Sub-title: Milk Jugs--a popular term meaning white trash.
James J. "Spike" Haley, the long-time Business Manager of the WV Department of Highways, traveled to Mingo County in 1977 to survey flood damage. The county had been particularly hard hit by heavy rains that year. Spike took one look at the scene and exclaimed, "It’s true! Milk jugs do swim upstream to spawn!"
I always thought that Spike’s observation about milk jugs should go down as one of West Virginia’s greatest anecdotes. He was an eyewitness to Nature’s devastation but he was more taken aback by manmade trash dangling from the trees.
If Spike were with us today, I would ask him to survey Morgantown’s trash problem. I am certain he could amuse us with something just as clever.
It used to be that you descended into Morgantown on two-lane University Avenue with the hillside on your right and the riverfront industrial district on your left. It was this welcoming sight that gave Morgantown its nickname, "Morganhole."
In the last decade, however, University Avenue has been transformed into the Wharf District. Developers began remodeling old buildings and building new ones to create a majestic waterfront that is the envy of every mayor in America. In the same way that the Inner Harbor eliminated Baltimore’s "Block", the Wharf District has done just as well in removing "Morganhole" from our lexicon.
But there remains a problem lingering upstream in the Monongahela River basin. The milk jugs are still spawning!
The Morgantown Lock and Dam traps all kinds of debris. At times, an acre or more of flotsam and jetsam builds up behind the dam and the Corps of Engineers, the dam’s operator, opens a gate to flush it through. This freed school of trash, swimming vigorously to the sea we presume, can be an annoying sight if you’re booked into the 15-story Radisson Hotel or enjoying a concert at the McQuain Pavilion along the rail trail.
The trash problem has led to a letter writing campaign. West Virginians write to Congressman Mollohan. Congressman Mollohan writes to the Corps of Engineers. And the Corps replies to all that their agency is not funded to remove river trash. Their mission, they tell us, is to maintain navigation on the waterway. Rightly so, the Corps has pointed out that if people didn’t throw trash into the streams in the first place, then it wouldn’t collect behind the dam.
But what West Virginian wants to hear that? We already know we cause the problem; we just want the feds to pick up our trash for us! We have sunk so low that we write letters to Congress demanding that federal taxpayers in the other 49 states make amends for our sloth!
Morgantown (as do our rivers) deserves our respect. Morgantown is the one successful, growing city that we have in West Virginia. Business, government, and West Virginia University have joined together to make ‘Motown’ a showcase. Nowhere else in the state do we see this kind of progress.
Morgantown also has a growing international population. Representatives of foreign nations and businesses routinely visit to pursue research ventures. How can we expect Morgantown to be our beacon to the world when we use the Mon River as a sewer? Software Valley, the Mon’s catchy moniker, might soon be heralded as "Vallée de Tupperware" if a French reporter comes to visit.
During his two terms, Governor Gaston Caperton pushed the Adopt A Highway program in order to mitigate our trash problems. I also recall his "Make It Shine" ad campaign which kept this message in the forefront. It is sad and ironic that the rail trail passing by the Morgantown Lock (and the trash) is named in honor of former Governor Caperton.
Congress will likely cajole the Corps of Engineers into removing the Monongahela’s trash. The job will be expensive, perilous for the boathands, and absolutely impossible during the icing season. Were milk jugs more like cicadas, the plan might actually work. But milk jugs spawn 24/7/365.
In the final analysis, the attitudes of West Virginians will not have changed. Once again, we will prove to ourselves that if we whine and cry loud enough and long enough, then Uncle Sam will come hither to pamper us.
Friday, June 18, 2004
Friday, May 28, 2004
Roadwork Orange-Your Highway Taxes at Work!
This is orange season. As you travel the highways, you’ll see orange barrels, orange signs, and orange-clad people waving orange flags.
You will be interested to know that all of this roadwork orange can sometime cost more than it does to resurface the pavement and replace the guardrails. Maintaining Traffic, as it’s called in the trade, is a very expensive component of the cost of renovating roadways.
One reason for this exorbitant cost is the fact that construction laborers-the people who move the orange barrels and wave those orange flags-are paid $30.01 per hour. When the contracting company adds its margins for overhead, taxes and profit, the cost to you, the taxpayer, can grow to over $60.00 per hour.
Most paved roads in West Virginia qualify for some degree of federal aid and on federal aid construction projects, the Davis-Bacon Act requires that workers be paid not less than the local prevailing wage rates for similar work. In 52 of our 55 counties, the US Department of Labor (USDoL) has determined that the prevailing wage rate for a laborer who works as a Flag Person is $30.01 per hour.
The average hourly wage of all American non-farm workers is something over $15.00 per hour. So it is fair to ask how the USDoL came up with a prevailing wage of $30.01 per hour for the most common of labor in the nation’s second-poorest state.
The Davis-Bacon Act was passed in 1931, a time when every third man was looking for work. The law’s purpose was to protect organized labor’s wage pacts. This purpose has not changed in 73 years. Guess where the $30.01 comes from?
Libertarian economists have long argued that market forces need to be employed throughout the economy in order to accurately and fairly price goods and resources. On the other side, Liberals have thrown up the argument that only government can do certain tasks, such as road building in this example. By arguing from this vantage, they then expand the venue to justify the central planners’ role in determining local wage rates, prevailing or otherwise.
