February 3, 2012
Reason.tv: A non-hagiographic analysis of FDR, the New Deal, and the expansion of federal power
This week in Guild Wars 2
My weekly column on news, commentary, podcasts, and videos from the Guild Wars 2 world is now up at GuildMag.com.
The end of London’s diesel locomotive plant
I’ve updated my earlier post on the labour dispute at London’s EMC plant now that the current owners have announced the closure of the facility.
Update, 5 February: Mike P. Moffatt at Worthwhile Canadian Initiative debunks some of the media coverage of the closure:
After the U.S.-Canada Free Trade Agreement, GM Diesel closed their La Grange, Illinois plant and consolidated their production to the London plant, though kept the head office, research, design, and manufacturing of some components in La Grange. EMD London was a direct beneficiary of the U.S.-Canada Free Trade agreement, something I have yet to hear in the media. The domestic locomotive market, by itself, would not have supported the level of production we have seen over the last two decades.
In 2005, GM Diesel sold the Electro-Motive Division (including the GM Diesel plant in London and the head office in La Grange) to a couple of U.S. private equity firms, who re-named it Electro-Motive Diesel. In 2010, those firms sold EMD to Caterpillar.
[. . .]
We need to keep in mind that:
- EMD has always been a U.S. corporation.
- The intellectual property from research and design, etc. was from the head office in La Grange, Illinois.
So that leaves “know-how” which Cohn mentions in a follow-up paragraph. On Twitter, Colby Cosh asked: “Cohn talks about “know-how” but (a) know-how isn’t IP and (b) Cat doesn’t seem to have much use for the workers who have it, do they?” Caterpillar, however, did send a number of employees from London to their new plant in Muncie, IN, to train newly hired workers. I am Facebook friends with an EMD worker and I remember him objecting loudly to this last fall. But did Caterpillar really buy EMD so that it could obtain the talents of a dozen guys to teach advanced welding techniques?
There are a lot of narratives to this story, many of them unpleasant. A narrative about a U.S. company buying Canadian IP at 15 cents on the dollar does not pass the sniff test, however.
Update the second, 7 February: Andrew Coyne gets his inconvenient, yucky facts in our lovely flag-waving, anti-capitalist nationalistic fantasy:
EMD never received any subsidies from the federal government; certainly not since Caterpillar bought it. Indeed, looking through the hundreds of pages of “grants and contribution” in the Public Accounts, it may be the only company in the country that didn’t. The Harper visit to which Olive refers was to promote a tax break for the purchasers of locomotives, not the manufacturers. The visit occurred in 2008, two years before the Caterpillar purchase.
It’s not clear how the foreign investment laws could have been invoked to cover a purchase of an American company by another American company, or if they could, why this should be the pretext for “demanding job guarantees.” Presumably if it is wrong for a firm to close a plant or lay off workers, it is just as wrong whether it has recently been the object of a foreign takeover bid or not. Perhaps you will say we should bar all companies from closing a plant. Okay: why would they ever open one? If workers, once hired, cannot ever be laid off, why would they ever be hired?
Of course, there’s always Olive’s suggestion of a punitive tariff, through which the cost of keeping jobs in London locomotive plants could be shared by consumers and businesses across the country. (You’re welcome.) This would recreate the system of foreign branch plants that existed in the days before free trade, small factories producing exclusively for the domestic market. Rather than lament at foreigners stealing our jobs and technology, the nationalists could once again lament at being tenants in our own land.
