Peugeot’s Cost-cutting Bankruptcy

ZeroHedge (via Save Capitalism) has a nice analysis about Peugeot’s upcoming bankruptcy, which will happen because the socialist government is doing its best to prevent Peugeot from cutting jobs losses.

Peugeot wants to make some cuts by closing a factory and laying off the workers – 14,00 people, which is 7% of their workforce. This is not a small number, but relative to the size of Peugeot and its budget, I would guess it is probably a “modest” reduction, and not quite what is necessary for the financial health of the company. Even though it is necessary, and apparently Peugeot is trying to minimize the number of layoffs, French President Hollande is opposed. The market responded by raising the cost of insuring against Peugeot debt, and the current cost of credit-default swaps indicates a 51% chance of bankruptcy.

Bloomberg has the full story:

PSA Peugeot Citroen (UG) bond-insurance costs surged to a record, trading as if the French automaker has a 51 percent chance of defaulting as it cuts thousands of jobs and closes a plant.

So wait, the layoffs are what is getting people nervous? This misleading opening presents the layoffs as the cause for worry, though the real reason is clarified later in the story:

Peugeot’s cash reserves allow it to “survive for one to two years,” said Xavier Caroen, a Zurich-based Kepler Capital Markets analyst who has a “hold” rating on the company. “We hope the French government lets them cut production and shut some sites in France, or they won’t have any earnings in the future,” Caroen said.

Healthy restructuring would not cause the market to run from Peugeot debt, but preventing that restructuring definitely raises the risk of a default in the future. The reporters of this story seem to think that cost-cutting is a sign of imminent failure, as there would be no other justification for closing a plant. If the company can survive for another year or two, why would they try to reduce losses at the cost of 14,000 jobs lost?

Maybe this is an insight into the minds of a socialist. The primary function of a company is to provide jobs, not to be profitable. Layoffs and restructuring hurt jobs, so they should never be done to maintain the health of the company. If things are so bad that Peugeot needs to cut jobs, then it must be – in the minds of the reporter – that the company is no longer viable.


Is the Constitution Constitutional

The question of the constitutionality of ObamaCare was a fundamental question of the function of the Constitution. It was not a technical question if the law fit with the exact powers of Congress as delineated by the Constitution (though obviously the legal argument must address only this question.) Conservative objection to ObamaCare is rooted in their understanding of the limitations and functions of government, and in the proper divisions of government as it is set up by the constitution. They are not opposed to it because it is unconstitutional – it is unconstitutional for the same reason that they are opposed to it.

The connection between objections and support for the law, and arguments about its constitutionality, are quite telling. Supporters of the law believe it must be constitutional since it is a good law. Opponents of the law oppose it due to their view of constitutional balances. For liberals, the desirability of the law dictates its constitutionality. For conservatives, the law violates the system set up by the constitution, and is therefore a terrible law.

Once the law is passed in Congress, the only way to fight it in the courts is by arguing it is unconstitutional. The recent focus on the legal arguments in the court has apparently caused some commentators to forget the reason for the objections to the law. The law is a bad law, regardless of its constitutionality. But more than that – if the constitution allows the law, it is a bad constitution. Supporters obviously see it the other way, that if the law was unconstitutional that would mean there is something very wrong with the constitution.

Either the Constitution is meant to allow all good laws, or to prevent bad laws. A simple statement which might seem like two sides of the same tautological coin. But the two are quite different, and only one is right. Every law is seen by its promoters as a good law. A government system which is set up to guarantee the passage of good laws will encourage the passage of any law. It will not force restraint and responsibility on law makers, and will rather grant them limitless power. A government structure which will ensure a responsible government must limit the laws which a government can adopt, even if the legislators believe it is a truly beneficial law. The constitution will focus on preventing bad laws, not encouraging good ones.

This issues is directly related to the two opposing views on the role and beneficence of government. Liberals see government as a positive force which should actively promote the social welfare. Conservatives see the government as a centralized power which can easily be abused, and which cannot determine what is good for the people. Government must be restrained from encroaching on the lives on individuals, and restricted to public projects.

Another question that splits along the same lines is the definition of the simple concept “public welfare”. Does this mean anything which benefits large sectors of the population (liberal interpretation), or anything which is by it nature a public good – roads, parks, zoning, and such (conservative interpretation.) While liberals seem to see any good enjoyed by many people as “providing for the public welfare”, this interpretation means there is no limit on what the government can do. Conservatives correctly under

For conservatives, the Constitution is the document which ensures the government will not spill over from the public to the private sphere, no matter how worthy the initial justification. ObamaCare, and specifically its individual mandate, are a clear violation of that line. If they are not unconstitutional, that means there is no meaning to the constitution, as it does not restrict the government to the public sphere. For liberals, the Constitution was never meant to restrict government, and its only purpose is to set the proper procedures for passing laws. Declaring a law unconstitutional, in the liberal mind, makes no sense, unless the law which was challenged restricted individuals in their free activity. In the liberal view, unconstitutionality can only be substantive, while in the conservative view it can only be procedural.