If you are an advocate of Labor, then you would view the Davis-Bacon Act as a victory for the common laborer. And victory it is, if you are prone to declare victory when day laborers are paid more than nurses. You would also argue that the Davis-Bacon Act prevents unscrupulous, out-of-state contractors from coming here with truckloads of Mexicans and taking jobs away from our local workforce. (This continues to be the preferred sound bite because it resonates so well.)
A student of history would disagree with these conclusions. Davis-Bacon has often been called the last of the Jim Crow laws. In 1931, the jobs of white union men weren’t threatened by Mexicans and NAFTA. Back then, the unions feared that black men would take their jobs. Davis-Bacon served Jim Crow well.
The Davis-Bacon Act has been both cruel and inept as social legislation. But rather than reverse it, seven decades of congressmen, senators and presidents have allowed it to stand so as not to alienate Labor.
What is the cost of a Flag Person? You can read highway project bid tabulations at the Contractors Association of WV website (www.cawv.org). And once there, you will find bid prices ranging from $45.00 per hour and up. To put this in perspective, you now pay about 45¢ per gallon in gasoline taxes that fund road construction. You will have to buy 100 gallons of gasoline to pay enough tax to cover one hour of the Flag Person’s time. To pay this laborer for one regular 40-hour week, then plan on pumping 4,000 gallons. For most of you, this works out to six years of driving.
In its latest wage determination ruling, the USDoL decreed that the local prevailing wage for a Flag Person in Berkeley, Jefferson and Mineral counties is $21.71 per hour. Given all of the population growth and the construction boom going on in Berkeley and Jefferson counties, I would have thought that the central planners had applied their wage formula incorrectly. Especially so, since the unemployment rates there are negligible.
But, hey, I was never cut out to be a central planner. They are all-knowing gods and I am just a writer waving a red flag.
Prevailing wage rates for flag persons:
Morgan County, WV $30.01 per hr.
Berkley County, WV $21.71 per hr.
Jefferson County, WV $21.71 per hr.
Frederick County, VA $6.75 per hr.
Clarke County, VA $9.25 per hr.
Loudoun County, VA $9.25 per hr.
You will be interested to know that all of this roadwork orange can sometime cost more than it does to resurface the pavement and replace the guardrails. Maintaining Traffic, as it’s called in the trade, is a very expensive component of the cost of renovating roadways.
One reason for this exorbitant cost is the fact that construction laborers-the people who move the orange barrels and wave those orange flags-are paid $30.01 per hour. When the contracting company adds its margins for overhead, taxes and profit, the cost to you, the taxpayer, can grow to over $60.00 per hour.
Most paved roads in West Virginia qualify for some degree of federal aid and on federal aid construction projects, the Davis-Bacon Act requires that workers be paid not less than the local prevailing wage rates for similar work. In 52 of our 55 counties, the US Department of Labor (USDoL) has determined that the prevailing wage rate for a laborer who works as a Flag Person is $30.01 per hour.
The average hourly wage of all American non-farm workers is something over $15.00 per hour. So it is fair to ask how the USDoL came up with a prevailing wage of $30.01 per hour for the most common of labor in the nation’s second-poorest state.
The Davis-Bacon Act was passed in 1931, a time when every third man was looking for work. The law’s purpose was to protect organized labor’s wage pacts. This purpose has not changed in 73 years. Guess where the $30.01 comes from?
Libertarian economists have long argued that market forces need to be employed throughout the economy in order to accurately and fairly price goods and resources. On the other side, Liberals have thrown up the argument that only government can do certain tasks, such as road building in this example. By arguing from this vantage, they then expand the venue to justify the central planners’ role in determining local wage rates, prevailing or otherwise.
If you are an advocate of Labor, then you would view the Davis-Bacon Act as a victory for the common laborer. And victory it is, if you are prone to declare victory when day laborers are paid more than nurses. You would also argue that the Davis-Bacon Act prevents unscrupulous, out-of-state contractors from coming here with truckloads of Mexicans and taking jobs away from our local workforce. (This continues to be the preferred sound bite because it resonates so well.)
A student of history would disagree with these conclusions. Davis-Bacon has often been called the last of the Jim Crow laws. In 1931, the jobs of white union men weren’t threatened by Mexicans and NAFTA. Back then, the unions feared that black men would take their jobs. Davis-Bacon served Jim Crow well.
The Davis-Bacon Act has been both cruel and inept as social legislation. But rather than reverse it, seven decades of congressmen, senators and presidents have allowed it to stand so as not to alienate Labor.
What is the cost of a Flag Person? You can read highway project bid tabulations at the Contractors Association of WV website (www.cawv.org). And once there, you will find bid prices ranging from $45.00 per hour and up. To put this in perspective, you now pay about 45¢ per gallon in gasoline taxes that fund road construction. You will have to buy 100 gallons of gasoline to pay enough tax to cover one hour of the Flag Person’s time. To pay this laborer for one regular 40-hour week, then plan on pumping 4,000 gallons. For most of you, this works out to six years of driving.
In its latest wage determination ruling, the USDoL decreed that the local prevailing wage for a Flag Person in Berkeley, Jefferson and Mineral counties is $21.71 per hour. Given all of the population growth and the construction boom going on in Berkeley and Jefferson counties, I would have thought that the central planners had applied their wage formula incorrectly. Especially so, since the unemployment rates there are negligible.
