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Self-Inflicted Damage (Hostess & More)
Karl Denninger / Market Ticker
Hostess has received clearance from the bankruptcy judge to wind down operations; 18,000 people are losing thier jobs. 15,000 are being fired today and joining the ranks of the unemployed (that will produce a nice spike in the claims report.)
In a bit of irony, the judge’s last name is “Drain.” As in “down the drain.”
This failure is one of a plethora of similar business failures where declining revenues eventually ran into escalating or at best flat costs. Such a situation eventually squeezes margins to the point that an operating profit is impossible.
The unions are a big part of this problem, but only a part.
The rest is found in the political process, and both “mainstream” parties along with the Libertarians share equal blame. Their views on illegal immigrants who are hired because they’re cheaper and so-called “free trade” that is really about oppressing people with slave-like working conditions and environmental destruction, enforced by thuggish governments and what they sell to you (and you lap up) is why this has happened.
When compulsion is available without recompense someone will eventually use it to get an advantage, and unfair labor practices, up to and including literal slavery, are as old as the Sun. This should not surprise, since labor cost is a major part of virtually every business that builds a thing or provides a service and where the lion’s share of cost resides the greatest reward for finding a way to cut it down to size is concurrently present.
We in America have spent more than 30 years stuffing our collective heads in the sand. Ross Perot was right, but nobody wanted to hear it and as soon as he was no longer a contender for President everyone went back to wanting cheap products made “over there” without regard to how, at what labor cost or whether the people and their land, air and water were treated fairly — or even had the ability to negotiate freely in exchange for their labor.
We still pound the so-called “free trade” drum loudly, even though it is nothing of the sort. What we have today is literal enslavement of those in other lands through proxy. We no longer bring over black people from Africa — we instead hire companies to build “our stuff” in far-away lands and let them do what they want. Our so-called “principles” when it comes to fair treatment and environmental destruction only apply here, you see, where it’s highly visible. Over there, especially when the people there look different than we do here, it doesn’t matter so much — or at all.
But this belies the second part of the problem, which is that in order to buy the goods and services one must have an income. When the labor value is $0.20/hour then so is the labor’s imputed value in the local economy here, and nobody can survive on that. So we cheat once again; we expand the so-called “social safety net” but since taxing someone and then giving them back their own money is a circle jerk and doesn’t actually help anyone we instead run fiscal deficits which are then recycled over to the surplus nations where the slavery is taking place.
This, however, is also unsustainable, because it relies on an ever-larger exponential flow and there is no such thing as a permanently-stable and sustainable exponential growth function. Ever. Mathematics dictate that outcome, not politics.
The solution was laid forth in our Constitution and flows from First Principles, if you actually have any. Simply put, one owns one’s own person and this is where the first declarative statement of rights in the Declaration of Independence flows from:
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.“
Of course if you actually hold this principle to be true then it matters not where the person is. Whether that person is in China, India, Sub-Saharan Africa or right here in the United States makes absolutely no difference at all. All are endowed with the same rights and we do not have the right to trample upon them irrespective of where the person is.
This does not give us license to invade foreign lands where corrupt practices reign when it comes to labor, where pollution is rampant and where thuggish governments suppress dissent, organization and expression.
But it does give us not only license but indeed an ethical and moral mandate to prohibit the exploitation of those people for pecuniary benefit where our laws can and do reach — specifically, within our nation.
The common word for redress of this abuse is “Tariff.”
By rendering abusive labor practices unprofitable two purposes are served. First, the financial motivation to engage in such conduct is destroyed. Second, should the conduct continue anyway because the actor is not motivated purely by greed but also simply enjoys the abuse of power he has arrogated to himself then the tariff covers the expense of those displaced workers here in the United States, removing the budget deficits that would otherwise be caused along with the trade imbalance flows that distort equity, credit and foreign exchange markets.
Hostess is just the latest in a long line of object lessons on this point; as I put forward in Leverage the issue here is not one of application but simply one of political will. Our people have been sold on the premise that all will be ok with the cheap garbage from Mexico and China, irrespective of how it’s produced.
That, my friends, was and is a lie.
As you enjoy your turkey this Thanksgiving make sure you remember that it is precisely our “open border” and “open trade” policies, all of which encourage and explicitly permit the oppression of those who either don’t look like us or are attempting to flee even worse conditions that have led to the destruction of these 18,000 jobs along with millions more. Remember that these labor practices are not entirely and sometimes not at all voluntary; coercion is always involved or these wild disparities in cost would not exist and neither would the alleged “benefit” of all this overseas production with its attendant shipping costs.
Or you can just eat your turkey and forget about all that — after all, the people being screwed are just a bunch of far-away “slanty-eyed beasts” — not actual humans with the same unalienable rights as you and I.
I hope you sleep well this evening.
The big unions were 100% of the problem.
Yeah I agree. Lets give back all the concessions that were won by those that went before us.
It’s all right for me I don’t need a Union. I got enough balls and am lucky to work in a industry with a massive skills shortage.
Not everyone is so fortunate. Those people need and deserve a collective voice to aid them. There will be push from both sides so a balance can be achieved.
It’s not, at all, the Unions fault.