Paul Wells: Harper and the Tories acted like “trust fund kids”
An interesting column at Maclean’s this week, where Paul Wells recasts Stephen Harper’s recent speech at Davos as autobiographical confession:
This passage should be read as thinly veiled autobiography and confession. This week a former senior public servant told me that when the Conservatives came to power in 2006, they inherited structural surpluses, booming oil prices and shrinking public debt, and they acted the way trust-fund kids do. “These were like kids in a candy store who had all this allowance. ‘Wow, we can do all this stuff?’ ”
But don’t take my nameless source’s name for it. Take Jim Flaherty’s. His first budget speech, in 2006, carried the title “Focusing on Priorities.” And what did he describe as priorities? In order: “Providing immediate and substantial tax relief,” he said. “Encouraging the skilled trades.” “Families and communities.” “Investing in infrastructure.” “Security.” “Accountability.” “Expenditure management.” “Restoring fiscal balance for our Canadian federation.” And right down there at the bottom, “prosperity.” So you can’t say it wasn’t the No. 1 priority. It’s right there in ninth place.
In Flaherty’s 2007 budget speech, the word “growth” appeared once.
But sometimes the world changes and the trust fund goes bust. For Harper, that happened in the first week of December 2008, when he had to fight like a street gang to keep the job he thought he’d just been re-elected to. So much changed after that. He won in 2011 by running on the economy after years of running away from it. And now here he was in Davos to tell everyone about “the good, growth-oriented policies. The right, often tough choices.”
Flaherty is my local MP, so I’m well acquainted with his habit of talking like a conservative, but running the finance ministry like one of Pierre Trudeau’s acolytes. It must really be galling him that he has to act like a grown-up for the coming budget. As I’ve said more than once, if you factor out the military and foreign affairs aspects, there were few things that Harper did that wouldn’t have been done just as readily by Paul Martin. And I mean Martin as PM, not in his more successful guise as minister of finance.
Lemonade stand economics and government accounting
An amusing illustration of the differences between real world profit and loss and the government’s accounting methods:
Parents, wanting to encourage the idea that working and making money is a good idea, drive around to buy the lemon, sugar, designer bottled water, cups, spoons, napkins, a sign or two, and probably a paper table cloth.
Aside from time and gas, the outing adds up to something north of $10. At the opening of business the next day, the kids find business is slow to nonexistent at $1 per cup. So, they start to learn about market demand and find that business becomes so brisk at only 10 cents per cup that they are sold out by noon, having served 70 cups of lemonade and hauled in $7.
[. . .]
There is a strand of economics, we’ll call it the K-brand, that sees all this as worthwhile. They add together the $10 spent by the parents to back the venture and the $7 spent by the customers and conclude that an additional $17 of spending is clearly a good thing. Surely, the neighborhood economy has been stimulated.
To the family it is a loss, chalked up as a form of consumption. If this were a business enterprise it would be a write-off. In classical economics it is a “mal-investment.”
[. . .]
But that is not how it works in government accounting. While a private business must adjust its books to reflect the losses from an intended investment that went bad, governments never do that.
When a government “invests” in, say, an airport in Johnstown, Pa., all the expenditures for labor and materials are recorded as investments and are additions to national output. Never mind that when it is later discovered that only three people a day want to fly to or from the airport, no adjustment to national wealth will reflect the folly of this “mal-investment.”
If the airport had been financed by purely private, commercial enterprises, the initial expenditures would have been recorded as investment spending, but when reality struck and the entire project was written off as a total loss, the business-profit component of national output would decline. That is, a previous bad “investment” reduces, rather than augments, current national income.
New economic ideas on employment and stimulus
Arnold Kling, writing in the Wall Street Journal, explains why (if his new theories are validated) governments have been doing exactly the wrong things to help the economy recover:
… I believe that the process of creating employment is explained not by the theories of Keynes, but rather by the theories of Adam Smith and David Ricardo. Smith famously described the advantages of specialization and division of labor. Ricardo pointed out the gains from trade that come from consuming goods that others produce more efficiently. From the perspective of Smith and Ricardo, real jobs emerge in the context of patterns of sustainable specialization and trade.
