Theory Versus Reality

SEARCH BLOG: ECONOMICS and RESEARCH AND DEVELOPMENT

Economic theory is a powerful tool and results in creative ways to address old problems. But sometimes theory seems to run amok in the harsh light of reality. Some thoughts about economic theory and economic reality.... If you are too impatient, just go to the end of this post.

Trade Promotes Peace (Cafe Hayek 11/20/06)
Back in 1748, Baron de Montesquieu observed that "Peace is the natural effect of trade. Two nations who differ with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities."

Okay, then my thought about attempting to normalize relations with Iran as a step toward Middle East peace (and North Korea just to get our troops out of South Korea?) should begin with dropping all trade sanctions and granting most favored nation status... if we want to be good economists?

Selling body parts is a good economic idea (Cafe Hayek 11/20/06)
It is against federal law to receive anything of value in return for donating a kidney. The result is the following kind of absurd kidney gymnastics reported by Forbes: (quote followed)....

What a bizarre definition of ethics (not allowing people to sell body parts). Try and explain that one to your kids. I can't.

Okay, then it's all about individual decisions by well informed people like this Pakistani farmer... "I pant. I cannot run. I cannot pick up heavy things," said Allah Yar, a 50-year-old farmer who has suffered poor health for seven years since selling a kidney. He needed to pay off a $3,000 loan, but got only $1,200 for his kidney, meaning he remains in debt.

Sitting nearby, Mohammed Akram, a brick kiln worker, sold his kidney to pay off his father's debt.

"I cannot work like I did before. I cannot walk. I cannot run," Akram, 22, said. "I did this for my father but destroyed myself."

Safety regulations are costly and ineffective (Cafe Hayek 11/15/06)
Sam (Peltzman) found that mandatory seat belts did indeed cause more accidents. But this effect was roughly the same as the effect in the opposite direction, that accidents were less harmful. So the net number of fatalities of drivers was unaffected by the law. Sam found some evidence that the effect of the law might be to reduce driver fatalities. Unfortunately, because drivers were more reckless, there were more accidents involving pedestrians and cyclists. So their death rate due to cars increased. Total deaths were unchanged. (ditto for airbags)

I won't attempt to answer that. I let the data speak to it. From the NHTSA/DOT:

• In 2001, the estimated economic cost of police-reported crashes involving drivers between 15 and 20 years old was $42.3 billion.⁷
• Safety belts saved more than 12,000 American lives in 2001. Yet, during that same year, nearly two-thirds (60 percent) of passenger vehicle occupants killed in traffic crashes were unrestrained.¹²
• Research has shown that lap/shoulder belts, when used properly, reduce the risk of fatal injury to front-seat passenger car occupants by 45 percent and the risk of moderate to critical injury by 50 percent. For light truck occupants, safety belts reduce the risk of fatal injury by 60 percent and moderate-to-critical injury by 65 percent.¹³
• Safety belts should always be worn, even when riding in vehicles equipped with air bags. Air bags are designed to work with safety belts, not alone. Air bags, when not used with safety belts, have a fatality-reducing effectiveness rate of only 12 percent.¹⁴
• Safety belt usage saves society an estimated $50 billion annually in medical care, lost productivity, and other injury-related costs.¹⁵
• Conversely, safety belt nonuse results in significant economic costs to society. The needless deaths and injuries from safety belt nonuse account for an estimated $26 billion in economic costs to society annually.¹⁶ The cost goes beyond the lost lives of unbuckled drivers and passengers: We all pay - in higher taxes and higher health care and insurance costs.

Economic theory... like many theories taken past their legitimate purview... may fail the "real world" litmus test. I'll admit that I express opinions as my own, not as part of an academic discipline... but I use data and expert opinions as much as possible to support my own opinions. Economists might think twice about straying too far with opinions that are not necessarily economic at their core.

For views differing somewhat from Cafe Hayek try: Economist's View and specifically this, for example. There are those who question how good it is to let China "subsidize" us through "free trade" and "globalization". It may well be that we are subsidizing China and India and other competitors.

Trading (Thoughts) Freely

SEARCH BLOG: CHINA and TRADE

I noticed a post at Cafe Hayek directed at me and those who share similar thoughts about trade issues and I invite you to check out Dr. Don Boudreaux' site. He is Chairman of the Economics Department at George Mason University and I have the utmost respect for his academic credentials and that university (where one of my sisters-in-law is a professor in another department). George Mason could be considered the "Michigan of the Mid-Atlantic" except there is a decidedly more "conservative" tendency than that found at UM.

Dr. Boudreaux wonders why...

A frequent commentor here at the Cafe, Bruce Hall, is convinced that American trade with China ultimately will hurt Americans.

I can't figure out why, though, Mr. Hall is worried. His comments, along with his posts at his blog Hall of Record, suggest that he fears that Chinese government policy -- for example, the alleged undervaluation of the Chinese yuan -- threaten American economic prosperity.

I don't doubt that there are benefits for some... maybe many... as a result of importing products from China. Wal-Mart and its customers are doing just fine by them.

This is my response...

I continue to appreciate your efforts to educate me; however, I will also continue to distinguish between trade that is open and equitable and countries whose trade practices are designed to weaken U.S. (and other) manufacturers in order to strengthen their own.

U.S. manufacturers have had to deal with counterfeiting, theft of proprietary information, currency manipulation and being locked out of lucrative markets by various tactics such as the Japanese requiring individual "safety inspections" of each vehicle destined for their country from the U.S. (the U.S. only requires certification of a model, not individual vehicles)... among the methods used to ensure that "free trade" is only a figment of the academics imagination.

I guess we'll see how far the subsidies go when the dollar continues to slide. I know, that will just improve the position of our manufacturers for exporting... all of those flat screen TVs that are not made in the U.S. among the other high tech items no longer made here.

But I do enjoy your site and, in a perfect world, might actually agree with you most of the time. But then, economists don't necessarily agree with each other, so....

It's not about China because they are Chinese (or Japanese because they are Japanese), it's about the trade practices and results that are undermining whole segments of our economy. Yes, I suppose we could be a nation that produces nothing but ideas, but somehow I don't believe that will do us a lot of good in a world where our ideas seem to be pirated rather than paid for. As long as we only look at the price of the product rather than the price of trade the way it is practiced, I think we will be blind to the long term dangers... which may include not just the weakening of U.S. manufacturing capabilities, but significant weakening of the dollar and perhaps longer-term "stagflation".

