Free Markets – Page 16 – artdiamondblog.com

Not All Entrepreneurs Believe in Property Rights

“Titan Cement’s Bob Odom in March at the site of a proposed plant near Wilmington, N.C. The company says hundreds of jobs would be created.” Source of book image: online version of the WSJ review quoted and cited below.

Is it just me, or does entrepreneur Lloyd Smith, quoted below, come across as a bit arrogant in believing the government should enforce his view of what Wilmington should be like, even if that means violating the property rights of the owner of the land on which the cement plant will be built? (And even if that means that would-be janitor Ron Givens remains unemployed.)

(p. A3) WILMINGTON, N.C.–The old economy and the new economy are squaring off in this coastal city, which is having second thoughts about revisiting its roots in heavy industry.

Titan Cement Co. of Greece wants to build one of the largest U.S. cement plants on the outskirts of the city and is promising hundreds of jobs. The factory would be on the site of a cement plant that closed in 1982 and today is populated mainly by fire ants, copperhead snakes and the occasional skateboarder.
The proposed $450 million plant by Titan America LLC, Titan’s U.S. unit, is welcome news to Ron Givens Sr., a 44-year-old unemployed Wilmington native. Mr. Givens’s father supported 12 children while working at the former Ideal Cement plant, and Mr. Givens and two brothers have now applied for jobs with Titan. “I will apply for janitor if that’s what is going to get me into that plant,” he said.
But thousands of opponents have petitioned local and state politicians to block the plan. They object to the emissions from the plant and say it will scare off tourists, retirees, entrepreneurs and others who might otherwise want to live here.
An initial state environmental review has dragged on for two years, and critics of the plant have filed a lawsuit seeking to further broaden the review. The governor, amid public pressure, has asked the State Bureau of Investigation to probe the plant’s permitting process.
“That’s their tactic: Delay, delay, and at some point Titan will leave,” said Bob Odom, Titan’s general manager in Wilmington, of opposition efforts.
Among the most vocal opponents is a fast-growing class of high-tech entrepreneurs and telecommuters who moved to Wilmington in recent years, drawn to the temperate climate, sandy beaches and good fishing. They argue the plant, by curbing the community’s appeal, will cost more jobs and tax revenue in the long run than it produces.
“I think we can be discriminating,” said Lloyd Smith, a 43-year-old entrepreneur who moved here from northern Virginia in 2001 and founded Cortech Solutions Inc., a neuroscience company with nine employees and about $5 million in annual sales.
The standoff in Wilmington reflects a broader tug-of-war across the country as communities try to kick-start employment. It is unclear how much manufacturing will power the long-term U.S. economic recovery–even in southern states that have long embraced heavy industry but have begun to feel the new economy’s pull.

For the full story, see:
MIKE ESTERL. “Clash of Old, New Economy; Cement Plant Is Resisted by Some Neighbors Who Would Rather Lure High-Tech Jobs.” The Wall Street Journal (Tues., April 6, 2010): A3.

Source of graph: scanned from print version of the WSJ article quoted and cited above.

U.S. Jobs Lost Due to Law Restricting Mexican Truck Drivers

“Carbonless paper comes off a coating machine at Appleton Papers in March. Mexican tariffs have hit sales.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A5) APPLETON, Wis.–Congress’s vote last year to keep Mexican truck drivers south of the border was good news for DuWayne Marshall.

Mr. Marshall, 49 years old, owns a truck and hauls loads all over the U.S. from his home in Wisconsin. “Why should I have to compete against Third World drivers within my own borders?” Mr. Marshall asked during a break on a run to San Diego. “By closing down the borders, we are saving American jobs.”
Elizabeth Villagomez, 38, isn’t so sure. A single mother of two teens, she has worked at a paper plant in this community near Green Bay for 15 years. After the Mexican government retaliated against the trucking ban by slapping $2 billion in tariffs on U.S. paper, produce and other goods, orders plunged and managers began slashing shifts and overtime for the unionized work force.
“The company has done all it can to cut costs,” Ms. Villagomez said. “I’m at the bottom of the list if they have layoffs. It’s kind of scary, not knowing if you’re going to have a job.”
. . .
At Appleton Papers Inc., the fight over who can drive a truck across a border 1,600 miles away has translated into falling wages and rising anxiety.
Rick Bahr, head of the United Steelworkers union local that represents more than 500 employees at the Appleton plant, said six shifts have already been cut, cutting down on overtime.
“The battle ends up union versus union, truckers versus the paper workers,” Mr. Bahr said. The national steelworkers’ union has been supporting the Teamsters on the issue of Mexican trucks in the U.S.
Nearly half the company’s revenue, about $420 million last year, comes from carbonless paper sales. Its largest foreign customer is Mexico. After Mexico put a 10% tariff on carbonless paper, revenue from Mexico fell to $37 million in 2009 from $46 million in 2008.
Now, more Mexican customers say they will look for alternative suppliers to avoid having to bear part of the tariff costs. Just last month a major customer told Appleton it was going to get its carbonless paper from a European producer.
Even before the tariffs were imposed, the company had seen business hit by the economic slowdown and had cut its work force in 2008 and stopped other benefits, such as reimbursing tuition and matching workers’ contributions to their 401K retirement plans. Company officials said it was hard to quantify what part of the business downturn could be blamed directly on the tariffs, but they noted that Appleton sold 18% fewer tons of carbonless paper in the U.S. last year, compared with 2008. The number of tons sold to Mexican customers was down 24%.
Inside the plant, the machine that coats 4,000-pound rolls of paper to make it carbonless was idle one recent afternoon. Once run 24 hours a day, it is now used only half that time.
Kevin Bunnow, 50, a 33-year veteran of the plant, said the reduction in shifts had meant a wage cut of several thousand dollars last year.
“When elephants fight, the grass loses,” he said. “It didn’t take me long to realize, we’re the grass.”

