Fuel Injection - On Bailing Out the Automakers

North American automakers are in economic trouble. Those corporations are reportedly sinking and they want taxpayers to bail them out on both sides of the border. "Bail us out!" they say. Or the economic fallout from our demise will be catastrophic. Others surmise that the "Big Three" automakers are "too big to fail."

Talk of subsidizing these companies is all the rage. From U.S. Congress to television reporters, the issue is impossible to ignore. The leaders of these three corporate giants have flown to Washington in a desperate effort to secure public money for their dying corporations.

Yesterday, President George Bush finally announced a 17.4 billion dollar bailout package for the ailing North American automakers. In addition to this, the Canadian government may go ahead with a potential 4.2 billion dollar bailout package contingent on Washington making the first move.

Considering the unprecedented amount of public funds being spent on these three corporations, it is worth the while to examine whether or not these policies are economically sound and if the claims of the bailout proponents are plausible.

When considering the pros and cons of the arguments made for and against bailouts, it is important to consider the source of bailout money. There are three ways in which the government can raise the cash to give these car firms. Government has the option of taxing, borrowing, or printing.

Taxing directly places the financial burden on the economy in the present. Borrowing not only places the responsibility to pay back the debt on a future generation, but also saddles the current taxpayers with the obligation to pay the interest on the debt. Printing money reduces the value if each individual dollar in circulation and is also accompanied by problems of its own.

The Austrian school of economics has argued that governments are powerless to create wealth. They argue that the only function governments are capable of is the transferring of wealth. Governments can do this through all of the above. Moreover, Austrian economists have argued that this process of transferring wealth distorts economic calculation, sending wrong economic signals to investors and entrepreneurs.

Arguably, economies that have prospered around the world are ones that have been rooted in market principles. In such a system efficient companies survive by serving consumers properly while inefficient companies that produce poor products go under. This necessary competitive process helps keep an economy developing.

It would appear the North American Automakers now represent an inefficiency on the market. On the market they have failed to please enough customers in order to justify their prices and vehicle production. Their union labour is arguably over-paid and these companies are requiring a considerable sum of credit to stay solvent.

Thinking about the plight of the automakers by way of analogy is a helpful way to understand the situation. Imagine that in order to "create employment" during a bout of economic trouble, that the government comes up with a massive make-work project. This project involves thousands of men and women with sledgehammers pounding away on chunks of sandstone in order to pound it into sand. This sand will aesthetically improve the appearance of the country's beaches.

On the surface, production and employment appear to be stimulated. After all, thousands of previously unemployed people now have jobs. In order to supply these thousands working, a supply chain must develop, involving others working to produce and deliver
for those producing sand.

Ore must be mined and refined and then produced into sledgehammers. Machinery for these enterprises must be produced. Trees must be felled and worked to create sledgehammer shafts. Stone must be blasted out and delivered along with the other supplies to the workers. This would require machine operators and truck drivers as well as the heavy equipment itself.

“All very good,” one says. Here is a complex economic situation involving production and employment on a grand scale. Break out the champagne! Not so fast. The apparent advantages of this situation start to disappear when one starts to look at it from another perspective.

First of all, no one really wants sand. There has been no market demand for sand. This has simply been a scheme of employment fabrication for the government. All those men who are working are doing almost absolutely nothing useful.

In addition to this the entire supply chain that has been supporting this enterprise has been diverting physical resources from the rest of the economy that produces goods and services people actually want and need. Farmers who still need to produce food might face increased fuel and machinery costs due to the increased consumption of the government employees and their supply chain. Tool manufacturers may have to pay increased labor and resource costs due to the government making both in smaller supply.

In addition, the government has been moving capital from the productive private sector for the creation and support of its make-work scheme, eliminating potential job creation in market-directed industries. Men, who could have been at work producing the things which society wants, have been busy producing things it doesn't want.

