Senate Incapable of Running its Own Restaurant

I came across this on Freedomain Radio, this stuff is simply hilarious:

Senate Votes To Privatize Its Failing Restaurants:

Year after year, decade upon decade, the U.S. Senate’s network of restaurants has lost staggering amounts of money — more than $18 million since 1993, according to one report, and an estimated $2 million this year alone, according to another.

The financial condition of the world’s most exclusive dining hall and its affiliated Capitol Hill restaurants, cafeterias and coffee shops has become so dire that, without a $250,000 subsidy from taxpayers, the Senate won’t make payroll next month.

The embarrassment of the Senate food service struggling like some neighborhood pizza joint has quietly sparked change previously unthinkable for Democrats. Last week, in a late-night voice vote, the Senate agreed to privatize the operation of its food service, a decision that would, for the first time, put it under the control of a contractor and all but guarantee lower wages and benefits for the outfit’s new hires.

The House is expected to agree — its food service operation has been in private hands since the 1980s — and President Bush’s signature on the bill would officially end a seven-month Democratic feud and more than four decades of taxpayer bailouts.

Sen. Dianne Feinstein (D-Calif.), chairman of the Rules and Administrations Committee, which oversees the operation of the Senate, said she had no choice.

“It’s cratering,” she said of the restaurant system. “Candidly, I don’t think the taxpayers should be subsidizing something that doesn’t need to be. There are parts of government that can be run like a business and should be run like businesses.”

In a letter to colleagues, Feinstein said that the Government Accountability Office found that “financially breaking even has not been the objective of the current management due to an expectation that the restaurants will operate at a deficit annually.”

But Sen. Robert Menendez (D-N.J.), speaking for the group of senators who opposed privatizing the restaurants, said that “you cannot stand on the Senate floor and condemn the privatization of workers, and then turn around and privatize the workers here in the Senate and leave them out on their own.”

The Senate Restaurants, as the food service network is known, has a range of offerings, from the ornate Senate Dining Room on the first floor of the Capitol, where senators and their guests are served by staffers wearing jackets and ties, to the huge cafeteria in the Dirksen Building and various coffee shops throughout the Senate complex.

All told, they bring in more than $10 million a year in food sales but have turned a profit in just seven of their 44 years in business, according to the GAO.

In a masterful bit of understatement, Feinstein blamed “noticeably subpar” food and service. Foot traffic bears that out. Come lunchtime, many Senate staffers trudge across the Capitol and down into the basement cafeteria on the House side. On Wednesdays, the lines can be 30 or 40 people long.

House staffers almost never cross the Capitol to eat in the Senate cafeterias.

“It’s so bad that the Senate hasn’t yet figured out that House ‘Taco Salad Wednesday’ trumps any type of entree they have to offer,” said Ron Bonjean, a former press secretary to both the House speaker and the Senate Republican leader.

“Those who think the House and Senate don’t talk enough clearly haven’t been in the Longworth cafeteria on the House side at lunchtime recently. Senate staffers have been flocking there for better food, more options, and you get some exercise to boot,” said Brian Walsh, spokesman for Sen. John Cornyn (R-Tex.),who frequently dines on the other side of the Capitol.

In the past 10 years, only 20 new items have been added to the Senate menus. So rare are new entrees that last year’s arrival of daily fresh-made sushi was treated in some senatorial quarters as if a new Nobu had opened in the Capitol dining room.

Even revenue in the once-profitable catering division has been decimated, as senators have increasingly sought waivers to bring in outside food for special events with constituents and private groups.

Operation of the House cafeterias was privatized in the 1980s by a Democratic-controlled Congress. Restaurant Associates of New York, the current House contractor, would take over the Senate facilities this fall. The company wins high praise from most staffers and lawmakers, who say they are pleased with the wide variety of new items offered every few months.

