Copyright 2012 by John T. Reed

The Democrat know the American people are ignorant of economics. Heck, the Democrats leaders are ignorant of economics. Why would they need such education? They majored in demagogics instead.

But economics is a crucial subject. So American must become educated about it. And that is happening as I write.

Hostess bankruptcy

Hostess has now been approved for a liquidation bankruptcy. That’s as opposed to a regenerating bankruptcy like GM is going through where the company uses bankruptcy to get rid of some debt they cannot handle then re-emerges as a viable company. Macy’s did that years ago.

Liquidation, on the other hand, means bye bye forever.

18,500 Hostess employees will lose their jobs. The reason is their second biggest union, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, felt they were not being paid enough and went on strike. They are tough guys. They refused to back down even in a mediation with the federal bankruptcy judge.

The econ 101 principle here is

There is no free lunch.

But the bakers don’t believe that. They figure prosperity comes from intimidation.

The bakers union represents only about 500 of the 18,500 Hostess workers if I recall correctly, but their refusal to agree to lower pay means all 18,500 lose their jobs.

Some of the 18,500 who were not on strike refused to cross the picket lines—solidarity forever and all that—although that usually meant they went to work when the pickets did not happen to be present for a few hours.

So the 18,500 Hostess workers and their family and friends are about to be hit upside the head with a 2x4 that has “There is no free lunch” written on it. The bakers who refused to take a pay cut will see their pay and benefits and maybe pensions from Hostess cut to absolute zero forever. Thus far, no line of would-be employers saying “I want to hire me some of them tough-guy union bakers” has appeared. They will probably end up as non-union greeters at Wal-Mart making far less than Hostess’s final offer would have paid them.

Air Traffic Controllers

So are they educated yet? Probably the process is just starting. The more times you yell, “There is too a free lunch” through bullhorns, the longer it takes for reality to penetrate. Those of us over about 50 remember the federal air traffic controllers. They went on strike against President Ronald Reagan, which was illegal. He gave them a couple of days to come back to work. Few did. Tough guys you know. Then he fired them and banned them from ever working for the federal government again.

The entire world sucked in their breath. We learned after the Cold War ended that the firing of the air traffic controllers was one of the things that convinced the Soviet leaders that Reagan was not to be messed with.

For years thereafter you would occasionally read articles about the former air traffic controllers. They drifted off to much lower paying jobs. They would say things like, “I guess we overdid it.”

It is a greatly overlooked, highly effective educational tool that 2x4.

2x4 economics lesson

Page A-14 of Black Friday’s Wall Street Journal has a couple letters to the editor about shortages of drugs needed to treat serious life-threatening diseases. The federal health bureaucrats have imposed severe price controls on drug manufacturers.

Here are the pertinent econ 101 lessons:

There is no free lunch.

Price controls cause shortages up to and including total nonavailability of the controlled product or service.

Price controls cause diminution in quality of the controlled product or service.

Rent control

Rent control has long been a 2x4 econ lesson in places like New York City which has had rent controls since Word War II. At its worst before they started loosening up on the controls, 30,000 apartments a year were abandoned in NYC, it was next to impossible to find an apartment to rent without paying an illegal “key money” bribe, and the maintenance and reliability of building services was horrible—as you would expect when the owner is enroute to abandoning the building because it is impossible to make a profit from it.

Price controls were responsible for the long lines at gas stations in 1973 and 1979 nationwide and earlier this month in the Hurricane Sandy area. If they allowed prices to rise with the market, businessmen would have brought gas in from all over the Northeast. Some tried. It was illegal and the gas was confiscated by police.

The Obamacare 2x4

Federal government involvement with health care—they should get totally out of it—has been causing shortages of flu vaccine and other medicines for years. They refuse to pay the drug companies fair market value for the drugs, so the companies go out of business or just stop producing the drug after their patent runs out. FDA has also cracked down on generic drug manufacturers forcing them to upgrade factories and such. Some just shut down permanently. Others shut down temporarily to do the upgrades. Result: drug shortages.

Result, the 11/1212 WSJ op-ed “Not Enough Cancer Drugs, Too Many Price Controls.” And the Black Friday letters to the editor from doctors supporting that op-ed with tales of inability to get anesthesia drugs, the outbreak of fungal meningitis caused by doctors getting drugs that are in short supply from compounding pharmacies instead of normal drug factories.

One letter said Propofol, a popular and safe sedative is no longer manufactured in the U.S. because of price controls in the Medicare Modernization Act. Importing Propofol was illegal but the feds had to make an exemption for that drug when the U.S. manufacturer stopped making it. The imported stuff costs five times as much as the U.S. stuff did before the government decided to get tough on these greedy capitalists. Your elected officials cutting medical costs and “creating jobs”—in Europe.

Obamacare is first and foremost price controls. The $716 billion Romney said Obama took away from Medicare is the amount Obama says they will save by simply reducing the amount they pay drug and other health providers by lowering the approved price for various drugs, equipment, and services—whether health care providers like the cuts or not.

So you like Obamacare? Your 2x4 may be a terminally-sick relative followed by explanation that the drug he or she needs is extremely hard to get because of federal price controls followed by a somber-faced doctor telling you in the waiting room, “She didn’t make it.”

Don't know much about history
Don't know much biology
Don't know much about a science book
Don't know much about the french I took

And don’t know much about economics. I let the politicians worry about that.

Maybe you’d better start worrying about it.

Obamacare and the general comprehensive attack on all business, along with the hyperinflation that will result from too much government spending and borrowing is about to turn every aspect of life, including buying food, into Staten Island gas lines and handwritten “sorry, all out of flu vaccine” signs.

If I may paraphrase the late Saddam Hussein, it will be the economic 2x4 to end all economic 2x4s.

Until this 2x4 takes effect on the mental focus of the American people, and they demand economically sound fiscal and monetary policies, I suggest you educate yourself in an infinitely less painful and far more timely manner by getting my book How to Protect Your Life Savings from Hyperinflation & Depression. More important, that will give you the knowledge you need to take the steps that you can still take to get out of the way of this oncoming train. It is not only a money issue. It also is a mater of protecting the health of you and your family. People are already dying because of the government’s attempts to repeal the laws of economics. During the hyperinflation in Austria in the early 1920s, 95% of the children were shorter and lighter than they were supposed to be for their age because of inability to get food and fuel to heat homes. This article and others I have written warning about this are my tough-love 2x4s for my readers.

John T. Reed