government regulation

Airport security in North America is a lot of show, and not much action. Of course, that could be said about most government initiatives.

Airport security is designed to put on a show, to give the impression that the government is vigilant, and is doing everything they can to stop terrorism. It’s obvious that millions of dollars have been devoted to purchasing fancy security scanners, and employing thousands of security personnel, to make it appear that the government is protecting us from bad people. When you enter the security line and take off your shoes, you have a visual reminder of how hard the government is working for you; they are even scanning your shoes.

Unfortunately we seldom stop to think about this. Why exactly am I taking off my shoes? Apparently it’s because one guy tried to blow up an airplane with his shoes. He wasn’t successful, but that one deranged lunatic was enough to cause millions of subsequent passengers to suffer the silliness of removing their shoes. They have fancy bomb detecting scanners at the airport; won’t they detect a bomb in my shoes?

They have even started swabbing hands, to look for explosive residue. It’s true. As we went through the airport, my wife, with our ten year old in tow, had her hands swabbed. Do they really think a mother with her child is making bombs? Again, it’s a case of putting on a good show for the rubes.

I have no objection to airport security. In fact, I am a strong supporter of airport security. I don’t want to be on a plane with a terrorist, or a nutcase, who wants to kill me. I support keeping the crazy people off of my plane. My objection is with how airport security is currently handled.

If you want to know how airport security should be done, go to Israel. Israel is located in arguably the most dangerous part of the world. Israel is constantly “at war” with some of their neighbors. If any country was vulnerable to an airplane passenger terrorist attack, it would be Israel. And yet, to the best of my knowledge, no-one has ever successfully hijacked a plane leaving from Israel. Never.

Why? What can we learn from the Israelis?

What we can learn is that the Israelis don’t put on a show for security purposes; they actually provide security.

In North America, we stand in line, waiting for our turn at the ticket counter, or the security line. At Israel’s Ben Gurion Airport, while you stand in line security agents approach you, and start asking you questions. There’s a great account of this in an article from the National Post, written by David Asper. They ask questions like:

Who are you? Can you show me your ticket please? Your passport? What were you doing in Israel? Where did you go? Did you visit with anyone? Did anyone give you a gift to take to someone back home? If so, may I see it? What’s it like where you live? Are you looking forward to getting home? Have you been in Israel before? And so on.

The security agents asking the questions are not low paid employees who took a day long course in airport security. These are highly trained professionals, with extensive training, who know exactly what they are doing, and what they are looking for. What are they looking for? Something that “fits the profile”, I assume. Someone who “paid for their ticket with cash, is traveling alone, comes from a place known for its extremism and looks nervous.”

I doubt that the Israelis are concerned about an 80 year old grandmother; that’s not the person that fits the profile.

And yes, I realize that this is not fair. The vast majority of people who travel alone, and pay cash for their tickets, and come from places known for extremism are perfectly good, law abiding people. It’s not fair that they are negatively profiled, but unfortunately, that’s the world we live in.

It’s not fair to those people, but it’s also not fair to me, either. Why would I, a man from Canada, traveling with his wife and two children, be required to take off my shoes? How likely is it that I will be blowing up an airplane, with my shoes, with my wife and children on board? Spending billions of dollars each year to screen my shoes is silly, and offensive. Spend the money looking for real terrorists, not just putting on a show. How would I do it? Here’s my plan for real airplane security:

1 “Lock down” the airport. Security should start at the entrance to airport, not the entrance to the plane. The only people who need to be at the airport are airport personnel, and actual travelers. If you are dropping someone off, or picking someone up, do it on the outskirts of the terminal, not inside. Why? See next point.

2 The airport should be infested with security personnel. Once you enter the airport, you should be subject to constant surveillance. That’s why non-travelers should be kept out of the airport. If you aren’t traveling, you don’t need to be there, but you also don’t need to be screened. The fewer the people, the fewer the screening required.