Yes, my concerns could be unfounded, but I have seen and read enough in over 30 years of business to understand that the expression "all is fair in love and war" should also include "and free trade"... with the same irony.

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Middle East Solutions - Outside The Box

SEARCH BLOG: MIDDLE EAST

I recently sent the following to a prominent Democrat from the Clinton administration:

Your recent blog post about Iraq and Sen. McCain certainly drew great interest judging by the number of comments. I was not surprised that there was no mention about the role that Iran is and will be playing in Iraqi politics and conflict for the foreseeable future.

Perhaps there is one opportunity that has not been explored by either Democrats or Republicans: normalizing relations with Iran. Certainly that would be an extremely difficult and problematic effort, but the reality of the Middle East is that Iran is the hub of politics and the greatest military power next to the U.S. in that area. Recognizing Iran's interest in any political solution in Iraq is paramount and necessary before any lasting political and military solution can be realized. Obviously, it is politically incorrect to say this in Washington, but something that a professor from a California university could say to some influential colleagues in Washington.

The military reality is that no nation on earth can successfully challenge the U.S. in warfare. The reality also is that the U.S. military cannot establish peace and democracy in any nation that does not want it badly enough... because the military is not organized nor equipped to do that... except at extraordinary cost.

Just something to think about....

*****
In a less serious vein...

My wife is extremely ... extremely ... interested in politics. The television is one stream of political commentary after another. I have to seek respite at my computer to avoid it. But, I have to admit, she keeps our discussions interesting.

Recently, she offered up her own solution to the Middle East... and threw in our "immigration crisis" to boot. To wit: give a 150 mile wide strip of land along the border with Mexico... stretching from the Pacific Ocean to the Gulf of Mexico... to Israel as a replacement "homeland". Let Lebanon, Jordan, and Palestine split up the old Israel.

Why does she believe this is a good solution? Well, the Muslims will be happy to get back the land that the Israelis "stole" (let's not get into 3,000 years of history). The Israelis get a new homeland (New Israel?) that is removed from the traditional enemies. The U.S. gets a really effective solution to its illegal immigration problem.

What about the holy sites... Jerusalem... the Wailing Wall...? Her solution is... let Disney build some replicas... better than the original... with rides for making money. Okay, that is a bit of a stretch for something that is a real stretch.

*****
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No Problems With The Economy

SEARCH BLOG: DEBT

The "no problem" crowd at Cafe Hayek insists that we are all benefiting from "free trade" with China... and anyone who thinks otherwise is a discredited "mercantilist".

Okay... here is the latest Debt Service Ratio from the Federal Reserve... the percentage of household disposable income required to cover debt (I've shown 2nd quarter by year for brevity). Remember that is a national average... so if 10-15% of the people are causing the increase... then the increase is magnified considerably for them. If everyone is sharing in that increase... then we are seeing a structural change in our economy.

Yr/Qtr	Percent
80q2	11.16
81q2	10.73
82q2	10.75
83q2	10.57
84q2	10.76
85q2	11.38
86q2	11.95
87q2	12.27
88q2	11.92
89q2	11.90
90q2	11.96
91q2	11.80
92q2	11.12
93q2	10.83
94q2	10.95
95q2	11.60
96q2	11.94
97q2	12.12
98q2	12.04
99q2	12.29
00q2	12.51
01q2	13.19
02q2	13.29
03q2	13.55
04q2	13.46
05q2	14.07
06q2	14.40

Apparently, the "free traders" are not feeling your pain. Perhaps it is just a coincidence that as China increases its share of manufacturing for products consumed in the U.S., that consumers in the U.S. have had an increasing portion of their income going toward debt servicing? Well, maybe. Perhaps it is just that we've all become spendthrifts in past decade.... Or maybe our "disposable income" is not keeping up with the cost of living.

But things are going really well in China.

Hmmmm. Well, to be fair, let's admit that there is uncertainty about the statistical correlation between outsourcing jobs or simply importing more products that we used to produce. Data is hard to come by. Still, closing a factory in Kentucky or Ohio in order to produce the product in Mexico or China seems to have an intuitive correlation. Others say that there is a net increase in employment from not doing the work ourselves. Let's leave it there for now. But as Ben Benanke says:

"Quantitatively, outsourcing abroad simply cannot account for much of the recent weakness in the U.S. labor market and does not appear likely to be an important restraint to further recovery in employment," Fed Governor Ben Bernanke said in a speech Tuesday at Duke University's Fuqua School of Business.

But Bernanke added that the effects of outsourcing should not be ignored, saying job losses cause "significant hardships for affected workers." He agreed that jobless benefits and worker training were helpful, adding that policy makers should also try to get the economy growing faster and find ways to ease the sting of health-care costs.

"To say that the U.S. economy benefits from trade is not to say that every individual American worker or family benefits, or that the structural changes induced by trade are not disruptive," Bernanke said.

Thanksgiving

SEARCH BLOG: THANKSGIVING

I wish all of you a wonderful Thanksgiving Day... including those of you outside of the U.S.

Our sons are adults and two of the three are married. They now have Thanksgiving obligations to their wives' families... or girlfriend's family, too. My younger brother and his family also join us. Yet, somehow we are able to arrange a time when we all can gather for the traditional turkey dinner, talk, board games, and football. This year we've added another 8' table and have two turkeys to prepare... Hollywood would be proud of this production. We have other brothers, sisters, and our mothers who can't be here, but we know they are with others in our extended family, so we are grateful that they have a similar setting to share the tradition of the day.

My wife is the engine that pulls this train. She starts grocery shopping about 5 days before and continues until the last minute. No effort is spared. I'm still amazed, although after 40 years of marriage, I should be accustomed to it.

We are thankful to be so fortunate to share such a wonderful time with our family... and we hope that you are also as fortunate.

Individuals, Unions, Corporations, and Governments

SEARCH BLOG: DYSFUNCTIONAL

If I want to do something (example: sell my body parts), for whatever reason, why should I be prohibited from doing so?

If something makes perfect economic sense for my country (example: develop clean coal power using large, readily available coal deposits), why should unions have the power to make it economically infeasible?

If businesses benefit from the protection, stability, and marketplace that the U.S. offers, should they be able to make decisions (example: shifting production to China) that harm the economic welfare of communities within those states?

• Should individuals decide or should governments regulate?
  
• Do countries trade or do corporations (businesses) trade?
  
• Can individuals bargain effectively or are unions needed for power?
  
• Can selfish individual decisions lead to overall community benefit?

I've had some online conversations/emails at Cafe Hayek and with Martin Kelly on various topics where I seem to hold positions that involve some kind of government or community action and the response is frustration with either the ineffectiveness or stupidity of the government/community.

