Category: Economic Crisis

French Labor Holds Management Hostage—Literally

PolutnikNicolasFrenchHostage2009-04-10.jpg “French Caterpillar executive Nicolas Polutnik, center, with workers after his release Wednesday.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B1) PARIS — Of the 22,000 workers Caterpillar Inc. plans to lay off this year, the French ones have perhaps the most radical tactic for negotiating their severance deals.

In an aggressive, and peculiarly French, negotiating strategy, they held their managers hostage. The workers detained the director of their plant and four other managers for about 24 hours this week. Workers released them only after the company agreed to resume talks with unions and a government mediator on how to improve compensation for workers who are being laid off.
. . .
Jérôme Pélisse, a sociologist, surveyed 3,000 companies in 2004 and found that 18 of them had experienced an executive detention in the prior three years.

For the full story, see:
DAVID GAUTHIER-VILLARS and LEILA ABBOUD. “In France, the Bosses Can Become Hostages.” Wall Street Journal (Fri., APRIL 3, 2009): B1 & B5.
(Note: ellipsis added.)

FDR’s “Mucking About in the Economy Crowded Out Private Investment”

DinnerLineDepression2009-04-10.jpg

“Men lining up for free dinner in New York in the early days of the Great Depression.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. C1) In this interpretation Roosevelt is a well-meaning but misguided dupe who not only prolonged the Depression but also exacerbated it.
. . .
Amity Shlaes, a syndicated columnist who works at the Council on Foreign Relations, helped ignite this latest revisionist spurt with her 2007 book, “The Forgotten Man: A New History of the Great Depression.”
“The deepest problem was the intervention, the lack of faith in the marketplace,” she wrote, lumping Herbert Hoover and Roosevelt together as overzealous government meddlers.
. . .
(p. C7) Nonetheless, they argue that most of his mucking about in the economy crowded out private investment and antagonized the business world, and thus delayed recovery.
Unemployment remained high throughout the decade until World War II, Ms. Shlaes told conference attendees, because the uncertainty created by Roosevelt’s continual tinkering paralyzed private investors.
When the federal government keeps changing the rules, it’s like having Darth Vader in control, John H. Cochrane, a professor of finance at the University of Chicago Booth School of Business, said during a panel. “I have changed the deal,” he intoned like Vader, the “Star Wars” villain. “Pray I don’t change it any further.”
. . .
“No episode in American history has been so misinterpreted as the Great Depression,” declared Richard K. Vedder, an economist at Ohio University. By artificially keeping prices and wages high, he argued, both Hoover and Roosevelt prevented the economy from adjusting, which is why unemployment remained in double digits until the United States entered the war.
Anna Schwartz, who collaborated with Milton Friedman on a classic study of the Depression, and the Nobel Prize winner Robert E. Lucas Jr. argued that the idea of stimulating the economy with federal spending is a fairy tale. Government spending just crowds out private investment, they asserted; the money supply is the only thing that matters.
. . .
At the final panel, a questioner asked at what point on the 1930s timeline is the United States right now.
. . .
To Ms. Shlaes, the best analogy is 1937 — “the depression within the Depression” — when the unemployment rate shot back up to the middle and high teens after falling. “The economy wanted to recover,” she said, but the government’s interventions ended up paralyzing the business world.
. . .
Mr. Vedder playfully offered another analogy: the recession of 1920. Why was that slump, over and done with by 1922, so much shorter than the following decade’s? Well, for starters, he said, President Woodrow Wilson suffered an incapacitating stroke at the end of 1919, while his successor, Warren G. Harding, universally considered one of the worst presidents in American history, preferred drinking, playing poker and golf, and womanizing, to governing. “So nothing happened,” Mr. Vedder said.
Of course Mr. Vedder does not wish ill health — or obliviousness — on any chief executive. Still, in his view, when you’re talking about government intervention in the economy, doing nothing is about the best you can hope for from any president.

For the full story, see:

PATRICIA COHEN. “New Deal Revisionism: Theories Collide.” The New York Times (Sat., April 3, 2009): C1 & C7.
(Note: ellipses added.)

