liquor. This has sent environmentalists around the bend. They have accused the industry of burning fossil fuels that it didn't used to burn, simply to get the tax dollars. (The industry has not been clear on whether it is, in fact, using more diesel.)

And then there's Congress, which is suddenly looking at billions more in red ink than expected. In 2007 it estimated a 15-month extension of the credit would cost taxpayers $333 million. It has since revised those numbers to take into account black liquor and is now figuring a one-year cost of more than $3 billion. Wall Street analysts are talking $6 billion. Senate Finance Committee bosses Max Baucus and Charles Grassley are reportedly aware of the issue, none too happy, and they are working to bar the paper industry from receiving the credit.

But this, in turn, has tossed up uncomfortable questions. The paper industry argues that if the government is going to be in the business of rewarding good behavior, it ought to do it equally. Is green policy only to be aimed at dirty or economically unviable actors? Is black liquor any less useful than ethanol or biodiesel, and if so why? If not, shouldn't Washington encourage its use? Isn't every green subsidy in fact the basis for a trade dispute? These are questions Congress has no interest in confronting, since it would expose the muddle that is its entire green-energy program.

All of this is highly amusing, if not surprising. Every government attempt to manage energy markets has resulted in similar disarray. Look at the havoc that came from the energy price controls, regulations and subsidies of the 1970s. Or look, more recently, at the ethanol fiasco, and the accompanying soaring food costs. Energy powers the economy. Mess with energy markets, and mess with everything else. When will Washington learn?

from the Wall Street Journal, 2009-May-5, by Stephen Power:

White House to Step Up Ethanol Efforts

WASHINGTON -- The Obama administration on Tuesday will step up efforts to increase the availability of ethanol at filling stations and to speed up subsidies to struggling biofuel producers. But the trade-off is that the administration is also expected to propose a rule that could make certain biofuels look less climate-friendly.

At a news conference led by the heads of the Agriculture Department, Energy Department and Environmental Protection Agency, the administration is expected to announce the creation of an interagency group that will be charged with forging a plan to encourage the production of more automobiles that can run on high-level ethanol blends, and increase the availability of high-level ethanol blends at gasoline stations.

President Barack Obama is also expected to direct the Agriculture Department to expedite the awarding of loan guarantees to support the development and construction of more biofuel refineries.

But at the same time, the EPA is expected to propose measuring the greenhouse-gas emissions associated with biofuel production -- including emissions that result overseas when farmers world-wide respond to higher food prices by converting forest and grassland to cropland. The EPA decision could undercut the environmental rationale the ethanol industry has used to sustain support for its government subsidies.

In an effort to ease the sting of Tuesday's announcement, the administration scheduled a news conference to discuss not only the EPA rulemaking but also what it called Mr. Obama's "commitment to advance biofuels research and commercialization."

The question of whether biofuels help or harm the climate has been heating up for months in scientific, corporate and environmental circles. A study published last year in the journal Science found that U.S. production of corn-based ethanol increases emissions by 93% compared with using gasoline, when expected world-wide land-use changes are taken into account.

Some scientists and many biofuel proponents have challenged the Science study, saying it relied on unrealistic assumptions. There is also disagreement among scientists and economists over how to measure the impact of land-use changes in one country on land-use changes in another.

"We're ready to begin the debate" over how to measure ethanol's environmental impact, said Matt Hartwig, a spokesman for the Renewable Fuels Association. "But let's get it out there, so we can talk about it."

The efforts by environmental regulators to assess biofuels' impact on the environment comes at a difficult time for the ethanol industry. Demand for the corn-based fuel has been falling, as consumers have cut back on driving amid the economic crisis.

The plunge in oil prices from last summer's record high, meanwhile, has pushed down ethanol prices and cut producers' profits. Last month, an ethanol trade group petitioned the EPA to allow the ethanol levels in gasoline blends to be as high as 15%, up from the current 10%. Without the increase, the group said the U.S. won't be able to meet a congressional mandate requiring some 36 billion gallons of renewable fuel to be blended into the domestic fuel supply by 2022.

from the Wall Street Journal, 2009-Apr-17, by Marc Siegel:

When Doctors Opt Out
We already know what government-run health care looks like.

Here's something that has gotten lost in the drive to institute universal health insurance: Health insurance doesn't automatically lead to health care. And with more and more doctors dropping out of one insurance plan or another, especially government plans, there is no guarantee that you will be able to see a physician no matter what coverage you have.

Consider that the Medicare Payment Advisory Commission reported in 2008 that 28% of Medicare beneficiaries looking for a primary care physician had trouble finding one, up from 24% the year before. The reasons are clear: A 2008 survey by the Texas Medical Association, for example, found that only 38% of primary-care doctors in Texas took new Medicare patients. The statistics are similar in New York state, where I practice medicine.

More and more of my fellow doctors are turning away Medicare patients because of the diminished reimbursements and the growing delay in payments. I've had several new Medicare patients come to my office in the last few months with multiple diseases and long lists of medications simply because their longtime provider -- who they liked -- abruptly stopped taking Medicare. One of the top mammographers in New York City works in my office building, but she no longer accepts Medicare and charges patients more than $300 cash for each procedure. I continue to send my elderly women patients downstairs for the test because she is so good, but no one is happy about paying.

The problem is even worse with Medicaid. A 2005 Community Tracking Physician survey showed that only 50% of physicians accept this insurance. I am now one of the ones who doesn't take it. I realized a few years ago that it wasn't worth the money to file the paperwork for the $25 or less that I received for an office visit. HMOs are problematic as well. Recent surveys from New York show a 10% yearly dropout rate from the state's largest HMO, the Health Insurance Plan of New York (HIP), and a 14% drop-out rate from Health Net of New York, another big HMO.

The dropout rate is less at major medical centers such as New York University's Langone Medical Center where I work, or Mount Sinai Medical Center, because larger physician networks have more leverage when choosing health plans. Still, I am frequently hamstrung as I try to find a good surgeon or specialist to refer one of my patients to.

Overall, 11% of the doctors at NYU Langone don't participate in at least two insurance plans -- Aetna or Blue Cross, for instance -- so I end up not being able to refer my patients to some of our top specialists. This problem, in addition to the mass of paperwork and diminishing reimbursements, is enough of a reason for me to consider dropping out as well.

Bottom line: None of the current plans, government or private, provide my patients with the care they need. And the care that is provided is increasingly expensive and requires a big battle for approvals. Of course, we're promised by the Obama administration that universal health insurance will avoid all these problems. But how is that possible when you consider that the medical turnstiles will be the same as they are now, only they will be clogged with more and more patients? The doctors that remain in this expanded system will be even more overwhelmed than we are now.

I wouldn't want to be a patient when that happens.

Dr. Siegel, an internist and associate professor of medicine at the NYU Langone Medical Center, is a Fox News medical contributor.

from the San Mateo County Times, 2009-Apr-17, by Sean Maher:

Doctor gets jail for prescribing Prozac online

REDWOOD CITY — In what a defense attorney called a major sea change in how the law treats Internet medicine, a Colorado doctor was sentenced to serve nine months in jail Friday after prescribing Prozac to a California man over the Internet.

Christian Ellis Hageseth III, 68, now a former Fort Collins psychiatrist, pleaded no contest to the felony of practicing medicine in California without a license. In 2005, he prescribed Prozac to Stanford student John McKay, then 19, after McKay filled out a questionnaire on the Web site USAnetRX.com.

A pharmacy in Mississippi filled the prescription and mailed the pills to McKay, who committed suicide a short time later.

"This is the first case of its kind," said Santa Rosa attorney Carleton Briggs, who represented Hageseth. "And it essentially smothers telemedicine in its infancy. With this case as precedent, any doctor would be insane to practice medicine online unless he or she is licensed in all 50 states, which would never happen.

"Honestly, I believe the Commerce Clause (of the U.S. Constitution) says California can't do this," Briggs said. "But to establish that, we'd have to appeal it for years. Hageseth is a 68-year-old man without a lot of money, who just had heart surgery in November. He didn't want to drag this out."

California law requires doctors to have a face-to-face meeting with any patient before prescribing them medication such as Prozac. When McKay indicated on the Internet questionnaire that he'd already taken Prozac without ill effects, Hageseth interpreted that to mean a meeting wasn't necessary, Briggs said.

"He knows he was wrong about that and he admitted it from day one," Briggs said. "But they weren't prosecuting him for that. All the prosecutors said they needed to prove was that Hageseth knew the drugs would end up in California. Under this reasoning, you could live in Maryland your whole life, and if you took a trip to California and brought medication your doctor prescribed you, and he knew you'd be going to California, he could be prosecuted.

"If the president of Google (in California) picked up a phone and called The Mayo Clinic (in Minnesota) to ask for medical advice, the people answering the phone would now have to hang up on him (for fear of prosecution)," Briggs said.

After the suicide, McKay's parents filed two civil suits, both of which concluded in 2007. Their suit against USAnetRX.com. settled out of court, according to attorney Melinda Derish, who helped represent the family. A federal judge dismissed the family's suit against the Web site, Hageseth and the pharmacy, concluding the three parties didn't have enough clear ties to be considered a joint venture, Derish said.

San Mateo County Deputy District Attorney Steve Wagstaffe's office filed criminal charges against Hageseth after the suicide. Wagstaffe did not immediately return calls Friday asking for comment.

Hageseth will serve his sentence in a Colorado jail, complying with the terms of an interstate compact that allows small sentences to be served across state lines, Briggs said.

from the Wall Street Journal, 2009-Apr-18, by Stu Woo and Sudeep Reddy:

Jobless Rate Climbs in 46 States, With California at 11.2%

California and North Carolina in March posted their highest jobless rates in at least three decades, as unemployment increased in all but a handful of states during the month, the Labor Department said Friday.

California's unemployment rate jumped to 11.2% in March, while North Carolina rose to 10.8%, the highest for both since the U.S. government began a comprehensive tally of state joblessness in 1976.

The state-by-state employment figures showed only a few states avoiding the deterioration seen nationwide. Unemployment rose in 46 states during the month, and 12 states plus the District of Columbia posted unemployment rates in March that were significantly higher than the 8.5% nationwide figure the government released earlier this month.

The chief economist for California's finance department, Howard Roth, said the state's unemployment rate hasn't been this high since reaching 11.7% in January 1941. The highest level on record in California is 14.7% in October 1940, he said.

California lost 62,100 jobs in March, with Florida next at 51,900 jobs lost, Texas at 47,100 and North Carolina at 41,300, according to the federal figures.

California, the nation's most-populous state, has been hit particularly hard by the housing-market crash. That led to major job losses in the construction and financial industries. "We did it bigger in terms of the housing bubble," Mr. Roth said. "You pay for that by falling farther."

Still, the latest figures offered a "glimmer of hope," he said. March losses were about half the 114,000 jobs shed in February, a sign that the pace of decline in California's job market may be slowing.

Most economists expect job losses across all U.S. nonfarm employers to continue in April at or near the rapid pace seen in March, when 663,000 jobs disappeared.

California exemplifies the troubles across America. Teresa Nelson, a 54-year-old public-interest lawyer, has sought work at government or nonprofit agencies since last summer. She has applied for 20 jobs and landed five interviews. "I have a lot of qualifications, lots of experience, but people assume I need a higher salary," said Ms. Nelson, who lives in the San Francisco Bay area. "It's been frustrating."

The federal report showed 48 states and the District of Columbia posted payroll declines in March. Only Mississippi and North Dakota had slight gains of about 300 jobs.

Among states, North Carolina experienced the largest month-over-month percentage drop in payroll employment, about 1%. It was followed closely by Idaho, Minnesota and Washington state, each losing about 0.9%.

Eight states have already seen double-digit unemployment rates, which are calculated on a different survey than payroll numbers. As the economy deteriorates, and job hunters face difficulty finding new work, economists expect joblessness to top 10% nationwide by late 2009 or early 2010.

Michigan, battered by turmoil in the auto industry, reported the highest unemployment at 12.6%. Oregon followed at 12.1%, then South Carolina at 11.4%.

Only North Dakota and the District of Columbia saw unemployment rates decline for the month. Rates remained flat in Georgia, New York and Rhode Island.

from the Wall Street Journal, 2009-Apr-4:

Bull Market in Government
It's the only sector that seems to be hiring.

American workers saw the disappearance of another 663,000 jobs in March, bringing the total since the start of the recession to 5.1 million. The U.S. unemployment rate rose to 8.5%, up from 8.1%, and almost one in 12 adult males is now jobless. The numbers are even drearier when you notice that only the government seems to be hiring these days.

Almost every private industry lost jobs last month. Construction (126,000), manufacturing (161,000), and business services (133,000) all contracted and even retail -- which is typically resilient -- shrank by 48,000 jobs. Only education and health care added positions, and both of those are financed in substantial part by government. Even the government dropped 5,000 jobs in March, thanks to state and local cuts, although since February 2008 government has added some 97,000 workers.

College graduates are now looking toward government to start their careers, since there aren't a lot of other places to look. Unemployment for government employees is about half the rate of almost all private industry workers, and Washington, D.C., is a rare U.S. city that seems recession-proof.

The question in the coming months is where new private-sector growth will come from. President Obama's budget does no favors to industries that are struggling. The higher income tax rates will make it less profitable for small businesses to expand and hire more workers. Manufacturing and utilities are unsure whether they'll get hit with a cap-and-trade tax on carbon energy. The oil and gas industries, which employ 1.1 million workers, face some $31 billion in higher taxes on new exploration and development.

The Keynesians who populate the Obama Administration believe that public spending can generate a surge in economic growth. And they are banking on the $800 billion stimulus to create some one to three million new government or government-contractor jobs to prevent the jobless rate from going too much higher.

But all of that money for government spending has to come from somewhere, and that means it is either taxed or borrowed from the private businesses and risk-takers who are ultimately the only source of new wealth and job creation. The longer we ignore that lesson, the longer the jobs recession will last.

from the Wall Street Journal, 2009-Apr-8, by James Freeman:

Is Silicon Valley a Systemic Risk?
Treasury decides to treat venture capitalists like hedge funds.

The Obama administration wants to regulate venture capital firms to prevent systemic risks. Silicon Valley residents are scratching their heads and asking: What risks? The rest of us should ask why Washington is targeting a jewel of the American economy that had nothing to do with the housing bubble.

The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."

Since then, venture investors have been trying to solve the mystery of how they could possibly threaten the financial system. Their work involves very little banking. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. The VCs and the companies in which they invest use little or no debt.

"I cannot imagine any venture fund being of a size to pose 'systemic risk,' so they either don't understand the nature of the business, or by including this provision they are sharing that their agenda is not the overt one disclosed," says Jack Biddle of Novak Biddle Venture Partners. What Washington needs to understand is that bank-style regulation could destroy the culture that created the microprocessor.