Most important to Feinstein, Restaurant Associates turns a substantial profit — paying $1.2 million in commissions to the House since 2003. Company officials did not return telephone calls seeking comment.

The rules committee began exploring its outsourcing options in 2005, when Republicans controlled the chamber. When Democrats took power last year, Feinstein ordered several studies, including hiring a consultant to examine management practices, before deciding privatization was the only possibility.

In a closed-door meeting with Democrats in November, she was practically heckled by her peers for suggesting it, senators and aides said.

“I know what happens with privatization. Workers lose jobs, and the next generation of workers make less in wages. These are some of the lowest-paid workers in our country, and I want to help them,” Sen. Sherrod Brown (D-Ohio), a staunch labor union ally, said recently. The wages of the approximately 100 Senate food service workers average $37,000 annually.

Feinstein made another presentation May 7, warning senators that if they did not agree to turn over the operation to a private contractor, prices would be increased 25 percent across the board.

Eventually, Democrats agreed to pass legislation that includes guarantees for those who go to work for Restaurant Associates. They would retain their current salaries and federal health and pension benefits. Employees who choose to leave instead would receive buyout packages of as much as $25,000 — paid by the Senate. Half the current employees are likely to take that deal.

New employees, however, will not receive federal benefits, though they will be allowed to unionize.

By one estimate, Restaurant Associates would turn a large profit within three years and would begin paying about $800,000 annually in commissions to the Senate.

In the final days of negotiations, Feinstein rolled her eyes and took a deep breath before explaining the ordeal that the Senate Restaurants had become for her.

“It’s clearly not the sort of thing that I ran for the Senate to do,” she said. “But somebody has to do it.”

You see, since these people are completely incapable of running a single restaurant in a building where they enjoy a complete monopoly and are virtually shielded from any competition, we deem it a good idea to turn over to them the mundane tasks of managing 700 military bases across the globe, overseeing an immensely complex and derivatives laden financial system, running some of the largest car manufacturers, insurers, and banks of the country, and managing a gigantic nationwide health care and public schooling system that affects 300 million people in one way or another.

Keep that in mind whenever someone gives you a speech on how essential government is to the provision of service X. (Replace X with whatever that person makes up at that time.)

It’s simply funny … :)

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Health Care Debate – The Public Option Nonsense

President Obama, a few days ago, had the following to say about a public health insurance “option”:

“I am pleased by the progress we’re making on health care reform and still believe, as I’ve said before, that one of the best ways to bring down costs, provide more choices, and assure quality is a public option that will force the insurance companies to compete and keep them honest,” the president said in the statement. “I look forward to a final product that achieves these very important goals.”

Let me explain in real simple terms why this is utter nonsense that should offend everyone’s intellect.

A public option means that the government establishes a group that takes on the task of insuring individuals. This group of bureaucrats will obtain subscriptions by advertising its insurance service to the public. They will be competing with other providers on the market. They will charge insurance premiums and collect money. They will pay out money to clients to the extent that the event that the client suffered is insured under the agreed upon terms. How much money they collect and what they insure has to be based on sophisticated mathematical formulas that ensure that the money collected from the insured is not squandered immediately.

So far so good. There is no big difference in what I outlined above between the group established by the government and any other health insurance company.

But where does the money come from that is used to establish this group? It is of course funded out of tax money, money that needs to be taken from individuals by compulsory means. In addition to that, the public option plan will of course be subsidized. The government will have to levy higher taxes on the people in order to continuously transfer this money to the newly established group. This may or may not enable them to charge lower prices to the consumers.

If it does, then the lower prices have been accomplished by theft via taxation, money that will be missing elsewhere. Money that they may have had to pay for a private insurance whose prices now appear higher than the public plan. But this has nothing to do with competition. This is classic crowding out of private businesses by the means of compulsory taxation.

