BuckeyeBlog

Since we will be celebrating American independence tomorrow, where the theme of “no taxation without representation” played prominently, this video illustrating the opressive nature of high tax rates seems appropriate:

I’m not sure how I missed this, but there was an amazing editorial at the Cleveland Plain Dealer on June 23 regarding payday lending that is so rich in irony that I have to comment, even it it’s over a week late.

The opening sentence reads: “Here’s a stunner: Payday lenders resorted to falsehoods in their desperate attempt to continue gouging Ohioans with 391 percent interest rates.” As I’ve documented a few times on this blog, the anti-lending forces (among whom the Plain Dealer’s editors took a leading role) were the ones who were giving completely inaccurate information about payday lending throughout the legislative quest to ban it. The idea that these lenders charged 391% interest rates, for instance, is completely false. They charged $15 per $100 borrowed — that’s an interest rate of 15%. Yes, their annual percentage rate (APR) may have approached 391%, but an APR is different from an interest rate. A note to the Plain Dealer editors — if you are going to slam a group for “resorting to falsehoods” then you might want to refrain from, you know, resorting to a falsehood in the same sentence.

Of course, that kind of sloppy editorializing is par for the course in this debate. The Plain Dealer has also said in the past that lenders make “grotesque profits,” which is a blatant falsehood. I say “blatant” because reading any academic literature about payday lending shows that this claim (and many others made about payday lenders by the anti-lending forces) has no basis in fact. I find it highly ironic that the Plain Dealer editors blast payday lenders for “falsehoods” when they themselves are among the leading purveyors of falsehoods during this debate.

In anticipation of the Fourth of July, Steven Chapman at Reason magazine has an interesting article about how freedom (specifically economic freedom) is essential to the pursuit of happiness:

Two things, it appears, are needed to increase the supply of happiness: freedom and money. As it happens, a substantial amount of freedom is crucial to the creation of wealth. There is no such thing as a rich totalitarian country, as even the onetime totalitarians in Beijing finally realized. So in a very real sense, freedom is the key to happiness.

The survey, by the Institute for Social Research at the University of Michigan, involved asking people in 97 countries two simple questions: “Taking all things together, would you say you are very happy, rather happy, not very happy or not at all happy?” and “All things considered, how satisfied are you with your life as a whole these days?”

What the researchers found is that in the 52 countries where the poll has been done over the last couple of decades, the percentage of people giving upbeat answers rose in 40. Among the places where smiles have been spreading are such developing countries as China and India, which have grown freer as well as more prosperous.

The Rhode Island Supreme Court dismissed a public nuisance lawsuit against Sherwin Williams. Unfortunately, the suit filed by disgraced former Attorney General Marc Dann against this Ohio company remains, as does the suit filed by the city of Columbus. Perhaps this common sense ruling from Rhode Island will cause both the state of Ohio and the city of Columbus to stop wasting taxpayer dollars to harass this company with their baseless lawsuits.

David Owsiany wrote an excellent Viewpoint for the Buckeye Institute last year explaining the flaws of the “public nuisance” theory:

Public nuisance is a relatively obscure and narrow legal theory that permits a government entity to take action to stop or abate the impact of specific unreasonable behavior that causes injury to a public right. For example, under the public nuisance theory, a city may take action to stop someone from blasting their radio when people are picnicking in a public park or to force responsible parties to abate the damage caused by their dumping of sewage into a public river. Public nuisance law, however, has little applicability in the lead paint context.

Lead paint is only dangerous when it peels or flakes, releasing a fine dust that when ingested can cause lead poisoning. Accordingly, proper maintenance of older buildings over the last three decades, including a fresh coat of non-lead paint, would have dramatically reduced the threat of lead poisoning. Most paint companies, including the Ohio-based Sherwin-Williams Company, which is one of the companies named in Columbus’ lawsuit, stopped selling lead-based paints long before the federal government banned its use in 1978.

Misusing public nuisance law as a means to shake down paint companies for selling, what was at the time, a legal product more than forty years ago, ignores the traditional legal standards for liability, including proving that a product defect caused a specific harm. Such litigation also disregards the negligence of owners who failed to maintain their properties in a reasonable fashion, especially in light of the well-known threat caused by allowing buildings with lead paint to deteriorate.

Your tax dollars are being used to give a little welfare to Warren Buffett:

NetJets Aviation and sister company FlightSafety International were formally awarded state job-creation tax credits valued at $26.4 million yesterday. 

The credits were part of $67 million worth of incentives offered in March to persuade NetJets to keep its base in Columbus. …

Retaining the two companies, both controlled by billionaire Warren Buffett, is expected to save 2,000 jobs in Ohio and generate more than 800 jobs in the next several years.

This kind of thing puts Mr. Buffett’s opposition to the repeal of the estate tax in perspective: if the government was confiscating less of your money it wouldn’t be able to give these cushy tax breaks to companies he owns.

A lot of Congressmen, Senators, and pundits are blaming oil speculators for the rise in energy prices. I’ve already noted on this blog Bob Murphy’s excellent piece explaining the role of speculators and why attacking them illustrates a fundamental ignorance of economic markets. Now Fortune has an interesting piece showing what happens in the real world when you ban speculation. Back in the 1950s onion farmers were able to convince Congress to ban speculation for their commodity. The results?

And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings. Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April.

If politicians have their way and oil speculation is curtailed or banned, you will likely see something similar in the oil market.

Hat tip to the Cato Institute’s excellent blog.

Over at Reason Online there is a great article debunking the latest fad in advancing the nanny state — mandatory nutritional labeling in restaurants:

Americans may say they would also like to see dietary information on menus. But providing it costs money, in a fiercely competitive industry. If patrons really wanted such disclosures, no law would be needed. Restaurants, eager to attract customers, would already be providing the numbers—just as they strive to offer other things that bring in business. …

The belief that more facts will generate wiser decisions is appealing but, at least in the realm of food, yet to be proved. No one seems to have noticed that as nutritional labeling has expanded, so have American waistlines. The federal government first required packaged foods to carry such information in the mid-1970s, and today, we are collectively fatter than we were then.

What does that suggest? Either people don’t notice what’s in the food they buy, or they don’t let the knowledge affect what goes in their mouths. …

There is little research to suggest that calorie alerts will make any difference in obesity rates. In 2004, the American Journal of Preventive Medicine reported that when women of normal weight were given this kind of information, it had no effect on what they ate, and that facts furnished in restaurants were also irrelevant in dining decisions.

A study in the Journal of the American Dietetic Association found that people who dine out frequently are less likely to pay attention to nutritional data than people who eat mostly at home. It suggested that “those who have a less nutritious diet are less likely to use food labels and have less interest in doing so.”

In an editorial today, the Cleveland Plain Dealer once again decided that getting its facts straight is optional when it comes to smearing payday lenders. It makes the completely unsupported claim that these lenders make “grotesque profits … leeched from consumers.” As was the case with the legislators who supported the payday lending ban, it is clear that the Plain Dealer editors have never actually looked at the scholarly evidence on payday lending. Instead, they rely on the false impressions levied by self-appointed “consumer” advocates.

To pick one study from many, this article published in the Fordham Journal of Corporate and Financial Law states:

this study finds that payday lender profit margins are less than half that of their mainstream lending counterparts…. For pure payday lenders, the average profit margin was 3.57%. When including pawn operators, this figure more than doubles to 7.63%.

These figures indicate that payday lenders are not overly profitable organizations. Contrary to conventional wisdom, these firms fall far short of profits for mainstream commercial lenders. In addition, profit margins of payday lenders are far below those of Starbucks. The profit margins of Starbucks for the measured time period were just over 9%. This is almost 2% more than all payday lenders, and more than double the pure-payday lenders. These figures indicate that arguments against payday lending, couched in terms of preventing excessive profits, are unfounded. If companies should be limited to a certain profitability measure, citizens would be better off fighting Starbucks than their local payday lender.

Anyone who looks at the scholarly data on payday lending can easily see that the common attacks on this industry bear no relation to reality. Unfortunately, the General Assembly and Governor Strickland (as well as the editorial boards that were prominent in pushing for a payday lending ban) decided that anecdotes, name-calling, and agenda-driven “studies” would carry the day.

Economist Tyler Cowen had an excellent article in Sunday’s New York Times about why globalization fears are unfounded:

Trade advocates focus on the benefits of goods arriving from abroad, like luxury shoes from Italy or computer chips from Taiwan. But new ideas are the real prize. By 2010, China will have more Ph.D. scientists and engineers than the United States. These professionals are not fundamentally a threat. To the contrary, they are creators, whose ideas are likely to improve the lives of ordinary Americans, not just the business elites. The more access the Chinese have to American and other markets, the more they can afford higher education and the greater their incentive to innovate.

Conservative and liberal economists agree that new ideas are the fundamental source of higher living standards. We urgently need new biotechnologies, a cure for AIDS and a cleaner energy infrastructure, to name just a few. Trade is part of the path toward achieving those ends. A wealthier China and India also mean higher potential rewards for Americans and others who invest in innovation. A product or idea that might have been marketed just to the United States and to Europe 20 years ago could be sold to billions more in the future.

Those benefits will take time to arrive, but trade with China has already eased hardships for poorer Americans. A new research paper by Christian Broda and John Romalis, both professors at the Graduate School of Business at the University of Chicago, has shown that cheap imports from China have benefited the American poor disproportionately. In fact, for the poor, discounting in stores such as Wal-Mart has offset much of the rise in measured income inequality from 1994 to 2005.

(more…)

Over at NaugBlog, Matt takes apart Governor Strickland’s claim that President Bush is to blame for the GM plant closings in Ohio. To build on his analysis, it’s interesting to read an editorial in Investor’s Business Daily that points out how unions in Ohio (and elsewhere) are a large reason why car manufacturing jobs are shrinking in the upper Midwest:

It’s tempting to blame automakers for [moving jobs to Mexico]. Indeed, they do deserve a big chunk of the blame for poor management decisions. And by far, their worst decisions yet came when they agreed to company-destroying labor pacts with the United Auto Workers union that practically guaranteed Big Auto’s demise.

We don’t fault workers for trying to get more in labor negotiations. But the fact is, past UAW deals have saddled U.S. companies with such high costs that they can no longer make cars here and compete on a global market. So they make cars elsewhere.

Like a coyote caught in a trap, U.S. automakers have been desperately gnawing off a leg to escape certain death. They’re closing plants and slashing jobs in Michigan, Ohio and other U.S. union havens, in favor of non-union, foreign places. Like Mexico and China.

Meanwhile, foreign companies have no problem making cars here. They do it in the non-union South, where the UAW is weak.

Though little noted, last year was a watershed for U.S. carmakers. For the first time, foreign producers in the U.S. made more cars — 54% of the total — than the former Big Three. As recently as the 1980s, Ford, Chrysler and GM made 73% of all cars here.

Why is this? U.S. carmakers pay their workers an average of about $73 an hour in wages and benefits — way more than others.

According to the Center for Automotive Research, there’s a $16.15 per hour gap between what Detroit’s Big 3 pay workers and what Toyota pays workers in the U.S. Add to that a $5 billion a year difference in health care and other retirement costs, totaling thousands of dollars in extra costs on every car sold, and U.S. automakers operate at about a $12 billion a year disadvantage.

It doesn’t take an MBA to understand this is an industry in peril.

(more…)