Monday, March 3, 2008

How to Make Stuff Cost More

Two things unnecessarily burden business today: taxes and regulations. These items are two things that affect us every time we buy anything. eliminating and limiting these items are key to boosting prosperity, and would do more to wipe out recession than all the stimulus crap the government could ever levy.

First of all, let's deal with the taxes. We should stop levying all taxes on corporations. The simple fact is that businesses do not pay taxes that are levied on them. This is something that should be obvious, but far too many people don't get it. They say it's not fair that big evil corporations don't pay their fair share. What they fail to grasp is that taxes are a cost of business. And corporations pay for these costs by putting them into the cost of their product. This is known as embedded taxes, and it is in embedded taxes that we pay for all the taxes we lump onto corporations in the name of "fairness". On a related note, the need to comply with these taxes, as well as payroll taxes, and the matching funds that are added to the cost of each employee, are passed on to us as well.

Now on to the regulation front. I'm not going to come out and say we shouldn't regulate corporations. That's called insanity. But let's look at the most hated and reviled industry on Earth: Big Tobacco. Conservatives loathe them because they corrupt kids with cancer sticks. Moderates can't stand them because their grandfather smoked for 60 years, quit, then got lung cancer and died. Liberals despise them because they are the quintessential evil lying corporation. To all of this I can only say they fucked up. Bad. And they did it for years. Even worse. But now, they are a perfect example of a corporation besieged by government anal regulation.

They are required to put warnings on every product they sell stating the product can kill you dead. They are limited on what they can advertise, where they can advertise, and even what they can use in their advertisements. They can't market or sell to certain groups of people. They have to give state governments truckloads of money just to avoid being sued more. And they still don't have much immunity from people who have choked on their murder-labeled death sticks for the last couple decades and developed cancer as a result. Interestingly, raw tobacco is subsidized by the government, then a behavior tax is levied which pays for the subsidies and government consultants. Outside, their product is limited in where it can be consumed, completely banned from everywhere in public places, and banned from private dwellings in a few places. And then they have to spend money to tell people not to use their product.

I know that's an extreme example, and some of the things levied against them (labeling) were a good thing. But the point is that regulations designed to change behavior, or right some wrong, or just heaped on because of the possibility of a company going bad adds to the problems, and therefore the cost of doing business. And we pay that price. Any regulation must have a compelling reason to be applied, and should be removed when they become more of a burden than a necessity.

So we don't get what we pay for. We pay for whatever shit the corporations get.


Toad734 said...

Actually, Ill bet if you were to ask GM or Ford what their biggest expense is that their competetors like VW, BMW,Mercedes, Hyundai, Nissan don't have to deal with and that would be health care coverage for their current and past employees.

If you wan't to make things cheaper in the US and make US companies more competitive against the companies of the strong economic powers of Germany, Japan, France and Italy then take the health care burden off their plate.

And no, Im not talking about the lame plans put forth by Obama and Clinton. Im talking government controlled, price regulated, without HMO involvement.

Patrick M said...

Actually, Honda (including their plants here in Ohio) doesn't seem to have that problem.

Which will bring me to a blog I'm working on about the true problem facing old companies: the unions.

I know as I've seen union factories lose jobs (Goodyear) and close (Huffy Bicycles)as new companies have continued to expand and grow.

The whole idea of employee benefits is an offshoot of union thinking. What would really solve the problem is if we returned to a time where no one else was responsible for paying our health care bills. Again, more on this later.

Toad734 said...

Ya but without the unions, your children would be working in a foundry right now, you would be working 7 days a week, 10 hours a day, maybe a week of vacation and there never would have been a middle class in America. I agree, they got too greedy at the same time foreign competition came along but blaming the unions isn't going to work. The tech service industry and the computer industry was never unionized and those jobs are exported over seas so to say its the unions isn't looking at the whole picture.

Yes, I know Toyota, Honda, Nissan, Subaru and BMW all have some plants here but for all their plants in Europe and Japan, the government picks up the health care tab which frees up money for them to invest in building cars people actually want.

Patrick M said...

First of all, you were a little redundant, so I had to delete your duplicate post.

I haven't said the unions weren't necessary, but that time is long past. In the global market, especially under NAFTA, I have seen jobs in this part of Ohio that were union jobs head right over the border. I have also seen businesses come in and take their place. I know that GM plants in Dayton are always in the news for some labor problem. Meanwhile, people are flocking to Honda for jobs.

