Read Liberty and Tyranny Online
Authors: Mark R. Levin
As ethanol and other biofuels require corn, sugarcane, and additional crops to produce blends of gasoline, these essential crops are diverted from food production to energy production. And as demand for corn and sugarcane increases, more farmers around the world respond by converting their fields from rice, wheat, and soy to the more profitable crops used in biofuels. Government policy played a significant role in driving up demand and prices not only for fuel but food, contributing mightily to severe food shortages and even famine in the Third World.
As demand for corn increased in the United States, and since corn in one form or another is fed to most livestock, the price of beef, fowl, and dairy products went up as well. A ripple effect occurs across the economic and global landscape.
And what of the supposed environmental benefits of ethanol? The Associated Press reported:
Ethanol is much less efficient
[
than gasoline
]
, especially when it is made from corn. Just growing corn requires expending energy—plowing, planting, fertilizing and harvesting all require machinery that burns fossil fuel. Modern agriculture relies on large amounts of fertilizer and pesticides, both of which are produced by methods that consume fossil fuels. Then there’s the cost of transporting the corn to an ethanol plant, where the fermentation and distillation processes consume yet more energy. Finally, there’s the cost of transporting the fuel to filling stations. And because ethanol is more corrosive than gasoline, it can’t be pumped through relatively efficient pipelines, but must be transported by rail or tanker truck. In the end, even the most generous analysts estimate that it takes the energy equivalent of three gallons of gasoline to make four gallons of the stuff….
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The Statist, therefore, created instability and unpredictability across various industries with detrimental consequences, intended and unintended, across the globe. Yet he will not take a step back.
There are times when the Statist interferes with the free market to try to stave off what the late economist Joseph Schumpeter, among others, described as
creative destruction
. As he explained,
Capitalism…is by nature a form or method of economic change and not only never is but never can be stationary…. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that enterprise creates…
[
T
]
he history of the productive apparatus of a typical farm, from the beginnings of the rationalization of crop rotation, plowing and fattening to the mechanized thing of today—linking up with elevators and railroads—is a history of revolutions. So is the history of the productive apparatus of the iron and steel industry from the charcoal furnace to our own type of furnace, of the history of the apparatus of power production from the overshot water wheel to the modern power plant, or the history of transportation from the mail coach to the airplane. The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and the factory to such concerns as U.S. Steel illustrate the same process of industrial mutation…that incessantly revolutionizes the economic structure
from within,
incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in….
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Today, the American automobile industry, once the envy of the world, faces the prospect of creative destruction. Henry Ford perfected the use of the assembly line in the mass production of the Model T. He changed the face of America and the world. Over time, however, it became another favorite target of the Statist. The Wagner Act of 1935 granted monopoly power to unions to bargain for certain employees and call strikes, thereby enabling them to charge monopoly rates for their labor. Beginning in its heyday in the 1950s and 1960s, the United Auto Workers (UAW) used its negotiating muscle to extract progressively onerous and untenable salary and benefit concessions from American automobile manufacturers under the threat of debilitating strikes. Consequently, the American automakers are saddled with costs that make it extremely difficult to compete with nonunion, foreign manufacturers in the United States and overseas.
The Heritage Foundation found that UAW workers at U.S. factories cost more than $70 per hour compared with a cost per hour for nonunion Japanese autoworkers in the United States of $42 to $48 per hour. With combined wages and benefits, the UAW worker costs nearly $130,000 per year, while the nonunion worker costs about $80,000 a year. Under UAW contracts, workers are not laid off. They are paid nearly full wages not to work for a period of years. And workers can retire after thirty years on the job, no matter their age, and receive pension and health benefits for the rest of their lives.
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In addition to wages and benefits, the UAW’s inefficient work rules make it difficult for American automakers to adapt to economic conditions and consumer demand.
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Ford’s contract with the UAW is 2,215 pages long.
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Of course, management entered into a series of contracts over the years agreeing to these arrangements. However, the power of the UAW under the Wagner Act ultimately made management’s resistance futile.
In 2007, Congress passed new Corporate Average Fuel Economy (CAFE) standards, costing the U.S. auto industry an additional $110 billion in research, manufacturing, production, and related compliance costs.
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A high-level automobile industry source expects that by the time the new standards are fully implemented, the consumer will pay an additional $5,000–$6,000 per vehicle. And the average 2007 model car is already carrying at least $2,000 in additional “up front” costs for recently mandated safety equipment.
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Add to this the wild swings in fuel costs resulting, in large part, from the government’s interference in the energy market—making it difficult to predict consumer demand in the out years—by 2008, General Motors and Chrysler were essentially broke, and Ford was on the brink.
It cannot be said that the American automobile industry’s critical condition is a result of an unfettered free market. The Statist has played a central role in its undoing and has made a mess of the once vibrant industry. However, does this justify the taxpayer bailing out the industry and the UAW with tens of billions of dollars in subsidies? The answer is no.