In justifying new SEC registration requirements, Mr. Geithner said that Bernie Madoff's Ponzi scheme demonstrated that investors need more protection. He didn't mention that Madoff's firm was registered with the SEC as an investment adviser and had also been regulated by the SEC for decades as a broker-dealer. Also, Madoff was not running a venture firm.

The entire venture capital industry is smaller than the Madoff fraud. VCs invest a total of $30 billion each year, far less than one-tenth of 1% of U.S. financial transactions. Venture investors -- affluent individuals and institutions -- are putting up equity and know that they can lose it all. SEC regulation could have the same negative impact on them that it had on Madoff's investors: creating an illusion of safety in what is an inherently risky endeavor. Or the regulation could become so severe that it actually does eliminate risk from venture investing, killing the innovative ideas that can only be funded by risk-takers.

The fact that VC money is small potatoes compared to Wall Street money doesn't mean we wouldn't notice if the industry were regulated out of existence. Venture investments helped build Intel, Apple, Google, Amazon and Cisco, to name just a few. Is Mr. Geithner sure that he has a better model?

Since the Treasury secretary lumped venture capital into a category with hedge funds, there's a question of whether something has been lost in translation between Washington and Silicon Valley. Mr. Geithner says that he needs to make sure that private investment firms are not overleveraged. But leverage is such a small factor in the venture world that the trade association for venture capital firms doesn't even collect data on it. Responding to the Treasury plan, the National Venture Capital Association is now seeking more information. Will they discover dangerous levels of debt piled on such shaky foundations? Don't bet on it.

Greg Becker is the president of Silicon Valley Bank, a leader in providing financing to venture-backed companies. He says a typical start-up client will raise perhaps $10 million in equity investments from VCs. His bank will lend perhaps $1 million or $2 million at high rates on a short-term basis only if the bank expects the young company to get another round of venture investment. Every dollar loaned is secured against all of the assets of the start-up. Most of these loans are paid back, and even when a start-up goes bust, he reports that the $10 million equity investment has usually created enough enterprise value for his bank to recover its principal.

At the next level of growth, when companies have perhaps $20 million of annual revenues but still negative cash flow, he'll loan perhaps $4 million or $5 million for working capital, equal to the company's quarterly accounts receivable, if he thinks the entrepreneurs will be able to use the funding to win a big client. Even when venture-backed firms become cash-flow positive, his bank is still only loaning limited amounts of money based on the firm's accounts receivable, and always secured by the firm's assets. Loans to venture-backed firms never account for more than 10%-11% of the bank's business.

For anyone concerned about systemic risk, the dot-com bust of 2000-2002 has already provided the ultimate stress test. Mr. Becker says his firm was never threatened, and neither were the other banks that provide such financing.

Many start-ups don't use debt at all. After all, how many people want to lend to a business without stable cash flows? For the ventures that do use debt, many of them use less than Mr. Becker's clients. Steve Harrick of Institutional Venture Partners says that even companies in his portfolio with $50 million in revenues will typically limit borrowing to $2 million or $3 million for working capital. And at the level of the venture firms, there's a reason they raise equity instead of debt. Who would lend large sums to somebody investing in firms without profits or even revenues?

The only people threatened when a start-up goes bust are its small group of employees and investors, and they wouldn't have it any other way. Says Mr. Harrick, "You've got people willing to take risks. In fact, they need to have a tolerance not just for risk, but for the potential of outright failure."

If our economic system is to thrive, venture capital is exactly the place where we have to encourage risk. In pursuit of innovations that will enrich themselves and the world, employees at start-ups accept low pay and reputational risk, while well-heeled investors accept the possibility of losing every nickel of their investment.

Attempts to limit risk pose a systemic threat to American technology. Venture capitalists, mainly veterans of the tech industry, are deeply involved in the companies they back, often helping to recruit each of the key employees at a start-up. This hands-on feature of venture investing means that innovative companies and their backers tend to cluster in areas like Silicon Valley. If the VCs move offshore, that's probably where the next generation of companies will be born.

Even if one wishes to be paranoid about systemic risks, it's hard to imagine how tiny tech companies could be ground zero in a future credit bubble. The politicians aren't driving capital into this business. Fannie Mae and Freddie Mac don't provide cheap financing to VCs. Major credit-ratings agencies don't grade start-ups, so there will be no government-distorted judgments of creditworthiness. Neither VCs nor the companies they fund issue bonds or CDOs or CLOs. There's no Technology Community Reinvestment Act. Moral hazard? Not in Silicon Valley. No tech-company founders or VCs could possibly believe they are too big to fail.

Washington-created failure is what riles Cypress Semiconductor CEO T.J. Rodgers. In a recent email, he notes that this isn't the best moment in history to add another burden to America's tech industry. Very few start-ups have gone public in recent years, thanks in part to the multimillion-dollar compliance costs imposed by the Sarbanes-Oxley law in 2002, the last time Congress sought to re-regulate corporate finance.

Says Mr. Rodgers, "First, Sarbanes-Oxley mandated byzantine corporate bureaucracy to 'protect' investors. Then, the SEC damaged the Silicon Valley economy by forcing companies to count stock options twice, both as dilution and as expense. As a result, Silicon Valley, for decades the bright spot of the American economy, produced only one [initial public offering] in all of 2008. Now, Geithner wants to regulate venture capital firms to protect us some more. It's like watching children deface an economic work of art."

Mr. Freeman is assistant editor of the Journal's editorial page.

Read more on government interference with Silicon Valley entrepreneurship and centure capital.

from the Wall Street Journal's Political Diary, 2009-Mar-30, by John Fund:

Obama Motors Inc.

The good news is that the Obama administration's task force charged with revamping the auto industry has concluded what many suggested last year before massive taxpayer bailouts. The task force is now saying the best chance for success for both GM and Chrysler "may well require utilizing the bankruptcy code in a quick and surgical way." Now they tell us -- after $22 billion in taxpayer subsidies have been poured into the two companies.

The bad news is that the Obama White House is now clearly deep into industrial policy by forcing out General Motors chief Rick Wagoner and most of his board. Mr. Wagoner, who joined GM in 1977, agreed to leave as one of the White House's conditions for more federal aid. The moves give President Obama political cover as he contemplates just how much taxpayer money to pour into the auto industry.

But the moves also represent another step on the road to the dystopia that Ayn Rand depicted in her novel "Atlas Shrugged." Rand envisioned an America in which bureaucrats dictated terms to both management and labor as it allocated state favors. As Michael Vadum of the Capital Research Center notes, such state managerialism is a peculiarly foreign concept to America. He quotes the Italian dictator Mussolini as saying: "Fascism should more appropriately be called corporatism because it is a merger of state and corporate power." That merger is now underway here, at least until Mr. Obama and his Democrats get through the next couple of elections with the help of a grateful UAW.

from the Wall Street Journal, 2009-Apr-2, by Daniel Henninger:

Is This the End of Capitalism?
Hardly, but it's a great excuse for the antiglobalization crowd.

Heads of state, perplexed finance ministers, inflated retinues and journalists from 20 nations arrived in London yesterday to address "the greatest financial crisis since the Depression." By 4 p.m. London time today they will hold a press conference and go home.

Is there any chance we can adopt this system for Congress?

Possibly the G-20 kept it short to minimize the potential ruin visited on London by the professional street fighters fronting the anti-capitalism mobs on global TV screens.

In truth, the G-20's goal was accomplished before the first plane landed. The mere announcement of the meeting brought forth a torrent of pent-up "global" agendas.

The German magazine Spiegel crammed all of them into one headline: "Can the G-20 Save the World?"

"Who is going to save capitalism?" the Germans asked. Many, it appears, have been waiting for their 15 minutes to offer the answer.

China wants a new global currency to replace the inflatable dollar. The managing director of the International Monetary Fund, Dominique Strauss-Kahn, has said the world financial system needs an "early warning system," which one guesses the rocket scientists at the IMF would provide. France's Nicolas Sarkozy wants a global "financial regulator." On Sunday the New York Times raised its hand to announce the crisis "has led to a fundamental rethinking of the American way as a model for the rest of the world."

Here's my two cents worth: Beware of real-estate salesmen.

The housing bubble that floated into view in 2007 is turning into the blob that ate the world. Real-estate mortgages and their derivative securities are a significant problem. That discrete problem, however, has been pumped up to an historic "crisis of capitalism."

Capitalism didn't tank the U.S. economy. Overbuilt housing did. Overbuilt housing tanked the economies of the U.K. and Ireland and Spain. If little else, we've learned that artificially cheap housing sets loose limitless moral hazard.

Virtually every white-shoe financial institution in the world, plus the Russians, stuffed their balance sheets with securities carved out of the dreams of real-estate developers. This plunge had less to do with capitalism than with psychosis, defined in textbooks as "a mental illness that markedly interferes with a person's capacity to meet life's everyday demands." For sane bankers that includes due diligence and risk management.

In a normal environment, the problems revealed by the crisis in mortgage finance would produce fixes relevant to the problem, such as resetting the ratios of assets to capital for banks and hedge funds, or telling the gnomes of finance to rethink mark-to-market and the uptick rule. More energetic reformers might consider Gary Becker's suggestion that as financial institutions expand in size, their capital requirements tighten, so that compulsive eaters like Citigroup can fit inside their capital base.

Nothing's normal about now, however. After the full folly of the mortgage plunge became public in September 2008, the broad credit markets locked up, stock indexes fell and the world's economies spiraled into a severe recession. The loss of savings and jobs has been brutal. Someone has to take the fall for this, and it had to be more than the boys in mortgage-backed securities.

Two signal events in history are shaping the politics of the current economic crisis: the Great Depression and the Reagan presidency (and in Europe, Thatcherism).

The Depression put in motion an historic tension between public and private sectors over who sets a nation's course. After 50 years of public dominance, Reagan's presidency tipped the scales back toward private enterprise. The economic life of the ensuing 35 years became "the American model." Every waking hour of this economically liberal era, the losing side has wanted to tip the balance back toward public-sector power. The opportunity to achieve that goal finally arrived -- with the great recession of 2009. Thus rather than fixing just what the mortgage crisis broke, the G-20 suddenly became a meditation on the "future of capitalism."

No surprise that the French and Germans, who for years have wanted to slow such American fast runners as Microsoft and Intel, came to London seeking ponderous new bureaucracies euphemized as a "new global financial architecture." It's been a long time since anyone thought to elevate the IMF as an economic driver.

Meanwhile, the new U.S. president is attempting to replace the American model of some three decades with the Obama model, which promises to grow the U.S.'s $14 trillion GDP (something else he "inherited") with government investments in national health insurance and renewable energy technologies.

I'm thinking that the two happiest G-men in London are Hu Jintao of China and Lula da Silva of Brazil. Their game is catching up with the West. It's a lot easier to play ball in the G-20 league if in the future the competition will be running in slow motion.

from the Wall Street Journal, 2009-Apr-10:

Obama in a Pear Tree
Trade protectionism is the fruit of Big Labor.

Still think trade protectionism is good policy? Tell it to fruit growers in the Northwest, who are already feeling the bite of President Obama's decision to appease the Teamsters union and bar Mexican trucks from U.S. highways.

Mr. Obama acquiesced in Congress's unilateral rewriting of Nafta earlier this year, despite warnings of potential retaliation. Well, last month Mexico responded with a 20% tariff on select U.S. products, including pears, cherries, apricots and Christmas trees. The Capital Press agriculture Web site reports that pear exports to Mexico have already "ground to a halt" as importers stop buying them because of the cost and uncertainty. That's a potential annual loss of $50 million to $60 million in U.S. pear exports alone. "If we have that 20% tariff and Argentina enters the market, it could hurt our ability to ship fruit the rest of the season," said Jeff Correa, of the Pear Bureau Northwest.

That's how trade wars work. A tariff imposed to please a powerful domestic constituency leads to retaliation that whacks innocent bystanders who lack the ear of the White House or Speaker of the House. In this case, a payoff to the Teamsters stuffed in a spending bill has now become a hardship for the farm growers and workers of Oregon. We elect Presidents to stop this kind of economic damage, not to promote it.

from the Wall Street Journal, 2009-Mar-30:

Cap and Trade War
Team Obama floats a carbon tariff.

One of President Obama's applause lines is that his climate tax policies will create new green jobs "that can't be outsourced." But if that's true, why is his main energy adviser floating a new carbon tariff on imports? Welcome to the coming cap and trade war.

Energy Secretary Steven Chu made the protectionist point during an underreported House hearing this month, when he said tariffs and other trade barriers could be used as a "weapon" to force countries like China and India into cutting their own CO2 emissions. "If other countries don't impose a cost on carbon, then we will be at a disadvantage," he said. So a cap-and-trade policy won't be cost-free after all. Apparently Mr. Chu did not get the White House memo about obfuscating the impact of the Administration's anticarbon policies.

The Chinese certainly heard Mr. Chu, with Xie Zhenhua, a top economic minister, immediately responding that such a policy would be a "disaster" and "an excuse to impose trade restrictions." Beijing's reaction shows that as a means of coercing international cooperation, climate tariffs are worse than pointless. China and India are never going to endanger their own economic growth -- and the chance to lift hundreds of millions out of poverty -- merely to placate the climate neuroses of affluent Americans in Silicon Valley or Cambridge, Massachusetts. And they certainly won't do it under the threat of a tariff ultimatum.

But give Mr. Chu credit for candor. He had previously told the New York Times that "The concern about cap and trade in today's economic climate is that a lot of money might flow to developing countries in a way that might not be completely politically sellable." He is admitting that one byproduct of cap and trade is "leakage," by which investment and jobs are driven to nations that have looser or nonexistent climate regimes and therefore lower costs. At greatest risk are carbon-heavy industries such as steel, aluminum, paper, cement and chemicals that are sensitive to trade and where business is won and lost on the basis of pennies per unit of product. But the damage could strike almost any industry when energy prices "necessarily skyrocket," as Mr. Obama put it last year.

So in addition to all the other economic harm, a cap-and-trade tax will make foreign companies more competitive while eroding market share for U.S. businesses. The most harm will accrue to the very U.S. manufacturing and heavy-industry jobs that Democrats and unions claim to want to keep inside the U.S. A cap-and-tax plan would be the greatest outsourcing boon in history. And it may even increase CO2 emissions overall, because the developing nations where businesses are likely to relocate -- if they don't simply close -- tend to use energy less efficiently than does the U.S.

Meanwhile, carbon trade barriers would almost certainly violate U.S. obligations in the World Trade Organization. Since carbon energy cuts across so many industries, a tariff would presumably have to hit tens of thousands of products. Any restriction the U.S. imposes on imports can also just as easily be turned around and imposed on U.S. exports, whatever their carbon content.

