Professor Bainbridge:

In the LA Daily News Tom Hoffarth explains how Jerry Buss, owner of the Lakers was/is an innovator.

There’s been a star for the past four years on the Hollywood Walk of Fame recognizing the accomplishments of Lakers owner Dr. Jerry Buss.

Look closer at the bronze logo embedded in the terrazzo plaque near the corner of Hollywood and Highland: It’s not a Lakers logo, a dancing girl or Jack Nicholson’s footprint.

It’s a TV set.

Twenty-five years ago – or just six seasons after he purchased the Lakers from Jack Kent Cooke and set off a magical chain reaction that took over the sports landscape of the city – Doc Hollywood figured out how to put “Showtime” in as many Southern California homes as possible.

With the guidance of fellow Rocky Mountain native Bill Daniels, known as the “Father of Cable TV,” Buss took the leap of faith and finances to launch the Prime Ticket basic cable service. It quickly became the team’s most powerful marketing tool, a “must-see TV” sporting event.

It’s not quite the same Prime Ticket channel on your cable or dish system today – that one merely pays homage to its name value going back to 1985.

When Buss is inducted today into the Basketball Hall of Fame for his contributions to the game, those who were there at the beginning of Prime Ticket know that one of the keys in making the Lakers the league’s most glamorous and successful organization over the past three-plus decades was creating the foundation of a revolutionary local cable TV network, one that in its current incarnation continues to connect not just the Lakers but all of the local sports teams to the paying customers at home.

First, the Germans:

Marco Wanderwitz, a conservative member of parliament for the German state of Saxony, said it is unfair and unsustainable for the taxpayer to carry the entire cost of treating obesity-related illnesses in the public health system.

A true conservative (Germany has few, if any) would suggest breaking up the government healthcare monopoly.

“I think that it would be sensible if those who deliberately lead unhealthy lives would be held financially accountable for that,” Wanderwitz said, according to Reuters.

Germany, famed for its beer, pork and chocolates, is one of the fattest countries in Europe. Twenty-one percent of German adults were obese in 2007, and the German newspaper Bild estimates that the cost of treating obesity-related illnesses is about 17 billion euro, or $21.7 billion, a year.

Walter Willett, a professor of nutrition at the Harvard School of Public Health, described the idea of a fat tax as “not humane.” He told AOL News that lifestyle is not the only factor in obesity, with both genetics and urban environments playing major roles.

You may recall the Obamacare stipulates that electronic health care records track American citizens’ our Body Mass Index, a potential prelude to intrusion into diet control.

When that was announced, there were no yelps from privacy advocates.

But when Wal-Mart decides to…

…put electronic identification tags on men’s clothing like jeans starting Aug. 1 as the world’s largest retailer tries to gain more control of its inventory. But the move is raising eyebrows among privacy experts.

The individual garments, which will also include underwear and socks, will have removable smart tags that can be read from a distance by Wal-Mart workers with scanners. In seconds, the worker will be able to know what sizes are missing and will also be able to tell what it has on hand in the stockroom. Such instant knowledge will allow store clerks to have the right sizes on hand when shoppers need them.

The tags work by reflecting a weak radio signal to identify the product. They have long spurred privacy fears as well as visions of stores being able to scan an entire shopping cart of items at one time.

Wal-Mart’s goal is to eventually expand the tags to other types of merchandise but company officials say it’s too early to give estimates on how long that will take.

“There are so many significant benefits in knowing how to better manage inventory and better serve customers,” said Lorenzo Lopez, a Wal-Mart spokesman.

Smart business, right? Keep costs down for the consumer, etc?

“This is a first piece of a very large and very frightening tracking system,” said Katherine Albrecht, director of a group called Consumers Against Supermarket Privacy Invasion and Numbering.

Albrecht worries that Wal-Mart and others would be able to track movements of customers who in some border states like Michigan and Washington are carrying new driver’s licenses that contain RFID tags to make it easier for them to cross borders.

Albrecht fears that retailers could scan data from such licenses and their purchases and combine that data with other personal information. She also says that even though the smart tags can be removed from clothing, they can’t be turned off and can be tracked even after you throw them in the garbage, for example.

Wal-Mart might track your garbage? Frightening!

Uncle Sam will track your body weight? Yawn.

Richard Branson to launch iPad only publication.

While some publishers eye the Apple iPad hopefully as way of migrating the print experience into a rich, multimedia domain as never before, others are already leaping over paper entirely to reach new readers with original digital publications.

In one of the latest direct-to-iPad initiatives, Richard Branson’s Virgin empire announced plans to launch its first consumer magazine on the Apple tablet without a companion print edition. Virgin claims Maverick magazine will be consistent with Virgin’s overall brand, says AdAge, but will include actual articles rather than promotions other Virgin properties.

Branson’s daughter Holly Branson is reportedly leading Virgin’s charge into iPad territory. If she succeeds in signing on premium advertisers and “exploit[ing] the creative potential of the medium without the costs of an existing print title to maintain,” Maverick will launch in the beginning of October, as an iPhone app only — no Kindle, web or paper version.

The NYT is deeply, deeply puzzled.

Why is unemployment so high?

The whodunit has flummoxed economists in both parties for a year. In 2009, as the new Obama administration grappled with the financial crisis, joblessness rose nearly two points beyond customary recession forecasts.

Part of the uncertainty concerns why. More consequential now, as the administration and Congress determine what to do, is whether the unemployment spike reflects a short-term or permanent shift in demand for workers.

“The stakes are enormous,” said Alan S. Blinder, a Princeton economist who advised President Bill Clinton, because the answers are “going to dictate the pace at which jobs come back.”

And that, in turn, may dictate whether Democrats keep control of Congress or surrender at least one chamber to Republicans. So long as the job market remains weak, even substantial achievements like the passage of new financial regulations won’t alleviate voter discontent with the party in power.

In the days of unfettered capitalism, we dammed rivers, belched soot into the air and leveled  forests without a thought. We were rambunctious clods.

Then ecology took hold, the notion that all natural things are interconnected in a system, one we barely understand and which we could spoil via ignorant exploitation. Today we respect nature and its intricate ways (not enough to please Gaia types to be sure.)

What we need now is an new ecology, one that respects the delicate business ecosystem.

America is a rich nation because of that wealth generating ecosystem. It is more delicate than nature. The history of the world is rife with examples of once-great nations brought low. And of nations that never advance.  In recent times, Zimbabwe went from a rich nation to a beggar nation because of human error.

Democrats intellectually understand the importance of business enterprise, but in their gut, they harbor distrust of anything that turns a profit. This colors everything they do.