But, hey, I was never cut out to be a central planner. They are all-knowing gods and I am just a writer waving a red flag.
Prevailing wage rates for flag persons:
Morgan County, WV $30.01 per hr.
Berkley County, WV $21.71 per hr.
Jefferson County, WV $21.71 per hr.
Frederick County, VA $6.75 per hr.
Clarke County, VA $9.25 per hr.
Loudoun County, VA $9.25 per hr.
Friday, May 7, 2004
Common Sense Could Have Saved Our Nation More Than Money
When your business depends on defying gravity, it is appropriate to concern yourself with the cost of doing so. And that’s why Robert Crandall, the former CEO of American Airlines, became the sage of the modern air travel industry.
Crandall was dining in mid-flight when he noticed that his dinner salad had three olives. He went back to the office and calculated that his airline could save $40,000 per year in fuel costs just by eliminating one of those olives. And why not? It costs just as much to fly olives as it does cargo and passengers never booked flights based on salad garnishes.
Unfortunately, the airlines succumbed to this degree of frugality and missed seeing the big picture. In-flight hijackings of passenger planes have been going on since at least 1931. And there have been repeated cases of Arab terrorists hijacking planes in the jet age. That four aircraft were hijacked by Arab terrorists on 9/11 shouldn’t have come as a surprise.
Both common sense and the General Accounting Office had recommended fortifying cockpit doors for many years. But the industry and its regulators consistently rebuffed the idea. First of all, there was the cost of flying heavier doors. And the issue of safety came second. In the event of a crash, cockpit doors had to be pliable lest the flight crew be trapped in the wreckage.
Prior to 9/11, the airlines, the regulators, and law enforcement agencies all believed that prior hijackings would be the model for future ones. In other words, they thought that hijackers would force the plane down and bargain a ransom for the hostages. Flight crews were trained to go along with these ploys with their primary mission being to land safely. No one thought that hijackers would kill the pilots and attempt to fly the plane.
Now we know different. But did we have to learn the hard way?
In the aftermath of that terrible day, protecting pilots became a no-brainer, even among the bureaucrats. The desk pilots at the Federal Aviation Administration submitted a plan for replacing existing cockpit doors with bulletproof doors that would also prevent entry to the flight deck. The old doors weighed 25#. The new ones would weigh in at 50#. FAA estimated it would cost the industry some $11 million per year to fly the extra weight. Adding in the installation cost, FAA derived a life-cycle cost of well under $100 million.
Had we relied on common sense instead of the experts who work inside the beltway, the industry could have spent $100 million ten years ago and averted a disaster that has already cost over $100 billion. Now that the new cockpit doors have been installed, the airlines have been reimbursed to the tune of $100 million by the US taxpayer. The $100 million got spent anyway-just unwisely and untimely.
When the Rogers Commission investigated the Challenger shuttle explosion, commission members almost bought into NASA’s doubletalk and cover up. But then, the unexpected happened. The late Dr. Richard Feynman, a Nobel physicist, put a piece of the booster’s O-ring in his ice water glass. A few minutes later, he pulled it out and snapped it in half, thus demonstrating the effect of cold weather at launch. NASA reluctantly said, "Mea culpa!" and then went about changing launch procedures.
Sadly, there is no Dr. Feynman sitting on the 9/11 Commission. The commission consists of partisan snipers and its two co-chairmen are placaters. In this election year, the 9/11 Commission has distinguished itself as a failure even before it has written its report.
At a time when we desperately need a sober analysis of our national security procedures, we sold ourselves out to an impotent commission rather than demand truthful answers to the tough questions. Our vanity, like that of the Greek’s Icarus, let us believe that we could defy gravity forever. Yes, it’s hard to admit that we were so foolish for so long. But we need to get over our hurt feelings now. We know that there will be more attacks and we also know that they will coincide with the November election.
We are at war. But I am unconvinced that the American people understand this.
Crandall was dining in mid-flight when he noticed that his dinner salad had three olives. He went back to the office and calculated that his airline could save $40,000 per year in fuel costs just by eliminating one of those olives. And why not? It costs just as much to fly olives as it does cargo and passengers never booked flights based on salad garnishes.
Unfortunately, the airlines succumbed to this degree of frugality and missed seeing the big picture. In-flight hijackings of passenger planes have been going on since at least 1931. And there have been repeated cases of Arab terrorists hijacking planes in the jet age. That four aircraft were hijacked by Arab terrorists on 9/11 shouldn’t have come as a surprise.
Both common sense and the General Accounting Office had recommended fortifying cockpit doors for many years. But the industry and its regulators consistently rebuffed the idea. First of all, there was the cost of flying heavier doors. And the issue of safety came second. In the event of a crash, cockpit doors had to be pliable lest the flight crew be trapped in the wreckage.
Prior to 9/11, the airlines, the regulators, and law enforcement agencies all believed that prior hijackings would be the model for future ones. In other words, they thought that hijackers would force the plane down and bargain a ransom for the hostages. Flight crews were trained to go along with these ploys with their primary mission being to land safely. No one thought that hijackers would kill the pilots and attempt to fly the plane.
Now we know different. But did we have to learn the hard way?