For the full story, see:
GARY FIELDS. “Trade Dispute Divides Workers; It’s ‘Union vs. Union’ as Ban on Mexican Trucks Cheers Drivers, Triggers Cut in Hours at Paper Plant.” The Wall Street Journal (Tues., April 6, 2010): A5.
(Note: ellipsis added.)

Barney Frank Calls European Agriculture Policy “Ridiculous”

(p. A13) Mr. Frank said the Jeffersonian notion that farming was a superior form of life has led to subsidies and protectionism in the U.S. Similar problems exist in the European Union. Saying EU agriculture policy is “ridiculous,” Frank claimed European farmers should be bought out.

The idea that the “noble yeoman” must be protected at all costs leads to protectionism, Frank said.

For the full story, see:
Neal Lipschutz. “Davos Dispatch: Frank vs. Thomas Jefferson on Farming and Protectionism.” The Wall Street Journal (Thurs., Jan 28, 2010): A13.

A version of the brief story appeared online as:
Neal Lipschutz. “Davos Live; Frank Takes On Jefferson Over Farming.” Posted Jan 28, 2010. http://blogs.wsj.com/davos/2010/01/27/frank-takes-on-jefferson-over-farming/?KEYWORDS=Thomas+Jefferson+Protectionism

Becker Believes the Fight for Liberty Can Be Won

(p. A13) My last question involves a little story. Not long before Milton Friedman’s death in 2006, I tell Mr. Becker, I had a conversation with Friedman. He had just reviewed the growth of spending that was then taking place under the Bush administration, and he was not happy. After a pause during the Reagan years, Friedman had explained, government spending had once again begun to rise. “The challenge for my generation,” Friedman had told me, “was to provide an intellectual defense of liberty.” Then Friedman had looked at me. “The challenge for your generation is to keep it.”

What was the prospect, I asked Mr. Becker, that this generation would indeed keep its liberty? “It could go either way,” he replies. “Milton was right about that.”
Mr. Becker recites some figures. For years, federal spending remained level at about 20% of GDP. Now federal spending has risen to 25% of GDP. On current projections, federal spending would soon rise to 28%. “That concerns me,” Mr. Becker says. “It concerns me a great deal.
“But when Milton was starting out,” he continues, “people really believed a state-run economy was the most efficient way of promoting growth. Today nobody believes that, except maybe in North Korea. You go to China, India, Brazil, Argentina, Mexico, even Western Europe. Most of the economists under 50 have a free-market orientation. Now, there are differences of emphasis and opinion among them. But they’re oriented toward the markets. That’s a very, very important intellectual victory. Will this victory have an effect on policy? Yes. It already has. And in years to come, I believe it will have an even greater impact.”
The sky outside his window has begun to darken. Mr. Becker stands, places some papers into his briefcase, then puts on a tweed jacket and cap. “When I think of my children and grandchildren,” he says, “yes, they’ll have to fight. Liberty can’t be had on the cheap. But it’s not a hopeless fight. It’s not a hopeless fight by any means. I remain basically an optimist.”

For the full interview, see:
PETER ROBINSON. “‘Basically an Optimist’–Still; The Nobel economist says the health-care bill will cause serious damage, but that the American people can be trusted to vote for limited government in November.” The Wall Street Journal (Sat., March 27, 2010): A13.
(Note: the online version of the interview is dated March 26, 2010.)

