Why Some U.S. Companies are Fleeing to Mexico and Trump Cannot Negotiate Us Out of this Mess

In my recent 1 March post Making America Great and Donald Trump, I said

the primary reason the opening of new trade markets around the world has not led to the growth of the American economy is because the American government does not allow American businesses to be competitive.  He notes the importance of corporate tax reductions, but only after implying that bad trade negotiations caused job loses in America.  The job losses in America are due to excessive taxes, paperwork, and regulations that American businesses are hobbled with, thanks to Washington.  Business expenses are very high in America compared to many other countries in the world.  To compete, we need to be free to take full advantage of our design and innovation capabilities, while shedding governmental burdens that provide no or insufficient benefits.  We should be taking advantage of our abundance of inexpensive and reliable energy, not trying to make it more expensive as Obama has done.  We should be taking advantage of our great banking and financial companies, not smothering most of them in disabling requirements under Dodd-Frank so-called reform.  We should not be raising the cost of business with governmental dictates of minimum wages, paid leave benefits, the highest corporate and personal taxes in most of the developed nations, ObamaCare, NLRB rulings favoring forced unionization, and EPA regulations based on exaggerated claims of mercury or catastrophic man-made global warming.

The lead Opinion article in the 4 March Wall St. Journal was titled Trump on Ford and Nabisco.  Trump has been claiming that Mexico hijacked both Ford and Nabisco plants resulting in plant closings in the U.S.  Trump says this is why he "Does not mind trade wars."

The Wall St. Journal response to that is:

That's one way of looking at it.  Another way is that both companies made rational decisions to move some of their operations to Mexico because the tax and regulatory climate in the U.S. under President Obama has become increasingly hostile to business.  Before picking destructive trade fights with the world, maybe the next President could work to make America great for doing business again.

Nine production lines at the largest bakery in the world, in Chicago, are to be closed by Nabisco to build a higher technology plant in Salinas, Mexico.  Nabisco will save $46 million a year with the new plant.  Nabisco gave the labor union at the Chicago plant the opportunity to match that annual savings.  The labor union brought in a Bernie Sanders campaign official to help them.  Operating a business in Chicago is especially tough.  Illinois has unusually high corporate taxes and property taxes, not to mention very high worker's compensation expenses.  Underfunded city employee pensions are forcing taxes upward rapidly.

Nabisco is hardly alone in abandoning Chicago or Illinois.  In 2015, Illinois bucked the increase in manufacturing jobs in other nearby states by losing 56 jobs a working day.  Meanwhile, Michigan gained 74 manufacturing jobs a working day, Ohio gained 58, Indiana gained 20, and Wisconsin gained 18 manufacturing jobs a day.  The unfriendly business climate in Illinois has dire consequences.

Both Ford and General Motors are doubling their production in Mexico by 2018.  Ford is building two engine and transmission plants in Mexico and will manufacture small cars and hybrids required to meet the federally imposed fuel standard fleet requirements on all Ford vehicles manufactured.  These required small cars are money losers, so it is particularly hard to manufacture them in the U.S.

The United Auto Workers Union has won an agreement that will raise the hourly cost of wages and benefits for its members to $60, from the already very high cost of $57/hour cost for Ford and a $55/hour cost for GM.  In comparison, foreign-owned automakers in the U.S. have labor costs of about $50/hour.

In addition to lower labor costs, Mexico has free-trade agreements with 45 countries, while the U.S. has free-trade agreements with only 20 countries.  Trump clearly wants to reduce our free-trade agreements, hurting the U.S. still further in this competitive advantage.  He will drive still more plants to Mexico following his trade-war policies.

The Wall St. Journal says the way to make the U.S. economy great is to

• lower corporate and marginal tax rates
• reform pensions and entitlements
• institute right-to-work laws
• repeal ObamaCare

This sounds rather similar to what I was saying in my 1 March post.  It is not the case that we are losing jobs because China and Mexico are better negotiators and Trump can just make better deals with them.  Our problems are mostly self-made and owe to our penchant for big government that acts as a parasite sucking the life out of businesses.

Reviewing the Cash for Clunkers Folly

Jeff Jacoby, a Boston Globe columnist, wrote a very interesting assessment of the Cash for Clunkers Program, or the Car Allowance Rebate System officially, in a column called 'Clunkers,' a classic government folly.  The Cash for Clunkers program was indeed a classic case of government simple-mindedness with consequent harm done to many Americans.

This Obama - Democrat program paid American consumers up to $4,500 for an old car that had low gas per mile ratings when they bought a new one with better gas mileage.  The "clunker" had to be in drivable condition and it was to be destroyed.  The engine was chemically destroyed and the car was  shredded or crushed.  This program cost taxpayers nearly $3 billion.