In the aftermath of that terrible day, protecting pilots became a no-brainer, even among the bureaucrats. The desk pilots at the Federal Aviation Administration submitted a plan for replacing existing cockpit doors with bulletproof doors that would also prevent entry to the flight deck. The old doors weighed 25#. The new ones would weigh in at 50#. FAA estimated it would cost the industry some $11 million per year to fly the extra weight. Adding in the installation cost, FAA derived a life-cycle cost of well under $100 million.
Had we relied on common sense instead of the experts who work inside the beltway, the industry could have spent $100 million ten years ago and averted a disaster that has already cost over $100 billion. Now that the new cockpit doors have been installed, the airlines have been reimbursed to the tune of $100 million by the US taxpayer. The $100 million got spent anyway-just unwisely and untimely.
When the Rogers Commission investigated the Challenger shuttle explosion, commission members almost bought into NASA’s doubletalk and cover up. But then, the unexpected happened. The late Dr. Richard Feynman, a Nobel physicist, put a piece of the booster’s O-ring in his ice water glass. A few minutes later, he pulled it out and snapped it in half, thus demonstrating the effect of cold weather at launch. NASA reluctantly said, "Mea culpa!" and then went about changing launch procedures.
Sadly, there is no Dr. Feynman sitting on the 9/11 Commission. The commission consists of partisan snipers and its two co-chairmen are placaters. In this election year, the 9/11 Commission has distinguished itself as a failure even before it has written its report.
At a time when we desperately need a sober analysis of our national security procedures, we sold ourselves out to an impotent commission rather than demand truthful answers to the tough questions. Our vanity, like that of the Greek’s Icarus, let us believe that we could defy gravity forever. Yes, it’s hard to admit that we were so foolish for so long. But we need to get over our hurt feelings now. We know that there will be more attacks and we also know that they will coincide with the November election.
We are at war. But I am unconvinced that the American people understand this.
Friday, April 2, 2004
History Repeats Itself. First As Tragedy, Second As Farce.
In West Virginia, the 1960s are often referred to as the Barron Era. Several prominent members of Governor Barron’s administration, Attorney General Robertson, and State Treasurer Kelly were all convicted on kickbacks or extortion charges. Governor Barron was acquitted at his trial but only because he bribed the jury, the crime for which he was later convicted. During this era, every possible way of trading government service for under-the-table payments was exploited. Even state employees were given coupon books and "asked" to contribute (in cash) two percent of their salary to the flower fund.
If state government ran like an organized crime syndicate in the 1960’s, the wide-open corruption of the 1980s took the form of Haitian looting. The players went their separate ways to find storefronts of their liking. Governor Moore, Attorney General Brown, three Senators and two Delegates were prosecuted by the Feds. The reason I refer to this period as "Haitian looting" is that the US Attorney’s office convicted nearly 100 public officials for various crimes. And beyond that, you can add the impeachment of State Treasurer Manchin.
It can be claimed, then, that West Virginia politicians fulfilled at least one of Karl Marx’s philosophies-that of history repeating itself. The Sixties were tragedy, the Eighties farce.
Though the Eighties may seem ancient, it would do well for us to remember that only a decade has passed since the last round of public corruption trials concluded. We are a long way from being out of the woods. Nevertheless, we have arrived at a turning point and the time is right to ask ourselves, "Are we due for another embarrassing, bidecadal housecleaning?"
I posed this question to my 8-ball and the black orb cautiously replied, "Better not tell you now."
One could argue that my trusty psychic errs because democracy is alive and well in the state. There are record numbers of candidates running for office in the upcoming primary election and, on its face, broad competition for public office is a good thing. But are a multitude of candidates, by themselves, enough to avert another disaster? Not unless they are nearly unanimous in overhauling state government.
Our state has used the same business plan since anyone can remember. Government has grown despite promises to shrink it and taxes have soared to unimaginable heights. Next year, over $8 billion will be spent on a population that has shrunk to fewer than 2 million. Yet the answers given for our current problems are the same as they were for our past problems-grow the government by taxing or borrowing and all will be well.
When it comes to funding a centrally-planned society, all roads lead to Rome. And like the Roman model, our capitol has sucked dry the lifeblood of the provinces in order to maintain its grip on power. Our cities risk bankruptcy because of antiquated taxing authority and growing pension debts. Our counties are relics from antebellum days and, aside from their judicial function, courthouses are not much more than clerical offices that cost a small fortune to operate. In the mean, the powers to tax, to spend, and to decide the fate of the economy are concentrated at the state level in the hands of a select few autocrats. The provinces be damned, render all tribute unto Rome!
Lord Acton said, "Power corrupts and absolute power corrupts absolutely." His observation is as timeless as it is true. And it is this very same observation that Hayek used to introduce the chapter, "Why The Worst Get On Top."
What more could I add other than "Three strikes and you’re out."?
If state government ran like an organized crime syndicate in the 1960’s, the wide-open corruption of the 1980s took the form of Haitian looting. The players went their separate ways to find storefronts of their liking. Governor Moore, Attorney General Brown, three Senators and two Delegates were prosecuted by the Feds. The reason I refer to this period as "Haitian looting" is that the US Attorney’s office convicted nearly 100 public officials for various crimes. And beyond that, you can add the impeachment of State Treasurer Manchin.
It can be claimed, then, that West Virginia politicians fulfilled at least one of Karl Marx’s philosophies-that of history repeating itself. The Sixties were tragedy, the Eighties farce.