"Ah, but wait a minute," someone says. "Wouldn't those people who were put to work pounding stones otherwise not have had any employment and thus had nothing better to do?" While it may be true that for a time these men would have had no employment, it is the economic effect all the way down the line. The jobs that will now be lost in the private sector, the wealth diversion etc. It will now take the economy longer to recover from its economic downturn. It will now take longer for these men to be put back to work

doing something productive.

Sadly, while many people would decry the utter absurdity of grown men pounding away on rocks in order that they might be put to work, many of these same people would not think of this when they cry for the government to bail out the automobile industry.

To paraphrase from Henry Hazlitt's book, "Economics in One Lesson," these people are only able to see the immediate jobs that would be lost with the closure of the automakers and their supply line. All of the jobs which will be destroyed or not created and the wealth that will never come into existence is invisible to them.

Bailing out the automakers is probably not a wise move as it will likely not work. These financial problems run deeper than 17.4 billion dollars. It's time to ask: is it the government’s job to take such risks with taxpayer money? After all, the automakers may be back in several months with empty wallets. Perhaps it is time to simply allow these companies fail - just as any other normal company in the free market fails when it makes poor business decisions and fails to please consumers.

The "Big Three" gas tank is not half full. The tank is half empty and there is a huge leak in the fuel line. Putting more fuel in this car wreck would be a sad idea indeed.

There's legislation in my soup!

We live in an age of unrivaled comfort. We are bestowed with unfathomable blessing. The dedication and perseverance of our ancestors combined with individual liberty and free markets have brought us luxuries monarchs only a few hundred years ago would have marveled at. We are reaping the benefits of a Christian society.

One hundred years ago, no millionaire could download his favourite song off the internet, nuke his spaghetti in the micro wave, or drive a car while protected by an air bag. Today, even individuals barely pushing middle class can do all of those things with routine regularity. However, with material plenty has come intellectual famine.

Slowly, we are rejecting the values which have made our country the wonderful place that it is. In the middle of this abandoning of principle is our degradation of individual responsibility.
Let's face it. With freedom comes risk. With risk comes responsibility. Sadly, people are not willing to take responsibility for their freedom. They would rather have the illusion of safety at the sacrifice of their freedom.

I was reminded of this the other day while listening to the radio. Recently there have been a number of deaths due to carbon monoxide poisoning. As a result of this, people are calling on the government to introduce legislation to prevent deaths from CO poisoning. One way of doing this would be to make it mandatory to have carbon monoxide detectors in all houses. Now, on the surface this may sound like a good idea. We tend to think. This saves lives therefore this is good. Now what really got my attention was something that an individual from the Kingston Fire Department said while being interviewed. He basically said that anything we can do to save lives should be done.

Wait a second here. Did I hear that correctly? ANYTHING we can do to save lives? Here's my question: how far are we going to take this? I'm going to invoke the slippery slope argument. So if mandating "healthy" diets for Canadians by law could save lives, should we do it? If wearing helmets in cars could save lives, should it become a law? If banning cigarettes and alcohol could prevent deaths, should those substances become illegal? Do you see where I am going with this?
The logical progression of this mentality is us losing more of our freedom and becoming more and more managed or "cultivated", like the tulips in front of parliament, by an extremely powerful government.

I believe that the more we hand off our responsibilities and obligations to the government, the more we forget how to live responsibly as free people. If you take a step back and think about how much the government has taken over our everyday lives, it is astonishing. When we are born we usually come to the world in a government funded hospital. As we grow up, most of us our educated in state-run schools. When we are down and out we collect money from the government. If we are doing well, we hand over vast portions of our wealth to the system. Our country is becoming more and more mired in a myriad of legislation restricting us in a multitude of ways. From the guns we buy to the milk we drink. Rather than look to institutions like the family or the church, we direct our pleas to the state. Sadly, it's not about to get better.

