Monthly Archives: November 2010

The Cheesy Nanny State

The New York Times reports that “While Warning About Fat, U.S. Pushes Cheese Sales”.

Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting.

Urged on by government warnings about saturated fat, Americans have been moving toward low-fat milk for decades, leaving a surplus of whole milk and milk fat. Yet the government, through Dairy Management, is engaged in an effort to find ways to get dairy back into Americans’ diets, primarily through cheese.

This story reminds me of my friends who ran a dairy farm in the 1980s. They got heavily subsidized by the Massachusetts Division of Food and Agriculture  to modernize their long unused dairy barn, buy some cows and get into the milk business in a state funded effort to promote local agriculture. Two or three years later, when the the US Department of Agriculture was trying to prop up wholesale milk prices, they were paid a huge pile of cash by the feds to slaughter their cows and promise not to sell milk for some bureaucratically determined period of time. So they went back full-time to the construction business just as the housing boom was starting to pick up and bought themselves a nice large sailboat with all the government largess.

Perhaps it just shouldn’t be the governments job to either market certain products, tell us what to eat, or micromanage whole industries. Why is a federally funded and mandated organization paying for Dominic Pizza’s marketing program? And why do the do-gooders in the federal government feel empowered to tell us what to eat?

Can we really afford to spend a fortune for one part of the government encourages certain activities, while other government bureaucrats are paid to discourage those exact same things? Wouldn’t it perhaps make more sense to stop squandering tax dollars on the nanny state and just let the market sort things out and treat citizens as if they had some responsibility for their own lives?

Once again, this story points out  the need for congress to clarify and restrain the role of government in our society. Though cutting government programs will be politically difficult, there sure are a few programs that seem ripe for not only cutting, but permanent elimination.

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This Closed Solar Factory Funded by ARRA

This story is a perfect example of enlightened government officials picking winners and losers and parceling out borrowed money while sticking our kids with the multi-trillion dollar tab for their reckless and wasteful spending. The half billion dollar loan guarantee from the federal ARRA “stimulus program” for a start-up with at best questionable technology and prospects, is a glamorous version of the complete waste the vast majority of the stimulus spending represents. It’s perfect example of the fundamentally flawed policy framework that  parcels out public money for private ventures based on the subjective and often arbitrary criteria of government officials.

What’s the best explanation the article offers for a start up with unproven technology getting a half billion dollar loan guarantee?. “Solyndra actually applied for DOE loans back in 2006, when Bush was still President. When Obama announced that he wanted to rev the energy economy, Solyndra happened to be first in line.”  Likely it also involved something like the way government corruption works here in Rhode Island and one of their VC’s suggested “I know this guy, who knows a guy…..”

Hopefully the recent election represents a political wake up call that will put an end to this kind of senseless waste. The new congress should clarify the fundamental principal that the proper role of government is to set and enforce fair, sensible and stable rules for the economic game rather than unfairly and arbitrarily inserting itself in the game as a competitor. The sooner we get government completely out of the roles of business, the more likely we will be to recover some semblance of a sustainable economy.

Expect Solyndra to become a political poster child for those opposing clean energy policy generally, not just wasteful government policies like the stimulus program. The kind of arbitrary political favoritism the stimulus program and most government economic policy represents today is a deep fundamental challenge to a healthy economy and to sensible sustainable public policy.

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Our Shocking Government Obligations

As the recent election season heated up, the statistics tracked at USDebtClock.org crossed a shocking threshold. The combined unfunded liabilities for Social Security, Medicare and Medicaid alone now total over a million dollars for each and every tax payer in America.  That doesn’t include the more than $124,000 share of the official federal debt per taxpayer, the huge undocumented liabilities that the Federal Reserve has committed taxpayer guarantees for in the last three years, the large state and local government debt burdens, the huge unfunded liabilities in the public employee pension systems or all the other financial liabilities our governments have committed taxpayers to cover.

Combined unfunded Social Security, Medicare and Medicaid liabilities and the official federal debt stand at almost 125 trillion dollars, almost twice the value of all the privately owned assets in the country, and more than ten times US GDP.  At some point, even the most optimistic liberal has to wonder how sustainable the continued borrowing and unfunded political promises can really be. Everyone paying attention at all is starting to realize it has to end.

Leading up to the recent election, the anger expressed by those concerned about our economy was a sign of healthy recognition by ordinary people that the commitments made by our federal government are in reality just a giant Ponzi scheme. We’ve been had. And now – we’re broke.

Politicians recently elected face an unprecedented level of citizen expectations for economic responsibility and accountability. I don’t envy any of them. The economic challenges they face are enormous and the only responsible actions possible will be hugely unpopular.

I am encouraged by the few newly elected Senators and Representatives vowing to vote against authorizing any increase to the federal debt limit. While a successful vote to stop the insane levels of borrowing might precipitate another financial crisis, the reality is that it is all the generous votes for nice ideas without realistic funding mechanisms that Congress has taken in the last half century that has actually caused the crisis. Eventually some grownups have to step in and stop the madness. Hopefully that will start to happen in the 112th Congress.

As Margaret Thatcher suggested, “the problem with socialism is that eventually you run out of other peoples money to spend”.  That’s the exact same problem Mr. Ponzi ultimately ran into. Most of America is realizing we’re there.

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Sequel To Bretton Woods?

Jeremy Warner suggests that “the age of the dollar is drawing to a close”. He doesn’t really suggest what new framework for international economic exchange might be established as the US dollar rapidly loses its role as the world’s reserve currency.

More and more it appears that, though it will likely never be proclaimed officially, we are returning to a commodity based valuation for all the world’s currencies. As our trading partners and international bond holders increasing lose faith in the value of the dollar and commodity markets shift to trading in several other currencies, the most effective commodity to track for understanding relative currency valuation will likely be petroleum.

In describing the death of the hegemony of the almighty US dollar, Warner rightly describes the G-20 summit as a “hopelessly unwieldy exercise in global government wouldn’t recognize a corpse if stood before it in a coffin.”

As the G-20 goes about the meaningless charades, traders in the commodities and currency markets will sort out the relative value of the worlds currencies. For a good sense of where the adjustments are headed in the long term, a look at the World Debt Clock offers some pretty clear hints. As bad as things are economically here in the US, and while everyone discusses the crisis in Greece, watching he debt clocks escalate, it appears that England and Ireland may play very prominent roles in future rounds of sorting in the world economy and currency markets.

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