Economics and Government

Perhaps the name of our econ 421 class should be changed to the "economics of politics". Granted, we as a class have decided that not too many politicians adhere to economic principles when making political decisions. The big button issue in politics right now is the switching of political parties by senator, Aries Specter. Where do his loyalties lie? With the people with whom he was elected to represent, or does he simply intend to further his own personal political agenda? the economics of a free market state that resources will allocate themselves accordingly and in time achieve equilibrium . if we look at the senate as a type of market and Specter as a resource, his actions can be been seen as justifiable. he is naturally progressing in a direction of efficiency. Yet, the political realm is no market of free flowing services and goods but a government sanctioned body in which individuals are elected by people to service the interest of the people and not their own.

After discussing in class about Global Warming, and hearing repetitively about the use of salt in NY last year, I thought this would be a good blogto write about. Unlike Global warming, there is more evidence of harm because of the associated costs for DOT ( Departments of Transportation) and taxpayers, which are monopolies.

Image- Penndot Warehouse of Salt


Morton Salt and Cargill Incorporated are the big producers in selling its salt to "Salt Belt States"particularly departments of transportation in certain states, that use considerably large amounts of corrosive salt for winter roads. It has been believed that salt is a better tool in clearing the roads than sand, but is it true? - Well for a blog I think it is better not to determine what science has to offer and the resulting environmental effects. Instead, the attention should be on the incentives and other problems that are involved.

Note- Salt belt states are CT, DE, IL, IN, IA, KY, ME, MD, MA, MI, MN, MO, NH, NJ, NY, OH, PA, RI, VT, VA, WV, WI and DC

The big problem is that there is a shortage of salt among these states and increasingly high prices.Prices that are too high for the various departments of Transportation to continue using salt. Another neighboring problem is that state governments place the restrictions on what to use on winter roads( salt). Does this sound similar to monopolies...

1) Government first created salt monopolies once they introduced permits for salt mining and restrictions on the amount of salt used in each food stuff/item. When they created these restrictions they made if difficult for competitors to stick around because the restrictions may have been based on measurements which would require accurate and more expensive capital equipment. Permits were also another restriction that would increase competitors cost. Permits were allocated to a firm for the right type of equipment that would follow the standard regulations of the government.
Note- Salt belt states are CT, DE, IL, IN, IA, KY, ME, MD, MA, MI, MN, MO, NH, NJ, NY, OH, PA, RI, VT, VA, WV, WI and DC

2) The Supreme Court has played its role in securing these salt monopolies through the backing strength of permits.In the case, International Salt Co. v. United States, the U.S. filed for a civil suit against International Salt Company under the Sherman Act to break-up the salt monopoly. The Court decided that the Sherman Anti- trust laws would not work here and declared jurisprudence because indirectly the government gave them a patent right to establish this monopoly. Below is a statement of this case.

Due primarily to the Constitutional dimensions of the patent grant, an
extremely specialized jurisprudence controls the manner in which the competing
policy considerations must be balanced at the interface between the patent and
antitrust laws. The proper application of the “misuse” doctrine represents an
important portion of this specialized jurisprudence.

3) In the 1950's, the Supreme Court case United States vs. Morton Company, had penalized the those that bought salt for roadways because they couldn't afford the conditions of the agreement that the legislation intervened in creating.

4) Last year in the month of December, many DOT's were not able to support the growing rates of 50% price hikes for their supplies of salt.They even tried to come up with a program called "Costars" for states to sell excess amounts between states that use salt. The reason for salt monopolies to exist is just as abstract as it was in 1950 or earlier. According to the website, RecordPub.com, the Ohio Department of Transportation has been forced by the state to buy salt in the State of Ohio particularly with the Morton and Cargill companies because these companies are located in Ohio.

Falling short of a paper from the length of this blog...


