Discussing "Rule of Law" on Strategy Room

On FoxNews.com Strategy Room recently, I had the opportunity of being on again with my friend Eric Bolling, Host of the Biz Hour of the popular web based program (M-F at 3 PM EST). We dove into the subject of the arbitrary nature of government. We asked the fundamental question about whether it was appropriate for the government to change the rules on the way they do business with companies. For me, it was the more basic question of, "should the government be required to abide by the same contracts as the rest of us?"

Bolling gave the example of the "retro tax" on insurance giant AIG executives who lost approximately 95 percent of their bonuses after the bailout. At the time of the bonuses, there was no such sweeping tax on such bonuses. This was designed for no other purpose but to be vindictive on an institution that had reached a very low popularity level. Some loved it because it "felt good" to take money from those who "took money" from us taxpayers. It was, unfortunately, a slap in the face to the concept of "rule of law." One of those things that separate modern economies from the Third World.

Businesses succeed in countries where the risks are predictable. The decision to attack AIG executives in their bonuses may have felt "good," but has far reaching and negative implications. Since the government owns around 80 percent of the company, does it not make sense that we would want it to prosper? If that is a goal, wouldn't it be difficult to hire quality people if they will not be able to offer bonuses like others in the industry? Furthermore, if the government can arbitrarily change how much people are paid, people begin to wonder the reach of government, especially if it is not required to abide by contracts (like the one that allowed AIG executives to get bonuses).

For example, what if the government decided to fire the CEO of a company it was invested in? A couple of years ago this would have seemed impossible, but not any more. Simply ask Rick Wagoner, the former Chairman and CEO of General Motors. Obama's speech to the American people on why Wagoner "had to go" should have been a wake up call to everyone who wonders if it is good policy for the government to intervene in such a profound way. It makes for a more confused market place, not a more efficient one. It makes economies worse, not better.

Is this a defense for AIG executives who had their bonuses taken? Not at all, there is a side of me that is actually pleased because I hope it proves to be a cause for pause for any businesses that might pursue government solutions to problems. What I am trying to defend, however, is the idea of "rule of law" that contributes to stable and strong economies. Everyone, including government, must abide by the rules if our nation is to remain prosperous. Economic recovery itself rides on the idea that government must play by the same rules as everyone else.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

Ford Employees Learning Economics 101

I know this is going to sound harsh, but the economic realities that Ford employees are discovering are the same lessons everyone must learn in order to thrive in our current economy. During an interview on ABC News Nightline an employee was asked about the cause of the company's decline. She replied it was because Americans selfishly bought foreign cars at the expense of their fellow Americans. The interviewer asked a question that was shockingly perceptive in our current political environment, (paraphrase) "could it be that Americans don't want to pay for the amazing salaries and benefits that you boasted about earlier? Wouldn't they rather pay for the lower cost of buying a car made by Toyota with lower wages and benefits?" (One thing all the Ford employees discussed was how good it was for them financially).

The look on her face was amazing. It was like she had a "V-8" moment, but the negative type, not the one you see in the commercials. She said "the benefits are amazing, but I hate to think that is why they did it." But that is exactly why we -- all of us -- "did it." The economy is a lot of things, but it isn't personal. The invisible hand that Adam Smith discussed in the 18th century is alive and well today. People actively make self interested decisions daily, even as we criticize the ability of other countries in competing against us. The invisible hand, a force we can't see but is all so powerful, creates supply and demand, and controls our economy unless harassed by government.

A great example of this is Wal-Mart. If everyone I talk to about this "job exporting," "people exploiting," "made in the USA destroying" company is telling the truth, this company should be on the brink of bankruptcy and not, arguably, the most economically powerful company in the world. But people, even as they drive to the "hated" store, will decry the injustice of goods made by cheap labor and walk out with not a single item made in the USA (with the possible exception of a tag that was made in a US territory). In essence, they cry all the way to the bank in savings.
Is this a bad thing? Certainly not, in my opinion. Our country has an unemployment of only 4.7 percent, that is virtually zero unemployment when you consider the large number estimated who are voluntarily unemployed (seasonally employed, criminals, etc., equals around 4 percent). Because we are free to get what we want, largely from where we want, we are able to get Ford Escorts for only $14,000 (since they make much of their cars in "cheap labor" countries rather than $60,000 a year (which is what they would likely cost if made bumper to bumper in the US). I'm able to eliminate poverty voluntarily and long term in countries like China and India through my purchases (like we did in Japan 40 years ago) without the United Nations taking my money through redistribution as that organization is attempting to do (leading to corruption and international welfare dependency). We are able to truly take advantage of the law of comparative advantage (things being made were they most make sense economically) and the whole world benefits from it.

I believe people should give up the notion of stopping the imports and embrace them. They are making us richer, not poorer (by the way, our longest period of trade surpluses was during the Great Depression; trade deficits mean we can afford more than other countries; not a bad thing). Instead of grumbling about our imports, we should appreciate the good things we are doing for the world economy and simple common sense with our purchases. We don't make these purchase because they are bad, but because they are good for everyone.

What about the nice Americans who lost their jobs at Ford, GM and other companies? The reality is, most of them will quickly find themselves back on their feet, with either new jobs or created businesses as they pursue becoming their own boss. This loss, though sad, will be temporary, but the American resolve the prosper is permanent.