November 17, 2014

Quote of the Day

The late Karl Popper started to think about what distinguishes science from other social practices by confronting the apparent "irrefutability" of ideological systems like marxism or psychoanalysis. The problem with such world views is that they never seem to be testable, there is never any clearly identifiable fact "in the world" which can refute them. The "timidity trap" argument gives me a horrible deja vu feeling in this sense. Each time things don't work out as planned what Mr Abe and Mr Kuroda have to do is more of the same, no matter if you blow Japan clean out of the water, since the only reason the recommended recipe hasn't worked to date is that the balance sheet expansion and the associated stimulus haven't been big enough. I think it is time Paul [Krugman] came of age intellectually speaking and started to identify for us some concrete indicators which could prove his hypothesis wrong if they moved in the expected direction without producing the expected result, and stop telling us repeatedly that he has normally been right. -- Edward Hugh
Posted by John Kranz at 4:44 PM | Comments (8)
But jk thinks:

And I'll take an LT in the pewter. Seriously -- I like it.

Posted by: jk at November 17, 2014 6:07 PM
But nanobrewer thinks:


My opposition to AGW was based on my thoughts of natural systems: I needed to be sure the rises reported in the "hockey stick" scenario were clearly outside of statistical norms. Boy were they ever!

I line like to use in coffee klatches is: "If I were a devout christian, then I'd consider the AGW theories to be blasphemous. Since I'm not devout in that way, I merely see them as hubris."

Posted by: nanobrewer at November 18, 2014 12:00 AM
But jk thinks:

Sorry, nb, lost me there -- was that a "Hockey Stick Yay" or a "Hockey Stick Boo?"

Posted by: jk at November 18, 2014 10:05 AM
But nanobrewer thinks:

I have a phrase which brother JG's comment evokes:
In more civilized times, you might have said 'I don't know.' As a greek philosopher noted long ago, that phrase embarks one on the way to wisdom. Sigh; I suppose one of man's enduring truths is that Wisdom is not conventional (nor convenient).

I consider things that are "Concrete" the only things that gov't can do properly, like firestations, McCloskey ships and border fences (though I'll make allowances for an LCS-1 here and there).

Posted by: nanobrewer at November 18, 2014 3:11 PM
But nanobrewer thinks:

JK: I meant so far out of statistical norms as to be fantastic... as in Fantasy land. I am not a fan of Doktah Mann.

Posted by: nanobrewer at November 18, 2014 3:50 PM
But johngalt thinks:

I love the phrase, NB. "In more civilized times..." Personally, I like to say, "I don't know. Let's find out." I think that expresses the same sentiment, with less poetry.

Posted by: johngalt at November 19, 2014 3:18 PM

November 10, 2014

Market Failure

I don't lightly admit that the free market has failed. But I was reminded, reading "Why everyone still hates the airline industry, in one tweet" of a near intractable problem.

The Expedia/Priceline/Yahoo Travel booking methods have succeeded wildly in providing a competitive market for airfare Sadly, it has provided a market where price is the only factor. We all type in our dates and destinations and generally choose the lowest fare. There may be some margin for brand preference, but an uncomfortable three hours in a few weeks is heavily discounted against savings today.

I don't know that it is insuperable, but it is quite possible that we will continue buying the cheapest ticket and complaining the loudest for many years. United emailed me recently the night before a flight with an offer to upgrade to "plus" seats that were larger, closer to the front, and included a checked bag or two. I did that and was disappointed that it was not available of the return.

Maybe the last minute upgrade is a good method. I suppose smarterer people than me have given this much thought, but it intrigues me that nobody has successfully upsold people to a premium alternative to something everybody hates. We don't drive across town for $0.49 coffee and complain that it is bitter.

Is there an opening for a new Herb Kelleher to provide the "Motel 8" experience?

Posted by John Kranz at 7:19 PM | Comments (0)

November 6, 2014

Only a White Man...

... would think that you could cut $3 Million from one end of a blanket, and sew it onto the other end, and have a longer blanket -- Chief Johnny

local_biz.jpg

Seriously. I love a Mom and Pop store along with the rest of my Facebook contingent, but I find these claims lacking in verisimilitude.

(Perhaps in this case, a white woman with dreadlocks...)

Posted by John Kranz at 9:44 AM | Comments (2)
But nanobrewer thinks:

Hopefully this owner is better with recipes and service than with math!

Posted by: nanobrewer at November 6, 2014 3:18 PM
But jk thinks:

One hopes. Strange, though, how money spent in a chain store disappears. And how those jobs don't count.

Posted by: jk at November 6, 2014 5:32 PM

November 3, 2014

Best Economics Intro of All Time

Russ Roberts has been treated well on these pages.

Blog brother Bryan posted a link on Facebook that is a gem -- Ten Key Ideas: Opening the Door to the Economic Way of Thinking

I've recommended Henry Hazlitt's Economics in One Lesson as a good 0-60 for economic principles. While you would not ever go wrong reading Hazlitt -- this is free and well organized into bite-sized hunks. An ordered read would be edifying, but it is also a chance to share something with somebody who might not have a foundation. Roberts is accessible and engaging.

Posted by John Kranz at 7:29 PM | Comments (0)

The "Bejewelled Bus of Awfulness"

You've worked hard. You've done what you could for the midterms. Treat yourself to the merciless destruction of Russell Brand's economics book by Michael Moynihan.

Most of us have the benefit of growing up politically in private. Not too many people remember the naive and silly views we held; the late night college bull sessions (during which we discover that utopia is possible, if only they would listen to us kids) are forgotten in the haze of pot smoke and advancing age. But Brand, as he always reminds us, was doing a mess of drugs when all the other kids his age were at university doing a mess of drugs. So Che and Chomsky had to wait.

But now, two decades later, Brand is now doing the rounds promoting Revolution, a meandering and pretentious mélange of student politics, junk history, and goofy mysticism. Now he will just proselytize and wait. He's Lenin in Switzerland, Mao on the Long March, Castro in the Sierra Maestra.


And then he stops being nice. Mencken would be proud.

Posted by John Kranz at 1:31 PM | Comments (0)

October 28, 2014

Otequay of the Ayday

In an article about Ms. Clinton's "gaffe" last week:

The senator has no clue where jobs come from and doesn't pretend to. She's a collection of categories, not a thoughtfully realized human being - a (pseudo) Native-American, feminist, populist, Harvard law professor. She no more knows where jobs come from than first-graders know where babies come from. She only knows that they exist and that something icky happened to make it so.

You guessed it - not Hillary, Elizabeth. But the article, the latest from the "Stimulus That!" blog of Communities Digital News contributor and economics professor Jim Picht, is more than just a single entertaining quote. It goes on to explain how Democrats and Republicans conspire to distract the electorate with one issue while a more important one goes unnoticed:

There are other things more important to making the job-creating activity profitable than the corporate tax rate. The regulatory environment is probably the most important of those. New York is less likely to attract new businesses and new jobs by cutting business taxes than it is by making it easier to start or expand a business, easier to hire new employees if there's a chance of a bigger profit, and not making it hard to get rid of those employees if the hoped-for profit doesn't materialize.

There is a great deal that our elected officials could do to make America a more vibrant business environment and American job markets more robust. The first step is honesty: Recognize where jobs come from, and where they don't. Businesses aren't the grit in our economic engine; they are the engine.

Taxes are the shibboleth that political parties and members of Congress use to identify enemies and avoid doing anything useful. It is impossible to be pro-consumer and pro-worker without being pro-business, yet Hillary wants to beat the horse of tax rates. Republicans are happy to go along. [Italics in original]

Posted by JohnGalt at 11:52 AM | Comments (0)

October 22, 2014

Reality McBites

Credit the WSJ Ed Page for detection and acquisition of Ag:

If there's a silver lining for McDonald's in Tuesday's dreadful earnings report, it is that perhaps union activists will begin to understand that the fast-food chain cannot solve the problems of the Obama economy. The world's largest restaurant company reported a 30% decline in quarterly profits on a 5% drop in revenues. Problems under the golden arches were global--sales were weak in China, Europe and the United States.

So even one of the world's most ubiquitous consumer brands cannot print money at its pleasure. This may be news to liberal pressure groups that have lately been demanding that government order the chain known for cheap food to somehow pay higher wages.


The heartless monocled capitalists in the corner office suggest automation as a way out. Not to save labor costs of course -- rather to satisfy customers' demand for more customization.
[Don] Thompson, the CEO, said Tuesday that customers "want to personalize their meals" and "to enjoy eating in a contemporary, inviting atmosphere. And they want choices in how they order, choices in what they order and how they're served."

I'd like to go through the drive through and get what I order. That would be a personalized, contemporary experience for me.

Posted by John Kranz at 10:53 AM | Comments (1)
But johngalt thinks:

And the beauty is, in a competitive marketplace, you don't even have to pay more to get it. Even if one chain raises wages to higher more interested staff, another will automate them to the curb. Well, until government regulates them to the history books.

There's your decision, boys and girls: markets or government? Voting is now open.

Posted by: johngalt at October 22, 2014 11:09 AM

October 20, 2014

What We Fight For

Cue the Mulan soundtrack. But for a Prosperitarian, the prize is not a comely Chinese lass, but a rockin'-high per capita GDP.

I try to sell this idea all the time, but I always sell the subjunctive: if we were to unleash innovation, our nieces/nephews/grandchildren will have richer life. But Forbes's Rich Karlgaard projects the compound interest curve backward. He asks what could have been?

Suppose the U.S. economy, since 1949, were giving up 2% extra growth per year because of bad economic policy. Or, as [Financial advisor Dave] Ramsey might say, because Presidents, legislators and unelected regulators were born stupid or try their best to act that way.

Karlgaard suggests what today's world would look like with 2% better growth. I'll invite you to read the entire short piece. But it is a pretty picture:
--The 2014 GDP would be $32 trillion, not $17 trillion.

-- Per capita income would be $101,000, not $54,000.

-- Per capita wealth would be $480,000, not $260,000. It would probably be higher than that, since savings rates might be higher.

-- The U.S. would have no federal, state or municipal debts or deficits.

-- Pensions would be solid. So would Social Security.


And what of the innovation that extra capital could have financed? He has a few suggestions, but I posit they may not be outlandish enough.

Advocates protecting from "Catastrophic" climate change -- for example -- claim there is little or no cost for their solutions. If I'm wrong, we'll all drown as the waves roll over Weld County; if they're wrong, we'll just have all these groovy solar panels and clean air (and thousands of green jobs if they're on form...)

This is the obvious application, but Karlgaard is talking about regulation across the board. Conceding that some of it has been beneficial -- but correctly stating that the benefits are never compared to the opportunity costs of what we could have done with twice the wealth.

Hat-tip: Insty, who calls it "Heinleinian 'Bad Luck'"

Posted by John Kranz at 10:47 AM | Comments (4)
But johngalt thinks:

You two are still setting the bar too low. I'll take the doubled GDP/income/wealth/non-debtedness/innovation AND the comely Chinese lass.

Posted by: johngalt at October 20, 2014 2:20 PM
But Jk thinks:

Twice the money would be easy to explain to the lovely bride...

Posted by: Jk at October 20, 2014 8:55 PM
But johngalt thinks:

I plugged this post in a call to Grassroots Radio Colorado last evening. Here's the podcast. Start at 23:00, but if you're in a hurry skip to 26:50. But I recommend starting at 23:00.

Posted by: johngalt at October 21, 2014 4:03 PM
But johngalt thinks:

The rest of the show was pretty good too, including both Tom Tancredo and state senator Kevin Lundberg agreeing with what I'd said. Listen through to the end if you have time.

Posted by: johngalt at October 21, 2014 4:06 PM

October 7, 2014

Democrat President Says Something Truthful

Hey, it happens. Although usually not while they're still in office, and this example is no exception:

"I don't expect anybody to vote on it or be happy because middle class incomes haven't risen, the average family is making less adjusted for inflation than they were the day I left office," he said.

But much as I'd like to attribute this condition to Stealthflation, John Steele Gordon's Commentary Mag piece explains the five key areas where problems are strangling the US economy. Guess how many of them are the fault of government?

The good news is that, unlike the economic problems faced by many countries, all of these problems are amenable to reform. The bad news is that reforming the status quo, which always has determined defenders, requires strong presidential leadership and a Congress capable of acting in the national interest, not just in its members' interests.

Hmmm, where have we heard that before?

Posted by JohnGalt at 12:10 PM | Comments (0)

Dear Professor Picketty

I took a few pictures walking Harriet last night and a similar one has been well received on Facebook. Even the mighty Nokia Lumina 1020 did not do justice to the sunset colors -- no doubt the operator's shortcomings and not the equipment.

But it illustrates something I probably cannot say on Facebook. This is the view from my side of hole seven: stately mansions with well manicured landscaping. Each of the residents -- having paid three times what I did -- looks at our condo complex. It's not squalor, and as Secretary of the HOA I ascertain that our grass is plenty green, but the old real estate adage holds that you want the least valuable home on the block.

It's a joke but it is not. We get to enjoy the presence of our more affluent neighbors on this planet, probably a little more than they enjoy us plebes. This contravenes the inequality concerns but is not offset as in feudal inequality. My 4500 square foot neighbors and I enjoy the same lifestyle, except they don't have to record their coffeehouse videos in the living room.

Posted by John Kranz at 11:34 AM | Comments (0)

October 3, 2014

The Kudlow Creed

William Easterly has been treated well on these pages' Review Corner -- twice.

Today, he has a guest editorial in the WSJ that underscores themes in his books.

Two crowds gathered on opposite sides of the world last weekend. The first crowd was for the celebrity concert in New York's Central Park featuring Jay Z, Beyoncé and Carrie Underwood, fighting against global poverty. The second crowd consisted of citizens of Hong Kong who are still staging a sit-in protest, fighting for their freedoms against a recent decision in Beijing to deny them previously promised free elections for Hong Kong's own government.

The sad thing is that the crowd for the first cause in Central Park showed little awareness or sympathy for the cause of the second crowd in Hong Kong.


While pop stars and World Bank President Jim Yong Kim get on the stage and assert "We are gonna end extreme poverty by 2030, fact," what works to end poverty has proven to be freedom, fact.
There should at least be a debate, but Mr. Kim and the World Bank are silent on these matters--as are most other aid agencies and their celebrity supporters. In fairness, the bank and other aid agencies may feel that they cannot criticize autocrats in countries where permission is needed to operate in the fight against poverty.

Yet freedom is arguably central: first, as an end that people want for themselves, and, second, as the most well-proven path to escaping poverty. Consider among others North America, most of Europe, Australia, New Zealand, Japan, South Korea, Taiwan and Chile, where the answer to poverty was economic and political freedom. It is time that celebrity fighters for material economic development started also singing the praises of liberty.


All we are saying, is give free market capitalism a chance....

Posted by John Kranz at 11:55 AM | Comments (1)
But johngalt thinks:

Bravo. A suggestion: Instead of a minimum wage standard, how's about a minimum degree of freedom?

Posted by: johngalt at October 3, 2014 4:12 PM

September 25, 2014

Gallup: Free Enterprise, Small Business, Viewed Positively by 90% of Americans

Ayn Rand summarized her system of morality this way:

"I am not primarily an advocate of capitalism, but of egoism; and I am not primarily an advocate of egoism, but of reason. If one recognizes the supremacy of reason and applies it consistently, all the rest follows."

And I have learned this week that, were she alive today, she would be required to replace the word "capitalism" with "free enterprise." At least until our misguided electorate learns what actual capitalism is.

Perhaps I missed the 2012 Reason Magazine article, that I outlined here and we discussed later here, when it first appeared. But I distinctly remember reading the 2010 Gallup poll that blog brother jk reprised yesterday. And yet the real lesson of its findings eluded me just as it eluded Gallup at the time, as they concluded:

It is apparent that "free enterprise" evokes more positive responses than "capitalism," despite the apparent similarity between the two terms.

Thus concluded their curiosity on the subject. I suppose then that I may be excused for taking so long to see it.

Gallup again:

"Americans were asked to indicate whether their top-of-mind reactions to each were positive or negative. Respondents were not given explanations or descriptions of the terms."

Gallup%20capitalism-socialism%20bar%20graph.png

"Capitalism," the word typically used to describe the United States' prevailing economic system, generates positive ratings from a majority of Americans, with a third saying their reaction is negative."

Egads, if the over-taxed, over-regulated, dysfunctionally central-managed economy we now labor under is what most Americans think is "capitalism," it's a minor miracle it scored as positively as it did! But my grandmother's capitalism - defined by Rand as "a full, pure, uncontrolled, unregulated laissez-faire capitalism -- with a separation of state and economics, in the same way and for the same reasons as the separation of state and church" - has not only an "apparent similarity" with free enterprise, it is exactly free enterprise. Or did nobody notice the word "free?"

My wise blog brother observes that libertarians are wrong to insist on pure principles and instead, we liberty and freedom lovers had better, "in our Madisonian system -- form coalitions and use our strengths wisely."

So if Libertarians are the party of liberty uber alles, Republicans the party of big business corporatism and Democrats the party of federal government corporatism where and how do we organize the party of free-market, free-enterprise, small business entrepreneurs? It would seem an easy thing to do inasmuch as it's membership includes over four-fifths of the entire electorate. And yet, we are brought to heel by the established, entrenched, neo-mercantilist statists. Where is the friggin' light switch?

I have advocated a takeover of the GOP. A replacement of all things "establishment" by either "Tea Party Darlings" or "Liberty Activists." We seem to be losing battles in that war at least as often as we win them, perhaps because the battle lines are so convoluted. So this may be a plan for the next primary season rather than any general election but the question for every voter needs to be: Are you with the backroom dealers in both parties who have brought us crisis after crisis, and riches to the well-connected, or are you with we entrepreneurs - the advocates of free enterprise, and the renewal of the American Dream we promise to bring to you?

Posted by JohnGalt at 2:22 PM | Comments (1)
But jk thinks:

Intriguing, to be sure. On the negative, I wonder to what extent the term "Capitalism" has been polluted and the advantage of "Free Enterprise" is that they have not bother to smite it -- yet.

By the time we change our machines to use it, will the other guys just run it down? I'm thinking of a mutual friend who blogged here in bygone days as "Silence Dogood." He liked Capitalism just fine -- but not "unfettered capitalism." If we swap a term, they will just attach their modifiers and decry "unfettered free markets," Non?

Mister Kudlow had both covered. Every night, the Kudlow Creed: "I believe free market capitalism is the best path to prosperity."

Posted by: jk at September 25, 2014 5:04 PM

September 23, 2014

"Hello... Is there anybody OUT there?"

(Apologies to Pink Floyd.)

Perhaps I was too tepid in the introduction for 'Listening Across the Aisle.' Allow me to start again.

I have discovered the secret to abolishing political partisanship once and for all. Simply read the linked articles by Sheldon Richman and Roderick Long and everything will be revealed!

Okay, perhaps instead I just didn't give a compelling enough summary.

America's contemporary political economy is a system of neo-mercantilism, replete with corporate excesses and government favoritism that enables and promotes them, which thus benefits a well-connected few at the expense of almost everyone else.

Champions of capitalism are heard by others to be defending and celebrating the contemporary system. Meanwhile, champions of socialism are really advocating nothing more than the opposite of this false-capitalism, the contemporary neo-mercantilist system.

So when I say, "free markets are the best solution" others hear, "I believe WalMart should pay slave wages and sell cheap crap at the lowest price so that they and their buddies can grow even richer." And when others say, "everyone should be paid a living wage" I hear "government should make every company hire people for more than they are worth" when instead we should both recognize that, "If government didn't meddle in the economy, thus making it "free", there would be more jobs and more choices and higher wages."

This still needs work but, see where I'm going?

Posted by JohnGalt at 3:30 PM | Comments (15)
But jk thinks:

That would be interesting but my burning desire is not what they think but what they know. I'd far rather hear them define Brother jg's seven-words-you-can't-say-in-a-blog-post than react to them. I want to know if the idea of Tenth Amendment rings a bell -- not "What's the 10th say" but have they ever encountered the idea that the Constitution exists to limit government? Have they ever encountered The Federalist Papers? Do they know who John Locke, and David Hume are? What is the Enlightenment? What label signed Muddy Waters?

Posted by: jk at September 25, 2014 5:19 PM
But johngalt thinks:

John Locke? They can't even name Obama's veep, can they?

Seriously, those topics are for your 3rd or 4th conversation. If you get that far. Before you start asking what they know, try to find a place where you agree. That is the secret sauce. With that you're an okay guy; without it you're a Martian. Or worse.

Then you take small enough steps that they agree or disagree, backtracking when necessary for agreement, and proceed until their head explodes with cognitive dissonance and they a) leave the building or b) unfriend you. Then you have to wait for them to put themselves back together and see where they are at that point.

But I'm seriously interested in the family poll. To be fair, I'll poll mine too.

Posted by: johngalt at September 25, 2014 6:47 PM
But dagny thinks:

Does this sound to anyone like what we tried to do on FB to the tune of nearly 190 comments? And the person on FB was interested and persistent. Did we get anywhere? Maybe in the area of wealth creation.

Posted by: dagny at September 26, 2014 11:58 AM
But jk thinks:

Not sure the antecedent of "this," dagny. Yes, our recent thread shows the difficulty (I say futility but my blog brothers think me melodramatic) of really reaching another human being.

Perhaps your interlocutor entered the arena with too many hardened positions, but I suspect that's the rule and not the exception.

The niece and nephew daydream is really more about education. I do not expect nor would I try in this context to bring them over to the dark side of liberty (There is much poweh, Luke...) The group I'm thinking (not my old nieces with college kids of they own) were B+ to A public school students, are very bright (and attractive!)

I wish to know what liberty theory points they have ever encountered -- I suspect few to none. And what their knowledge of history and Constitutional theory is. I expected zero politics per se, just an oral exam.

Posted by: jk at September 26, 2014 12:48 PM
But johngalt thinks:

Well, I just invited immediate, extended and adopted family members to take my poll, in return for getting a copy of the family and the commercial poll results in return. Data to follow, such as it may be.

As for our 190 comment thread, that's a big part of what informs this subject. We argued to tears and boredom about "capitalism" and "socialism" when we probably agreed all along about free enterprise, small business and entrepreneurs!

Posted by: johngalt at September 26, 2014 6:56 PM
But jk thinks:

I was thinking of an open, Facebook, comment-if-you-want-to thread. If you'd kindly send me yours, I will make it match.

RE: 190 comment thread: wow. I could not disagree more. There were a few brave attempts to collect that which we both believed and shade that Venn diagram of common ground no matter how small, but I never saw them as really establishing ground. A guy who does not accept ex nihilo wealth creation is not going to get behind Free Enterprise unless you describe it in a way t cannot be understood. I accuse my blog brother of wishcasting common ground that was not there.

Posted by: jk at September 26, 2014 7:17 PM

September 17, 2014

Listening Across the Aisle

I must caution myself against regarding this the key to a prosperous future of joyous non-partisanship, but it does seem to have that potential.