In one year alone, the Democrats have rushed through two massive laws — Obamacare and the financial regulations — that impact businesses in untold ways. Literally untold because these massive tomes still leave much to the discretion of newly minted bureaucrats who will write and enforce hundreds of new regulations.

In effect, the Dem Cong are the modern equivalent of the cloddish capitalists. They tamper, in ways big and small, with the delicate wealth-creating enterprise that we all take for granted. The goose that lays the golden egg is indeed mortal, as we may soon witness to our lasting regret.

Victor Davis Hanson:

I asked a businessman two weeks ago why he said that he was neither hiring nor buying new equipment. He started in on “rising taxes.”

“But wait,” I interrupted. I pointed out that income-tax hikes haven’t taken effect. The old FICA income caps are also still applicable. Health-care surcharges haven’t hit us yet.

He countered with “regulations” and “bailouts.” I said, “Come on, get specific.” He offered up “cap and trade” and “the Chrysler creditors.” I parried with more demands that he tell me exactly how the federal government has suddenly curbed his profit margins, or how his electric bill had gone up since January 2009, or whether he had lost money on any investment because the government had violated a contract.

Exasperated, he talked now instead of more cosmic issues — the astronomical borrowing, the staggering national debt, and the new protectionism. I pressed again, “But aren’t interest rates historically low? Inflation is almost non-existent, isn’t it? New products are still comparatively cheap? Rents and new business property are at bargain-basement prices?”

This give-and-take went on for ten minutes; but you get the picture. Private enterprise is wary, hesitant, even frightened, but nevertheless hard pressed to demonstrate in concrete fashion how Obama has quite ruined them in just 18 months.

So why are a lot of cash-solvent financial firms, banks, and manufacturing companies not hiring, not expanding, and not buying new operating equipment as they did in past bottoming-out recessions?

In a word, fear. Remember that capitalism is in large part psychologically driven. Confidence, optimism, and a sense of calm about the future foster risk and investment, while worry, pessimism, and a sense of foreboding ensure timidity and stasis.

Barack Obama — who is mostly a creature of the university and the dependable government payroll — does not seem to grasp that fact. If one were to deconstruct any one speech, any particular piece of proposed legislation, or any single executive order, one might not necessarily conclude that Obama’s agenda bodes poorly for the creation of capital. But after 18 months, put the pieces together, and the once jumbled-up jigsaw puzzle starts to form a disturbingly coherent picture.

…the reversal of the payout to Chrysler creditors, the absorption of large insolvent private companies, and the promises for intrusive cap-and-trade energy legislation only seem to confirm that the president has no understanding of the historical role of entrepreneurship and businesses in creating the sort of wealth that he takes for granted can be redistributed. Obama, past and present, seems always to talk of how someone else’s money should be spent, dispersed, and redistributed, but never to worry about how it can be made in the first place.

Coyote Blog:

Based on past studies of sudden acceleration problems  (e.g. that the vast majority of sudden acceleration problems mysteriously happen to senior citizens) I predicted that many of the Toyota failures would come down to operator error.  The incentives for operators are substantial, even before tort action, both from a psychological and monetary standpoint to blame their own errors on Toyota.

The U.S. Department of Transportation has analyzed dozens of data recorders from Toyota Motor Corp. vehicles involved in accidents blamed on sudden acceleration and found that at the time of the crashes, throttles were wide open and the brakes were not engaged, people familiar with the findings said.

The results suggest that some drivers who said their Toyota and Lexus vehicles surged out of control were mistakenly flooring the accelerator when they intended to jam on the brakes. But the findings don’t exonerate Toyota from two known issues blamed for sudden acceleration in its vehicles: sticky accelerator pedals and floor mats that can trap accelerator pedals to the floor.

The findings by the National Highway Traffic Safety Administration involve a sample of reports in which a driver of a Toyota vehicle said the brakes were depressed but failed to stop the car from accelerating and ultimately crashing.

The data recorders analyzed by NHTSA were selected by the agency, not Toyota, based on complaints the drivers had filed with the government.

The findings are consistent with a 1989 government-sponsored study that blamed similar driver mistakes for a rash of sudden-acceleration reports involving Audi 5000 sedans.

The Toyota findings, which haven’t been released by NHTSA, support Toyota’s position that sudden-acceleration reports involving its vehicles weren’t caused by electronic glitches in computer-controlled throttle systems, as some safety advocates and plaintiffs’ attorneys have alleged. More than 100 people have sued the auto maker claiming crashes were the result of faulty electronics.

Of course breast implants pretty clearly never caused immune disorders, but that did not stop tort lawyers from bankrupting an entire industry on that theory.  So it is nice that Toyota has the facts on its side, but that may or may not help in court, and almost certainly will not help in Congress or the Administration, whose agendas were always driven more by the desire to help domestic auto companies against a powerful foreign rival.

Danger ahead as the Dem Cong march ahead with their reckless financial overhaul.

Farmer Jim Kreutz uses derivatives to soften the blow should the price of feed corn drop before harvest. His brother-in-law, feedlot owner Jon Reeson, turns to them to hedge the price of his steer. The local farmers’ co-op uses derivatives to finance fixed-price diesel for truckers who carry cattle to slaughter. And the packing plant employs derivatives to stabilize costs from natural gas to foreign currencies.

Far from Wall Street, President Barack Obama’s financial regulatory overhaul, which may pass Congress as early as Thursday, will leave tracks across the wide-open landscape of American industry.

Designed to fix problems that helped cause the financial crisis, the bill will touch storefront check cashiers, city governments, small manufacturers, home buyers and credit bureaus, attesting to the sweeping nature of the legislation, the broadest revamp of finance rules since the 1930s.

Here in Nebraska farm country, those in the business of bringing beef from hoof to mouth are anxious, specifically about the bill’s provisions that tighten rules governing derivatives. Some worry the coming curbs will make it riskier and pricier to do business. Others hope the changes bring competition that will redound to their benefit.

“Out here we like to cuss the large banking institutions because of the mortgage mess, but we also know that without them some of these markets don’t work,” says Mike Hoelscher, energy program manager for AgWest Commodities LLC, a Holdrege, Neb., brokerage that provides derivatives services to the farming industry.

Derivatives are financial instruments whose value “derives” from something else, such as interest rates or heating-oil prices. The first derivatives were crop futures, which appeared in the U.S. at the end of the Civil War and became a standard facet of business for companies across America.

During the financial crisis, they became notorious as American International Group Inc. and others were gutted by bad bets on derivatives linked to bad mortgages.