Run-of-the-mill protectionism is already adopting a deeper shade of green. In January, the president of the European Commission said he may slap tariffs on goods from the U.S. and other non-Kyoto Protocol nations to protect European business. After Mr. Chu's comments, the U.S. steel lobby began calling for sanctions against Chinese steelmakers if Beijing doesn't commit to its own carbon limits, knowing full well that it won't. Look for more businesses to claim green virtue to justify special-interest pleading, a la the 54-cent U.S. tariff on foreign ethanol.

Democrats are already careless about trade -- i.e., the Mexican trucking spat, the "Buy America" provisions in the stimulus, and blocking the Colombia and South Korea free-trade pacts. Now cap and nontrade may lead to a retreat from the open global markets that have done so much to boost economic growth and innovation. The closer we get to the cap-and-trade dreams of Mr. Obama and Congress, the more dangerous they look.

from the Wall Street Journal, 2009-Mar-31:

The Obama Autoworks
At GM and Chrysler, politics is now Job One.

Responding to their plea for $21.6 billion more in taxpayer cash, President Obama yesterday declared "the end of that road" for GM and Chrysler. In the next breath, he seemed to put Washington and Detroit on a new road of politicized industrial policy. So pick your poison.

The Administration can be commended for at least promising some tougher medicine. Chrysler got a 30-day ultimatum to sell itself to Italy's Fiat. Having written a $4 billion check to Chrysler in December, taxpayers will still be on the hook for another $6 billion if the deal comes off. On cue yesterday, the companies said that was likely.

GM's CEO Rick Wagoner got the Presidential boot over the weekend, and GM was given two months to reorganize, or get forced into a "quick and surgical" bankruptcy. For once, we agree with Michigan Governor Jennifer Granholm, who called Mr. Wagoner "a sacrificial lamb." The Administration needed someone to take the fall to sate the anticorporate furies it has helped to unleash. Mr. Wagoner wasn't solely responsible for GM's bad business decisions, but only recently did he promote the kind of radical restructuring the company has long needed. We only wish someone in Washington would also be shown the door, starting with those at the Federal Reserve whose oil-price bubbles also helped to break the car makers.

Sacking a CEO for appearance sake was the easy part. Good luck trying to get the unions to make concessions on wages and legacy costs, and bondholders to agree to reduce the debt burden. A senior Treasury official told us the Administration isn't holding its breath and considers "surgical bankruptcy" the likeliest outcome. In that event, "a shiny new GM" would emerge, said the official, who didn't want to be identified. Asked why GM wasn't forced into Chapter 11 immediately, the official said the Administration wanted to avoid "years of uncontrolled chaos" and needed time to set the stage for "the more surgical process."

Even the Treasury's mention of bankruptcy counts as progress of a sort. President Bush did his legacy no favors by signing off on the bailout in December. Bankruptcy then would have saved taxpayers $17.4 billion (and counting), and started to put those companies or their assets to better use.

However, the United Auto Workers may take a different message from the firing of Mr. Wagoner and from Mr. Obama's speech. To wit, that GM is now politically too big to fail. Listen to Mr. Obama: "We cannot, we must not, and we will not let our auto industry simply vanish." No mention that Ford took no bailout. Or that a third of American auto workers, some 100,000, are employed by successful "transplant," or foreign, car makers in dozens of U.S. plants.

Union leaders outlasted Mr. Wagoner, refusing even to make the kind of concessions that Ford has wrested from them. They'll be even less likely to accept retiree contributions in stock now that the share price has tanked and they assume their Democratic friends will protect them.

Bondholders with $28 billion in GM debt are in for a rougher road. The Administration will offer them pennies on the dollar, nowhere near the 33 cents the ad hoc creditor committee has been seeking in a prepackaged bankruptcy. But Treasury figures the lenders may yet prefer something in a debt-for-equity swap, rather than little or nothing in Chapter 11.

Bankruptcy or not, the larger problem here is Washington's industrial policy. Even if Chrysler merges and GM restructures, Mr. Obama wants the companies to make the kind of cars the political class favors, whether or not consumers want to buy them. "The United States of America will lead the world in building the next generation of clean cars," the President said yesterday. He didn't mention a goal of profitability. To that end, Treasury tapped Fiat's know-how in small vehicles for Chrysler and wants GM to move in this direction.

Yet the Treasury's own "viability summary," released yesterday, points out that "GM's product portfolio is more vulnerable to CAFE [fuel-economy] standard increases than the portfolios of many of its competitors." Only nine of GM's "top 20 profit contributors in 2008" were cars; the rest were SUVs and trucks, which are politically incorrect on Capitol Hill and with the green lobbies. Chrysler has a similar problem. Even GM's much-vaunted electric Volt car is "too expensive to be commercially successful," according to Treasury.

In other words, Mr. Obama's industrial policy vision runs directly counter to a strategy that would get the companies back to profitability as soon as possible. To help them sell those unwanted cars, Mr. Obama yesterday was already pledging that taxpayers will cover new-car warranties. And he urged Congress to pass a new "incentive program" (read: subsidy) for "cleaner car" purchases.

All of which is to say that the taxpayer commitment to the Obama autoworks is only getting started. We're glad the Administration is at least talking a tougher line on bankruptcy than Mr. Bush. But the better route would have been to use Mr. Obama's political capital now, at the start of his term, to use bankruptcy to force the companies and their union to make the hard decisions that politics may still let them avoid.

From now on, GM and Chrysler are Mr. Obama's companies, and taxpayers should hold him accountable for every dollar they are forced to spend to save jobs for the UAW and to make cars that Americans don't necessarily want.

from the Wall Street Journal, 2009-Mar-31, by Holman W. Jenkins, Jr.:

GM Bankruptcy? Tell Me Another
The president isn't serious about reform for Detroit.

President Obama rightly says "sacrifices" must be made if GM is to emerge as a viable company. But there's one sacrifice he won't make: his re-election chances, by leaving the fate of the UAW truly up to a bankruptcy judge.

Keep that in mind amid the defenestration of Rick Wagoner, who was not as popular with UAW Chief Ron Gettelfinger as Mr. Wagoner's replacement, Fritz Henderson. Keep that in mind amid reports the administration favors a "quick and surgical" bankruptcy. It's a bluff. The same administration that inserted itself into GM's corporate governance to order the resignation of a CEO is hardly likely to defer to the prescribed legal order for a failing company, namely bankruptcy. Even a "prepackaged" filing runs too much risk of a judge imposing more "sacrifice" on the UAW than the administration is prepared to tolerate.

GM bondholders understand this: They've been intransigent precisely because they calculate the UAW is too important to Democratic electoral politics for Mr. Obama to risk losing control of the reorganization process to a bankruptcy judge.

The GM bailout has become a political operation run out of the White House. It will stay that way. Talk of UAW layoffs already disguises the fact that UAW workers are actually offered generous buyouts and early retirement -- they aren't just sent away with a last paycheck. What about Chrysler? A few weeks ago, Fiat was saying it would consider a merger if a loan from Washington was guaranteed. Now Washington is saying a loan will be forthcoming as long as Fiat does a deal. That's not an ultimatum -- that's a nod and a wink.

Mr. Wagoner did more than any GM executive to deal with the cursed legacy of 75 years of too much government attention. Not for him, though, and not for Team Obama, the real solution to make GM "viable": Getting rid of its North American business to end its UAW captivity.

That captivity, imposed by the 1935 Wagner Act, is the sole relevant factor distinguishing the Detroit Three from the world's other auto makers. The result is downright weird: "Our" auto companies operate in a world that's less "American," in a sense, than the Japanese and German companies that come here and enjoy a free labor market.

The Wagner world was given a second lease on life by a peculiar feature of Congress's 1975 fuel economy law. Known as the "two fleets" rule, it effectively forces Detroit to make its cheap small cars in high-wage domestic UAW factories, even if it means losing money on every car. The rule has no fuel-economy function. Its only purpose is to shield the UAW monopoly inside each Detroit auto maker from global labor competition.

You wouldn't have noticed, but a legislative accident two years ago almost stripped away the two fleets rule. A couple of Republican senators from the South took the lead in crafting the Senate's new fuel economy bill, and built it to please Nissan, which had railed against two fleets for its own reasons.

In the final bill, to no one's surprise, two fleets was quietly restored by Rep. John Dingell and Illinois Sen. Obama (among others) as a political favor to the United Auto Workers.

The UAW's Mr. Gettelfinger had testified, coyly, during Congressional hearings that failing to renew two fleets might cost 17,000 auto workers jobs building small cars. He didn't say that two fleets is in fact the fulcrum by which, for the past 30 years, the UAW has been able to defeat globalization.

He didn't say two fleets was the sine qua non for the past generation of the UAW's power to suck the Big Three dry.

Mr. Obama played the tough guy in getting rid of Mr. Wagoner, but he won't go after the labor monopoly. In fact, the union will emerge with a stronger grip on Detroit -- because it will be a major shareholder in a reorganized GM.

The irony is that Detroit has given plenty of evidence that it can make money, even with UAW overhead. Three of the top seven best-selling vehicles in February were Ford, Chevy and Dodge pickups.

Better than trying to rewrite GM's business relationships -- the job of a bankruptcy judge -- Mr. Obama might take up the duties of a president. He might try giving the country a coherent auto policy for a change. He could repeal two fleets so Detroit could build its small cars profitably offshore and tame the UAW monopoly in the process. He could dump CAFE or impose a $5 gasoline tax so at least customers would have a reason to buy the cars Washington is forcing Detroit to build.

None of this will happen. Mr. Obama will be content with incoherent policies that poll well -- which means GM, Chrysler and perhaps Ford eventually will need taxpayer subsidies as far as the eye can see -- or until a real bankruptcy sometime after November 2012.

from the Wall Street Journal, 2009-Mar-13, by Peter J. Hurtgen and John S. Irving:

Don't Let Government Dictate Labor Contracts

In the face of our increasingly dire economic situation, with job losses accelerating and businesses struggling, unions are pushing for the most fundamental change to the nation's primary labor law in more than 60 years. The Employee Free Choice Act (EFCA), a bill that failed in the last Congress, was reintroduced on Tuesday.

EFCA, as most people now know, would replace the 70-year-old guarantee of secret ballots in union elections with unreliable "authorization cards," often signed by employees under the watchful eye of union representatives and based upon extravagant promises. The new penalties and injunctions imposed -- including substantial fines -- are designed to intimidate employers into remaining silent during union campaigns so employees will not receive full information to make an informed choice. Meanwhile, there are no new penalties for unions, despite the potential for coercion in the card-signing process.

These changes would no doubt greatly expand union membership beyond the current 8% in the private-sector workforce and, hardly coincidentally, boost union dues as well. We are not opposed to increased unionization of employees per se. What this bill does is destroy the fundamental premises of our labor law.

Less publicized and arguably even worse, the EFCA injects government into collective bargaining. If a union and an employer cannot agree to their first contract in 120 days, the government will appoint a panel of arbitrators who will.

Mandatory arbitration is devastatingly bad policy -- it throws a monkey wrench into the collective bargaining process. Nothing would more certainly make private bargaining a waste of time. Why make concessions at the bargaining table that would simply move the starting point for arbitration?

An arbitration panel's power to dictate terms is virtually limitless. Such panels could impose uncompetitive wage rates and unworkable work rules. Arbitrators could also impose mandatory union dues and discharge for failure to pay.

Arbitration panels are by definition a stranger to the work place. Yet real, private agreements are products of the needs, desires, capabilities and resources of the negotiating parties who are anything but.

Collective bargaining strikes a balance between the normal desires of management to keep costs down and retain flexibility, and the union's desire to deliver on promises made to employees. Current law provides that bargaining parties are not required to make concessions. Thus, resolving these differences takes time, since sometimes their goals are unrealistic.

But parties' goals and demands are tempered by other bargaining dynamics, such as the respective rights to strike and lockout, about which this bill is silent. Most often, the delays that do occur in reaching first agreements are due to these dynamics and the realities of collective bargaining -- not to unlawful "bad faith" by either party, for which prosecution and injunctions already are available.

Despite what union leaders would have us believe, the system of collective bargaining in place since 1935 is not broken. Nor is the mechanism for determining union representation: In fact, unions currently win well over 50% of certification elections. (In the first half of 2008, they won 67% of the time.)

There is simply no basis for depriving employees of free choice, and employers and unions of meaningful opportunities to shape their own private bargains without government interference. The proper role for government is to bring parties to the table for good-faith bargaining after employees have freely chosen union representation; it is not to dictate terms of employment.

Mr. Hurtgen was director of the Federal Mediation and Conciliation Service from 2002-2004 and chairman of the National Labor Relations Board from 2001-2002. Mr. Irving was general counsel of the National Labor Relations Board from 1975-1979.

from the Wall Street Journal, 2009-Mar-19, by Elaine L. Chao:

Two Steps Back on Labor Rights

The Obama administration's zeal to not "waste a good crisis," as Secretary of State Hillary Clinton put it, has been stunning even for Washington insiders to behold. In the first 50 days of Barack Obama's presidency, Congress approved $1.2 trillion dollars in new spending, or $24 billion a day. That's $1 billion every hour. The national debt now is $11 trillion and climbing.

The Democratic Party's governing elite has long believed there is no problem that European-style policies cannot cure. This is why President Obama's agenda centers on vastly expanding entitlement programs, strengthening unions, and increasing government control over the private sector.

The stimulus bill contains multiple provisions that burden the already strained unemployment insurance system with new entitlements, such as paying workers who choose to leave the workforce for "family-related" reasons. Imposing such entitlements on an insurance system designed to support workers who are laid off compromises the integrity of the program. To sustain the expanded system in the future, states will have to levy higher unemployment insurance taxes on employers. And raising taxes on jobs will only lead to fewer job opportunities. That is why some governors such as Rick Perry (R., Texas) and Bobby Jindal (R., La.), are taking a pass on stimulus money that would broaden their states' unemployment benefits.

In a move that certainly pleased unions, within days of taking office Mr. Obama issued executive orders rescinding requirements for workers to be informed of their right not to pay portions of union dues attributable to political activities with which they may disagree. These orders are mere prelude to the forthcoming congressional debate over the "Employee Free Choice Act," which should more accurately be called the "Employee No Choice Act." This bill will deprive workers of their right to secret ballot elections in unionization efforts, and impose a 120-day deadline for companies to sign a labor contract -- after which government arbitrators would dictate labor contracts.

Efforts are also underway to cut the budget of the lone federal agency charged with protecting union members' rights and ensuring union integrity. In January, the Department of Labor's Office of Labor-Management Standards implemented a rule requiring that relevant information on union finances be provided to rank-and-file union members to better ensure transparency and accountability, as required by the Labor-Management Reporting and Disclosure Act of 1959. In the rush of actions after the inauguration, the Obama administration delayed the effective date of this rule. It remains to be seen if other union transparency and accountability rules will be gutted or revoked.