Though the Eighties may seem ancient, it would do well for us to remember that only a decade has passed since the last round of public corruption trials concluded. We are a long way from being out of the woods. Nevertheless, we have arrived at a turning point and the time is right to ask ourselves, "Are we due for another embarrassing, bidecadal housecleaning?"
I posed this question to my 8-ball and the black orb cautiously replied, "Better not tell you now."
One could argue that my trusty psychic errs because democracy is alive and well in the state. There are record numbers of candidates running for office in the upcoming primary election and, on its face, broad competition for public office is a good thing. But are a multitude of candidates, by themselves, enough to avert another disaster? Not unless they are nearly unanimous in overhauling state government.
Our state has used the same business plan since anyone can remember. Government has grown despite promises to shrink it and taxes have soared to unimaginable heights. Next year, over $8 billion will be spent on a population that has shrunk to fewer than 2 million. Yet the answers given for our current problems are the same as they were for our past problems-grow the government by taxing or borrowing and all will be well.
When it comes to funding a centrally-planned society, all roads lead to Rome. And like the Roman model, our capitol has sucked dry the lifeblood of the provinces in order to maintain its grip on power. Our cities risk bankruptcy because of antiquated taxing authority and growing pension debts. Our counties are relics from antebellum days and, aside from their judicial function, courthouses are not much more than clerical offices that cost a small fortune to operate. In the mean, the powers to tax, to spend, and to decide the fate of the economy are concentrated at the state level in the hands of a select few autocrats. The provinces be damned, render all tribute unto Rome!
Lord Acton said, "Power corrupts and absolute power corrupts absolutely." His observation is as timeless as it is true. And it is this very same observation that Hayek used to introduce the chapter, "Why The Worst Get On Top."
What more could I add other than "Three strikes and you’re out."?
Friday, March 12, 2004
The Steel Tariff! It's Deja Vu All Over Again!
John Deere did not invent the green & yellow riding lawn mower. Should your children ask you what he did invent, be careful in answering. If you tell them (correctly), "The steel plow.", then they will surely ask you, "What’s a steel plow?" This is a trick question.
Although we are living in the Golden Age of Carbohydrate Consumption, precious few farmers now plow the land and harvest the crops. When Deere invented his plow in 1838, quite the opposite was true. Most Americans were farmers--by necessity, not by choice. Our modern era, nevertheless, does have one thing in common with the agrarian past--import tariffs. No invention--not even the plow--has been able to uproot this vile weed.
Before I begin, let me point out that iron is a metal element. Steel, on the other hand, is a manufactured alloy containing mostly iron and about 1% carbon. Iron and steel are not the same. Iron is weaker and softer than steel. In simplest terms, steel makes your lawn-mowing experience possible.
Prior to the Civil War, America was not a steelmaker. Steelmaking was the domain of England. Although we were the 3rd leading producer of iron, our technology lagged 50 years behind the steelmakers at Sheffield, England. We were only capable of producing cast iron and wrought iron, neither of which made for a durable, long-wearing plow.
John Deere, a Vermont blacksmith, moved to Illinois in 1837 and soon learned from local farmers that the standard iron plow would not turn over the sticky, Midwest soil. Further, it is said that it took an 8-oxen team a week to plow just one acre. Deere solved the tillage dilemma by fabricating a plow from a piece of Sheffield steel. The prairie earth didn’t cling to steel like it did to the softer iron and agriculture changed forever.
Imagine if you will, that all of a sudden it no longer took 8 oxen a week to plow one acre but instead, two oxen could plow that acre in a day or so. This moment in history is far more significant than you have been taught. And it almost didn’t happen.
Politicians in that era were keen on protecting our primitive iron industry and keeping it primitive. At times, the tariff doubled the price of imported iron. With such a cushion, the ironworks proceeded with business as usual. American iron mills continued to fill orders for low-end products rather than innovate. Wheeling, WV earned its nickname, "Nail City", during this period.
When the iron tariff was substantially reduced in the 1840s, English goods flooded the market and American iron mills took a hit. By focusing on efficiency and developing a reputation for unmatched quality, the English were able to import pig iron from Sweden, finish it at Sheffield, and transport their manufactured goods to America cheaper than our protected iron industry could produce locally.
As we look back in history for answers to today’s questions, there are two lessons to be learned here. First, it was innovation that created vast new markets for steel. The steel plow led to the development of other steel farm implements as well as Henry Ford’s farm tractor. And just try and count the railcars and cargo ships that have transported Illinois corn and Kansas wheat to the far reaches of the globe. All of this because of one man’s idea.
Second, and perhaps more salient, is that America was a third-world nation in the early 1800‘s. Third-world nations expect to be coddled and sheltered by tariffs. Today, we are the world’s superpower. If we want to keep that title, we need to stop building fences and start plowing new ground.
Although we are living in the Golden Age of Carbohydrate Consumption, precious few farmers now plow the land and harvest the crops. When Deere invented his plow in 1838, quite the opposite was true. Most Americans were farmers--by necessity, not by choice. Our modern era, nevertheless, does have one thing in common with the agrarian past--import tariffs. No invention--not even the plow--has been able to uproot this vile weed.