President Obama and other proponents say the financial overhaul will prevent the kind of reckless lending and borrowing that sank the financial system and left taxpayers with the check. They say non-financial companies are worrying unduly about the derivatives portion of the legislation. The Senate is expected to approve the financial regulatory overhaul on Thursday, sending it to the president.

The full impact won’t be known for years, but in Nebraska nerves are already on edge.

If our nations CEOs are this gullible, no wonder we’re in trouble. Kimberly Strassel on Obama’s bait and switch on Big Business.

To listen to President Barack Obama, corporate America is a juggernaut, a force of calculating capitalists who ceaselessly plot against his national reforms. To listen to Ivan Seidenberg is to wish the president were even a little right.

Mr. Seidenberg, officially Verizon’s CEO, moonlights as chairman of the influential Business Roundtable, the “association of chief executive officers of leading U.S. companies.” That would be the same Business Roundtable that woke up this past month to discover the White House has been playing it for a patsy. It turns out that actively supporting a pro-tax, pro-regulation Democratic majority on issues like health care doesn’t really get you anything save more taxes and more regulation.

This has clearly come as a shock to the Business Roundtable, as Mr. Seidenberg made clear this week with his newsy and newfound criticism of the White House. The chairman revealed in a speech to the Economic Club of Washington that he’d become “somewhat troubled” by a “disconnect between Washington and the business community.” Here he and his fellow CEOs had “worked closely with policy makers”—they’d even pushed ObamaCare. And yet! “We see a host of laws, regulations and policies being enacted that impose a government prescription” on private actors. Truth was, Washington had created a downright “hostile environment” for job creation!
Agreed, said Roundtable President John Castellani, in an op-ed the same day. We stuck with that majority “through trying circumstances,” even “alienating many of our traditional colleagues,” and what did we get? They keep “vilifying” the private sector! And taxing it, and empowering unions, and ignoring trade. “The time has come for a new course,” declared Mr. Castellani, a mere 18 months after Democrats announced plans to tax companies, empower unions and ignore trade.

Just how the Roundtable came to this tardy rebellion is a tale worth recounting, as it holds lessons. It begins more than a year ago, when the White House announced it would further tax U.S. companies that operate overseas. Our multinationals already face higher taxes than companies in other countries, but President Obama also wanted an end to “tax breaks” for companies that “ship jobs overseas.”

Why announce such a big fight when the White House was already knee-deep in health care and energy? Ask Robert Reich, former Clinton labor secretary, who blogged the day of the announcement: “The President needs the cooperation of many big corporations if he’s going to get universal health insurance,” and this was a “bargaining chip.” “He might be willing to take [the tax hikes] off the table if big corporations lend him active support . . .”

The specific target was in fact the Business Roundtable, which represents the multinationals that would be most hurt by the tax hikes. The lobby ran for the bait. The plan would “cripple economic growth,” said Mr. Castellani upon the announcement, broadcasting that his group would do anything to prevent it.

The White House played it magnificently. It spent a year carefully fiddling with the tax proposal, even disappearing it for a while. The White House provided cheery access to its Business Roundtable partners, even as it whacked the Chamber of Commerce for daring to step out of line. All the while a hopeful Business Roundtable worked for ObamaCare, made pleasant comments about climate-change legislation, and stayed quiet on issues it might have otherwise condemned.

And guess what? Health care passed. Democrats moved on to new priorities, including another round of unemployment benefits and spending. And guess what, then? The House decided to help pay for it with $14 billion in . . . taxes on companies that operate overseas. The Business Roundtable reeled off a denunciation, which congressional Democrats ignored.

…but he bailed out after 12 days, fearing the wild ways of the two Steve’s would ruin him financially.

Bruce Newman in the LAT:

He was present at the birth of cool on April Fool’s Day, 1976: Co-founder — along with Steve Jobs and Steve Wozniak — of Apple Computer Inc., Wayne designed the company’s original logo, wrote the manual for the Apple I computer, and drafted the fledgling company’s partnership agreement.

That agreement gave him a 10% ownership stake in Apple, a position that would be worth about $22 billion today if Wayne had held onto it.

But he didn’t. Afraid that Jobs’ wild spending and Wozniak’s recurrent “flights of fancy” would cause Apple to flop, Wayne decided to abdicate his role as adult in chief and bailed out after 12 days. Terrified to be the only one of the three founders with assets that creditors could seize, he sold back his shares for $800.

Jobs brought him in to referee.

…in those early days, the free-spirited Wozniak was reluctant to commit himself, and it was driving Jobs crazy. “There were bits and pieces of the circuit for the Apple computer that Wozniak wanted to use in other places,” Wayne recalled. “Jobs said, ‘You can’t do that. This is the property of Apple Computer.’ He had an awful time with Wozniak because of the difference in their personalities.”

Jobs quickly figured out that his budding partnership with Wozniak would require adult supervision, and he asked Wayne to step in as the tiebreaker. The two Steves came to Wayne’s Milpitas, Calif., apartment, and after two hours of thrashing it out, the older man explained to Wozniak that the electronic architecture he was creating was crucial to the ongoing existence of Apple. “He finally got the message,” Wayne said. Jobs was agog.

“It was at that point he said, ‘Let’s form a company,’” Wayne recalled. Like a quarterback drawing a play in the dirt, Jobs came up with the idea of giving himself and Wozniak each 45%, the final 10% going to Wayne, who would mediate disputes between his headstrong partners.

“That would resolve any problems forever and ever,” said Wayne, who drew up the contract on a typewriter. There was no such thing as a word processor yet. They were about to invent it.

No, they didn’t invent the word processor. Lanier and IBM had been selling standalone word processors for years.

And the first WP software for the micro computer was Word Star.

Forbes’s Michael Fumento doesn’t believe the runaway Prius story:

“On the very day Toyota was making a high-profile defense of its cars, one of them was speeding out of control,” said CBS News–and a vast number of other media outlets worldwide. The driver of a 2008 Toyota Prius, James Sikes, called 911 to say his accelerator was stuck, he was zooming faster than 90 miles per hour and absolutely couldn’t slow down.

It got far more dramatic, though. The California Highway Patrol responded and “To get the runaway car to stop, they actually had to put their patrol car in front of the Prius and step on the brakes.” During over 20 harrowing minutes, according to NBC’s report, Sikes “did everything he could to try to slow down that Prius.” Others said, “Radio traffic indicated the driver was unable to turn off the engine or shift the car into neutral.”

