It’s Negotiation Time

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It doesn’t seem like it’s been four years since the last time Detroit automakers and the United Autoworkers Union negotiated a new contract. You may remember the discussions and agreements that, from the date of that contract, gave the automakers the right to hire many categories of workers and pay them $14 an hour, plus lesser benefits. Of course, the auto companies were facing the same issues as any other major industry in America; the issue squeezing their corporate bottom lines most painfully was the incredible rise in the cost of workers’ health care.

Then many national media outlets were reporting that Detroit was paying their workers more than $73 an hour for their labor. Yet not only did an influx of autoworkers not buy new homes in Westover Hills or Monticello, but that simplistic look at the net cost of factory work ignored more pertinent realities of car production and corporate accounting.

Well worth reading.

Pacific Influence

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Gideon Rachman:

When Admiral Timothy Keating, the head of America’s Pacific command, met a senior Chinese admiral in 2008, he heard a surprising offer. Keating reported that his unnamed counterpart had suggested drawing a line down the middle of the Pacific and added: “You guys can have the east part of the Pacific, Hawaii to the States. We’ll take the west part of the Pacific, from Hawaii to China.” It was a weak joke, perhaps, but one that touched on what is likely to be the most sensitive and important topic in international politics over the next 50 years. Will the US continue to be the dominant power in the Pacific and in east Asia – or will it be supplanted by China? And what role will be played by India, the country that many strategists assume will be the third superpower of the 21st century?

The public statements of American, Chinese and Indian political leaders – and even of the academic establishments in all three countries – tend to stress the necessity for great power co-operation in Asia and the Pacific. The economic and political benefits of working together are said to be too great to ignore. The dangers of allowing international rivalries to grow are too enormous to be contemplated.

Beware the guns of August

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Gideon Rachman:

By the time this column is published I will be on holiday in France, and the US might finally have stepped back from the abyss of debt default.

Viewed from Europe, the American financial uproar is baffling. It is not just the entirely avoidable nature of the crisis. It is also its timing. The entire European political calendar is constructed around the idea that nothing ever happens – or should be allowed to happen – in August.

The drama that surrounded the emergency eurozone summit in Brussels in late July was partly caused by the threat of financial chaos, if Greece was not lent more money. But an unstated reason for the sense of urgency of the leaders around the conference table was a desperate desire to get a deal wrapped up – before the holiday season began in earnest.

Judged in these limited terms, the summit deal might be counted a success. It surely has not solved the crisis in the eurozone. But the European Union’s leaders might have done enough to ensure that there will probably be no call for further emergency summits until after the rentrée in early September.

Krugman, Stoll & McCardle’s Perspective on Federal Spending Growth

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Paul Krugman:

So what’s the truth? I’ve written about this before, but here’s another take.

The fact is that federal spending rose from 19.6% of GDP in fiscal 2007 to 23.8% of GDP in fiscal 2010. So isn’t that a huge spending spree? Well, no.

First of all, the size of a ratio depends on the denominator as well as the numerator. GDP has fallen sharply relative to the economy’s potential; here’s the ratio of real GDP to the CBO’s estimate of potential GDP:

Ira Stoll:

Five under-appreciated points about the federal budget and debt ceiling:

1. Whenever I need to get my bearings in the debate over the debt, the deficit, or the debt ceiling, I go to the web site of the White House Office of Management and Budget and download historical table 1.3. The story it tells, in very round numbers, is as simple as 2, 3, 4. The federal government spent about $2 trillion in 2000, at the end of the Clinton administration. It spent about $3 trillion in 2008, at the end of the Bush administration. And it is going to spend about $4 trillion in 2011, three years into the Obama administration.

You can fool around with inflation and with the percentage of GDP and with the revenue side of the equation, but the bottom line is that the federal government is spending about double what it was at the end of the Clinton administration. For all the clamor on the left to bring back the Clinton-era top tax rates, there are few, if any, politicians in Washington talking about bringing back the Clinton-era spending levels.

Megan McCardle:

A Few More Charts That Should Accompany All Debt Ceiling Discussions

This chart from the White House, which purports to prove, with the scientific magic of math, that basically everything bad that has happened to the budget is the fault of one George W. Bush, has been making the rounds. My colleague approvingly calls it “Another chart that should accompany all debt ceiling discussions”.

I’m a little less enamored, considering that this graph attributes decisions made by Obama and an all-Democratic Congress–like doubling down in Afghanistan–to Bush, while taking responsibility for basically nothing except the stimulus. When Obama extends the Bush tax cuts for the rich under pressure from Congressional Republicans, that disappears from his side of the ledger, because after all, he didn’t want to do it. When Bush enacts Medicare Part D under pressure from Congressional Democrats, the full cost is charged against his presidency. The list of such silliness goes on. Our president seems set to coin another presidential motto: “The duck starts here.”