3 Screen early, and screen often. Copy the Israeli example. Before you get to the ticket counter, or the security checkpoint, security agents should have already said hello, and identified anyone who may require further scrutiny.

4 Use technology. Video cameras should be watching people as they enter the airport, to give on the ground security personnel a head’s up as to who needs to be watched more closely. They use security cameras in casinos in Las Vegas; presumably the same approach can be used in airports. That’s why point #1 above is so important. The fewer the number of people permitted to wander the airport, the fewer people need to be monitored by security.

5 Review passenger lists well in advance of the flight. Security should be reviewing the passenger manifest, and paying special attention to anyone that presents a higher level of risk. Similarly, the Canadian traveling with his wife and family, with no criminal record, should probably be subject to less scrutiny.

So what’s my point? My point is that we should be smarter about air security. Putting on a nice show, and asking a grandmother to take off her shoes, is not security. Questioning passengers is. It’s not a question of spending more money, although obviously airport security is costly. We need to spend smart, not just spend. If we took the resources we use to scan shoes, and put that money into real screening, we would be better off.

One final comment. The purpose of this site is to share my thoughts as to why having the government do everything for you is not a great idea. And yet I have just laid out a plan for very extensive government involvement in your life. I have argued for more security, and more intrusion. How do I reconcile that contradiction?

First, it doesn’t have to be the government that provides airline security. It could be the individual airlines, who presumably would have an incentive to enhance passenger safety, to increase their profits. “Fly the safe airline” could become a marketing slogan.

Second, air travel is not a right; it’s a privilege. I do not have to travel by air. I can drive. I can take the train, or take a cruise ship. If I don’t like this intrusive level of security, I can choose not to fly.

Third, given the choice between being blown up in a plane, or not being blown up, I would prefer the “not” option, and that means some restrictions of my personal liberty is required.

However, I must admit I am not comfortable with any of this. I am not comfortable with a reduction in my personal freedom. I am not comfortable giving the more power to the government. I don’t want them screening my because I want to fly somewhere with my family on vacation. I don’t want them tracking my every move. But I also don’t want to get blown up in an airplane. Life is a series of choices between imperfect alternatives, so I am forced to pick the “least imperfect”. I have to pick, but I don’t have to like it.

Jeffrey Tucker wrote an excellent article on the End of the US Piano Industry.  I took piano lessons as a child, and still play occasionally today, but I had no idea that the U.S. piano industry was as big as it was from 1870 until the start of the (first) Great Depression in 1930.

Today our biggest investment, after our house, is our car.  Back then, after our house, the biggest single investment was a piano.  Everyone wanted one, both as a status symbol and as a means of entertainment (before TV, the internet, and iPods).  Eventually demand dropped, and piano production moved overseas.

Mr. Tucker makes the point that a once vibrant industry declined, but the world did not end.  What would have happened if FDR had done what Obama is doing today and nationalized the piano industry (like Obama is doing with the banking and automotive industry)?  Presumably the industry would have limped along for a few more years, at a huge cost to taxpayers, before eventually collapsing due to lack of demand.

It’s sad to lose an industry, but it’s even sadder to spend billions in taxpayer money to try to prop up a dying industry.  Obviously the automotive industry creates millions of jobs in North America, but if we decided to buy cheaper and better cars overseas, so be it.  Strong auto makers will survive in North America; the  rest won’t.  It’s sad, but that’s how it works, and all the government meddling in the world cannot change reality.

Should the North American automotive industry be "bailed out" by the government? The answer is simple: No.

The pro-bailout faction, who call it a "rescue" instead of a "bailout" to make it sound more appealing to the populace, keep quoting the job numbers. Millions of jobs will be lost, they say, if the Big Three are allowed to fail. That may be true, but it’s still a bad idea. Let me count the reasons:

1 Bankruptcy destroys a corporation, but it doesn’t destroy physical assets. If General Motors declares bankruptcy tomorrow, all of the General Motors machinery and factories will continue to exist. All the suppliers stamping plants will still exist. Physical assets are not lost; they simply change ownership. New owners will buy the assets, for cents on the dollar, and re-deploy those assets by starting new companies. And given how poorly the existing owners have used those assets, wiping them out is a good idea.  