Let us examine the consequences of the Cash for Clunkers program:

• Because mostly just the timing of car sales were affected, of the 700,000 cars sold during the clunkers sale frenzy, only 125,000 are believed to be sales that otherwise would not have happened.  Each of these additional car sales therefore cost taxpayers $24,000!
• Researchers at the University of California - Davis figured that the reductions by the program of CO2 emissions cost $237 per ton.  Carbon emissions credits cost only about $20/ton.
• The reduction in the emissions of CO2 is less than that Americans emit in one hour.  At least the plants that would have loved that extra CO2 were not seriously deprived of their food.
• The reduction in gasoline use is equal to that Americans use in 4 hours.
• During this recession, many people cannot afford new cars.  Unfortunately, the number of older, used cars on the market was decreased remarkably.  With more demand for less expensive cars and less used car supply, the cost of the average 3-year-old car is up more than 10% since last summer to nearly $20,000.  Some popular models are up more, with the Cadillac Escalade up 36% since last July to $35,000.
• A great deal of American wealth was destroyed.

Jeff Jacoby concludes his commentary with this:

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy.  Other than that, it was a screaming success.

I wonder how many people who traded in a clunker for a new car and new car payments have regretted that decision as this recession goes on and on and on?  In some cases, the traded in clunker would have been worth more than $4500 by now, even if it was not then.  It is also worth noting that $3 billion spread over the 139,919,000 people employed in August 2010 means the average cost to each employed worker of the program is $21.44.  Paying that much for a destructive program makes me a bit angry.  I could have spent that money on paying down my debts or on one or two good books.  Of course, this foolhardy program is replicated by thousands of other foolhardy government programs, which have caused the federal budget deficits to soar since the Democrats took over control of Congress, and even more so since they usurped the presidency.  Thanks for taking that $21.44 multiplied many thousands of times away from me Obama and you socialist Democrats!  Payback time is coming neigh! If only we could force you guys to pay back all the deficit money you obligated the rest of us for.

Clunker Morals and Government

The Democrat Congress cash for clunkers program has quickly spent its first billion dollars. The program is widely touted as an effective stimulant of the economy and as popular with the people. Presumably, the environmentalists and those who worry incessantly about running out of fossil fuels or about the Middle East enjoying oil income, are all very happy to get the clunkers off the road.

I, however, have a few problems with this program. They are:

• It encourages the destruction of wealth, without the wise inputs of the free market system, which is replaced by the foolishness of politics.
• It transfers large sums of money from the taxpayer to the relatively few individuals who decide they want a new vehicle and who have a qualifying "clunker."
• It transfers large sums of money from the taxpayer to the auto industry.
• The pollution emissions of even 12 year-old cars are already very low, so there is little to be gained on that issue, unless you believe the craziness that CO2 is a pollutant or a global climate changer of catastrophic import.
• If oil were in critical short supply such that cars that would mostly have been junked in one or two more years saved enough to be significant, then oil prices would be high and we would not hesitate to drill in ANWR, the eastern Gulf, and off the southeast Atlantic coast.

No, this is immoral politics as usual. It is a simple transfer of wealth to buy votes. The beneficiaries are more grateful to the politicians than those who are hurt are angry.

Before the late 1930s when Roosevelt's threat to pack the Supreme Court turned some of the Justice's knees to jelly, such a program would have been found unconstitutional on two grounds. First, Congress has no enumerated power to play the stimulating the economy game. Second, such a transfer of wealth from so many to so few could not be said to be consistent with the limitation on the federal government that all of its actions be taken for the General Welfare. This is clearly a program for the welfare of a few and the harm of the many.

The concept of the General Welfare these days is apparently this: The government will undertake thousands of programs most of which harm more people than are helped. But, somewhere among these many programs there are likely to be a few which will help a given individual. If most people are helped by some program, then the General Welfare has been satisfied.

There are severe problems with this concept of the General Welfare. They are:

• People are aware of how they have been helped by the few helpful programs.
• The vast majority of people cannot add up all the harm they have suffered from the many programs that hurt them, partly because they are unaware of all the little hurts and even if they remembered them, they cannot calculate up the sum of the pains.
• This concept gives the government unlimited powers, which the politicians are certain to abuse.
• These programs act to reduce the role of choice in each individual's effort to manage his own life.
• The government is given the power to pick winners and losers.
• The politicians use this power to collect campaign contributions to win re-election so they can continue to sell their votes in Congress.
• The entire process pits every segment and group within our society at the throats of all other such groups, because the prize to win the power to guide the government monopoly use of force is so critical. The losers are hurt badly and the winners are rewarded grandly.
• As a result, every segment of society has reason to distrust every other segment of society.
• This distrust causes universal anxiety and uncertainty.
• Anxiety and uncertainty make life miserable and people in despair turn to government to bail them out, which creates a visicous circle.

One would think this would be reason enough for rational people to reject this loose and immoral idea of the General Welfare. Apparently, the observational skills, the rational linkages of the observed events, and the importance of the principles of a harmonious and force-forebearing society are too much for the modern man to figure out. Yet, the framers of the Constitution were able to figure this out in a more primitive world than that we live in now. We should be most appreciative of their intellectual effort, even as we bemoan the weakness of the modern American's thinking skills. To a substantial degree, we can thank the dumbing down of Americans in a public school system for that. These government schools are very happy to confuse the people about the ennumerated powers of the federal government and about the Constitution's further restriction that actions be for the General Welfare.