In fact, almost none of this was true. Virtually every aspect of Sikes’s story as told to reporters makes no sense. His claim that he’d tried to yank up the accelerator could be falsified, with his help, in half a minute. And now we even have an explanation for why he’d pull such a stunt, beyond the all-American desire to have 15 minutes of fame (recall the “Balloon Boy Hoax” from October) and the aching need to be perceived as a victim.

The lack of skepticism from the beginning was stunning. I combed through haystacks of articles without producing such needles as the words “alleges” or “claims.” When Sikes said he brought his car to a Toyota dealer two weeks earlier, recall notice in hand, and they just turned him away, the media bought that, too. In Sikes We Trust. Then the pundits deluged us with a tsunami of an anti-Toyota sanctimony .

Where to begin?

Well, the patrol car didn’t slow down the Prius; the bumpers never touched. The officers used a loudspeaker to tell Sikes to use the brakes and emergency brake together. He did; the car slowed to about 55 mph. Sikes turned off the engine and coasted to a halt. He stopped the car on his own.

There wasn’t anything wrong with the transmission or the Prius engine button either.

Over a 23-minute period the 911 dispatcher repeatedly pleaded with Sikes to shift into neutral. He simply refused and then essentially stopped talking to her except to say that he thought he could smell his brakes burning.

“I thought about” shifting into neutral, Sikes said at a televised press conference the day after the incident. But “I had never played with this kind of a transmission, especially when you’re driving and I was actually afraid to do that.” Sikes, who has driven the car for two years, also said “I figured if I knocked it over [the gear knob] the car might flip.”

Via Instapundit who notes, “Personally, I’d like to see some Congressmen forced to testify before a panel of car dealers, about the budget deficit’s Sudden Acceleration Problem.”

Toyota has recalled millions of cars and trucks—4.2 million to replace floor mats that might impede throttle-pedal travel, and 2.4 million to install a shim behind the electronic pedal assembly. All of the affected pedal assemblies were made by Canadian supplier CTS. Toyota’s boffins have documented a problem that can make a few of these pedals slow to return, and maybe even stick down. Problem solved.

But the media, Congress—and personal-injury lawyers—smell the blood in the water. Not to diminish the injuries and a few deaths attributable to these very real mechanical problems, but they’re statistically only a very small blip, which may explain why Toyota took so long to identify the issue, especially when it has symptoms similar to the similarly documented floor mat recall. Plus, sudden unintended acceleration (SUA) is notoriously difficult to diagnose because, more often then not, the problem can’t be repeated in front of a mechanic.

Let’s not forget the Audi SUA episode back in the ’80s; the National Highway Traffic Safety Administration eventually concluded that there was no mechanical problem. The culprit, as hard as this is to admit, was most likely driver error. To put the issue into context, in the last decade, there were about 24,000 customer complaints about SUA involving almost every major automaker. The NHTSA investigated fewer than 50.

The issue now is whether there’s a more insidious problem unrelated to the two recalls already extant. Specifically, whether there’s some design flaw in the entire concept of electronic throttle control. Some are questioning whether electromagnetic interference from devices like cellphones could be contributing to the acceleration problems.

IBD:

As the U.S. dithers, East Asia has moved forward on market liberalization with a vengeance, creating the biggest free trade zones seen in years. The train is pulling out of the station, and America isn’t on board.

Largely ignored over the weekend, Jan. 1 signaled the arrival of the world’s third-biggest free trade area. China and Asia’s Tigers — the Association of Southeast Asian Nations — scrapped 7,000 different tariffs to form a $200 billion open market for about 2 billion consumers, one-third of the world’s population.

That’s not the half of it. Jan. 1 also heralded another ASEAN free-trade pact with mighty India, ending tariffs on 4,000 products staggered through 2016. This deal will expand a $50 billion market for 1.5 billion consumers into something even bigger.

ASEAN also signed off on free trade with Australia and New Zealand, tacking on another $50 billion market to expand for their 600 million consumers. It follows ASEAN’s Dec. 1 agreement with Japan, which created a $240 billion market for 670 million. In addition, Thailand and South Korea completed the last step of 2007’s ASEAN-Korea pact, finalizing expansion of the zone to a $72 billion market for 600 million.

ASEAN’s six freest members — Thailand, Indonesia, Singapore, Philippines, Malaysia, Brunei — even enacted a free-trade deal among themselves on Jan. 1, ending tariffs on goods sold to each other, freeing a $60 billion market for 500 million consumers.

ASEAN wasn’t the only one moving on free trade. Over the same weekend, India announced that three years of talks with South Korea were complete, uniting the third- and fourth-largest economies in the Far East. India’s leaders said a one-year deadline for negotiating a pact with the European Union was set this week, too.

All this points to something major: While the Obama administration has put its energy into trade wars with China, enacting punitive tariffs on steel, tires, nylon, paper, and other goods and has signed no new pacts in 2009, free trade is marching on without the U.S.

That’s a sorry leadership deficit in an era when protectionism, much of it started by the White House to please U.S. unions, has multiplied to 437 protectionist moves across the globe, many retaliatory, according to the Center for Economic Policy and Research.

A year or three from now, the Obama administration may still be coddling jurassic labor unions that abhor free trade and fencing off America’s market and hoping no one notices, but nobody doubts the Asian states are going to be growing.

Economists estimate 6% to 9% growth rates propelling those economies forward — and free-trade pacts will be a big part of it.

One hand destroys jobs, while the other tries to create them. Sheesh.

James Pethokoukis in Reuters:

Here’s the theory about the new U.S. position on greenhouse gases. The official finding by the U.S. Environmental Protection Agency that the emissions endanger human health sets the stage for permit requirements on power plants, factories and automobiles. It also supplies President Barack Obama with more evidence at the Copenhagen summit of a “new normal” in America when it comes to climate policy. And back home, it supposedly gives a nudge to the Senate where cap-and-trade legislation is stuck on the back burner.

But in practice, the only thing certain about the EPA ruling is more regulatory uncertainty leading to less economic growth and fewer jobs. Bad news, to be sure, for American businesses already flummoxed by the mercurial state of healthcare, financial and tax reform. Call it Obama’s Uncertainty Tax.

It’s astounding how much damage this band of clowns can cause the nation in just one year.

Elect a president who’s never run a business nor held an executive position and what do you get? Big ideas from people who know nothing.

John Stossel writes about Obama’s recent “jobs summit.”

“We want to make sure it is not just the public sector doing this in a vacuum,” said Valerie Jarrett, a senior adviser to Obama. “It’s important we engage the private sector as well.”  Administration officials, however, have excluded major trade associations from the summit… .