List of Effects of using salt and possible reasons why monopoly has not been tampered with:

- Higher car insurance for states that use salt= corrosion of undercarriage
- Increasing monopoly prices that states may no longer afford or devise in selling among states
- Higher turn over of cars because of the corrosion of spark plugs and other parts ( don't forget the welder before taking out the car battery)

Without the time to create more research, it seems there are a lot of different groups to gain, but I'm not all that sure about Morton and Callagri as the only ones that profit from these prices. I couldn't find anything on input prices of salt or the signers of the legislation for the continuance of these monopolies. Also, after the class discussion over global warming and my findings about salt monopolies, I am becoming skeptical about extraordinary circumstances and legislation. Emotive forces are a good disguise.

Websites
http://www.nyipla.org/public/11amicusbriefs/Reply_Amicus_Brief_US_Phillips.pdf
www.dot.state.oh.us/Services/Documents/ODOT_Road_Salt_Market_and_Price_Analysis_12-15-08.pdf
http://www.usroads.com/journals/p/rmj/9712/rm971202.htm
http://seattletimes.nwsource.com/html/localnews/2008554976_roads24m.html
http://www.mortonsalt.com/faqs/road_sidewalk_faq.html#q2
http://www.kktv.com/home/headlines/29482709.html
http://www.tfhrc.gov/focus/archives/Fcs498/048rwis.htm
http://www.citizeneconomists.com/blogs/2008/08/26/privatize-the-roads-says-phd-economist/
http://www.witruck.org/weight_restrictions.htm

Chrysler announced plans to file for bankruptcy today only four months after receiving $18 billion in bailout funds. The original auto bailout was sold to the public as a way to save us from the inevitable crippling blow to our economy that would lead to millions of lost jobs. The White House must sincerely believe that the American public is stricken with the same form of short-term memory loss they apparently are suffering from since now the bankruptcy is being hailed as giving “a new lease on life” to the overburdened automaker.

Obama blasted a handful of investors and hedge-fund managers for their refusal to accept 29 cents on the dollar for funds they loaned (in good faith) to the giant automaker, calling these private lenders “unpatriotic” for failing to do what was “in the best interest of the American public”. Apparently, the rules that the rest of us live by (such as paying off our financial obligations and honoring contracts we have voluntarily entered into) do not apply to those who have someone in Washington to do their bidding. And now private investors who actually seek just compensation for the billions of dollars loaned to the ailing automaker are vilified as greedy, self-interested rascals. (Of course, those self-interested rascals are teachers, firefighters and policemen who invested their life-savings in company sponsored retirement plans – does this mean that they too are “unpatriotic” for having the desire to squeeze out a few extra pennies on the dollar that Chrysler was contractually obligated to pay back?)

I’m a little queasy about the new definition of patriotism being thrown around by too many politicians lately. The au courant “patriotism” is no longer defined as ones willingness to fight to preserve our liberties and freedoms, but a much more “enlightened” and “civilized” willingness to work for the common good. Such enlightened philosophy coming from men “whose sole qualification to rule me was their capacity to spout the fraudulent generalities that got them elected to the privilege of enforcing their wishes at the point of a gun” is certainly hard to swallow since we rarely see evidence of personal sacrifices made by each of them for the common good. (Rand, Atlas Shrugged) Sacrificing for the common good is reserved for the plebian masses like you and me, since every “good” politician wisely spends his time increasing his personal power and prosperity, he certainly shouldn’t be wasting precious time making personal sacrifices for the good of society like the rest of us.

Article from, April 22nd, The Wall Street Journal
Under current law, U.S companies can defer taxes indefinitely on the profits they have earned overseas until that money is repatriated back into the country. The Obama administration has proposed changing this law,making off shore profits taxable. The affect of the law would be that congress now has the power to tax outside of the U.S borders. Last time I checked, the U.S constitution that gave congress the power to tax, only concerned domestic activity. Congress does not have the authority to tax economic activity outside of the country. If the money comes back into the country, I can see ligitimate taxation, but until it does, taxing that money is outside of congressional power. On the other hand, I have personally known people who were working in the United States on a work visa from some other country, say Canada, who did not have to pay taxes. Whats going on? People who are working in the United States, who drive on our roads, pollute our air, are protected by our national defence, police, and fire departments don't pay taxes; but U.S companies profits from economic activity taking place in another country are being taxed. Crazy! As of now, the profits are not taxed until the re-enter the country, but the Obama administration wants to change this. The concern regarding this issue is that government personel are concerned that they are loosing out on a great deal of money. First, they are not loosing out on anything because the profits are not being made in the U.S. Secondly, if they want to increase their revenue, tax the workers who are here on visas. Thats what I would do if I ran the show anyway.