Perhaps it is possible to pinpoint where our society changed, but I cannot say. All I can say is that we have slipped into this mentality as one falls into a deep slumber. Now that we are on board with this "government is the answer" mentality, what can people say against any new law that claims to be in the best interest of the most people? With what logical consistency can anyone dare to oppose any new piece of legislation? If it sounds good do it. Each new act of bestowing this "safety" upon the public is supported by the laws that preceded it. The argument goes something like this: "We made wearing seat belts a law and everyone is ok with that now" or "we did that with junk food so why can't we do it here." In a disturbing manner, more laws help to perpetuate newer laws.

God made government and gave them power for a purpose. That purpose was not to act as overly protective parents over his creation, man. God gave us responsibility and he gave us obligations. We have obligations to look out for others, to help the poor, to do good works. Perhaps part of the reason of why we've reached this point in our history is because we were shirking our duties. I'm as guilty as anyone for not doing what I should be doing.

It is my hope that we would see where we are headed and turn things around before we end up so controlled that we dare not breath. (I'm purposefully exaggerating there.) Try to picture a world where what you eat, where you live, and who you associate with is tightly controlled by a central government. My challenge is this: the next time we think of looking to the government to solve a problem by taking away more of our money or freedoms, let's think twice about it and see what we can do ourselves to solve the problem.

Ben Franklin is a name a lot of people have heard of. As a founding father of the United States, I think he must have known a lot about government and liberty. Here's what he said on the issue of freedom and safety:

"They that can give up essential liberty to obtain a little temporary safety, deserve neither liberty or safety..."

Here here!

Koalition Pie

I'm sure most of you have gotten in on the buzz that must be all over this nation. By that, I mean the plan of the opposition to overthrow Stephen Harper's elected government. I can just hear it: "Oh no! Not another election!!"However, there is where the catch comes in.

The Liberals and NDP, backed by the Bloc, want to form a coalition government without having another election. Yes, you heard me correctly. Without going through the democratic process all over again. After all, who would want to do that again? Wouldn't it be so much easier just to have this non-democratically decided *Koalition*? (Sarcasm)

There appear to be a few reasons that have driven the opposition to these desperate measures. Firstly, Stephen Harper wanted to axe the $1.95 political parties receive for each vote during an election. Remember folks, this is your $1.95 we're talking about. Not Bill Gates buck 95, not Jack Layton's Dollar and Ninety-five cents, and not King Kong's $1.95. This is your hard earned money they are talking about dolling it out like door prizes. (As of today Harper has decided to back down on this one - such backbone.)

Secondly, the opposition party was not at all satisfied with the conservative government's plans for the economy. This appears to be the main reason.

"This is about the economic stimulus," said NDP house leader, Libby Davies. "What it's about is recognizing that the government failed Canadians. They did not bring forward the kind of significant economic stimulus that we've seen in all other G7 countries."

Right, so when he talks about "stimulating" the economy you might as well just use that word as a synonym for taxing, inflating, and borrowing money. This means bailing out industries like the auto sector and the banks. Corporate welfare in the name of greasing the country's economic chain. Once again, this is your money or your children's money they are talking about spending. There are good reasons for not doing this. If you are interested in reading more, visit Lewrockwell.com or the Mises Institute.

One other minor reason for this collective temper tantrum from the opposition is Harper's plan to slash the right of federal employees to go on strike. I don't know how their "rights" function so I will not attempt to evaluate this one very far. However, I would ask if that "right" means they have the "right" to go on strike and the government does not have the "right" to fire them.

In reaction to Harper's plans, the Liberals have introduced a motion of non-confidence in the house. If this non-confidence goes through the government falls. Here's where it gets wonky. Somehow, for reasons I do not yet understand, the Governor General has the authority give the opposition the mandate to form a coalition government. This is what frightens me and should send shivers down the spines of all Canadians.

Just a number of weeks ago, the Canadian people, gave the mandate of government to the Conservative Party. Not to the Liberals, NDP, or Bloc. Are the opposition parties so impudent as to fly in the face of the Canadian public and our democratic system? Are they so full of themselves and so confident in their supposed solutions for the Canadian economy that they would go this far?