As for your obsession with health care, I have already addressed it here. The key to making health care work is to get it back to a market-based pricing rather than pricing based on people other than the consumer paying for it.

Toad734 said...

Ok so your problem is with NAFTA and free trade, not Unions. You could have just said that and I would have agreed.

Patrick M said...

No, I have always been in favor of NAFTA, even when President Clinton and a bipartisan group of congressmen pushed it through. The secret to making people equal is the exporting of our commerce, and our ideas along with it.

Huffy Bicycle Co was a casualty of the union approach to NAFTA. Huffy was trying to cut back the benefits and the excessive wages they were paying to make bikes in the face of much cheaper ones outselling them. And the union fought them tooth and nail. The company kept warning people and buying people out and retiring them, but in the end, the plant closed and moved to Mexico.

But now, Crown Equipment, headquartered here in my current hometown, has taken the old Huffy plant over and has created new jobs there. So as NAFTA kills union jobs that should die in a free market, new jobs are created to replace them. So it really all works out. Also, between that plant and the new Super Wal-Mart, another large store is going up.

That's the beauty of market forces at work.

Toad734 said...

But without NAFTA, those Huffy bikes would be subject to tariffs when they came back across the border thus eliminating the appeal of moving to Mexico. One of the problems Huffy faced is the same problem Ford and GM face; they are making shit no one wants.

Cannondale, LeMond, Klein and I think most Treks are all made in the US and they didn't have the problem Huffy did. I don't know weather or not those companies are union or not but when I go to a bike store and look at the high end bikes that people are buying, those are the brands I see, not Huffy. That isn't because Huffy had a union, it’s because Huffy made bikes that were suited for 12 year olds back in 1982 and never really caught on to the whole mountain bike thing.

And you still haven't answered why tech jobs and computer support type jobs have left our country for India; none of those were union jobs and never were.

Im not saying unions didn't get both greedy and lazy in the 80s but the big three should have seen the fuel efficient, well constructed and more importantly, well designed imports coming from a mile a way and they did little to compete besides building the Escort and Chevette. That wasn't the unions fault, that was the fault of the overpaid CEOs who didn't know their business from their ass and couldn't influence congress enough to put additional tariffs on imports and couldn't design a car that someone wanted and would keep running. Blame that one on the rich white guys, not the blue collar unions.

And correct me if I am wrong, but Goodyear still manufactures tires in Akron, at least they did last time I drove by. Sure they have other operations in other countries but they sell to those countries as well.

Ill give you this, there is a whirlpool plant in Evansville, IN and the Union was striking the last time I was there and I know for sure that it will mean the end of that factory in Evansville. But you have to remember that it isn't always about cutting cost in order to stay in business or else Nike shoes would cost $20 a pair. Typically jobs are outsourced not to make products cheaper but to make the CEOs more money. Since Nike and all the shoe MFGs have moved over seas, shoes have only gotten more expensive, so expensive that people have been killed for their shoes. Don't act like the consumer benefits from the Gap, Levi or Nike having their stuff made overseas because the prices for those items have only gone up since they have exported those jobs, not down.

Patrick M said...

There's not much more we can discuss on this. The point I was originally going for is that market forces generally allow for better products at better prices. Government intervention, as well as union dominance, short circuit those tendencies.

As for the overpaid CEO's, that's the problem the companies have to deal with. They choose to pay that price for a CEO. If they get a moron, they lose money. Sometimes, they get a good one and his leadership may be worth it. Again, that's market forces at work.

There's only one way to make CEO's earn as much money as teachers: government intervention. And as I've stated before, government intervention generally makes things worse, not better.

Now I can't debate every single regulation ever imposed. But adding to the regulatory burden should always be the last thing we ever consider. Because the person pushing the regulation always has an agenda.

Here's a perfect example: the Fairness Doctrine. This was measure that was imposed by the government to ensure "fair" debate on issues. It became the tool of the party in power to terrorize their political opponents. Eventually, the FCC got rid of it, as it had a chilling effect on free speech. That, and if you read the First Amendment, it's an absolute rape of free speech.

My point is that government regulation is never fair and always a tool of the party in power. Which means somebody wins and somebody loses based on what is happening in Washington. A lot of the things that Bush does with the regulations now piss you off. It was the same for conservatives under Clinton.

The great problem with reguations is that it takes power away from us and entrusts the government with it. And when you regulate things, sometimes that regulation comes back to bite you in the ass.