Unfortunately, the patterns of specialization and trade that had emerged five years ago were not sustainable. Many jobs in home construction, durable-goods manufacturing and distribution, and mortgage finance were dependent on housing markets with ever-rising prices. In the U.S. and the U.K. in particular, the finance industry expanded well beyond its true economic value. Once the property bubbles burst, these jobs were exposed as not viable. Meanwhile, ongoing creative destruction brought about by the Internet and globalization have continued to allow substitution of capital and emerging-market labor for industrialized countries’ labor in many sectors. Together, these phenomena have caused widespread dislocation.
More government spending will not bring back the days when supposedly triple-A-rated mortgage securities could be fashioned out of dodgy loans to unqualified borrowers. Doing so would not halt the ongoing improvements in productivity in manufacturing and retail trade. It would not facilitate the adjustments that are needed in the mix of skills in the labor force. The necessary adjustments can only be made by the decentralized efforts of entrepreneurs.
[. . .]
The word “sustainable” in “patterns of sustainable specialization and trade” refers to profitability. Patterns that are profitable can be sustained. Patterns that are not profitable must eventually be shut down. That is the problem with patterns of trade created by government borrowing and spending: They are not sustainable, as has been illustrated in the U.S. by the failure of many of the “green energy” companies supported by President Obama’s stimulus package. Moreover, as European policy makers have discovered, there are limits to how much governments can borrow to fund their experimentations in specialization and trade.
Great moments in advertising
This is not one of them:
BMW apologized after a PR strategy to pay for the naming rights to a weather system backfired — that system turned into the deep freeze that’s claimed dozens of lives across Europe.
The goal was to promote BMW’s Mini Cooper brand by paying Germany’s meteorological office 299 euros ($392) to name a system “Cooper” — a practice in place since 2002 to help fund weather monitoring work in Germany. Unfortunately for BMW, the system it was assigned to turned out to be a killer.
On the face of it, this seems like a pretty stupid notion: pay money to associate your brand with a major weather disturbance? Didn’t BMW’s PR folks notice that the association most people have with named weather is negative?
Walter Kirn profiles Gingrich
A new column in GQ on the 2012 presidential race:
There are some things you don’t know you want until you get them and some that you don’t know you don’t until they’re yours. Take perfection. Now that Republicans have found in Romney pretty much all the qualities they’ve clamored for in modern presidential candidates—an aura of personal and public decorum, a record of civic-minded accomplishment backed by a record of fierce free-market self-enrichment, all wrapped up in a senior-edition beach bod and a profile fit for a gold coin—they don’t seem as wild for them as as they once were. Sure, they’re proving willing to accept Mitt (largely on the assumption that others will like him, which is how social-climbing teens choose prom dates) but what many of them now lust for in their hearts, as do certain non-Republicans who’ve caught the fever despite themselves, is something they never imagined tolerating, let alone secretly, irresistibly craving: a primordial walking gargoyle of pre-monogamous political id. Newt Gingrich, who seems to inhabit a middle state between swamp thing and statesman, frog and prince, is an arresting specimen in his own right, but as the fascination of a party whose base holds that man was created in God’s image without any scaled or beaked transitional versions, he’s an unaccountable astonishment.
He’s also an unshakable addiction. Like a drunken traveling salesman who hits on a freaky new sexual position during a night of Motel Six carnal fumbling, Newt has managed to put his stubby finger on a collective pleasure center—some undiscovered orgasmic political ganglia—that will require quadrennial stimulation from here on out. Whether he wins even one more delegate hardly matters in the screwy new scheme of things. As a style, as an archetype, he’s already prevailed, changing forever the nature of the game and earning the love of everyone who’s felt the game becoming sclerotic recently, the way games do when the money grows enormous, the press coverage relentless, and the players remain the same. Just as JFK and Reagan accustomed Americans to a higher standard of dashing glamor in Oval Office types, Newt has habituated a numbed electorate to a new level of effervescent perversity. He’s probably unelectable, it’s true. He’s entirely unforgettable, that’s truer. He has opened a process that’s routinely disparaged as a mere horse race, shallow and routine, to a whole new animal: the bred-for-mayhem Georgia kicking mule.
