FDR’s NRA Price-Fixing Helped Big Firms “Ruin” Little Firms

(p. 50) Among those damaged was Carl Pharis, the general manager of Pharis Tire and Rubber Company in Newark, Ohio. Pharis employed over one thousand people, mainly in the Newark area. His company grew because, in Pharis’s words, “we would make the best possible rubber tire and sell it at the lowest price consistent with a modest but safe profit.” He and his employees had survived the grim Great Depression years because they had lower prices, a good tire, and solid support in central Ohio from buyers who knew the company because it was local and because it priced its tires lower than the larger firms. As Pharis said, “It is obvious that they cannot make as good a tire as we make and sell it at the price at which we can sell at a profit:”

Then came the NRA with its high fixed prices for tires. As Pharis said, “Since the industry began to formulate a Code under the N. R. A., in June, 1933, we have at all times opposed any form of price-fixing. We believe it to be illegal and we know it to be oppressive.” He added, “We quite understand that, if we were compelled to sell our tires at exactly the same price as they sell their tires, their great national consumer acceptance would soon capture our purchasers and ruin us. Since we have so little of this consumer publicity when compared with them, our only hope is in our ability (p. 51) to make as good or a better tire than they make and to sell it at a less[er] price. . . . ”
Since Pharis and other small companies were no longer allowed to sell tires at discounted rates, Goodyear and Firestone “could go out just as they have gone out,” Pharis noted, “and say to prospective customers that, since they had to pay the same price, it would be wiser if they bought the nationally advertised lines.”
In a nutshell, Pharis put it this way: “The Government deliberately raised our prices up towards the prices at which the big companies wanted to sell, at which they could make a profit, . . . where more easily, with much less loss, they could come down and ‘get us’ and where, bound by N. R. A. decrees, we could not use lower prices, although we could have lowered them and still made a decent profit.”
Pharis was on the verge of closing down and having to lay off all of his one thousand employees. His company, with its low prices and quality tires, could weather the Great Depression, but not the NRA. “If we were asking favors from the Government,” Pharis concluded, “there would be little justice in our complaints. . . . And so, if the big fellows, with their too-heavy investments and high costs of manufacturing and selling, cannot successfully compete with us little fellows without Government aid, they should quit.”

Folsom, Burton W., Jr. New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America. New York: Threshold Editions, 2008.
(Note: ellipses in original.)

New York City Would Creatively Adapt to Global Warming

NewYorkWaterfrontNewLandscape2010-04-26.jpg “Rising Currents: Projects for New York’s Waterfront In this MoMA show, a model by Architecture Research Office marries a wholly new landscape to Lower Manhattan’s streets.” Source of caption and photo: online version of the NYT article quoted and cited below.

Much is in doubt about “global warming” including how much the globe will warm, and how fast, to what extent the benefits of global warming would balance the costs, and what actions (such as Nathan Myhrvold’s creative plan) might be taken to counteract global warming.
But one certainty is that if governments leave innovative entrepreneurial capitalism alone, human creativity will find ways to adapt in order to increase the benefits and reduce the costs.
Few cities have displayed as much creative destruction in architecture as New York. (One book on New York architecture was even called The Creative Destruction of Manhattan“). The article quoted below describes some visions of how New York City might adapt to an increase in sea level that might result from global warming.

(p. C21) “Rising Currents: Projects for New York’s Waterfront,” a new show at the Museum of Modern Art, reflects a level of apocalyptic thinking about this city that we haven’t seen since it was at the edge of financial collapse in the 1970s, a time when muggers roamed freely, and graffiti covered everything.

Organized by Barry Bergdoll, the Modern’s curator of architecture and design, the show is a response to the effects that rising sea levels are expected to have on New York City and parts of New Jersey over the next 70 or so years, according to government studies. The solutions it proposes are impressively imaginative, ranging from spongelike sidewalks to housing projects suspended over water to transforming the Gowanus Canal into an oyster hatchery.
. . .
(p. C23) A general interest in re-examining parts of the urban fabric that we take for granted, like streets, piers and canals — as opposed to the more familiar desire to create striking visual objects — is one of the main strengths of the exhibition. A team led by Matthew Baird Architects, for example, has focused on a huge oil refinery in Bayonne, N.J., that, if current estimates hold, will be entirely under water before our toddlers have hit retirement age. Rather than taking the predictable and bland route of transforming the industrial site into a park, the team proposes a system of piers that would support bio-fuel and recycling plants, including one that would produce the building blocks for artificial reefs out of recycled glass.
Those large, multipronged objects, which the architects call “jacks,” could be dumped off boats in strategically chosen locations, where their forms would naturally interlock to create artificial reefs once they settled at the bottom of the harbor. The jacks are magical objects, at once tough and delicate, and when you see examples of them from across the room at MoMA, their heavy legs and crushed glass surfaces make them look almost like buildings.
But here again, what’s really commendable about the design is the desire to look deeper into how systems — in this case, global systems, both natural and economic — work. According to Mr. Baird’s research, the melting of the ice cap could one day create a northern shipping passage that would make New York Harbor virtually obsolete. The manufacturing component of the design is meant as part of a broader realignment of the city’s economy that anticipates that shift.