Americans should also be concerned about the protectionist impulses -- as evidenced by the "Buy American" provision of the stimulus package -- of those now in charge, which run counter to one of the painful lessons of the Great Depression. Impeding international trade will ignite retaliation by America's trading partners, deepening and prolonging the economic downturn. Policy makers should also resist closing America's doors to skilled workers from overseas, many of whom are educated in our universities and whose talent can help make our economy stronger. Yet provisions like the "Employ American Workers Act" in the stimulus package limits banks that receive government funding from employing skilled foreign workers.

European-style interventions to which the Obama administration is inclined will not make America more competitive in the world-wide economy. Such policies will not increase growth, will not decrease unemployment, and will not increase wages for workers. Evidence of this has been apparent for decades in Europe's declining growth rates, higher unemployment, lower per-capita income, and longer durations of unemployment. America has problems; Europe's are worse.

Yet despite all of this, the Obama administration seems intent on radically expanding government's role. This is because, as White House Chief of Staff Rahm Emanuel has stated, "crises are opportunities to do big things."

It was telling that in his recent address to Congress, the president downplayed the credit crisis's culpability for the recession and swiftly segued to implicating oil, health care and education. Why would the president draw a line between the recession and these other issues, unless he wants to exploit the current situation to advance an agenda unrelated -- and even antithetical -- to fixing the economy?

Perhaps spending trillions of taxpayers' yet unearned dollars seems trivial when socialized medicine and rewarding political allies are your priorities. But it is not the change most Americans had in mind.

Ms. Chao was the 24th U.S. Secretary of Labor.

from the Wall Street Journal, 2009-Mar-20:

Unionize or Die

The Employee Free Choice Act, a bill that would allow unions to organize worksites without secret-ballot elections, was introduced in Congress last week. And this week, we saw how far Big Labor will go to pass it.

On Tuesday the Service Employees International Union posted a YouTube video about the horrific death of a Tulsa, Oklahoma, man who fell into an industrial-sized clothes dryer while clearing a jam of wet laundry. The accident occurred at a plant operated by Cintas Corp., a large uniform supplier. The implication is that the accident never would have occurred if the worksite had been unionized, and that opponents of the union bill have blood on their hands.

The video's target is Oklahoma Rep. Dan Boren, a Democrat who recently declared that he'll vote against labor's top priority. The video concludes by calling for Mr. Boren by name to "stop risking workers' lives" and support the bill. The political ad also serves as a warning to other Democrats in Congress -- including Mark Pryor and Blanche Lincoln of Arkansas; Ben Nelson of Nebraska; Michael Bennet of Colorado; and Mary Landrieu of Louisiana -- who haven't declared how they'll vote. The message is that if they don't sign on the SEIU line, they'll get roughed up, and perhaps face a primary challenge next election.

The bill doesn't remove the secret-ballot option from the National Labor Relations Act but in practice makes it a dead letter. The bill allows a union to automatically organize a worksite if more than 50% of workers simply sign an authorization card, so pressure for employees to sign in public view would be enormous. The legislation also imposes a contract through binding arbitration if labor and management reach a stalemate.

Less than 8% of private sector workers today belong to unions, a number that has been falling for decades. Labor groups claim that membership is down because companies sack pro-union employees and threaten to shut down if workers organize. But the National Labor Relations Board, which fields these complaints, rejects almost all of the allegations after inspection. In 2005, for example, the NLRB found evidence of illegal firings in only 2.7% of the organizing election campaigns that took place that year.

Andy Stern, who heads the SEIU, has said he expects union membership to grow by at least a million within the first year of the measure's passage. That could translate into billions of dollars in mandatory dues revenue. So it's no wonder that activists have resorted to exploiting tragedies to gin up votes.

What labor activists are unwilling to acknowledge is that membership might be falling because workers are less interested in joining unions. Some employees may view labor unions as corrupt or overly politicized, and not without justification. (See Teamsters, Justice Department control of.) Others may be scared off by the precarious condition of heavily unionized industries such as autos and airlines. And many workers might plausibly conclude that one-size-fits-all labor contracts hold back the best and brightest in our modern economy.

This is Big Labor's fourth attempt to pass card check since 2003, and with mostly sympathetic Democrats now running Congress and the White House, they're getting mean. But it's encouraging to see responsible Democrats like Mr. Boren question the wisdom of a measure that will discourage hiring and make businesses less competitive. We hope Democrats who are currently on the fence stand by him, even if it means they could also soon be on the receiving end of a nasty attack.

from the Wall Street Journal, 2009-Mar-5, by Stephen Moore:

Failure to Stimulate
Even the CBO isn't optimistic about the economic impact of Obama's stimulus package.

Rep. David Camp, the ranking Republican on the House Ways and Means Committee, asked the Congressional Budget Office to estimate the economic impact of the new $800 billion stimulus plan. On Monday CBO came back with its astonishing reply: The whole thing is a net long-term negative for the economy.

CBO does say there will be a "positive near-term effect" over the next couple of years as GDP rises from the deluge of spending and debt. But, the agency adds, "the legislation will reduce output slightly in the long run."

The report also says the package of spending could have had a constructive long-term impact only if "it permanently changes incentives to work and save." Does it? In the words of CBO director Douglas Elmendorf, "the legislation will not" provide any such incentives. And remember: The CBO is run by the Democrats, Mr. Elmendorf was selected by the Democrats, the Democrats can get rid of him if they wish, and even he says the plan will make America poorer.

We were told by Nancy Pelosi et al. that the bill would fund long-term investments in solar power, weatherizing homes and Amtrak trains that were going to pay dividends for years to come. Just the opposite is true: The debt burden created by the bill will begin to drag down the economy after 2015 by the equivalent of up to 0.2% of GDP per year. Rep. Camp tells me the findings of a depressive economic impact from the stimulus law don't surprise him: "The small business and investment tax hikes increase the cost of staying in business and creating new jobs."

We should note that the CBO comes up with the right finding for the wrong reasons. As Dan Mitchell, the Cato Institute analyst, notes: "CBO's model is nonsense. In the short run, it assumes deficits are good, based on primitive Keynesianism. In the long run, it assumes the entire economy revolves around deficits, but in the other direction. Deficits are bad [so the model implies] that higher tax rates would be growth-enhancing."

Nonetheless, it's highly disconcerting that even Keynesians say that, in five or six years, we'd be better off without Mr. Obama's stimulus. In the long run we may be dead but between now and then, we will be poorer thanks to the stimulus law.

from the Washington Post, 2009-Mar-12, p.A19, by David Ignatius:

A 'Phony War' On the Crisis

For all the legislative commotion surrounding the economic crisis, we are still living in the equivalent of "the phony war" of 1939 and 1940. War has been declared on the Great Recession, but it's basically politics as usual. The bickering and mismanagement that helped create the crisis are continuing, even though we elected a president who promised a new start.

History tells us that phony war doesn't last forever and that when it ends, all hell breaks loose. World War II officially began with Germany's September 1939 attack on Poland, but for months it was just skirmishing on the sidelines. That hiatus ended on May 10, 1940, when Hitler invaded Belgium and its neighbors. Neville Chamberlain was out as British prime minister, and Winston Churchill arrived as the avenging angel.

We're still in the Neville Chamberlain phase when it comes to the economic crisis. The government is talking about sacrifice and solutions, but it hasn't yet made the tough decisions that will put the economy back together. Economist David Smick had it right in The Post this week when he said the administration had a three-pronged strategy: delay, delay and delay. The administration announces a rescue package but doesn't deliver details; it promises budget discipline but saves the hard decisions for later.

One reason this season feels so political is that Obama has stacked his administration with politicians and former government officials. You might think that with the greatest financial crisis of his lifetime, the president would want a few business leaders with experience managing large organizations in crisis. But no.

Here's the un-businesslike Obama Cabinet: At Treasury, a former government official; at State, a former senator; at Commerce, a former governor; at Defense, a former government official and university president; at Energy, a former professor; at Homeland Security, a former governor; at Health and Human Services, a former governor; at the White House as chief of staff, a former congressman; at the White House as economic czar, a former university president and government official.

All fine people, no doubt. But as thin on business experience as a Hyde Park book club. Maybe Obama sees business executives as too tainted by the financial crisis to be useful, or confirmable. The closest he comes is Paul Volcker's Economic Recovery Advisory Board -- which includes Jeffrey Immelt, chief executive of GE; Jim Owens, chief executive of Caterpillar; and venture capitalist John Doerr.

The culture of immobilism starts on Capitol Hill. These people are still working a four-day week, taking Fridays off so they can run home and tell constituents how diligent they are. They may talk about a crisis, but they don't act like it's real.

Republicans and Democrats are sticking to party-line votes on many key issues. The Democrats were egregious in packing the stimulus bill with pet projects that won't stimulate much except campaign contributions and in sticking with earmarks -- a symbolic outrage that Obama promised during the campaign he would eliminate. But the Republicans have been even worse in their strategy of opposing recovery plans, which has given a legislative face to Rush Limbaugh's "I hope he fails."

The legislative pettifoggery was captured by a New York Times headline this week: "Obama's Budget Faces Challenge by Party Barons; Panel Chairmen Oppose a Tax Plan but Want to Reduce Debt." This nonsense has to stop, folks. The party's over.

What will happen if Obama's efforts fail? That's the question that really worries me when I think about history. During the 1930s, European politicians failed to solve the economic crisis through normal democratic means. So the public turned elsewhere. People became so angry with bankers and business tycoons, and with the bickering parliamentarians, that they turned to authoritarian leaders who promised national action -- in the form of fascism. That nightmare scenario may seem far off today. But there's an ugly mood developing, as people start looking for villains to blame for the economic mess.

Obama administration officials are understandably nervous about taking a leap in the dark -- imposing emergency financial measures that could mean bankruptcy and nationalization for big automakers and giant banks. I hope they will find more creative, market-oriented approaches that break up the giants rather than patch them together under government ownership.

But the phony war has to end. The public is demanding action, and if this set of politicians doesn't provide it, they may turn to a scarier bunch.

The writer is co-host of PostGlobal, an online discussion of international issues.

from MarketWatch.com, 2009-Mar-6, by Moming Zhou:

Gold tops $940 as jobless data fuel safety buying

NEW YORK -- Gold futures rose Friday above $940 an ounce as investors sought safety in the metal after data showed the U.S. February unemployment rate soared to the highest level in more than 25 years.

Gold for April delivery rose $14.90, or 1.6%, to end at $942.70 an ounce on the Comex division of the New York Mercantile Exchange.

U.S. nonfarm payrolls shrank by 651,000 in February, the Labor Department reported Friday. The unemployment rate soared to 8.1%, the highest level since December 1983. Economists had expected job losses of 650,000 and an unemployment rate of 8%.

Over the past four months, the U.S. economy has lost more than 2.5 million jobs.

The bad economic data triggered "renewed safe-haven demand into precious metals," wrote James Moore, a precious metals analyst at TheBullionDesk.com. "However with cash liquidity still tight and given the volatile moves in equities, further gains could be limited."

Gold had tumbled 9% in eight straight sessions after it topped $1,000 an ounce on Feb. 20. Profit-taking and forced liquidation had contributed to the slump, analysts said, as some investors were forced to sell gold to cover their losses in other markets.

After Friday's gain, gold ended the week almost flat.

Also supporting gold prices Friday, the U.S. dollar fell against the euro, following the weak jobs report. A weaker dollar tends to push up dollar-denominated gold prices.

Morgan Stanley analysts said Thursday in a report that they expected gold prices will average $1,000 this year, up from the $900 they predicted earlier this year.

The Bank of England cut its key lending rate Thursday nearly to zero and announced it would launch an unprecedented program to effectively print money by buying up assets from financial institutions.

The European Central Bank also dropped its key lending rate to the lowest level in its decade-long history as it fights a deepening euro-zone recession.

"We still expect market conditions to favor gold prices, given uncertainty in both global and financial markets as well as our optimism that central banks will do whatever it takes to bolster liquidity," wrote Morgan Stanley commodities analyst led by Hussein Allidina in the report.

In other metals trading Friday, March copper rose 2.1% to $1.6805 a pound. March silver rose 1.7% to $13.323 an ounce, while April platinum added 1.3% to $1,078.70 an ounce and the March contract for palladium added 1.9% to $203.50 an ounce.

Gold holdings in SPDR Gold Shares, the largest gold exchange-traded fund, again stood at a record high of 1,029.29 tons on Thursday, unchanged for a sixth day, according to the latest data from the fund.

SPDR Gold gained 0.5% to $92.45.

Among metals-sector equity benchmarks, Shares of Barrick Gold Corp. rose 0.5% to $28.97 and South Africa's Gold Fields Ltd. gained 6.4% to $11.36, while Goldcorp Inc. slid 0.9% to $29.69.

The Amex Gold Bugs Index, which tracks the share prices of major gold companies, added 0.6% to 287.97.

The iShares Gold Trust ETF gained 0.5% to $92.49, while the iShares Silver Trust ETF added 0.1% to $13.16.

from the Taipei Times, 2009-Mar-18, p.9, by Bjorn Lomborg:

Getting rid of coal-fired power plants will not be that easy
While the belief that coal is evil is widely shared, it is also plainly wrong. Coal also provides benefits that cannot be replicated with renewable energy

One of the stranger spectacles of the climate change debate was the sight, earlier this month, of NASA climate scientist Jim Hansen marching hand-in-hand with actress Darryl Hannah outside the Capitol Coal Power Plant in Washington.

Hansen promised to brave arrest at what was billed as the world's largest direct-action climate change protest. Instead, the worst snowstorm in three years reduced the size of the crowd, prevented special guests from arriving, and hindered efforts to use a solar panel to light up a protest billboard. The police reportedly told the crowd that they didn't want to arrest anybody who didn't want to be arrested, and nobody was.

That didn't stop the protesters from proclaiming the event a success.

“Victory: This is how to stop global warming,” declared the Web site of Capitol Climate Action. And, indeed, the US House of Representatives speaker and Senate majority leader called on the Architect of the Capitol to stop using coal for the Capitol Power Plant (albeit days before the rally).

But if stopping global warming were this easy, I — and everybody I know — would be painting placards for the next round of direct action.

Hansen condemns coal-fired power plants as “death factories,” and his belief that coal is evil is widely shared. It is also obviously wrong. If we were to stop using coal tomorrow, we would discover that it remains a vital source of life. Coal accounts for almost half of the planet's electricity supply, including half the power consumed in the US. Coal keeps hospitals and core infrastructure running, provides warmth and light in winter, and makes life-saving air conditioning available in summer. In China and India, where coal accounts for about 80 percent of power generation, it has helped to lift hundreds of millions of people out of poverty.