2 Speaking of the Big Three, management has done a horrible job. Instead of focusing on cost cutting and quality, they have spent the last decade focusing on building big SUVs and big trucks. It’s Honda that has perfected the Honda Civic (now the number one seller in Canada, and high on the list in the United States), and it’s Toyota that invented the Prius, the most popular ultra low mileage car that is currently mass produced in the world. Giving money to the Big Three simply rewards them for these past mistakes, and guarantees us more of the same.

3 We all know how governments work. If they give money to the Big Three, they will want control. They will place limits on executive compensation (which given past history for those clowns isn’t an entirely bad idea), but they will also tell them how to run the company. They will mandate that a certain number of cars must be "green"; they will tell them were to maintain plants and build new ones (presumably where their voters are). In a free market, companies should be free to make their own decisions, good or bad. If they make bad decisions, they fail. If governments make bad decisions, we the taxpayers have to pay for their mistakes, and that’s a bad idea.

4 A government bailout doesn’t solve the problem. Restructuring is necessary, but if the government pays for the sins of the past, restructuring won’t happen.

5 A bailout would be a band aid solution. Whether Detroit gets $25 billion or $50 billion, if their cost structure remains out of whack, they will continue to lose money. If they keep building vehicles that no one wants to buy, they will keep losing money. And when it’s taxpayer’s money, I object.

Bailing out the banks was bad enough. The auto makers would be worse. And then whomever comes next (credit card companies? computer makers? Shoe shine boys?) will drag us down even further.

There comes a time in life when we must all pay for our mistakes. If you drink too much wine on Saturday night, you will have a hangover on Sunday morning. If you spend more than you make, you may be faced with personal bankruptcy. And if a car company makes very expensive lousy cars, the ultimate solution is bankruptcy, so let’s do it, get it over with, allow new owners with new management and a new vision to take over the assets, and get started on building a new, vibrant, efficient North American automotive industry.

As I sit and listen to the rhetoric coming out of Washington these days, I ask myself: “John, where did it all start?”

How did the once great nation of the United States of America, the land of freedom, opportunity, hard work, and reliance on self, become a nation where the only solution to our problems is a government bailout? A nation where everyone, Democrat and Republican, believes the government must save us from our problems?

The answer, of course, is that the direct dependence on government can be traced to March 4, 1933 in the Inaugural Address or Franklin D. Roosevelt. That speech started the trend in motion that resulted in the government bailouts of 2008, and is not done yet.

In my not-so-humble opinion, that speech was the start of today’s problems. FDR decided that the public could not solve it’s problems without government intervention. The government had no choice but to redistribute the wealth of the rich to the common man to create jobs.

Yes, that’s right, a President of the United States actually believed that a government could create jobs, which is of course ridiculous. Wealth is created by inventing something, designing, producing, marketing, and selling. Wealth is created by hard work, not by government order.

He believed that economic problems can be solved:

…in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources.

In other words, it was up to the government, not the free market, to decide how resources should be used. Scary stuff. He also believed that government intervention could reduce:

the tragedy of the growing loss through foreclosure of our small homes and our farms.

Yes, people were over extended back then as well, and tragically were losing their homes. As we now know, the “New Deal” merely served to prolong the Great Depression, which did not end until the start of WWII.

He did say some good things, including:

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.

I agree. Unfortunately, he had other tragic ideas.

Here are some other things he believed:

Our international trade relations, though vastly important, are in point of time and necessity secondary to the establishment of a sound national economy. I favor as a practical policy the putting of first things first. I shall spare no effort to restore world trade by international economic readjustment, but the emergency at home cannot wait on that accomplishment.