The heart of the issue is whether there is a place for regulation or restriction of individual or business decisions. From my perspective, individuals are almost always limited in their decisions by external forces... if nothing else by the choices available which often may be from bad to worse depending on that individual's means.

Then there is the short-term versus long-term decision. Why should an individual choose a course that has only a chance of improving the situation for his yet unborn grandchildren when a more expedient course definitely will benefit him now?

Realistically, there are choices that an individual may want that are unavailable to him because of choices that other individuals make. I want free, unlimited solar power provided to everyone by the government; you want profit now for providing me with petroleum products. I want to decide how my money is used; the government taxes me for my existence in this country. This dynamic tension is in play everywhere and most all of the time. It both restricts and strengthens individuals and groups... whether unions, businesses, governments or communities.

What is key is the process by which this interplay of interests is managed. The choices are anarchy to collectivism. History has shown that these extremes are ineffective beyond a very short time. Effective individuals need freedom to be their most effective; less effective individuals need some protection by either law or banding together against dominant individuals who would abuse them.

The issue is how can these competing forces most effectively be balanced for the most positive results? How do we prevent dysfunctional choices regardless of source?

Got Coal?

SEARCH BLOG: COAL

Environmental extremists chant "global warming" with every CO₂-ladened exhalation (although they don't consider the cessation of breathing as a legitimate alternative).

They would have mankind become "green"... use bicycles, wear only cotton and wool, and eat only brussel sprouts... or some such lifestyle. They are convinced that humans are bringing about environmental catastrophe by 1) using current technology and 2) by not using future technology.

Here's a thought... how about revisiting past technology? I don't mean wood-burning stoves... although they are getting better. I could mean nuclear technology... because it is significantly better. I do mean coal... because it conjures up images of black snow and ruined landscapes....

Am I kidding? Well, just a little. Coal is the most abundant energy resource available for most of the world's population (map). It is readily mined with available technology. It can be used in the most rudimentary equipment.

But it is DIRTY. Well, yes, there is that. But look what's coming. Clean coal?

Nevertheless, some people will not be convinced.

• Canada
• Malayasia
• U.S.
  

And that is natural. Once you've seen the bad side of something, it's hard to believe it might have a good side. Coal and Nuclear energy have already shown their bad side. Will they have a chance to show their good side?

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Religion, Faith, Belief, Believers

CLICK LABEL: RELIGION AND SOCIETY

Humans are unique... as far as we know... in having the brain capacity to create religions. Perhaps a few other creatures with relatively large brains... the whale family, elephants, the great apes... have religious thoughts, but it seems unlikely without the development of language and abstraction.

Religion is the result of human efforts to explain the universe and their position in that universe... in the absence of proof. Perhaps some efforts are the result of one person such as L. Ron Hubbard, but for the most part, religions build upon previous religions which were built upon people who believed certain explanations about things they could not otherwise explain.

Now this is sure to infuriate about everyone who subscribes to a particular religion. Some will immediately argue that man does not create religion, but religion is given to mankind by God. Belief argues for this. Empirical evidence and history, however, argue against this.

Regardless of how religions begin, each has one thing in common with the rest... articles of faith. If you wish to belong to those who consider themselves followers of a particular religion, then you accept the articles of faith... the combined beliefs... of the religion. You are a believer... you have accepted the Truth.

That's the easy part.

*****

• A bombing Monday near a church is the latest in a string of attacks in Sulawesi.
• Dalai Lama accused of provoking religious conflict
  
• Russian Foreign Ministry Calls to Prevent Inter-religious Conflict over Cartoons
• Fear of religious conflict in Belgium
• Dutch Muslims condemn burqa ban
• Muslim women debate more rights (tip of the hat to Martin Kelly)

It's not that religion... faith... belief... are so bad, it's the believers that screw things up.

China in 2025

SEARCH BLOG: CHINA

I have written several times that what we get on the cheap now we will pay for later. These from the BBC:

• China set to be largest economy
• China's trillion dollar surplus
• China growth forecasts rise again
• Profits soar at China's top firms

Meanwhile, despite government protests that all is well in the U.S., foreclosures are accelerating, housing sales and prices are plummeting, and manufacturing areas like Michigan are shutting down.

Oh, an then there is the long-term health of the dollar... what's China to do with $2 trillion... cash?

I hope our children and grandchildren will think we are as smart as some of us do about creating our greatest economic competitor... China.

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The Economy - Federal Reserve Version

SEARCH BLOG: FEDERAL RESERVE

• Federal Reserve Members Concerned About The Outlook For Inflation
  (things are going too well)
  
  
• Foreclosures spike in October
  (interest rates are not high enough)
  
  
• U-M: Mich. economic outlook bleak
  (outsourcing has helped the economy)
  
  
• Fed points to soft landing for economy
  (I thought things were going too well)

In summary, inflation spurred by strong economic growth has resulted in higher foreclosures which can be controlled by raising interest rates. While pockets of the economy are doing poorly, outsourcing design, engineering, and production overseas will bring recovery. All in all, we expect everything to be cushy (so enjoy your soft landings).

And, by the way, things are going just as well in Europe...

• U.K. Personal Bankruptcies Reach Record as Rates Rise

Somehow, the view from the top always looks better.
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What's In A Dollar

SEARCH BLOG: CURRENCY

Are currencies being manipulated by Japan and China to support their trade policies?

With China, it's a no-brainer. The world acknowledges that is the case and China's official policy of pegging the yuan to the dollar is the mechanism.

Japan doesn't have that official policy, but look at the data:


Since 1987, the yen has fluctuated in a narrow value band versus the dollar despite tremendous growth in Japanese exports that should have raised its value versus the dollar (compare the trend prior to 1987).

Perhaps the automobile manufacturers have a good case. From Forbes.com:

U.S. automakers claim that the Japanese government is suppressing the value of the yen to an artificially low level to give its manufacturers an edge. GM’s Wagoner has complained loudest about inaction on the administration's part on this issue. Automakers believe currency exchange rates should be established in the floating market, not by government intervention.

Favorable exchange rates provide a huge profit windfall for companies like Toyota Motor (nyse: TM - news - people ), Nissan Motor (nasdaq: NSANY - news - people ) and Honda Motor (nyse: HMC - news - people ), while making it that much tougher for GM, Ford and Chrysler to compete.