There is only one way the public plan could possibly be called a public option. And that is if the government were to tell taxpayers: You have the choice to pay us an additional amount of x Dollars in exchange for ownership stakes. This money will be used to establish the new health plan, rent facilities, hire people, etc. And then on top of that, the government would have to guarantee that absolutely no tax dollars will be used to subsidize the newly established group. It would completely have to stand on its own legs. The person in charge would need to be paid out of what is left over after all other individuals have been paid.

You may have noticed that what I outlined above is simply a business, established via voluntarily contributed start up money, kept alive via revenue, and forced to earn an entrepreneurial profit, and potentially suffering a loss.

If this is what Barack Obama has in mind then he is free to get right on it. He could even be the entrepreneur in charge if he so desires. He would not need to summon Democrats and Republicans to his office for discussions, he wouldn’t have to travel through the country in order to hold one speech after another, having to defend his public option.

But obviously this is not what he has in mind. He wants to give us another taste of the inevitable Trouble With Bureacracy. He is thinking of yet another tax funded and subsidized government office. One simple question for Mr. Obama: He is saying a public option will force insurance companies to compete. Who forces the public option to compete?

This is obviously nonsensical … the ability to obtain tax money is the exact opposite of competition. But if the public option is under no pressure to compete, then how can it possibly force the existing businesses to compete?

(Please note that what I wrote above is rather forthcoming to the President’s argument. It assumes that currently we have a private and competitive health insurance market. But this is not the case. We already have a heavily bureaucratized and subsitized health care system. Thus some of the negative effects I outlined above are hurting us already. The Obama plan would merely add to this.)

We don’t need more of the same. We need health care reform, and we need it now.

As I explained before:

… if we truly want to fix the US health care system, that means lowering prices for health care services and products, we need to take those facts into account.

Any proposal that suggests even more government involvement, decrees, and spending than we already have, needs to be rejected unconditionally.

If you want to look for true solutions, listen to those people who recommend the opposite of what we have been doing for the past decades, and in particular the past 8 years, during which President Bush presided over an increase of public health care expenses on the federal level of no less than 100%.

Listen to the people who recommend to get the government out of health care, to spend less on Medicare and Medicaid, and to get rid of government decrees and rules that aim at regulating the market for health products and services.

Only then will the dream of affordable health care for every single American become reality.

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Ron Paul on GM – It’s Amtrak all over again …

Ron Paul writes in GM, Amtrak and an Increasingly Fascist America:

Last week, General Motors finally declared bankruptcy. Many in government thought $20 billion in taxpayer dollars would save the company, but as predicted, it only postponed the inevitable. The government will dump another $30 billion into GM and take a 60 percent controlling interest for it. Public officials are now involving themselves in tactical business decisions such as where GM’s headquarters should move and what kind of cars it will build.

The promise that this is temporary and will eventually be profitable is supposed to ease the American people into accepting this arrangement, but it is of little comfort to those who remember similar promises when the American taxpayers bought Amtrak. After three years, government was supposed to be out of the passenger rail business. 40 years and billions of dollars later, the government is still operating Amtrak at a loss, despite the fact that they have created a monopoly by making it illegal to compete with Amtrak. Imagine what they can now do to what is left of the great American auto industry!

In a truly free market, GM would get your money one way and one way only — by selling you a car you want, at a price you are willing to pay. Instead, the government is giving public money to a private company in spite of the market signals it has been sending. Throwing money at GM does not stop it from being an engine of wealth destruction; on the contrary, it simply gives it more wealth to destroy.

Had it been allowed to fail naturally, the profitable pieces of GM would have been bought up and put to good use by now. The laid off employees would likely have found new jobs and all that capital would be in private hands, reinvested in companies that produce products demanded by consumers. Instead, we are all poorer now.

Political pressure, rather than the rule of law, is deciding how to divide up the remains of GM. The bondholders had billions in retirement savings invested in the company, and though they were entitled to nearly three times as much as the United Auto Workers, the bondholders were left with just a 10 percent stake compared to the union’s 17.5 percent stake. For their 60 percent stake, taxpayers have a future of constant bailouts to look forward to.