It is my hope that this affront to Canadians can be averted. Once again, we see how our politicians act as if they are our masters and not our servants. Such opportunism cannot go unchallenged. Such a *Koalition* is reminiscent of a totalitarian society, not Canada.

Bailout Blues

Apparently the economy is getting itself stuck in the approaching quagmire of a recession. "Bad News" in the business column on Google news is occurring with depressing regularity. Among all of this bad news is the repeated buzz of bailouts. Here's the question: is this a bad thing or a necessary thing?

First of all, why are we in this mess in the first place. One school of economic thought called Austrian Economics (so called because many of the founders of this school of economic thought originated from Austria) suggests that economic recessions are caused by the government expanding the money supply. According to Austrian Economics, money, like everything else, is subject to the universal laws of supply and demand.

For an example of supply and demand think about cars. Almost everyone wants a car and therefore cars are subject to high DEMAND. Now, if only 100 cars were produced in Canada every year, the SUPPLY of cars would be very tight. Here, the law of supply and demand dictates that cars are going to become very expensive. Conversely, if the supply of cars was to dramatically increase to say 30 million new cars per year and the demand were to remain roughly the same, the price of cars would plummet.

Money is no different. If there is little or less money in circulation, the purchasing power of that money: what you can buy with it , will be higher than if say there were to be lots of money in circulation. If however there is an influx in the amount of money in the economy, the purchasing power of each individual dollar will decrease and things will simply cost more. This is inflation.


Let's say that the government wanted to stimulate the economy by starting up the printing press and pressing enough money to pump 50 billion dollars into the economy. Would we all be richer? No. Here is why. The first people to get hold and spend the new money will at first be greatly benefited. Prices will still be at or close to the same level as they were before the new money was created. However, as the new money starts trickling down through the economy, prices will begin to increase in response to the increase in the money supply. The people at the end of the money train would not get near as much bang for their buck. They are going to end up getting devalued money for their goods and services and are going to be forced to pay newly inflated prices. Sounds a lot like a pyramid scheme where the last people in are the losers, doesn't it? In addition, the purchasing power of their pre-exisitng money would be dropped, effectively devaluing their savings.

Moreover, all this newly spent money would cause a rash of spending and investing that would not have taken place in the market if the government had not printed the money in the first place. This new money can create wonky investments and distorts the market process. The housing bubble is a good example of newly created money causing an excess on the marketplace.
Once the government stops printing money and jacks up interest rates . The bubble pops and we start to head towards a depression, just like we are now.

Some would argue that going into a recession is a necessary and healthy correction in the free market. A recession will help to liquidate bad investments and reallocate resources (capital etc.) to market directed areas of the economy.

Arguably bailing out companies that have made bad investments only serves to perpetuate bad investments and trap capital in inefficient venues. Capital that needs to be going elsewhere. At the same time these massive bailout programs saddle taxpayers with the load of paying off the mistakes of politicians and corporations. Whether this comes in the form of taxes: the direct siphoning of your wealth, inflation: the stealthy, invisible tax through the devaluation of your savings , or debt: the attack on the future produced wealth years down the road.

Oh, but if we don't save these companies many people will lose their jobs and the economy will be hurt, the proponents of financial bailouts might say. So what. I realize losing one's job is a horrible thing. However this is a normal market mechanism - a necessary market function. This also assumes that the laid of worker will not be able to find a another job.

This should be all the more reason to let the economy correct itself via a recession. We desperately need to get back on the real track towards peace and prosperity. Not worsen the severity of our situation by repeating actions that got us into the mess in the first place.

Lastly, many people would love to blame this on capitalism and free markets. However people are confusing the cause of this whole crisis. Irresponsible fiscal responsibility lands the blame right between the eyes of government, not on the markets.

Rather than begging for corporate welfare, corporations and individuals should be condemning mis-lead government policy and calling for change.

Let's say no to financial bailouts and corporate welfare. Lets say no to big government.

Newspeak language police reminiscent of age-old tyranny.

