Capitalism In Need of Rescue

Ayn Rand once quipped to a friend that "it looks like we'll have to save capitalism from the capitalists." She was referring to the tendency of businessmen to sign on to new government controls, either out of fear, conformity, or out of a desire to use government favors to gain an advantage over their rivals. We can see the same thing happening today. The article below describes how the Detroit automakers are selling us out to the global warming hysteria in exchange for government bailouts.

This is one of the reasons I thought the election of Barack Obama would be a disaster. When a massive new increase in government controls becomes seemingly inevitable, businessmen stop fighting it and start jumping on the bandwagon. Nothing succeeds like success, and nothing is more inevitable than the inevitable.

Since the government is going to control the economy, the pragmatist businessman concludes, I'd better go along with the administration in order to ensure that there is a place for me in the new establishment. And this makes everything that much harder for advocates of the free market, who now have to do without the support of the businessmen who would seem to be their natural allies.

"As Political Winds Shift, Detroit Charts New Course," John M. Broder and Micheline Maynard, New York Times, May 19

Why, after decades of battling, complaining and maneuvering over fuel economy standards, did carmakers fall in line behind the tough new nationwide mileage standard President Obama announced Tuesday?

Because they had no choice. The auto industry is flat on its back, with Chrysler in bankruptcy, General Motors close to it, and both companies taking billions of dollars in federal money. Foreign automakers are getting help from their own governments. Climate change legislation is barreling down the track, and Congress showed last fall that it had no appetite to side with Detroit any more….

"They can feel the political winds changing," said David Doniger, a lawyer with the Natural Resources Defense Council who has faced the car companies in court many times. "They need government aid to stay in business. When you have your hand out for help, it's hard to use the same hand to thumb your nose at the federal government."…

Yet there is more to come. The troubled auto industry is at the front end of a wave of changes driven by President Obama's determination to put the United States on a fossil fuel diet. The administration is moving on multiple fronts, from the Environmental Protection Agency's proposed finding that heat-trapping gases are a threat to health and the environment to the sweeping cap-and-trade legislation moving through Congress.

Taken together, these measures may create markets for fuel-efficient cars, change how Americans heat and light their homes and, ultimately, decide what industries will rise and fall.

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2. Saving Capitalism from the Capitalists, Part 2

When large corporations are jockeying for political favors, what are advocates of the free market to do? They have to come out against "big business." According to the report below, that is precisely the current strategy adopted by congressional Republicans.

(The other strategy, the desperate measure of an out-manned majority, is to try to stall cap-and-trade legislation by offering a flurry of amendments designed to weaken it and bog down the legislative process.)

But there is a not-so-fine line between opposing "rent-seeking"—i.e., the use of government favors for private looting—and adopting the rhetoric of anti-capitalist populism. See, for example, the line below condemning "corporate America" for trying to "increase profits on the backs of consumers." Unfortunately, I don't trust the current Republican leadership not to engage in this kind of ideological me-too-ing.

"Climate Change: GOP Turns on Business to Fight Measure," Erika Lovley and Lisa Lerer, The Politico, May 19

In a strategy memo obtained by Politico, Republican staffers for the Senate Committee on Environment and Public Works say Republicans should argue that Democrats are embracing "Wall Street traders," "polluters" and "others in corporate America" who are "guilty of manipulating national climate policy to increase profits on the backs of consumers."

The Republican role-reversal may be counterintuitive—GOP candidates routinely describe themselves as "pro-business"—but Republicans say it reflects their party's new reality.

"Business is not always going to be a good friend of the Republicans, and that needs to be reflected in our strategy," said MWR Strategies President Michael McKenna, a Republican energy lobbyist. "The GOP business model is probably busted forever. It started to break apart on TARP, and it could permanently break apart on climate change."

While the GOP tries to hold the line against a massive climate change bill, a number of major corporations—including Duke Energy, Johnson & Johnson and Shell Corp.—are backing cap-and-trade proposals by the United States Climate Action Partnership coalition, a group of environmental groups and businesses advocating legislation to reduce greenhouse gases.

US CAP members include the Natural Resources Defense Council, General Electric, Ford Motor Company, and other environmental groups and Fortune 500 companies.

The GOP memo accuses USCAP members of "blatant rent-seeking."

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3. Saving Us from the "Capitalists"

The article below is worthwhile primarily for one observation. By going along with the statists' latest plans for the coerced reorganization of the economy, the pseudo-capitalists are "at war with their customers." In this case, they are conspiring to force us all into tiny, underpowered, substandard automobiles, for which the manufacturers will receive perpetual subsidies, paid for out of our pockets.