It is little wonder, then, that US Energy Secretary Steven Chu, who two years ago described the expansion of coal-fired power plants as his “worst nightmare,” now calls coal a “great natural resource.”

The vital question is what would replace coal if were to stop using it. Judging from their chant — “No coal, no gas, no nukes, no kidding” and “Biofuels — hell no!” — the protesters in Washington would rule out many plausible alternatives.

Solar and wind power appear to be acceptable, but both are much less reliable than coal, and much more expensive. Only about 0.5 percent of the world's energy comes from these renewable sources. Even with optimistic assumptions, the International Energy Agency estimates that their share will rise to just 2.8 percent by 2030.

One reason is that we don't know how to store the energy from these sources: When the wind doesn't blow and the sun doesn't shine, what powers your computer or the hospital's operating room?

Moreover, renewables are still costly. Recently, former US vice president Al Gore and UN Secretary-General Ban Ki-moon claimed that, “in the US, there are now more jobs in the wind industry than in the entire coal industry.” Never mind that the numbers were massaged, because they still hold a valuable lesson. The US gets 50 percent of its electricity from coal but less than 0.5 percent from wind. If it takes about the same manpower to produce both, wind power is phenomenally more expensive. The equivalent of more than 60 million barrels of oil is consumed in coal every day, and there is no affordable “green” alternative. There is an ample and cheap supply of coal for several centuries. We need to accept that much of the world's cheap coal will be burned — but we should focus on capturing the carbon dioxide. In agreements announced by the Obama administration, the US is working with China and Canada on to develop this technology.

The end of fossil fuel's stronghold will come when we have cheap alternatives, especially in developing countries. That day will arrive sooner if governments spend a lot more money on low-carbon energy research, which is woefully inadequate. Every country should ideally commit to spending 0.05 percent of GDP exploring non-carbon-emitting energy technologies. This would cost US$25 billion per year — a 10-fold increase in global financing — and create momentum to recapture the vision of delivering a low-carbon, high-income world.

Coal contributes strongly to global warming, but no amount of political theater can alter the inescapable fact that it also provides benefits that we cannot yet replicate with renewable energy. Braving arrest with Hollywood stars is a diversion. Declaring true victory over global warming will take a lot more pragmatism, and a lot more work.

Bjorn Lomborg, the director of the Copenhagen Consensus Center, is an adjunct professor at the Copenhagen Business School.

from the Wall Street Journal, 2009-Mar-16:

Everyone Hates Ethanol

These days, it's routine for businesses to fail, get rescued by the government, and then continue to fail. But ethanol, which survives only because of its iron lung of subsidies and mandates, is a special case. Naturally, the industry is demanding even more government life support.

Corn ethanol producers -- led by Wesley Clark, the retired general turned chairman of a new biofuels lobbying outfit called Growth Energy -- want the Obama Administration to make their guaranteed market even larger. Recall that the 2007 energy bill requires refiners to mix 36 billion gallons into the gasoline supply by 2022. The quotas, which ratchet up each year, are arbitrary, but evidently no one in Congress wondered what might happen if the economy didn't cooperate.

Now the recession is hammering demand for gas. The Energy Information Administration notes that U.S. consumption fell nearly 7% in 2008 and expects another 2.2% drop this year. That comes as great news for President Obama, who is achieving his carbon-reduction goals even without a new carbon tax, but the irony is that the ethanol industry is part of the wider collateral damage.

Americans are unlikely to use enough gas next year to absorb the 13 billion gallons of ethanol that Congress mandated, because current regulations limit the ethanol content in each gallon of gas at 10%. The industry is asking that this cap be lifted to 15% or even 20%. That way, more ethanol can be mixed with less gas, and producers won't end up with a glut that the government does not require anyone to buy.

The ethanol boosters aren't troubled that only a fraction of the 240 million cars and trucks on the road today can run with ethanol blends higher than 10%. It can damage engines and corrode automotive pipes, as well as impair some safety features, especially in older vehicles. It can also overwhelm pollution control systems like catalytic converters. The malfunctions multiply in other products that use gas, such as boats, snowmobiles, lawnmowers, chainsaws, etc.

That possible policy train wreck is uniting almost every other Washington lobby -- and talk about strange bedfellows. The Alliance of Automobile Manufacturers, the Motorcycle Industry Council and the Outdoor Power Equipment Institute, among others, are opposed, since raising the blend limit will ruin their products. The left-leaning American Lung Association and the Union of Concerned Scientists are opposed too, since it will increase auto emissions. The Natural Resources Defense Council and the Sierra Club agree, on top of growing scientific evidence that corn ethanol provides little or no net reduction in CO2 over the gasoline it displaces.

The biggest losers in this scheme are U.S. oil refiners. Liability for any problems arising from ethanol blending rests with them, because Congress refused to grant legal immunity for selling a product that complies with the mandates that it ordered. The refiners are also set to pay stiff fines for not fulfilling Congress's mandates for second-generation cellulosic ethanol. But the cellulosic ethanol makers themselves already concede that they won't be able to churn out enough of the stuff -- 100 million gallons next year, 250 million gallons in 2011 -- to meet the targets that Congress wrote two years ago.

So successful but politically unpopular businesses will be punished for not buying a product that does not exist -- from companies that haven't yet found a way to succeed despite generous political and taxpayer advantages. The next step is to use cap and trade to make green alternatives look artificially good by comparison. Even then they'll probably still be bottomless money pits.

To recap: Congress and the ethanol lobby argue that if some outcome would be politically nice, it should be mandated (details to follow). Then a new round of market interventions is necessary to fix the economic harm resulting from the previous requirements, while creating more damage in the process. Ethanol is one of the most shameless energy rackets going, in a field with no shortage of competitors.

from the Wall Street Journal, 2009-Mar-17:

Tax My Products, Please

Imagine a Google executive demanding a tax on software, or General Mills asking for a tax on wheat. That's where we now are in the U.S. auto industry, with Ford CEO Alan Mulally believing he has little choice but to seek a tax on the very fuel that powers his products.

Mr. Mulally was a guest recently at this newspaper's ECO:nomics conference in Santa Barbara, where he outlined his efforts to revamp the struggling car maker. He said one problem is that America didn't have an "integrated energy policy." On the one hand, the government "regulated" smaller cars by "mandating average fuel mileage improvements," but on the other hand "with low fuel prices and low interest rates over the years, the U.S. consumers have chosen generally larger vehicles."

Mr. Mulally offered his own solution to the mismatch, artfully explaining that we needed to "involve the consumer in our energy policy." In case anyone missed his point, Michael Jackson, CEO of AutoNation, the largest auto dealer in the country, was more explicit: "Mr. Mulally said it very elegantly last night and I will say it more straightforward. We need more expensive gasoline."

While last year's energy spike briefly encouraged small-car sales, Mr. Jackson complained that those sales have plummeted with gas prices. "I have fuel-efficient vehicles parked at my dealerships as far as the eye can see. I can't give them away." He figures a tax that guarantees a gas-price floor of $4 a gallon is a "good start." Mr. Mulally, for his part, talked about how good Ford's sales of small cars were in Europe, and that "one of the reasons is that gasoline and diesel is somewhere between seven and nine dollars a gallon."

So: The U.S. government mandates fuel-economy standards that force Detroit to make cars Americans don't want to drive. When Detroit loses money on those cars, Washington throws taxpayer dollars at its mistake, and the car makers demand a tax increase that would prod Americans to buy the unpopular cars that Washington mandates. As for what the American consumer or taxpayer wants -- or can afford in today's economy -- who cares? Welcome to government-run energy policy.

from the Wall Street Journal, 2009-Mar-17:

The Teamsters War

President Obama often campaigned as a trade warrior, and now he's getting his wish. Mexico announced yesterday that it will raise tariffs on 90 U.S. products, affecting some $2.4 billion in goods across 40 states. The move was retaliation for the recent decision by Congress, signed into law by Mr. Obama, to close the Southern U.S. border to Mexican trucks.

Proponents cloaked the decision in safety language, insisting that the Mexican trucks are a road hazard. However, a federal pilot program has shown that Mexican trucks actually have fewer violations than do American. The real hazard here is the new Administration's obeisance to the Teamsters, who endorsed Mr. Obama early in the 2008 Democratic primaries and demanded the trucking shutdown.

Before Mexico's retaliation, Teamsters spokesman Bret Caldwell told the Los Angeles Times, "we've already lost the trade war with Mexico . . . there is nothing more that Mexico could do to us that is worse than what they've already done." We're not sure the U.S. makers of (so far unspecified) farm and industrial products now facing Mexican tariffs will look at this protectionist outbreak so cheerfully.

By rejecting Mexican trucks, the Administration violated the North American Free Trade Agreement and picked a needless fight with a good neighbor. The White House scrambled yesterday in the wake of the Mexican announcement, saying it wants to work with Mexico to come up with a new trucking plan. But unilateral treaty violations aren't the way to get other nations to negotiate concessions.

President Obama may think 90 products is no big deal, but from such little tariff fights do larger trade wars sometimes develop. Especially in a time of economic hardship, populist and nationalist passions are dangerous and can be hard to control. Mark this episode as another early example in which Mr. Obama has refused to stand up to a powerful Democratic interest group, with damaging consequences.

from the Wall Street Journal, 2009-Mar-5, by Daniel Henninger:

Has Obama Buried Reagan?
The GOP is faltering in its defense of Republican ideals.

The Democratic idea bank of Robert & Robert says it's safe to unload on Ronald Reagan.

Robert Reich: "It is the boldest budget we have seen since the Reagan administration, and drives a nail in the coffin of Reaganomics. We can basically say goodbye to the philosophy espoused by Ronald Reagan and Margaret Thatcher."

President Ronald Reagan compares Republican and Democratic economic policies on taxes and spending at the White House.

Robert Shrum: "Obama is not only unwinding Reagan's policies, he is offering a Rooseveltian paradigm that justifies government pragmatically."

Hmmm. Let us consider an alternative universe.

The stock market has been in a free-fall (with a bounce off a ledge yesterday), dismantling the saved wealth of millions of individual Americans who must feel they are living through the exploding rubble of some Hollywood disaster movie.

In reaction, Republicans, true to form, set sail for a deserted island to ponder a dispute between Rush Limbaugh and Republican National Committee Chairman Michael Steele. At issue: Who's captain of the GOP Titanic.

Someone said, "A crisis is a terrible thing to waste." Why are the Republicans wasting it?

If the Democrats are willing to bet the entire U.S. economy on a 1931 theory known as the Keynesian multiplier, surely Republicans can excavate and relearn the core idea handed down to them by Ronald Reagan. That idea was known as economic growth.

Freed to choose between these two competing ideas, I'm guessing many voters would go for growth. All that's needed is just one Republican who can explain this idea halfway as well as Ronald Reagan.

Arguably at no time in their lives have more Americans been this sharply focused on the economy. They think and talk about nothing else. The Republicans have been handed on a tarnished silver platter the chance to offer the American people an alternative vision of how their economy works -- and grows.

They should take political ownership of the 75% of the U.S. economy that the Democrats have abandoned -- the private economy.

Over the past four decades and the decline of private-sector industrial unions, professional Democrats -- politicians, intellectuals like Robert & Robert, campaign professionals, unions and satellite groups -- have severed their emotional and intellectual connection with private production.

Today, frontline Democrats see the private sector as doing two things: It produces tax revenue for $3.9 trillion federal budgets, and it shafts workers. The private sector in the Democratic worldview is necessary but nasty. Their leadership gives the impression of not having the simplest understanding of how an employer's life unfolds day to day.

This week's NBC News/Wall Street Journal poll finds President Obama with a 60% approval. That's high alright, as in high anxiety: 44% say the nation is "off on the wrong track," 41% see it headed in the right direction, and 15% of respondents are in a gray fog.

I have a poll question: Has anyone in America had a single upbeat conversation about anything the past three weeks?

Beyond the stock market, there is a reason why, despite much goodwill toward his presidency, the Obama response to the faltering economy has left many feeling undone. There isn't much in his plan to stir the national soul. It's about "sacrifice" now so that we can live for a future of small electric cars and windmills. This may move the Democratic Party's faith communities, but it cannot revive a great nation. If the Democrats want to embrace market failure as a basis for their ideology, let them have it. As politics, it's a downer.

What Ronald Reagan knew and they don't is that what moves a nation is the vital, teeming life of the private economy -- work, ideas, innovation, the excitement of production, getting bigger. Growth. In the past this world was depicted as blast furnaces and factory chimneys. Today the economy's sinews are harder to see, but they exist in tens of thousands of small-cap, mid-cap and fat-cap companies.

The Republicans -- Romney, Huckabee, Jindal, Pawlenty, Sanford, Newt, Sarah and several hundred 2010 congressional candidates -- must rediscover a way to talk about the living world of the real economy. Their vocabulary now consists mainly of policy-wonk spinach -- "fiscal responsibility," "reduce the debt," and even "tax cuts." True but insufficient.

What Rush Limbaugh was trying to tell that conservative audience in so many words was, Don't be embarrassed. Don't be embarrassed about embracing the world of free markets, competition, entrepreneurship and profit. If you don't know how to talk about it, reread the apostles and evangelists of private economic growth -- Ronald Reagan's "A Life in Letters," Milton Friedman's "Free to Choose," Henry Hazlitt's "Economics in One Lesson."

Politics, it has been recently demonstrated, is about ideas and language. The conservative movement is not at a loss for proven ideas, and in the U.S. the most powerful of these -- running in an upward line since the Industrial Revolution -- is the idea of private economic growth. The Democrats don't want the private economy anymore and conservatives have forgotten how to talk about it. Democrats are betting their opponents will forget even where Ronald Reagan is buried. They should be so lucky.

from US News & World Report's Capital Commerce blog, 2009-Mar-5, by James Pethokoukis:

Jim Cramer to Barack Obama: You've Made Things Worse

Self-described "middle-of-the-road Democrat, Obama supporter and CNBC analyst Jim Cramer:

Look at the incredible decline in the stock market, in all indices, since the inauguration of the president, with the drop accelerating when the budget plan came to light because of the massive fear and indecision the document sowed: Raising taxes on the eve of what could be a second Great Depression, destroying the profits in healthcare companies (one of the few areas still robust in the economy), tinkering with the mortgage deduction at a time when U.S. house price depreciation is behind much of the world's morass and certainly the devastation affecting our banks, and pushing an aggressive cap and trade program that could raise the price of energy for millions of people.