In other words, yes, perhaps we have borrowed money from foreigners, but when push comes to shove, we will default and depreciate our currency, and put up trade barriers if needed. Yup, that’s a great long term strategy.

The scariest part, though, was FDR’s belief that “broad executive powers” outside of the Constitution were necessary to deal with the crisis:

Our Constitution is so simple and practical that it is possible always to meet extraordinary needs by changes in emphasis and arrangement without loss of essential form. ….

I am prepared under my constitutional duty to recommend the measures that a stricken nation in the midst of a stricken world may require. These measures, or such other measures as the Congress may build out of its experience and wisdom, I shall seek, within my constitutional authority, to bring to speedy adoption.

But in the event that the Congress shall fail to take one of these two courses, and in the event that the national emergency is still critical, I shall not evade the clear course of duty that will then confront me. I shall ask the Congress for the one remaining instrument to meet the crisis—broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.

Scary stuff indeed. Sort of sounds like George Bush justifying the war in Iraq, and the spying, and the lack of Congressional oversight, doesn’t it? Now you know where he got the idea, and why I believe this speech was the start of many of today’s problems.

Lest you think that I have taken these quotes out of context, I have added a page to this site with FDR’s Fear Itself speech so that you can read the entire speech and judge for yourself.

Pat Buchanan wrote a great article today; his basic premise is that the party is over. For the last few decades we have lived beyond our means. We have financed everything with debt. We don’t save a dime anymore.

The left argues that this is a failure of conservative capitalism, that we need more government involvement in our lives. That’s ridiculous. Does anyone really believe that our problems were caused by Wall Street being cautious and prudent?

Living Beyond Our Means

No, our problems are caused by living beyond our means, and by believing that government can save us. Here’s Mr. Buchanan’s conclusion:

Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.

An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators.

What the Greatest Generation handed down to us — the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved — the baby boomers, oblivious and self-indulgent to the end, have frittered away.

Sad, but true; you can read the full article here.

It’s been an interesting week.

Joe Biden, Democratic candidate for Vice President, said this week that:

“We want to take money and put it back in the pocket of middle-class people,” Biden said in an interview on ABC’s “Good Morning America.”

Noting that wealthier Americans would indeed pay more, Biden said: “It’s time to be patriotic … time to jump in, time to be part of the deal, time to help get America out of the rut.”

In other words, it is your patriotic duty to give your money to the government, because they know better than you where they should spend your money.

Sounds like socialism to me.

I wholeheartedly agree that we should each help those who are less fortunate than ourselves, and I do. But I prefer to help others by helping people directly (such as helping friends and family when they need a hand) and donating to charities I support (because they are much more efficient than a government bureaucracy).

Then, today, the SEC banned short selling on 799 financial companies. Short selling occurs where you borrow a stock and sell it. You hope that the price will drop, so that you can buy it back, for less than you sold it for, and return it to the original owner. Short selling has existed for centuries.

The SEC believes that short selling drives the price of stocks down, and to a certain extent they are correct; that’s the law of supply and demand. But here’s the rub: at some point the short seller has to repurchase the stock, and that drives the price back up.

If everyone is shorting a stock, at some point the smart money will start buying. It’s called a “short squeeze”, and it drives the price back up, sometimes very rapidly. That’s how capitalism works. We place our bets, and sometimes we win, and sometimes we lose.

But now, the government has said that they are suspending capitalism; you can only drive prices higher, not lower. This is a very dangerous precedent.

Sounds like socialism to me.

Then we have the Federal Reserve hard at work to “inject liquidity”. On Thursday:

The Federal Reserve plowed $55 billion of temporary reserves into the financial system on Thursday as part of a concerted global bid by central banks to free up frozen lending markets.

It appears now that the government will also be buying or guaranteeing everything else. You can’t lose.

Sounds like socialism to me.

