News Week Article

News Week has an article up today, link, that talks about all the same issues with multinational corporations I brought up about a week ago in this post.

Makes me feel like a real blogger!

Shipping Jobs Overseas

I overheard a conversation at work this morning about how part of our current economic predicament is because of US companies sending jobs over seas and President Obama's plan to change our current international tax laws. I guess the idea is that US companies are moving jobs over seas to take advantage of low cost labor. Now, I am not saying that some companies are not guilty of this practice but the majority of companies that establish foreign affiliates do so for other reasons that actually help the US economy and jobs.

The main reason for operating a foreign affiliate is to sell products to foreign markets. Producing and selling your product in your target market has the added benefit of lower-cost labor, ready access to raw materials, reduced transportation costs and proximity to their ultimate customers. These give huge advantages when competing in a global market and targeting a specific foreign market. Many people cringe at the idea of low cost labor, immediately envisioning some Dickensian hell with under paid, half starved workers slaving away while American corporations get rich. But in reality the lower labor costs are typically only lower compared to US wages. Many foreign countries benefit from the presence of a multinational corporation's presence. In 2006 US owned companies employed 9.5 million foreign workers, talk about some true foreign aid! Not only that but these workers were not producing goods at a lower cost that were then shipped back overseas to be sold to Americans at a higher profit. Nearly 90% of goods produced by US foreign branches are then sold in either the host market or some other foreign market. This is not the evil multinational corporation we are used to thinking about. This is wealth being created in countries where it might not otherwise be generated and certainly not as quickly.

But what about the American worker? Surely there is some poor American out of work due to this foreign outsourcing. This is simply not so. A National Bureau of Economic Research study found "a strong positive correlation between domestic and foreign growth rates of multinational firms." And separate studies by economists have found that domestic growth can be as high as 30% of foreign growth including increased compensation for the US employees. So we see that not only are most corporations not moving jobs overseas but those that do operate there actually create more jobs here in the good old US of A.

So why do many politicians, including our President, want to crack down on the tax breaks issued to these multinational US based companies? I have no idea!! The major US tax break is a deferral of corporate taxes on foreign income until it is brought back to the US. The income is not untaxed, these monies are subject to the taxes of the host nation. This tax exemption is made to encourage reinvestment in the foreign market. Which as we have already seen leads to an increase investment in the parent company here in the US. Every modern industrial nation gives at least this much to their multinational corporations. Denying this exemption would place US based companies at a major disadvantage in foreign markets and essentially double tax the money made abroad. If politicians truly want to encourage domestic growth they should look at lowering our corporate tax rate to encourage foreign corporations to setup shop here in the US, creating more jobs and reducing our need for imports.

How About A Flux Capacitor

My buddy Steve made a post over at his blog about Hillary's windfall tax. I was just going to comment his post but did not want to sully his blog with my uneducated understanding of economics. Steve makes a point about the windfall tax being aimed at Exxon and their record profits last year. He then moves on to talk about the ethanol mandate and it's ill-effects.

I am always interested in government intervention in business. The little I do know about economics has always led me to believe that any outside artificial pressures and stimuli only confuse or distract investors from making sound decisions in future technologies. The ethanol mandate not only sets the bar for how much ethanol is to be supplied but also provides tax credits and tariff protection from cheaper more efficiently produced foreign ethanol. This makes the production of corn based ethanol more profitable, it turn causing the price of corn to skyrocket. And as Steve points out this increases the price of not only US produced ethanol but also corn used as food for human and animal consumption. All of this comes to the tune of about $7 billion in government incentives to increase production of a more expensive fuel that is 1/3 less efficient than regular gasoline. And I have seen estimates that put the reduction in petroleum use caused by ethanol as low as 1% by 2012. It seems clear, even to a layperson like myself, that ethanol is a poor alternative to petroleum and these government mandates only serve to pull capital away from markets that may provide a more efficient and economically sound fuel source.

Really, I am just agreeing with Steve's comments on ethanol as an alternative fuel. My father and I just had a similar conversation last night so perhaps this is just left over enthusiasm. I just find it hard to believe that anyone can look at the facts on ethanol and not see that it is a poor fuel choice and that these government mandates are hurting consumers with minimal benefits to petroleum use and the environment. At least corn farmers are making an increased profit. It always seems that when farmers are involved people have this emotional reaction that has them jumping to their rescue. I have a healthy respect for farmers, it is a hard life, but I cannot help to end with a quote by H.L. Mencken.

….LET the farmer, so far as I am concerned, be damned forevermore. To Hell with him, and bad luck to him. He is a tedious fraud and ignoramus, a cheap rogue and hypocrite, the eternal Jack of the human pack. He deserves all that he ever suffers under our economic system, and more. Any city man, not insane, who sheds tears for him is shedding tears of the crocodile.

