Business & Economics: September 2005 Archives

In a startlingly frank acknowledgement, the ChiComs have acknowledged the fatal flaw of communism.

China has defended its refusal to lift pump prices to keep pace with rises in the global oil market over the last 12 months, saying further increases would damage local industries, the military and the economy.

Zhang Guobao, vice-chairman of the National Development and Reform Commission, the chief economic planning body that is also responsible for energy policy, acknowledged that Chinese rises had been allowed to fall behind the world, but said the issue was “complicated”. ...

China, especially in the south, has experienced oil shortages in recent months, partly because of the NDRC’s price controls. The local oil majors all but stopped selling imported crude because of the huge losses they were incurring.

Mr Zhang said subsidising industry to alleviate the impact of price rises was also difficult. “Even if we had the money for the subsidies, it would be very complicated to decide how it should be divided up,” he said.

Complicated because a central planning office can never match the efficiency of a free market when it comes to allocating resources. That's what markets do.

Nearly four years after American taxpayers gave $15 billion to the airline industry, two more carriers are preparing to declare bankruptcy.

Northwest Airlines and Delta Air Lines are both preparing to seek bankruptcy protection as soon as Wednesday, people close to both companies said today.

Northwest and Delta are each finishing the details of their bankruptcy cases, including the financing that they will require to operate under bankruptcy protection, these people said. That could cause delays, but the fundamental work of preparing each bankruptcy case is complete, they said. ...

If Northwest and Delta both file, that would mean four of the industry's seven biggest airlines were operating under bankruptcy protection, reflecting the deep competitive issues that have battered the airlines since the year 2000.

Backruptcy and restructuring are probably the best things the airlines can do, and they probably should have done them years ago. Maybe the $15 billion bailout was beneficial because it delayed this meltdown for a few years, but then again maybe it would have been better to get the worst over with as soon as possible. Our major airlines were burdened with unsupportably high salary contracts with their unions and obsolete fleet structures, and failure was inevitable, particularly after 9/11.

In case it isn't common knowledge, almost every time you see picketers walking a line they aren't actual union members, they're shills hired by the unions and paid far worse than the union members could ever imagine.

The shade from the Wal-Mart Neighborhood Market sign is minimal around noon; still, six picketers squeeze their thermoses and Dasani bottles onto the dirt below, trying to keep their water cool. They're walking five-hour shifts on this corner at Stephanie Street and American Pacific Drive in Henderson—anti-Wal-Mart signs propped lazily on their shoulders, deep suntans on their faces and arms—with two 15-minute breaks to run across the street and use the washroom at a gas station.

Periodically one of them will sit down in a slightly larger slice of shade under a giant electricity pole in the intersection. Four lanes of traffic rush by, some drivers honk in support, more than once someone has yelled, "assholes!" but mostly, they're ignored.

They're not union members; they're temp workers employed through Allied Forces/Labor Express by the union—United Food and Commercial Workers (UFCW). They're making $6 an hour, with no benefits; it's 104 F, and they're protesting the working conditions inside the new Wal-Mart grocery store.

"It don't make no sense, does it?" says James Greer, the line foreman and the only one who pulls down $8 an hour, as he ambles down the sidewalk, picket sign on shoulder, sweaty hat over sweaty gray hair, spitting sunflower seeds. "We're sacrificing for the people who work in there, and they don't even know it."

I'd have slightly more respect for labor unions if they weren't so blatantly hypocritical. Like, say, if members picketed for themselves instead of hiring others to do it for them. If you can hire others to protest on your behalf, isn't that a sign that you're paid enough already?

(HT: James Taranto.)

Update:
David Bernstein calls it "a strange protest" and Walter Olson calls the United Food and Commercial Workers "big-hearted" -- presumably in jest.

The aerospace industry is doing its part for the US economy, posting record export numbers for the first and second quarters of the year.

Arlington, Va. – Foreign trade in the aerospace industry is continuing to show strength, posting a surplus of about $19 billion in the first half of this year.

According to statistics compiled by AIA's Aerospace Research Center, the industry exported a total of $33 billion in products through June while importing $14 billion. The $19 billion surplus at the year's midpoint puts it on pace to surpass last year's total surplus of $31 billion.

AIA President and CEO John Douglass said the statistics show aerospace continues to be a vital keystone for the U.S. economy.

