Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

Unions and Ford

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A couple of years ago I went to the Chicago auto show with my brother and he follows new cars quite closely. His summary on Ford was:

“Their prices are about $5000 / higher per car”

Recently I bought a 2011 Jetta. The base Jetta starts at just under $16,000; a minimally equipped one is about $17,000 and the style I bought is about $20,000. Volkswagen is pricing this car very aggressively, attempting to take market share from US and Japanese manufacturers. The Jetta I bought is built in Mexico; VW just opened a plant in Tennessee, where of course it is non-union in a right to work state, to build the Passat. VW used to assemble cars in the USA back in the 70’s and 80’s in Pennsylvania, and the linked MSNBC article summarized the outcome:

Aiming to challenge even the domestic makers, VW opened up a plant in Westmoreland, Pa., and began preparing a second factory in suburban Detroit. But the twin oil shocks of the ’70s, rather than boosting demand for Volkswagen, opened the door for its Asian rivals. Demand began to slump, especially when Japanese makers like Toyota shifted focus from fuel economy to quality, VW’s Achilles’ heel. Sales plunging, the maker decided to scuttle the second plant before it opened. Then it closed Westmoreland, where constant battles with the union drove up wages and prevented the implementation of much-needed steps to improve quality.

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Interesting Opinion Piece on Hezbollah

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I have been following the Middle East events through a variety of sources including Al Jazeera English. I know that you need many sources and many of their articles or opinion pieces on Israel are a shambles but by and large I often learn something from the site, whether or not it was what was intended from the point of the article. However, from time to time, they really surprise you, especially on their opinion page.

This opinion piece on Hezbollah and their leader Nasrallah is something that I would have been surprised to see even in Fox News. It is titled “Arab Spring exposes Nasrallah’s Hypocrisy“.

Hezbollah is Iran and Syria’s stalking horse in the middle east, the thugs willing to mix it up and do the dirty work. They cloak themselves in higher minded principles, especially when talking to the US left or the Europeans, about “justice” and the “Palestinian cause”.

Thus this Al Jazeera article, of all places, punches right at the throat of Hezbollah for always crusading against injustice against Arabs and Muslims and yet failing to protest the horrendous slaughter of innocent protestors amongst their patrons Iran and most recently Syria. Hezbollah is funded by Syria and Iran and thus they are obviously changing their tune when their patrons and funding are impacted. From the article:

The Arab Spring, the transnational uprising of masses of millions of people from Morocco to Oman, from Syria to Yemen, is making the aging warrior redundant – his habitually eloquent tongue now stuttering for words. Two years ago, he thought he got away with rejecting the democratic uprising in Iran (whose brutal ruling regime is his principle patron and financier), as a plot by the US, Israel, and Saudi Arabia. And he did – aided and abetted by the moral and intellectual sclerosis of a segment of Arab intellectuals who thought Mahmoud Ahmadinejad and the Islamic theocracy were the vanguard of “resistance” to US/Israel imperialism in the region and thus should be spared from criticism. And then Tunisia happened, and Egypt, and Libya, and Bahrain, and Yemen – and then, Hassan Nasrallah and Ali Khamenei’s nightmare, Syria happened. It is a sad scene to see a once mighty warrior being bypassed by the force of history, and all he can do is to fumble clumsily to reveal he has not learned the art of aging gracefully.

While I wouldn’t call him a once mighty warrior, those words have to sting a lot more coming from Al Jazerra.

Nasrallah, who could not care less for such revolting behavior by his patrons, now for second time in a row, was siding with brutal, vicious tyrants and their criminally insane security forces against the democratic aspirations of their people – once in Iran and now in Syria.

That is pretty direct stuff – I like the “criminally insane security forces” too.

The only language that Hassan Nasrallah understands is the language that keeps him in power, condemning the US, the EU, Israel, and the Saudis – all hitherto truisms that have, thanks to the Green Movement and the Arab Spring, lost their grip on reality even more than Nasrallah.

That is a great paragraph, too. The old “saw” of Israel and the US killing Arabs has to be updated since we obviously aren’t nearly as good at it as those that are willing to use tanks and heavy weaponry on their own people, such as Libya and Syria (and Iran probably would too, if it came down to that).

A very interesting opinion piece so I would recommend reading the entire article.

Anti-Assad Syria Rally in Chicago July 3

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There is a large anti-Assad (Bashar al-Assad to be specific) occurring today in River North in Chicago. The rally is supported by many organizations as detailed here. The plight of civilians in Syria is horrible and the true colors of the Assad regime are unfortunately coming through.

The rally had speakers from the community and people driving by honked their support. If for some reason you aren’t aware of the situation in Syria there is a massive popular revolt and the government is using shocking force on the civilian population, including tanks, artillery, and other heavy weapons on basically an unarmed populace consisting of their own citizens.

Generally when people compare “X” to Hitler the comparisons are over-wrought. In the case of Bashar al-Assad, however, at least you can understand where the protesters are coming from. I also think that the “Hitler” reference is meant to jolt people into at least considering their plight.