Comingling public control of private business is known as fascism. While today’s politicians may feel emboldened with all their new power, history will only repeat itself as all this collapses on itself. It is the height of hubris for bureaucrats and politicians to attempt to control the market and the freewill of the American people. In the end, the market always wins out. Maybe one day future generations will wise up and allow free markets to function and thrive without the albatross of government around its neck. For now, it looks like those in charge have not learned the lessons of the past, and have doomed us to repeat those mistakes once again.

… GM is here to stay for a long, long time. It will take ongoing subsidies, monopoly rights, and bureaucracy to keep it on live support. Bureaucracy is the scourge of the US System. More bureaucracy won’t fix it. Favoritism will be rampant. Corruption scandals along the way will be predictable. The solution presented to fixing such problems will be yet more bureaucracy. As Ayn Rand wrote in Atlas Shrugged:

Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

There is no point in denying the inevitable Trouble with Bureaucracy:

So long as the government confines its activity to the protection of individuals against aggression and theft only little harm can be inflicted. Every expansion of governmental powers, however, will inevitably lead to a bureaucratic misuse of the scarce factors of production available, an increase in poverty, and a lower standard of living for everyone.

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We Need More Regulation

True regulation is the process of  changing the location of certain elements in space so as to place them in positions where the regulator, the thing that has control over the location of these elements, deems them more conducive to attain a certain objective.

In economics, true regulation is the process of changing the location and shape of natural resources and of factors of production, so that their employment yields the greatest possible output of the most urgently and/or amply demanded goods, before less urgently or amply needed ones are produced.

If resources are underutilized or even unused, they are swiftly withdrawn from their current location and put to a different use by entrepreneurs who aspire to make and maximize their profit. The profit motive is the most crucial regulating factor in this process, the regulator being the entrepreneur who seeks it.

If the entrepreneur, from the consumers‘ viewpoint, improves the usage of natural resources, machines, workers, and other factors of production, he is remunerated with a profit. If he is mistaken and places them in lines of production where they yield less demanded goods, he is punished with a loss and forced to regulate and adjust his operation swiftly or find a different occupation where he is of more use to society, viz. the consumers.

For every single operation, the entrepreneur who makes a profit is the single best regulator. He is the one who is directly affected by the danger of a potential loss. He is compelled to regulate affairs in his business so as to attain maximum profitability and avoid losses. In doing so he improves the welfare of all of society by improving the allocation of resources. There is no other person who could more effectively and strongly regulate his business in the interest of society as a whole. He needs to follow but one simple rule: Be profitable. Every project, every subdivision of his business will be regulated with this goal in mind.

But when a group of people that obtains resources via theft,  such as the government via taxation, assumes ownership of some of these operations, regulation for them immediately becomes ineffective and weak. When such a group tries to allocate the appropriated resources, it won’t know how to allocate them so as to fulfill the most urgent and/or ample consumer demands. This is due to the fact that the money has already been obtained upfront and the goods won’t be offered at a price. Calculation of profit and loss and thus an optimal adjustment of misallocations will be impossible. This is what I refer to as The Trouble With Bureaucracy. The more involved the government gets in the production of goods, the less and the weaker regulation there will be.

All the bureaucrat in charge can do is resort to meticulous rules and strict enforcement thereof. He has to do this in order to limit the damage caused by the inevitable misallocations caused by bureaucracy. But the regulation that results from static rules is not even nearly as effective or strong as the dynamic regulation brought about by entrepreneurial profit management.