"This news comes on the heels of reports of growth in aerospace employment as well as orders, shipments, and backlog," Douglass said. "Our industry can boast the largest positive foreign trade balance in U.S. manufacturing." ...

Plus, we kill lots of terrorists.

What's the explanation for people's apparently irrational bidding schemes on eBay? I don't understand why almost everyone, myself included at times, will place an initial bid on an item that's lower than what they're actually willing to pay and then watch the item like a hawk as it nears the end of the auction and continually up their price if they get outbid. There's no reason to get into a bidding war on eBay, since the system automatically increments your bid as necessary up to your maximum. The only reason to continually up your bid near the end of an auction is if the price you're willing to pay keeps rising... but why would that be the case? Because there's some pride in winning, or because you misjudged your maximum price earlier? In either case, it seems the wise thing to do would be to stick with your earlier, less impassioned maximum.

However, there's at least one instance in which I can imagine rationally wanting to increase a bid: if you're bidding on multiple similar items. You may not want to put in high bids at the beginning because you won't want to win all the items at high prices, but as you start to lose some items you can increase your bids on the remaining items to increase your chance of winning at least one.

Anyway, I generally try to exert self-control and not increase my initial bid when someone tops it. Yes, I want to win, but the item doesn't suddenly become more valuable to me just because someone outbids me. I open with the highest price I'm willing to pay and let eBay increment the price up to that level. If I lose, I lose because the price went above my estimation of the item's value.

Burns: Smithers, we're at war!
Smithers: I'll begin profiteering, sir.
Burns: And hoarding. Leave it to the Democrats to let the Spaniards back in the pantry.

-- The Simpsons, "Brother's Little Helper"

It sounds like state and federal officials are taking a measured approach to accusations of price gouging over gasoline and other essentials in the wake of Katrina.

Meanwhile, attorney's general from a number of states held a telephone strategy session to discuss the rapidly escalating gas prices and possible investigations into gouging. Prosecution for price gouging is generally a state matter unless it involves some form of collusion or other activity in violation of federal antitrust laws.

Gas prices jumped 35 cents to 50 cents a gallon overnight in some areas pushing to well over $3 a gallon after Hurricane Katrina shut down nine Gulf Coast refineries, disrupted gasoline pipelines to the Midwest and East and stopped 90 percent of the oil production in the Gulf of Mexico.

"If we get consumer complaints about (gasoline) prices, we'll look at those complaints to find evidence of anticompetitive conduct," said John Seesel, the FTC's associate counsel for energy issues.

Collusion among suppliers to jack up prices should be punished, since it undermines the competitiveness our markets rely on, but it's only prudent for the people and companies who supply essential products and services to hedge against present or future disruptions by raising prices. Most libertarians (I'm not one) dispute that the concept of price gouging is useful and argue that suppliers should be able to charge whatever price they want at any time, and theoretically I agree. The problem is that, as with many libertarian theories, in practice price gouging can lead to the breakdown of civil order; once violence erupts, suppliers may be robbed and killed, and it's unlikely that anyone can accurately account for the cost of that possibility when they're setting prices. The Wikipedia entry on price gouging gives four reasons why anti-gouging laws are a good idea, even in a free market:

In a market economy, laws against price gouging are justified as a valid exercise of the police power to preserve order during an emergency, and may be combined with anti-hoarding measures. The usual argument is fourfold.

1. The community as a whole may well possess sufficient stocks to sustain it through the emergency, provided that panic can be avoided. Sharp increases in price may trigger such panic.

2. When people's resources are strained by a situation beyond ordinary prudence, the corrective tendencies of the market are too slow and communication too uncertain.

3. In an emergency, ordinary legal protections are impractical. Thus, refusing to sell lumber at an advertised price may constitute fraud and refusing to honor a reservation may constitute a tort, but the harm is likely to be irreparable long before a case can be brought.

4. Regardless of theory, when people become desperate, public order becomes precarious. Emergency services are likely to be strained by both increased need and reduced capacity. Riots by otherwise law-abiding citizens could prove overwhelming.

Though most libertarians hate to admit it, there are cases on the fringe of experience in which the survival of the group depends on limiting the freedoms of some of its members. Yes, it's a slippery slope; welcome to real life.