Tuesday, May 8, 2012

Easy Economics ... Financial Illiteracy and Government's Role

Easy economics is common sense based and intuitive.  It's also poorly understood and not often taught as a part of the general curriculum in our schools. Ever wonder why?

Well, maybe the answer is as simple as 1-2-3.

To coin a phrase, maybe, just maybe, "It's the government, Stupid!"

We have (1) serious problems with our entire educational system, including pervasive and unnecessarily burdensome student loans, (2) serious problems with our health care system and its affordability, including ObamaCare, Medicare and Medicaid and (3) serious problems with the formation and aftermath of the housing bubble, including easy credit, underwater mortgage loans and too many foreclosures. No dispute about any of that. Let's look closer.

Government schools frequently don't even attempt to teach basic common sense economics. Why?

Well, it's either because (1) the academicians in charge don't understand basic economics or because (2) they do understand it. In the first instance, it's simple ignorance and in the second, it's willful neglect.

In the areas of education, health care and home ownership financing, government incentives and control are the biggest underlying causes of our many problems. In simple terms, government monopolies preclude meaningful individual free choice. Of course, free choice is a fundamental underpinning only found in competitive free markets and never a part of government based monopolies.

So when the all knowing elitist politicians or government bureaucrats favor us poor ordinary citizens and decide to do what they deem to be best for We the People, the free market where individuals  exercise their free choice with respect to the value of the proposed offering is simply not in play.

Since there's virtually no competition for the government monopoly, whether that be government schools, government health care or government backed and subsidized home loans, there is no control over what government proposes or the cost thereof. It's pure and simple monopolistic government knows best at work. See, it's as simple as 1-2-3.

For a current example of our government officials hard at work serving We the People in their own special self serving and either ignorant or willfully neglectful way, let's look at the government bailout of "UAW Motors," aka General Motors.

This ongoing saga of poor business management, poor union leadership and poor government stewardship of taxpayer monies says a whole bunch about the relationship and strength of union leaders in relation to the Democratic Party.

You'll recall that President Obama likes to take credit for having saved the auto industry and the middle class auto workers.  In fact, he is now actively campaigning for reelection by reminding everyone that he performed the herculean public service feat of saving the U.S. auto industry.

Well, try telling that to the union members in Moraine, Ohio who didn't belong to the UAW. Their simple mistake was that they belonged to the IEW, a less powerful union than the Obama administration's favored UAW. Hence, when the taxpayer funded government bailout came about, the IEW members got the shaft, courtesy of their cohorts in the UAW.

Shafting the IEW members by the UAW was a case of simple self interested hardball at work. And the government leaders went along for the ride. Politics in play. The auto bailout wasn't about saving jobs for workers. It was about hardball politics, votes and elections.

Here's the takeaway: We all know there's no honor among thieves. Now we know we can add politicians and union leaders to the list.

Should you doubt what I say even one little bit, please take the time to read the entire article referenced hereinbelow. Then think about it. Here's a teaser.

UAW Freezes Rival Out of Rebound has this to say in part:

"So robust is the recovery in the U.S. auto industry that virtually all the union workers who were laid off by Detroit auto makers during the crisis years can have their jobs back, if they want them.
Even General Motors Co.'s Lordstown, Ohio, complex, long known for its money-losing small cars and its bad labor climate, is running 24 hours a day, with more than 4,000 workers churning out hot-selling Chevy Cruze compacts.

But here in Moraine, the GM assembly plant closed for good. Despite being one of GM's most productive and cooperative factories, Moraine was closed following the company's 2007 labor pact with the United Auto Workers union. Under a deal struck by the UAW during GM's bankruptcy two years later, Moraine's 2,500 laid-off workers were barred from transferring to other plants, locking them out of the industry's rebound.

The trouble with Moraine: Its workers weren't in the UAW.

"We did everything we could to keep that plant open and keep our jobs," said Mitchell Wood, a 44-year-old father of two who used to attach tailgates onto sport-utility vehicles at Moraine. "But in the end, we didn't have a chance, not being in the UAW."

The plight of Moraine workers highlights the extraordinary role played by the UAW during the near-collapses and bankruptcy reorganizations of GM and Chrysler Group LLC. That role remains a political flash point today. Democrats have cast President Barack Obama and the UAW as saviors of America's auto industry. Republicans call the help a taxpayer-funded giveaway to the president's union allies.
Almost every factory worker laid off by GM during the recession has their job back if they want it. But Mitchell Wood and hundreds of others who worked at the Moraine Assembly plant in Ohio don't have that option. 
What is clear is that the United Auto Workers—though weakened by decades of attrition and the rise of a nonunion auto workforce—was still powerful enough to play a big role in picking winners and losers and in shaping the industry that emerged from that critical period."

Summing Up

Simply put, the UAW called the shots during the reorganization of GM into UAW Motors. Normal bankruptcy rules were ignored by the Obama administration.

So while we're all equal in America, of course, apparently members of the UAW are more equal than the rest of us, at least in the eyes of the Democratic Party and the President.

Politically charged government interference and picking private sector winners and losers sucks. Special government aid to the UAW leadership sucks, too.

Guess who the UAW will support in this year's presidential election as it spends extravagantly the mandatory union dues collected from its members employed by UAW Motors and elsewhere?

Would you call that government and union partnership favoritism, a taxpayer ripoff or what? But whatever it's called, it's a pathetic way to spend taxpayers' and workers' money. 

Meanwhile, We the People, aka the taxpayers, are on the hook for billions of dollars, and there's no end in sight to this sad saga.

In simple terms, the government gave billions of dollars in taxpayers' money to help "save" UAW Motors from many of the enormous problems the union's leadership, along with poor management, had caused over many decades. The workers were and largely remain innocent bystanders.

And for this act of political heroism, President Obama wants to take credit? Well, I agree that we should give the credit where credit is due. The glory is all his, and the UAW's as well, as far as I'm concerned.

For how long will this special type of taxpayer funded government help continue, I wonder? Until We the People wise up and insist on accountability, I conclude.

For schools, student loans, the cost of college, home prices, home mortgages, retirement health care, ongoing health care and countless other things, it's the same old story for taxpayers as is the UAW Motors example.

When MOM becomes OPM in the hands of self serving politicians, bad things are likely to happen to citizens and taxpayers alike.

That's the sad and simple truth.

Thanks. Bob.