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Sunday, November 30, 2008

First Hand Intervention

Thomas Paine wrote about intervention:

“Society in every state is a blessing, but Government, even at its best state, is but a necessary evil; in its worst state an intolerable one: for when we suffer, or are exposed to the same miseries by a Government, which we might expect in a country without Government, our calamity is heightened by reflecting that we furnish the means by reflecting that we furnish the means by which we suffer”

Thinking about Paine’s quote I again think about the intervention in our lives, and how in its worst state, government is intolerable. Recently, I presented an economic analysis to Tom Perkins, owner of Perkins at Motor City Dodge. This presentation that I made talked about the affects of the current financial crisis that the automotive retailers face. I was reluctant to talk about government intervention, however in the owners comments back to me, I learned that government intervention is the main cause of the automotive production turmoil. PEVA an organization owned and run by the fed, demands that automotive manufacturers produce and average gas mileage production, where each and every models is averaged and totaled together. This average must be at or above the government regulatory amount. What does this do to the production cost and price? Well the cost is affected because the average is ever-increasing, and this causes the technology to ever-increase, pushing costs up. Price wise, when the auto maker is forced to produce a bunch of cars that get un upwards average to offset the big trucks that they do sell (Perkins), the small economical cars sit and loose value. And since the cost was higher to produce them anyways, the prices rise and the automakers/sellers end up eating the loss. Tom Perkins is a first hand example of how government interference screws the economy. His answer is plain and simple; government needs to remove some of the barriers to do business.

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