This is the big lie behind the left's rhetoric. Capitalism has never been about the narrow interests of big corporations or any particular interest group. It is about freedom. So when the left loudly announces that it is going to crack down on "big corporations," it is actually cracking down on the freedom of individuals to make their own decisions about what to do with their time and money.

In this respect, the corporation is a middleman. It can be the agent of our freedom, the means by which we register our individual decisions in a free market. Or it can try to set itself up as an agent of the government, as the enforcer and (short-term) beneficiary of the new fascist economic dictatorship.

"Car Crazy," Wall Street Journal, May 20

The new US fleet will almost certainly be made up of hybrids and electric cars. This comports with the explicit intention of the President and his environmental partners to back out fossil fuels. One may ask: Once Detroit is forced to build these cars, will free Americans want to buy them, at any price?

Unless we outlaw the bigger cars that recent sales figures have shown Americans prefer any time gas prices fall below $4 per gallon, Detroit will need help marketing these small vehicles. As GM's Bob Lutz put it not long ago, "Very few people will want to change what has been their 'nationality given' right to drive big and bigger if the price of gas is $1.50 or $2 or even $2.50. Those prices will put the CAFE-mandated manufacturers at war with their customers."…

The Detroit Three already sell small cars at a loss to meet the current 27.5 mpg fleet average. The car companies may hope that if the whole industry is forced to move up the fuel-economy ladder, consumers will have no choice other than to buy these cars. But experience suggests companies that have specialized in making smaller cars, such as the Japanese-owned auto makers, are more likely to be able to sell them at a profit….

We wish these folks luck "working together" with the Obama auto-design team. One thing seems certain by 2016: Taxpayers will be paying Detroit to make the cars Americans don't want, and then they will pay again either through (trust us) a gas tax or with a purchase subsidy.

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4. Saving the Capitalists from the "Capitalists"

Aside from the public, the victim of pseudo-capitalist "rent seeking" is the genuine capitalist, the entrepreneur who wants to succeed through innovations and productive effort. But there may still be enough freedom in our system that these real capitalists will have the last word.

The article below describes how America's amazingly resilient financial system is producing a host of smaller banks, many of them local "community" banks, which are quickly expanding and stealing the best customers away from large banks who are saddled with the curse of TARP bailout funds.

That is why we need to fight to preserve the freedom that is left in our economic system—so that the bailout seekers will wither away and be replaced by real capitalists.

"Let's Snooker the TARP Babies," Joel Kotkin, Forbes, May 19

[Dean] Bass, a veteran banking entrepreneur from Houston, in November bought the tiny First Bank of Snook as part of his plan to build a new financial powerhouse amid the worst economic downturn in a generation. The old bank, which also had a branch 15 miles away in College Station, home to Texas A&M, provided Bass with his charter, as well as access to a strong market on the far periphery of his home town.

Since buying into Snook's bank, now renamed the Spirit of Texas Bank, Bass opened a new branch in the Woodlands, northwest of Houston. Over the past six months, the new bank's assets have doubled to over $70 million, and by the end of the year he expects to break $100 million. Longer-term plans include expanding as well into Austin, Fort Worth and other major Texas markets.

Bass' basic strategy: Take advantage of the stumbling TARP-funded banking giants and steal what he calls their "disenfranchised customers." This approach has implications well beyond the Lone Star State. Like other successful community bankers across the country, Bass believes that the mega-banks have been hopelessly tarred by TARP taxpayer funds. They have been revealed to be, if too big to fail, also too incompetent and poorly run to trust.

"This is one of the worst banking markets I have ever seen--but the best for people like me," said Bass, who sold his last venture, Houston-based Royal Oaks Bank, for $38.6 million in 2007. "When else would you see A+ customers fleeing places like Bank of America, Chase and Citi? People can't even understand their balance sheets and stress tests. Their customers are ready to move on."

Over the next few years, the emergence of banks like Spirit of Texas could prove the silver lining in the largely bungled Bush-Obama bail out of the big financial companies. Ironically, the attempt to shore up the mega-dinosaurs has revealed these mega-banks to be creatures of little brain and even less principle. They now seem more akin, as economist Simon Johnson has pointed out, to Third World crony capitalists than paragons of free enterprise.

In comparison, independent, non-TARP banks like the Spirit of Texas appear like paragons of traditional capitalist virtue and homespun values.

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5. Cap and Tax

I have resisted the phrase "cap-and-tax" as a derogatory description of cap-and-trade legislation, because it is far too narrow a complaint. The main problem with cap-and-trade is not that it imposes new taxes. The problem is that the whole purpose of cap-and-trade is to shut down the industrial economy by starving it of fuel. Taxes are merely the evil means to a much more evil end.