The full reference on on Shlaes’ excellent book, is:
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

How Ayn Rand Matters Today

(p. A7) Ayn Rand died more than a quarter of a century ago, yet her name appears regularly in discussions of our current economic turmoil. Pundits including Rush Limbaugh and Rick Santelli urge listeners to read her books, and her magnum opus, “Atlas Shrugged,” is selling at a faster rate today than at any time during its 51-year history.
. . .
Rand . . . noted that only an ethic of rational selfishness can justify the pursuit of profit that is the basis of capitalism — and that so long as self-interest is tainted by moral suspicion, the profit motive will continue to take the rap for every imaginable (or imagined) social ill and economic disaster. Just look how our present crisis has been attributed to the free market instead of government intervention — and how proposed solutions inevitably involve yet more government intervention to rein in the pursuit of self-interest.
Rand offered us a way out — to fight for a morality of rational self-interest, and for capitalism, the system which is its expression. And that is the source of her relevance today.

For the full commentary, see:
YARON BROOK. “Is Rand Relevant?” Wall Street Journal (Sat., MARCH 14, 2009): A7.
(Note: ellipses added.)

No Fooling: Government Plants Dead Trees

(p. A25) Years ago, when I was a reporter, I remember getting a call from a woman in the Bronx who was screaming: “They’re over on Moshulu Parkway planting dead trees!”

A city work crew was, sure enough, digging holes along the side of the street and carefully sticking in brown and dried-up pieces of foliage. The men claimed the trees had simply lost their leaves for the winter — an explanation somewhat undermined by the fact that they were evergreens.
I’m telling you this because on Tuesday I was talking with a high-ranking Obama administration official about the stimulus plan. “There will be a dead tree planted, figuratively speaking,” he said somberly. “That will happen.”

For the full commentary, see:
GAIL COLLINS. “The Dead Tree Theory.” The New York Times (Thurs., February 25, 2009): A25.
(Note: the online version is dated Feb. 26, and has some substantial differences from the midwest print edition version I have, though there are only minor differences in the brief passages quoted above, which agree with my print copy.)

Vaclav Klaus: The Czech Republic’s Free Market Crusader

KlausVaclav2009-02-15.jpg “President Vaclav Klaus of the Czech Republic is known for his economic liberalism.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A6) To supporters, Mr. Klaus is a brave, lone crusader, a defender of liberty, the only European leader in the mold of the formidable Margaret Thatcher. (Aides say Mr. Klaus has a photo of the former British prime minister in his office near his desk.)
. . .
As a former finance minister and prime minister, he is credited with presiding over the peaceful 1993 split of Czechoslovakia into two states and helping to transform the Czech Republic into one of the former Soviet bloc’s most successful economies.
But his ideas about governance are out of step with many of the European Union nations that his country will lead starting Jan. 1.
While even many of the world’s most ardent free marketeers acknowledged the need for the recent coordinated bailout of European banks, Mr. Klaus lambasted it as irresponsible protectionism. He blamed too much — rather than too little — regulation for the crisis.
A fervent critic of the environmental movement, he has called global warming a dangerous “myth,” arguing that the fight against climate change threatens economic growth.
. . .
Those who know Mr. Klaus say his economic liberalism is an outgrowth of his upbringing. Born in 1941, he obtained an economics degree in 1963 and was deeply influenced by free market economists like Milton Friedman.
Mr. Klaus’s son and namesake, Vaclav, recalled in an interview that when he was 13, his father told him to read Aleksandr Solzhenitsyn to better understand Communism’s oppressiveness.
“If you lived under communism, then you are very sensitive to forces that try to control or limit human liberty,” he said in an interview.

For the full story, see:
DAN BILEFSKY. “A Fiery Czech Is Poised to Be the Face of Europe.” The New York Times (Tues., November 25, 2008): A6.
(Note: ellipses added.)

“Government Interventions Only Prolonged the Crisis”

The comments of Maart Laar, former prime minister of Estonia, are worth considering:

(p.A13) It is said that the only thing that people learn from history is that people learn nothing from history. Looking at how the world is handling the current economic crisis, this aphorism appears sadly true.