Sometimes when I drive to work, I like to listen to CBC radio. While I have my misgivings about state-funded radio, it does do a good job on keeping me updated on what's going on. Something I heard this week quickly reminded me of George Orwell's classic 1984 and the whole concept of Newspeak. For those of you who haven't read 1984, check out what Newspeak is here Apparently at Queens University, certain words and phrases are becoming Verboten.

Queens University in Kingston Ontario must not have read this timeless piece of literature.
Queens has announced that they will be hiring a handful of students who will act as what they call "Conversation Facilitators." The job of these euphemistically-named students is to monitor the discussion taking place in the halls of Queens University. These "facilitators" will be keeping their ears open for anything the institution regards as a racial slur or discriminatory comment. Upon hearing an unacceptable comment the linguistic KGB are authorized to step in and confront the offending students. Phrases like "That's so gay" are target phrases.

"If people are having a conversation with offensive content and they're doing it loud enough for a third person to hear it ... it's not private," said one of the officials from Queens.

Now think about this for a moment. On the surface it could appear to be a just a well-meant program to stop students from making hurtful comments about certain groups. However, I think this program should be called for what it is: an Orwellian surveillance program reminiscent of fascist and communist regimes. This reminds me of governments that threaten or bribe average citizens to spy and report on their friends and neighbors.

First of all, the whole concept of discriminatory comments and slurs is ambiguous and highly subjective. The basis for what is acceptable and what isn't is most likely decided by the Queens establishment. This means it is subjective to the whims of THEIR value systems. This means that simply commenting that homosexuality it a sinful and dangerous lifestyle could potentially be construed as a derogatory remark if that is wrong in their eyes.

Secondly, as someone else pointed out, what kind of an environment does this foster. Doesn't this only discourage dialog and debate when people are afraid to speak their minds? Imagine living in a society that adopted this system and listened in to your conversations. Whether by wiretap, surveillance technology, or simply patrolling the streets and fishing for careless remarks. It would be frightening.

Lastly, this is a very dangerous trend to start setting. We have had far too many examples of totalitarian societies who have resorted to spying on their citizens and squelching free speech. We might not like what others have to say. However, part of preserving OUR right to say what our conscience demands is to allow others to speak their mind. This doesn't mean friends cannot correct and challenge friends but to set up an eavesdropping program like this is frightening.
It's both sad and frustrating that an institution of learning in one of the finest countries in the entire world would be taking us down the footpath of totalitarianism.

Blog Alpha

Hello Everyone! Welcome to my new blog. As most of you have probably figured out by the name and information on my blog, this blog is about defending liberty and trying to discover answers to todays hot issues. I feel that we all have to do our part, whether by finding out what is going on, by having discussions with others, by supporting worthy causes, by writing, or by just simply voting for the right candidate at election time.

It's easy to feel miserably overwhelmed by what's going on out there. We live in a world engulfed in turmoil, crisis, and complicity. It can be very easy to ignore it and try to shut it out, but then nothing would change.

What's more, things would get worse. Sooner or later we will be affected by what goes on around us. It could be our freedom to say what we feel like saying, it could be at tax time, or it could be our lives.

Let me give an example. Lets say that at election time a whole load of people start lobbying the government to pay for post-secondary tuition. It just so happens that the political party that promises this gets elected and starts to pay for all post-secondary tuition fees.

Ok. So what? How does this affect me in any way? Politics is just something far away in the outfield. In fact if I'm a student this could be awesome. Here's there's the problem. Somebody is going to have to pay for this. That someone is going to be the taxpayers. That means you and a heck of a lot of other people are going to be funding this big spending spree and you won't be getting a thank you care in the mail.

It was once said that for every reaction there is an equal and opposite reaction. This applies to politics and world affairs in a profound way. From the milk we drink to the taxes we pay, we're already affected. It's time to get involved. It's time to band together. It's time to change our world for the better!

P.S. If anyone would like to write here on anything they feel is relevant. Please contact me.