Somehow we seem to have missed this February, 2012 Reason article: Corporatism is Not the Free Market by Sheldon Richman. It's value is not so much embodied in the title subject, although that is necessary background. It's novelty is the way it explains the rise of hyper-partisanship in the 21st century. He quotes heavily from this article by the Libertarian theorist Roderick Long:

Long sees capitalism in its common usage as similar.
By "capitalism" most people mean neither the free market simpliciter nor the prevailing neomercantilist system simpliciter. Rather, what most people mean by "capitalism" is this free-market system that currently prevails in the western world. In short, the term "capitalism" as generally used conceals an assumption that the prevailing system is a free market. And since the prevailing system is in fact one of government favoritism toward business, the ordinary use of the term carries with it the assumption that the free market is government favoritism toward business.

Similarly for socialism, Long writes. He thinks most people mean nothing more specific than "the opposite of capitalism."

Then if "capitalism" is a package-deal term, so is "socialism" -- it conveys opposition to the free market, and opposition to neomercantilism, as though these were one and the same.

And that, I suggest, is the function of these terms: to blur the distinction between the free market and neomercantilism. Such confusion prevails because it works to the advantage of the statist establishment: those who want to defend the free market can more easily be seduced into defending neomercantilism, and those who want to combat neomercantilism can more easily be seduced into combating the free market. Either way, the state remains secure.


Other than to say the present neomercantilist system favors politically connected business, not business as a whole, I will leave further discussion to the comments. And for reference, I will include both a dictionary definition of capitalism and a more precise definition by Rand.

And I will plead guilty to having fallen into the trap of defending neomercantilism, unwittingly. If nothing else, by not explicitly stating up front that this is NOT what I am defending.

Posted by JohnGalt at 2:55 PM | Comments (0)

September 5, 2014

Is Monetary Policy Stagnating Hourly Wages?

The "Inequality Sucks" crowd harps on the low wages paid to unskilled workers almost as much as they envy the wealth of the 1%ers (the only group to see it's overall wealth rise under President Obama). I've been defending the property rights of the evil rich bastards by claiming that less government overhead holding back private industry will, all things being equal, create new jobs (i.e. labor demand) and move labor wages up the demand-supply curve. It's basic economics - everything except the "all things being equal" part.

The trader's tool site Econoday is explaining the relationship between unemployment rate and annual earnings growth thusly:

When the economy is operating at full throttle, a falling unemployment rate worries policymakers as they anticipate that rapidly rising wages will turn into runaway inflation. In fact, wage growth did accelerate in 2005 and over most of 2006 as the jobless rate headed lower. But the reverse has been true during the past recession and early recovery. A rising jobless rate often alleviates wage pressures but is typically associated with economic recession. Federal Reserve policymakers aim for balanced growth with very low inflation.

fedpol_clip_image005.png

(Note that under Bush, wage growth was generally above 2.5% yearly, while under Obama it has generally been less than 2.5%.)

I had believed that economic growth was accidentally retarded by confiscatory taxation and abusive industrial regulation but it appears there is more to it than that - economic growth is "balanced" because the fiat bankers at the FED want it that way, as a check on inflation. Somebody smart is gonna have to explain to me why this is good. I'm not about to defend it.

Posted by JohnGalt at 2:46 AM | Comments (2)
But jk thinks:

The relation of unemployment to inflation is called The Phillips Curve and it has a rejuvenation capacity that Freddy Krueger would envy. It should have been discredited by the Volker Fed's slaying the stagflation beast with a strong dollar.

But but but but -- is my blog brother campaigning for looser money or accusing the Fed of driving up unemployment by tightening too quickly? Is gravity still 9.8 m/sec2?

Posted by: jk at September 5, 2014 9:53 AM
But johngalt thinks:

I'm not advocating anything yet, since I don't really understand what's going on. But in principle, if the FED has to rig the money supply such that the economy can't grow as much as it would otherwise do, that is objectionable. If their fiat currency "inflates" because too many goods are being produced too fast then find some other way to regulate the stupid currency. You're smart guys, right? You think your smart enough to manage the whole freakin' economy.

What I'm after is so much job growth that workers can pick and choose from more good options, with higher wages. Sort of a "We're all North Dakota now" strategy, without the funny accent and nine months of winter. So many jobs that nobody will object to more immigration. What's wrong with this idea? Who wants to keep it the way things are? Unions? Simpleton central bankers? Politicians who want to keep the country polarized?

Posted by: johngalt at September 5, 2014 12:29 PM

August 29, 2014

The Moral Case for Fixing Economic Inequality

A friend of dagny's has shared the TED article The Four Biggest Reasons Why Inequality is Bad for Society and she disagreed with what the article says. I am told her friend, whom I also know but not as well, would like to discuss it with others at length so dagny asked me to post it here where, hopefully among others, "jk will do Austrian vs. Keynsian economics with him all day long." Personally I think most of the objections are philosophical rather than economic, but not all of them. I'll break with my typical modus operandi and restrict my opinions to the comments section.

The author is T. M. Scanlon, Alford Professor of Natural Religion, Moral Philosophy, and Civil Polity at Harvard University. He also references Piketty's 'Capital in the 21st Century' which was discussed here a few times. Most seriously, perhaps, here.

And now, if you please, engage!

Posted by JohnGalt at 1:01 PM | Comments (8)
But dagny thinks:

Also of interest is the fact that the commenters range in age from 18 to 77.

Posted by: dagny at August 29, 2014 5:45 PM
But jk thinks:

Well, looking at it from a neo-Monetarist perspective... (You people are so mean to me.)

Here is my comment exactly as it appears on FB:
-----------------------------------------------
I think Scanlon, like many of this genre is unpersuasive on the evils of inequality qua inequality.

Certainly the poor should have more. I believe that respect for rights, enlightenment values, and free exchange to capture comparative advantage will make the poor less poor. I highly recommend William Easterly's "The Tyranny of Experts--" especially as an antidote to the linked Peter Singer TED talk.

But I have very pad news. The solution -- the world tested and repeatedly proven solution -- to helping the poor actually helps the non poor. Inequality myopics must answer the question: "If I doubled your salary and your company's CEO's salary, would you be sad?" That would likely increase the inequality between you and that fat, monocle man in the pinstripes in the corner office. Yet, I would cheer.

Scanlon offers many good reasons to dislike poverty, but his reasons to distain wealth are less compelling. Mal-distribution of political power? Ask President Forbes and President Perot about that. Better opportunities in school? I don't see Steve Jobs, Warren Buffett and Bill Gates trading on their old school ties.

A stratified society is to be distained only as much as the pathways from one caste to another are closed off. And that lack of dynamism generally is the product of top-down organizations' dictating "fair" outcomes.

So I say double everyone's wealth! That will all but double inequality, but I won't complain. I'll be too busy playing my new guitars.

Posted by: jk at August 29, 2014 6:43 PM
But dagny thinks:

OK well, JK just did this way better than me, but I’m going to post anyway since I wrote it all down:
There are 2 very important and clear distinctions that come to mind immediately between the government class and the rich. Many in government are rich too but the distinctions are between government and private sector rich.
1) Everything government does is basically done involuntarily. Tax collection is backed up by the power of the law and men with guns. While private sector rich got that way by voluntary exchange. No one held a gun to my head the last time I went to Starbucks or McDonalds or bought an iPHONE.
2) Government is parasitic on the wealth of a society. It creates nothing. I am not an anarchist and I believe government IS necessary but it does not add to the wealth of society. The wealth of a society is represented by its stuff, its art, its leisure time and it is still increasing in this world at a tremendous rate. Money is only a medium of exchange, it is NOT the wealth itself. The wealth itself is this magical device in my hand that allows me to argue with friends and tell my husband to pick up milk on the way home. The private sector rich mostly create wealth. Government invariably diminishes it.
So the question here is whether involuntary redistribution (through taxation) is a good idea. Part of the question is whether it is moral but lets put that aside for a minute and look at what actually happens. The wealth is moved from productive uses to unproductive ones. And I’m NOT saying those at the bottom of the income scale are unproductive, I’m talking about the tremendous loss in government overhead ($600 hammer anyone?)
Also this method of running a society hurts those at the bottom of the scale more. For example the guy at McDonald’s that Paul mentions above cannot decide that since what McDonald’s is paying him is insufficient to meet his needs, he is going to open his own hamburger joint. The government imposed barriers to entry are too high. To open a hamburger joint he needs FDA, EPA, OSHA and whatever else alphabet soup approval that costs so much, he can’t even get started.
So we have this income inequality problem (which BTW, I don’t think the inequality itself is really the problem) but only that those at the bottom are struggling is the problem. If I am happy and not struggling to feed my family, why would I care how much stuff my neighbor has???
Government interventions to try to reduce inequality have downward pressure on real wealth, resulting in things being worse for all which matters less to those at the top than it does to those at the bottom.

Posted by: dagny at August 29, 2014 7:03 PM
But johngalt thinks:

A primary objection over on the other thread is that CEOs are paid "too much." After explaining that CEO's essentially earn profit from the labors of every worker, while each worker is paid only for his own labor, I did have some sense of a fundamental unfairness where, for example, a new CEO is hired to guide the helm of a major multinational corporation that he did nothing to create in the first place. That guy commands a huge salary because he's qualified to sit in that seat, for whatever reason, but why does the seat exist? Why is it beneficial for corporations to be mega-sized? Economies of scale and access to mega-sized development capital seem the best answers.

I will not advocate government limits on the size of a corporation, but is there a market solution for promoting the fragmentation of corporations? Is that even desirable?

Posted by: johngalt at September 2, 2014 12:55 PM
But jk thinks:

Statist! (Sorry, I had to...)

I do not think it is desirable to promote fragmentation. A board should decide how big a big a corporation is. They can spin off or sell units if it seems desirable to them.

I'm appreciating your desire to be reasonable, but I'll not join you. Peyton Manning gets paid a bucket to QB the Broncos because he is thought the best choice and because other teams would like to have his services. He did nothing to build the Broncos (in fact, he took us out in the first game of the playoffs how many years? Bastard!)

I'll do that analogy all day. There is a pretty select list of folks you'd hire to be a first string NFL quarterback, and there is a select list of people you'd put at the helm of AT&T, Walmart, Exxon-Mobil or LiveAtTheCoffeehouse.com. The cost of the wrong hire is far worse than the cost of the right one.

Posted by: jk at September 2, 2014 4:46 PM
But johngalt thinks:

Okay, but I'm talking about mega-corporations. Kinda like Peyton Manning takes over as QB of the Broncos and then acquires the rest of the AFC teams in a leveraged hostile takeover. Now he's QB for 16 teams, but taking the same number of snaps and making the same passes and handoffs, but with 16 times the consequences and, sixteen times the compensation.

As principled a capitalist as I'll ever be, I don't think I'll ever admire the M&A specialist who takes perfectly well operating companies and melds them all together in an unworkable mess just to save the duplicative costs of the administrative staff (and compile some BS balance sheet org chart market share nirvana, with which to tempt a buyout by well-heeled rubes looking for a new hobby.) The productive capacity and happy, comfortable careers of countless engineers have thus been cast asunder more times than any of us knows.

In other words, businessmen make the economy go, but some businessmen couldn't give a crap about the actual business.

Posted by: johngalt at September 3, 2014 12:06 AM

August 11, 2014

Great Stagnation -- or Not

Northwestern University Professor Joel Mokyr is not buying the great stagnation theory. True, the low-hanging fruit of women's entering the workforce has been plucked as it were. And that Internet-thingy is pretty well baked in to GDP (that is not a mixed metaphor: GDP is a pie containing low-hanging fruit -- keep up with me, people!)

Mokyr suggests a one-word response: "technology." Like me, he sees nanotech and genetics and increased digital access to knowledge and data to be just as exciting as previous advances.

The breakthroughs are not "on the horizon." They are here. The economy may be facing some headwinds, but the technological tailwind is more like a tornado. Fasten your seat belts.

So: If everything is so good, why is everything so bad? Why the gloominess of so many of my colleagues? Part of the story is that economists are trained to look at aggregate statistics like GDP per capita and measure for things like "factor productivity." These measures were designed for a steel-and-wheat economy, not one in which information and data are the most dynamic sectors. They mismeasure the contributions of innovation to the economy.

Posted by John Kranz at 11:10 AM | Comments (0)

August 8, 2014

Russ Roberts Call Your Office!

[For those who miss the arcane illusion, Russ Roberts wrote a fiction book which explains economic principles. The Price of Everything delights the serious economist with humorous allusions, while the main plotline illustrates some of the dismal science's counterintuitive predictions to those who have not encountered or understood them. The primary plot concerns a student protest against price gouging after a hurricane.]

Benjamin Zycher looks at complaints of gouging in the recent Lake Erie scare. The Demagogues are out to ensnare those who used supply and demand pricing to get reliable water supplies to those who best needed it.

Zycher asks the obvious question: how are you going to ration it? Let the first rapacious customer buy 20 pallets at 0.99/six pack and then he gouges the next guy? Or washes his dog while sick children suffer (you don't hate children, do you?) Limit sales to one bottle, so those with more time get more water? He also does a great riff that ThreeSourcers might enjoy, relating it to rights.

The last time I read the 13th Amendment to the Constitution, it said something rather sharply unfavorable about involuntary servitude. Are sellers of bottled water now to be forced to sell at prices approved by [Ohio Attorney General Mike] DeWine? Recall that during the natural gas crisis in the winter of 1977 -- caused not by some natural disaster, but instead by federal price controls -- the Ohio state police barged into people's houses to check their thermostats, without warrants, without statutory authority, without any constitutional basis whatever. When a real water crisis arises, will DeWine try to monitor and limit water consumption in people's homes? Someone ought to ask DeWine if that road is likely to yield greater "fairness." This kind of metastasizing government power as always will be characterized by ineptitude, ignorance, and an overriding instinct for political self-preservation. And unlike the entrepreneurs, who have to persuade people to buy their product at a mutually acceptable price, the DeWines of the world have little basis to claim that they "represent consumers."

Posted by John Kranz at 12:28 PM | Comments (2)
But johngalt thinks:

Let's play 'Name that root cause.' My answer: egalitarianism

Posted by: johngalt at August 8, 2014 3:20 PM
But jk thinks:

I'm leaning toward "ignorance." Talking about innate human reactions, I think it "natural" to say "Damn, those greedy bastards are capitalizing on our misfortune!"

After reading Roberts's book, I think most would accept price as an allocation tool, but would not discard egalitarianism.

Posted by: jk at August 9, 2014 11:22 AM

July 28, 2014

Un-Hail Insty

Or . . . oh, hail no!

insty140728b.gif

Good thing the good perfesser teaches law and not economics, I grimace at his Mickey Kaus-esque immigration posts, but this is really disappointing. His link goes to Ann Althouse. I appreciate wanting Gov. Walker to win -- really I do. He has taken brave stands on education and public sector unions and he has been subjected to far far worse and far less true attacks than these.

But are we going to stand for anything?

Posted by John Kranz at 2:00 PM | Comments (0)

July 23, 2014

An Economc Case for Vampiric Reensoulment

Did I mention that I love the Internet? The ethics and economics of vampire re-ensoulment

This defense is fine as far as it goes, but I'd like to go further. Why presume that having more humans or human-like beings on the planet is even a problem at all? The ecological concern seems to borrow from the perspective of doomsayers like Paul Ehrlich, who have been beating the population-bomb drum for decades. And for decades, the doomsayers have been proven wrong. In 1968, Ehrlich predicted mass starvation by the 1970s or 1980s. Didn't happen. Since then, Ehrlich has continued to move the goal posts, but his predictions have stubbornly refused to come true. Instead, the world has witnessed a massive reduction in poverty. Between 1990 and 2010, the percentage of the world population living in extreme poverty fell from 43 percent to 21 percent, even while the world population rose by almost a third.
[...]
One last point. Isn't it problematic that vampires drink blood, and they would therefore be dependent on the human population for sustenance? Again, I think the answer is no. None of us are perfectly self-sufficient. How many of us grow our own food? We are all dependent on a massive web of human cooperation to provide us with food, shelter, clothing and most everything else we need. In this sense, vampires dependence on human blood is just a special case of everyones shared dependence on everyone else. The key issue for sustainability is not requiring self-sufficiency, but assuring that most people and vampires contribute enough to productivity to pay for the services that others provide them. By establishing a legal market in human blood, as suggested by Enrique Guerra-Pujol in Chapter 12, we could go a long way toward creating an incentive for vampires (especially re-ensouled ones) to eschew violence in favor of remunerative work in the combined vampire-human economy, to the benefit of both the living and the dead.

Hat-tip: Insty

Posted by John Kranz at 5:30 PM | Comments (0)

July 8, 2014

Colorado's Economic Forecast is ... TBD?

What's up with the official Colorado Economic Forecast- State Revenue and Economic Quarterly Forecasts posted on the Colorado.gov website? The reports for the two most recent quarterly reporting periods are AWOL. (Has KDVR 31 noticed yet?) If you click through you can see that the reports from March 2007 until December 2013 are linked to a Colorado.gov page but the March 2014 report is an empty Dropbox page and the June 2014 report is - wait for it - a Google Docs survey by "The Office of State Planning and Budgeting (OSPB)" that "is seeking feedback on its quarterly economic and revenue forecast."

Excuse me, shouldn't you actually be providing a quarterly economic forecast instead of asking us what we want it for? [Click continue reading for the text of the survey]

Okay, I'll tell you why I was looking for the official economic forecast of the Governor's Office of State Planning and Budgeting. I had just read about this Denver Business Journal survey where 56% of respondents said that state regulations hurt their business "a little" or "a lot."

And I had just reviewed this United States Small Business Friendliness Survey that grades Colorado's regulatory environment a B-minus, worsened from B in 2013. (And the scale only includes grades of A through C.)

And so, I wondered, as his re-election campaign approaches, what is the governor's opinion of Colorado's economic condition - past, present or future? The last time his OSPB published an opinion was in December of last year, when it summarized:

"As with the nation, however, economic progress across the state is uneven. Further, the economy is always vulnerable to adverse, often unexpected, events that could strain budget conditions."

I presume this is the best possible light that state economists are able to cast. That would seem consistent with the compilation of Colorado's other economic grades from the Small Business Friendliness Survey:

Ease of starting a business: A-minus, up from B-plus

Ease of hiring: A, up from A-minus

Regulations: B-minus, down from B

Health and safety: B-plus, up from C

Employment, labor and hiring: C, down from B

Tax code: C-plus, down from B-plus

Licensing: A-minus, up from B-plus

Environmental: B-minus, up from C-plus

Zoning: C, down from B-minus

Training and networking programs: A-minus, down from A

In summary five improvements and five declines, but there are some very ugly grades in there including C's (the lowest grade) in Employment, Tax Code and Zoning. Certainly not to what a state with "one of the nation's most educated, technically saavy workforces" might aspire. While we might expect to lead the nation in economic growth and development, under the administration and policies of the current governor Colorado looks more like a slow-moving state, making the governor's new state logo take on a whole new significance.

Slow%20Moving%20State.jpg

Forecast Survey_June 2014
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Posted by JohnGalt at 3:12 PM | Comments (0)

May 3, 2014

The Theft of Growth

There are some hard sells in liberty theory. One of the most difficult is that the costs of regulation and cronyism and meddling of all stripes can be so well hidden.

I'm old enough to have watched this country grow wealthier. Piketty and Krugman and Alan Reynolds can fight it out (my money's on Reynolds) but I compare myself to my father. He was something of a big deal in Denver media. He had as many as 40 people employed in his ad agency. He had the American Motors Dealers' accounts for the Rocky Mountain region (we drove Ramblers...) and some big local firms.

I would have to do some creative stretching to purchase the home I grew up in. And I don't have the expense of having me as a son. But, as a comparative schlub, I enjoy a much higher standard of living.

The administration's defenders love to quote x quarters of GDP growth or y total jobs added from the recession's trough. I guess that's fair -- there's no Constitutional injunction against cherry-picking (not that they'd follow it).

There are two flaws to their pitch. Flaw the uno is overselling the seriousness of "the mess they inherited." It is in no way comparable to the Great Depression. In terms of % job loss or share of GDP, it is almost perfectly comparable to the 1981 recession. You remember, how President Reagan used to go on and on about "the mess he'd inherited."

Flaw de Dos is to accept the meager recovery that accompanied Keynesian policies instead of the robust recovery produced by supply side fiscal and monetary incentives.

Heritage suggests "If Obama Could Replicate Reagan Recovery, Economy Would Be about $17,000 Bigger Per Family"

We made all of these imbecilic moves, and the wonder of it all is that the U.S. economy is growing at all. Its a tribute to the indestructible Energizer Bunny that is the entrepreneurial U.S. economy that it keeps going and going even with all the obstacles. The problem is it isn't going very fast. Thats what the Bureau of Economic Analysis told us this week when it reported that the GDP for the first quarter of the year grew an anemic 0.1 percent on an annual basis from January to March. The more meaningful measure of growth, private-sector GDP, rose by a still-meager 0.2 percent.

Every impediment to growth has no price tag to these people because it is being paid for by stealing from our progeny. Passing along the 1972 economy instead of today's.

Posted by John Kranz at 11:53 AM | Comments (1)
But johngalt thinks:

Sure, the economy would be bigger, but it would be racist and hate children.

I can remember when these movements [environmental extremism, race baiting, nannyism] were in their infancies. I mostly dismissed them, believing nobody would fall for such obvious bullshit. Boy was I wrong.

Posted by: johngalt at May 5, 2014 3:15 PM

April 21, 2014

Piketty is Back

Jane Goodall studied gorillas. She contributed much to academic research and also brought interesting facts and riveting footage to lay people.

Thomas Piketty studies income inequality; he seeks it with the same intensity as Ms. Goodall -- mutatis mutandis. Wikipedia points out "Piketty has close connections with the French socialist party, and took part in the economic commission of that party from 1995 to 1997." His 2004 paper with Emanuel Saez is probably the most frequently cited academic work on inequality. Alan Reynolds's "Income and Wealth" is generally a book length refutation.

While he has strong views, he is a serious academic and those views are worthy of scrutiny. His new book, Capital in the 21st Century" has received rave reviews from the left and I exchanged some messages with a good friend of this blog who regretted that most of the opposition was political and polemical. I liked Christopher Demuth's QOTD-achieving WSJ editorial.

While it is not an economic refutation, Clive Crook's piece in Bloomberg View is a good read and inspired my "Inequalities in the Mist" comparison. Piketty, sez Crook, does superb research -- but then takes imaginative leaps from the data to reach conclusions.

Piketty's terror at rising inequality is an important data point for the reader. It has perhaps influenced his judgment and his tendentious reading of his own evidence. It could also explain why the book has been greeted with such erotic intensity: It meets the need for a work of deep research and scholarly respectability which affirms that inequality, as Cassidy remarked, is "a defining issue of our era."

Maybe. But nobody should think it's the only issue. For Piketty, it is. Aside from its other flaws, "Capital in the 21st Century" invites readers to believe not just that inequality is important but that nothing else matters.