World leaders have forgotten how the collapse of Wall Street in 1929 developed into a world-wide depression. It happened not thanks to market failures but as a result of mistakes made by governments which tried to protect their national economies and markets. The market was not allowed to make its corrections. Government interventions only prolonged the crisis.
We may hope that, even as we see several bad signs of neo-interventionist attitude, all the mistakes of the 1930s will not be repeated. But it is clear that the tide has turned again. Capitalism has been declared dead, Marx is honored, and the invisible hand of the market is blamed for all failures. This is not fair. Actually it is not markets that have failed but governments, which did not fulfill their role of the “visible hand” — creating and guaranteeing market rules. Weak regulation of the banking sector and extensive lending, encouraged by governments, are examples of this failure.

For the full commentary, see:
MART LAAR. “Economic Freedom Is Still the Best Policy.” Wall Street Journal (Fri., FEBRUARY 13, 2009): A13.

FDR’s 1935 Revival Prediction Proved False

(p. C1) Despite the reputation of the New Deal, deep government interventions are unpredictable and sometimes harmful, reminds Amity Shlaes, who wrote a popular history of the Depression, “The Forgotten Man.”

Ms. Shlaes points to the period of 1936 and 1937, when the Federal Reserve used New Deal laws to tighten reserve requirements on the nation’s banks. The goal was to make the banks stronger, but the result was that banks tightened still further. That cut off credit to the economy at a sensitive period. The Dow Jones Industrial Average fell by more than a third between August 1937 and January 1938. Unemployment surged. It was the “depression within the Depression.”
It wasn’t the revival that FDR had predicted back in 1935, when he boasted: “Never since my inauguration in March 1933, have I felt so unmistakably the atmosphere of recovery.”
. . .
“When you’re in the expert business, after a while you realize there are no experts,” says Richard Sylla, New York University’s Henry Kaufman Professor of The History of Financial Institutions and Markets.
The important thing to know, it seems, is how little we know.

For the full commentary, see:
DENNIS K. BERMAN. “THE GAME; Tomorrow’s Recession Recovery Is Today’s History Lesson.” Wall Street Journal (Tues., MARCH 3, 2009): C1.
(Note: ellipsis added.)

The reference to the excellent Shlaes book, is:
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

“Venturesome” Consumers May Help Save the Day

Bhidé makes thought-provoking comments about the role of the entrepreneurial or “venturesome” consumer in the process of innovation. The point is the mirror image on one made by Schumpeter in Capitalism, Socialism and Democracy when he emphasized that consumer resistance to innovation is one of the obstacles that entrepreneurs in earlier periods had to overcome. (The decline of such consumer resistance was one of the reasons that Schumpeter speculated that the entrepreneur might become obsolete.)
I would like to see Bhidé’s evidence on his claim that technology rapidly advanced during the Great Depression. The claim seems at odds with Amity Shlaes’ claim that New Deal policies often discouraged entrepreneurship.

(p. A15) Consumers get no respect — we value thrift and deplore the spending that supposedly undermines the investment necessary for our long-run prosperity. In fact, the venturesomeness of consumers has nourished unimaginable advances in our standard of living and created invaluable human capital that is often ignored.
Economists regard the innovations that sustain long-run prosperity as a gift to consumers. Stanford University and Hoover Institution economist Paul Romer wrote in the “Concise Encyclopedia of Economics” in 2007: “In 1985, I paid a thousand dollars per million transistors for memory in my computer. In 2005, I paid less than ten dollars per million, and yet I did nothing to deserve or help pay for this windfall.”
In fact, Mr. Romer and innumerable consumers of transistor-based products such as personal computers have played a critical, “venturesome” role in generating their windfalls.
. . .
History suggests that Americans don’t shirk from venturesome consumption in hard times. The personal computer took off in the dark days of the early 1980s. I paid more than a fourth of my annual income to buy an IBM XT then — as did millions of others. Similarly, in spite of the Great Depression, the rapid increase in the use of new technologies made the 1930s a period of exceptional productivity growth. Today, sales of Apple’s iPhone continue to expand at double-digit rates. Low-income groups (in the $25,000 to $49,999 income segment) are showing the most rapid growth, with resourceful buyers using the latest models as their primary device for accessing the Internet.
Recessions will come and go, but unless we completely mess things up, we can count on our venturesome consumers to keep prosperity on its long, upward arc.