"If GM, Ford and Chrysler were fully competitive with the Japanese in every other respect, the exchange rate would still put them at a crushing disadvantage," says Laurie Harbour-Felax, author of a study that analyzes Detroit's competitiveness.

The study finds that for every one-point change in the value of the yen against the U.S. dollar, Japanese automakers gain or lose $174 per vehicle. So this year's depreciation of the yen from 107 to 118 has resulted in a windfall of $10.5 billion for Japan’s Big Three automakers. GM says Toyota alone gets a $3,000 advantage on small cars and $9,000 on Lexus luxury cars. That money is plowed back into research and development, as well as new factories, including some in the U.S.

Indeed, when Toyota recently reported a 36% profit gain, to $6.7 billion, for the six months ended Sept. 30, the company said favorable currency rates accounted for an unexpected $1.6 billion gain. Japanese automakers say their companies are seeking to minimize exposure to currency swings by building plants in North America

Immigration - Legal or Not... Here We Come

SEARCH BLOG: IMMIGRATION

One of the current political hot buttons, not just in the U.S., is illegal immigration.

It may not be readily apparent to some, but mass movements of population groups have been going on for thousands of years. Of course, then they were call invasions. The concept of immigration seems to be a more modern one.

Invasion is generally regarded as a violent, chaotic process; in established nations, immigration is seen as more controlled and orderly. But the lines appear to be fading between the two.

In Europe, many eastern Europeans and Middle Easterners have taken residence in north and western Europe where economic opportunity seems greater. Some come legally; some not. Many attempt to fit into their new societies; others not only resist, but actively reject the values and traditions of their new homes. The result is increasing tension about and activism against recent immigrants.

The N.Y. Times reports that Texas lawmakers want to push through bills that "would deny public assistance and other benefits to the children of illegal immigrants, tax money transfers to Mexico and the rest of Latin America and sue the federal government for the costs of state border control." In the U.S., more than 1 of every 3 immigrants is "illegal."



It appears that while resistence to change may be unreasonable at times, resistence to chaotic change may be reasonable and necessary... especially in the eyes of those who end up paying for the chaos. There appears to be a flip side to "cheap labor." The issue is what is a reasonable and necessary response. It looks as if Texas might become a testing ground.

California (hey, dudes) Sues Automobile Manufacturers Over Climate Change

SEARCH BLOG: GLOBAL WARMING

Recently, I wrote about the uncertainties of climate change... global warming specifically.

If you didn't read that post, here is the crux of the issue. Over the course of millions of years, the earth's average temperature has gone through warming and cooling variations in a range of about 10° C. (12° - 22° C). Current estimates are 14° - 15° C and projections are for a 2° - 5° increase; the higher range being considerably less likely in the near future.

The following chart from Dr. Christopher R. Scotese shows the trend ending at the current estimated average temperature of earth (arrow is pointing to it if you can't read the chart).

It may interest you to know that California has passed climate control legislation and is suing automobile manufacturers for having products that produce carbon dioxide and cause global warming.

I see a couple of points:

1. We are presently at the lower end of the temperature range
2. Change has happened quickly in the past without the aid of automobiles

Which leads me to conclude that while California may be politically correct, it probably is not factually correct. Of course, the retort to that is "So what?" And I have to admit that is a good retort when it comes to litigation.

Knock, Knockoff

Here's a good one: the Asians are counterfeiting the stuff the Asians legally make... but have there been any lost jobs there... or is it just the second shift?

Hard to know if its legitimate counterfeiting or illegal counterfeiting in some countries.

Judge Not! or Judge, Not!

Congressman Alcee Hastings is a former U.S. District judge that was impeached and convicted by the U.S. Senate for...

engaging in a "corrupt conspiracy" to extort a $150,000 bribe in a case before him, marking the first time a federal official has been impeached and removed from office for a crime he had been acquitted of by a jury.

He is now being considered for head of the Intelligence Committee by Nancy Pelosi.

So, the corrupt Republicans are out and the corrupt Democrats are in.

It's the unspoken law of politics:

he may be a crook, but he's our crook.

Goverment Regulation

Over at Cafe Hayek, there is a posting and comments concerning the impact of airbag regulations on driver/passenger safety... really part of a larger discussion about the role of the government. The argued position was that the Federal government acted too hastily in establishing regulations for airbags and then discovered later that smaller women and children could be injured or killed by the force of the airbag deployment.

Sam's point that a national safety requirement like air bags is particularly harmful when it turns out to produce unintended consequences (killing women and children, initially, because of the power of the airbags). If one state or one manufacturer had made air bags too powerful, we'd have learned from it and fixed it. But more people die when it's nationally mandated.

Given the choice between deploying a technology that was very good, but not perfect and no use or significantly delayed use of that technology... I would argue that many more people were benefitted than harmed by requiring airbags than making them optional.

Why? Safety equipment is expensive and if a manufacturer tried to take on the marketplace alone by installing seatbelts and airbags and safety-related sensors in its vehicles while others did not, it would incur a significant market disadvantage... perhaps a few thousand dollars per vehicle... versus vehicles that did not have those features.

So what? Those who wanted those features could pay for them. True, but the likelihood that those systems would be installed in low-to-mid-priced vehicles would be much less than higher-priced vehicles. Why? Well, just look at the resistence to seatbelt laws. It took years to increase belt usage even when belt installation was required. What did it show? A large portion of the population a) doesn't understand risks, b) doesn't care about risks, c) isn't willing to pay for risk reduction... pick one. People had to be ticketed for not using seat belts before they were willing to do the logical or reasonable thing.

So, then, why should the govenment intrude on our individual choices with regulation? Simple: the marketplace is generally cost-driven. We have been educated to look for the lowest price, not necessarily understand the whole value proposition. And when it comes to safety or the environment, most individuals seem to use the reasoning that if I am responsible and others are not, then I'm not really accomplishing anything. Besides, "what could happen to me? I'm a good driver."

Sometimes the right thing to do is not necessarily the cheapest thing to do. And sometimes, the right thing to do needs a nudge from the government.

You don't believe that? Well, how many of you have or know of someone who has a circular saw without an electric brake? How many of you have or know of someone who has a table saw and who doesn't use the blade fence because it gets in their way?

A comment from a Cafe Hayek reader:

I would not dispute that seat belts make me safer, but I hate that I can be ticketed for not wearing one. I don't even mind paying for tha added safety, but whether or not I use it is MY business.

Sure.... "Stupidity has its own rewards."

Sometimes... it makes sense to have regulations... to require improvements even when the cost per person is high and the risk per person is low.

Global Warming Proved!

Okay, I got your attention. But NASA says I'm wrong.