Before I begin, let me point out that iron is a metal element. Steel, on the other hand, is a manufactured alloy containing mostly iron and about 1% carbon. Iron and steel are not the same. Iron is weaker and softer than steel. In simplest terms, steel makes your lawn-mowing experience possible.
Prior to the Civil War, America was not a steelmaker. Steelmaking was the domain of England. Although we were the 3rd leading producer of iron, our technology lagged 50 years behind the steelmakers at Sheffield, England. We were only capable of producing cast iron and wrought iron, neither of which made for a durable, long-wearing plow.
John Deere, a Vermont blacksmith, moved to Illinois in 1837 and soon learned from local farmers that the standard iron plow would not turn over the sticky, Midwest soil. Further, it is said that it took an 8-oxen team a week to plow just one acre. Deere solved the tillage dilemma by fabricating a plow from a piece of Sheffield steel. The prairie earth didn’t cling to steel like it did to the softer iron and agriculture changed forever.
Imagine if you will, that all of a sudden it no longer took 8 oxen a week to plow one acre but instead, two oxen could plow that acre in a day or so. This moment in history is far more significant than you have been taught. And it almost didn’t happen.
Politicians in that era were keen on protecting our primitive iron industry and keeping it primitive. At times, the tariff doubled the price of imported iron. With such a cushion, the ironworks proceeded with business as usual. American iron mills continued to fill orders for low-end products rather than innovate. Wheeling, WV earned its nickname, "Nail City", during this period.
When the iron tariff was substantially reduced in the 1840s, English goods flooded the market and American iron mills took a hit. By focusing on efficiency and developing a reputation for unmatched quality, the English were able to import pig iron from Sweden, finish it at Sheffield, and transport their manufactured goods to America cheaper than our protected iron industry could produce locally.
As we look back in history for answers to today’s questions, there are two lessons to be learned here. First, it was innovation that created vast new markets for steel. The steel plow led to the development of other steel farm implements as well as Henry Ford’s farm tractor. And just try and count the railcars and cargo ships that have transported Illinois corn and Kansas wheat to the far reaches of the globe. All of this because of one man’s idea.
Second, and perhaps more salient, is that America was a third-world nation in the early 1800‘s. Third-world nations expect to be coddled and sheltered by tariffs. Today, we are the world’s superpower. If we want to keep that title, we need to stop building fences and start plowing new ground.
Friday, February 6, 2004
Geckos? We Don't Need No Stinking Geckos!
A program whose basic thesis is, not that the system of free enterprise for profit has failed in this generation, but that it has not yet been tried.
Franklin D. Roosevelt, Message to Congress on the Concentration of Economic Power, April 29, 1938
Leo Goodwin had a brilliant idea in 1936. He decided that insuring the personally-owned automobiles of government workers would be a sure-fire success. After all, government workers tend to be responsible people who have stable employment. Leo’s idea became the Government Employees Insurance Company, which you know better by its acronym, GEICO.
GEICO was chartered as a publicly-owned corporation. GEICO was not a New Deal government agency.
GEICO remained a solid performer until the 1970s when it began writing policies for high-risk customers to achieve growth. The strategy backfired and the company was soon on the ropes. Enter Warren Buffett.
The Sage of Omaha saw an opportunity and his Berkshire Hathaway Co. began acquiring GEICO stock. Warren Buffett understood what Leo Goodwin knew-that government workers, GEICO’s core customers, were good risks. Buffett returned the insurer to its root philosophy and GEICO was soon profitable again.
I suppose GEICO chose the gecko as its marketing mascot because of the similarity of pronunciation. But I wonder sometimes if the firm chose the gecko as a playful jab at Oliver Stone who created Gordon Gecko, the corporate raider in the film "Wall Street." If that’s the case, I am sure that Warren Buffett laughs about it on his way to the bank each morning.
If Leo Goodwin were with us today, he just might be tempted to write health insurance policies for West Virginia government employees. After all, the state-run government insurance monopoly known as PEIA insures one-eighth of the state’s population. Goodwin would realize that a 12.5% market share in such a small state would present an attractive economy of scale. But therein lies the problem-PEIA is a government monopoly.
I cannot predict whether health insurance companies could provide cheaper or better coverage for the state’s employees than what PEIA currently provides. Only the marketplace can do that. But given the fact that some companies currently write group health coverage for private sector employers, it certainly would be worth exploring an open market and allow them to compete for the state’s business. Just as President Roosevelt remarked in his Message to Congress in 1938, we have a situation where the system of free enterprise "has not yet been tried."
The accompanying quote from FDR was selected by F. A. Hayek to introduce "The Abandoned Road", chapter one of The Road to Serfdom. Hayek and Roosevelt knew that the concentration of economic power in the hands of a few was the surest way to undermine a democracy. As well, they understood that free competition throughout the system was the best way to prevent a handful of elitists from controlling the government. It is, therefore, not an idle coincidence that Hayek and Roosevelt speak to us from the same page.
Should you ask the average West Virginian about FDR’s policies, he or she will probably tell you that FDR was all for government control of every aspect of life. This is a sad misunderstanding but, nevertheless, an accurate appraisal of our folk. Building the Tennessee Valley Authority should not be equated with administering the health insurance claims of WV public employees. But somehow, West Virginians have managed to put these tasks on par with each other-that government must do everything.
The taxpayer is the obvious loser in this equation. The taxpayer has no choice but to pay the monopoly. The real loser, however, is the person who works for government and is insured by PEIA. It is not simply a matter of money to them. It is, after all, their healthcare that is being bandied about. As to why public employees are compelled to shop at the company store in this day and age baffles me.
If PEIA does a cost-effective job at what it does, then the agency should not fear competition from the private sector. But we’ll never know how well (or how poorly) PEIA performs without the opportunity to comparison shop.
FDR also said, "We have nothing to fear but fear itself." He did not fear geckos. Indeed, from his remarks in 1938, we can see that he encouraged the little fellows.
Franklin D. Roosevelt, Message to Congress on the Concentration of Economic Power, April 29, 1938
Leo Goodwin had a brilliant idea in 1936. He decided that insuring the personally-owned automobiles of government workers would be a sure-fire success. After all, government workers tend to be responsible people who have stable employment. Leo’s idea became the Government Employees Insurance Company, which you know better by its acronym, GEICO.
GEICO was chartered as a publicly-owned corporation. GEICO was not a New Deal government agency.
GEICO remained a solid performer until the 1970s when it began writing policies for high-risk customers to achieve growth. The strategy backfired and the company was soon on the ropes. Enter Warren Buffett.
The Sage of Omaha saw an opportunity and his Berkshire Hathaway Co. began acquiring GEICO stock. Warren Buffett understood what Leo Goodwin knew-that government workers, GEICO’s core customers, were good risks. Buffett returned the insurer to its root philosophy and GEICO was soon profitable again.
I suppose GEICO chose the gecko as its marketing mascot because of the similarity of pronunciation. But I wonder sometimes if the firm chose the gecko as a playful jab at Oliver Stone who created Gordon Gecko, the corporate raider in the film "Wall Street." If that’s the case, I am sure that Warren Buffett laughs about it on his way to the bank each morning.
If Leo Goodwin were with us today, he just might be tempted to write health insurance policies for West Virginia government employees. After all, the state-run government insurance monopoly known as PEIA insures one-eighth of the state’s population. Goodwin would realize that a 12.5% market share in such a small state would present an attractive economy of scale. But therein lies the problem-PEIA is a government monopoly.
I cannot predict whether health insurance companies could provide cheaper or better coverage for the state’s employees than what PEIA currently provides. Only the marketplace can do that. But given the fact that some companies currently write group health coverage for private sector employers, it certainly would be worth exploring an open market and allow them to compete for the state’s business. Just as President Roosevelt remarked in his Message to Congress in 1938, we have a situation where the system of free enterprise "has not yet been tried."
The accompanying quote from FDR was selected by F. A. Hayek to introduce "The Abandoned Road", chapter one of The Road to Serfdom. Hayek and Roosevelt knew that the concentration of economic power in the hands of a few was the surest way to undermine a democracy. As well, they understood that free competition throughout the system was the best way to prevent a handful of elitists from controlling the government. It is, therefore, not an idle coincidence that Hayek and Roosevelt speak to us from the same page.
Should you ask the average West Virginian about FDR’s policies, he or she will probably tell you that FDR was all for government control of every aspect of life. This is a sad misunderstanding but, nevertheless, an accurate appraisal of our folk. Building the Tennessee Valley Authority should not be equated with administering the health insurance claims of WV public employees. But somehow, West Virginians have managed to put these tasks on par with each other-that government must do everything.
The taxpayer is the obvious loser in this equation. The taxpayer has no choice but to pay the monopoly. The real loser, however, is the person who works for government and is insured by PEIA. It is not simply a matter of money to them. It is, after all, their healthcare that is being bandied about. As to why public employees are compelled to shop at the company store in this day and age baffles me.
If PEIA does a cost-effective job at what it does, then the agency should not fear competition from the private sector. But we’ll never know how well (or how poorly) PEIA performs without the opportunity to comparison shop.
FDR also said, "We have nothing to fear but fear itself." He did not fear geckos. Indeed, from his remarks in 1938, we can see that he encouraged the little fellows.
Monday, January 26, 2004
The Paving Cycle: A Sad Tale of West Virginia
Back in the 1970s, we had double-digit inflation combined with price gouging by OPEC. And we learned a new phrase-The Paving Cycle.
Whereas in normal times our roads were resurfaced every seven years, by 1979 the paving cycle had increased to 17 years. Two actions were taken to shorten the duration. First, a 5% tax on the wholesale price of motor fuel was imposed. And second, the Legislature added a line to the Department of Highways budget for Paving.
The fuel tax, by being levied on the wholesaler, was a clever ploy because the consumer never saw it posted at the pump. On the other hand, the budget line item for Paving guaranteed our legislators that they could, in effect, micro-manage the paving cycle.
In FY 1986, the Department of Highways was short on cash. Faced with spending $77M for debt service on road bonds plus increased costs to match federal aid construction, the DOH had just over one million dollars to allocate to Paving. In other words, the paving cycle soared to 350 years!
The Legislature wasn’t about to let FY 1986 pass without some sort of paving program so it transferred $9.4M from the General Fund to the DOH budget and earmarked it for Paving. Where did the money come from? From redirecting a portion of the appropriation for payments to the state employee’s pension plan. That’s right-pension money became election year pavement.
At this point, I could load my slingshot and pick off Lilliputians with ease. But it is better to focus on the macroeconomic picture than this particular snapshot.