For the full commentary, see:
Amar Bhidé. “Consumers Can Still Spot Value in a Crisis.” Wall Street Journal (Thurs., MARCH 11, 2009): A15.
(Note: ellipsis added.)

Pro-Obama Economist Krugman Predicts Higher Taxes on Middle Class

(p. A23) . . . even if fundamental health care reform brings costs under control, I at least find it hard to see how the federal government can meet its long-term obligations without some tax increases on the middle class. Whatever politicians may say now, there’s probably a value-added tax in our future.

For the full commentary, see:
PAUL KRUGMAN. “Climate of Change.” The New York Times (Fri., February 27, 2009): A23.

Globalization Helps U.S. During Financial Crisis

ExportsAsShareLocalGDP2006Graph.jpg Source of the graphic: screen capture from the online version of the WSJ article quoted and cited below.

(p. A1) Much of the world may be struggling with the economic downturn, but life has been getting better in Columbus, Ind., Kingsport, Tenn., and Waterloo, Iowa.

These out-of-the-way places have become trade hot spots as U.S. exports, fueled by the dollar’s fall, continue to provide a rare spark in an otherwise gloomy economy.
While many economists expect a recent snapback in the value of the dollar and a spreading global slowdown to soften that growth, exports have become a key to greater local prosperity more than at any time in decades.
. . .
(p. A16) Export-driven growth marks a dramatic shift in an economy that has relied heavily on consumer spending. That has slowed in recent months as Americans, nervous about job losses, teetering banks, falling home values, and rising gasoline and food prices, have tightened spending. Against that background, exports have emerged as a powerful motor.
Over the past year, real-goods exports have risen $115 billion, or 12%, and are up across every major category. They now make up nearly 13.5% of gross domestic product, the highest percentage since World War II. Critics often grumble that the U.S. exports masses of scrap steel and other waste materials to recyclers in China and elsewhere, which is true, but exports of manufactured goods, commodities and services are also growing. Consumer products, from sporting goods to art supplies, have risen 12%, and even autos, which are languishing on showroom floors in the U.S., saw a 4% bump up in exports.
Service exports — which include media, entertainment, financial services, computer software and foreign tourism in the U.S. — have grown strongly right along with the larger goods side of the trade ledger. Through the second quarter of 2008, real-service exports are up nearly 10% over the past year.
It’s a badly needed tonic for the beleaguered U.S. economy.

For the full story, see:
TIMOTHY AEPPEL. “Exports Bolster Local Economies.” The Wall Street Journal (Thurs., SEPTEMBER 11, 2008): A1 & A16.
(Note: the title of the article on the web is: “Exports Prop Up Local Economies.”)
(Note: ellipsis added.)

Entrepreneurs Are Key to Ending Economic Crisis

(p. A15) The passage of the $787 billion stimulus bill has so far failed to stimulate anything but greater market pessimism. This suggests to us that the strategy behind the American Reinvestment and Recovery Act is wrong — and worse, that the weapons it is using to fight the recession are obsolete.

Just as generals are notorious for fighting the last war, Congress and the White House seem intent on fixing an economy of hidebound and obsolete companies and industries, while ignoring the innovative ones rising before us and those waiting to be born.

Missing from this legislation is anything more than token support for the long-proven source of most new jobs and new growth in America: entrepreneurs. These are the people who gave us everything — from Wal-Mart to iPhones, from microprocessors to Twitter — that is still strong in our economy. Without entrepreneurs, we will never get out of our current predicament.

For the full commentary, see:
TOM HAYES and MICHAEL S. MALONE. “Entrepreneurs Can Lead Us Out of the Crisis What Are the Odds of a Depression?” Wall Street Journal (Tues., FEBRUARY 24, 2009): A15.
(Note: ellipses added.)