A friend made a point the other day. . .

July 17, 2010

 . . that if an asset is worthless (as in this case General Motors) it doesn’t matter who gets it (in this case either the labor unions who helped kill the company or the “foolish” bond holders who lent money to it).

I didn’t agree with this point-of-view, but I don’t think I made a sufficiently convincing argument against it. I believe I have found one.

In 2006 the World Bank set out to quantify of what consisted the Wealth of Nations. The reason for doing so was because natural resources were only a small percentage of it. (When an illegal immigrant crosses the border what makes him instantly more productive isn’t related to oil shale deposits in Colorado.).

So, they set out to figure out what it was.

http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf

They found three things accounted for the vast majority of the difference between a nation’s wealth and its natural resources:

1) Education
2) Rule of Law
3) Remittances

(In this I see a concise rebuttal to Jared Diamond’s mistaken apologia, “Guns, Germs, and Steel.”

The relationship between the World Bank study and the seizure of GM, as well as the Obama administration, in general, is that it is eroding the confidence in the Rule of Law.

  • Don’t like GM’s CEO? Fire him without any real Constitution authority to do so.
  • Don’t like what BP has done? Extort $20 billion from them again with no authority to do so.
  • Don’t think you can get Cap and Trade done? Order it by Executive fiat with dubious constitutional authority.
  • Don’t like CEO compensation? Declare you have the authority to set it appropriately through a Compensation Czar.
In fact, set up all sorts of Czars (not a very Democratic term) for all sorts of things.
Want to invest the Executive branch with the power to ration health care? Appoint a guy with those beliefs to head the Health Commission through a recess appointment avoiding any sort of debate on the subject.

These actions are far beyond the normal give and take of Constitutional boundaries among the three branches of government.

The Obama administration is conferring vast powers to the Executive Branch of the government; some just by declaring them so, but the vast majority through Congressional bills that invest the Executive branch with the authority to write the rules within consciously vague guidelines. (This amounts to Congress outsourcing its job to the Executive Branch, which should be judged in itself to be outside the boundaries established by the Constitution). The vested powers are so vast and so complicated that the sheer amount of them will be difficult to be litigated, which is probably the idea.

In such an environment the confidence of rule of law is shaken because what the private sector used to count on is now in play. So, the Wealth of the Nation diminishes, the recovery fizzles, and everyone’s prospects, except those with the power to regulate, darken.

I just saw the end of the remake of the “Day the Earth Stood Still.” I find the film distasteful because it was so clearly a propaganda piece for Obama’s run for the Presidency (The word “change” is used so often in one scene you’d think the actor’s mouths would have gotten stuck on it.)

In the film, John Cleese plays a scientist who observes that societies inevitably get to a precipice that force them to confront reality in a way that could lead toward a better future. Of course, the film’s idea of that better future is environmentalism and socialism.

We disagree there, but I do believe we are at such a precipice, and I haven’t given up hope.

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