The current model of manufacturing American automobiles and organizing employees is unsustainable. So, too, is the government’s unrelenting interference in the auto industry’s management, labor relations, vehicle designs, etc. The Big Three must seek relief in bankruptcy, which will allow them to newly organize their businesses, including eliminating some of their more onerous operational and labor restrictions, and to become more responsive to modern conditions. The Statist, however, remains an implacable problem. He is not subject to creative destruction. Rather, he hangs over the market as a dark cloud. Even as he dangles billions of dollars in bailout money before the industry, the Statist insists on further advancing the destructive agendas of his environmental and labor constituencies, whose support he needs to continue in power. As the
Wall Street Journal
reported, “When is $25 billion in taxpayer cash insufficient to bail out Detroit’s auto makers? Answer: When the money is a tool of Congressional industrial policy to turn GM, Ford and Chrysler into agents of the Sierra Club and other green lobbies.”
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Another crisis, another opportunity.
And Big Labor is to be rewarded, too—having poured tens of millions of dollars in campaign cash into the latest Democratic campaigns and seen its numbers dwindle from about one-third of the workforce in the 1950s to 12 percent today.
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Not satisfied with its part in breaking the American automobile industry (not to mention the airline and steel industries), the Statist proposes making it easier to unionize other businesses whose workers have chosen not to join their ranks. A bill with the laughable title “The Employee Free Choice Act” would replace secret-ballot elections held on a given day and supervised by the National Labor Relations Board with a process whereby employees would be pressured by union organizers to sign undated cards over a period of perhaps months. Gone will be the secret ballot. Even the 1972 Democratic presidential candidate, George McGovern, has denounced this effort: “To fail to ensure the right to vote free of intimidation and coercion from all sides would be a betrayal of what we have always championed….”
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President Obama strongly supports the bill.
For the Statist, creative destruction too often means the diminution of his own authority and opportunities to expand it. There are also those, however, with no similar agenda but who cringe nonetheless at the notion, for they are attentive only to the moment. As the Cato Institute’s Will Wilkinson observes,
The impulse to freeze the system, to try to tape all the cracks and staple all the cleavages, to ensure that nobody has to explain to their kid why Christmas
this year
is going to be a lousy Christmas, that is one of our greatest dangers. Our sympathy, untutored by a grasp of the larger scheme, can perversely make itself ever more necessary. When we feel compelled to act on our uncoached fellow-feeling, next year’s Christmas is likely to turn a bit worse for everybody. And then somebody has to explain to the kids that they can’t find a job at all. Businesses that would get started don’t get started, wealth that would be created isn’t. And in just a few decades, the prevailing standard of living is much, much lower than it could have been had our sympathy been more far-seeing. There is no justice, and great harm, in diminishing the whole array of future opportunity to save a few people now from a regrettable fate.
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Comprehend a future without creative destruction. It is bleak, backwards, and destitute, like most authoritarian societies. Yet the Statist has persuaded some erstwhile conservatives of its demerits. Typically the argument is formulated around protecting America’s industrial base. The question is asked: How can America allow its industries to fail and outsource its vital needs to other countries? From where will we get our steel? How will we build our tanks? This is a circular argument. The Conservative urges an economic environment stripped of debilitating regulations and taxes that hinder the performance and competition of American industry. He believes American industry is more than capable of competing against foreign industries and, in most cases, does so. However, where industries are subjected to the Statist’s heavy hand rather than the free market’s invisible hand, they are obstructed and burdened in ways that are counterintuitive and self-defeating.
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Ultimately, it is an unworkable formula, as the rest of the world is not obliged to adhere to it but rather will look for ways to exploit it. The Statist, therefore, is destructive of the very ends and the very people he professes to represent.
The Statist frequently attempts to relieve himself of responsibility for his own deeds by invoking the mantra of “outsourcing”—that is, the hiring of workers and businesses abroad to undertake tasks that might conceivably be performed in the United States. In 2004, Democratic Presidential candidate John Kerry railed against “Benedict Arnold CEOs” who send American jobs overseas.
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In 2008, Obama asserted that “we have to stop providing tax breaks for companies that are shipping jobs overseas and give those tax breaks to companies that are investing here in the United States of America.”
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The Statist urges the view that millions of jobs are lost to such practices and complains about every call center that opens in India. He creates the impression that there are no benefits to American society to hiring foreign workers and is not above instigating ethnic animosity. However, the facts do not support the hyperbole.
Jacob Funk Kirkegaard, a research associate at the Peterson Institute for International Economics, studied the official statistics for “mass layoffs” (fifty or more people) in the United States. He found about 1 million people out of a workforce of roughly 150 million were part of a mass layoff in 2004 and 2005. Only a small percentage of these layoffs were due to the exportation of jobs. Kirkegaard wrote, “the combined employment effects of offshoring and offshore outsourcing represent just 4 percent of all separations from mass layoffs in the United States in 2004–05.”
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And what of the “giant sucking sound” of jobs moving to, say, Mexico as a result of the North American Free Trade Agreement (NAFTA)—which essentially eliminated numerous trade barriers among Mexico, Canada, and the United States? Those job losses would have shown up in American unemployment statistics. Yet once NAFTA took effect in 1994, unemployment generally declined.
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In 2007, before the recent economic downturn, the average unemployment rate was 4.7 percent, below the prevailing rates in the 1970s, 1980s, and 1990s.
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