Some of those groups privately complain that their job creation ideas, including enactment of stalled free trade deals that they say would boost exports, are opposed by labor unions, which will be heavily represented at the forum.

The White House, which has clashed with some of the business groups over their opposition to health-care reform and other initiatives, says it has met repeatedly with those organizations and wants to hear fresh ideas.

Yes. I am sure those “fresh ideas” will come from the trade unions whom the White House just hasn’t heard from much over the past year. At the summit they will also hear from environmental groups “Green for All” and “Coalition for the Green Bank.” I’m sure they’ll have great ideas for job creation.

Will at least some free-market economists get to speak?  No.  The White House will hear from Paul Krugman, Joe Stiglitz, and Jeffrey Sachs. “Fresh ideas” won’t be heard from these folks.

They and the political class can’t imagine a decentralized world where good things happen…without them.  But in the real world, that’s exactly how good things happen, and how jobs are created.

When government sets simple rules that everyone understands and then gets out of the way, free people create jobs.

Hong Kong demonstrates this.  Last century, Hong Kong was third world poor.  50 years ago, its citizens’ average income was under $700 (in today’s dollars) per year.  Today, it’s $43,800.  Hong Kong got rich because Hong Kong’s rulers,  stuffy British bureaucrats, practiced what I’ll call “benign neglect”: they enforced rule of law—kept  people from stealing from each other, or killing each other— but then sat around and drank tea.  They left people alone, and free people, left alone, created prosperity.

America’s founders did the same thing.  The Constitution announced that American would be a country of limited government.  That provided the simple and understandable rules that allowed America to grow into the richest country ever.

Today’s political class thinks that they can improve on that, but they can’t.  Their micromanagement kills jobs.  When Washington threatens to drastically change the rules of the game with health care mandates, cap and trade, financial regulation, a second stimulus, and (of course) a “jobs bill”, the private sector can’t make investments with any confidence.  At least the Post quoted one businessman who said Washington should stop fiddling:

Peter Y. Solmssen, interim U.S. chief executive of Siemens Corp., a German conglomerate, said fixed policies would help businesses, large and small. “We both need a certain amount of certainty, which gives us the opportunity and capability to plan.”

C. Edmund Wright at American Thinker.

Can Barney Frank Dunk on Lebron? No, he cannot. Nor can anyone else in Washington. Nor can they catch passes from Ben Rothlisberger in the Super Bowl or strike out Derek Jeter in the World Series. They are not equipped to do so.

So what?

This ridiculous image speaks to the business malaise infecting the economy since Obama took office. The point is that politicians are equally ill-equipped to run the auto industry or the health industry or the lending industry or the insurance industry — and their determination to do so is sucking all the dynamism from the entrepreneurial class in this country.

With the threat of this administration and congress, what is the possible motivation for anyone with ideas and capital to invest his time, talent, and money into a risky endeavor? There appears to be none. In fact, there appear to be powerful incentives not to invest any time or treasure — thus an economy with almost zero creative inertia.

For Obama voters, almost zero creative inertia means almost no one is having bright ideas, starting businesses based on them, and hiring employees to help share the dream.

Consider: A professional sports league featuring Barney Frank, Chris Dodd, Dennis Kucinich, and Robert Byrd is not an enterprise that can successfully draw investors or paying customers, nor will it command media attention as anything resembling excellence. The entrepreneurial class in this country looks at the governing class in Washington today and sees a bunch of misfit incompetents who are determined to play starring roles in every nook and cranny of the economy.

And it is repulsive as well as disheartening. Maybe three of the 535 members of Congress have what it takes to keep a small business alive for a single fiscal quarter. We believe even fewer have what it takes to roll the dice and actually start one.

Yet they continue to pass laws and speak to reporters about all they are doing to create or save jobs. Yeah, right.

To people who are supercharged with the entrepreneurial spirit, the idea that the pudgy, bespectacled congressman — a self-described non-outdoorsman — could properly run an industry is just as outlandish as the idea that he could elevate over and “posterize” Lebron or Kobe. Taking risks and investing blood, sweat, and tears into a business that will — should it become successful — fall under the strict supervision of Washingtonians is simply a non-starter.

Any business idea, from the first day it is hatched, is nothing more than a series of cost-benefit analyses that the idea-holder either acts on or passes. Sometimes the first decision is to forget the idea. Sometimes the first decision is to move ahead and invest some cash. Perhaps a few million cost-benefit analyses later you might have Microsoft or Home Depot or ESPN. Or you might have Bill’s Plumbing or Johnson’s Quality Homes or a café or an electrical wholesaler, and so on. And those businesses still operate on a constant stream of risk-reward decisions. In the business world, there is no neutral gear.

From Junk Science, a collection of wanted posters for Carbon Criminals.

Note that most, if not all, are business leaders who’ve figured out the profit side of the Green Scare.

From Wired, how a company called Demand Media mines search engine data to create how-to articles and videos guaranteed to turn a profit.

The stuff may be crap and those making it are earning Third World pay, but it is profitable.

Reese is a tall Texan who serves as Demand’s chief innovation officer and who created the idea-spawning algorithm that lies at the heart of Demand’s process. To determine what articles to assign, his formula analyzes three chunks of information.

First, to find out what terms users are searching for, it parses bulk data purchased from search engines, ISPs, and Internet marketing firms (as well as Demand’s own traffic logs). Then the algorithm crunches keyword rates to calculate how much advertisers will pay to appear on pages that include those terms. (A portion of Demand’s revenue comes from Google, which allows businesses to bid on phrases that they would like to advertise against.) Third, the formula checks to see how many Web pages already include those terms. It doesn’t make sense to commission an article that will be buried on the fifth page of Google results. Finally, the algorithm, like a drunken prophet, starts spitting out phrase after phrase: “butterfly cake,” “shin splints,” “Harley-Davidson belt buckles.”

But that’s just the start. Armed with those key words, another algorithm, called the Knowledge Engine, dives back into the data to figure out exactly what people want to know about the term. If the original algorithm divines “2009 Chevy Corvette” as a profitable title, the Knowledge Engine will return with “cost of 2009 Corvette”; for “shin splint” it might come back with “equine treatment shin splints.” The second algorithm also looks at how well past titles with similar words have performed in terms of ad revenue. Demand has learned, for instance, that “best” and “how to” bring in traffic or high clickthrough rates, while “history of” is ad poison. At the end of the process, the company has a topic and a dollar amount — the term’s “lifetime value,” or LTV — that Demand expects to generate from any resulting content.