China’s Banned Churches Defy Regime

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Brian Spegel:

On a recent Sunday at the Beijing Zion Church, Pastor Jin Mingri laid out a vision for Christians in China that contrasts starkly with the ruling Communist Party’s tight reins on religion.

“Let your descendants become great politicians like Joseph and Daniel,” said Mr. Jin, referring to the Old Testament figures who surmounted challenges to become political leaders. “Let them influence the future course of this country,” the pastor said in one of several sermons to his 800-member church.

Mr. Jin is one of a growing group of Protestant leaders challenging China’s state-run religious system, in an escalating struggle largely unnoticed by the outside world. For the first time, China’s illegal underground churches, whose members are estimated in the tens of millions, are mounting a unified and increasingly organized push for legal recognition.

Being the Last Tourist in Syria

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Emmy Sky:

Is this your first visit to Syria, the passport-control man asks me. No, I tell him, I came here once before over a decade ago. He stamps my passport. I had been very lucky to get a Syrian visa this time. The travel advice was not to visit. The Syrian regime is very wary of foreigners, fearing that journalists and spies are inflaming the situation further. I collect my bag and walk through customs, passing a poster, of modest size, of President Bashar al-Assad with the words in Arabic proclaiming: “Leader of the youth, hope of the youth.”



I jump in a taxi. I ask the driver how are things in Syria. Things are fine, he assures me. There has been some trouble around the country, but things are OK in Damascus. As we drive, we chat. He points out the area where Druze live. With his hand, he waves in another direction to where Palestinian refugees live, and then again to where Iraqi refugees live. Alawites are over there and in villages. Christians this way and in villages. Sunnis are around 65 percent of the population. Kurds live in the north. Many different peoples live in Syria. I ask him how he knows who someone is or whether they are Sunni or Shiite. He tells me that he does not know and it does not interest him to know: There is no sectarianism here in Syria. We pass Damascus University. Outside there are lots of flags and pictures of Assad and his deceased father. Across the city, the Syrian flag is flying strong and photos of the president are omnipresent. As I ride through al-Umawiyeen Square, I see lots of young men and women gathering, holding Syrian flags. It is not a demonstration, a Syrian tells me; it is a celebration — a celebration of the regime. Later, I watch the event on television. It has made the international news. Tens of thousands of Syrians have come out to al-Umawiyeen Square to show their support for President Bashar al-Assad in a lively celebration that includes pop singers and fireworks.

Fiscal Indulgences

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MICHAEL MUNGER, a professor of political science at Duke University, insightfully compares “tax expenditures” to the Catholic church’s practice of selling indulgences, which fomented the Reformation by sending Martin Luther into fit of righteous pique. Mr Munger reminds us that

Indulgences were “get out of purgatory free!” cards. Of course, it was the church that had created the idea of purgatory in the first place. Then the church granted itself the power to release souls from purgatory (for a significant fee, of course).As Luther put it, in his Thesis No. 27, “as the penny jingles into the money-box, the soul flies out.”

If high tax rates are a sort of purgatory (and who doubts it?), then tax credits are indeed akin to indulgences. Mr Munger writes:

We let people out of tax purgatory if they own large houses, if they receive expensive health insurance from their employer, if they produce sugar or ethanol, or any of thousands of special categories. These categories have nothing to do with need (is there a national defense justification for a protected sugar industry?), but instead depend on how much these sinners are willing to pay to members of Congress.

“As the campaign contributions jingle into the campaign funds, the tax revenues fly out”, he adds. As a result, “we have categories within categories within subgroups, all at different prices, deductions or exemptions that release some elites from the published tax rates.

Six-hundred billion of the $1.24 trillion held by U.S. businesses is in overseas

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American City Business Journals:

Six-hundred billion of the $1.24 trillion held by U.S. businesses is in overseas accounts, a matter of debate in Washington over offering tax breaks to encourage repatriation of the money.

Moody’s said the cash stash grew even though the amount spent on capital improvements, mergers and acquisitions and dividends increased.

Moody’s also said that the U.S. corporate debt-to-cash ratio was the lowest in the last five years at 3.06.

Want to Start Your Own Business? Better Try France

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Ajay Ravichandran

Since Tocqueville, foreign observers have often helped the United States to see itself in a new light, and the British thinktank ResPublica seems to be continuing in that tradition as it prepares to set up an American branch. During a recent visit to FrumForum, ResPublica founder Phillip Blond shared a presentation which included a startling fact: despite American politicians’ pro-small business rhetoric, the U.S. lags far behind most other developed countries in the share of citizens employed by small businesses.