I thought last year's hurricane season was the proof... Katrina and the others. But then, this year... nothing. Geez, we just can't rely on anything. And just when I was hoping we'd have a longer golfing season in Michigan.

By the way, you may want to examine the climate history of earth a little closer. The "average temperature" for earth is estimated at about 14° C. Compare that to the range over millions of years (12° to 22° C) and you'll see that the "doomsday" warnings of an increase of 2° to 5° C might be a little hyperbole. Perhaps we are just getting back to "normal?"

After all, if you want to compare it to the ice age, then I guess earth is getting hotter... but who wants to live in an ice age?

Hard Choices

Martin Kelly has some ramblings from Scotland that I read. He also has a "Political Profile" from Blogthings that I thought was neat so I tried it (see right).

I'm not too surprised by the result, although some of the questions left me straddling the fence a bit... I tend to not be an absolutist... but the evaluation required hard choices.

You might want to try it, too (use the link at the bottom of my results).

Worth Viewing

From my son's professional blog.

Social Contracts

There is a common belief (although not necessarily an accurate one) that there is an implied "social contract" that goes something like:

"The problem is to find a form of association which will defend and protect with the whole common force the person and goods of each associate, and in which each, while uniting himself with all, may still obey himself alone, and remain as free as before." This is the fundamental problem of which the Social Contract provides the solution.

If then we discard from the social compact what is not of its essence, we shall find that it reduces itself to the following terms:

"Each of us puts his person and all his power in common under the supreme direction of the general will, and, in our corporate capacity, we receive each member as an indivisible part of the whole."

by Jean Jacques Rousseau; 1762

Translated by G. D. H. Cole, public domain

These simple arguments seem to crystallize the debate that continues throughout our political and philosophical arenas.

• Is there really a "social contract" between an individual and all other individuals in a society... and if so, what are the terms and conditions... what must I do and what can I expect?
• How are my rights as an individual protected?
• What are my responsibilities as an individual toward society?
• What happens to my rights if I fail in my responsibilities?
• What are my rights if society fails in its responsibilities?
• Can my rights be more important than someone else's'?
  

One only has to look at the volume of laws and judicial opinions to see that there is no "real" answer... only efforts to balance the rights of individuals versus the demands of social membership. One has only to look at the spectrum of political rhetoric to see that there are many "possible" answers.

Michigan Voters Say No To Affirmative Action

What happens when the Law of Unintended Consequences is fulfilled?

Affirmative Action, the offspring of the 1964 Civil Rights Act, once meant efforts to help America's Black minority achieve a substantial economic footing after centuries of abuse and discrimination. Initial efforts were intended to address overt roadblocks and covert hindrances. Scholarships, jobs, loans, support programs, and the like were established to address economic problems. Black coalitions were encouraged and established to create a political presence that was effective and representative. Companies created affirmative action programs to mentor Black trainees whose background was deficient in business skills.

While there was resistance, there was acceptance. Something had to be done to redress wrongs and help a significant segment of our population to truly integrate with the rest of society.

Then some strange mutations began, most notably that women were covered by the efforts. While not a "minority" in a population sense, women were now considered an oppressed segment because they were "under-represented" in business, average income levels, education, sports, and on and on. So legal action (Title VII) addressed that. If men had it; women should have it, too. Simple enough.

But then the courts began to find a pervasive discrimination in everything everywhere. So, the only "logical" way to address that was to move beyond prohibiting discrimination to creating outright preferences for Blacks and women... a "temporary" fix until everything was the way it should be. Businesses went from discrimination to non-discriminatory hiring and mentoring to "diversity programs". Universities created different and lower admission standards to increase "diversity." Governments required "representation" in police and fire departments at the executive and supervisory levels.

And a strange thing happened: white males began to make noises about "reverse discrimination." It didn't matter if you were the best qualified; you weren't "diverse." There were statistics to fix.

But government and business and education had bought into "diversity" programs so this temporary adjustment period had to go on... even if it did hurt some white males who had all of the other advantages... even the poor, white males.

Then something stranger happened: a young woman was denied entrance to the University of Michigan law school even though her academic credentials were superior to a Black student who was selected. Wait a minute!!!! This wasn't fair! Women were under-represented in law school, too! Well, sorry miss, a choice had to be made between oppressed groups and your group lost. Race trumped all.

Let's cut to the chase. This woman became the poster child for what was perceived as the civil wrongs of Civil Rights. A law intended to eliminate racial discrimination had become the basis for blatant racial discrimination. The law of unintended consequences was fulfilled.

A "diverse" and unlikely group became the core of an effort to get a proposal on the Michigan ballot that would direct the State to amend its Constitution to:

• Ban public institutions from using affirmative action programs that give preferential treatment to groups or individuals based on their race, gender, color, ethnicity, or national origin for public employment, education or contracting purposes. Public institutions affected by the proposal include state government, local governments, public colleges and universities, community colleges and school districts
• Prohibit public institutions from discriminating against groups or individuals due to their gender, ethnicity, race, color or national origin. (A separate provision of the state constitution already prohibits discrimination on the basis of race, color or national origin.)

The response from business, media, government and educational leaders was immediate and harsh. This was WRONG!

But when November 7 came and went, the voters... 2 to 1... said "this is right."

Two years ago I wrote to the president of the University of Michigan about their admissions program. You can read what I wrote here.

There are ways... and there are ways.

Flags of Our Fathers

Tomorrow, we celebrate Veterans Day. I'd like to suggest that, if you have the opportunity, go see the film "Flags of Our Fathers."

You might be surprised that it is not your run-of-the-mill war action film... although there is enough of that. You will walk away with at least two non-traditional views about Americans and war:

1. Americans are reluctant warriors
2. Perception is reality; facts are not

If you want comedy, don't bother with this film. Otherwise, go see it. Certainly, it is a dramatization of events, but I suspect a good representation. It is one perception and one reality... I wouldn't assume it is all "fact." And stay for the credits.

Election Results

A lot is being written about the War in Iraq as the reason why so many Democrats have been elected to formerly Republican held seats.

I think that there may be a less discussed reason: economics. Here is Michigan, people re-elected a Democrat governor despite the state having the worst economic situation in the U.S. But it's not just Michigan. The northern-tier states... those with the unhappiest economic prospects... are those who are saying that a situation that favors low-priced imports over U.S. jobs is not what they want. Especially when the jobs are being transferred to China where currency manipulation, piracy and counterfeiting of U.S. products and processes, and unethical business practices are the primary reasons for U.S. job losses in manufacturing states.