Genius.

Plenty of other companies — About.com, Mahalo, Answers.com — have tried to corner the market in arcane online advice. But none has gone about it as aggressively, scientifically, and single-mindedly as Demand. Pieces are not dreamed up by trained editors nor commissioned based on submitted questions. Instead they are assigned by an algorithm, which mines nearly a terabyte of search data, Internet traffic patterns, and keyword rates to determine what users want to know and how much advertisers will pay to appear next to the answers.

The process is automatic, random, and endless, a Stirling engine fueled by the world’s unceasing desire to know how to grow avocado trees from pits or how to throw an Atlanta Braves-themed birthday party. It is a database of human needs, and if you haven’t stumbled on a Demand video or article yet, you soon will.

By next summer, according to founder and CEO Richard Rosenblatt, Demand will be publishing 1 million items a month, the equivalent of four English-language Wikipedias a year. Demand is already one of the largest suppliers of content to YouTube, where its 170,000 videos make up more than twice the content of CBS, the Associated Press, Al Jazeera English, Universal Music Group, CollegeHumor, and Soulja Boy combined. Demand also posts its material to its network of 45 B-list sites — ranging from eHow and Livestrong.com to the little-known doggy-photo site TheDailyPuppy.com — that manage to pull in more traffic than ESPN, NBC Universal, and Time Warner’s online properties (excluding AOL) put together. To appreciate the impact Demand is poised to have on the Web, imagine a classroom where one kid raises his hand after every question and screams out the answer. He may not be smart or even right, but he makes it difficult to hear anybody else.

The result is a factory stamping out moneymaking content. “I call them the Henry Ford of online video,” says Jordan Hoffner, director of content partnerships at YouTube. Media companies like The Atlanta Journal-Constitution, AOL, and USA Today have either hired Demand or studied its innovations. This year, the privately held Demand is expected to bring in about $200 million in revenue; its most recent round of financing by blue-chip investors valued the company at $1 billion.

Taxpayers bailed out certain companies to the tune of billions of dollars.

Now that we have a financial interest in these corporations, we have the legal right to address how much executives get paid.

Thus the Obama administration is busy cutting pay — a popular exercise, indeed.  Of course, some of those companies are conglomerates where many divisions were highly profitable and had nothing to do with the meltdown.

Does it make sense for us to chase off executive talent? Or is it cutting off our nose to spite our face?

Suppose one division of AIG was the Los Angeles Lakers. Would it be smart business to cap salaries at $1 million (hey, anybody can live on that!)?

No, it would be the quickest way to turn the Lakers into the Clippers.

Macroblog on why small businesses won’t be hiring soon.

In a speech yesterday, William Dudley, the president of the Federal Reserve Bank of New York, identified financial constraints for small businesses as a restraint on the pace of economic recovery. Specifically, he said:

“For small business borrowers, there are three problems. First, the fundamentals of their businesses have often deteriorated because of the length and severity of the recession—making many less creditworthy. Second, some sources of funding for small businesses—credit card borrowing and home equity loans—have dried up as banks have responded to rising credit losses in these areas by tightening credit standards. Third, small businesses have few alternative sources of funds. They are too small to borrow in the capital markets and the Small Business Administration programs are not large enough to accommodate more than a small fraction of the demand from this sector.”

President Dudley’s comments are even more relevant in the current recession if one considers the disproportionate effect the recession has had on very small businesses. In general, the Small Business Administration defines a small business as a firm with less than 500 employees. However, for my analysis here I focus on the very small firms (those with less than 50 employees) as the data indicate these firms have been the most affected by the current recession. (Look here for another take on how to define a small business).

Boeing Co. workers in North Charleston voted overwhelmingly to disband their union in a move that could give the region an edge in landing an aircraft plant the company is looking to build.

Of the 267 ballots cast, 199 were in favor of decertifying the election that made them members of the International Association of Machinists. The company was pleased; the union was disappointed.

Sounds like they’re smart enough to understand costs and competition.

Paul Graham:

Now that the term “ramen profitable” has become widespread, I ought to explain precisely what the idea entails.

Ramen profitable means a startup makes just enough to pay the founders’ living expenses. This is a different form of profitability than startups have traditionally aimed for. Traditional profitability means a big bet is finally paying off, whereas the main importance of ramen profitability is that it buys you time. [1]

In the past, a startup would usually become profitable only after raising and spending quite a lot of money. A company making computer hardware might not become profitable for 5 years, during which they spent $50 million. But when they did they might have revenues of $50 million a year. This kind of profitability means the startup has succeeded.

Ramen profitability is the other extreme: a startup that becomes profitable after 2 months, even though its revenues are only $3000 a month, because the only employees are a couple 25 year old founders who can live on practically nothing. Revenues of $3000 a month do not mean the company has succeeded. But it does share something with the one that’s profitable in the traditional way: they don’t need to raise money to survive.

Ramen profitability is an unfamiliar idea to most people because it only recently became feasible. It’s still not feasible for a lot of startups; it would not be for most biotech startups, for example; but it is for many software startups because they’re now so cheap. For many, the only real cost is the founders’ living expenses.

The main significance of this type of profitability is that you’re no longer at the mercy of investors. If you’re still losing money, then eventually you’ll either have to raise more or shut down. Once you’re ramen profitable this painful choice goes away. You can still raise money, but you don’t have to do it now.

…this will be all too familiar.

Read the post below first. Michael Malone explains why Big Tech loved Obama:

The first surprise to many [Silicon Valley] Valleyites is how innately anti-entrepreneurial the new Administration has turned out to be. Candidate Obama looked like a high tech executive – smart, hip, a gadget freak – and he certainly talked pro-entrepreneur. But the reality of the last six months has been very different. One might have predicted that he would use the best tool in his economic arsenal – new company creation and the millions of new jobs those firms in turn create – to fight this recession. But President Obama has instead appeared to be almost exclusively interested in Big Business as the key to economy recovery.

By comparison, almost every move the new Administration has made regarding entrepreneurship seems to be targeting at destroying it in this country. It has left Sarbanes-Oxley intact, added ever-greater burdens on small business owners, called for increasing capital gains taxes, and is now preparing to pile on cap-and-trade, double taxation on offshore earnings, and a host of other new costs. Even Obamacare seems likely to land unfairly on small companies.

Entrepreneurship has been the single most important contributor to the economic health of this country for at least a century now – and if you were going to systematically destroy that vitality, you couldn’t come up with a better strategy than the one Washington has put in place over the last six months. Indeed, you can make the case that the sole contribution the Obama administration has made to entrepreneurship in America to date is to force all of those millions of unemployed people to desperately set up their own businesses in order to survive.