The market's the effect; much of what the president is fighting for is the cause. The market's signal can't be ignored. It's too palpable, too predictive to be ignored, despite the prattle that the market's predicted far more recessions than we have. ... But Obama has undeniably made things worse by creating an atmosphere of fear and panic rather than an atmosphere of calm and hope. He's done it by pushing a huge amount of change at a very perilous moment, by seeking to demonize the entire banking system and by raising taxes for those making more than $250,000 at the exact time when we need them to spend and build new businesses, and by revoking deductions for funds to charity and that help eliminate the excess supply of homes.

Me: You can take all the investors who I've talked to who are more confident in Team Obama today than they were on Election Day and fit them into a Smart Car. And that's if they don't have groceries. The Pelosi-designed stimulus package. The income and investment tax hikes. The cap-and-trade carbon tax. A possible healthcare tax. The lack of banking resue plan. That's how you evaporate 30 percent of the stock market in four months. No wonder my guy Ed Yardeni put this out this morning; "I am becoming increasingly convinced that the cabal in Washington has no intention of ending the financial crisis. Instead, they see tremendous opportunities to gain more power by prolonging it."

James Pethokoukis is the money and politics blogger for U.S. News & World Report , where he writes the monthly Capital Commerce magazine column. Pethokoukis is also the assistant managing editor of the magazine's Money & Business section. He has written for many publications including the New York Times, the American, USA Today, Investor's Business Daily, and TCS Daily. Pethokoukis is also an official CNBC contributor and appears frequently on that network's Kudlow & Company, Power Lunch, and The Call shows. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, CNN, and Nightly Business Report on PBS. A 1989 graduate of Northwestern University where he double majored in Soviet politics and American history and a 1991 graduate of the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion.

from the Associated Press, 2009-Mar-8, by Deb Riechmann:

Recession on Track to Be Longest in Postwar Period

WASHINGTON — Factory jobs disappeared. Inflation soared. Unemployment climbed to alarming levels. The hungry lined up at soup kitchens.

It wasn't the Great Depression. It was the 1981-82 recession, widely considered America's worst since the depression.

That painful time during Ronald Reagan's presidency is a grim marker of how bad things can get. Yet the current recession could slice deeper into the U.S. economy.

If it lasts into April — as it almost surely will — this one will go on record as the longest in the postwar era. The 1981-82 and 1973-75 recessions each lasted 16 months.

Unemployment hasn't reached 1982 levels and the gross domestic product hasn't fallen quite as far. But the hurt from this recession is spread more widely and uncertainty about the country's economic health is worse today than it was in 1982.

Back then, if someone asked if the nation was about to experience something as bad as the Great Depression, the answer was, "Quite clearly, `No,'" said Murray Weidenbaum, chairman of the Council of Economic Advisers in the Reagan White House.

"You don't have that certainty today," he said. "It's not only that the downturn is sharp and widespread, but a lot of people worry that it's going to be a long-lasting, substantial downturn."

For months, headlines have compared this recession with the one that began in July 1981 and ended in November 1982.

_In January, reports showed 207,000 manufacturing jobs vanished in the largest one-month drop since October 1982.

_Major automakers' U.S. sales extended their deep slump in February, putting the industry on track for its worst sales month in more than 27 years.

_Struggling homebuilders have just completed the worst year for new home sales since 1982.

_There are 12.5 million people out of work today, topping the number of jobless in 1982.

"I think most people think it is worse than 1982," said John Steele Gordon, a financial historian. "I don't think many people think it will be 1932 again. Let us pray. But it's probably going to be the worst postwar recession, certainly."

The 1982 downturn was driven primarily by the desire to rid the economy of inflation. To battle a decade-long bout of high inflation, then-Federal Reserve Chairman Paul Volcker, now an economic adviser to President Barack Obama, pushed interest rates up to levels not seen since the Civil War. The approach tamed inflation, but not without suffering.

Hardest hit was the industrial Midwest; the Pacific Northwest, where the logging industry lagged from construction declines; and some states in the South, where the recession hit late.

Frustrated workers fled to the Sunbelt to find work. In Michigan, which led the nation in jobless workers, newspapers offered idled auto workers free "job wanted" ads in the classified section. Mortgages carried double-digit interest rates. When the 1982 recession ended, the national jobless rate had hit 10.8 percent.

Just like today, that recession led to political finger-pointing.

When the government reported a 10.1 percent jobless rate for September 1982, organized labor rallied across the street from the White House. A few protesters chained themselves to an entrance at the Labor Department. The U.S. Chamber of Commerce called it a national tragedy and blamed Democrats. Democrats called it a national tragedy and blamed Reagan.

Even months after the recession officially ended, Reagan was greeted in Pittsburgh by signs that said: "We want jobs, Mr. Hoover" and "Reagan says his economic program is working — are you?" President Herbert Hoover's term is forever linked in history with the Great Depression.

Those not as badly hurt have fuzzy memories of the 1981-82 recession.

Not Jim O'Connor of Pekin, Ill., who was president of United Auto Workers Local 974 when Caterpillar Tractor Co. was laying off workers in Peoria in the 1980s.

Maybe time has soothed the sting O'Connor felt, but he contends the economic problems facing workers today are worse than during the recession he survived nearly three decades ago.

"The days of walking out of one factory and walking into another one down the street are over," O'Connor said. He retired from Caterpillar in 2001 but thinks he might find part-time job to help pay his health insurance.

"When I hired in at Caterpillar in 1968, we had numerous factories here. Almost all of that has left the country or moved South. The unions don't have any leverage anymore at the bargaining table. So these young people (today) aren't only out of work, you know. They weren't making a living wage when they lost their job," he said.

Like Reagan did then, Obama is dishing up hope. Trouble is, people can't visualize any reward they might get from making it through this recession, said William Niskanen, an economic adviser to Reagan.

There's little hope of any gain from the pain. Falling housing and stock prices have undermined household wealth. People are worried about losing their jobs, their homes and their retirement savings all at a time when health care is weighing down income.

"In the 1980s, it was clear to people that the inflation rate was going to come way down and it did," Niskanen said. "There was a sense that we were going through a tough time for a while as a price of getting inflation down and that things would come back up. Today, they can't see any gain from what's going on."

Consumer confidence is in free fall. Banks are in peril. The overall economy, as measured by the GDP, shrank at a 6.2 percent annual rate in final three months of last year, the worst drop since the first quarter of 1982. The unemployment rate, at 8.1 percent in February, hasn't reached the 10.8 percent reported in November 1982, but the recession is not over.

It's not only blue-collar workers who are feeling the greatest anguish. Americans who are trapped in houses worth less than their mortgages are suffering. So, too, are people whose personal wealth is tied to the stock market. Personal wealth is dwindling in the U.S., and the effects of the financial meltdown have been felt around the world.

"This recession is broader, deeper and more complicated than virtually anything we have ever seen," Wachovia Corp. economist Mark Vitner said. "The whole evolution of the credit markets resulted in all sorts of complex financial instruments that are difficult to unwind. It's like trying to unscramble scrambled eggs. It just can't be done that easily. I don't know if it can be done at all."

He said he sees fear in the eyes of his clients.

"I've had people come up and hug me after a presentation, which is unusual," he said. "I haven't told them anything about how it's going to be better, but they just feel better having a better understanding of what's happening."

from the Wall Street Journal, 2009-Mar-4, by Robert J. Barro:

What Are the Odds of a Depression?
International evidence suggests there is a 20% chance our stock-market crash will lead to much worse.

Central questions these days are how severe will the U.S. economic downturn be and how long will it last?

The most serious concern is that the downturn will become something worse than the largest recession of the post-World War II period -- 1982, when real per capita GDP fell by 3% and the unemployment rate peaked at nearly 11%. Could we even experience a depression (defined as a decline in per-person GDP or consumption by 10% or more)?

The U.S. macroeconomy has been so tame for so long that it's impossible to get an accurate reading about depression odds just from the U.S. data. My approach uses long-term data for many countries and takes into account the historical linkages between depressions and stock-market crashes. (The research is described in "Stock-Market Crashes and Depressions," a working paper Jose Ursua and I wrote for the National Bureau of Economic Research last month.)

The bottom line is that there is ample reason to worry about slipping into a depression. There is a roughly one-in-five chance that U.S. GDP and consumption will fall by 10% or more, something not seen since the early 1930s.

Our research classifies just two such U.S. events since 1870: the Great Depression from 1929 to 1933, with a macroeconomic decline by 25%, and the post-World War I years from 1917 to 1921, with a fall by 16%. We also assembled long-term data on GDP, consumption and stock-market returns for 33 other countries, sometimes going back as far as 1870. Our conjecture was that depressions would be closely connected to stock-market crashes (at least in the sense that a crash would signal a substantially increased chance of a depression).

This idea seems to conflict with the oft-repeated 1966 quip from Paul Samuelson that "The stock market has predicted nine of the last five recessions." The line is clever, but it unfairly denigrates the predictive power of stock markets. In fact, knowing that a stock-market crash has occurred sharply raises the odds of depression. And, in reverse, knowing that there is no stock-market crash makes a depression less likely.

Our data reveal 251 stock-market crashes (defined as cumulative real returns of -25% or less) and 97 depressions. In 71 cases, the timing of a market crash matched up to a depression. For example, the U.S. had a stock-market crash of 55% between 1929-31 and a macroeconomic decline of 25% for 1929-33. Likewise, Finland had a stock-market crash of 47% for 1989-91 and a macroeconomic fall of 13% for 1989-93. We found that 30 cases where there were both crashes and depressions were also associated with wars. In fact, World War II is the worst macroeconomic event of the period, with strong U.S. wartime economic growth as an outlier.

In the post-World War II period, the Organisation for Economic Co-operation and Development (OECD) countries were strikingly tranquil up to 2008. The worst macroeconomic event in that period came in Finland in the early 1990s. Sweden also faced a financial crisis in the early 1990s, though it reacted quickly and is now being touted as a possible guide for leading the U.S. out of its current economic crisis.

Outside of the OECD, there have been many linked stock-market crashes and depressions since World War II -- including the Latin American debt crisis of the 1980s, Mexico's financial crisis in the mid-1990s, the Asian financial crisis of the late 1990s, and Argentina's financial turbulence that lasted until 2002.

Looking at all of the events from our 34-country history, we find that there is a 28% probability that a "minor depression" (macroeconomic decline of 10% or more) will occur when there is a stock-market crash. There is a 9% chance that a "major depression" (a fall of 25% or more) will occur when there is a stock-market crash. In reverse, the chance that a minor depression will also feature a stock-market crash is 73%. And major depressions are almost sure to have stock-market crashes (our data show the probability is 92%).

In applying our results to the current environment, we should consider that the U.S. and most other countries are not involved in a major war (the Iraq and Afghanistan conflicts are not comparable to World War I or World War II). Thus, we get better information about today's prospects by consulting the history of nonwar events -- for which our sample contains 209 stock-market crashes and 59 depressions, with 41 matched by timing. In this context, the probability of a minor depression, contingent on seeing a stock-market crash, is 20%, and the corresponding chance of a major depression is only 2%. However, it is still the case that depressions are very likely to feature stock-market crashes -- 69% for minor depressions and 83% for major ones.

In the end, we learned two things. Periods without stock-market crashes are very safe, in the sense that depressions are extremely unlikely. However, periods experiencing stock-market crashes, such as 2008-09 in the U.S., represent a serious threat. The odds are roughly one-in-five that the current recession will snowball into the macroeconomic decline of 10% or more that is the hallmark of a depression.

The bright side of a 20% depression probability is the 80% chance of avoiding a depression. The U.S. had stock-market crashes in 2000-02 (by 42%) and 1973-74 (49%) and, in each case, experienced only mild recessions. Hence, if we are lucky, the current downturn will also be moderate, though likely worse than the other U.S. post-World War II recessions, including 1982.

In this relatively favorable scenario, we may follow the path recently sketched by Federal Reserve Chairman Ben Bernanke, with the economy recovering by 2010. On the other hand, the 59 nonwar depressions in our sample have an average duration of nearly four years, which, if we have one here, means that it is likely recovery would not be substantial until 2012.

Given our situation, it is right that radical government policies should be considered if they promise to lower the probability and likely size of a depression. However, many governmental actions -- including several pursued by Franklin Roosevelt during the Great Depression -- can make things worse.

I wish I could be confident that the array of U.S. policies already in place and those likely forthcoming will be helpful. But I think it more likely that the economy will eventually recover despite these policies, rather than because of them.

Mr. Barro is a professor of economics at Harvard and a fellow at Stanford University's Hoover Institution.

from MarketWatch.com, 2009-Mar-3, by Christopher Hinton:

GE seeks government partnership in new economy
Conglomerate embraces the new relationship, seeks to profit from it

NEW YORK -- General Electric Co. is reading the tea leaves of the troubled global economy and has found a new partner to help it weather the storm: government.

In the new economy, the interaction between government and business will be changed forever, with government as a stronger regulator, an industry policy champion, a financier and key partner, GE Chief Executive Jeff Immelt wrote in a letter to shareholders, published late Monday.

In that context, the Fairfield, Conn.-based conglomerate plans to radically downsize its financial arm and capitalize on the strength of its infrastructure businesses, which are set to benefit from new government spending and demand for improved performance and energy efficiency, according to Immelt.

To be ready, he said the Dow component has taken "aggressive" actions to roll back costs, restructure financing and raise cash to grow its company, including the sharp reduction of its quarterly dividend announced last week.

"I believed that our diversified portfolio would protect us in all kinds of economic cycles, but we never anticipated a global financial system failure and its continuing economic fallout," Immelt wrote.

"Successful companies won't just 'hunker down'; they will seek out the new opportunities," he added.

Shares of GE fell 7.8% to close at $7.01, bouncing off a session low of $6.85. Since credit markets seized up in mid-September with the collapse of Lehman Brothers, the stock has fallen more than 70%.

Immelt is also a member of President Barack Obama's Economic Recovery Advisory Board, along with Caterpillar Inc. Chief Executive James Owens.

Shrinking GE Capital

The biggest drag for GE has been its financial arm, GE Capital, which UBS Investment Research said has lost asset value on its real-estate portfolio, is undercapitalized and short on reserves. It's also likely to bring about a credit-rating downgrade sometime in mid-April.

GE isn't the only manufacturer getting bruised by its financial unit. Aerospace and industrial goods provider Textron Corp. also has seen its stock bouncing along all-time lows as investors fret a credit downgrade due to the increasing uncertainty at Textron Financial Corp.

"The financial industry will radically restructure," Immelt said in his letter. "There will be less leverage, fewer competitors and a fundamental repricing of risk. It will remain an important industry, just different."

GE will refocus GE Capital to operate as a more focused and smaller segment, with plans to liquidate nonstrategic assets over the next several years, he wrote. "We continue to have a set of strong businesses in core lending to mid-market customers, who benefit from our expertise in energy, aviation and health care; in global consumer lending, including our banking and joint ventures and in real estate."

