Relevant and even prescient commentary on news, politics and the economy.

Yglesias Misses the Point. Again. [with correction]

Rules requiring firms to restrict employment to their country of origin would be hideously inefficient if applied on a global basis, and they would be every bit as devastating to American employees of foreign firms as offshoring by American firms is to workers who lose their jobs here. (One might also ask where the borders of corporate patriotism ought to be. If it’s wrong for a Michigan-based car company to have a supply chain that extends to Mexico, why is Ohio OK? After all, it hardly makes a difference to a laid-off worker where exactly his job went—the bad news is that he lost his job.)

Over the long run, we’re all going to be more prosperous if we live in a world where firms are allowed to locate work where it’s most efficient to locate it. This is exactly why, despite some tough ads, the Obama administration has not proposed any policies to restrict firms’ freedom to shift work across state or national boundaries.

Romney’s unwillingness to make the case for outsourcing reflects, in part, political timidity. But more broadly, it underscores that although he’s been an eager participant in contemporary capitalism, he’s not willing to mount a policy response to its vicissitudes.

Offshoring Is Fine. Why won’t Mitt Romney defend Bain’s record?Matthew Yglesias, Slate, yesterday afternoon.

It’s surely true that rules requiring firms to restrict employment to their country of origin would be hideously inefficient if applied on a global basis, and they would be every bit as devastating to American employees of foreign firms as offshoring by American firms is to workers who lose their jobs here.

But, to my knowledge, the only one who’s equated the absence of* government policy (of necessity on this issue, statutes) that would restrict corporate employment to the country of the corporation’s origin, and a private equity firm’s investment in companies that specialize in assisting American corporations with offshoring employment, is Yglesias.  Even Romney apparently recognizes the distinction. Not sure why Yglesias doesn’t.

It’s one thing to argue that utterly unfettered globalization of employment by corporations worldwide ultimately has a positive effect on the American economy—as Yglesias does. But it’s another thing entirely to actually convince a majority of the public that this is so even in light of current trends and actual facts. 

And it’s one thing to argue that laws that forbid companies from relocating jobs from the company’s home country to another one would have a negative side to it because of possible retaliatory laws in other countries, and another thing to equate that with decisions by corporations themselves about whether to offshore or not. (And, setting aside the obvious constitutional bar to prohibiting a corporation’s relocation of jobs from one state to another, it’s a lot easier for families to relocate from Michigan to Ohio than from Michigan to Mexico.)

The thing that Yglesias doesn’t get is that Romney’s claiming that his private-sector career demonstrates his ability to create not just wealth for investors but jobs en masse for the public. There’s really no way for him to make that claim persuasively, because it plainly isn’t true. He can defend offshoring as a corporate strategy, but corporate strategy is a different matter than economic strategy.

Unless, of course, Romney wants to argue that encouraging offshoring by American corporations is good government policy. Hope he does.  But then, I’m a Democrat.

*Sentence corrected to insert the words “the absence of”.

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Matthew Yglesias, Slate’s Boy With a Little Curl

Lost in the shuffle here is the question of what it is Romney is denying he’s responsible for. Stipulate that Romney somehow had nothing to do with running a company of which he was the CEO and sole shareholder. Does he think, in retrospect, that his subordinates did something wrong by offshoring jobs? Clearly he didn’t, which highlights the absurdity of his claims not to have been responsible. It’s true that he wasn’t running the country [sic] on a day-to-day basis, but he really was titular CEO and had Bain been doing something he deemed outrageous he could and should have stepped in to stop them. But he doesn’t believe that. And what’s more, all indications are that Barack Obama also doesn’t think Bain was doing anything wrong. [Emphasis in original.] As president he’s made no moves to make it illegal for companies to shift production work abroad and has publicly associated himself with a wide range of American firms—from GE to Apple and beyond—who’ve done just that to varying extents. And we all remember what happened to Obama’s promise to renegotiate NAFTA after taking office, right?

In my view both Obama and Romney are quite right about this. I’ll say more on this during the workweek, but one quick test is do you think there’s something immoral about the fact that Toyota and BMW have manufacturing facilities located in the United States? Should the Japanese and German governments be stopping Japan- and Germany-based firms from locating production offshore?

I posted a comment to it, saying:

Well, when Obama starts claiming that one of his key qualifications for reelection is that he’s helped create jobs in China—or when Romney starts saying that Bain invested in companies that specialized in moving jobs overseas in exchange for promises by German and Japanese companies to open, or keep, factories in this country—Yglesias’s equivalency argument might be less ridiculous. 

One of Obama’s spot-on arguments against Romney’s claim that his Bain experience was a successful jobs-creation experience rather than merely a successful wealth-creation-for-investors experience is that there’s a huge difference between experience in creating wealth for private investors, by any means available and at whatever expense to others, and creating good for the country’s overall economy and general welfare.  This offshoring issue is a classic case in point. Setting aside whether the federal government has the legal authority to prohibit private companies from offshoring—and I don’t think the government has any such legal authority, except in certain limited national security or foreign policy circumstances—there’s an obvious critical difference between not trying to stop this country’s companies from offshoring, for fear of retribution by other countries’ companies, similar to trying to avoid a tariff war, and aggressively aiding offshoring by American companies irrespective of any up-side for the general American economy. 