This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might cause the ratio of capital to output to rise, which would worsen inequality. In the frame of this book, the two world wars struck blows for social justice because they interrupted the aggrandizement of capital. We can't expect to be so lucky again. The capitalist who squanders his fortune is a better friend to labor than the one who lives modestly and reinvests his surplus. In Piketty's view of the world, where inequality is all that counts, capital accumulation is almost a sin in its own right.


If that is not sufficiently conclusive for you, keep in mind Paul Krugman likes it.

Hat-tip: @yipeedog

Posted by John Kranz at 10:12 AM | Comments (3)
But johngalt thinks:

"Nothing else matters" beside income inequality? Not even Catastrophic human-caused climate change?

Last week's 'Moyers and Company' featured Bill Moyers and Paul Krugman discussing 'Capital in the 21st Century' for the entire show. (What could go wrong?) I DVRed it but haven't watched yet. You see, I still have episodes of NCIS and The Mentalist from last year that are yet to be seen. Perhaps the reader will at least give me an A for good intentions.

Posted by: johngalt at April 21, 2014 12:00 PM
But jk thinks:

Clearly we need to have a big ThreeSources watching party. I'll bring chips & dip...

Posted by: jk at April 21, 2014 1:24 PM
But T. Greer thinks:

I thought this review was a good one too.

Posted by: T. Greer at April 22, 2014 5:53 AM

March 7, 2014

Doing the Work ThreeSourcers Won't Do

Mollie Zieglar Hemingway has a guest editorial in the WSJ that might warm the cold, unfeeling hearts of ThreeSourcers. She takes to task one Dalai Lama. "The longtime Marxist doesn't seem to realize markets are the best way to 'take care of others.'"

She mentions the AEI visit and his admission that he has come to better respect Capitalism. "But that respect seems grudging. He also criticized 'the capitalist country, United States,' as 'the richest, but you also see a big gap between rich and poor.' And he said of capitalism that it 'only takes the money, then exploitation.'"

While the Dalai Lama was bringing his critique of capitalism to Washington, Venezuelans were continuing their sustained protests against a Marxist government that they blame for high inflation, rampant crime and the imprisonment of opposition leaders. Then there are the Communist regimes in China, Cuba and North Korea, which remain far more repressive and unequal than any capitalist democracy. Yet the Dalai Lama didn't mention Communist oppression.

The fact that Marxism has achieved the opposite of what it promises hasn't seemed to move the Dalai Lama. On this trip, the Dalai Lama told a Vanity Fair reporter that the issue is not Marxist ideology, just its practitioners: "I think the Marxist economics is right. But gradually Lenin, [though he was] supposed to apply that concept, he sacrificed individual rights, individual freedom."


Yeah, Lenin was swell before he turned away from his dedication to individual rights and individual freedom.

Holler if you want this mailed over Rupert's pay wall -- I'm, like, totally prepared to "fight the man" today.

Posted by John Kranz at 1:10 PM | Comments (2)
But johngalt thinks:

How did this post do with your FB friends? HAHA.

While searching for a favorite Rand quote to use in commenting on this article I found another one I wanted to also share. It fits nicely right here, in support of Hemmingway's profound observation.

"Businessmen are the one group that distinguishes capitalism and the American way of life from the totalitarian statism that is swallowing the rest of the world. All the other social groups—workers, farmers, professional men, scientists, soldiers—exist under dictatorships, even though they exist in chains, in terror, in misery, and in progressive self-destruction. But there is no such group as businessmen under a dictatorship. Their place is taken by armed thugs: by bureaucrats and commissars. Businessmen are the symbol of a free society—the symbol of America. If and when they perish, civilization will perish. But if you wish to fight for freedom, you must begin by fighting for its unrewarded, unrecognized, unacknowledged, yet best representatives—the American businessmen." -Ayn Rand, 'Capitalism, The Unknown Ideal'
Posted by: johngalt at March 7, 2014 3:28 PM
But Terri thinks:

"How can a wise man fail to see this connection? Jonathan Haidt, " (regarding the virtuousness of Instagram used by the Dalai Lama)

If one could explain how the creator of Reavers can be pro-Obama, he would have his answer.

Posted by: Terri at March 7, 2014 5:36 PM

February 27, 2014

More on GDP and the great stagnation...

I think that we'd agree that what matters is the value that were creating, not whether a particular metric moves -- especially a metric like GDP, which often literally goes in the opposite direction of welfare. When things become free, that can often lead to a decrease in measured GDP, even though it leads to a big increase in welfare. Wikipedia is a perfect example of that. Or take the fact that most people now have, you know, a device that gives them turn-by-turn driving directions. It's pretty much free with most smart phones. But a few years ago, people were paying hundreds of dollars for a GPS machine. So I think we have to be careful about overreliance on a metric that was never understood to be or shouldn't be understood to be a welfare metric.-- "The Second Machine Age" co-author Erik Brynjolfsson
From a superb interview with the authors by James Pethokoukis at AEI.
Posted by John Kranz at 2:05 PM | Comments (0)

February 26, 2014

Beyond GDP?

When somebody says that he doesn't consider Gross Domestic Product a good measure . . . I usualy start looking for the exits. Clearly we'll soon be hearing a State of Oregon or Bhupal index of well being that supersedes mere finances. And Voila! The dirt poor socialist country will outscore the US. I've heard it a thousand times, kid.

But, when it is economics HOSS Arnold Kling speaking, I'll listen more politely.

From the standpoint of measuring social welfare, the most important omission in the GDP statistics may be what economists call consumer surplus. Consumer surplus is defined as the additional value of a good beyond what can be measured in its cost. A flight to Miami from Boston or Philadelphia costs much less than the value that travelers get from it -- especially in a winter like the one we have experienced this year!

As ["GDP: A Brief But Affectionate History" author Diane] Coyle points out, discussions of the value of the Internet inevitably come around to the issue of consumer surplus. Because typically what you can find on the Internet is free, its value cannot be captured by measuring how much you pay for it. All of the value of this zero-cost entertainment and information is consumer surplus.

In fact, I believe that consumer surplus may be a multiple of measured GDP. I believe that we value indoor plumbing by much more than it costs. The same is true for washing machines (see Hans Rosling's video, and note that the video itself is available for free), televisions, microwave ovens -- in fact, just about every appliance that uses electricity.


The Deidre McCloskey-ite in me would not dismiss per capita GDP or consumption equivalent as important for large scale differences between North Korea and Finland or Cave men and ThreeSourcers. But the $20,000 vs. $30,000 seems less useful.

My favorite retort to the income inequality crowd is how much my life is like Bill Gates's. I fly coach and he gets a lift on a corporate jet, but we still fly. I drive a ten year old Toyota but I drive. Poor Americans tend to have air-conditioning and cell phones and cable tv (my prog friends become incensed when I say that -- like I don't want them to have things!)

It is difficult to quantify. I think Kling is on track with the value of "consumer surplus."

Posted by John Kranz at 2:09 PM | Comments (1)
But T. Greer thinks:

This indeed pretty interesting. I had never thought of that one. Tip of the hat to Mr. Kling.

Posted by: T. Greer at March 2, 2014 5:27 AM

February 19, 2014

Minimum Wage QOTD

So we lose maybe 500,000 jobs (the first rung for many on the upward mobility ladder) for an anti-poverty policy where half the benefits go to families whose income is three times the poverty threshold or more (see above chart). This does not sound like optimal anti-poverty policy to me, especially as compared to expanding the EITC and adding a wage subsidy. -- James Pethokoukis
Posted by John Kranz at 2:20 PM | Comments (0)

February 5, 2014

Don't Blame Me if the NYT Didn't Tell Ya

In homage to this week's stories here and here...

090623-obama-pointing.jpg

"Aww, c'mon now, you can't say it's my fault all you brutha's thought I was gonna create jobs. You'da known all along if you'd been watching Fox News."
Posted by JohnGalt at 12:15 PM | Comments (0)

January 31, 2014

'Why Central Planning Sucks' For Dummies

While composing a Facebook comment reply I ran across this excellent, apparently original, essay by one Rollo McFloogle, written last February. Here's a morsel:

This is what happens when there's a lack of competition of putting ideas into action. When one and only one solution is allowed to be enacted, you can never tell how well it actually works because there's nothing to compare it to. This helps to perpetuate the idea that the central planners have the right solutions, but there are things outside of their control that prevent them from accomplishing their goals.

Government can then never relinquish control of the things they take over. Once they allow the free market to work, people will be able to make their own choices for their own lives and will begin to see that it works better than the government. The realization by people that they don't need the government is the beginning of the death sentence for the state.

Read it. Share it. Live it.

Posted by JohnGalt at 4:00 PM | Comments (3)
But Keith Arnold thinks:

Central Planning explained:

A commissar in the Soviet Union went out to one of those state collective farms, spoke to the director of the farm, and said, "Comrade Director, how is the potato crop?"

"Oh," he said, "Comrade Commissar, if we could put the potatoes in one pile, they would reach to the very foot of God."

And the commissar said, "Comrade Director, you forget. This is the Soviet Union. There is no God."

And the director answered, "Comrade Commissar, YOU forget. This is the Soviet Union. There are no potatoes."

Posted by: Keith Arnold at January 31, 2014 4:35 PM
But jk thinks:

Very well done. It feeds well into my tiresome yet true appeal for incremental, marginal improvement: if there are zip lock enclosures on government cheese, they came late. A seller improves the product to increase sales.

On the other hand, we have an accidental segue to my environmental argument. Yeah, the five of us can decide how to deal with a squirrel (though I am guessing he does not attend a lot of HOA Board meetings...)

But there are actual externalities. What if the pest is one owner's pet squirrel? A factory wants to pollute the river, cause acid rain, overfish the community pond, or punch a hole in the Ozone with its CheezWiz propellant. Don't know how I drew the environmentalist short straw today. But there are no natural property rights based solutions to these. Purist libertarians like to pretend that there are.

Posted by: jk at January 31, 2014 5:57 PM
But johngalt thinks:

"Tragedy of the commons" is to the environmental regulatory movement what "Interstate Commerce Clause" is to economic regulation and redistribution - a fig leaf of legality.

Multiple attempts have been made to establish a universal environmental protectorate which, in the name of, every manner of rights violation may be justified. Anthropogenic Global Climate Change is by far the most successful effort to date.

A contradictory position is difficult to justify in the face of "you are poisoning every living creature" even when said "poison" is nothing but mammal breath.

The only rational answer I can come up with is that "protection" of the commons from anything and everything is nothing more than another claimed "common good" which Rand dismissed thusly:

It is accepted precisely for its elastic, undefinable, mystical character which serves, not as a moral guide, but as an escape from morality. Since the good is not applicable to the disembodied, it becomes a moral blank check for those who attempt to embody it.

At its core 'the good of the commons' is a code whereby "the good of some men takes precedence over the good of others." It is intended to benefit, not the earth or the animals or the air, but the men who invoke it. The only way to fight it is to ask how a rule can be good for "all men" without being good for "every man?" If some are harmed in the name of helping all - or, at least, the majority - that is what's known as an animal sacrifice. Ritualistic chanting is optional.

I am man. I have a right to breathe. I have a right to burn wood and oil and other fuels. I surrender that right to no other man or group of men.

Posted by: johngalt at February 3, 2014 12:33 PM

January 7, 2014

Guaranteed Basic Income 'Blows'

My flirtation with the idea of a "mincome" or "Uncle Sam's Allowance" is well chronicled here but, in that same post, fellow Objectivist Craig Biddle explains how, despite my unbeknownst Platonic impulse to smooth over social divisions, the path to respecting individual rights is not embarked upon merely by violating those rights with more efficiency, transparency and less waste.

JK pragmatically concluded, "If the mincome were popular, I'd enjoy its strengths and accept its weaknesses as the pragmatic price of reform." Unfortunately, in pursuing popularity of a mincome, Republicans and Democrats would most surely find a "balance" more in line with the conditions enumerated by one entitled little twerp called Jesse A. Myerson. I won't link to his Rolling Stone piece - Jonah Goldberg did it so that I wouldn't have to - but to Jonah's deconstruction of it, which commences thusly:

"In America," Oscar Wilde quipped, "the young are always ready to give to those who are older than themselves the full benefits of their inexperience." And they often do it in the pages of Rolling Stone.

While I sought to establish a safe level of capitalist subsistence for every man such that he could pursue pleasurable and profitable pursuits, the young Myerson wants everyone to be paid for nothing because "jobs blow." Other things "blow" in Myerson's estimation, including "hoarding" or what my parents used to call "saving for a rainy day." Millenial Myerson's Rolling Stone Rant is essentially the Grasshopper's Manifesto Against the Ant. Tsk... winter is here, silly insect. To bad you failed to "hoard."

Posted by JohnGalt at 3:00 PM | Comments (6)
But jk thinks:

Thanks for the link to Jonah's column. My Twitter feed erupted on the Rolling Stone nonsense, the major thesis being that this says a whole lot more about Rolling Stone's faux hipster chic than anything else.

Fair to discard the mincome (which at least sounds smaller than BIG) on slippery slope grounds. Demands are pretty much insatiable as Yaron Brook said. Those demanding $15/hour for a kid filling burgers are probably not going to be happy with a five-figure mincome.

Posted by: jk at January 7, 2014 4:09 PM
But dagny thinks:

In response to Mr. Myerson, Megan Kelly found this bright millennial advocating a moral defense of capitalism as antidote to today's problems.

http://foxnewsinsider.com/2014/01/06/rolling-stone-article-tells-millennials-push-communism

He says, "This is how the Occupy Wall Street movement thinks. This is a group of people who graduated with degrees in lesbian dance theory and then were surprised when they didn’t get a six-figure paycheck out of college.”

and “You have to be productive in a capitalist society in order to earn anything.”

Guess he doesn't consider Lesbian Dance Theory productive. I recommend the whole interview.

Posted by: dagny at January 7, 2014 4:12 PM
But jk thinks:

Heh. Kelly reading from the RS Piece: "Imagine a world, where people could contribute the skills that inspire them, like painting murals, rather than whatever stupid tasks that bosses need done." (~2:05)

Posted by: jk at January 7, 2014 4:23 PM
But dagny thinks:

Not sure I have ever put 2 comments in a row before. So much for lunchtime. Also of interest (to local Objectivists at least) in Mr. Shapiro's comments are his use of the terms selfish and altruistic.

Posted by: dagny at January 7, 2014 4:27 PM
But T. Greer thinks:

Rolling Stone basically advocated communism.

I don't know if that has enough support to say that it would be part of the 'balancing' equation.

The slippery slope point is well taken. I can understand it, though after thinking about it I think I still disagree. As long as we have democracy the slippery slope is there. The only difference is that by collapsing all of our federal programs into one payment movements along the slope are unmistakable, apparent and seen by all.

I think I would prefer that to the behind the scenes creep of our current government.

Posted by: T. Greer at January 9, 2014 3:33 AM
But jk thinks:

I think we all agree that it is an improvement in transparency and efficiency.

To enact it would be a huge hurdle and would engender the full panoply of "you hate the poor" and "throwing granny off the cliff" responses expected of any reform effort.

I won't presume to speak for brother jg (but yes, he will have another vanilla porter...) but who wants to start a difficult fight for something they really do not believe in? It is indeed better, but it is actually less worse.

The same effort toward privatizing social security or rescuing the bleeding nation from the ravages of the PPACAo2010 would be more fruitful.

Larry Kudlow points out that eliminating the Corporate Tax would do more for the poor than most social programs. That's a tougher sell. Yet I can make a principled case for it that is consistent with my beliefs and the general advancement of liberty.

Posted by: jk at January 9, 2014 11:13 AM

December 23, 2013

Uncle Sam's Allowance

Last month blog friend T Greer suggested "a lump-sum 'demogrant' or Milton Friedman's negative taxes" as a funding alternative for private health insurance, which would replace Obamacare. His premise was that the needy could be provided for with minimal distortions to the free market. I found the idea meritorious and proposed extending it to every area of government assistance, replacing every single solitary government aid program with an unrestricted cash income for every adult. I pitched it as "Uncle Sam's Allowance" to be used in an otherwise purely capitalistic unregulated free-market."

I was hoping for robust discussion but even TG was mute. Re-reading my proposal today I see I was very short on details of the principle, but a segment on last week's MSNBC Krystal Ball show brings the idea into mainstream conversation. Prompted by a publicity stunt in Switzerland she asked why not "eliminate poverty" by giving everyone a minimum income or "mincome" from the government?

"Every non-incarcerated adult citizen gets a monthly check from the government. Other safety net programs are jettisoned to help pay for the mincare, and poverty is eliminated."

First off, I might never have taken such an idea seriously had I not read Friedman propose a negative income tax or R.A. Heinlein describe a birthright paycheck from a fabulously productive and prosperous civil society. But I and Reason's Matthew Feeney am willing to entertain this proposal by Ball, although my conditions may be non-starters for her. Nonetheless, I would like a discussion here on the subject because I agree with Feeney's conclusion:

"Rather than make the principled argument against the redistribution of wealth, libertarians would do better if they were to argue for a welfare system that promotes personal responsibility, reduces the humiliations associated with the current system, and reduces administrative waste in government."

Very well, here are my Terms:

1) ALL other safety net programs must be jettisoned. Permanently.

2) Executive branch agencies created to carry out safety net programs must be jettisoned. Permanently.

3) Mincome payments must not be means tested. Everyone qualifies and is due the same monthly (or weekly) amount, regardless of income or wealth.

4) Anyone who does not voluntarily decline his mincome is ineligible to vote.

I won't go into all of the advantages of this system since most of you are already preparing to pounce on it's failings. Let me address one of them preemptively - immigration.

Expand the system beyond national borders. Make it internationally universal. I haven't run any numbers but my starting point for negotiating the monthly mincome is to divide the cumulative sum of every national tax in the world by the number of adult humans in the world, and negotiate downward from there. Instead of funding waste and corruption we could be giving cash to folks to "feed their families." What could be more swell?

I still have my doubts. Give some people a dollar and they will demand two, then three. But at least such a plan would make the nature and extent of redistribution fully transparent, rip out government waste fraud and abuse root and limb, and make it possible to cease the practice where the takers are permitted to vote the amount of their share from the makers.

Posted by JohnGalt at 3:16 PM | Comments (11)
But johngalt thinks:

In further support of condition #4, I see it as a valuable self-selection incentive to strip off 75% of potential recipients.

Posted by: johngalt at December 25, 2013 8:42 PM
But johngalt thinks:

An important omission from condition 3 is that all persons receive equal treatment under law including, not least of all, an equal rate of taxation. This would result in 20-25% of allowance disbursements coming back into the treasury. The net result is more recipents or, heaven forfend, a reduction in expenditures.

Posted by: johngalt at December 25, 2013 9:17 PM
But johngalt thinks:

So the most important novelty of my plan seems to be the replacement of means testing and phase outs with every individual having a choice between voting in any elections whatsoever or receiving a government allowance.

My over-under for the allowance choosers is in the range of 25% but that is strictly conjectural. Here's a poll question for you:

If government offered to pay you $225 per week, taxed as income, in return for NOT voting in any government elections, would you accept or decline?
Posted by: johngalt at December 25, 2013 9:37 PM
But jk thinks:

Very Heinleinian.

But I think it rubs against a respect (bordering on adulation) for the franchise. Since the Constitution was adopted it has been amended four times to expand the franchise. Speaking of, does your plan run afoul of emanations and penumbras the 24th?

The right of citizens of the United States to vote in any primary or other election for President or Vice President, for electors for President or Vice President, or for Senator or Representative in Congress, shall not be denied or abridged by the United States or any State by reason of failure to pay any poll tax or other tax.

I understand and sympathize with your reasons. But the blog pragmatist sees a big sell in trading all welfare for the mincome, thereby testing tg's belief in the fundamental fiscal chops of the disadvantaged. I don't share his sanguinity but agree that private charity can bridge any gaps.

But to sell that with a diminution of the franchise seems a double stuff of difficult positioning.

Posted by: jk at December 26, 2013 10:42 AM
But johngalt thinks:

It's always a challenge to limit the scope of these pie in the sky plans, whether in practice or mere postulation. I take your point about complicating the tradeoff but tell me how it can possibly succeed, long-term, without severing the "vote for more stuff" linkage?

I see a reshaping of the democratic process as a necessary precondition for consenting to "just a little" redistribution. Keep things the way they are and the esteemed producer's only resort is to Go Galt.

Is trading one's franchise for a state allowance Constitutional? Why not, if it is a matter of reversable (on no shorter than an annual basis) choice? Besides, that Amendment is closer to FDR than to Jefferson and Madison. And it also has an "out" - "2. The Congress shall have power to enforce this article by appropriate legislation."

Posted by: johngalt at December 26, 2013 12:07 PM
But T. Greer thinks:

It strikes me as politically unfeasible. I am not sure how necessary it will be either - in his discussion of a demogrant Charles Murray made a sharp observation: every time anyone tries to change the amount paid it will become the biggest political issue in the arena, for their won't be any other social issues in the arena. Every adjustment will be battled over ferociously. It won't be easy for it to be changed often and it will be hard for the payment's size to "creep" larger.

I think if we simply made it a requirement that a supermajority must approve changes in the payment size then most of the potential problems would go away.

Posted by: T. Greer at December 28, 2013 12:25 PM

December 16, 2013

That Pope Sure Knows His Economics!

As expected. My Facebook friends -- who would have to stay up late into the evening to imagine a morsel of Catholic Orthodoxy with which they'd agree -- have all become virtual novitiates and deacons posting Pope Francis's encyclical against "trickle-down economics."

I have enjoyed more serious debate from Larry Kudlow and Deirdre McCloskey and James Pethokoukis. And I have waited, more or less patiently, for Michael Novak to chime in. The author of "The Spirit of Democratic Capitalism" is my go to guy for the rational theology-economic interface.

The wait is over, Novak has published Agreeing with Pope Francis on NRO. His "agreement" gives the new pope a pass because of his background in corrupt Argentinian capitalism. Being less theological, I am less forgiving. The pontiff's message will be heard around the world -- even by my hedonistic Facebook friends -- and as much as it can be leveraged to restrict freedom and innovation, it will be used to perpetuate poverty.

Novak quickly gets off the subject and presents an economic comparison to JPII. The comparison is not kind to FI:

The Polish pope, John Paul II, recognized this huge social change in Centesimus Annus (The Hundredth Year, 1991), of which paragraph 32 opens: "In our time, in particular, there exists another form of ownership which is no less important than land: the possession of know-how, knowledge, and skill. The wealth of the industrialized nations is based much more on this kind of ownership than on natural resources." The rest of this paragraph is concise in its penetration of the causes of wealth and the role of human persons and associations in the virtue of worldwide solidarity, of which globalization is the outward expression.

Pope John Paul II quickly recognized that today "the decisive factor [in production] is increasingly man himself, that is, his knowledge, especially his scientific knowledge, his capacity for interrelated and compact organization, as well as his ability to perceive the needs of others and to satisfy them."

Then in paragraph 42, John Paul II defined his ideal capitalism, succinctly, as that economic system springing from creativity, under the rule of law, and "the core of which is ethical and religious." In his first social encyclical ten years earlier, Laborem Exercens (On Human Work, 1981), directly rejecting orthodox Marxist language about labor, the pope had already begun to project "creation theology" as a replacement for "liberation theology." A bit later, he reached the concept of "human capital." Step by step, he thought his way to his own vision of the economy best suited to the human person -- not perfectly so, in this vale of tears, but better than any rival, Communist or traditional. John Paul II set it forth as "the model which ought to be proposed to the countries of the Third World which are searching for the path to true economic and civil progress."


Now that's some pretty good popin'...

UPDATE: James Pethokoukis pipes in on the papacy:

Is this "trickle-down" economics? Nope, it's innovative, Schumpeterian capitalism that can be summed up in Deirdre McCloskey's Bourgeois Deal: "If you let me innovate and make profits, in the long run I'll make us all rich." And that's a kind of capitalism the pope would probably approve of.

Posted by John Kranz at 12:05 PM | Comments (1)
But johngalt thinks:

Giants have walked the earth. (And I don't mean Francis.)

Posted by: johngalt at December 16, 2013 4:03 PM

December 12, 2013

Our President? Mislead?

Bush-toady, Professor N. Gregory Mankiw, thinks "The CEA Fact Checkers Missed one:"

"[...] But there's no solid evidence that a higher minimum wage costs jobs."

From my perspective, the last sentence is just incorrect. There is a lot of work by reputable economists that finds adverse employment effects of a higher minimum wage. In a poll of top economists, as many say they believe that the adverse employment effect is noticeable as those that say the opposite.

The president could have said there is no completely decisive evidence. Or, more accurately, he could have said there is mixed evidence. But saying there is no solid evidence is misleading.


Also, don't miss his Two Random Things That Made Me Smile.

Posted by John Kranz at 3:52 PM | Comments (5)
But Keith Arnold thinks:

You see, you all are so much nicer than I am. "... just incorrect..." "... say the opposite..." "... misleading..." about the SCOAMF.

Me, I just go straight to "lying sonova-"

Posted by: Keith Arnold at December 13, 2013 1:15 AM
But jk thinks:

I posit that it is akin to grade inflation. Prof. Mankiw works for Harvard University. His accusing the President of misleading -- I daresay -- equals your LSOBSCOAMF.

Posted by: jk at December 13, 2013 11:01 AM
But Keith Arnold thinks:

Thank you for filling me in. I hadn't stopped to factor in the Harvard angle, and that this was the political equivalent of the "Gentleman's B" (enjoy the reference: http://is.gd/0QsjhY)

By all means, do carry on...

Posted by: Keith Arnold at December 13, 2013 11:43 AM
But T. Greer thinks:

This is a kind of funny.

Economists say a lot of things that turn out to be wrong or flawed.

The idea that raising the minimum wage above the market equilibrium will cause a surplus in labor supplied and a shortage in positions available is not one them.

Heck, if there is anything economists can claim as a success story, anything they can say "look this is something we found that is theoretically true and empirically verified!" this is it.

I probably have more sympathy with those who want to raise minimum wage than most of the folks here. But those who claim the wage should be raised need to be honest with the facts.

Posted by: T. Greer at December 14, 2013 3:41 PM
But jk thinks:

Agreed. I'd say there's an preponderance of evidence and overwhelming majority of economists in opposition to minimum wage laws. Even my überprogressive niece admitted that she learned (at Berkeley or Columbia -- one of those right wing bastions) that it was a bad idea.

An expanded EITC would be a lot more efficient and transparent. In my "the world is not ThreeSources" moments, I accept that that might be the best plan: an ultimate wage floor for adult workers in lieu of the alphabet soup of programs we have now.

Posted by: jk at December 15, 2013 11:08 AM

December 2, 2013

Pontiff - Professorial Pugalistics

N. Gregory Mankiw responds to Pope Francis. My Tweeps called it "a smackdown." I don't want to perpetuate discord, but I can't resist a pedantic and alliterative headline.

First, throughout history, free-market capitalism has been a great driver of economic growth, and as my colleague Ben Friedman has written, economic growth has been a great driver of a more moral society.

Second, "trickle-down" is not a theory but a pejorative used by those on the left to describe a viewpoint they oppose. It is equivalent to those on the right referring to the "soak-the-rich" theories of the left. It is sad to see the pope using a pejorative, rather than encouraging an open-minded discussion of opposing perspectives.

Third, as far as I know, the pope did not address the tax-exempt status of the church. I would be eager to hear his views on that issue. Maybe he thinks the tax benefits the church receives do some good when they trickle down.


Iiiiiiiiiin this corner, representing the Chair of St. Peter: His hooooooliness pooooope Francis! Iiiiiin this corner, representing Haaaahvaaaahd Yaaaaahd, The Crimson, and "In Vino Veritas," theeee professssor himself, Greg Mankiw.... I want a fair fight, no Latinate below the belt, Shake hands and come out swingin'...

Posted by John Kranz at 1:15 PM | Comments (0)

November 20, 2013

Take That, Vietnam!

Super interesting article by Prof Mark J Perry in AEI, discussing the economic output of America's largest cities. Many are surprising and, to be honest, somewhat disappointing to this urbaphobe and champion of bucolic values.

3. The colossal economy of New York ($1.33 trillion) produced more economic output in 2012 than 48 of our states, and was surpassed only by California ($2 trillion) and Texas ($1.4 trillion) and Los Angeles ($765 billion) produced more economic output in 2012 than 46 states

I saw a Facebook argument last week where a lefty commentator invoked Sweden (I know, must have been a day that ended in -y). I'm all for comparisons, but the magnitudinal differences of domestic and foreign GDP must not be forgotten:
Chicago's economy ($571 billion) is larger than the economies of Sweden ($525 billion) and Norway ($499 billion).
[...]
The economies of Houston ($449 billion), Washington, DC ($447 billion) and Dallas ($419 billion) in 2012 were all larger than the economies of Austria ($394 billion), Iran ($386 billion) and South Africa ($384 billion). San Diego ($177 billion) is larger than the Ukraine ($176 billion), San Jose ($174 billion) is larger than Romania ($171 billion) and New Zealand ($170 billion), and Denver ($168 billion) is larger than Vietnam ($142 billion). Tulsa, OK ($48 billion) is larger than Costa Rica ($45 billion) and Des Moines, IA ($42 billion) is larger than both Kenya ($41 billion) and Ghana ($42 billion).

Posted by John Kranz at 1:24 PM | Comments (7)
But AndyN thinks:

In each of his bullet points, he very explicitly writes that the numbers he's providing are for metro areas.

I'm sorry, this is incorrect. This is specifically stated in several places, but not in every item. I assume it's true throughout, but I was wrong to write that he was explicit in every point.

Posted by: AndyN at November 20, 2013 4:29 PM
But jk thinks:

Even with a few caveats, your point holds. One wonders how much rural commerce is counted in the city because of banking and transportation. Le condo d'amour is in one of the nation's top agricultural and energy producing counties and I suspect we add to Denver's stats. Yeah, I'm feeling better.

The comparisons to nations are mind-blowing. If I may turn down a side road, I am not a believer in "The New Normal" or any theory that we have wrung the rag of rapid economic growth dry. When the denizens of Vietnam acquire the productivity and purchasing power of Denverites, the world will boom.

(One hopes that political forces turn Vietnam into Denver before they turn Denver into Vietnam, but that is another thread...)

Posted by: jk at November 20, 2013 4:43 PM
But AndyN thinks:

And what if they do turn Denver into Vietnam? At the risk of insulting Vietnamese politicians, they've gone a long way toward doing that with Detroit in terms of the urban political climate, but if we're just looking at economic output metro Detroit is ahead of Qatar and Kuwait, and less than 1% behind Iraq.

Granted, there are probably some cultural gems in Denver that it would be a tragedy to allow to got the way of the United Artists Theater in Detroit, but there's a limit to what the rest of us can do to save urbanites from themselves.

Posted by: AndyN at November 20, 2013 5:16 PM
But jk thinks:

Well, Denver's "cultural gems" makes me need to share the DIA Airport Murals. Blog friend SC tells me that as a Buffy fan, surely I recognize a Hellmouth when I see one....

I just want the whole world to get rich and innovate and buy others' innovations. My hometown has much to admire and much to avoid, but there is no reason it should exceed the output of the entire nation of Vietnam, should Vietnam get its act together.

Posted by: jk at November 20, 2013 5:27 PM
But johngalt thinks:

Readers should bear in mind that the underlying report, touting the economic powerhouses that are America's big cities, was produced by a national mayor's association.

Posted by: johngalt at November 21, 2013 1:29 AM
But johngalt thinks:

Whoa! Those murals really are sinister. I'm not sure I've ever seen them. If I have, I clearly didn't study them for some of this is downright creepy.

Posted by: johngalt at November 21, 2013 2:28 PM

November 7, 2013

Otequay of the Ayday

PPACA Edition - (I regret to admit that I misnamed the "Horror Story of the Day" category for Obamacare. I left out the P P.)

This difference in reactions to failure dramatically highlights the primary reason for repealing Obamacare and replacing it with market-based reform. As the Edsel flop demonstrates, businesses in the free market are quite capable of making colossal mistakes. However, when they do so and the customer rejects their products, they make the necessary adjustments. And, despite the widely believed myth that the market fails to work for health care, any private enterprise that had produced an unpopular mess like Obamacare would by now have shut it down. But the President wont even consider delaying it. Why? Because his customers are required by law to avail themselves of his third-rate services.

From 'Obamacare and the Edsel: A Tale of Two Lemons' in American Spectator

Posted by JohnGalt at 3:19 PM | Comments (0)

October 15, 2013

Nobel Prizes

Sad that the Nobel Peace price has been politicized to complete irrelevance, and that the others have had tinges of political opportunism. But the Economics prize is till the flagship of the franchise. The WSJ is extremely supportive of this year's picks: Eugene Fama and Lars Peter Hansen at the University of Chicago and Robert Shiller of Yale University.

Mr. Shiller's work has been particularly notable for two reasons: his contribution to the Case-Shiller home price index, which has been invaluable for those who want good data on home prices both nationally and regionally; and his proposal that government pensions and entitlements be "indexed to some indicator of taxpayer ability to pay, such as GDP." Thus government payments for pensions and entitlements such as Social Security and Medicare would be tethered to the relative health of the nation's economy, and the government wouldn't, as it does now, continue to spend itself ruinously into debt. Mr. Shiller's young students--given that they're of the generation likely to be surrendering more and more of their income to the government to support its payments--should consider building a statue of him.

Posted by John Kranz at 2:37 PM | Comments (9)
But jk thinks:

Anarchy at ThreeSources? Mon Dieu!

I like courts. You may coerce me and force me -- at the point of a gun -- to pay for courts. I'm having a special this week: you can force me (ATPOAG) to pay for everything in Article I Section 8.

Posted by: jk at October 16, 2013 10:49 AM
But johngalt thinks:

If you agree to be forced you do not need to be. You will pay willingly. As. Would. I. The question is, will you force your neighbor, ATPOAG, to pay for everything in Article I Section 8? I. Would. Not.

Posted by: johngalt at October 16, 2013 11:27 AM
But jk thinks:

Lemme think about it. I know it is done on my behalf and do not object.

I understand that income tax is voluntary. You're suggesting we codify that and replace ATPOAG with At The Point Of A Disapproving Look From The Guy In 1-102?

Might work but my immediate thought is that if limited to Article I Section 8, coerce away. I accept the Constitutional compact and only wish they accepted the Tenth Amendment.

Posted by: jk at October 16, 2013 1:26 PM
But johngalt thinks:

Replacing forceable taxation with voluntary fee for service is an ideal to work toward, for it represents arrival at a truly free society. Unfortunately, even at the Constitutional Convention such a free society could not be agreed upon. Too many believed that the government could not succeed without giving it the coercive power. But that power had a limit in that it could only be applied EQUALLY to all persons. Statist interests undid this limitation with the Sixteenth Amendment and we have been out brothers keepers ever since.

A valid government of a free nation would offer services valuable enough that individuals would willingly pay their "fair share" but when the taker decides what is "fair" the maker will get the shaft. Here's Rand's take, circa 1970.

"Voluntary" you say? Surely you jest.

Posted by: johngalt at October 16, 2013 2:31 PM
But jk thinks:

There are many interesting ways to assemble, operate, organize and fund government.

The US Constitution is not perfect, but I always return to its being pretty damn good. Instead of starting with my personal ideal, I come back to AIs8 because I will accept those enumerated powers that I wish were left out (Coin Money and Regulate the Value Thereof? Hamilton!!!) because the general idea of enumerated powers is pure genius. When the "Taxation id theft" "No Coercion Ever" Signs come out I say you might try that in a seasteading venture or a corner of New Hampshire that secedes and I'd love to see it.

But we had this wonderful land called America once. While imperfect, it empirically proved the potential advantages of liberty. Can we try what worked?

Posted by: jk at October 16, 2013 4:10 PM
But johngalt thinks:

Yes, let's. What I'm trying to get at is, if we do, what estoppel can we employ against aforementioned statist interests?

Todd Andrew Barnett and I suggest that the only thing that can stop them is morality.

Posted by: johngalt at October 16, 2013 5:09 PM

October 14, 2013

Marginal Costs, Anybody?

Dr. [Ezekiel] Emanuel is chairman of the Department of Medical Ethics and Health Policy at the University of Pennsylvania. Mr. [Andrew] Steinmetz is the senior research assistant.
You'd think one of them might have cracked an "Econ 101" book. Once. About page 25, they would have been introduced to marginal costs and marginal benefits.

Armed with that keen understanding -- imparted routinely on college freshmen -- their guest editorial in the WSJ today would have been less of a dog's dinner.

Blaming ObamaCare® for part time wages, claim Emanuel and Steinmetz, is a "full-time fallacy" because:

  • Some workers want part time;

  • Part-time work correlates to recessions

  • Part-time work is not at unprecedented high levels

  • Politicians making this claim are unable "to name hundreds if not thousands of companies that are forcing their 40-hour-a-week, full-time workers to accept part-time, 29-hour-a-week jobs"

Now, I happen to know two people seeking full-time employment, both of whom have been offered 29-hour positions and have been told outright that the ACA is the cause.

But rather than arguing anecdotes, I am baffled by editorials like this, of which I have seen several. Most employers are not too small (yeah, but some are). Most of those are not large enough to hit the 50-worker limit (yeah, but some are). Many offer health care (yeah, but some do not),

Because not the entire 1/3 of part-time workers wanting full-time can be blamed on ObamaCare, that must mean (poof!) that none can be. As my two job seekers are pretty close to me, I watch this topic with heightened interest. And I have seen this muddy thinking over and over.

At the margins, why are we pushing employers to provide fewer jobs in a tepid recovery? At the margins, why are we making it better to offer fewer hours?

Posted by John Kranz at 2:09 PM | Comments (0)

September 15, 2013

Professor Perry Attacks Blog Brother jg

It's almost too much to bear. Dramatis Personae:

Dr. Mark J. Perry: is a full professor of economics at the Flint campus of The University of Michigan, where he has taught undergraduate and graduate courses in economics and finance since 1996. Starting in the fall of 2009, Perry has also held a joint appointment as a scholar at The American Enterprise Institute.

Brother johngalt: Champion of Stealthflation. All around good guy. Great blogger.


Prof Perry tells jg (the academic in him does not permit him to call out one blogger by name, he hides it in generalities) "stop whining!"
It's a favorite pastime in this country -- Americans [like johngalt @ threesources] love to complain about rising food prices. Even when they aren't. In fact, given all of the complaining you would never know that average food price inflation in recent years is actually the lowest in several generations. Below are three reasons that Americans should stop whining about food prices, and be a little more appreciative of how affordable food is in the US today, especially when compared to other countries, or when compared to previous decades in US history.

While I agree with Perry, I don't think this level of ad hominem attacks is appropriate.

Posted by John Kranz at 11:58 AM | Comments (3)
But johngalt thinks:

This is way more fun than pumping flood water! :)

Dr. Michael E. Mann: A.B. applied mathematics and physics (1989), MS physics (1991), MPhil physics (1991), MPhil geology (1993), PhD geology & geophysics (1998)

QED: Appeal to authority dispatched.

Regarding Dr. Perry's assertion that "annual increases in food prices over the last four years have averaged less than 2%" he bases this conclusion on CPI food data. I agree with commenter 'morganovich':

"this is a VERY simple concept here.

changing basket weighting to shift from things that get more expensive to less expensive substitutes but not then accounting for the drop in quality understates actual inflation."

Regarding Dr. Perry's observations that food (prepared at home) expenditure in the U.S. the lowest share of the household budget for any other country in the world, and a lower share of the household budget than at any other time in history so "stop your whining" I can only ask, literally, "What's that got to do with the price of tea in China?" Does individual prosperity have to be flat before you'll acknowledge inflation? We aren't allowed to have a higher disposable income than our parents generation any longer? That was a key component of the American Dream you just left on the table, Bub.

Posted by: johngalt at September 16, 2013 3:49 PM
But jk thinks:

ThreeSources: Better than pumping floodwater!

I think the tagline contest is over.

Posted by: jk at September 16, 2013 6:47 PM
But johngalt thinks:

"Better than pumping Natalie Holloway pictures?"

Posted by: johngalt at September 17, 2013 2:34 AM

August 20, 2013

Otequay of the Ayday

Aside from these personal fixes, there is a solution to put the country (including any wayward stragglers or stunted post-adolescents) back on the path of prosperity. Americans could stop supporting anti-growth politicians pushing agendas that strangle the economy, weaken the dollar, and surreptitiously erode civil liberties, but lets be serious. 60% of those ages 18-29 reelected President Obama. So, whats left? Keep checking feeds, going on pointless dates, and buying more gadgets? Frankl would tell the lost ones to find a will to meaning in this world, but finding purpose can be put off, even if the abyss persists and they pester the rest of the world as impotently self-involved non-starters, for lack of ever finding a self or a start.

From an excellent awesome Forbes article Millions Of Millenials Live At Home And Support The Policies That Keep Them There by millenial Maura Pennington (BA Russian, Dartmouth, 2009.)

HT: Rush Limbaugh

Posted by JohnGalt at 5:02 PM | Comments (4)
But Terri thinks:

Oh brother.
They are certainly lost, those who have no will to be on their own.
Were they coddled too much? Are there so many rules that the paradigm becomes, "I can't"? I wanted to live on own so badly as an 18 year old I shared a studio with 4 other people in order to do so. It was well worth it, and I had a great child hood home.

Posted by: Terri at August 20, 2013 6:21 PM
But Terri thinks:

Of course I also walked 5 miles up hill both ways to get to school in the mornings. :-)

Posted by: Terri at August 20, 2013 6:25 PM
But johngalt thinks:

Limbaugh riffed on this some more yesterday. He said millenials are taught they're "special" even without accomplishing anything, and that the pathway to happiness (or to be "free from want?") is to, simply, want less. Forget a car, use a bike and the bus. Forget an apartment, just hang in the 'rents basement. Wardrobe? How much do blue jeans and Che T-shirts cost, anyway?

Posted by: johngalt at August 22, 2013 3:05 PM
But jk thinks:

Does that include Kim Kardashian in an Obama Shirt?

Posted by: jk at August 22, 2013 3:43 PM

August 13, 2013

"Of Course We Know That!"

Better late than never, Paul David Hewson.

Posted by JohnGalt at 2:54 PM | Comments (0)

And Things Turned Out So Well in Saudi Arabia

Great news from the AEI!

U.S. agencies estimate Afghanistan's mineral deposits to be worth upwards of $1 trillion. In fact, a classified Pentagon memo called Afghanistan the "Saudi Arabia of lithium." (Although lithium is technically not a rare earth element, it serves some of the same purposes.)

The article does discuss "The Resource Curse," but it is at the end and they chose the example of Mexico rather than Saudi Arabia. And, they suggest that a resource curse is a pretty good curse to have.

All the same, I'd have the same portentous feeling if I read that a drug addict friend had won the lottery: Yeah, he might start a small business with the money and become a pillar of the community... Yeah, could happen. Or --

Or we could give a Trillion dollars to the Taliban and the most corrupt if superbly dressed leader in modern history. And it's okay, US troops are leaving. Yaay -- what great news!

Posted by John Kranz at 1:05 PM | Comments (0)

July 30, 2013

Romney killed Detroit

...with a little help from all the other taxers and spenders from Washington D.C. to city hall.

We discussed the obvious philosophical causes for Detroit's bankruptcy in the Starnesville post. Today we have the economic causes, as told by my favorite living economist, and some other guy. Investors' - Detroit Is Patient Zero In High-Tax, Sluggish America

Milton Friedman was quick to remind people that government stimulus spending is taxation and a prosperity killer. Governments don't create resources; they redistribute resources.

While tax rates were raised during the Great Recession, they were raised a lot more during the Great Depression, which explains the difference in severity between the Great Depression of the 1930s and the modern Great Recession.

To push this point home, the highest marginal income-tax rate in 1931 was 25% and by 1938 it was 83%. Whoever heard of an economy being taxed into prosperity?

(...)

In 1967, under Gov. George Romney's leadership, Michigan initiated a state income tax, initially setting the highest rate at 2.6% using federal adjusted gross income (AGI) as its tax base. The state's income tax rate peaked in 1983 at 6.35% and is now down to 4.25%.

Even though a 4.25% maximum tax rate is a lot better than a 6.35% tax rate, those towering tax rates have surely damaged today's Michigan economy.

The state's corporate tax rate stands at 6%.

(...)

Then we come to Detroit itself. In 1962, Motown adopted a 1% net income tax for residents and 0.5% for nonresident income earners. In 1964, the city initiated a 1% corporate tax as well.

Detroit's income tax stands at 2.4% today, and the corporate tax is 2%.

Businesses that can locate outside Detroit do. In 1950, 1.85 million people lived in Detroit.

Today the population of Detroit would be lucky to top 700,000. You can't balance a budget on people who leave or are unemployed.

Imagine a boiler's heat is turned way up, its safety valves are shut off and you tap the boiler every five minutes with a little brass tap hammer.

By turning the boiler's heat way up and shutting off the safety valves, you have guaranteed the boiler will explode.

By tapping the boiler every five minutes with a little brass tap hammer, you're guaranteed you'll be there when the explosion occurs. Such is the case with Detroit.

Is it mere coincidence that, the larger the geographical scope of the taxing authority, the larger the tax rate? After all, it doesn't take as much taxation to drive producers from a city as from a state, or from a state as from a nation.

Posted by JohnGalt at 2:43 PM | Comments (0)

Annual rise in cost of living? Roughly 10 percent

Let's pause the battle for the soul of the Republican Party long enough to examine more proof of the existence of Stealtflation (R). This Fox Business article dates to last summer, but except for the Bing or Google page caches it may be the closest you can get to the chapwood index site, which is either swamped after their FNC mention this morning or blocked by the Secret Service.

Wait, what's that sound? whup whup whup whup...

UPDATE: This guy stole my term, Stealthflation, before I even coined it! (And we need to work on our SEO 'cause the first Threesources hit for the term didn't come until the third page.)

Posted by JohnGalt at 11:08 AM | Comments (1)
But johngalt thinks:

The Chapwood Index creator said he came up with it to show how working folk are getting robbed every year by their government through devaluation of their earnings. (Also the reason I keep harping on it, by the way.) As I look into our company parking lot I must credit the amazing production effiencies and technologies that allow sub-$15k cars to be produced in the uber-regulation era. Cars without which an ever growing segment of the working class would be living in the pre-automobile past.

Posted by: johngalt at July 31, 2013 12:07 PM

July 22, 2013

Selfishness - Rational vs. Imperial

This reflects a deeper abuse of Ayn Rand's philosophy. The prevailing philosophy of altruism, in denouncing business and profit-making as evil, has to construct a caricature of self-interest designed to make it look bad. In this caricature, "selfishness" is crassly materialistic, viciously adversarial, and stoked by personal vanity. Above all else, self-interest is defined in a way that is superficial and short term--making it into a straw man of that is easy to knock down.

Ayn Rand not only defended self-interest but sought to understand it properly, showing how genuine self-interest focuses on long-term values, on rationality and real achievement rather than preening vanity or lust for arbitrary power over others. -Robert Tracinski in 'Sears: Less "Atlas Shrugged" Than "Game of Thrones'

Posted by JohnGalt at 3:33 PM | Comments (0)

June 10, 2013

OTOH...

Gotta love economists. No. Really.

Mark J. Perry shows a different way to look at his AEI associate James Pethokoukis's concern over "Waiter and waitress nation: The May payrolls report shows the US creating jobs, just not many good ones."

More restaurant jobs implies more people are eating out, and that is a sign of wealth. Though few aspire to a career in dishwashing, I have frequently trotted out in immigration debates that a new restaurant also hires an accountant, a web-designer, a graphic artist, an interior designer. Its founders may build or gut a building, print menus, purchase art and maybe even give a cut-rate troubadour a gig.

Prof. Perry ends by quoting comments and emails

1. The truth is unless you are a surly sociopath working in a some dive or are completely unwilling to make any real effort in a job you feel is beneath you, you ought to be able to bring home nearly a median hourly wage waiting tables. And if you can land a gig in one of the more upscale places, which seem much more numerous than they were "back in the day," you can probably do better than some of the numbers I've seen for recent law school grads.

2. More restaurant meals mean not only more waiters and waitresses, it also means more positions in food production and distribution, equipment sales, installation and maintenance, design and construction, advertising, etc. A restaurant industry isn't just food servers.

3. I've always been surprised at this insistence that restaurant jobs are low paid. I've been a waiter in the US myself and it was a thoroughly well paid job. The problem is, I think, that everyone looks at "wages," and ignores "compensation." From your post: "Americans spent more in April at Food Services and Drinking places -- $45.85 billion." Around 10% of that $45 billion will have been spent in tips. Add $4.5 billion to the income of restaurant staff in that period and it'll not be a "low paid occupation." Fast food work, yes, that's low paid. But restaurant work isn't.


Posted by John Kranz at 1:51 PM | Comments (0)

June 4, 2013

Pretty Good Commencement Address

Posted by John Kranz at 5:14 PM | Comments (0)

May 16, 2013

Atlas Shrugged as Owners' Manual

We're here. James Pethokoukis links to a study that shows that "Public companies that did the most lobbying easily beat the S&P 500 from 2007-2012"

My take: Two ways to make money in 2013 America: add value or have government put a thumb on the scale for you. Clearly, the second may be more important than the first.

Unsustainable much?

Posted by John Kranz at 7:08 PM | Comments (1)
But johngalt thinks:

Come on, it's only a work of FICTION!

Posted by: johngalt at May 17, 2013 5:15 PM

April 16, 2013

CO Governor Lamm's Mea Culpa

Two weeks ago a former establishment Republican said:

When the latest bubble pops, there will be nothing to stop the collapse.

The reward for his candor was a furious effort to discredit him.

This week a former establishment Democrat - a self-described "former Keynesian" said:

My generation of politicians has relentlessly and quietly encumbered the nation's future and pre-spent our children's earnings. We have also, tragically, locked in an economic crisis in our future.

Boy is he gonna get pounded.

Posted by JohnGalt at 3:06 PM | Comments (0)

Curious George Approves!

Locavorism is big in my neck of the woods. I cannot imagine anything more stoopid. Locavores (Loco-vores?) have a religious fervor that engenders extreme caution, but were I not afraid for my health and safety, I would loudly proclaim that I am a Ricardovore! We use the miracle of free trade to enjoy a diverse, safe, and copious selection of foods from appreciative vendors all around the world.

Professor Mark J. Perry shares the astonishment we all should feel at buying "tropical fruit from a faraway place at my local grocery for a price (24 cents) that is almost free. At the average hourly wage today of $20.03 (33 cents per minute), the average American earns enough income in about 45 seconds to purchase a banana that has traveled more than 2,000 miles to their local grocery store."

He and Jeff Jacoby even pen a small homage to Leonard Read:

I, Banana, am a complex combination of miracles: First, I'm a plant that is a miracle of nature -- I'm actually the world's largest herb. And then I'm part of a human miracle -- the kaleidoscopic energy and productivity of the free market. That human miracle is the complex, coordinated efforts of thousands of people involved who cooperate to bring millions of bananas from places like the Andes Mountains in Colombia to local grocery stores all over America and Europe -- areas with climates that are completely hostile to growing the world's most popular fruit. That human miracle is the configuration of the creative energies of thousands of people who speak different languages and have diverse ancestries -- but collaborate spontaneously on my behalf to deliver fresh, tropical fruit like bananas (and also mangoes and pineapples) to my local grocery store, which happens miraculously in the absence of any human master-minding or any banana or fruit czar! Man can no more direct these millions of know-hows to bring bananas to the local grocery stores in America and Europe than he can put molecules together to create a banana plant.

Awesome on stilts!

Posted by John Kranz at 1:31 PM | Comments (0)

April 10, 2013

Soylendra Worldwide Airways, Inc.

Awesome article by Lee Habeeb and Mike Leven in National Review on the race to build the first aircraft. In that corner, a couple of greasy bicycle mechanics who eschewed even private capital. In this corner, the US Government!

Who better to win the race for us, thought our leaders, than the best and brightest minds the government could buy? They chose Samuel Langley. You don't know him, but in his day, Langley was a big deal. He had a big brain and lots of credentials. A renowned scientist and a professor of astronomy, he wrote books about aviation and was the head of the Smithsonian.

This is a very entertaining article. The Smithsonian actually displayed Langley's work for decades as "the first aircraft." It might even convince some of the green energy crowd (the portion predisposed to reason: over/under?) If you want something to truly work, maybe the government idea -- in this instance a catapult-fired capsule -- might not be the best.

Highly recommended.

Posted by John Kranz at 1:58 PM | Comments (2)
But johngalt thinks:

Yes, awesome. On many levels. And to extend the analogy to modern efforts at "alternative" energy, "The only power that government-funded companies succeed in generating is political in nature."

Posted by: johngalt at April 10, 2013 2:55 PM
But jk thinks:

Of course, his slingshot-capsule idea would have worked great if he had just had more time and more government money! [Late SPOILER ALERT! That is actually the ending]

Posted by: jk at April 10, 2013 5:33 PM

April 5, 2013

Friday Otequay of the Ayday

"There is nothing [Stockman says] that others haven't," says Peter Schiff, chief executive of the broker Euro Pacific Capital, with a similar outlook. "But when someone from the establishment criticises the establishment then everyone has to jump on him and discredit him."

From Stockman Feels Force of Washington Fury, by Robin Harding, Financial Times

Posted by JohnGalt at 8:16 PM | Comments (0)

April 3, 2013

That's not a bubble... THIS is a bubble!

Aw hell, I'm gonna blockquote it anyway, because the widely quoted passages are the wrong ones. The right ones are here:

These policies have brought America to an end-stage metastasis. The way out would be so radical it cant happen. It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.

And here:

It would require, finally, benching the Feds central planners, and restoring the central banks original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.

That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market recovery, artificially propped up by the Feds interest-rate repression. The United States is broke - fiscally, morally, intellectually - and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.

From David Stockman's Sundown in America. New York Times Sunday Review, March 30, 2013.

And I didn't even quote the part about feckless calculations of inflation! That's gotta be worth something.

Posted by JohnGalt at 3:04 PM | Comments (0)

April 2, 2013

The Nation versus Paul Krugman

And you thought it was going to be a bad day!

The Nation: Why Was Paul Krugman So Wrong?

Promising start, no? At long last, an article in The Nation that ThreeSourcers will really appreciate? No.

The Nation's William Greider is mad at Krugman for supporting free trade. And allowing Americans to think they're better than they are. Click through, but be warned that the Schadenfruede ain't gonna last long. I'll walk you through. Pursuant to the Nation Style Guide, page one, paragraph one section one rule one: "Get a whack at George Bush into the first one or two paragraphs:

"What we should have learned from the Iraq debacle was that you should always be skeptical and that you should never rely on supposed authority," Krugman wrote in his New York Times column. "If you hear that 'everyone' supports a policy, whether it's a war of choice or fiscal austerity, you should ask whether 'everyone' has been defined to exclude anyone expressing a different opinion."

Good advice and good for Krugman. But there's a peculiar snag in his declaration: Paul Krugman was himself a "supposed authority" who gravely misled the American public on how to think about free-trade globalization. As threatening losses and dislocations accumulated for the US, the celebrated economist was like Voltaire's Dr. Pangloss, assuring everyone not to worry. Pay no attention to those critics dwelling on the dark side of globalization, he said. Economic theory confirms that free trade is the best of all possible policies in this best of all possible worlds.

"Scare" quotes at the Nation are "used" to "indicate" that readers "understand" a higher concept of the terms than their "definitions..."

For those who do not wish to click through seven pop ups to "not let the Republicans steal the next election!" and "support our Journalism: digital subscriptions from $9.50/year," the problem is that Krugman continued to support free trade, contrary to the proclamations of American labor unions. Pangloss -- er Krugman, assured us that we'd be fine because we are Americans and we are so swell.

But as a Nation reader "knows" -- we aren't special or smart or nuthin' This was the angle that caused my left leaning friend to post on Facebook. One hates to apply reason or consistency to The Nation, but if free trade allows the brightest to rise to leadership positions against US Hegemony (seemingly their concern) why does a good progressive want to use union economics to "keep the wogs down" as it were?

I'm happy to accept that free trade threatens American economic dominance, though I am confident we'll do okay. Yet the whole world will be wealthier and every child of every color and sexual orientation will have greater opportunities. This is a problem?

Alas, The Nation attacks Paul Krugman for one thing he is right about.

Posted by John Kranz at 6:35 PM | Comments (1)
But T Greer thinks:

Were this a facebook status, I would "like" it. With scare quotes.

Posted by: T Greer at April 2, 2013 10:35 PM

April 1, 2013

Reading for the Pigou Club

It has been a long time since I locked Harvard Professor N. Gregory Mankiw in a battle of wits. But I can be easy on him no more.

To recap: Mankiw, whom I admire greatly, is a big fan of "Pigouvian Taxation" named for Arthur Pigou. Tax something you wish to reduce, that's a pigouvian tax. Perhaps if the Producers of "Les Miserable" had to relinquish 0.5% of net for each minute over 240 -- well, you get the idea. Mankiw considers the threat of global warming climate change a good excuse for a pigouvian carbon tax.

Even without accepting apocalyptic predictions, he has formed "The Pigou Club" with whom he shares readings of supporting articles. Even if the models are wrong, the club believes, burning less fossil fuel is a good. And we have to generate revenue somehow...

I find it economically appealing, but philosophically infuriating. This puts government in charge of deciding what is good and what is bad. Ergo, I offer a reading for The Club: Michael Marlow's The Skinny on Anti-Obesity Soda Laws.

As an economist, I have two big gripes with such paternalistic public-health initiatives: The proposals aren't grounded in data or compelling economic models, and soda taxes might catalyze a dismal chain reaction, with escalating government intrusions on personal freedom.

I recently reviewed the data on the impact of soda taxes for an article in the Journal of American Physicians and Surgeons. I also examined how these "pro-tax" studies were received in the press. The body of evidence is small, in contrast with the debate's decibel level. One 2012 study, published in Health Affairs, spawned many news stories along the lines of this one in the Los Angeles Times: "Soda tax could prevent 26,000 premature deaths, study finds."

The authors acknowledged encountering "uncertainties and methodological challenges" and conceded that any links between soda taxes and prevalence of obesity were "weak." The projected 26,000 premature deaths averted were over a decade. From the headlines, I wouldn't have guessed any of this.


You're mine now, Mankiw! Every little anti-liberty fad can provide an excuse for extra nannying and market distortion. The Atkins lobby will need to defend us from fat taxes. Skateboards will start at $600. High heels?

Taxes exist to raise revenue. There are already sufficient exceptions.

Posted by John Kranz at 11:29 AM | Comments (1)
But johngalt thinks:

Sic 'im, brother! While you're at it, ask what his favorite "vice" is so you can lobby for a punitive tax on THAT. Ask why he thinks there is a limit to such madness.

Posted by: johngalt at April 2, 2013 3:15 PM

February 1, 2013

Bank Incentives

Blog friend EE has an article in National Review Online (well done, man!) on Reshaping Bank Incentives.

It's great in its own right, and it's EE. But what most grabbed me was that it solved a philosophical conundrum of mine. I gave Edward Conard's Unintended Consequences a five star Review Corner. And I'll stick by my lead paragraph: "Why didn't we nominate this Bain guy?"

Conard is a free market guy and smart as a whip. But Unintended Consequences advocates a huge role for the Fed and Treasury as lender of last resort. Without government playing JP Morgan's role, banks would have to devote too much capital to reserves, and growth would be stifled. Better to enjoy the benefits of liquidity -- and have Hank Paulson come in and mop things up after the party gets out of hand.

I know some ThreeSourcers are weeping in their cappuccinos over that last paragraph, but you have to accept the hossness of the source. It's a credible, Hamiltonian position, and Conard is no Karl Marx. He just accepts the Fed's maintaining guardrails. And I had no answer that was as sound economically as it was philosophically.

Until now. Hendrickson's "Double liability" strikes me as a free market answer to balance capital reserves with bank profits that facilitate growth. I wonder that you could not package the secondary assessments to shareholders as insurance and create a market for this risk (and trade derivatives off it, but I might be getting ahead of myself).

It is a thoughtful piece that contains a real solution and a free market solution to bank regulation.

Posted by John Kranz at 9:10 AM | Comments (2)
But johngalt thinks:

I look forward to reading it in light of the story I heard on NPR this morning of the "too big to fail" Icelandic bank which did, indeed, fail. Iceland bailed out all depositors who vote in Iceland, but none from foreign lands. Other European states are stepping up to bail out the depositors who vote in their land. Who loses? Taxpayers. Who wins? Unclear. Still waiting for Jon Corzine to remember where he put those missing $billions.

Posted by: johngalt at February 1, 2013 3:36 PM
But johngalt thinks:

I still remember the day my mother explained depositor insurance to me as a young boy. "Even if the bank goes out of business, the government will make sure you get all of your money back." It seemed like a great reassurance to me at the time, but even then I did wonder where the government got the money to do this. More importantly though is the transference of risk that EE talks about. It's analogous to licensing a Fugu chef without first making him eat his own product. Someone may be harmed, even die, by his bad performance, but at least it won't be him. What's to worry about?

Posted by: johngalt at February 3, 2013 12:42 AM

January 25, 2013

Read it, fat ass!

Lest you think Facebook is just a great wasteland of irrational people I know, I also "Like" the Ludwig von Mises Institute. They have a superb (somewhat lengthy) book excerpt: "Cartman Shrugged: The Invisible Gnomes and the Invisible Hand in South Park "

Author Paul A. Cantor takes a good look at the humor, political tilt and some autobiography of Stone and Parker. Then, a long investigation of the Gnomes episode. Which is of course, not really about about Gnomes as Tweek's Coffee's anti-competitive tactics against the giant Harbucks.

But what about the gnomes, who, after all, give the episode its title? Where do they fit in? I never could understand how the subplot in "Gnomes" relates to the main plot until I was lecturing on the episode at a summer institute, and my colleague Michael Valdez Moses made a breakthrough that allowed us to put together the episode as a whole. In the subplot, Tweek complains to anybody who will listen that every night at 3:30 a.m. gnomes sneak into his bedroom and steal his underpants. Nobody else can see this remarkable phenomenon happening, not even when the other boys stay up late with Tweek to observe it, not even when the emboldened gnomes start robbing underpants in broad daylight in the mayor's office. We know two things about these strange beings: (1) they are gnomes; (2) they are normally invisible. Both facts point in the direction of capitalism. As in the phrase "gnomes of Zurich," which refers to bankers, gnomes are often associated with the world of finance. In the first opera of Wagners Ring Cycle, Das Rheingold, the gnome Alberich serves as a symbol of the capitalist exploiter--and he forges the Tarnhelm, a cap of invisibility. The idea of invisibility calls to mind Adam Smith's famous notion of the "invisible hand" that guides the free market.

It's awesome.

Posted by John Kranz at 10:12 AM | Comments (0)

November 27, 2012

Mankiw on The "Master of Tax Avoidance "

The good professor offers four dents to Warren Buffett's armor as the noble wealthy knight of high taxation:

1. His company Berkshire Hathaway never pays a dividend but instead retains all earnings. So the return on this investment is entirely in the form of capital gains. By not paying dividends, he saves his investors (including himself) from having to immediately pay income tax on this income.

2. Mr Buffett is a long-term investor, so he rarely sells and realizes a capital gain. His unrealized capital gains are untaxed.

3. He is giving away much of his wealth to charity. He gets a deduction at the full market value of the stock he donates, most of which is unrealized (and therefore untaxed) capital gains.

4. When he dies, his heirs will get a stepped-up basis. The income tax will never collect any revenue from the substantial unrealized capital gains he has been accumulating.


I'd add that he sells financial instruments to aid customers with tax avoidance, and that Berkshire-Hathaway profits on the buy side when families sell out because they cannot afford estate taxes.

Y'know, Warren Buffett starts to make that Dalai Lama fellow look less bad...

Posted by John Kranz at 6:37 PM | Comments (4)
But Bad Science thinks:

This talk about tax rates drives me to drink. Talk about the gross amount paid in taxes and the argument gets very different very rapidly.

Posted by: Bad Science at November 27, 2012 7:28 PM
But jk thinks:

@BadScience: cheers!

Posted by: jk at November 27, 2012 7:48 PM
But johngalt thinks:

Well at least he doesn't have bank accounts in the Cayman Islands like that 1%er LOOOZER Mitt Romney!

Sorry, couldn't resist a little Occupy snark.

Seriously, there is nothing wrong with Buffett avoiding as much tax as possible. What is wrong is his hypocrisy as he denounces others for doing the same thing.

Posted by: johngalt at November 28, 2012 12:30 AM
But jk thinks:

I find it one click past hypocrisy on the bad scale. These policies drive revenue to his businesses at the expense of others' property rights.

Posted by: jk at November 28, 2012 9:54 AM

Yearly 'dis the Consumer Week'

Blog friend Terri sums up my discontent -- with her usual panache.

Boo-freaking-hoo that somebody might shop on Black Friday or buy something on Cyber Monday or not -- and I confess this was new to me -- "give back" on Giving Tuesday:

I refuse to play anymore.

I went out on Black Friday (ooooh) in search of 40% off items not only for others, but for myself! I hate to shop and barely do it all year long so when the shopping season hits, I generally need something. Others (Hi Mom!) love to shop. I don't know if they went out on Black Friday or Saturday or whenever but this economy is run by consumers. We all ought to get a medal for spending a bit this last weekend so the retail stores can get a feel for how the season is going to be on them.

Clearly, Ayn Rand is up in Heaven, smiling down Christmas wishes for this! Thing whole the read.

Posted by John Kranz at 5:55 PM | Comments (0)

November 26, 2012

Liberty on the Rocks

** Due to an unexpected illness, tonight's guest speaker has been changed. **

Join us on Monday, November 26th, where your special guest speaker will be Mr. Harris Kenny, Policy Analyst for the Reason Foundation, who will be discussing the economic implications of Amendment 64. After Mr. Kenny's presentation there will be short Q&A, followed by the opportunity to network with other local liberty supporters. Come for the event, stay for the food and networking -- you're guaranteed a great evening no matter w
hat!

This event is open to the public, bring your friends!

Miller's Grill Lafayette 6:00 - 9:00

Posted by John Kranz at 2:02 PM | Comments (3)
But jk thinks:

What izzit with ThreeSourcers and insanely adorable daughters? Blog brother nanobrewer made a cameo appearance with two super charmers. If we ever have a cute-off, things could get ugly.

Great talk. December 8 is the last of the year and will feature Colorado liberty-icon Jon Caldera. The owner is threatening to put us upstairs in the big room if we have a big crowd.

Posted by: jk at November 27, 2012 6:24 PM
But nanobrewer thinks:

Thanks JK, but don't tell Demetra she's cute! She's already a handfull...

The talk was interesting, that which I heard (one girl was not feeling well), but was really not a healthy topic for a family man who is educating his children on the danger of drugs (yes, the speaker noted "illicit" and I am attempting to differentiate drugs like alcohol), and how they helped the children's mother disintegrate.

It reminds me how some (most?) of the Libertarian's credo is not well aligned to a society in need of good men to do good deeds... and surely now is not the time for good men to do nothing!

Posted by: nanobrewer at November 28, 2012 1:24 AM
But jk thinks:

I feared the last-minute topic change did not serve your interests. Too bad and we'll hope to see you again. I want full legality for adults but would have left too were I in your position.

(And I'm going to tell both how cute they are and you'll just have to live with it.)

We've rumbled a bit on these pages. Few if any share my JS Mill - Ron Paul - legalize everything mentality. I was surprised by the general support of 64 in the generally conservative group. They took a raise-your-hands poll at my suggestion near the end and there was 70-30 support for Amendment 64 and near half for "legalize everything." For a soi disant libertarian group, as jg saw, there are a bunch of conservative republicans who have nowhere else to turn in Boulder.

The star moment of the evening was provided by Sean -- a regular and garrulous former CO State House member. He spoke of his brother, who is addicted to crystal meth. The tragedy is compounded if one imagines him having half the intelligence, wit, and grace of his brother.

But he said that with all his brother's problems and his challenges to move ahead, he cannot see any value in further encumbering him with a felony conviction. This will make it harder to get a job and rehabilitate.

Your closing paragraph about the libertarian credo inspires a longer response. I disagree, but will expand on that in a post.

Posted by: jk at November 28, 2012 10:17 AM

November 19, 2012

We Already Have a Flat Tax

Pretty interesting summation from Professor Mankiw. He looks at a CBO study which "looks at the effects of income taxes, payroll taxes, and SNAP (the program formerly known as Food Stamps). The bottom line is that the average household now faces an effective marginal tax rate of 30 percent." Soon to be 35%, sadly, but the most interesting bit was his close:

What struck me is how close these marginal tax rates are to the marginal tax rates at the top of the income distribution. This means that we could repeal all these taxes and transfer programs, replace them with a flat tax along with a universal lump-sum grant, and achieve approximately the same overall degree of progressivity.

This is the same as tax rates vs. tax as a % of GDP. For all the government meddling, these things have a stubborn consistency.

We might as well face up to it, like Mankiw says and simplify the code and -- LOLZ!! I just crack myself up sometimez...

Posted by John Kranz at 11:13 AM | Comments (5)
But johngalt thinks:

Marginal rates. MARGINAL. Even I, versed in such things and reading past three mentions of the term, interpreted the conclusion as a flat tax. (Well, maybe since that's what you and Greg called it, but it ain't. A flat tax is the same rate for every dollar taxed, no? Thus the name "flat?"

Here's the fudge factor: "...along with a universal lump-sum grant..."

There's why your simplified tax code is such a high hurdle. Imagine if a single dollar figure could be attached to the amount of tax dollars (other people's money) redistributed by government to "the average household." How many fewer votes would this earn? Better yet, how many fewer would accept the largesse?

No, far better for the political class to keep those figures in the shadows.

Posted by: johngalt at November 19, 2012 2:54 PM
But johngalt thinks:

Indeed, consider one of the contributors to the mythical low-income marginal tax rate from the CBO report:

Reduction of SNAP Benefits. For recipients, the reduction in benefits that occur as income rises adds an average of 25 percentage points to their marginal tax rates.

While true in the aggregate, calling the reduction in welfare payments as earnings increase a "tax" is a practice that further obliterates the meaning of the concept of "earned wealth."

Posted by: johngalt at November 19, 2012 3:08 PM
But jk thinks:

Marginal rates are the most interesting. If you believe that incentives count, the tax on the next dollar of income is what matters. (Dr. Yoram Bauman, the Stand Up Economist says "You might be an economist if you add 'at the margins' to the end of every fortune cookie.")

Mankiw suggests that a flat tax could replace the current system with a simple rebate/negative credit. Methinks you and he are arguing about the size or existence of the "universal lump-sum grant" but that we might all agree on the flat tax component.

Posted by: jk at November 19, 2012 5:01 PM
But EE thinks:

In general I am a proponent of lower marginal tax rates, even if that implies higher average tax rates. Nonetheless I feel obliged to urge caution in advocating a more efficient tax system. As Gary Becker, James Buchanan, Casey Mulligan, and others have emphasized, a more efficient tax system can lead to bigger government.

Posted by: EE at November 20, 2012 9:56 PM
But jk thinks:

I seek transparency. Even if I have to give them efficiency, I will trade it for the hidden social engineering they can currently do with the tax code.

Posted by: jk at November 21, 2012 11:12 AM

November 16, 2012

They did un-build that

The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union refused to end its strike yesterday.

"Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders." Hostess Brands Inc. had earlier warned employees that it would file to unwind its business and sell off assets if plant operations didn't return to normal levels by 5 p.m. Thursday. In announcing its decision, Hostess said its wind down would mean the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores in the United States.

But fear not labor leaders...

"Most employees who lose their jobs should be eligible for government-provided unemployment benefits," Hostess said.
Posted by JohnGalt at 10:56 AM | Comments (2)
But AlexC thinks:

It's a shame that marijuana legalization in Washington state could not save them.

Time to get bullish on Doritos?

Posted by: AlexC at November 16, 2012 11:31 AM
But johngalt thinks:

Pot's legal in Colorado too. Didn't help Colorado's Twinkie bakery.

Posted by: johngalt at November 16, 2012 11:42 AM

November 13, 2012

Eating Cake and Having It

Yahoo Finance: The Daily Ticker's Aaron Task and Henry Blodget discuss America's standing in the world.

Here are two quotes from the same analyst:

First, in order to address the "increasing inequality" that is causing us to "lose" our middle class:

"We should balance the bottom line with employment and employee salaries and benefit to the community. Reduce profit margins and reinvest in the country - that's what we need to do."

Then, in response to the growing cost of starting a small business and the very low levels of startups:

"What I assume they're looking at is the cost of the red tape and everything else and legislation and so forth; the regulations that go with and if that's the case we've gotta work on paring that down, there's no question."

So what is his plan for diverting more business profit to employees and communities that doesn't rely upon red tape, legislation or regulation?

Posted by JohnGalt at 7:41 PM | Comments (2)
But jk thinks:

You just want to "give" more money to the wealthy!

Posted by: jk at November 14, 2012 9:51 AM
But johngalt thinks:

I completely missed that one. Good catch!

Posted by: johngalt at November 14, 2012 12:47 PM

November 12, 2012

What if?

1. Wal-Mart's owners (and financiers) went on strike?

2.

3.

Posted by JohnGalt at 6:49 PM | Comments (1)
But jk thinks:

It seems like there might be an Atlas Shrugged quote that might work here. But for the life of me, I cannot think of any...

Posted by: jk at November 12, 2012 8:16 PM

If only...

Hey, you people are smart. I'm thinking there must be some way to try to allocate very important goods like disaster preparedness supplies?

Predictably, emergency supplies like flashlights, lanterns, batteries and sump pumps sold out quickly, even when they were replenished. The one sought-after item that surprised him the most? Holiday candles. "If anyone is looking for holiday candles, they are sold out," he says. "People bought every holiday candle we have during the storm."

If the hurricane was a windfall for Lowe's, its customers didn't seem to mind. Rather, most appeared exceedingly grateful when Mr. Rinker, working at a store in Paterson, N.J., pointed them toward a space heater, or a gasoline can, that could lessen the misery of another day without power.


Maybe a lottery or something...I just think there has to be some way.

Posted by John Kranz at 5:57 PM | Comments (2)
But johngalt thinks:

Ok, fine, you may SELL them, but no adjusting prices based upon demand! Got it? @#$)ing gouger.

Posted by: johngalt at November 12, 2012 6:35 PM
But jk thinks:

Even the NYTimes has to admit customers "appeared exceedingly grateful" to find supplies from those rapacious mercantilists.

Posted by: jk at November 12, 2012 6:40 PM

November 7, 2012

Economic Collapse Planning Guide

Well that was certainly less than satisfying. And quite honestly unexpected. Kudos to dagny for seeing it coming. At this late hour with minimal effort having been expended in the analysis, I can only place the blame, once again, on modern America's refusal to be lectured on social mores.

While a majority of the bouncing, exuberant hoards of Obama supporters do look like drunken sailors itching for another 4-year spending binge I don't believe they could achieve electoral success without the single female vote (and the single males who wish to impress them) and their single-issue determination to punish the GOP for "allowing" Todd Akin and Richard Mourdock - a poor excuse for a TEA Party candidate if ever there was one - to represent the party. And the anti-gay marriage albatross isn't doing the party any favors either. If the GOP can't be successful without evangelicals, and if evangelicals can't learn to live and let live, then I say it's time to Burn This MF'er Down and rebuild the party from scratch. Kindred spirits: the Philadelphia Eagles and the GOP.

As for that economic collapse, the good news is that it approaches slowly. While America has willfully ignored another opportunity to change course, there will be time for more chances. External events may force a change. Staying Obama's course will reveal its folly. Tomorrow is another day. Don't just take my word for it, take Yaron Brook's.

Posted by JohnGalt at 1:08 AM | Comments (0)

October 30, 2012

A HOSS Stumbles

Yet another benefit to Liberty on the Rocks: I actually have some Facebook friends who are not economically illiterate. Interesting chatter about Gov. Chris Christie (Very Large HOSS - NJ)'s admonition against price gouging. Brother Bryan and a cohort of Liberty on the Rocks-ers were educating some folks. You'll be pleased to hear that I stayed out, except to recommend Russ Roberts's awesome The Price of Everything.

The forces of light are otherwise holding the banner of freedom aloft quite well without me. Today, Bryan adds a link to this excellent explanation from mises.org:

On October 27, as East Coast residents prepared for Hurricane Sandy, New Jersey Governor Chris Christie threatened "price gougers" with stiff penalties. As David Brown pointed out in Mises Daily on August 17, 2004, shortly after Hurricane Charley hit Florida, foul weather is when we need market prices the most. Capitalism needs more foul-weather friends, not fair-weather friends like Christie.
[...]
Let us postulate that a small Orlando drug store has ten bags of ice in stock that, prior to the storm, it had been selling for $4.39 a bag. Of this stock it could normally expect to sell one or two bags a day. In the wake of Hurricane Charley, however, ten local residents show up at the store over the course of a day to buy ice. Most want to buy more than one bag.

So what happens? If the price is kept at $4.39 a bag because the drugstore owner fears the wrath of State Attorney General Charlie Crist and the finger wagging of local news anchors, the first five people who want to buy ice might obtain the entire stock. The first person buys one bag, the second person buys four bags, the third buys two bags, the fourth buys two bags, and the fifth buys one bag. The last five people get no ice. Yet one or more of the last five applicants may need the ice more desperately than any of the first five.

But suppose the store owner is operating in an unhampered market. Realizing that many more people than usual will now demand ice, and also realizing that with supply lines temporarily severed it will be difficult or impossible to bring in new supplies of ice for at least several days, he resorts to the expedient of raising the price to, say, $15.39 a bag.

The piece is titled "Price Gouging Saves Lives in a Hurricane." Why does Governor Christie want to kill people?

Posted by John Kranz at 11:31 AM | Comments (4)
But johngalt thinks:

Reports today chronicle altercations in the long gasoline lines in areas affected by hurricane Sandy. Not mentioned in the linked article but on a Fox News broadcast this morning, disputes typically arise when a customer attempts to "cut in line." There are lots of reasons why one might want or need to get gasoline without waiting for 2-plus hours. Unfortunately, Governor Christie and the "price gouging" police prevent the market solution to this problem with their iron boot of "fairness." In a free market, retailers could establish different prices at different pumps where the more expensive pumps would naturally (and sustainably) have shorter lines. Choose your wait time as a trade-off with cost. What could be more FAIR?

Posted by: johngalt at November 1, 2012 2:46 PM
But jk thinks:

Nicely done. I took the liberty of adding this -- with attribution of course -- to Bryan's thread on Facebook.

Posted by: jk at November 1, 2012 4:41 PM
But dagny thinks:

You guys are kidding right? If you follow jg's suggestion, rich people will have gas and poor people won't. The, "fair," way to decide who gets gas is to double the price for all and use the extra money to hire a, "gas procurement czar," who will decide who, "needs," the fuel the most.

Posted by: dagny at November 1, 2012 7:18 PM
But Perry Eidelbus thinks:

H.L. Mencken would remind us that Christie, and also my county executive, may believe what is true but ultimately are politicians, and will thus will say what is most politically expedient.

Posted by: Perry Eidelbus at November 3, 2012 1:49 PM

October 29, 2012

Started a Facebook fight today

Hell, in Colorado there's not much need to prepare for Hurricane Sandy. I have to keep busy somehow.

A bright but mad lefty former employee posted a "meme" picture of a Romney spox Kevin Hassett, looking a bit goofy and the text "You're Broke? I thought you owned a microwave."

This has been a trope of the left -- and possibly the right -- for some time. The right points out that "The Poor" tend to own houses and two cars and appliances and air conditioning, &c. I've always thought it a fair cop. Sure, your life can suck with air conditioning, but that is a pretty different definition of poverty than Mark Mathabane's Kaffir Boy, where he and his brothers compete for finding the most food at the city dump. I think the right is correct to bring this up.

The left, however, has a point. So? A microwave?

I went back, though, to fire a salvo that I find outside the tit-for-tat. Mark J Perry posts a look at "Access to the good life for low-income Americans comes from the miracle of the marketplace, especially manufacturing"

Perry shows a chart with food, clothing, cars, clothing and household furnishings as a share of disposable income. The free market has brought this from >40% in 1950 to <20% in 2012. Of course a microwave oven does not make you instantly happy and fulfilled (although they are pretty damn handy, especially for the single parent I'd presume).

Yet, my point is Prof Perry's graph. Freedom far more than doubled living standards between the Truman and Obama Administrations. You see a similar graph for the effects of anti-poverty spending for the same time. Well, similar except for slope -- that particular graph is flat as a low-carb pancake.

So "which do you choose," I brusquely interrogated, "more freedom or more government?"

Damn good question, jk...

Posted by John Kranz at 6:22 PM | Comments (0)

October 25, 2012

Here's your daily ThreeSources/CAP Video!

It's not every day that I embed a video from the überleft Center for American Progress. And, to be fair, I'll probably hop in the shower a little early tonight.

But this link comes from a good friend of this blog.

This video is fantastic, but not for the reasons that the Center for American Progress thinks. The clear point of the video is to blame the difference between the projected surplus and the actual deficit as being Bush's fault. At the end of the video it plugs the CAP solution for a "balanced approach to deficit reduction." However, if you actually look at the conclusions of the video, you realize that if we eliminated all of the increased spending done by Bush and Obama over the last 12 years, the deficit would be eliminated. No "balanced approach" necessary.

Posted by John Kranz at 3:25 PM | Comments (3)
But Ellis Wyatt thinks:

Say, oh keeper of the 3src jk--a weird thing happens sometimes, I come here and the videos are scrambled so that they appear on different posts. That is no big deal, but earlier American Crossroads came up on this post--that was hilarious.

Posted by: Ellis Wyatt at October 25, 2012 5:51 PM
But jk thinks:

Clearly dirty trickery from Karl Rove. He's used Koch money to buy up the Internet.

Posted by: jk at October 25, 2012 6:13 PM
But Paulista thinks:

Liberals once again show that they do not believe in property rights. If a government is running a surplus in the trillions, there should be a tax cut.

Also, I note the sharper spending starting with Obama's presidency. The narrator does notice it.

Posted by: Paulista at October 26, 2012 11:36 PM

October 15, 2012

Sermon for the Choir

Astonishingly, the Obama Administration continues to tout the auto bailout as its big success. Even grading on a curve...

Hat-tip: Dan Mitchell (via Insty) who says "If the Auto Bailout Was a Success, I'd Hate to See What a Failure Looks Like"

Posted by John Kranz at 1:33 PM | Comments (0)

September 25, 2012

A Brit Gets it!

Thomas Pascoe at the Telegraph says that the riots in the Foxconn factory show "the misery of Communism and the hypocrisy of Western liberals." Two of my favorite topics.

At its base, the hypocrisy charge is one of sweatshop labor: at what level the iPhone shoppers should demand better working conditions. I have taken the other side of that argument many times (usually with an iPhone owner, but that might be coincidental...). If the labor is not coerced, these younger nations are in the midst of growing pains and need to bring their productivity up to enjoy the comforts we do. Sad and hard truth -- but as true as it is hard and sad.

That said, the level of coercion in a Communist society is ripe for debate. And Pascoe is dead on with his broader point.

This is a horribly sad story, and it ought to remind us of two horrible contradictions we often overlook.

Firstly, that in the People's Republic of China, "people" don't matter very much as individuals..

Communism is a degrading moral system because it dispenses with the Western notion of the value of the individual. The collective matters. The national economy matters. The perception of China as a manufacturing powerhouse matters.

For all that the Left deride the "injustice" of the quasi-capitalist economic system in Britain, it offers the gifted and the industrious the opportunity to advance from humble beginnings.

Despite this, we seem in the midst of a permanent campaign from all sides to mould our thoughts into a standardised way of thinking. Expressions of preference have become hate crimes, earning a higher wage than your peers is immoral and deserves to be punished with heavy taxation, the practice of education in Britain (at least before Gove's reforms take root) devotes itself to reducing the talented to the level of the less talented. We are all in this together, and the state commits all manner of economic larceny and social engineering in order to eliminate the differences between people.

However, as the Foxconn story shows, when all are equal in their supplication to the state, no one is of value (politicians excepted, of course).

Posted by John Kranz at 10:07 AM | Comments (1)
But johngalt thinks:

Could this be the green shoots of an English Spring?

Maybe if they go first, America will follow. Or maybe Romney will be elected and America can lead the way - again.

Segue to today's Mitt Romney Home Run.

Posted by: johngalt at September 25, 2012 2:58 PM

September 18, 2012

Government Business Boondoggles, Alaska Style

This article from Alaska contains some nice illustrations of just how truly, truly awful-terrible government can be at business. Oh my, how easy it is to pony up huge sums when it's not your own money. We're not talking a mere few millions of dollars here and there, folks. No, in Alaska they do things big:

Point MacKenzie Dairy Project early 1980s

Tipsy on a strange brew of Alaskan pioneering spirit, burgeoning oil revenues and Soviet-style top-down ambitions, the state set aside 15,000 acres of mostly well-drained forest and spent millions installing a grid of new roads and power. More than 2,000 people bid on 31 tracts, including 19 slated to be working dairies with 100 to 150 cows each.

The goals? At least 30 to 40 families would ultimately make a living milking cows and growing feed reviving the flagging local dairy industry while providing a sure market for barley grown at the 10,000-acre sister project near Delta Junction and a quality product for a struggling local dairy. It didnt happen.

Most went under in just a few years, victims of crushing debt brought on by diving milk prices and the high cost of reshaping wilderness into viable dairies, wrote Alaska journalist S. J. Komarnitsky here.

By one estimate, the state sunk at least $9.6 million directly into Point MacKenzie farms. The New York Times later reported that the state lost up to $120 million for its agricultural hubris, ultimately foreclosing on $40 million in loans by the early 1990s.

"You want to know how to lose money in a hurry?" said Harvey Baskin, the last of the original farmers and a stubborn, hard-working man who held on until his death in 2002, in this story. "Become a farmer with the State of Alaska as your partner. This is what you call negative farming."

The article has six fine examples, so here's one more taste:

Anchorage seafood plant

The stench of dead fish is part of life in a state that's home to some of the nation's richest fisheries, but this deal stunk to high heaven.

What started out as a grand idea to diversity the state's oil-trapped economy quickly began to rot and finally ended when Alaska Seafood International's huge seafood plant went belly up in 2003.

The Alaska Industrial Development and Export Authority gambled and lost on this mega-monster. Working with ASI founder Howard Benedict and Taiwanese investors, the state development agency blew $50 million to build the plant and millions more in failed attempts to save it.

The 202,000-square-foot Anchorage processing plant was supposed to employ hundreds of workers churning out frozen seafood meals, largely salmon and halibut. But for many reasons -- including distance from the fishing grounds and trouble lining up buyers -- production stank. The state never got paid rent.

But, hey, look what it spawned: A nondenominational Christian group, Grace Alaska, bought it with food distributor Sysco for $25 million after borrowing millions from AIDEA. Now it's ChangePoint church, a cold-storage distribution center and indoor soccer fields.

Well, the government is pretty good at building soccer fields, anyway.

Posted by Ellis Wyatt at 2:10 PM | Comments (0) | TrackBack

September 17, 2012

Kudlow: QE3 - Evidence Obamanomics Dismal Failure

Or, "What if they threw a big economic recovery and nobody came?"

Lawrence Kudlow points out in an IBD editorial that Bernanke's "desperate money-pumping plan" is a complete reversal of the "supply side" policy that his predecessor Paul Volker used to great effect in the 80's, with an unsurprising result.

A falling dollar (1970s) generates higher inflation, a rising dollar (1980s and beyond) generates lower inflation.

This is the supply-side model as advanced by Nobelist Robert Mundell and his colleague Arthur Laffer. In summary, easier taxes and tighter money are the optimal growth solution. But what we have now are higher taxes and easier money. A bad combination.

The Fed has created all this money in the last couple of years. But it hasn't worked: $1.6 trillion of excess bank reserves are still sitting idle at the Fed. No use. No risk. Virtually no loans. And the Fed is enabling massive deficit spending by the White House and Treasury.

The obvious implication being that if it worked then and its opposite is failing now, let's try it again. *Homer Simpson voice*"Hey, why didn't I think of that?"*/Homer Simpson voice* Kudlow explains that when policies don't encourage higher after-tax income for producers or greater return on investment for lenders, well, we'll see less of both.

On page 2 Kudlow explains how QE3, like QE2 before it, is murder on the middle-class that the president loudly and repeatedly boasts he cares most about. As my three year-old likes to say these days, "Nonsense."

Posted by JohnGalt at 2:53 PM | Comments (1)
But jk thinks:

Larry's point is politically devastating: "if the Administration's policies are so swell, how come the Fed has to keep a liquidity fire hose on full in perpetuity?"

A wonkier look at QE3, suggesting Nominal Income Targeting (somewhere blog friend EE cheers!) is available on the Free Banking blog today.

Among the alternatives to NGDP one in particular, the Dept. of Commerce's measure of (nominal) "final sales to domestic consumers" deserves particular attention. It is the measure that was favored by the late Bill Niskanen--yet another largely unrecognized but long-standing proponent of nominal income targeting--who offered several good reasons for preferring it to NGDP targeting, the most fundamental of which was that "demand for money in the United States appears to be more closely related to final purchases by Americans than to the dollar level of total output by Americans."

Posted by: jk at September 17, 2012 4:09 PM

Two Tickets to Nomal World, Please

In a normal world, Luther Burbank would get a medal from regulators for its risk management, having chosen borrowers even at the height of the housing mania who could meet their monthly payments.
Ahh yes, normal world. I'd like to plan a holiday there. I have several weeks' vacation built up. Does Southwest® fly there? This not being normal world, the prudent lender described in the opening quote is not receiving a medal but rather -- the smart kids in front have guessed it -- a fine.
But Assistant Attorney General for Civil Rights Thomas Perez has a different priority: He wants banks to meet lending quotas to minorities--regardless of whether those borrowers can afford the loans. Many minority borrowers have low incomes that make them riskier lending bets. Is that a bank's fault?

Luther Burbank admitted no guilt and said it settled to avoid costly litigation, which makes sense for a small, local lender that has to worry about its reputational risk. The bank has agreed to ratchet down its minimum loan to $20,000 and will now commit $2.2 million to a "special financing program" for "qualified borrowers," payouts for local community groups, and "consumer education programs." Justice has the final say on who gets that money.


It's not like anything could possibly go wrong.

Posted by John Kranz at 10:19 AM | Comments (0)

September 12, 2012

A Burr in my Saddle

Better watch the horsey metaphors with this crowd, but something is bothering me. Tell me if I am wrong.

It was assumed that President George W Bush was responsible for the repeal of Glass-Steagall (Gramm-Leach, I believe allowed Investment banks and deposit banks to merge). And conservatives said "Who cares? That neither precipitated nor exacerbated the financial crisis!" (Damn, conservatives sure do talk funny...) But Matt Damon and the Occupiers had to pin it on W, without really understanding what happened, so it was made the poster child of Bushian deregulation.

Somebody got on Wikipedia or something and it turns out that President Clinton signed Gramm-Leach. And Sandy Weill has famously changed his opinion. Now, some of my heroes like Larry Kudlow and James Pethokoukis are suddenly great enemies of banking miscegenation. (You let the Investment banks merge with Commercial, and pretty soon a feller will want to marry his dog!)

I hold that this parcel of deregulation was good irrespective of who signed it. And I have at least one concurring opinion. John Stossel:

Ah, the progressives' George W. Bush deregulation myth: Bush's anti-regulation crusade caused our problems. This is a lie that seems true because of constant media repetition. In fact, Bush talked deregulation but vastly increased the regulatory state. He hired an astounding 90,000 new regulators. Under Democrats and Republicans, regulation grows.

A rare exception was repeal of the Glass-Steagall Act, which forbade financial companies from offering both commercial and investment banking services. You know who signed that?

Bill Clinton.

He was right to sign it (backed by Treasury Secretary and later Obama adviser Larry Summers) because outlawing full-service banking put American banks at a competitive disadvantage.

In some private emails with my economic betters, I have not found anybody who thinks Glass-Steagall was important. I'm queasy seeing its use for partisan gain.

Posted by John Kranz at 1:16 PM | Comments (0)

September 6, 2012

In praise of the "dirty" jobs

I love Mike Rowe. My young daughters, I'm proud to say, also love Mike Rowe's Discovery Channel show 'Dirty Jobs.' Consequently, I'm a bit perplexed that I hadn't heard of this before today:

Dear Governor Romney,

My name is Mike Rowe and I own a small company in California called mikeroweWORKS. Currently, mikeroweWORKS is trying to close the countrys skills gap by changing the way Americans feel about Work. (I know, right? Ambitious.) Anyway, this Labor Day is our 4th anniversary, and Im commemorating the occasion with an open letter to you. If you read the whole thing, Ill vote for you in November.

(...)

Pig farmers, electricians, plumbers, bridge painters, jam makers, blacksmiths, brewers, coal miners, carpenters, crab fisherman, oil drillersthey all tell me the same thing over and over, again and again our country has become emotionally disconnected from an essential part of our workforce. We are no longer impressed with cheap electricity, paved roads, and indoor plumbing. We take our infrastructure for granted, and the people who build it.

Today, we can see the consequences of this disconnect in any number of areas, but none is more obvious than the growing skills gap. Even as unemployment remains sky high, a whole category of vital occupations has fallen out of favor, and companies struggle to find workers with the necessary skills. The causes seem clear. We have embraced a ridiculously narrow view of education. Any kind of training or study that does not come with a four-year degree is now deemed alternative. Many viable careers once aspired to are now seen as vocational consolation prizes, and many of the jobs this current administration has tried to create over the last four years are the same jobs that parents and teachers actively discourage kids from pursuing. (I always thought there something ill-fated about the promise of three million shovel ready jobs made to a society that no longer encourages people to pick up a shovel.)

Solid gold, on many levels.

Posted by JohnGalt at 7:45 PM | Comments (3)
But Ellis Wyatt thinks:

Solid platinum. Dittoes x 1M!

Posted by: Ellis Wyatt at September 6, 2012 8:18 PM
But Jk thinks:

Holy crap,he read it!

Had to call roadside service for a blowout tire today. The young man was friendly, polite and professional. He's a big MR2 fan and we had fun talking.

I thought of this post driving home. I suggest he is happy, has little or no student debt, enjoys his work, and as a Toyota mechanic, can probably get work in any town in a day or two. Versus your newly minted French history major, I think this fine youngster is doing well.

Posted by: Jk at September 8, 2012 9:44 PM
But johngalt thinks:

I had trouble with JK's link. Here's a non-mobile one that didn't require me to login again.

Now, to see if I can get Mike to read mine. :)

Posted by: johngalt at September 12, 2012 11:36 AM

August 23, 2012

Free Banking

Not a whole lot to say since I'm swamped today, but I saw this article and thought of EE and JK. I hope you enjoy.

The Economist On Money and the State

Posted by Bryan at 5:00 PM | Comments (14)
But johngalt thinks:

I believe we are in a transition era and that attitudes towards another's reproductive choices will continue to evolve toward liberty for reproducing individuals. But elections must be held in the interim and pragmatism is called for. It seems the GOP is tap dancing as well as the music will allow and for that, I thank my party. I just have a difficult time defending its non-position positions.

As for the inalienable individual right to life you seek the origin of, what's wrong with the point at time in which the individual becomes inseparable? How is any other definition defensible without first abrogating self-ownership? Until they become separated, how can they be individuals? Does every woman step onto some Semi-Individual's Authoritarian Island for 42 weeks upon impregnation?? 22 weeks? ONE week?

Yes, self-ownership is my premise. I realize a great many people are not similarly "encumbered." In their world my argument is defenseless. But then, so am I.

Posted by: johngalt at August 24, 2012 5:29 PM
But jk thinks:

It perhaps lowers the bar of ThreeSources to spend too much time on poll results for items of philosophical importance, but my "hunch" is that this position is changing rather slowly. I happen to feel your way about gay marriage: its opponents do not notice the foundation crumbling beneath them in real time. Yet, 40 years after Roe, positions on abortion have extreme inertia. Taranto features both smart commentary and polling data on this topic today.

I respect your position but five minutes before birth and five minutes after do not suffice for me. Protecting the weak's rights from the strong is the highest if not the only purpose of government (that, and running the DMV...)

Posted by: jk at August 24, 2012 6:01 PM
But johngalt thinks:

The rate of the liberty movement is less important to me than the direction. But brother, please: Tell me you just wanted to see what would happen if you poked me with a sharp stick.

"Protecting the weak's rights from the strong is the highest if not the only purpose of government." Care to take a Mulligan?

Posted by: johngalt at August 24, 2012 6:52 PM
But jk thinks:

Protect the rights of the weak.

Posted by: jk at August 24, 2012 7:02 PM
But johngalt thinks:

Fair cop. I missed that nuance. Here's more of the same:

- The rights of the weak are no more valid than the rights of the strong.

- The rights of the strong (or the weak or the <adjective>) must be protected from the acts of the weak (or the strong or the <adjective>.)

- A government is the epitomy of the strong; the individual, of the weak.

I come not in defense of abortion in any of its forms, but in opposition to use of The Law to compel others in the disposition of their bodies. Some abortion procedures constitute an atrocity. All acts of tyranny are an atrocity.

Posted by: johngalt at August 24, 2012 7:20 PM
But jk thinks:

Like Rep. Akin, I chose my words poorly. You do not; that is well said.

Posted by: jk at August 24, 2012 7:42 PM

August 21, 2012

Really Don't Mind If We Sit This One Out

--or, Deirdre McClosky, call your office.

Brick production in Britain, 1780 - 1850:

Via a new FRED dataset, you can see the Britain's economic takeoff during the Industrial Revolution as measured in brick production. It wasn't steady or immediate, but it was historic as economic growth finally picked up. -- James Pethokoukis


Posted by John Kranz at 4:35 PM | Comments (2)
But Bryan thinks:

I love that you just referenced FRED!

Posted by: Bryan at August 21, 2012 5:10 PM
But jk thinks:

Really? No props on the titular allusion? I try and try...

Posted by: jk at August 22, 2012 4:11 PM

August 6, 2012

Quote of the Day

Sorry, Keynesians. There was no discernible two or three dollar multiplier effect from every dollar the government spent and borrowed. In reality, every dollar of public-sector spending on stimulus simply wiped out a dollar of private investment and output, resulting in an overall decline in GDP. This is an even more astonishing result because government spending is counted in official GDP numbers. In other words, the spending was more like a valium for lethargic economies than a stimulant. -- Art Laffer
Posted by John Kranz at 9:54 AM | Comments (1)
But johngalt thinks:

"Keynsian multiplier" is a theoretical fiction that has been allowed to occupy the public consciousness unopposed for far too long. Henceforth it shall be known as the "Keynsian divider." It divides productive people from their earnings and, after funding cronyism and payola, any remainder is given away to "the needy."

Posted by: johngalt at August 6, 2012 5:20 PM

July 17, 2012

Quote of the Day

Having learned that the U.S. olympic uniforms were manufactured in China, Senator Harry Reid said, "I think they should take all of the uniforms put them in a big pile and burn them and start all over again."

Will some enterprising reporter please ask Senator Reid for the opportunity to inspect the senator's closet and check the labels of his clothing to make sure they are all American-made? I look forward to seeing Mr. Reid's bonfire.

In the alternative, I would be happy to send the senator of copy of my favorite textbook. He should pay particular attention to Chapters 3 and 9. -- Prof. N. Gregory Mankiw

Posted by John Kranz at 4:08 PM | Comments (3)
But Keith Arnold thinks:

I'm confused.

We have no problem borrowing 2.6 metric buttloads of cash from Red China in order to prop up this administration's government, but we want to refuse them the trade, and thereby the opportunity to make money to lend us.

Am I missing something here? Do I have some misunderstanding about the way international trade is supposed to work? Aren't we supposed to be the ones teaching them about the benefits of free markets?

If we're going to go this route, why not just reenact Smoot-Hawley and be done with it?

Posted by: Keith Arnold at July 17, 2012 5:05 PM
But jk thinks:

Larry Kudlow likes to call them "Smoot" Schumer and "Hawly" Reid. I'd be cautious of making the suggestion.

Posted by: jk at July 17, 2012 5:16 PM
But Keith Arnold thinks:

But still - we'll happily borrow lucre from them, just not buy their Olympic costumes?

Granted, I saw pictures of the costumes, and they looked like castoffs from Glee, but still...

Hey, waidaminnit - I seem to recall the SCOAMF just had a campaign fundraiser in Red China.

http://www.thegatewaypundit.com/2012/07/busy-month-for-obama-campaign-with-fundraisers-in-switzerland-sweden-paris-and-communist-china/

(Yeah, that's a topic in itself, isn't it?)

That's got to jar you from a customer-service standpoint...

Posted by: Keith Arnold at July 17, 2012 7:15 PM

July 10, 2012

The Moral Case for Free Enterprise

Two of my favorite things from Arthur Brook's Road to Freedom were his optimism and his appreciation for earned success (~2:20). Here is a great overview:

Hat-tip: Instapundit

Posted by John Kranz at 11:43 AM | Comments (0)

July 9, 2012

And Just What is a Fair Share Again?

Mark J. Perry offers an interesting graphic:


Bottom Line: A small group of 400 of America's most successful earners in 2009, about the number of residents living in a typical apartment building in Washington, D.C., paid almost as much in federal income taxes as the entire bottom half of Americas 138 million tax filers, which is a population equivalent to the combined number of residents living in America's 29 least populated states, plus the District of Columbia. What makes this disparity possible is the fact that an estimated 47% of individual income tax returns filed in 2009 had a zero or negative tax liability.

When you have only 400 Americans paying almost as much in federal income taxes as the entire bottom 50% of American filing income tax returns, I think we can dismiss any notion of the rich not paying their fair share of taxes. In fact, maybe the IRS should publish the names and addresses of the Top 400 (or provide a forwarding service to protect anonymity), so that we can all send them Thank You letters to express our gratitude for shouldering such a disproportionate share of our collective tax burden.

Posted by John Kranz at 1:40 PM | Comments (0)

July 6, 2012

Must See TV

& it's not even Buffy.

O'Toole's "American Nightmare" will be the subject of Sunday's Review Corner. He has an unorthodox -- but superbly developed -- explanation for the Panic of Ought-Eight. Save yourself my cicumlocuitous prose and bad typing and get the story straight from O'Toole.

He might also wear that cool, trademark western tie of his.

Posted by John Kranz at 2:54 PM | Comments (0)

June 29, 2012

Happy Birthday, Frederic!

The great French economist, Frèdèric Bastiat, was born on June 29, 1801, 211 years ago today. He spent his advocating free markets, particularly free trade, and fighting the socialist policies of his native country. What makes him my hero is that he fought the good fight with great humor, wit and satire. His writings were so clear that they read like the good contemporary writing in The Economist or the editorial pages of the Wall Street Journal. -- Bob McTeer (HOSS!)
Posted by John Kranz at 11:21 AM | Comments (2)
But johngalt thinks:

Awesome! Today is also the birthday of my youngest daughter. Guess we all know who daddy will have her writing biographical essays on for school.

Posted by: johngalt at June 29, 2012 12:39 PM
But Robert thinks:

Also the birthday of Antoine de Saint Exupery, not only a cool person and author but one of the best names ever!

Posted by: Robert at June 29, 2012 2:35 PM

May 31, 2012

Welch Schools VP Biden on Private Equity

The key point here is that PE firms virtually never buy jewels -- happy, fast-growing companies with glistening profits. After all, such companies have access to other kinds of capital; they don't need private equity. And frankly, private equity is generally not in the business of polishing things up for a low-multiple return. It's in the business of reinvention and rebirth, with fireworks at the end.

During this kind of overhaul, do jobs get lost? Unfortunately, in the early stages, they often do. It's nearly impossible to massively improve productivity by keeping everything the same. But are companies saved? Again, yes. That's the whole point of private equity. You're trying to get a business from terrible to terrific, from dying to thriving. In the process, some jobs may go, but in the best-case scenario, with success down the road, many more will be created. And by preventing a company from going under, jobs will certainly be saved. -- Jack Welsh
Hat-tip: James Pethokoukis
Posted by John Kranz at 10:49 AM | Comments (0)

May 24, 2012

Cool Econ Graphs

Reagan famously asked, "Are you better off than you were four years ago" to defeat incumbent President Jimmy Carter. Mitt is using a similar strategy against today's incumbent president. This graph shows why it might be a winning play. Substantially more people are at a diminished income than there were at any time in the last 50 years, and there's a long way to go back to the baseline.

There are many more excellent graphs in the graph gallery of the Calculated Risk Blog.

Posted by JohnGalt at 2:38 PM | Comments (0)

May 17, 2012

Support ALEC

A story on Investor's Ed Page today introduced me to the American Legislative Exchange Council. Seems the organization has a process by which individual legislators from many states work together to craft model legislation, for potential implementation in state governments, that promote limited government, free markets, and federalism. Evidence of their effectiveness is the all-out campaign by Progressive groups to silence them.

So what's got the left so agitated? Is ALEC involved in organized crime? Has it stolen money from state treasuries? Bribed officials? Polluted the environment? Clubbed baby seals?

Nope. The left is targeting ALEC for the simple reason that it's been effective in promoting pro-business, free-market ideas and policies, mainly by drafting model legislation that lawmakers can use as a template in their own legislatures.

Those bills, mind you, still have to make it through their states' representative bodies, and then get signed by their governors.

In other words, it's democracy at work.

ALEC answers its critics directly on its FAQ page.

Q: What does ALEC have to say about its detractors, including Common Cause?

A: ALEC encourages all Americans to actively participate in the public policies of this country. As legislatures and governors pursue the best solutions for their states, ALEC understands and expects that some groups may oppose solutions that emphasize free markets and limited government. ALEC respects these disagreements. It is disappointed, though, that some have chosen rhetoric over honest discussion by attacking and distorting ALECs nature and record to advance their own political agendas.

ALEC is proud of its work and its limited role. It provides a venue for earnest discussion on important economic issues. ALEC does not lobby in any state. Its model bills and resolutions are public policy resources for state legislators. To the extent any ALEC model bill is successful, it is because it provides legislators and their constituents with the kind of free market, limited government solutions they want.

Posted by JohnGalt at 3:10 PM | Comments (0)

May 7, 2012

DIY Post

I'm catching up with work, but a great friend of this blog sends a link to this Reason piece on economics and Delta Blues.

The tragic image of the blues that originated in the Mississippi Delta ignores the competitive and entrepreneurial spirit of the bluesman himself. While it is certainly true that the music was forged in part by the legacy of slavery and the insults of Jim Crow, the iconic image of the lone bluesman traveling the road with a guitar strapped to his back is also a story about innovators seizing on expanded opportunities brought about by the commercial and technological advances of the early 1900s. There was no Delta blues before there were cheap, readily available steel-string guitars. And those guitars, which transformed American culture, were brought to the boondocks by Sears, Roebuck & Co.

For extra credit, segue it into a celebration of the opportunities provided musicians by that eeeevil Disney Corporation. It just hit me this trip that Disney probably writes checks to more musicians than everybody else in the world put together.

Playin' tuba at the German Biergarten at Epcot isn't Mick Jagger but there are hundreds of guys getting scale every day. Then the movie studio, ABC network, hotel lounge, cruise ships...

Posted by John Kranz at 1:38 PM | Comments (1)
But johngalt thinks:

NED bless the Sears Roebuck catalog, the Amazon-dot-com of its day.

Posted by: johngalt at May 7, 2012 3:31 PM

May 1, 2012

Paul vs. Paul

Bloomberg television carried this 20-minute debate live yesterday. Drudge linked it with the headline: Ron Paul staying in race, may not support Romney. But I don't think I would have pitched it that way. I had already seen the story as a hit on my Google Alert for "Liberty Dollar." Andrew Kirell via MEDIAite wrote:

Krugman, grinning through Rep. Pauls answers, responded that if you think you can avoid [the government setting monetary policy], youre living in the world that was 150 years ago. Predictably, Krugman continued on to defend our monetary policy as a response to free market economy gone amok, and explain why he thinks government is necessary in order to prevent future depressions.

When discussing the topic of inflation (something Krugman wants more of), Rep. Paul hit back that [Krugman] wants to go back 1,000 years to the Greco-Roman times when inflationary monetary policy was a common practice. Paul explains how the Roman empire eventually destroyed their currency through inflation, implying that Krugmans desire for the federal government to print more money could lead to similar consequences.

Krugman chuckled and responded: I am not a defender of the economic policies of the emperor Diocletian. So lets just make that clear.

Well, you are. Thats exactly what youre defending, Paul insisted.

Mitt Romney, take notice: When you're opponent says, "I'm not _________" the correct reply is, "That's exactly what you're doing."

When co-host Trish Regan questioned Paul on whether he wants to abolish the Federal Reserve entirely, he explained that he wants to legalize private currencies to compete with the government monopoly on currency. As it stands today, if people use a private currency, they can go to to jail (as we saw several years ago with the federal raid on the Paul-inspired Liberty Dollar).
Posted by JohnGalt at 2:10 PM | Comments (1)
But Perry Eidelbus thinks:

"you’re living in the world that was 150 years ago."

We should greatly appreciate Krugman's admission that it WAS possible since it was done. This country had minor panics when it used gold- and silver-backed currency (but not the free coinage of silver that William Jennings Bryan advocated).

Enter a great centralizer of power, Abraham Lincoln, who started printing dollars, and then the Federal Reserve. Our country had never had such busts.

Posted by: Perry Eidelbus at May 1, 2012 6:31 PM

April 24, 2012

Stealing from our Grandkids

Instigated a Facebook fight today. My biological brother shares a pick from "We are the 99%:" you know the drill, young lad holding up the letter:

I am a 21 year-old student from Finland.

It makes me sad to hear how Americans are suffering.

Here, our taxes are high but we all benefit from them.

I grew up in the countryside and always had access to the same services that people in the city did.

My university is known around the world in my field and my education is not only free, but my government pays ME to go to university. Everyone has a right to this.

Everyone has a right to the best healthcare, there is no such thing as health insurance. I am young now and able to take risks and pursue my passion because I will never have to worry about starving if I loose my job or my business fails.

I know that when I am old my state pension will be there for me so that I can enjoy my retirement.

We call this the Nordic Model, and under it we live well and our businesses are among the most competitive in the world. I am grateful to have been born a citizen of a country that cares for its people, and I hope that one day the USA will take example from us.

I am the 99%.


To put the best sheen on leftists' ideas, I think this may be the heart. You can attack this idea economically or philosophically. But I chose a consequentialist argument. (My brother will probably not respond but sometimes his friends type back.) We'll see how it goes, but IO took this in the context of David Deutsch's Beginning of Infinity and today's incredible announcement that Eric Schmidt and a bunch of his rich friends are going to do "Red Dwarf" for real as Planetary Resources.

Underplayed in the right/left split is the theft of innovation as well as wealth from future generations. It is in many ways worse to take the cool things they could have had than to saddle them with debt.

Here is my response (Shameless Self Promotion alert!)

Thanks for posting this. I get a better picture of where some people are coming from (trying to open up after the Jonathan Haidt book!) But among many questions of fairness and sustainability, young Bjykkll describes a very stagnant world. Let's nail everything down where it is so things never get worse and we never get an unpleasant surprise.

But while a stagnant and static world might have some level of comfort, where does the next Internet or iPod or MRI machine come from? I read a press release today for Planetary Resources. Bunch of Onepercenters are going to spend their money searching nearby asteroids for minerals and water. They'll probably lose their shirts. Its crazy!

But it's their money, and they might also facilitate space travel by finding water that would not have to be pulled out of Earths gravity. Plus cheaper sources of minerals. Plus some serendipitous discovery none of us can imagine.

You and your Scandinavian friend are stealing innovation from your grandchildren to feather your nest today. Hate to think that a young, healthy, smart, educated lad would ever have to worry about anything -- but his choice of comfort over production disturbs me.

Posted by John Kranz at 2:42 PM | Comments (1)
But johngalt thinks:

Seems there is some truth to this. Three universities in Finland are tuition free, although "living expenses and other fees" are not subsidized [filthy capitalists] and non-EU students are also welcome to attend, provided that "students from non-EU countries must have proof of [non-existent?] health insurance during their time in Finland." [But don't non-Europeans deserve free care too?]

I haven't searched yet but it seems there may be three or more tuition-free universities in the US too. It would certainly be easier for the US taxpayer to fully subsidize college tuition if we only had three universities. (Maybe there are more than 3 in Finland, I haven't checked yet.) But if everyone has "a right" to this college education, how do they allocate the scarce resource of lecture hall seats? However it is done, those who are left out consider it "unfair."

Posted by: johngalt at April 24, 2012 3:44 PM

April 18, 2012

Knowledge Problem, Anybody?

It is hard to consider a power utility as a private corporation. Yes, Xcel Energy (XEL) trades on the NYSE, but as a "public" utility it is regulated and managed in a way to make government proud.

Were they completely private, I would not say a word about the firm's "Responsible by Nature" campaign. Liquor vendors also pay for commercials to tell people to use less of their product.

But I clicked a banner ad on Instapundit today for details on a rebate for installing a swamp cooler. Now, this might be a tough sell to the HOA Architecture Review Board (I've seen grown men tear their own 'eads off rather than face the HOA ARB!) not to mention my upstairs neighbor. Yet I am eyeing the 600 bucks that Excel will give me and consider the fact that I buy my electricity from a co-op a complication more than a disqualification.

Yet on the serious side, I one time collected a big check from Excel to convert my electric dryer and range to natural gas. A few years later, I noted that they were offering rebates the other way. Now I am sure nat gas is a good play but don't know what the accountants are promoting as responsible this week.

Wouldn't it be a great world if the utilities just ensured availability of what their customers wished to buy and allowed those customers to choose? Plus, then there would be more time for beer commercials.

Posted by John Kranz at 11:36 AM | Comments (0)

April 16, 2012

Remember when the left cited Sweden?