Equipment-services businesses, most of its consumer-mortgage books and a dozen or so small or subscale commercial and consumer platforms will be reduced, Immelt said. "In the past, investors asked me what was our target percentage for earnings contribution from financial services and I said below 50%. Going forward we expect 30% of our earnings to come from financial services."

Immelt added that GE provided $48 billion of new loans in the fourth quarter, and plans about $180 billion in 2009. The company is targeting returns in financial services to be about 15%.

Infrastructure at the top

GE foresees tailwinds for its infrastructure businesses, driven by after-market services, Immelt said. About two-thirds of the company's earnings come from services and there's currently a $121 billion backlog.

Aviation alone has a potential of $90 billion in service long-term revenues on the engines shipped in the last three years, according to Immelt.

"Our shop visits should grow 20% in 2009, as 40% of our engines have not had their first overhaul," he said. "Our key customers, like Southwest Airlines Inc., appreciate our services because they get predictable maintenance costs, improved reliability and increased engine residual value."

Another driver is infrastructure work tied to Obama's stimulus package, which seeks to rebuild highways, water systems, electrical grids and make government buildings more energy-efficient.

"Governments will invest to stimulate their economies, solve societal problems and create jobs. GE's broad portfolio and expertise position us as a natural partner," Immelt said.

from the Wall Street Journal, 2009-Mar-7, by Julia Vitullo-Martin:

A Hole Grows in Brooklyn
The local economy should have been left to develop on its own.

New York

In December 2003, Mayor Michael Bloomberg thought he had a slam dunk. He along with Brooklyn Borough President Marty Markowitz and developer Bruce Ratner struck a deal for a $4.3 billion development project that was to remake downtown Brooklyn by building expansive residential and retail space, and a gleaming new $950 million arena that would bring the New Jersey Nets to the borough.

Now, more than five years later, what's been brought to Brooklyn is a very large hole in the ground and a project that is coming to symbolize why large government projects can be riskier than allowing local residents to fix up their own communities. What we see in Brooklyn is the beginnings of the failure of a massive government plan to revive the economy of a neighborhood.

The idea behind the project, known as Atlantic Yards, was that a pro basketball team would appeal so strongly to sports-mad Brooklynites -- still smarting from their 1957 loss of the Dodgers to Los Angeles -- that they would embrace razing 53 smaller buildings and replacing them with 16 new ones built on a much grander scale.

The arena was to be built on a deck over the old Long Island Rail Road (LIRR) yards, for whose use the developer would pay $100 million to the financially strapped owner, the Metropolitan Transportation Authority (MTA). This win-win, proclaimed supporters, would provide 15,000 construction jobs, hundreds of millions of dollars (eventually) in tax revenues, thousands of units of affordable housing, and gorgeous green space.

The projected December 2008 ground-breaking for the arena came and went without a shovel hitting the dirt. The chances that the Nets will be playing in Brooklyn for the 2009-10 season, as promised, are nil. Architect Frank Gehry has laid off his entire Brooklyn staff, and Mr. Ratner's company (Forest City Ratner) has renegotiated its loans. Financing to finish the project has dried up amid a global financial meltdown.

Meanwhile, Forest City Ratner is losing $20 million a year on the Nets after having bought the team in anticipation of moving it. Adding insult to all of this injury, Newark, N.J., Mayor Cory Booker has been publicly wooing the Nets by saying Newark has a stadium ready to go. Indeed, the Nets will be playing two exhibition games in it this year.

The ill-fated project in Brooklyn reflects a breakdown of the state and city's strategy of favoring big-government, centrally supported, highly subsidized projects over the kind of small, privately funded, unsubsidized, incremental development that was already occurring in Prospect Heights, as the area is officially known.

It seems that smaller scale redevelopment wasn't happening fast enough for government officials, eager to jump-start Brooklyn's economy. They leapt to support the developer's contention that the neighborhood was blighted, and that its property owners were therefore vulnerable to the state's exercise of eminent domain.

Now officials have a mess on their hands. The development got just far enough to do considerable damage to the neighborhood without progressing far enough to do any good. Atlantic Yards has razed 26 buildings, with government help, creating the blight its developer had argued was there all along. Now there are gashes where late-19th century and early-20th century buildings once stood.

Local property owners and residents have been predicting disaster from the start, and have been fighting the project shrewdly and relentlessly from day one. Under the leadership of a former graphic designer, 39-year-old Daniel Goldstein, a group of locals formed "Develop -- Don't Destroy Brooklyn" in early 2004 to fight back.

As the owner of a sunny two-bedroom apartment in a building that had been renovated into condos in 2002, Mr. Goldstein is the kind of investor-resident who was moving into Prospect Heights just as government officials were calling it blighted. "It was just what I was looking for," he told me. "Great transportation, mixed-use development, on the nexus of four or five of the best neighborhoods in the country."

Indeed, a multitude of young New Yorkers who were also moving into the area agreed that Prospect Heights was developing just fine. Blogs proliferated, the most prominent of which was the tenacious Atlantic Yards Report, run by freelance journalist Norman Oder. No controversy or nuance went unnoticed. Every remark, decision or negotiation by the developer, the MTA or government officials got held up to public scrutiny.

For example, the MTA accepted Forest City Ratner's bid of $50 million for the LIRR's rail yard, even though an appraisal valued it at $214.5 million. Extell, a Manhattan developer, later submitted a competing bid for $150 million. The MTA rejected that bid, but did negotiate with Forest City Ratner to get it to double its bid to $100 million. The MTA then accepted Ratner's new bid, even though it was $50 million less than Extell's.

The MTA hasn't seen a dime of the money yet. The opposition has waged a relentless court battle that has halted construction of the arena. Mr. Goldstein, whose condo stands smack in the middle of the proposed arena site, is the lead plaintiff in a lawsuit aimed at blocking the state's use of eminent domain to condemn his building.

Mr. Ratner, an experienced developer of government-financed and tax-abated projects, hasn't given up. Early on he won support of the Association of Community Organizations for Reform Now, a national left-wing pressure group that lobbies for low-income housing. Mr. Ratner also courted activists Rev. Herbert Daughtry, pastor of the House of the Lord Pentecostal Church, and James Caldwell, head of Brooklyn United for Innovative Local Development, a jobs advocacy group. This has enabled Mr. Ratner to turn out influential African-Americans to counter the mostly white, middle-class opposition to Atlantic Yards.

Nonetheless, Prospect Heights now looks far worse than it did in 2003, when buildings were being renovated and sold to newcomers. If Mr. Ratner can restart the project, he may be able to restore some health to the neighborhood. If not, Atlantic Yards will go down as a massive, government-backed renewal project that destroyed the neighborhood it was intended to save.

Ms. Vitullo-Martin is a senior fellow at the Manhattan Institute.

from the Wall Street Journal, 2009-Feb-25, by Holman W. Jenkins, Jr.:

Obama Needs a 'Not To Do' List
The global economic crisis is exposing the president's preoccupations as the soppy indulgences they always were.

Put away childish things, President Obama said during his inauguration. He couldn't have found a theme more suited to the moment. The preoccupations that he and most politicians are used to running on, and that still characterize too many of his administration's utterances, are being exposed in the global economic disaster as the soppy indulgences they always were.

Put away the global warming panic. Mankind's contribution to rising CO2 levels raises serious questions, but the tens of billions poured into climate science have, by now, added up only to a negative finding. We don't really have the slightest idea how an increase in the atmosphere's component of CO2 is impacting our climate, though the most plausible indication is that the impact is too small to untangle from natural variability.

In any case, has Mr. Obama taken a gander at collapsing industrial production numbers around the world? He's going to get a big reduction in CO2 output whether he wants it or not. Nor will the public be moved to make costly, material changes in its energy habits, especially if the recent global cooling trend continues. What we'll get instead is already depressingly clear: climate pork, or lucrative favors for lobbying interests in the name of global warming that have no impact on global warming.

Put away the "energy independence" conceit. This notion, a favorite of Tojo and Hitler, was debunked by Churchill, who reasoned that true energy security came from a diversity of suppliers, not the foolish pursuit of self-sufficiency.

We only hurt our own cause by blocking development of our own resources and closing our markets to biofuel producers in the Southern Hemisphere. Let's grow up. Through all the ups and downs of oil prices, the U.S. has been able to buy all it wants, even from countries that wish us dead. We are a bigger buyer of oil than any country is a supplier of it. We've had the whip hand all along.

Put away Ponzi welfarism. The day is gone when politicians could have hoped to have begun and ended their careers before the public ever faced the implosion of redistribution programs that depend on the workforce growing faster than the retired population.

Put away the idea that more government control is the cure for health care. We already bribe, through supremely asinine tax policy, the most affluent, capable consumers on the planet not to use their smarts to make sure the system returns value for money.

Let's fix this -- by eliminating the tax subsidy for employer-provided health insurance. Then it might actually become economically feasible to subsidize health care for the needy.

Put away class warfare tax politics: Only a flatter, less distorting tax code is compatible with the kind of growth needed to get us out of the debt mess without inflation.

We already levy punitive tax rates on bank deposits, at a time when households need to build up savings and banks need deposits. Now Mr. Obama wants to raise taxes on small business, on investment, and on the incomes of the most productive job creators. Is he crazy?

Like a subprime borrower who hasn't gotten the news yet, now is not the time to go deeper into debt to build a third Jacuzzi. Our politicians need to address an accumulation of past excesses before sponsoring new ones.

Mr. Obama came to office without a conspicuous vision other than "bipartisanship" and a belief in the beneficent influence on America and the world of seeing a black man exercising the powers of the presidency. He wields his party's shibboleths like one who sees them mainly as levers for delivering the goods. His ideas about the exercise of politics, in fact, may be accurately reflected in the recent stimulus bill -- in office you supply the wish lists of those who put you there.

His will be a fascinating presidency to watch, not least because of his inexperience, his intellectual agility, and the crisis in which he finds himself. But his presidency will get really interesting in a year or two, or six months -- whenever he finally realizes that everything he thought he wanted to do is irrelevant. He'll then have to adapt an agenda for the world as it is, in which many childish things no longer have a place.

And, by the way, he kids himself if he believes he will be allowed, like FDR, to preside over a depression without being politically blamed for it. The public is different now -- the world is different -- and he will own the "Obama depression" sooner than he thinks.

from the Wall Street Journal, 2009-Feb-13, by Bradley R. Schiller:

Obama's Rhetoric Is the Real 'Catastrophe'
In 1932, automobile production shriveled by 90%.

President Barack Obama has turned fearmongering into an art form. He has repeatedly raised the specter of another Great Depression. First, he did so to win votes in the November election. He has done so again recently to sway congressional votes for his stimulus package.

In his remarks, every gloomy statistic on the economy becomes a harbinger of doom. As he tells it, today's economy is the worst since the Great Depression. Without his Recovery and Reinvestment Act, he says, the economy will fall back into that abyss and may never recover.

This fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don't come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate. Consider the job losses that Mr. Obama always cites. In the last year, the U.S. economy shed 3.4 million jobs. That's a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost -- fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.

Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82.

This was reflected in unemployment rates. The latest survey pegs U.S. unemployment at 7.6%. That's more than three percentage points below the 1982 peak (10.8%) and not even a third of the peak in 1932 (25.2%). You simply can't equate 7.6% unemployment with the Great Depression.

Other economic statistics also dispel any analogy between today's economic woes and the Great Depression. Real gross domestic product (GDP) rose in 2008, despite a bad fourth quarter. The Congressional Budget Office projects a GDP decline of 2% in 2009. That's comparable to 1982, when GDP contracted by 1.9%. It is nothing like 1930, when GDP fell by 9%, or 1931, when GDP contracted by another 8%, or 1932, when it fell yet another 13%.

Auto production last year declined by roughly 25%. That looks good compared to 1932, when production shriveled by 90%. The failure of a couple of dozen banks in 2008 just doesn't compare to over 10,000 bank failures in 1933, or even the 3,000-plus bank (Savings & Loan) failures in 1987-88. Stockholders can take some solace from the fact that the recent stock market debacle doesn't come close to the 90% devaluation of the early 1930s.

Mr. Obama's analogies to the Great Depression are not only historically inaccurate, they're also dangerous. Repeated warnings from the White House about a coming economic apocalypse aren't likely to raise consumer and investor expectations for the future. In fact, they have contributed to the continuing decline in consumer confidence that is restraining a spending pickup. Beyond that, fearmongering can trigger a political stampede to embrace a "recovery" package that delivers a lot less than it promises. A more cool-headed assessment of the economy's woes might produce better policies.

Mr. Schiller, an economics professor at the University of Nevada, Reno, is the author of "The Economy Today" (McGraw-Hill, 2007).

from Reuters, 2009-Feb-21, by Pedro Nicolaci da Costa and Juan Lagorio with editing by Gary Hill:

Soros sees no bottom for world financial "collapse"

NEW YORK - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.

"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."

His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama.

Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.

"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker said.

from Reuters, 2009-Feb-20, by Pedro Nicolaci da Costa and Kristina Cooke with editing by Tom Hals:

UPDATE 1-Crisis may be worse than Depression, Volcker says

NEW YORK - The global economy may be deteriorating even faster than it did during the Great Depression, Paul Volcker, a top adviser to President Barack Obama, said on Friday.

Volcker noted that industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.

"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker told a luncheon of economists and investors at Columbia University.

Given the extent of the damage, financial regulations must be improved and enhanced to prevent future debacles, although policy-makers must be cautious not disrupt things further while the turmoil is ongoing.

Volcker, a former chairman of the Federal Reserve famed for breaking the back of inflation in the early 1980s, mocked the argument that "financial innovation," a code word for risky securities, brought any great benefits to society. For most people, he said, the advent of the ATM machine was more crucial than any asset-backed bond.

"There is little correlation between sophistication of a banking system and productivity growth," he said.

He stressed the importance of preventing financial institutions large enough to pose a threat to the entire system from engaging in risky behavior such as running hedge funds or trading for its own accounts.

The current crisis had its beginning in global imbalances like a lack of savings in the United States, but policy-makers around the world were too reticent to take action until it was too late, Volcker said.

Now that the crisis had erupted, it was important to take decisive actions, including a more effective regulatory structure and some movement toward uniform accounting systems, Volcker said.

He said all financial institutions that are deemed too large to fail should be subject to increased scrutiny, echoing the findings of the Group of 30, a panel of policy-makers and influential economists, which he leads.

from the Wall Street Journal, 2009-Mar-2, by Mark Penn with E. Kinney Zalesne:

Laid-Off Lawyers and Other Professionals

With all the concern about America's manufacturing sector losing jobs, it is easy to miss that the newest phenomenon is the wholesale loss of professional jobs, the very jobs that fueled America's economic resurgence and political realignment over the last decade.