No more grasping, selfish and dishonest mammal, indeed, is known to students of the Anthropoidea. When the going is good for him he robs the rest of us up to the extreme limit of our endurance; when the going is bad be comes bawling for help out of the public till. Has anyone ever heard of a farmer making any sacrifice of his own interests, however slight, to the common good? Has anyone ever heard of a farmer practising or advocating any political idea that was not absolutely self-seeking–that was not, in fact, deliberately designed to loot the rest of us to his gain? Greenbackism, free silver, the government guarantee of prices, bonuses, all the complex fiscal imbecilities of the cow State John Baptists–these are the contributions of the virtuous husbandmen to American political theory. There has never been a time, in good seasons or bad, when his hands were not itching for more; there has never been a time when he was not ready to support any charlatan, however grotesque, who promised to get it for him. Only one issue ever fetches him, and that is the issue of his own profit. He must be promised something definite and valuable, to be paid to him alone, or he is off after some other mountebank. He simply cannot imagine himself as a citizen of a commonwealth, in duty bound to give as well as take; he can imagine himself only as getting all and giving nothing.

Yet we are asked to venerate this prehensile moron as the Ur-burgher, the citizen par excellence, the foundation-stone of the state! And why? Because he produces something that all of us must have–that we must get somehow on penalty of death. And how do we get it from him? By submitting helplessly to his unconscionable blackmailing by paying him, not under any rule of reason, but in proportion to his roguery and incompetence, and hence to the direness of our need. I doubt that the human race, as a whole, would submit to that sort of high-jacking, year in and year out, from any other necessary class of men. But the farmers carry it on incessantly, without challenge or reprisal, and the only thing that keeps them from reducing us, at intervals, to actual famine is their own imbecile knavery. They are all willing and eager to pillage us by starving us, but they can’t do it because they can’t resist attempts to swindle each other. Recall, for example, the case of the cottongrowers in the South. Back in the 1920’s they agreed among themselves to cut down the cotton acreage in order to inflate the price–and instantly every party to the agreement began planting more cotton in order to profit by the abstinence of his neighbors. That abstinence being wholly imaginary, the price of cotton fell instead of going up –and then the entire pack of scoundrels began demanding assistance from the national treasury–in brief, began demanding that the rest of us indemnify them for the failure of their plot to blackmail us.

The same demand is made sempiternally by the wheat farmers of the Middle West. It is the theory of the zanies who perform at Washington that a grower of wheat devotes himself to that banal art in a philanthropic and patriotic spirit–that he plants and harvests his crop in order that the folks of the cities may not go without bread. It is the plain fact that he raises wheat because it takes less labor than any other crop–because it enables him, after working no more than sixty days a year, to loaf the rest of the twelve months. If wheat-raising could be taken out of the hands of such lazy fellahin and organized as the production of iron or cement is organized, the price might be reduced by two-thirds, and still leave a large profit for entrepreneurs. But what would become of the farmers? Well, what rational man gives a hoot? If wheat went to $10 a bushel tomorrow, and all the workmen of the cities became slaves in name as well as in fact, no farmer in this grand land of freedom would consent voluntarily to a reduction of as much as 1/8 of a cent a bushel. "The greatest wolves," said E. W. Howe, a graduate of the farm, "are the farmers who bring produce to town to sell." Wolves? Let us not insult Canis lupus I move the substitution of Hyæna hyæna.

The Kids Don't Like It

I have seen a huge rash of bulletins on Myspace lately all talking about questioning the current government and political activism. I usually cringe at these sort of posts. They typically are very one sided, under researched if not borderline conspiracy, and very often do little more than fire off insults at the Bush administration. But these have been a little different. More like rallying calls to our generation to start looking around and really participating in the democratic process. I also know some of the posters well enough to trust their intentions and judgement on these topics more than the next guy. I hope this is a trend that continues to grow amongst the younger generation. Heck, maybe someday it will even be cool to be into politics.

WikiScanner

There is a Reuters article (here) about Wikipedia topics being edited by people using CIA and FBI computers.

People using CIA and FBI computers have edited entries in the online encyclopedia Wikipedia on topics including the Iraq war and the Guantanamo prison, according to a new tracing program.

According to the article the changes where found using WikiScanner. The program allows people to track the computers that were used to make changes to Wikipedia. The changes seem to be fairly harmless. Mostly expanding on provided information and not removing info or censoring entries. But I am always a little suspicious of government agencies mucking with information and the media. Not to mention that this more than likely violates Wikipedia's rules on contributing to entries where a conflict-of-interest may occur.

I am torn on how bad this really is. I think most people would admit that the government has at least some control over mass media. And I think more Americans are going to get their information from Fox or CNN than Wikipedia. While Wikipedia may have more clout being billed as an encyclopedia. I would say the people who would take a wiki as gospel would believe the same information from a TV program or news paper. In the end it is in the hands of each individual to filter and double check the information we are being feed each and every day.