I have been thinking about some of the things that we have been talking about in class, such as rational irrationality, rational ignorance, and global warming. One thing that struck me today was how these subjects are related and how because of our irrationality and ignorance, we all end up kind of confused and it results in bad policy. The main aspect of it all that hit me the most was not how we end up with bad economic outcomes, or whether of not the science is valid, but how some people get so focused on some potential costs, that they ignore the rest. For instance, even if it could be assumed that all of the worst global warming hypothesi were correct, and the desired outcome was to help the people who would be affected, then this does not necessarially equate to a policy directed at stopping the warming. I dont doubt that if the temperatures raise like some project they will that it could potentially result in harmful outcomes, but mostly for the developing world. Say, for instance, that we (U.S. alone, or world cooperation) enacted policies that cut back on our carbon emission, and suppose that it did prevent some of the harmful effects of global warming. But in contrast to that policy, it seems that we could use that same amount of money and resources to go towards much more effective and wide spread aid to those who would be effected. I suppose that this is similar to compensating them for the global warming, and the resources could be used to aid them to prevent and even benefit them beyond abatement of carbon emissions.

April 15th is a day dreaded by Americans. A friend of mine and her husband were shocked to find they owned nearly seven thousand dollars in state and federal taxes this year. But this year was a little different, across America, TEA (Taxed Enough Already) parties were held on tax day. A gentleman on one of the Sunday morning shows stated it was just an anti-Obama protest. ABC ran a story about the TEA parties stating this one differed from the Boston Tea Party. The journalist stated that this was taxation with representation but these protesters just lost the vote. No news story was quite as remarkable as a story run by CNN. A reporter asked a man why he was at the rally. He said, “Because I hear a president say he believed in what Lincoln stood for. Lincoln’s primary thing was, he believe people had the right to liberty.” The report cut the gentleman off and said, “What does this have to do with your taxes?” I about fell out of my chair when I heard this. What does liberty have to do with taxes? How is it that people just don’t get it? It may have something to do with the media and their take on things. Or possibly it is a general lack of knowledge. Maybe it has to do with the public school system and how parents have stopped being parents. With liberty, people are free to make their own choices. They decide how they spend the fruits of their labors. Liberty was the cornerstone of this country. It was what made our country great. If only everyone started thinking and stopped merely feeling, we could move from a country filled with rational irrationality to once again, making rational decision like the founders did. Taxes had a place. (To provide for the public good, for example.) But we have moved so far beyond what we need, to what makes us feel good. “Spreading the wealth around” may be good politics but it will hamper economic growth. Liberty has everything to do with taxes. The higher taxes climb, the greater the loss of liberty.

Since the beginning of February the unemployment rate in the Colorado Springs area jump up to 8.1% from 7.7%. Our last policy analysis is on low wage subsidy, many company cannot afforded to hired people, even though, they think about cutting hours for everyone so at least they still in a working force but it not possible because of no profit. The local payrolls are declining to 2.8%. According to the Gazette, “Job losses came as local retailers cut 600 jobs and employers in professional and business service eliminated 400 jobs.” Job losses are happening now in many places but Springs alone, there are about 200,000 people are looking for work. The economy in Springs are still a lot better then what going out around us, but still, we can’t stay better forever. I think it just like any other states, the unemployment probably will rise even more in a few months because of more troops will return in couple of months and there not enough jobs for everyone.