America has been losing manufacturing jobs for decades. The rest of the world has, too, including China, mostly because automation has made manufacturing more efficient. In the meantime, we have had huge growth in America's professional class: engineers, software writers, lawyers, doctors -- even licensed massage therapists.

Most Americans (64%) now classify themselves not as blue- or white-collar workers but as professionals. And so as this recession hit, Detroit is having another round of problems, but so is New York, San Francisco, Seattle and all of the professional capitals of America.

For the first time, even lawyers are facing wholesale layoffs. Big firms like DLA Piper have had to let go of 150 lawyers at a time, and this is rippling through the industry. In February alone, Goodwin Procter, Holland & Knight, Pillsbury Winthrop Shaw Pittman, and Latham & Watkins have laid off about 325 lawyers, in some cases cutting almost 8% of their attorneys.

Some important macrotrends have gotten us here -- education has been rising so that 54% now will at least start college. Most of these in college, communications, medical and law schools are women, and they are flocking to professional jobs. The work that America does for the rest of the world -- advertising, software, medicine and complex financial transactions -- has fostered this kind of growth.

And this has brought a largely unnoticed surge in American households (before the crisis) making over $100,000 of income. They went from 16 million to 24 million Americans in the last decade, with 73% of them having college degrees. And a look at the 2008 exit polls shows how significant the changes had become -- in 1996 only 9% of the voters said they made over $100,000. This year it was 26%. The so-called 1% earning over $200,000 were actually 6% of the voters.

This realignment came to have political implications, too: 52% of the over $200k voters picked Barack Obama, and 49% of the rest of the professional class did, too -- a huge increase from the one-third of those voters Democrats usually got.

These better educated, socially liberal voters recoiled from Sarah Palin and the pro-war Republicans to embrace Mr. Obama -- and now they are the ones hit with some of the most costly job layoffs. Soon many will also pay higher taxes. A law firm saves $250,000 for every lawyer they lay off, far more than a company saves laying off a bricklayer.

What is a laid-off lawyer to do? They principally had their savings in the stock and housing markets, which have been decimated. Unlike many blue-collar and public-sector workers, they have no union protection, limited pensions and suburban-family expenses. And as professionals, they have perfected how to do their narrow job well. But many have little direct business sense or experience.

Among the possible implications: First, I expect the cost of a good lawsuit to decline for perhaps the first time in history. So should the costs of all of the oversubscribed professions.

Second, unless the economy picks up in the next year, a lot of these professionals are going to need retraining in business fundamentals to try to get by opening up their own shops. They are going to need small business tax breaks to make a go of it, along with health-care coverage that will lapse when their Cobra coverage runs out. They will be competing with their old bosses, with lower costs and without a global reach. Some could be retrained as teachers, using their education to educate more new professionals.

Third, look for the growth of professional networks -- professional co-ops that offer topflight professional services for less and can form virtual teams as needed.

Fourth, look closely at some of the homeless you see in the big cities -- not all of the laid-off lawyers and other professionals are going to make it. Some are never going to get over the glory they had that so rapidly disappeared. These professions were supposed to be the way up and out, not back and down.

We are totally unprepared for this new phenomenon. We have safety nets for the chronically unemployed, for the fast-food workers let go (oddly they may be the only ones keeping their jobs in this recession), and for the manufacturing plants that have been shuttered. The stimulus will create construction jobs galore. But we have nothing for the tens of thousands of displaced advertising creatives and newspaper writers and editors that are among the newly unemployed. They can't build roads -- all they learned how to do was to write ads and draft editorials.

They were the backbone of the consumer-led growth in our economy; the arbiters of culture; the leaders of the new democratic change-oriented voters. They were the ones going from the suburbs to urban condos and buying hybrids even after the price of gasoline came back down.

We don't know how deep this recession will be and how much of this class will be wiped out. At first the idea of "laid-off lawyers" seems like the butt of a joke. "About time they got theirs," many people will say to themselves. But it's not a laughing matter to the hundreds of thousands of people and their families in all the professions who worked and studied hard to get to the next level in life, only to have their jobs and careers wiped out along with so many others.

from MarketWatch.com, 2009-Mar-5, by Rob Curran:

Stocks Close At 12-Year Lows; Citi At $1.02

NEW YORK -- U.S. stock indexes fell to their lowest levels in more than 12 years as one of the world's most prominent banks and an icon of American manufacturing traded like penny stocks.

In contrast to the cathartic flushouts of October and November, the latest sell-off has been a grinding process, lacking the panicky swings of those previous lows, traders said. Disillusioned by short-lived rebounds in November and January, traders are now gun-shy. Indeed, some participants showed signs of exhaustion when Wednesday's rally eased late in the session.

Not even after five consecutive declines did traders want to own stocks overnight, said Joseph Saluzzi, co-founder of Themis Trading.

"Nobody wants to get in the way as the freight train comes down the embankment," he said.

The Dow Jones Industrial Average fell 281.40 points, or 4.09%, to 6594.44, its lowest close since April 15, 1997 and its 14th decline in 18 sessions. The Nasdaq Composite, which had held above its November lows until Thursday, fell 54.15, or 4.00%, to 1299.59, its lowest finish since March 12, 2003. The broad Standard & Poor's 500 index shed 30.32, or 4.25%, to 682.55, 56.4% below its bull-market peak in October 2007. That's the biggest drop for the market since the 1930s.

One emblem of that decline: Citigroup fell 11 cents, or 9.7%, to 1.02 after dipping below $1 for the first time earlier in the session. In May 2007, Citi was the biggest bank in the U.S. by market capitalization and traded for more than $55. Since then, the collapse of the mortgage securitization business and the slide in value of other assets has necessitated the rescue of Citigroup and other financial institutions, raising the specter of nationalization.

"If you had told me in the summer of 2007 that [Citi] would dip below $1, I would have said 'you're crazy'," said Saluzzi. "They have so many liabilities, so much bad stuff, they wouldn't even be trading if they weren't being supported by the government.

"The banks are a disaster."

Also spurring a downward spiral, credit-ratings agency Moody's Investors Service warned of pressures on two banks that had held up better than some of their rivals in the credit crisis, Wells Fargo and JPMorgan Chase.

Wells Fargo shares fell 1.54, or 16%, to 8.12 after Moody's cut its credit rating. JPMorgan, thought to be the healthiest of the big three Dow-component banks, fell 2.70, or 14%, to 16.60. Moody's warned tight credit would limit JPMorgan's profit potential.

As in the 1930s, nothing seems to stop a contagion of confidence crises from spreading through the financial sector.

"It's just a never-ending spiral," said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund.

What's bad for General Motors:

GM fell 34 cents, or 15%, to 1.86, after its auditor said it may not be able to stay afloat without more government loans.

The possibility of a bankruptcy filing from the major U.S. employer was a stark reminder of an issue that was on the backburner, Saluzzi said. On Friday, the market will get a look at the Labor Department's payroll report for February.

Life insurers, who have suffered because of worries about their portfolios of equities and credit securities, sold off heavily. MetLife fell 2.62, or 18%, to 12.10; Hartford Financial Services Group shed 1.01, or 20%, to 4.13.

General Electric fell 3 cents to 6.66 even after the conglomerate sought to reassure the market about its capital position, saying its lending unit, GE Capital would be profitable in the first quarter.

GE and banks such as U.S. Bancorp have recently cut dividend payments. Those dividend payers outside the financial sector that have cash on hand are seeking to draw income-seeking investors currently fleeing banks.

Dow component Wal-Mart Stores rose 1.26, or 2.6%, to 49.75. The world's largest retailer by sales boosted its annual dividend by 15% to $1.09 a share, in the wake of a surprisingly large 5.1% increase in February same-store sales

Canadian Natural Resources rose 1.38, or 4.6%, to 31.49 after the oil-and-gas giant boosted its quarterly dividend and said it was making progress on an oil-sands project.

Adobe Systems rose 60 cents, or 3.7%, to 16.92. The maker of Acrobat Reader and other software said it expects to meet its fiscal first-quarter earnings projection, as cost controls offset a decline in revenue.

Quitting time? Altria added 58 cents, or 3.9%, to 15.65 after the cigarette maker said it would raise prices on its Marlboro brand and others by 71 cents a pack.

But rival Reynolds American, maker of the Camel brand of cigarettes, fell 98 cents, or 2.9%, to 32.95. Congress gave the Food and Drug Administration oversight powers for some cigarette products, in a move that could affect the business practices of "Big Tobacco."

Rohm & Haas, a maker of specialty paints whose merger deal with Dow Chemical is on the rocks, fell 1.20, or 2.2%, to 54.01. CNBC reported that the two chemical companies are seeking to settle the matter before a court date Monday. Dow Chemical fell 59 cents, or 8.4%, to 6.47.

from MarketWatch.com, 2009-Mar-3, by Rob Curran:

US Stocks Close Lower; GE Drags DJIA To 12-Year Low

NEW YORK -- U.S. stock indexes fell for the fifth straight session on Tuesday to the lowest point in more than 12 years as auto and home sales data helped perpetuate the most punishing bear market in the post-World War II era. The Standard & Poor's 500 closed below 700 for the first time since 1996.

General Electric was the weakest stock on the Dow Jones Industrial Average as worries mounted that its lending unit would lose its crucial AAA debt rating. Shares of the conglomerate, long seen low-risk, fell 59 cents, or 7.8%, to 7.01.

February auto sales from Ford Motor and General Motors corroborated grim signals from manufacturing data Monday and pending home sales data Tuesday. Together, the reports indicate the economic paralysis that set in when Lehman Brothers failed in September lingers despite more than a trillion dollars committed by the U.S. government to save banks and stimulate the economy.

General Motors said February light-vehicle sales fell by 53% to 126,170, the worst February for the car maker's sales since 1967. In a reflection of the market's despairing mood, GM's shares ticked up after the report, before finishing down 2 cents, or 1%, at 1.99. Ford Motor shares closed down 7 cents, or 3.7%, to $1.81 after it reported a 48% drop in light-vehicle sales for February.

"Given the magnitude of this crisis we may have to eventually see very cheap levels before we bottom," Deutsche Bank analysts said in a research note. The market's precipitous decline to levels considered "cheap" is "not a reason to suggest an imminent sustainable bounce."

The Dow Jones Industrial Average fell 37.27 points, or 0.55%, to 6726.02, its fifth-straight decline and its eleventh in the past 13 sessions for its lowest close since April 21, 1997. The broad Standard & Poor's 500 index fell 4.49 points, or 0.64%, to 696.33, its lowest close since the Oct. 10, 1996. The S&P is off 56% from its record high in October 2007. The Nasdaq Composite fell 1.84 points, or 0.14%, to 1321.01, and has lost 14% in 12 sessions. The Nasdaq is five points above its five-and-a-half year closing low recorded Nov. 20.

from MarketWatch.com, 2009-Mar-2, by Kate Gibson:

S&P 500's trouble mostly rooted in just 10 issues
Index makes another run through November lows; Dow trades below 7,000

NEW YORK -- Ten companies, led by ConocoPhillips, Time Warner Inc. and recently acquired Merrill Lynch, are behind the bulk of the carnage that helped fuel the worst two-month start ever for the S&P 500 Index, which on Monday made another run through its November lows.

While the companies that make up the S&P 500 tallied a collective $114 billion in losses in the still-being-reported fourth quarter, the scenario would be remarkably different -- and profitable -- if 10 companies behind $131 billion in losses were removed from the picture, according to S&P's senior index analyst Howard Silverblatt.

ConocoPhillips, at the top of the list, was among the investments listed as "dumb" by billionaire investor Warren Buffett, who said he bought a large amount of the company's stock when oil and gas prices were nearing peak levels.

Time Warner placed second, after the media and entertainment giant in February reported a $16 billion net loss in the fourth quarter.

Merrill Lynch lost $15.8 billion in the fourth quarter, about $500 million more than parent Bank of America Corp., which in September announced it would buy the troubled financial-services firm.

Freeport-McMoRan Copper & Gold Inc. lost $13.9 billion, or $36.78 a share, in the fourth quarter amid hefty inventory and asset write-downs, while Citigroup Inc. tallied a $10 billion loss to place fifth on Silverblatt's list. Read more about Freeport-McMoRan as well as more about Citi.

The five next heaviest weights on the S&P were Wachovia Corp., newly acquired by Wells Fargo & Co., General Motors Corp., Symantec Corp., Devon Energy Corp. and Regions Financial Corp.

But even removing the 10 hardest-hit companies, the overall market picture would still be less than bright.

"The fact that the ten worst losses accounted for $131 billion, therefore leaving the remaining 490 issues with positive earnings is relevant, but saying the index is positive is akin to saying that the S&P 500 is up 12% from its Oct. 9, 2007 highs, if you only had purchased the six issues that are up since then," said Silverblatt.

Solid six

Three of those half-dozen companies come from the consumer discretionary sector -- education services provider Apollo Group Inc., specialty retailer AutoZone Inc. and discount retailer Family Dollar Stores Inc., which in January raised its quarterly dividend after a profitable quarter.

Listed among the consumer staples, Wal-Mart Stores Inc., the globe's biggest retailer, last month reported better-than-expected earnings for the fourth quarter.

The six included one standout from the energy sector -- natural-gas firm Southwestern Energy Co., which on Thursday reported fourth-quarter earnings climbed 45.5%, and another from health care, namely biotechnology firm Gilead Sciences Inc.

Of 479 reported issues, or 98% of the index's market value, 134 reported negative earnings, and that tally excludes the more than $61 billion loss reported Monday morning by insurer American International Group Inc.

Word of AIG's loss, along with the government hiking its stake in the battered insurance giant, helped push stocks down Monday, with energy, materials and industrials fronting the declines that stretched to include all 10 S&P sectors.

Trading below 7,000 for the first time since Oct. 28, 1997, the Dow Jones Industrial Average fell 299.64 points, or 4.2%. The blue-chip index finished at 6,763.29, its first close below 7,000 since May 1, 1997. The S&P 500 fell 34.27 points, or 4.7%, to 700.82, while the Nasdaq Composite Index shed 54.99 points, or 4%, to 1,322.85.

For the S&P, February proved even worse than January, with the index shedding 11% of its value, the second worst February since 1933, when the S&P lost 18.4%. Combined with its 8.6% drop in January, the S&P sputtered to its worst start to any year, down nearl6 [sic -AMPP Ed] 19%.

The nearly 28% valuation dive by General Electric Co. had the industrial sector giving financials a run in the race to the bottom, with the former falling 18% and the latter diving more than 18%.

While all 10 sectors of the S&P fell during the first two months of 2009, telecommunications fared the least poorly, shedding just 2.84%.

from the Wall Street Journal, 2009-Feb-27, by Peter A. Mckay, with Kejal Vyas contributing: