Friday, December 25, 2009

Merry Christmass

Merry Christmass! See my past posts on New York at Christmass here, here, and here.

Sunday, November 29, 2009

Christmas Nears

Christmas related thoughts soon this is just a test post.

Friday, September 11, 2009

In Memory of the Dead

Eight years have passed since that horrible September day. Today we morn those so brutally murdered and those who have fallen in the defense of our people. May their friends and relatives finds comfort. As the good book says, the lord giveth and the lord taketh away, blessed be the name of the lord.

Thursday, July 16, 2009

5-4-3-ignition-2-1 we have lift off

Today is the 40th anniversary of the launch of Apollo 11, the first manned craft to reach the moon. In celebration of this human accomplishment, I am posting part of the late novelist and philosopher Ayn Rand’s account of the momentous event. I also want to acknowledge and celebrate the bravery of Neil Alden Armstrong, Michael Collins, and Buzz (formerly Edwin Eugene Jr.) Aldrin.

[The launch] “began with a large patch of bright, yellow-orange flame shooting sideways from under the base of the rocket. It looked like a normal kind of flame and I felt an instant’s shock of anxiety, as if this were a building on fire. In the next instant the flame and the rocket were hidden by such a sweep of dark red fire that the anxiety vanished: this was not part of any normal experience and could not be integrated with anything. The dark red fire parted into two gigantic wings, as if a hydrant were shooting streams of fire outward and up, toward the zenith—and between the two wings, against a pitch-black sky, the rocket rose slowly, so slowly that it seemed to hang still in the air, a pale cylinder with a blinding oval of white light at the bottom, like an upturned candle with its flame directed at the earth. Then I became aware that this was happening in total silence, because I heard the cries of birds winging frantically away from the flames. The rocket was rising faster, slanting a little, its tense white flame leaving a long, thin spiral of bluish smoke behind it. It had risen into the open blue sky, and the dark red fire had turned into enormous billows of brown smoke, when the sound reached us: it was a long, violent crack, not a rolling sound, but specifically a cracking, grinding sound, as if space were breaking apart, but it seemed irrelevant and unimportant, because it was a sound from the past and the rocket was long since speeding safely out of its reach—though it was strange to realize that only a few seconds had passed. I found myself waving to the rocket involuntarily, I heard people applauding and joined them, grasping our common motive; it was impossible to watch passively, one had to express, by some physical action, a feeling that was not triumph, but more: the feeling that that white object’s unobstructed streak of motion was the only thing that mattered in the universe.”

“What we had seen, in naked essentials—but in reality, not in a work of art—was the concretized abstraction of man's greatness.”

“The meaning of the sight lay in the fact that when those dark red wings of fire flared open, one knew that one was not looking at a normal occurrence, but at a cataclysm which, if unleashed by nature, would have wiped man out of existence—and one knew also that this cataclysm was planned, unleashed, and controlled by man, that this unimaginable power was ruled by his power and, obediently serving his purpose, was making way for a slender, rising craft. One knew that this spectacle was not the product of inanimate nature, like some aurora borealis, or of chance, or of luck, that it was unmistakably human—with ‘human,’ for once, meaning grandeur—that a purpose and a long, sustained, disciplined effort had gone to achieve this series of moments, and that man was succeeding, succeeding, succeeding! For once, if only for seven minutes, the worst among those who saw it had to feel—not ‘How small is man by the side of the Grand Canyon!’—but ‘How great is man and how safe is nature when he conquers it!’

“That we had seen a demonstration of man at his best, no one could doubt—this was the cause of the event’s attraction and of the stunned numbed state in which it left us. And no one could doubt that we had seen an achievement of man in his capacity as a rational being—an achievement of reason, of logic, of mathematics, of total dedication to the absolutism of reality.”

Wednesday, June 10, 2009

Labor Unions and Management Incentives

Several commenters on Dr. George Reisman’s recent post at the Mises Blog about the collapse of G.M. have been criticizing him for placing too much of the blame on the Unions and not enough on the company’s management. While I agree that management can’t be let off the hook, I think it is important to realize what an important role the Union’s played in the bad management of the companies they parasitized. As economically informed persons, the readers of the Mises blog ought not to need to be reminded of the importance of incentives. So let us look at the incentives that compulsory labor unionism gave the management of G.M. and the many other companies that they have sucked dry.

In a free market a company’s labor costs (in terms of money) are going to be set by the least efficient producer who is a purchaser of that particular type of labor. In the instance of a car company like G.M. it would compete with other car producers and the producers of motorcycles, trucks etc. for auto assembly line workers. (this is obviously a huge oversimplification of the types of labor, but it works for this discussion) In such a free market, the management of such a company has a huge incentive to increase the long term productivity of its workers. Since it only has to pay the wage set by the least productive company, all improvements in productivity (in money terms) goes to the shareholders, who are likely to award management for this increase in profits. (It should be noted that leading producers may well pay a premium to get the best workers, but that is only if it will lead to increased profits. It should also be noted that the workers will benefit from the increase in productivity due to the fall in the price of the products that they produce, the fall in prices being a result of the increased productivity.) In contrast under compulsory labor unionism, any long term increase in profits will be extorted by the union. (Remember S. Gompers famous dictum about the social responsibility of business being to raise profits. This had the obvious corollary of allowing the union to extort higher money wages.) Thus as long as it is not about to be driven out of business, a unionized business has little incentive to increase the long term productivity of its workers, because the benefit (in money terms) will go to the workers. This is also true of other long term strategies to increase profitability. If the increase in profitability lasts to the next contract negotiation, then the union will claim that the increased profitability justifies higher wages.

In a free market, business practices that increase profits in the short run but are damaging to the business in the long run tend to be weeded out because the difference between such short term thinking and long term thinking is made manifest in the profits and losses of the company. The long term thinking is rewarded and short term thinking is punished. By contrast under compulsory unionization, short term thinking is to a certain extent encouraged. Profits that are made by decisions that are profitable in the short term but destructive in the long term can be kept by the managers and shareholders because they are transitory and already gone by the time the next union negotiations come around. The union can’t get their hands on them. Even worse it becomes difficult to distinguish between long term and short term thinking. From the point of view of an investor looking at two unionized companies or an upper level manager looking at two divisional managers of a unionized company, there is little to distinguish the between the two. If one manager increases productivity, profits rise in the short term and then fall in the long term as they are extorted from the company by the union. If another manager makes a decision to cut corners and use substandard materials, his profits will rise in the short term and fall in the long term as he losses clients. From the prospective of the investor or upper management the results look to be the same, short term profits and long term losses. From one perspective this is a distortion of information in the hayekian sense that leads to bad decision making, but from another perspective one could argue that unionization destroys the difference between good and bad decisions. From that perspective one could argue that there is no good decision for the management of a unionized company to make.

In a free market, losses or even worse the prospect of bankruptcy are to be avoided like the plague. To the extent that senior managers are paid on performance or are even share holders of the company the incentive to avoid losses or bankruptcy are obvious. Further either will make capital more expensive or harder to come by in the future. However under compulsory unionization the incentives are different. The only thing that can make the union willing to moderate its demands or in extreme cases actually offer concessions is the prospect of the company going out of business. (As Eastern airlines shows this is not always true, some unions would rather the company go under than make concessions.) If the union is willing to dicker, then the management gains new a perverse incentive, the incentive to be mediocre. As long as the company is near the edge of bankruptcy management may hope for concessions. As long as the company underperforms, moderate demands can be hoped for. If the company starts to flourish however, the only thing to be expected is more extreme demands from the union. (This is why unions that refuse to budge even in the face of disaster as at eastern airline are acting in a certain sense rationally. Only if an entire industry is threatened does it make sense for the union to make concessions, otherwise they are underwriting the bad management of a particular company and encouraging other companies to get in trouble. This more than anything ought to show the perversity of compulsory labor unionism.) So for a unionized company mediocrity becomes the path of safety for management.

It is quite right to say that truly competent management would not succumb to these incentives, but do the right thing regardless. So, now I want to turn to the effects of these incentives on management and the types of people who are willing to work as managers and who will flourish as managers under the above incentives.

Let us take three managers Manager Able, Manager Bad and Manager Cares-less. Manager Able is the type of person who is conscientious and always thinks things though logically and makes the right choice. Manager Bad is the type we all know if we have ever worked in a large company that is not well managed. He is the type who joins a project just as it is about to succeed and takes the credit. He is an expert at making short term decisions and taking the credit for the short run returns but bails from the project before the long run arrives. In short he is a prick who’s only talents are sucking up and self promotion. Manager Cares-less is also a type we all know, the kind that goes along to get along. If the company he works for is well managed and the incentives are right he will perform adequately possibly even very well, but if not, then not. How will these three managers fare under the above incentives?

Manager Able will ignore the incentives to short term thinking and against long term thinking. He will understand that the long term always comes and that only long term thinking really works. So his decisions will always be to make the right choice. But think what this looks like to higher management, Manager A is always investing the company’s money in projects that make money at first but that start to fail as the union increases its demands.

Manager Bad on the other hand looks wonderful. His projects almost never need increased funding, long term increases in productivity are not for him. He is always cutting expenses that are important in the long run but have no short term impact. Manager B may be wreaking havoc on the company but it is not apparent to his managers, they see the same short term profitability that Manager A achieved but without the initial costs.

Manager Cares-less will at first be somewhat random in whether he adopts long term or short term profitability as his goal, but as the incentives work on him he will start to act in a way indistinguishable from Manager B. This because unlike A who will stand up to criticism from higher management and do the right thing anyway, C will go along with what his manager wants.
From the perspective of higher management A is underperforming, C has trouble at first but improves, and B is a star. Consider who will get promotions, who will leave the company and who will stay.

This only considers the first two incentives. Once the incentive to mediocrity hits Manger A is in even more trouble. He is the one who is always threatening the company with superior performance, that is, with higher labor costs.

Obviously this process will take time. At first a well managed firm will have almost all As and Cs (at this point in a well run firm they will not be easily distinguished.) in management Bs will be weeded out early. But over time the perverse incentives will make Cs act badly and make Bs look good. At first higher management will be overwhelmingly made up of As with a few good acting Cs but as it gets harder to distinguish good performance from bad more Cs good and bad acting, and eventually Bs will end up at higher levels in management. In this context it is significant that G.M. and Chrysler have been unionized for a little more than 70 years, one life time (i.e. three score and ten) or two long generations (i.e. 35 instead of 25 years). This is more than enough time for the rot to become pervasive.

This brings me back to a part of the Dr. Reisman’s post “The philosophical tapeworm lay within the minds of those running the company. For decades, it led them never to take a stand on principle and forcefully resist the UAW. Always the present cost of a major strike was allowed to outweigh the prospect of the ultimate destruction of the company, which was never considered fully real because it lay in the future.” Part of this mentality is the result of the type of person who will work at a unionized firm in face of the aforementioned incentives. At first with long term oriented management there will be attempts to resist unionization or at least unreasonable demands by the union. But as the perverse incentives work their way with the type of people in management the will to resist will be lost. The long term will be unreal to the type of manager who will flourish in such a company.

In sum, it is true that G.M. has had bad management that in part led the company to ruin. But true economists do not look only at surface causes as Dr. Reisman’s critics do. As the late Henry Hazlitt wrote, “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” It is above all the policy of compulsory unionization that has led G.M. and many other great American companies to disaster and in many cases total destruction. Dr. Reisman is enough of an economist to understand this and brave enough to say it.

Tuesday, May 12, 2009

Updated Declaration of Anglosphere Nationality

Declaration of Anglosphere Nationality

We the undersigned, being citizens or subjects of English speaking states, do solemnly declare that we are one nation bound together by:'
a common English language,
a common literature,
a common history,
a strong civil society,

and common institutions of government rooted in Magna Carta including:
a tradition of constitutional government,
a tradition of representative democracy,
a tradition of independent courts,

and a tradition of protecting individual rights beginning with Magna Carta and developed in the English and American Bills of Rights which include,
the right to life, liberty, and property,
the right to trial by a jury of ones peers,
the rights to free speech, free conscience, and free association.

Ours is an open civilization, not defined by blood or ancestry, but by shared values. As such, we welcome others who wish to share in our culture and way of life.
By issuing this declaration, we hope that the English speaking people will become a more self aware nation, preserving and further developing their shared cultural and political tradition.
We pledge ourselves to build closer ties with our cousins around the globe and urge our political leaders to build closer ties among our states.

Saturday, May 09, 2009

Time to Call in the Trial Lawyers

Now that what many are calling gangster government has seemed to win by suppressing Chrysler’s senior debt holders. It is time to put the senior debt holder’s feet to the fire, by having their shareholder’s sue them for betrayal of the their fiduciary duty. Thus not only the banks shareholders but those of the non TARP bondholders who are publicly traded need to start a class action.

Wednesday, February 11, 2009

Kerlikowske’s Shame

President Obama has nominated Seattle Police Chief Gil Kerlikowske to be drug czar. This is more pathetic than appointing a man who can’t do his taxes as secretary of treasury.

Kerlikowske is not only a militant opponent of the second amendment and citizen’s right to defend themselves, his record shows that as a police Chief for Seattle he was unwilling to protect the people of the city. In 2001 during the Mardi Gas Riots, Chief Kerlikowske, instead of sending in police to put down the riots, cordoned off the area and did nothing while 70 of the people he is sworn to protect were sent to the hospital and one was killed.

The plain fact is that he doesn’t have the credibility to be sheriff of a one horse town never mind being a senior federal law enforcement officer. The war on drugs is enough of a farce already without putting a clown in charge of fighting it.

Thursday, January 29, 2009

How the Fed faked its way to a crises.

A excellent post on the financial crises is up on Samizdata, here. It points out the Fed in trying to prop up the market made the situation worse.