Now many economists don't believe that thinking is rational or sound. They contend that if China wants to "give" us stuff for far less than it can be made here... why we should welcome their generousity... even if millions of manufacturing jobs get flushed down the toilet. That's just the price for global trade. The real question is: what will we have to trade for those Chinese products in the next ten or fifteen years? They already have research, engineering and manufacturing capabilities that U.S. businesses developed for them. Pretty soon they will have the marketing and sales capabilities. What does that leave us, consumers? And just how do we pay for being consumers?

Simply take out more loans on your home that is losing value daily. Call it a "personal trade deficit."

I Got Mine Versus We Got Ours

I posted this as part of discussion in today's Cafe Hayek:

I think you just struck the heart of the differences:

From your point of view there are NO NATIONAL INTERESTS, only economic decisions that favor you.

From my point of view, there is a national interest in ensuring a competitive system that is not RIGGED by one of the players to irrevocably harm the other players... especially when those actions, on a global scale, weaken the ability of U.S. industries (and suppliers, and associated service industries, and associated professionals, and associated communities) to remain economically viable.

I do not believe that "I got mine" is a viable economic strategy for the members of any group, population, nation, when the rest of the group, population, nation is in jeopardy.

Addendum quote:

So far, the only player guilty of "protectionism" is China which government has been actively working to expand many of its industries through subsidies and other favorable operating conditions.

And that really seems to be working for them. The strategy is relatively simple: create an artificial imbalance that will temporarily benefit some portion of a competitor's industries while gradually eliminating others. Once competition in one sector has been crippled, target another. That way, while the targeted industry is being crippled, the other industries remain silent because they are temporarily benefitted.

It's classic divide and conquer.

But don't worry... you got yours... for now.

The Eve of Destruction

Back in the 1960s, there was a popular anti-war song entitled Eve of Destruction by Barry McGuire.

Paul Craig Roberts writes:

The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is “the envy of the world.” Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.

The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized “new economy” never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by Sarbanes-Oxley, accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.

No sane economist can possibly maintain that a deplorable record of merely 1,054,000 net new private sector jobs over five years is an indication of a healthy economy. The total number of private sector jobs created over the five year period is 500,000 jobs less than one year’s legal and illegal immigration! (In a December 2005 Center for Immigration Studies report based on the Census Bureau’s March 2005 Current Population Survey, Steven Camarota writes that there were 7.9 million new immigrants between January 2000 and March 2005.)

The economics profession has failed America. It touts a meaningless number while joblessness soars. Lazy journalists at the New York Times simply rewrite the Bush administration’s press releases.

Mr. Roberts resume:

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions. He can be reached at: paulcraigroberts@yahoo.com. This article originally appeared at counterpunch.org and is published in the Baltimore Chronicle with permission of the author.

Tip of the hat to Martin Kelly.

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Updated Blog

I spent a good part of today revising the look and content of this blog to, hopefully, make it a little more readable and organized using the new "Blogger beta" version.

One of the really nice features that had been missing previously are "labels" (categories) for each posting. You might want to explore them. One of my favorites is "Futurescape."

How Economists Think

From Cafe Hayek:

Bruce, if all of us are better off by trading with China, where are the victims? Are you saying that at some time in the future, China is going to say "Okay, we now know how to make your products without you. Now go away and we will continue to sell into the US."? If they're going to steal IP, they don't really need anybody's help. Reverse-engineering is a fairly well-developed art. And if it's legal for China to sell something into the US, then it's legal for Iowa to sell it into New York. Are you going to suggest that New York needs to put up protectionist barriers against Iowa?

Posted by: Russell Nelson | Oct 28, 2006 1:59:24 AM

My response:

Russell,

I don't believe I ever made the case that we are all better off dealing with China... others have stated that as their belief.

My position is clear: China represents an economic threat to the U.S. because it is a wholly unethical trader.

If I steal something that you make and then sell it back to you for less than you can make it, does that make it a bargain for you? If you believe so, then we should do a lot of business. I can make you very pleased with those new economics.

The fact that China provides cheap labor in the short run does not offset the economic harm done to businesses that have their products and processes usurped by China. It does not make up for the costs of research and development that are lost as a result of counterfeiters not only destroying the market opportunities in China of those whose products or processes were taken, but also undermining those companies in the U.S. by becoming "competitors" as they sell their knock-offs in the U.S. You might actually read some of the examples I cited earlier rather than giving totally hypothetical examples of how we benefit by being undermined.

What you've basically said is that since the Chinese are going to steal from us, we might as well buy from them to make up for it. Wow, that is really obtuse! Just because a corrupt government in China looks the other way doesn't mean that we should. Or is all fair in economics and war?

I lose your analogy to Iowa and New York completely. Are the Iowa farmers ripping off the research and development and processes and products of the New York businessmen?

Posted by: Bruce Hall | Oct 28, 2006 10:46:14 AM

How China Competes

I have written about how China uses currency manipulation to create a "low-cost labor" image around the world. But there is a more insideous side of China's economic policy: theft.

For those who argue it is simply "free trade" and "good economics" to source in China, perhaps they might want to read the following:

• Inc. Magazine

China's national industrial policy facilitates forced technology transfer to Chinese industries. One new mechanism is the so-called CCC safety certification. Every electronic component or piece of equipment to be sold in China must be submitted to the Chinese government body overseeing the CCC certification. The process requires the foreign manufacturer to give Chinese officials full access to engineering drawings and schematics and to provide a complete finished product for evaluation. In addition, the applicant companies must pay for Chinese officials to visit and inspect their factories outside of China.

• Voice of America
• U.S. State Department
  
• U.S. State Department (2)
• Public Broadcasting System

I'm not sure if those economists are ignoring this issue because it is inconvenient to fit it into their "free trade" philosophy or because they view it as unimportant. Either way, this is an example of how China steals jobs, business, and profits from the world... especially the U.S.

Diesel Power

There was an article about a new turbo-diesel powered car from Honda in The Detroit News today. That was hailed as a breakthrough because Honda has always focused on gasoline-powered cars.

There was also an article about a new, turbo-diesel Mercedes in that same paper. The engine was praised for its power, economy and cleanliness.

The reason I bring this up is two-fold: 1) I had brought up the issue of turbo-diesels as a lower-cost, better performing, more durable alternative to ethanol (E-85) in a discussion yesterday and 2) I have written about this a couple of times in this weblog:

• July 2006
• June 2005

It's not that big of a stretch to understand why. Turbo-diesels offer better mileage and performance than most alternatives and the technology and fuel are readily available. There is also a potential environmental advantage over hybrids: no expensive battery packs to dispose of after they fail.