You might imagine that this would be upsetting to all of those Valley tycoons who played such an important role in underwriting, advising and legitimizing Candidate Obama. But you would be wrong.

What I think is most misunderstood by outsiders is that the electronics industry is not monolithic, and that its players do not all share the same interests. And nowhere is this divide greater than between start-up companies and the giant, well-known corporations – even though the latter, just a few years before, were start-ups themselves.

For example, you may think that the competitive challenge that big tech companies fear most is from other big tech companies. You know: Apple v. Microsoft, HP v. Dell, Cisco v. Juniper, MySpace v. Facebook. But in fact, that isn’t the case. Sure, those are dangerous competitors; but far more threatening is that clever new start-up that seems to appear out of nowhere. That’s the threat that wakes up Fortune 500 tech CEOs at 3 a.m. That little start-up not only competes with you, it can render your entire business – even your entire industry – obsolete and you don’t even see it coming. Think desktop publishing and the printing industry, the iPod and the music industry – and just look at the terror that Twitter seems to be creating at Google and Facebook these days.

Once you understand this dynamic, a lot of the paradoxical recent business behavior in high tech suddenly becomes explicable. For example, why did the big tech companies embrace such regulations as Sarbanes and stock options expensing – even though they would cost them billions of dollars with no obvious gain? And why would they support a Presidential candidate who seemed to have little understanding of, or sympathy for, market capitalism and business?

Because it was the best strategy to crush the start-ups.

Congress passed strict tobacco legislation with Philip Morris grinning all the way to the bank.

When Senator John McCain introduced FDA regulatory legislation in 1998, the company spent a reported $100 million successfully fighting it. But since then, Philip Morris has had a crucial realization. With 50% of the U.S. tobacco market already safely in the company’s pocket – and more than 50% of 18- to 25-year-old smokers loyal to its top brand, Marlboro – restrictive legislation will effectively lock in its market dominance, preventing any competitors from taking a bite out of Philip Morris’ very lucrative business.

Important lesson. As Jonah Goldberg noted in Liberal Fascism, big business loves big government when said government locks in its market share.

For example, the big meatpackers actually encouraged strong government regulation — it wasn’t all the doing of muckrakers — because the big boys knew the smaller operators couldn’t afford the cost of meeting government rules.

It didn’t Lenin long after nationalizing the Russian economy to realize it wasn’t working well — all those starving people must have been a clue.

So he decided to allow farmers to grow and sell food without government interference. When his comrades bitched that he’d sold out his Bolshevik ideals, he retorted that they were fools because the state retained control of the Commanding Heights — all the heavy industry, the railroads, the newspapers etc.

Such has been the economic argument for the past 100 years: how much government should be nosing in the economy. It’s a debate sure to heat up as Obama has turned General Motors into Government Motors, cocksure that he and his advisors know best.

This has elicited some amusing reactions, such as this from Pravda.

It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people.

…The final collapse has come with the election of Barack Obama. His speed in the past three months has been truly impressive. His spending and money printing has been a record setting, not just in America’s short history but in the world. If this keeps up for more then another year, and there is no sign that it will not, America at best will resemble the Wiemar Republic and at worst Zimbabwe.

A more sober analysis comes from Megan McArdle at the Atlantic. (She voted for Obama.)

…The government is acting as if GM’s main problem is that it stubbornly refused to enter the lucrative market for small, fuel-efficient cars.  But the market for small, fuel efficient cars is not lucrative–they’re the cars with the thinnest margins.  And no one’s making it up on volume, either:  at the height of last year’s oil spike, when barrels of Brent Crude were being quoted in first-born sons, small cars soared to . . . 20% of the American market.  Yes, there was a glut of SUVs, but that’s because American companies were making a lot of SUVs.  Foreign companies make money on small cars because they develop them for lucrative home markets before modifying them for American production.

GM’s main problem is not that the market is unreasonably unwilling to finance a potentially profitable company.  Nor that it can’t produce an awesome small car that shockingly few people want to buy.  (Believe me, as the owner of a tiny, ultra-efficient car, I would that there were higher demand for my rapidly depreciating asset).  GM’s main problems are

1)  A terrible, bloated cost structure
2)  A terrible, bloated bureaucracy
3)  A bunch of meh car lines

Which of these is the government going to solve?  That terrible, bloated cost structure supports a bloated union whose jobs are the entire rationale for the government intervention.  Leaning on the parts suppliers just risks UAW jobs further down the supply chain.  Maybe we can take it out of the budget for copy paper and pencils.

Forgive me if I am skeptical that the government is going to show GM how to streamline its bureaucracy.  Nor do governments historically have a good record as cutting-edge auto designers.

The link is to a photo of the Trabant, the car made by East Germany. Trabant jokes were legend.

Q. What’s the difference between a Trabant and a golf ball?
A. You can drive a golf ball.

Q. How do you make a Trabant disappear?
A. Spray it with rust remover.

Q. How do you double the value of a Trabant?
A. Fill up the tank!

Q. What’s the difference between a Jehovah’s Witness and a Trabant?
A. You can shut the door on a Jehovah’s Witness.

The good news about the Trabant was you had to wait seven years to own one.

What makes Warren run? Michael Lewis reviews a biography of the Omaha billionaire.

There is now a long shelf of books about Warren Buffett, but this is the first time he has gone to any trouble to add to it. Reportedly Buffett now regrets his decision–he has apparently put some fresh distance between himself and his official biographer. If so, it’s not hard to see why. Alice Schroeder is a former Morgan Stanley research analyst, able to understand and to explain Buffett’s money-making, but she declined to confine herself to the business at hand. She has sought to describe Buffett’s psychological landscape as clearly as his financial one. For the reader, the results are pretty terrific–there are not a lot of 838-page narratives that leave you wanting more–but for Buffett they are no doubt upsetting.

Over his long and admirable career, the famous billionaire has been shockingly honest about who he is and what he does. Now along comes this first-time author who insists on seeing his pleasant honesty and raising it, painfully. Even worse: she’s a woman! Buffett has a long and happy history of admitting attractive, intelligent women into his life, which Schroeder describes without mentioning how neatly she fits into the pattern. These women have invariably felt the need to shelter and to protect their man, and to subordinate their own needs to his–until now. Buffett should have known better: you should never completely trust a writer. Especially if she is any good.