Unfortunately risk is an essential element of capitalism. Sometimes you lose. The government, starting in the Clinton and Greenspan era, encouraged people who couldn’t afford it to buy homes. They couldn’t pay, the mortgages lost value, and people lost their homes. That’s what happens when you buy something you can’t afford. You can’t protect people against market forces.

So now, the government will take over everything. I guess they will start nationalizing the auto makers next, since they are also insolvent. Then the government will own everything, no-one will have any incentive to take any risk, innovation will be stifled, and we will be in for a long financial depression.

Sounds like socialism to me.

Gas Prices.

They are a hot topic these days, as they have been for the past year or so.

As I write this, Hurricane Ike has blasted through Texas, leaving 4 million people without power, and leaving the oil rigs and refineries in the area shut down. If oil can’t be refined into gasoline, there will be a shortage of gasoline, and as any first year economics student will tell you, a shortage of supply will increase prices.

Of course, as we now know, we are long past the point of Peak Oil. There have not been any new significant oil discoveries for decades. Oil is a finite resource. We are running out. It is projected that within two or three years Mexico will no longer export oil; they will need all they can produce for internal consumption. The giant Saudi Arabian oil fields are long past their peak. There is still lots of oil underground, but unfortunately a lot of it is in hard to reach places, or trapped in shale, so it will be difficult and costly to extract.

Practically speaking, we are running out of oil, and as the emerging economies of India and China switch from bicycles to cars, demand is increasing while supply is reducing. Oil prices will continue to increase.

So why, then, when I turn on the radio, do I hear the talking heads talk about how “consumers are being gouged” by the oil companies? Yes, it’s very frustrating that in advance of hurricane Ike the price at the pump in my part of Ontario, Canada jumped from around $1.20 per liter to around $1.35 per liter overnight. Does that mean consumers are being gouged? Perhaps, but as a consumer, I have a choice.

I don’t have to buy gasoline. Or, I can reduce my consumption. I don’t have to buy an SUV. I can buy a smaller car. I can drive less. I can car pool, or take public transportation.

Of course the talking heads want government to regulate the price of gasoline, so that we poor consumers won’t be gouged.

Not surprisingly, I believe that government regulation is a very bad idea.

First, how can you regulate the world price of a commodity? How can the Canadian or American government decree that the price of oil will be $X per barrel? They can’t.

Of course the government could pass a rule that the price of gasoline at the pumps can only increase by 1% in any given week. Or they could put a tax on the profits of oil companies. (Of course in Canada and the USA the price at the pump is largely made up of taxes anyway, so the government is already regulating the price; they are making it higher). But how would that help us?

In the short term, the price would go down, or at least not go up by as much. In the long term, explorers, refiners and sellers would make no money, so they would no longer explore, refine or sell, and there would be no gasoline.

Here’s a more bizarre way of looking at this: the average person pays, let’s say, $1,000 per year for gasoline. A doubling of the price will increase the cost of gas by $1,000 per year. The price of a new car, is, let’s say, $20,000. If the car lasts for 5 years, the cost of a car is $4,000 per year. If the government really wants to save consumers money, perhaps they could regulate the price of a new car; perhaps cap it at $1,000. That way instead of a car costing $4,000 per year, it would only cost $200 per year, so consumers have saved $3,800 per year. That’s a lot better for consumers than legislating the price of gasoline.

Of course that idea is idiotic. If car companies could only get $1,000 for a car, they could not sell cars. They would only sell bicycles, and eventually there would be no cars.

Alas, that’s the slippery slope we walk down when we let the government run the economy. So, next time you hear a commentator or a politician talk about how the oil companies are gouging consumers, remember that the solution is NOT to let the government regulate them, which will only serve to gouge us more. The solution is to take care of yourself: buy shares in oil companies if you think they really are gouging us, and drive a smaller car, and drive less. It’s better for you to be in control; it’s not good for the government to have more control.