Sure, diesel fuel is oil based. But diesel engines can cut consumption significantly and be produced in large numbers by all manufactureres. That Mercedes is rated at 26 mpg city/37 mpg highway. Not bad for a larger car considering the numbers for that same car with a gasoline engine is 19/26. That's better than a 1/3 improvement in fuel economy... or a lot of barrels of oil.

And the key word here is clean.

Striking a Nerve

Today was a bit chilly and windy, but I got together with some friends and played golf. Surprisingly, keeping a winter golf hat and gloves on kept me comfortable enough to play and I did reasonably well striking the ball. About an hour into the round, I got a call from home with a message that the BBC (yes, those people in London) wanted me to participate in a discussion panel at a Detroit radio station that would be linked up to their broadcast in England. Apparently, the BBC had gotten wind of my previous post which was also forwarded to the Detroit Free Press which publish an abbreviated version of it. Unfortunately, they only gave me a couple hours notice, so I had to pass on the opportunity.

The subject was the whole cultural conflict between the West and Muslim (read Arab) world as symbolized by the reaction to women wearing a veil during meetings and trials and other public events where a discussion or dialog was supposed to take place "face to face."

It seems trivial, on the surface, for a veil to cause so much concern. But apparently, the veil is striking a nerve in the West as a symbol of what seems to be irreconcilable differences between cultures. Unfortunately, what is perceived as Muslim culture is only the culture, religion and politics as practiced by some Muslims... but that point is a little too subtle for too many. Some is too many, it seems.

Freedom of Religion or Anarchy?

Does Freedom of Religion trump everything else?

Not according to a local judge who dismissed a woman's claim against a car rental agency because she refused to remove her veil in court.

Now, I don't really know if that is fair or not. It was up to the judge's discretion. But last year, a student at the University of Detroit was allowed to openly wear his dagger on the grounds that it was an integral part of his religious belief.

I suspect that the anti-Muslim sentiment prevailing in the U.S. might have had something to do with the judge's decision. There is an uneasiness and distrust around someone who hides their face from the world. It is a cultural thing in the West: "you have something unsavory to hide."

And that is the crux of the issue: distrust. As Jack Straw said: "I felt uncomfortable about talking to someone 'face to face' who I could not see."

Let's face it, the veil has little to do with what people are saying or doing. It boils down to this: the West does not trust Islam; it does not consider Islam to be a legitimate religion because so many of its adherents use covert, violent actions against so many in the West. If a Buddhist woman chose to wear a veil in court, the judge would not have had one qualm about it. But a Muslim woman is part of a religion that tolerates or, in some areas, fosters intolerance and violence.

The judge's reaction was not a matter of law; it was simply a reaction to a symbol that is, increasingly, seen as anti-Western.

Good, no Bad, no Good!, no Bad!

Two interesting views of the economy:

• Cafe Hayek
• Robert Reich (former Secretary of Labor)

Why can't we all just get along?
- Rodney King

China - The Replacement for the U.S.?

Oh, I'm not talking about the next big democracy.

Take a look at this article from Inc. Magazine... the entrepreneurial magazine.

It is an excellent presentation of many the facets of the emerging China. Back some time ago, I pondered how someone making 45-cents per hour could live so well in China. This article answered that and confirmed my position: it's funny money.

But that's not really the importance of this article. Take the time to read it. Then go to Cafe Hayek and read all of the comments about how U.S. business is so inefficient that it has to outsource to China and that it is so good for us to do so.

Then, if you still feel like going to Wal-Mart to by some "China-priced" goods... have at it.

Opposition is Easy

Two blogs I enjoy reading are Cafe Hayek and Reich's Blog. The most recent posts were about opposing... health care for the poor in the former and all things Bush in the latter.

I like to oppose as well. It's fun to wield the needle. But, then you have to propose something in place of what you oppose.

In the case of the Cafe Hayek post about health care for the poor, it was to let things stay as they are... the poor must not need health care. I pointed out that we have public education that may not be necessary for middle and upper classes, but a private alternative for the lower-income strata is not an option. It is more expensive for ME, but then I benefit from not having masses of uneducated people clogging the streets. Likewise, I would benefit from having people would could not afford the high cost of health care (due in part to the lawyers who have sued the hell out of the medical profession and raised the costs for everyone else), have some form of care that does not require them to seek attention at expensive emergency rooms where the cost is then passed on to everyone else... and service reduced as well.

In the case of Reich's Blog, he made some reasonable points about the political conundrum facing the Democrats and some issues about hedge fund abuses.... Then he went on to make a blatantly false accusation that Cheney wants to start bombing Iran and North Korea's nuclear facilities. This has no basis in anything reported by anyone credible... other than some speculation by fringe Democrats.

"Cheney wants to bomb Iran's and North Korea's nuclear facilities. He's become even more hawkish than before, and Rice is no match for him. He's the president of American foreign policy. He figures he has only about 18 months left to do what needs to be done, to ensure his and Bush's legacy and make the world safe from the axis of evil. He also figures Iran and North Korea are becoming ever more dangerous, that no one else is willing to do anything about them, that the US has the fire power to do what needs to be done, and only whimps are putting up a fight inside the Administration. All he needs to do is convince Bush, who is coming around."

They say it isn't so when the Koreans were testing a long range missile and again when they were testing the nuclear bomb:

• CNN
  
• MSNBC
  
• The White House

My response to Bob Reich was "what SPECIFIC ACTIONS do you recommend" since he needs to make up false positions about Bush/Cheney. After all, North Korea has been researching and developing a nuclear weapon for at least 2 decades and probably more.

We need a proposal here, not just an opposal.... Come on, Bob!

Rights or Wrongs

In today's Cafe Hayek, Dr. Boudreaux references an article he wrote for The Christian Science Monitor about health care. With regard to the notion that healthcare was a right, he wrote:

Sounds noble. But not everything that is highly desirable is a right. Most rights simply oblige us to respect one another's freedoms; they do not oblige us to pay for others to exercise these freedoms. Respecting rights such as freedom of speech and of worship does not impose huge demands upon taxpayers.

Healthcare, although highly desirable, differs fundamentally from these rights. Because providing healthcare takes scarce resources, offering it free at the point of delivery would raise its cost and reduce its availability.

He then went on to explain that the government is inept and would bungle the process and make it too costly.