West Virginia cannot afford the services that it commits to. This state does not have the financial wherewithal to borrow huge sums for superhighways, re-pave secondary roads every 7 years, and promise a pension to retired state workers. And this observation does not apply just to the Highway Department. Every department of state government operates beyond its capacity.
Recently, the School Building Authority approved $1,750,000.00 for the new Pickens School. Pickens is our most remote outpost for crying out loud. And people who live at outposts should expect outhouses, not plumbing.
We have far too many colleges. But try to close just one. Politics has prevented implementing a comprehensive plan for higher education such as the one that the Carnegie Commission recommended thirty years ago. Instead, both WVU and Marshall University have been forced to cut programs and staff in order to subsidize unneeded colleges. We will, if we have not already done so, redefine our higher education institutions as being mere "13th Grades" by continuing this charade.
West Virginia has a very nice system of state parks. Though a stated goal of the park system is to maximize self-sufficiency, the system annually relies on a 40% taxpayer subsidy to pay its bills. Our parks are, quite simply, a luxury.
There is the issue of payroll. Government employees are paid well. And they have been paid with scarce cash at the expense of incurring a $5 billion long-term deficit in their pension accounts.
The "Enron of pension plans", as it is known nationally, is now making clear just how dire the situation is. But there’s more. The state has deferred maintenance on every asset it owns, including the capitol and over 1,000 highway bridges. And with so little to spend, our government has not invested in technologies that would actually improve the productivity of state workers and, thus, reduce annual operating costs. The pension debt, as astronomical as it is, comprises perhaps just half of the state’s financial black hole.
If you think I exaggerate, then consider this. Gov. Wise took office in 2001 and pledged to sell all excess state vehicles. It took two years for state agencies to inventory their vehicles and submit a count to his office. By comparison, not only does FedEx know exactly how many vehicles it owns, the dispatcher can locate each one at any given moment of the day.
This, then, is the true cost of spending pension money to pave roads in an election year. It’s the difference between knowing where you are and knowing where you’re headed versus getting waylaid in Pickens, WV with aspirations for the 13th grade.
Whereas in normal times our roads were resurfaced every seven years, by 1979 the paving cycle had increased to 17 years. Two actions were taken to shorten the duration. First, a 5% tax on the wholesale price of motor fuel was imposed. And second, the Legislature added a line to the Department of Highways budget for Paving.
The fuel tax, by being levied on the wholesaler, was a clever ploy because the consumer never saw it posted at the pump. On the other hand, the budget line item for Paving guaranteed our legislators that they could, in effect, micro-manage the paving cycle.
In FY 1986, the Department of Highways was short on cash. Faced with spending $77M for debt service on road bonds plus increased costs to match federal aid construction, the DOH had just over one million dollars to allocate to Paving. In other words, the paving cycle soared to 350 years!
The Legislature wasn’t about to let FY 1986 pass without some sort of paving program so it transferred $9.4M from the General Fund to the DOH budget and earmarked it for Paving. Where did the money come from? From redirecting a portion of the appropriation for payments to the state employee’s pension plan. That’s right-pension money became election year pavement.
At this point, I could load my slingshot and pick off Lilliputians with ease. But it is better to focus on the macroeconomic picture than this particular snapshot.
West Virginia cannot afford the services that it commits to. This state does not have the financial wherewithal to borrow huge sums for superhighways, re-pave secondary roads every 7 years, and promise a pension to retired state workers. And this observation does not apply just to the Highway Department. Every department of state government operates beyond its capacity.
Recently, the School Building Authority approved $1,750,000.00 for the new Pickens School. Pickens is our most remote outpost for crying out loud. And people who live at outposts should expect outhouses, not plumbing.
We have far too many colleges. But try to close just one. Politics has prevented implementing a comprehensive plan for higher education such as the one that the Carnegie Commission recommended thirty years ago. Instead, both WVU and Marshall University have been forced to cut programs and staff in order to subsidize unneeded colleges. We will, if we have not already done so, redefine our higher education institutions as being mere "13th Grades" by continuing this charade.
West Virginia has a very nice system of state parks. Though a stated goal of the park system is to maximize self-sufficiency, the system annually relies on a 40% taxpayer subsidy to pay its bills. Our parks are, quite simply, a luxury.
There is the issue of payroll. Government employees are paid well. And they have been paid with scarce cash at the expense of incurring a $5 billion long-term deficit in their pension accounts.
The "Enron of pension plans", as it is known nationally, is now making clear just how dire the situation is. But there’s more. The state has deferred maintenance on every asset it owns, including the capitol and over 1,000 highway bridges. And with so little to spend, our government has not invested in technologies that would actually improve the productivity of state workers and, thus, reduce annual operating costs. The pension debt, as astronomical as it is, comprises perhaps just half of the state’s financial black hole.
If you think I exaggerate, then consider this. Gov. Wise took office in 2001 and pledged to sell all excess state vehicles. It took two years for state agencies to inventory their vehicles and submit a count to his office. By comparison, not only does FedEx know exactly how many vehicles it owns, the dispatcher can locate each one at any given moment of the day.
This, then, is the true cost of spending pension money to pave roads in an election year. It’s the difference between knowing where you are and knowing where you’re headed versus getting waylaid in Pickens, WV with aspirations for the 13th grade.
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