That said, I think the article below is interesting. The author is an advocate of global-warming legislation who points out that the "trading" part of the legislation—meant to give a free-market veneer to a system of rationing—is actually a tax unnecessarily added onto the legislation, for the purpose of funneling hundreds of billions of dollars of loot to the federal government.

This is another example of the Old-Left-meets-New-Left character of the Obama administration, which gives us the worst aspects of both movements. It imposes restrictions on industrial production, in accord with the demands of the New Left environmentalists, and it uses these restrictions as an excuse to arrogate more of our economic resources to the government, in accord with the demands of the Old Left central planners.

"Let's Have Cap and No Trade," David Sokol, Washington Post, May 19

The adage that everyone wants to go to heaven but no one wants to die is on display again as the House considers a massive 932-page climate-change bill, introduced by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), that would establish a "cap and trade" system for carbon dioxide and other greenhouse gas emissions. Its sponsors say it will keep low- and middle-income consumers whole while the United States cuts emissions 83 percent below 2005 levels by 2050 and transitions to a clean-energy economy.

Nothing could be further from the truth.

On paper, the Waxman-Markey bill puts a cost on carbon dioxide by imposing a ceiling, or cap, on greenhouse gas emissions and then setting up a market for regulated industries—such as the electric power sector—to buy and sell allowances to pollute under that cap. As the cap is reduced each year, market participants will exchange allowances in a complex auction market….

The real hidden catch of the cap-and-trade system, though, is that it will require consumers to pay twice: first for emission allowances and then for the construction of new low- and zero-carbon power plants.

Congressional estimates of government revenue from the sale of cap-and-trade allowances range from hundreds of billions to trillions of dollars. Contrary to assurances from the bill's sponsors that utility customers wouldn't have to pay these costs for the first decade, some coal-dependent utilities would be forced to purchase more than half of their allowances when the program is scheduled to begin in 2012. Would these allowances reduce our greenhouse gas emissions? No; that would come when consumers footed a second bill—for the cost of their utilities either to retrofit coal and gas plants to capture carbon—something that cannot be done today on a commercial scale—or to shut them down and build non-carbon-producing nuclear plants and wind farms instead….

This transformation of our entire electricity sector won't be cheap, but it would be less expensive than the double cost of a complex cap-and-trade program followed by that same transformation.

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6. Hard Is Not Hopeless

The one potential bright spot in America's foreign policy is the fact that George Bush left us an important legacy in the Middle East: his appointment of General David Petraeus, the man who secured a counter-insurgency victory in Iraq (if we can keep it), as the commander of Centcom, responsible for our military strategy in the entire Middle East.

Below is an except from an interview with Petraeus, making clear that he is applying to Afghanistan the knowledge of counter-insurgency that helped him win in Iraq.

Most interesting is his confidence that "progress can be achieved in Afghanistan" independent of the chaos in Pakistan. I would dismiss that as over-optimistic—if I hadn't thought, in early 2007, that progress would be impossible in Iraq if we didn't topple the regime in Iran. Petraeus proved me wrong then, so I'm going to take him seriously on this issue.

"The Battle Ahead," David Petraeus via Ralph Peters, New York Post, May 19

Petraeus: Expect tough fighting. As we and our allies launch operations to improve security, the enemy will fight back. When we launched the "surge of offensives" in Iraq, al Qaeda-Iraq elements sought to retain their sanctuaries and safe havens. We experienced tough combat. We'll see the same in Afghanistan. In preparation, and in response to Gen. McKiernan's request for additional forces, we've been deploying "enabler" elements in addition to the ground combat units. This will ensure that our troopers have the support they need—attack and lift helicopters, unmanned aerial vehicles, various intelligence systems, route clearance units, MRAP [mine-resistant ambush-protected] vehicles, EOD [bomb-disposal] elements and logistics units….

To accomplish our mission, we and our coalition and Afghan partners need to reverse the decline in security; develop Afghan forces that can shoulder the burden of security in their country over time; help establish governance that wins local support—which means incorporating some traditional structures, and support the improvement of basic services for the Afghan people. This will be hard, but the mission's critical. As we used to say about Iraq: hard is not hopeless….

Certainly, what happens in Pakistan has a significant effect on what transpires in Afghanistan. That's one reason—among many—why we need to help Pakistan. But progress can be achieved in Afghanistan—even as Pakistani action against the extremists in the rugged border areas develops slowly, due in part to their present focus on the Taliban in Swat.