Begin, as Schroeder does, at the beginning. Born in 1930, the son of an emotionally abusive mother and a father whom he adored but who was unable to absorb the full shock of his wife, Buffett was emotionally problematic. In Schroeder’s telling, the young Warren was sneaky, socially awkward, and generally a wiseass with a cruel streak. As a man he would reserve his harshest criticism for those who lied or cheated or stole, but as a boy he shoplifted pathologically–not because he wanted a particular thing, but simply for the pleasure of stealing. At ease in Omaha, he was unhappy everywhere else, and so he suffered especially when his stockbroker father Howard was elected to the House of Representatives and he became the new kid at middle school in Washington, D.C. He was young for his class. In the most important social departments, he started out well behind his classmates and, as he puts it, “I never caught up, basically.” He had terrible social anxieties and, right up until the time he married, at the age of twenty-one, a special lack of talent with girls.

In spite of all this he was deeply, ferociously competitive. Here is one of the odd things about the man whom Schroeder describes: the plain facts of his young character assemble themselves into something like a portrait of a universal loser–and yet right from the start Buffett himself seems to have been able to believe that the universe was wrong and he was right.

Manny Lopez in the Detroit News

President Barack Obama insists he doesn’t want to run the domestic auto industry — and we should all be thankful for that.

But his actions speak differently — and we should all be worried.

“… I rejected the original restructuring plan” that Chrysler LLC submitted for government loans, he said April 30 in announcing his decision to force Chrysler into bankruptcy. “… And the standard I set was high — I challenged them to design a plan …”

That’s a lot of self promotion and involvement from a guy who doesn’t want to control the companies.

To be sure, the government, with the investment of $4 billion in our tax dollars in Chrysler and $15.4 billion in General Motors Corp. needs to set guidelines and rules for repayment. If not met, call the loans and get our money back.

But forcing a private American company into bankruptcy because the president thinks it’s the most prudent action. Um, no. Not by any measure.

Blaming the hedge funds

The president found a scapegoat in the hedge funds that balked at the government’s “offer” to take pennies on the dollar for their secured investment

“… It was unacceptable to let a small group of speculators endanger Chrysler’s future by refusing to sacrifice like everyone else,” he said.

Pardon me while I puke.

Chrysler’s secured lenders held about $6.9 billion in debt and a couple didn’t want to take significantly less than what they were owed. The lenders that opposed hold less than 10 percent of that debt.

You mean to tell me that the president, who has authorized more than $19 billion in cash to the auto companies, with much of it likely never to be repaid, was willing to force Chrysler into bankruptcy over less than a billion bucks?

When you’re doling out dump trucks full of cash, another Ram pickup full doesn’t break the government’s back.

Too much auto ignorance

Make no mistake: The president had this outcome in mind all along. He’ll force that action on GM, too.

All the while bashing Detroit for not being Toyota.

“I don’t know how to create an affordable, well-designed plug-in hybrid. But I know that, if the Japanese can design an affordable, well-designed hybrid, then, doggone it, the American people should be able to do the same,” he said during his 100-days-in-office speech. “So my job is to ask the auto industry: Why is it you guys can’t do this?”

Seriously? GM is building the Volt. The Ford Fusion hybrid will get top mileage numbers.It’s about time Obama starts looking past the nonsense he’s being fed by Californians in Congress. Certainly, the domestic industry needs to do more and it didn’t adapt fast enough.

But to suggest that less than a billion bucks forced Chrysler into court or that these companies aren’t in the same league as the Japanese shows that the auto ignorance in Washington rolls on.

Note to Obama: Toyota sells a fine hybrid and Americans are not buying them.

Gary Hamel in the WSJ:

The experience of growing up online will profoundly shape the workplace expectations of “Generation F” – the Facebook Generation. At a minimum, they’ll expect the social environment of work to reflect the social context of the Web, rather than as is currently the case, a mid-20th-century Weberian bureaucracy.

If your company hopes to attract the most creative and energetic members of Gen F, it will need to understand these Internet-derived expectations, and then reinvent its management practices accordingly. Sure, it’s a buyer’s market for talent right now, but that won’t always be the case—and in the future, any company that lacks a vital core of Gen F employees will soon find itself stuck in the mud.

With that in mind, I compiled a list of 12 work-relevant characteristics of online life. These are the post-bureaucratic realities that tomorrow’s employees will use as yardsticks in determining whether your company is “with it” or “past it.” In assembling this short list, I haven’t tried to catalog every salient feature of the Web’s social milieu, only those that are most at odds with the legacy practices found in large companies.

1. All ideas compete on an equal footing.
On the Web, every idea has the chance to gain a following—or not, and no one has the power to kill off a subversive idea or squelch an embarrassing debate. Ideas gain traction based on their perceived merits, rather than on the political power of their sponsors.

2. Contribution counts for more than credentials.
When you post a video to YouTube, no one asks you if you went to film school. When you write a blog, no one cares whether you have a journalism degree. Position, title, and academic degrees—none of the usual status differentiators carry much weight online. On the Web, what counts is not your resume, but what you can contribute.

3. Hierarchies are natural, not prescribed.
In any Web forum there are some individuals who command more respect and attention than others—and have more influence as a consequence. Critically, though, these individuals haven’t been appointed by some superior authority. Instead, their clout reflects the freely given approbation of their peers. On the Web, authority trickles up, not down.

Read on…

Yes! Into the ground! Betsy Newmark

Well, we’re going to soon find out with the plans put forward for GM and Chrysler.

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.)

Since everyone recognizes the role that the unions have played in the decline of the two companies, how are they going to improve and come out of this debacle as stronger, more profitable companies? What is going to happen when it comes time for the UAW to negotiate their next labor contract with a company that they own 39%? Do you think that an Obama-run administration would stand up to their demands? As Holman Jenkins points out, it has been the combination of government and union action in the past thirty years that has led these companies to the situation that they’re now in.

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.

Why would anyone invest money in these companies today? The ordinary bondholders are getting the shaft. As Larry Kudlow pointed out Monday,

The government is about to take over GM in a plan that completely screws private bondholders and favors the unions. Get this: The GM bondholders own $27 billion and they’re getting 10 percent of the common stock in an expected exchange. And the UAW owns $10 billion of the bonds and they’re getting 40 percent of the stock. Huh? Did I miss something here? And Uncle Sam will have a controlling share of the stock with something close to 50 percent ownership. And no bankruptcy judge. So this is a political restructuring run by the White House, not a rule-of-law bankruptcy-court reorganization.

Yes, up is down and down is up. But it’s been that way for a long time in Detroit. Don’t expect anything to change.