The four liberal justices, as expected, opined that ObamaCare was constitutional. No one was getting hurt, and the government is providing for the social welfare, so there is not much to be unconstitutional about it. Four of the conservative justices (or, more correctly, three conservative judges and the one libertarian judge LINK) decided, again as expected, that ObamaCare is unconstitutional. ObamaCare definitely crosses the line between public policy and private activity, and cannot possibly be constitutional. Chief Justice Roberts broke with both sides, declaring the law unconstitutional as a regulation of commerce, but constitutional as a tax. His opinion is a great puzzle. If Congress may control individual behavior through their power to tax, why not through their power to regulate commerce?

ObamaCare can only be Constitutional if the Constitution does not limit the government’s involvement in personal decisions. If it can be upheld as a tax, it makes no sense not to uphold it as a regulation of commerce. It is a regulation of commerce, if individual decisions fall under the authority of Congress’ power to regulate commerce. It is also public welfare, but only if providing welfare to individuals constitutes public welfare. If the Constitution is meant to restrict the government to the public sphere, as the framers clearly intended, then public welfare means only public projects, and regulating commerce means only the legal framework of commerce. If the power to tax, or the Commerce Clause, allow Congress to control individual behavior, the Constitution itself fails to respect its goal, as it does not provide any check on the government’s encroachment on individual behavior.

Does Justice Ginsburg Understand Insurance?

James Taranto quotes Justice Ruth Bader Ginsburg, in her consent to the ObamaCare ruling:

The Chief Justice’s crabbed reading of the Commerce Clause harks back to the era in which the Court routinely thwarted Congress’ efforts to regulate the national economy in the interest of those who labor to sustain it. . . . The Chief Justice’s novel constraint on Congress’ commerce power gains no force from our precedent and for that reason alone warrants disapprobation. . . . The Chief Justice also calls the minimum coverage provision an illegitimate effort to make young, healthy individuals subsidize insurance premiums paid by the less hale and hardy. This complaint, too, is spurious.

Ginsburg follows with a long discussion of why universal healthcare and an individual mandate are proper, in the nature of a Brandies Brief. This question should however be irrelevant, as Roberts stated, as the court should neither be encouraging nor hindering Congress’s regulation of the economy. The court should simply be deciding if the regulations are constitutional.

One interesting point in Ginsburg’s arguments was her recurring conflation of health care and health insurance.

THE CHIEF JUSTICE’s novel constraint on Congress’ commerce power gains no force from our precedent and for that reason alone warrants disapprobation. See infra, at 23­27. But even assuming, for the moment, that Congress lacks authority under the Commerce Clause to “compel individuals not engaged in commerce to purchase an unwanted product,” ante, at 18, such a limitation would be inapplicable here. Everyone will, at some point, consume health-care products and services. See supra, at 3. Thus, if THE CHIEF JUSTICE is correct that an insurance purchase requirement can be applied only to those who “actively” consume health care, the minimum coverage provision fits the bill.

She argues that the individual mandate is justified since it is a product that (almost) everyone consumes, since at some point they will seek healthcare. However, the mandate does not require people to buy healthcare. They are required to buy health insurance, which is a different product.

Justice Ginsburg seems to think that insurance is just a common way to pay for healthcare. Think of it as a paid-in-advance payment plan, as opposed to the pay-on-demand payment plan that is the alternative. The individual mandate, in her opinion, is not requiring the purchase of services, but is only regulating the method by which people pay for a service they would (presumably) buy anyway.

Let us grant her for a minute that this is a legitimate way to view insurance. There is still a problem with forcing people to buy insurance since, as Chief Justice Roberts points out, it is forcing the young and healthy to subsidize the cost of insurance for the old and sick. Ginsburg responds to this problem by pointing out that the young and healthy can assume a fair return, in aggregate, on their investment, and even if they end up overpaying, that is the nature of insurance:

THE CHIEF JUSTICE also calls the minimum coverage provision an illegitimate effort to make young, healthy individuals subsidize insurance premiums paid by the less able and hardy. See ante, at 17, 25­26. This complaint, to, is spurious. Under the current health-care system, healthy persons who lack insurance receive a benefit for which they do not pay: They are assured that, if they need emergency medical care will be available, although they cannot afford it. See supra, at 5­6. Those who have insurance bear the cost of this guarantee. See ibid. By requiring the healthy uninsured to obtain insurance or pay a penalty structured as a tax, the minimum coverage provision ends the free ride these individuals currently joy.

In the fullness of time, moreover, today’s young and healthy will become society’s old and infirm. Viewed over a lifespan, the costs and benefits even out: The young who pay more than their fair share currently will pay less than their fair share when they become senior citizens. And even if, as undoubtedly will be the case, some individuals, over their lifespans, will pay more for health insurance than they receive in health services, they have little to complain about, for that is how insurance works. Every insured person receives protection against a catastrophic loss, even though only a subset of the covered class will ultimately need that protection.

So she does understand what insurance is, and that it is not just another way to pay for healthcare. So getting back to the beginning of her opinion, how can she argue that the law can require everyone to buy insurance, since anyway they will end up buying it? What they will buy in the end is healthcare, not health insurance, and she is forced to recognize this difference in order to justify subsidizing effect of the individual mandate.