The incident with a 13 year old child Hamza is cited on this protest sign; he was apparently tortured to death in a horrible manner that I won’t cite here but you can read anywhere on the internet for more information. One of the Chicago Boyz commenters said “this was bad even for an Arab country”. From my perspective not only was it evil it represented shockingly poor tactics for Bashar; it is incomprehensible what this could accomplish.

Here and at Chicago Boyz we are keen commenters on history so any time you compare someone to Stalin it also gets us interested; I think that the Stalin references are also relevant since Russia is blocking security council action (along with China) on Syria.

Cross posted at LITGM

Waking Up to the Behavioral Impact of Taxes

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The current administration has continually protested the lower rates signed into law by the previous administration and initially acted as if there was no impact on behavior based on the act of raising tax rates.

However, the administration IS interested in getting re-elected. Thus some new “incentives” have been put into place to incent economic activity, such as a tax credit for capital expenditures that makes them completely deductible in the current year. Since large capital expenditures are usually deducted over many years, this is a significant one-time tax holiday that major companies will consider seriously while planning for uses of their free cash flows (or available financing).

This tax credit, however, is diametrically at odds with the administration getting re-elected, because it provides FURTHER encouragement for companies to replace people with automation. And as the jobless rate remains high, the government starts casting about for more solutions to a problem that they really care about, which is getting people back to work so they aren’t disaffected voters (never mind the deficit, the total economy, or other factors).

While the government tried to make labor a bit less un-favorable with a social security tax holiday, the 2% is on the employee side (yes, yes, I know that this factors into wages in the long run, but not in the short or medium term), this type of change isn’t going to make businesses hire more in the short term.

Thus now the government has decided to look at other incentives to try to get companies to hire people, such as a more extensive payroll tax holiday, as they discuss in this NY Times op ed piece.

The administration apparently doesn’t feel any uneasiness with the blatant contradictions in their policies; officially they say that raising taxes “on the rich” doesn’t incent behavior, but here they are starting to see that businesses DO respond to incentives, and that in order to try to get businesses to hire they might want to use tax policies to further this end.

In fact, our tax policies are a complete mess. Not only do businesses want a fair tax climate, they want a PREDICTABLE tax climate. Since businesses are (all) run by high net worth individuals, it also makes sense to have a predictable tax climate for businesses as well as individuals. No one would have foreseen that we would go an entire year without an estate policy; think of all the years of lawyers and various “shifting” transactions that could have been avoided. Likewise, this one time tax break for capital is something that businesses will have to consider for years to come; perhaps the best bet is just to wait to invest until a better tax deal comes along.

I would love to hear the administration explain why taxes DO incent behavior sometimes (like when the administration wants you to hire people) but DON’T incent behaviors at other times (like when they raise rates and expect you to work just as hard as you did before and keep investing and hustling for years to come, knowing that a large chunk of it is going to go to the government in taxes). That would be a good you tube for Goolsbee. (also hilarious that when you put in his name the auto-correct in my computer comes up Goebbels).

Cross posted at LITGM

Rowe (Inadvertently) Explains Why We Are Doomed On Energy

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In my many posts on energy commenters make the point over and over again that I am too gloomy and don’t offer solutions. My lack of optimism comes from actually KNOWING how the BUSINESS of utilities works, which is independent of the technology, operations, or dreams of a “nuclear renaissance” or “alternative energy” or anything else.

There are only a few utilities that actually matter in the USA. There is Southern Company (NYSE: SO), which benefits from some old-school regulation in the South that actually encourages investment in base-load generation, and is currently building 2 nuclear units at the site of an existing nuclear plant at Vogtle. Another one that does matter, because of its scale (enough market cap to borrow to fund a nuclear plant) and the fact that it already is a big nuclear operator, is Exelon. And an interview with Rowe, the Chairman, explains in his own words, better than I ever could, how doomed we are if any sort of “new thinking” is needed to get us out of the impending base-load crisis.

Here is the dynamic leadership style of Rowe, in his own words:

There are probably only four or five real decisions I make in a year. There are an awful lot of things I just quietly ratify. I find it very hard to get officers to let you in before the food is cooked. Their natural tendency is to want to bring it to you all packaged. By then all you can do is say yes or no. And you usually say yes.

Awesome. And here is a Q&A about hiring, where he admits he isn’t very good at it:

Q. Let’s shift to hiring. How do you do it? What qualities are you looking for? A. Well, it’s not one of my greatest strengths

Most importantly, look at the cutting edge thinking he brings to the question of what he’d ask in an interview:

Q. If you could interview somebody for only five minutes and ask just two or three questions to check for this sense of responsibility that you touched on, what would you ask?

A. I’d probably ask them if they’d seen the old Gregory Peck movie of “Moby-Dick” where the Quaker sea captain says to Ishmael, “Are you man enough to pitch a harpoon down a live whale’s throat and jump after it?” That’s probably what I’d ask. And Ishmael of course gives the perfect answer. He says, “Well, I am, sir, if it be absolutely indispensible that I do so.”

Really? This is the type of question you’d ask – about Moby Dick? I can’t make this stuff up.

Cross posted at LITGM