Well, there is some truth to that perhaps, but one often weighs the cost of government provided services versus no services. If you are a successful professor of economics at a prestigious university, your perspective may be somewhat different from a poor, single mother or a poor, elderly person. My response was:

Interesting argument.

Now substitute "education" for "health care".

Now substitute "social security" for "health care".

It's beginning to sound very 18th century. "Let them eat cake."

Oh, by the way, Dr. Boudreaux's university is state supported!

Ethnic Divisiveness - Europe Running Out of Patience

Back in August 2005, I wrote that:

Muslims seem to have forgotten that the recent decades of Western European tolerance is really not part of their history... quite the contrary. First Spain, then Denmark, now Britain; these are strategic mistakes by the Islamic radicals.

A couple of days ago, The New York Times featured an article by their European correspondents that stated:

BRUSSELS, Oct. 10 — Europe appears to be crossing an invisible line regarding its Muslim minorities: more people in the political mainstream are arguing that Islam cannot be reconciled with European values....

For years those who raised their voices were mostly on the far right. Now those normally seen as moderates — ordinary people as well as politicians — are asking whether once unquestioned values of tolerance and multiculturalism should have limits.

Former Foreign Secretary Jack Straw of Britain, a prominent Labor politician, seemed to sum up the moment when he wrote last week that he felt uncomfortable addressing women whose faces were covered with a veil. The veil, he wrote, is a “visible statement of separation and difference.”

So strong is the fear that Dutch values of tolerance are under siege that the government last winter introduced a primer on those values for prospective newcomers to Dutch life: a DVD briefly showing topless women and two men kissing. The film does not explicitly mention Muslims, but its target audience is as clear as its message: embrace our culture or leave.

Perhaps most wrenching has been the issue of free speech and expression, and the growing fear that any criticism of Islam could provoke violence.

In France last month, a high school teacher went into hiding after receiving death threats for writing an article calling the Prophet Muhammad “a merciless warlord, a looter, a mass murderer of Jews and a polygamist.” In Germany a Mozart opera with a scene of Muhammad’s severed head was canceled because of security fears.

With each incident, mainstream leaders are speaking more plainly. “Self-censorship does not help us against people who want to practice violence in the name of Islam,” Chancellor Angela Merkel of Germany said in criticizing the opera’s cancellation. “It makes no sense to retreat.”

Yes, Europe is beginning the process of isolating and removing the Muslim culture from its boundaries. It is not going to be pleasant, but it is wholly expected.

Excessive Spending - Keep Minimum Wages Down

Yes, keep minimum wages down. That's what is advocated in Cafe Hayek, a site moderated by two George Mason University professors.

As a direct response to that, I wrote the following comment on their site:

"Let them eat cake."

I believe that was spoken by a French economist who didn't understand the connection between economic theory and political reality.

Hmmm.

Then, Cafe Hayek had another post that expanded on the notion that raising minimum wages nationally makes companies uncompetitive and forces layoffs.

My response was:

If keeping wages low were the key to competing, then Costco would not be able to compete with Wal-Mart/Sam's Club. The fact that Costco not only competes, but pays significantly higher wages AND has higher customer satisfaction shows how spurious the argument against raising minimum wages is.

The number of employees affected would be a small fraction of total employment, but the positive impact to those employees would be significant.

Coffee shop tales notwithstanding, the fact is that minimum wage rates have never been the measure of any company's ability to compete.

They also quoted the "Coyote Blog" where the following was stated:

"In a number of locations, we have been forced by rising minimum wages and associated costs (particulalry workers comp.) to switch some of our cleaning and landscaping duties from our live on-site employees to local contractors. These contractors may pay their workers more than minimum wage, but the workers are often twice as productive as ours, yielding a cost savings for us. When minimum wages are $5.15 an hour, these contractors can't compete with our own workers, but when minimum wages rise over $7.00, as they are across the west coast, this option starts to become attractive."

My response to that post was:

Hmmm. As a small business owner, I would have to say that you are just making excuses for your own business inefficiency. After all, these contractors will have to pay the same minimum wages, so why can they do it and succeed when you do it and fail?

The argument about "affordability" is a red herring.

In an email to Prof. Russell of GMU, I wrote:

Perhaps, instead of railing against a few extra dollars an hour, you and your fellow economists can devise a workable roadmap from subsistence to success that can be taken to the single parents in the poor sections of Detroit and similar cities... one where money really doesn't matter. Of course, one could always say economics deals with the larger picture and creating workable "roadmaps" is not part of that process. Too many variables, etc. Yes, one could say that... and that increasing the minimum wage is a bad thing for the recipients... and it is okay to create a Catch-22, where you need a better education to get out of poverty, but it costs too much to get that education if you are earning "minimum wages"... and it's good for the poor to have competition between U.S. workers and Chinese workers for the entry-level jobs that are the path out of the minimum-wage trap.

One could say those things... and nothing is solved... but the macro numbers look good. At some point, there is a need for both business and government to recognized that leaving a permanent underclass to its own devices may be more expensive in the long run than creating and managing processes to address the situation. Lowering corporate taxes and outsourcing entry-level jobs has helped corporations, but not necessarily translated into opportunity for those on the lowest economic rung in the U.S. So, if increasing the minimum wage is too costly as a first step, what is the first step?

The U.S. has a healthy overall economy (despite pockets of recession like Michigan). Capitalism is the engine of the economy. But if capitalism has no room for compassion, then perhaps we must question its tenets. A system that care only for the winners does not necessarily reflect the founding principles of this country.

The pilgrims did not operate their settlements on the basis of "I got mine."

Not Like Detroit

After a short visit and some 300+ photos later, I've returned from San Francisco with another perspective about Detroit and southeastern Michigan. Some history first:

• Detroit area was settled in the early 1600s; San Francisco started with a Franciscan mission around 1776.
• Detroit reached a peak population of 1.8 million in 1950 and has declined to about 880,000 or less; San Francisco has had a relatively stable population of about 750,000 restricted by space and cost of housing.
• Detroit's population is about 87% black and 13% white; San Francisco is about 50% white, 30% Asian, 8% black, and the remainder miscellaneous.
• In 2003, Detroit had 29,000 violent crimes; San Francisco had less than 6,000.
• In 2002, Detroit had a median income of $30,000; San Francisco had a median income of almost $60,000.

Detroit, unfortunately, represents the worst of what comprises a large, American city; San Francisco represents the best. San Francisco has some natural advantages over Detroit, but not as many as you might think to make the difference between the two cities.

You can click on the photos to see a larger image. Then use your "back" button to come back to this blog.