Feds Give EnergyStar Label to Fake Products Like Feather Duster Space Heater

“A space heater with a feather duster qualified for Energy Star . . . as an air purifier.” Source of caption and photo: http://blogs.consumerreports.org/home/2010/03/gao-audit-energy-star-program-bogus-products-energy-use-consumer-reports-testing-best-appliances.html

Those who call for more government regulations to protect us, should deeply ponder the story quoted below.

(p. A16) WASHINGTON — Does a “gasoline-powered alarm clock” qualify for the EnergyStar label, the government stamp of approval for an energy-saving product?

Like more than a dozen other bogus products submitted for approval since last June by Congressional auditors posing as companies, it easily secured the label, according to a Congressional report to be issued Friday. So did an “air purifier” that was essentially an electric space heater with a feather duster pasted on top, the Government Accountability Office said.
In a nine-month study, four fictitious companies invented by the accountability office also sought EnergyStar status for some conventional devices like dehumidifiers and heat pump models that existed only on paper. The fake companies submitted data indicating that the models consumed 20 percent less energy than even the most efficient ones on the market. Yet those applications were mostly approved without a challenge or even questions, the report said.
Auditors concluded that the EnergyStar program was highly vulnerable to fraud.

For the full story, see:
MATTHEW L. WALD. “EnergyStar Program Audit Finds Fraud Vulnerability.” The New York Times (Fri., March 26, 2010): A16.
(Note: the online version of the article was dated March 25, 2010 and had the title “Audit Finds Vulnerability of EnergyStar Program.”)

In Whom Can You Trust?

“Russian President Medvedev, left, Czech Republic President Klaus, center, and U.S. President Obama, right, toast the treaty’s signing on Thursday.” Source of caption and photo: online version of the WSJ article cited below.

In the photo above, which of these three men would you want to sip champagne with? (Hint: the libertarian is in the middle.)

The photo accompanies this article:
JONATHAN WEISMAN. “Russia Sets Limits on Iran Sanctions.” The Wall Street Journal (Friday, APRIL 9, 2010): A8.
(Note: the online version of the article had the title “U.S., Russia Focus on Iran Sanctions.”)

After Health Care Plan, Are There Any Limits to What the Government Can Mandate?

(p. A10) As they constructed the requirement that Americans have health insurance, Democrats in Congress took pains to make their bill as constitutionally impregnable as possible.

But despite the health care law’s elaborate scaffolding, attorneys general and governors from 20 states, all but one of them Republicans, have now joined as confident litigants in a bid to topple its central pillar. In the process, they hope to present the Supreme Court with a landmark opportunity to define the limits of federal authority, perhaps for generations.
In the seven weeks since the legislation passed, at least a dozen lawsuits have been filed in federal courts to challenge it, according to the Justice Department. But the case that could carry the most weight, and may be on the fastest track in the most advantageous venue, is the one filed in Pensacola, Fla., by state officials, just minutes after President Obama signed the bill.
Some legal scholars, including some who normally lean to the left, believe the states have identified the law’s weak spot and devised a credible theory for eviscerating it.
The power of their argument lies in questioning whether Congress can regulate inactivity — in this case by levying a tax penalty on those who do not obtain health insurance. If so, they ask, what would theoretically prevent the government from mandating all manner of acts in the national interest, say regular exercise or buying an American car?
. . .
Jonathan Turley, who teaches at George Washington University Law School, said that if forced to bet, he would predict that the courts would uphold the health care law. But Mr. Turley said that the federal government’s case was far from open-and-shut, and that he found the arguments against the mandate compelling.
“There are few cases in the history of the court system that have a more significant assertion of authority by the government,” said Mr. Turley, a civil libertarian who acknowledged being strange bedfellows with the conservative theorists behind the lawsuit. “This case, more than any other, may give the court sticker shock in terms of its impact on federalism.”

For the full story, see:

KEVIN SACK. “Florida Suit Rated Best As Challenge to Care Law.” The New York Times (Tues., May 11, 2010): A10 & A11.
(Note: the online version of the article is dated May 10, 2010 and has the slightly different title “Florida Suit Poses a Challenge to Health Care Law.”)
(Note: ellipses added.)

Housing Crumbles Under Portugal’s Rent Control Laws

Stigler and Friedman’s only co-authored paper showed the flaws in rent controls. Although excellent, the paper apparently is seldom read in Portugal (or New York City).

(p. B3) LISBON — José Gago da Graça owns a Portuguese real estate company and has two identical apartments in the same building in the heart of Lisbon. One rents for €2,750 a month, the other for almost 40 times less, €75.