For the full story, see:
NICOLAI OUROUSSOFF. “Architecture Review; The Future: A More Watery New York.” The New York Times (Fri., March 26, 2010): C21 & C23.
(Note: ellipsis added.)
(Note: The online version of the article is dated March 25, 2010 and has the title “Architecture Review; ‘Rising Currents: Projects for New York’s Waterfront’; Imagining a More Watery New York.”)

The book I mention in my comments is:
Page, Max. The Creative Destruction of Manhattan, 1900-1940. Chicago: University of Chicago Press, 2000.

Government Quotas Raise U.S. Sugar Price from 17 Cents a Pound to 31 Cents a Pound

Every semester in my principles of microeconomics course, I show the students a wonderful old 60 Minutes segment on the U.S. government’s sugar quotas program. I tell them, alas, that the policy is still the same. Below is recent evidence:

(p. C1) . . . , U.S. sugar farmers have successfully blocked efforts to significantly increase imports, assuring them of little price competition.

Restrictions on imports have caused American users to pay much more than the rest of the world for sugar. That gap recently blew out to its widest in a decade.
Mr. Vilsack’s comments raised the prospect of increased demand for global sugar and drove prices up 2.7%, or 0.44 cent, to 16.98 cents a pound on ICE Futures U.S. Prices for U.S. domestic sugar dropped 2.1%, to 30.8 cents a pound. That narrowed the gap between the two to 13.82 cents a pound.

For the full story, see:
CAROLYN CUI and BILL TOMSON , ILAN BRAT. “USDA Says It May Relax Sugar Quotas For This Year.” The Wall Street Journal (Weds., APRIL 14, 2010): C1 & C2.
(Note: ellipsis added.)
(Note: the title of the online version of the article is “USDA Says It May Relax Sugar Quotas.”)

Technology Can Enable the Disabled

JonesEricProstheticFingers2010-04-26.jpg“Eric P. Jones demonstrating his new prosthetic fingers. They have helped him master movements other people take for granted, like pouring soda into a cup.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 4) ERIC JONES sat in a middle seat on a recent flight from the New York area to Florida, but he wasn’t complaining. Instead, he was quietly enjoying actions that many other people might take for granted, like taking a cup of coffee from the flight attendant or changing the channel on his video monitor.

These simple movements were lost to Mr. Jones when the fingers and thumb on his right hand were amputated three years ago. But now he has a prosthetic replacement: a set of motorized digits that can clasp cans, flimsy plastic water bottles or even thin slips of paper.
“Pouring a can of soda into a cup — that is a mundane daily action for most people, but to me it is a very big deal,” said Mr. Jones, who lives with his family in Mamaroneck, N.Y. “I slip my bionic fingers on like a glove, and then I have five moveable fingers to grasp things. It’s wonderful to have regained these functions.”
Mr. Jones’s prosthesis, called ProDigits, is made by Touch Bionics in Livingston, Scotland. The device can replace any or all fingers on a hand; each replacement digit has a tiny motor and gear box mounted at the base. Movement is controlled by a computer chip in the prosthesis.

For the full story, see:
ANNE EISENBERG. “Novelties; Grabbing Gracefully, With Replacement Fingers.” The New York Times, SundayBusiness Section (Sun., April 9, 2010): 4.
(Note: ellipses added.)

Much of the Value of “Chinese” Imports is Added Outside of China

(p. A17) In a 2006 paper, Stanford University economist Lawrence Lau found that Chinese value-added accounted for about 37% of the total value of U.S. imports from China. In 2008, using a different methodology, U.S. International Trade Commission economist Robert Koopman, along with economists Zhi Wang and Shang-jin Wei, found the figure to be closer to 50%. In other words, despite all the hand-wringing about the value of imports from China, one-half to nearly two thirds of that value is not even Chinese. Instead, it reflects the efforts of workers and capital in other countries, including the U.S. In overstating Chinese value by 100% to 200%, the official U.S. import statistics are a poor proxy for job loss.