Add to that that, as several other commenters have pointed out, the German and Japanese companies that offshore in this country do so mainly in manufacturing products or parts for products that will be sold in North America, mostly in this country.  GM, Ford, Chrysler and some U.S. auto-components manufacturing companies have factories in Europe, but the products and components made there are sold in Europe.  Like the German and Japanese auto companies that Yglesias equates with Bain’s offshoring-specialist companies, the American auto-industry companies continue to make the parts and cars sold in their home country in factories in their home country. 

Which, of course, would not be the case any longer had the Bush and Obama administrations taken Romney’s advice and let Detroit fail.

That said—and for the same reasons—Yglesias is wrong in saying that unless Romney thinks there’s something wrong with offshoring, it’s absurd for him to deny responsibility for Bain’s investments in offshoring-specialist companies during the three-year period beginning in early 1999.  If in fact Romney was no longer associated with Bain during that period, he would have every right to correct the record, whether or not he thinks there was anything wrong with what Bain did during that time.  But the question of whether Bain did anything wrong in investing in offshoring-specialist companies—during the period between 1993 and 1999, when (at least as I understand it) it apparently was doing so at Romney’s clear behest, or during the following three years—depends on what is meant by “wrong.” 

It was not illegal.  But many voters think that, while it clearly was helpful to Bain’s investors and to Romney (who has continued since then to receive large payments from Bain), it was not helpful to the larger American economy and to the middle class.  It did not create jobs in this country; instead, it eliminated them.  And Romney is running for president virtually entirely on his claimed credential of being a jobs creator and of knowing how to create jobs—in America.

I’m hesitant to be too critical of Yglesias for his rather obvious conflations here.  He was, after all, not just the first pundit but also one of the very few even yet to point out a stunning, absolutely jaw-droppingproposition of law stated by four of the nine Supreme Court justices in their joint dissent late last month in the Affordable Care Act case, the part of the dissent concerning the issue of the severability of the part of the Medicaid provision in the Act that the Court’s majority struck down, in which the dissenters, while claiming that the majority was rewriting the Medicaid provision in order to save much of it, wanted to rewrite, rather dramatically, the Constitution’s separation of powers between Congress and the Court. Only four hours after the release of the opinion, when almost no one except the journalists covering the Court had yet read the dissent, Yglesias wrote:

As I’ve noticed previously, there’s lots of other stuff in the Affordable Care Act besides the new regulation of insurance companies, including a move to deregulate dental services. So I was curious to see why the dissenters in the Supreme Court thought that not only was the individual mandate and the provisions related to the individual mandate unconstitutional, but also all this other stuff.

The answer is that they appear to have made up a new Christmas Tree Doctrine under which legitimate acts of Congress are held null and void if Antonin Scalia thinks they were part of some kind of unseemly horse-trading:

Some provisions, such as requiring chain restaurants to display nutritional content, appear likely to operate as Congress intended, but they fail the second test for severability. There is no reason to believe that Congress would have enacted them independently. The Court has not previously had occasion to consider severability in the context of an omnibus enactment like the ACA, which includes not only many provisions that are ancillary to its central provisions but also many that are entirely unrelated—hitched on because it was a quick way to get them passed despite opposition, or because their proponents could exact their enactment as the quid pro quo for their needed support. When we are confronted with such a so called “Christmas tree,” a law to which many nongermane ornaments have been attached, we think the proper rule must be that when the tree no longer exists the ornaments are superfluous. We have no reliable basis for knowing which pieces of the Act would have passed on their own. It is certain that many of them would not have, and it is not a proper function of this Court to guess which.

That all seems fine except I would have thought it was the prelude to the opposite ruling. It’s not the proper function of the court to guess why different provisions were enacted, just to rule on the constitutionality of laws. Since there’s plainly no constitutional problem with regulating interstate chain restaurants, the law is the law until Congress repeals the law. Instead, Justices Scalia, Alito, Kennedy, and Thomas have decided that rather than pick and choose it would be better to strike everything.

This is far, far more newsworthy than the teensy bit of attention it has received suggests.  Four Supreme Court justices think legislative logrolling is improper and that therefore the Court can strike down full pieces of legislation that a majority of justices don’t like whenever they decide that some provision, however small, in the full piece of legislation is unconstitutional.  After all, y’know, maybe the rest of the legislation would not have been enacted without the quid pro quo votes.  Presumably, this also would apply to state laws as well as to federal laws—but, of course, as with federal laws, only to laws that the conservatives don’t like.

I’d been meaning to write about this truly radical part of the dissent in the ACA case, but hadn’t gotten around to it.  Now I have.

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Naked Capitalism’s Yves Smith is on fire…

Yves Smith has been on fire lately. Here’s an article on when offshoring fails.

…As these industry examples illustrate, the tradeoff between cost and flexibility can be quite involved and difficult to evaluate. It now appears that the labour-cost benefits gained from offshoring might not be sufficient to cover the lost flexibility under many circumstances.

Here she discusses the continuing robosigning.

And here is the view from within a bank.

A writer for the Minneapolis CityPages managed to worm his way into a presentation to the annual meeting of the Minnesota Chamber of Commerce by US Bank’s CEO, Richard Davis…

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