The discrepancy is a result of 100-year-old tenancy rules, which have frozen the rent of hundreds of thousands of tenants and protected them against eviction in Portugal. Mr. Gago da Graça has been in a lawsuit for a decade over the €75-a-month apartment, since his tenant died in 2000 and her son took over and refused to alter his mother’s contract, which dates to the 1960s.
“We’re the only country in Europe that doesn’t have a free housing market and that’s just amazing,” Mr. Gago da Graça said.
Rules like these, which economists also blame for contributing to Portugal’s private debt load, help explain why this nation of 11 million has followed Greece and Spain into investors’ line of fire.
. . .
The . . . rules helped protect tenants, but also led to a chronic shortage of rental housing. This, in turn, persuaded a new generation of Portuguese to tap recently into low interest rates and buy instead — often in new suburbs — thereby exacerbating the country’s mortgage debt and leaving Portugal with one of Europe’s lowest savings rates, of 7.5 percent.
“This system of controlled rents is a major problem for the Portuguese economy, but we will probably be waiting for a generational change to have room for institutional reform,” said Cristina Casalinho, chief economist of Banco BPI, a Portuguese bank. Beyond fueling housing credit, she added, the system “basically stops flexibility and mobility in the labor market because you can perhaps find a new job in another city but it will then be very difficult to rent a house there.”
. . .
“Nobody has had the political courage to change something like these rental laws and I don’t see the situation changing in the short term, even if I don’t think the Portuguese tend to react as dramatically as the Greeks,” said Salvador Posser, who runs a family-owned company renting out construction equipment.
Besides distorting pricing in the housing market, the tenancy rules have left physical scars. Portugal’s historic city centers are dotted with abandoned and crumbling houses that are either subject to a court dispute or have rental income that cannot cover repair and maintenance costs.
“This economic crisis is clearly keeping our very slow courts even more occupied because of the amount of conflict that it is creating between landlords and tenants,” said Menezes Leitão, a law professor and president of PLA, a property owners association.
Mr. Posser cited a recent estimate that 8 percent of the buildings in central Lisbon were deserted, in large part because of rent-related obstacles. In Porto, the second-largest city, less than 10 percent of inner-city housing is available for rent, which has helped shrink the population by a third over three decades.
“We’re still losing about 30 inhabitants a day,” said Rui Moreira, president of the Porto Commercial Association.

For the full story, see:
RAPHAEL MINDER. “Like Spain, Portugal Hopes to Make Cuts, but It Is Mired in Structural Weakness.” The New York Times (Fri., May 14, 2010): B3.
(Note: the online version of the article is dated May 13, 2010 and has the title “Portugal Follows Spain on Austerity Cuts.”)
(Note: ellipses added.)

The original source of the Friedman and Stigler article (in pamphlet form) was:
Friedman, Milton, and George J. Stigler. Roofs or Ceilings? The Current Housing Problem. Irvington-on-Hudson, New York: Foundation for Economic Education, 1946.

Pear Growers Suffer From Unintended Consequences of Land-Use Law

“”We hit the wall,” the 63-year-old grower says. . . . , Mr. Naumes showed off a Bosc pear.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A3) MEDFORD, Ore.–Farmers say conditions in southern Oregon’s Rogue River Valley are among the best in the world for raising pears. Yet for the past decade, acreage planted in pears has been halved, as has the number of growers.

Land-use regulations designed to maintain open space and preserve farmland are to blame, pear growers here say.
It is a paradox few foresaw in 1973, when Oregon passed Senate Bill 100. That measure, considered a landmark of the budding environmental movement, put Oregon on the map as the “greenest” of U.S. states by placing zoning decisions with a central agency, outside the purview of local authorities.
The law had a huge impact in restricting suburban sprawl throughout the state, preserving environmentally critical habitats.
But since the mid-1990s, more than 3,500 acres planted in pears have gone out of production here. From 87 pear farms operating in 1992, only 48 remain.
. . .
The credit crunch and consumers unwilling to splurge for $30 boxes of pears are behind much of the pain, growers say. Yet they insist their real headache is their inability to raise capital by selling land at top value, which they say would let them buy farmland further from residential areas. That is because land-use laws say their orchards must remain in agriculture.
“It’s the worst case of unintended consequences you can imagine,” says David D. Lowry, chief executive of Associated Fruit Co., the smallest of Medford’s Big Three, who fears his business could be the next to close. Like others, he has plenty of land to sell, but no one willing to buy as long as it is zoned for farming only.

For the full story, see:
JOEL MILLMAN. “Oregon Pear Growers Sour on Land Law; Farmers Say Landmark 1970s Measure Aimed at Conserving Agricultural Areas Limits Their Ability to Nurture Investment.” The Wall Street Journal (Fri., APRIL 2, 2010): A3.
(Note: ellipses added.)

Source of graph: online version of the WSJ article quoted and cited above.

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.”

Source:
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.)

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.”)