Seldom noted in the union-controlled discussion of trade on Capitol Hill is that the jobs of large numbers of American workers depend on imports from China. The proliferation of transnational production and supply chains has joined higher-value-added U.S. manufacturing, design, and R&D activities with lower-value manufacturing and assembly operations in China.
According to a widely cited 2007 study by Greg Linden, Kenneth L. Kraemer and Jason Dedrick of the University of California, Irvine, each Apple iPod costs $150 to produce. But only about $4 of that cost is Chinese value-added. Most of the value comes from components made in other countries, including the U.S. Yet when those iPods are imported from China, where they are snapped together, the full $150 is counted as an import from China, adding to the trade deficit and inflating EPI’s job-loss figures.
In reality, those imported iPods support thousands of U.S. jobs up the value chain–in engineering, design, finance, manufacturing, marketing, distribution, retail and elsewhere. A 25% tariff on imports from China would penalize the non-Chinese companies and workers who create most of the iPod’s value.

For the full commentary, see:
DANIEL IKENSON. “China Trade and American Jobs; Studies suggest that one-half to two-thirds of the value of ‘Chinese’ imports is added in other countries, including the U.S.” The Wall Street Journal (Fri., APRIL 2, 2010): A17.

Folsom Shows How FDR Lied, Bought Votes and Deepened the Depression


Source of book image: http://mises.org/misesreview_detail.aspx?control=347

FDR has never been one of my heroes. But in the last few years, I have read two books that have revealed him to have been much worse than I expected. In earlier posts, I have praised Amity Shlaes’ The Forgotten Man.
Here I praise Burt Folsom’s New Deal or Raw Deal?
Folsom documents how the economic policies of Roosevelt lengthened and deepened the Great Depression.
But what I think I will remember most about the book, is the example after example of how FDR lied to both friend and foe; and the example after example of how FDR used government spending programs to buy votes.
I found this book very unpleasant. Rather than listen to another chapter in the car, I sometimes found myself playing music.
But we need to read this book. We need to know what really happened, so we can guard against it happening again.
In the next few weeks, I will quote a few of the more memorable and significant passages in Folsom’s book.

Book discussed:
Folsom, Burton W., Jr. New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America. New York: Threshold Editions, 2008.

Liberal Democrat Hesburgh Condems Obama Administration’s Killing School Vouchers

My Chicago professor Milton Friedman proposed educational vouchers in Capitalism and Freedom, a great book based on lectures that Friedman delivered several decades ago at Wabash College at the invitation of my first economics professor, Ben Rogge.
Friedman’s belief was that parents generally care about their children, and will seek a good education for them, if provided the means to choose among credible alternatives.
Special interests are arrayed against this idea, but that does not mean that Friedman was wrong.
Another distinguished educator who supports vouchers (see below) is Father Hesburgh, who for many years was President of Notre Dame in my hometown of South Bend, Indiana.

(p. A19) If Martin Luther King Jr. told me once, he told me a hundred times that the key to solving our country’s race problem is plain as day: Find decent schools for our kids. So I was especially heartened to hear Education Secretary Arne Duncan repeatedly call education the “civil rights issue of our generation.” Millions of our children–disproportionately poor and minority–remain trapped in failing public schools that condemn them to lives on the fringe of the American Dream.

. . .
. . . , I was deeply disappointed when Sen. Richard Durbin (D., Ill.) successfully inserted a provision in last year’s omnibus spending bill that ended one of the best efforts to give these struggling children the chance to attend a safe and decent school.
That effort is called the Opportunity Scholarship program. Since 2004 it has allowed thousands of children in Washington, D.C., to escape one of the worst public school systems in the nation by providing them with scholarships of up to $7,500.
Despite its successes, it is now closing down. On Tuesday the Senate voted against a measure introduced by Sen. Joseph Lieberman (I., Conn.) that would have extended the program. Throughout this process Mr. Duncan’s Education Department and the White House raised no protest.
. . .
I know that some consider voucher programs such as the Opportunity Scholarships a right-wing affair. I do not accept that label. This program was passed with the bipartisan support of a Republican president and Democratic mayor. The children it serves are neither Republican nor Democrat, liberal or conservative. They are the future of our nation, and they deserve better from our nation’s leaders.
I have devoted my life to equal opportunity for all Americans, regardless of skin color. I don’t pretend that this one program is the answer to all the injustices in our education system. But it is hard to see why a program that has proved successful shouldn’t have the support of our lawmakers. The end of Opportunity Scholarships represents more than the demise of a relatively small federal program. It will help write the end of more than a half-century of quality education at Catholic schools serving some of the most at-risk African-American children in the District.
I cannot believe that a Democratic administration will let this injustice stand.

For the full commentary, see:
THEODORE M. HESBURGH. “A Setback for Educational Civil Rights; I cannot believe that a Democratic administration will let this injustice of killing D.C. vouchers stand.” The Wall Street Journal (Thurs., MARCH 18, 2010): A19.
(Note: ellipses added.)
(Note: the online version of the article was dated MARCH 17, 2010.)
Reference to the Friedman book mentioned above:
Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 1962.