The rules established by bureaucrats are often mistakenly referred to as regulation. But they’re not regulation. They are rules established with the objective of attaining regulation; regulation of resources managed in a bureaucratic fashion. This is at the root of a major misunderstanding. The majority agrees that we need more regulation, that the lack of regulation has caused the misallocations, bad loans, and inflated prices of assets and derivatives, in short, the financial crisis in the US. But they don’t realize that this lack of regulation has been caused and accompanied by a constantly growing expansion of government influence, spending, and decrees that aim at regulating truly private businesses. They equate  the word regulation with government rules and decrees, replacing and/or confining free markets and entrepreneurship.

It should not surprise anyone that bureaucrats have no other solution than to establish decrees that confine private business operations. After all, most of them have never operated a truly private business. It is hard for them to grasp the concept of entrepreneurial profit management and regulation. The only type of regulation they know is the bureaucratic type that results from rules and decrees established to regulate the affairs in government institutions. They have no other means at their disposal to attain regulation. Due to the lack of the profit indicator, good management of existing government entities does in fact require meticulous rules and decrees to ensure maximum regulation. There is no other way to limit the damage caused by bureaucracy in government offices. But this should not lead one to believe that subjecting businesses on the market to government decrees stipulating what and how to produce, has anything to do with this.

As far as the banking industry is concerned, there is no better check on the banks’ propensity to loot deposits and overextend their leverage, than Gold’s Honest Discipline. The history of money has shown us the truth of this theory in action with remarkable clarity.

The financial crisis in the US, just like the Great Depression, was caused by irresponsible credit expansion throughout the nineties and after 2001. The fiat money used to expand credit was created by the Federal Reserve Bank and its de facto subdivisions, the fractional reserve banks, meaning virtually all banks in the country.
The Federal Reserve System is subject to very weak oversight by the people’s representatives. If anyone needs more rules, decrees, and oversight by Congress, it would be the FED. (Ron Paul’s Audit the FED bill is an excellent step in the right direction.)
The same goes for the Department of Treasury. Over the past year and a half, virtually no one has questioned any of the programs introduced by the Treasury. They, if anyone are who need more rules and Congressional oversight.
Since 1988, the President’s Working Group on Financial Markets has been meeting and shaping financial policy without any effective oversight from any legislator. If anyone needs more rules, decrees and oversight, it would be these people.

But this is not what public opinion thinks of when talking about more regulation. How dare anyone question the skill and infallibility of the omniscient government? It doesn’t think of rules that restrain and limit the power of government. What public opinion desires is more regulation by doing the opposite: expanding the scope and size of government control over free markets. Ironically, as explained above, this endeavor will result in less regulation.

Maximum regulation can only be attained in one way. And that is to limit the extent to which matters are organized in a bureaucratic fashion. Since the main bureaucratic organization in any society is the government, this inevitably entails the limitation of the size of government and the scope of its intrusion into the lifes of individuals within the territory it oversees. So long as the government confines its activity to the protection of individuals against aggression and theft only little harm can be inflicted. Every expansion of governmental powers, however, will inevitably lead to a bureaucratic misuse of the scarce factors of production available, an increase in poverty, a lack of regulation, and a lower standard of living for everyone.

Maximum liberty and limitation of government lead to maximum regulation, order, stability, prosperity, and peace. Maximum government control inevitably leads to chaos, disorder, instability, poverty, and wars.

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The Trouble with Bureaucracy

As explained, the objective of economic policy is to do whatever possible to enable the market to move toward market equilibrium in order to ensure that the largest possible number of individuals are supplied with the largest possible number of demanded consumer goods, given that the factors to produce these goods are always scarce.

Prices for consumer goods on the market enable entrepreneurs to understand which consumer goods are more amply or urgently demanded than others. Prices for factors of production indicate which factors of production, from the consumers’ point of view, could be employed in better occupations where they produce more or more urgently demanded goods.

The discrepancy between prices paid for factors of production and money earned from consumer goods sold is the entrepreneurial profit. It is the entrepreneur’s remuneration for enhancing the usage of productive factors based on what the consumers are asking for.

When the entrepreneur hires senior managers and directors, and when he divides his operation into different divisions, he still needs to ensure that every single one of his divisions contributes toward a profitable outcome. His directive to his subordinates will be but a simple one: Be profitable or lose your job. True, certain administrative and legal operations will by themselves not appear profitable, but the entrepreneur will need to keep those within limits and make sure the remaining operations more than offset these.

When a good is first offered on the market it will not be what the consumers were looking for. The entrepreneur and his entire business operation, in order to attain a desired sales level and reap a profit, will be forced to adjust and improve the good. Testing, fine-tuning, and adjusting attributes that pertain to the goods offered are indispensable steps in the production process.

The consumer himself, too, is not omniscient. He can’t tell the entrepreneur why precisely he dislikes or likes a good. He can merely decide to purchase or not to purchase. And when he uses the good he will either like it or not. And if he likes it he will come back. If he doesn’t he will abstain from further purchases.  It is up to the entrepreneur’s innovative and analytic capacity to deal with the consumer’s fancy to please him. The consumer is the toughest and most difficult to please supervisor in the supply chain. The ability to buy or not to buy a good gives the him the most powerful of all choices: the choice by action. The choice by action stands in contrast to the choice by voice. There is no more immediate and democratic vote than that of the unhampered market: every single penny counts and has an impact on entrepreneurial decisions. True, some people are richer than others and will have more voting power. However, this is only the case because they have been elected as representatives of other, less wealthy, consumers, by selling to them goods that they demanded, directly or indirectly.

Without price indicators and the ability to calculate profit and loss, entrepreneurs and consumers would be entirely at sea. All production would be mere guess work. Consumers could not be supplied as they desire. Factors of production would be squandered, misallocations and mass poverty would inevitably ensue.

Bureaucratic management has none of the above indicators at its disposal. Under bureaucratic management, money is taken via taxation from the consumers before they get to make a decision as to whether or not they want to purchase the good offered. The bureaucrat then, no matter how benevolent we assume he may be for the sake of the argument, faces an insurmountable task: He needs to spend the money obtained in order to usefully employ factors of production that produce goods which will be offered at no price since the money has already been violently taken from the consumers.

Without the ability to calculate profit and loss it is impossible for the bureaucrat to ascertain whether or not he is withdrawing factors from more urgently needed occupations and, from the consumers’ point of view, employing them in less urgent ones. To a certain extent, he will need to resort to mere guesswork. The merit of all his and his subordinates’ actions will have to be assessed by himself.

Under a constitutional government, the bureaucrat faces oversight from legislative bodies and parliaments. Those have been elected by the consumers via choice of voice. Without the simple and clear directive to make a profit, the bureaucrat will need to resort to other, even less perfect success measures. When he subdivides his operation, he can’t give his subordinates the simple directive to make a profit. Thus he needs to establish a set of meticulous rules, regulations, directives, and registers. He still has no idea weather his operation actually enhances the well being of society, but he tries to limit the potential damage caused.

As a result, the spirit of bureaucracy will swiftly permeate the entire operation. Success will be solely measured by strict adherence to the regulations established. Innovation and flexibility are done for. Adjustment to consumer demands will be impossible. Over time, as new bureaucrats fill the ranks of old ones, a more severe misuse of factors of production, if not already present, will become inevitable as the good intentions and ideas that stand behind the regulations established will no longer be grasped by the new officials in charge.

Thus economic policy, if it wants to attain its objectives, can do nothing but limit the extent to which matters are organized in a bureaucratic fashion. Since the main bureaucratic organization in any society is the government, this inevitably entails the limitation of the size of government and the scope of its intrusion into the lifes of individuals within the territory it oversees. So long as the government confines its activity to the protection of individuals against aggression and theft only little harm can be inflicted. Every expansion of governmental powers, however, will inevitably lead to a bureaucratic misuse of the scarce factors of production available, an increase in poverty, and a lower standard of living for everyone.

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