WSJ's Notable & Quotable

Since becoming Sweden's finance minister, [Anders Borg's] mission has been to pare back government. His "stimulus" was a permanent tax cut. To critics, this was fiscal lunacy--the so-called "punk tax cutting" agenda. Borg, on the other hand, thought lunacy meant repeating the economics of the 1970s and expecting a different result.

Three years on, it's pretty clear who was right. "Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus," he says. "Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt." Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit. The recovery started just in time for the 2010 Swedish election, in which the Conservatives were re-elected for the first time in history


UPDATE: Heritage: Not just ABBA and IKEA anymore

Posted by John Kranz at 5:13 PM | Comments (0)

Only government could gloat over "profit" when the entire investment is still in the red

Proud to post a guest submission from a good friend of this blog and frequent commenter. His professional life might be better without this appearing on his blog uder his own name.


Treasury: Regions Financial repays TARP funds
(Reuters) -- Regions Financial Corp (RF.N) has repaid $3.5 billion to the U.S. Treasury Department that it received under the bank bailout program and is now fully out of the financial crisis-era program, the Treasury said on Wednesday.

The Treasury said that after the latest payment, the overall positive return on bank investments made under the Troubled Asset Relief Program, or TARP, has reached $18 billion.

A total of $245 billion was invested in banks under TARP's bank programs and some $263 billion now has been returned in the form of repayments, dividends, interest and other income.

That's a 7.35% return over a few years. Annualized, 2.4%. TARP's bank endeavors actually started more than 36 months ago, so the percentages are even smaller.

Now let's compare the return against the DJIA, NASDAQ and S&P 500 indexes, which merely eyeballed clearly have had better returns over the last few years:

djiasince2009.gif
nasdaqsince2009.gif
snpsince2009.gif

Mind that the $245 is only a third of TARP. The "$18 billion profit" is excluding the black holes called Fannie Mae, Freddie Mac and AIG. When you look at the entire TARP program,

So far, taxpayers have recovered about 81 percent, or $337 billion, out of the total $415 billion that the government disbursed across all TARP programs.

But all you'll hear is cheerleading about the program's partial successes, which aren't much of a return at all. It's like a spendthrift overjoyed about a third of his money in a CD, while overall a fifth of his savings may never come back.

Moreover, TARP is not "winding down" as is claimed. Many banks have repaid the loans, but the feds still hold so much preferred stock, which is not "winding down." Nor can TARP be called "winding down" while the feds are still engaged with "troubled assets." And what do people really think will happen when all the loans are repaid, and the feds sell off the last preferred stock share and toxic bond, that taxpayers will get back the hundreds of billions in tax rebates? Or that the money will be used to pay down the national debt? Not a chance. Any profits are treated as new-found money by the feds, ready to spend.

Posted by John Kranz at 10:02 AM | Comments (0)

April 7, 2012

All Hail Mark Perry!

The greatest economic inanity prevalent today -- the envelope please . . . we had a lot of good nominations this year -- is the "War on Women Caterpillars Speculators." I sit there enjoying Kudlow & Company and watching sentient beings assure viewers that oil prices are high because of speculators and, my personal favorite, that only oil users should be allowed in the market.

As to the first, it is true if future shortages are expected, but I do not understand the suggestion that volatility and shortages are superior to better price and supply data today. On the second point, I must delve into the low-rent argument of sarcasm: "Yeah -- the last think we'd want is efficient liquid markets with buyers and sellers!"

Who cares what I think? Professor and great econblogger Mark J Perry collects a short and sweet series of quotes "In Celebration of the Speculators, Who Bless Society With Significant Benefits"

MP: In other words, speculators who continually lose money by buying high and selling low (which would increase volatility and be destabilizing) will be forced to leave the market eventually, and only rational speculators -- those who will actually help to stabilize prices -- will survive.

UPDATE: It's almost a segue. David Goldman says (HT: Insty) that Short Supply, Not Middle East Tensions, Push up Oil Prices

"Right now the key thing that is driving higher gas prices is actually the world's oil markets and uncertainty about what's going on in Iran and the Middle East, and that's adding a $20 or $30 premium to oil prices," President Obama said March 23. It's complete and utter nonsense. Oil is trading in lockstep with expectations for economic growth, as reflected in stock prices. There's not a shred of evidence that geopolitical uncertainty has added a penny to the oil price. Obama's $20 to $30 per barrel risk premium is a number pulled out of a hat, without a shred of empirical support. In effect, the President is blaming Israel for high oil prices

Posted by John Kranz at 10:51 AM | Comments (2)
But johngalt thinks:

Hail Mark Perry! Hail Mark Perry! Hey, can we get him an appearance on Kudlow?

As for the cause of oil price changes I heartily agree with David Goldman. As I wrote in November 2008:

The take away from this should be that adding as little as 1.9 million barrels per day (2.3%) to the world oil market at any time in the last 2.5 years would have put the market in surplus at the time. Remember that the next time someone says, "The small amount of oil we could produce domestically would not lower prices for 10 to 15 years."
Posted by: johngalt at April 7, 2012 1:58 PM
But jk thinks:

Kudlow always corrects them, saying "What you call 'speculators' I call 'investors.'" But I would love to see Perry...

Posted by: jk at April 7, 2012 2:30 PM

April 3, 2012

The "Ford is bailout-free" meme

I've heard this both ways since the big Obama-lead union takeover of GM and Chrysler - Ford survived the big recession without a bailout, and Ford received government loans that haven't been repaid. The first point of view seems most popular, as repeated in dear dagny's 'Article of the day' today.

Ford was the only U.S. automaker to save itself without the help of a government lifeline in 2008. As Dan points out in the accompanying video, the story of Ford is perhaps the only successful non-bankruptcy restructuring seen in the U.S. over the last thirty or forty years.

Okay, I give the Mulally team serious props for turning around a huge corporation that was near junk bond status in 2006. The greatest single factor, in my opinion, was the removal of Bill Ford as CEO but that's a separate story. But even if they didn't take federal aid in 2008 their claims of bailout purity are tarnished somewhat by their DOE loans.

If DOE-guaranteed loans aren't repaid, taxpayers foot the bill, but that's not the only downside of federal-government financing of private businesses, as I've written about previously. Companies that don't tow the Administration line, that don't employ favored constituent groups, or are headed by outspoken CEOs (like Steve Wynn) would probably have their loan applications treated differently than was Ford's. And as economist John Tamny writes in his most recent column, "once an institution is the recipient of government largesse" it must serve its "political masters" who will seek "payback in the form of coerced business activity that has nothing to do with profit."
Posted by JohnGalt at 2:43 PM | Comments (1)
But jk thinks:

This proud Toyota owner is going to come down fulsomely on the side of Ford Motor Corporation.

Corporations must maximize asset value for their shareholders. In today's world, sadly, part of that is managing and exploiting government loopholes and subsidies. Getting a cherry loan to create "green jobs" is way down the list from what happened to GM and Chrysler.

We're on the hook for this loan if Ford defaults; you're on the hook for my FHA loan if I default. But Ford looks good to keep up (and I'm allright). GM, conversely, is public ownership of the means of production. And the property theft from secured GM and Chrysler bondholders is still mortifying.

I think it would be naive to expect Ford to play by libertarian rules, and yet I think you may have explained why there are not more commercials hyping the firm's chastity. It does take the wind out of that commercial.

Posted by: jk at April 4, 2012 10:25 AM

March 20, 2012

Promoting Small Business through Government Intervention...wait what?

Recently I was having a discussion with a friend regarding the appropriate level of local government interaction to promote local economic growth through small business development. Both he and I concluded that, while providing resources for would be entrepreneurs is a noble goal, the private sector offers a more efficient means of delivery via a "pay for service" business model. Instead of these services being offered for free by the city or its surrogates, the "pay for service" model ensures that resources are allocated to the consumers who are most serious and capable of starting and operating a profitable business.

While reviewing my recently created Google Reader dashboard, I came across the following article dealing with exactly the issue my friend and I were discussing earlier today, although on a much more macro level. I thought it was a very interesting take on the idea of "promoting small business through government intervention." And just like all government interventions into markets, it results in a misallocation of resources.

Promoting Entrepreneurship, Wasting Capital

Posted by Bryan at 2:31 PM | Comments (0)

March 14, 2012

Tax Reform Idea

An inadvertent intellectual slip by CNBC's lovely Becky Quick gave me an idea.

My man Kudlow was a guest on Squawk Box to round up the primary results, but he expanded the discussion to query the stock pickers on the effects of the devastating increase in dividend taxation scheduled for Jan 1, 2013. He and Steve Forbes decried the "double taxation" of dividends. Ms. Quick first asked why that was different than her salary. Forbes mentioned the deductibility and she quickly and publicly apologized for "the dumb question."

That's the backstory, here's the idea:
1) Full deductibility of dividends to corporations
2) Taxation of dividend income at personal rate.

Boom, baby! Double taxation is gone. The Warren Buffett and Mitt Romney tax rate that so worries some Americans is normalized. All in a day's work.

Extra, exogenous benefits include a tax bias toward dividends over stock buybacks, which is more efficient. And dividends' cleansing effect on corporate governance and accounting. Pension funds and retirement accounts could yield greater dividend growth and defer taxation to payoff, but all the money gets taxed cleanly and transparently -- once.

What am I missing?


Posted by John Kranz at 10:34 AM | Comments (9)
But jk thinks:

We could also try facts: The industry sends more to Washington than to shareholders

Much, much worse, actually. The federal Energy Information Administration reports that the industry paid some $35.7 billion in corporate income taxes in 2009, the latest year for which data are available. That alone is about 10% of non-defense discretionary spending--and it would cover a lot of Solyndras. That figure also doesn't count excise taxes, state taxes and rents, royalties, fees and bonus payments. All told, the government rakes in $86 million from oil and gas every day--far more than from any other business.

Posted by: jk at March 14, 2012 11:29 AM
But jk thinks:

@dagny: If they have not hit their social security / medicare max, sure! (I was thinking of fat-cat, Wall Street bankers.)

Posted by: jk at March 14, 2012 11:32 AM
But dagny thinks:

There is no limit on Medicare BTW.

But sorry, I'm confused, under JK's new system what is the difference between a dividend and a salary? Why not just outlaw dividends completely and call it all salary and put it on a W-2?

Posted by: dagny at March 14, 2012 12:21 PM
But jk thinks:

Okay, we're not doing FICA. It is income, it is not salary -- I'm not filling out a W-4 for every stock I buy and nobody is withholding.

But you put it on your taxes as income and it adds to you AGI, so you pay Federal Income Tax at whatever your rate.

It's a huge tax increase for the investor. But the Kudlows and Kranzes of the world will have to put up or shut up as it is not taxed twice.

Posted by: jk at March 14, 2012 1:35 PM
But johngalt thinks:

It is a bad thing if it's really a subsidy. Dems will call it a subsidy, even though every corporation under the sun gets the deduction.

Was dagny asking about corporate deductability of FICA taxes paid for employees? Are those not already paid pre-tax?

So the results of the K-K Tax Reform would be:
- Higher overall corporate profit through reduced taxation.
- Concomitant GDP growth.
- Large tax hike on the "one percenters."
- Reduced demand for dividend-paying investments?
- Reduced (domestic) investment?

Posted by: johngalt at March 14, 2012 2:51 PM
But jk thinks:

I cannot implicate the other K, this is mine for better or worse.

But the other K would rightfully say that the reason for preferential tax treatment is that it has already been taxed as corporate profit. If you really believe that, Conservatives, than this is positive for investors. You're paying 35% corp, then 15% dividend now; this reduces it to the top rate. I'd love to sell it to the opposition as a big tax increase for one-percenters, but I do not think it is in the end.

I see your point that it makes dividends less attractive as an asset class, but I see a tsunami of dividends and yield has to matter more than taxes. Institutional investors and tax deferred plans will clean up. And I can't see individuals passing on great yields because it will make their taxes go up.

Posted by: jk at March 14, 2012 4:17 PM

March 9, 2012

There is No Such Thing as Free Currency Manipulation (Or Lunch)

Recently, I made comments regarding a fellow blogger's opinions on inflation, which sparked a lively discussion among my fellow bloggers. Regrettably, some of my comments were not adequately explained or defined on this particular topic. This post is an attempt to clarify my position on inflation, how it is defined, and how it is measured.

Defining Inflation

Inflation is always and everywhere a monetary phenomenon - M. Friedman

Most, if not all, of us who follow political economy are familiar with this iconic definition of inflation. From the Austrian perspective however, this statement is redundant. Inflation, as defined by Ludwig von Mises in the excerpt below, is a general increase in the money supply:

"Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check.

To prove this theory, let us examine the following example from Dr. Frank Shostak:

"Consider the case of a fixed money supply. Whenever people increase their demand for some goods and services, money will be allocated toward other goods. Thus, the prices of some goods will increase--i.e., more money will be spent on them--while the prices of other goods will fall--i.e., less money will be spent on them.
If the demand for money increases against goods and services, there will be a general fall in prices. In order for an economy to experience a general rise in prices, there must be an increase in the money stock. With more money and no change in money demand, people can now allocate a greater amount of money for all goods and services.
From this we can conclude that inflation is a general increase in the money supply"

From these definitions, we can rewrite Dr. Friedmans famous quote to read:

Increases in the money supply are always and everywhere a monetary phenomenon.

The problem with the modern day definition of inflation is that it fails to adequately explain the relationship between the money supply and prices, and furthermore regards any increases in price as inflationary.

Measuring Inflation

The current suite of inflation measuring tools is, for the most part, based on some type of price index measurement. Examples of these tools include the Consumer Price Index (CPI), Producer Price Index (PPI), and the Personal Consumption Expenditures Price Index (PCEI). These tools measure changes in prices within certain segments of an economy over a given time period. To illustrate the inability of these tools to adequately measure inflation, consider the case below.

Examining the money supply and consumer price index during the years leading up to the Great Depression, the following trend appears:

MSvsCPI%201921.bmp

The data indicates that there was a significant increase (61.72%) in the money supply, and actually a modest decrease (3.88%) in prices.

As Rothbard points out in Americas Great Depression there were opposing forces that were determining prices during this time period. Monetary factors, such as inflation, were pushing prices higher, while at the same time, real factors, such as gains in productivity, lowered costs and prices. These offsetting forces resulted in prices remaining stable while the money supply grew at an average rate of 7.7% per year. The resulting credit expansion created an imbalance between consumption and investment, pushing rates of interest lower than they would otherwise be in a totally free market.

Examining the money supply and consumer price index from 2000-2009 the following, and somewhat similar trend appears:

MSvsCPI%202009.bmp

The data indicates that there was a significant increase (76.43%) in the money supply, and an increase (24.59%) in prices.

While prices increase at a much faster rate during this time period than in the time period above, the result was the same. The credit expansion that was created as a result of monetary inflation lowered interest rates below where they would have otherwise been in a free market and created a similar imbalance to the one described in the previous example.

During the time period of 2000-2009 prices grew at an average annual rate of 2.6%, a rate that is within the safe zone used by many economists. However, the average annual rate of growth of the money supply during this same time period was 6.5%, a rate, if defined as inflation, would not only be unacceptable, it would be dangerous.

In order to accurately measure inflation, it must first be defined correctly. The previous two examples illustrate not only the danger associated with incorrectly defining the concept of inflation, but also building inflation measurement tools based on a false premise.

A note on the concept of a price deflator mechanism and its usefulness in measuring inflation. When properly defined, inflation and decreases in prices are not mutually exclusive. Productivity gains and technological advancements can take place during a period of monetary inflation and can offset the general rise in prices that are a symptom of inflationary policies.

Conclusion

It was argued earlier this week that inflation, while harmful, is not so because it drives up costs and prices in real terms. On the other hand, it was also argued that inflation is harmful, in part, because it is a tax on cash balances.

This is a contradiction.

For example, a retired individual who is living off an investment portfolio made up primarily of fixed income assets will be hit especially hard by increases in real prices, or a tax on cash balances. Every percent increase in real prices represents a percent decrease in that individuals overall wealth.

I argued in an earlier post that in a purely free market, increases in productivity and technological advancement over time will result in a general decrease in prices, or, to put it another way, an increase in the standard of living. This affect can help to suppress prices during periods of monetary inflation; however, the consumer still has a lower standard of living than would have otherwise been achieved in a purely free market due to the effects of price stabilization.

While the goal of price stabilization may be a noble one, the outcome is often the opposite of the desired result. As is the case with most government intervention into the economy, monetary inflation brings with it undesirable and unintended consequences. These consequences range from decreases in the standard of living, taxation on cash balances, and on at least two occasions, severe recessions. What Friedmans quote does tell us is that at least since 1913, inflation is always and everywhere a result of Government intervention.

Hat Tip: Defining Inflation
Hat Tip: Inflation: An Unworkable Fiscal Policy
Hat Tip: America's Great Depression
Hat Tip: St. Louis Fed Research Database

Posted by Bryan at 5:26 PM | Comments (8)
But johngalt thinks:

Biting my tongue ... HARD.

Posted by: johngalt at March 9, 2012 11:12 PM
But jk thinks:

Don't be cowed by degrees, jg! Speak your mind -- this is ThreeSources! Having some new players, I would like to reiterate my position.

I took Blog Friend EE's advice and read George Selgin's "The Theory of Free Banking" (he also created the monster I am by recommending Ben Bernanke's Textbook).

Could I turn back the clock and guide Alexander Hamilton's life, we might avoid the enumerated power in Article I, Section 8 "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;" And he might have avoided that crisp morning in Weehawken, NJ.

But, that train left the station in 1789, and we have US Currency: legal tender for all notes public and private. John Stossel did some folks-in-the-street interviews on allowing other currencies as part of his show last week. It engendered gales of laughter. We're going to eliminate Medicaid and privatize Social Security before we get that one.

Stuck with official gub'mint money, what is the best method to implement Art I Sec VIII? I -- uncomfortably -- contend that we're doing about the best we can. "Burn the Heretic!"

I did not say that Inflation is okay. I said that the idea of inflation targeting at 2% Core PCE is okay. EE has turned me on to Nominal Income Targeting, which does seem superior and I promise him an FOMC Chair nomination right after my inauguration.

Now I am officially running with the Ron Paul crowd after the Colorado Caucus. But I am not on board with his monetary policy. Nominate a hard-money man to head the Fed, yes. Chairman Bernanke is now on the wrong side of his own measures, and both the "guarantee" of low future rates and the new super-extra-Twist are certainly too loose.

But: A gold peg? That's still fiat money. More Congressional meddling (Audit the Fed!) Really? What is improved by adding more Congress? I do not trust Congress half as much as "The Bernank."

By all means, vote for a person who promises a vigorous defense of the Dollar. Our current SecTreas is competent only as a political hack. And I will surprise ThreeSources by admitting that Chairman Bernanke has worn out his welcome.

But the philosophically displeasing idea of managing a 2% "price basket" inflation has much to recommend it. Keep the second derivative to zero and people can easily plan intelligently around it. Yes, it's unfair to "stuff-100s-in-the-mattress" investors, but life is hard all over.

Over time, most people will see the disinflationary factors, which I highlighted to start this contretemps, more than mitigate the 2% core. And we give a fallible Fed a cushion to avoid deflationary shocks.

Posted by: jk at March 10, 2012 11:56 AM
But johngalt thinks:

I'm not being shy or coy, I'm actually most interested in how Bryan will rebut without me in the way. And since he promised to do so, I can be patient.

Posted by: johngalt at March 10, 2012 2:32 PM
But Bryan thinks:

Fellow Three Sourcers -

I apologize for not replying this weekend.

I attended a meeting of the newly formed Liberty Toastmasters in Boulder County which led to some interesting personal developments that are of a political nature. Thinking about these developments utilized nearly all of my brain's productive capacity (keeping with the economic theme of monetary policy).

Because of this I was unable to formulate a response to EE's and JK's very good points on the matter. I will try to do so later today or tomorrow.

For JG in particular, I'm sorry you've had to be patient for longer than planned. I will do my best to make it up to you in my response.

-Bryan

Posted by: Bryan at March 12, 2012 2:40 PM
But johngalt thinks:

We're good bro. Academic debates cannot be rushed.

Can't wait to find out what "interesting personal developments that are of a political nature" is all about either. I'll vote for you!

Posted by: johngalt at March 13, 2012 11:51 AM
But Bryan thinks:

Fellow Three Sourcers -

Thank you for your patience while I crafter a response to the comments posted above. First, the delay in my response was due in part to being encouraged by the Boulder County GOP to run for the State House of Representatives for the open HD12 seat. This took up the majority of my thoughts over the weekend and the early parts of this week. Unfortunately, the decision not to run was made for me as I am ineligible to run having recently switched by party affiliation from Libertarian to Republican. State law requires that any candidate seeking their party's nomination must be registered and affiliated with that party no later than the first business day in the January directly preceding the primary elections. While I was disappointed to learn of this law, it is encouraging to know that there are people out there that would support me in such an endeavor.

Now, onto everyone's favorite topic; Inflation

Let me start out by saying that I have an immense amount of respect for Dr. Friedman. He did more for the causes of liberty, capitalism; freedom than anyone in the 20th century save for possibly F. A. Hajek. With that out of the way, I would like to highlight my disagreement with EE's points in his post above.

First, I am aware of how the majority of economists currently define inflation. The broader point I was trying to make in my post, is that the definition is inadequate in explaining the negative effects caused by "monetary inflation". Before I address that however, I would like to direct everyone to this article written in 1997 by the Vice President at the Federal Reserve Bank of Cleveland. It is a very informative and brief history of the word "inflation" and how it has been defined. The historical quotes in this article speak volumes to how early economists defined inflation and how that definition changed in the early part of the 20th century.

As I mentioned above, I will argue that the current definition of inflation is inadequate to accurately explain why growth in the money supply, which in this country can only be done by the government, is harmful. Using the CPI and money supply data from the 1921-1929 graph above, were we to use the "conventional" definition of a general rise in prices, we would, like the economists alive during that time period, would fail to accurately predict the impending depression.

Defining inflation as an increase in the money supply, a different picture of the time period leading up to the Great Depression presents itself. The growth in the money supply resulted in artificially low interest rates and increased levels of industrial production. (The Moody's AAA Corporate Bond Yield decreased 23.94% while at the same time, the Industrial Production Index increased by 75%). Further investigation of the money supply also shows an interesting trend. While the monetary base only expanded by 7.91% during this time period (1% on average per year), bank credit, on the other hand, expanded by 69.33% (6.83% on average per year). This expansion of credit could only be facilitated by the central bank, and in fact started with the purchase of government securities in 1921 in an effort to speed the recovery from the 1920-1921 recession. This expansion of credit, and the necessary decrease in interest rates that followed, created the unsustainable boom of the "roaring '20's" by creating a distortion in the relationship between consumption and investment.

For a more recent example, consider the case of Japan in the 1980's. In this article by Mark Skousen, it is pointed out that Japanese economist, Yoshio Suzuki, confirmed the Mises-Hajek model, saying that:

"As Hajek teaches us, easy money does not always raise the price of goods and services, but always creates an imbalance in the structure of the economy, particularly in the capital markets...This is exactly what happened in Japan [In the 1980's]."

An analysis of the Japanese money supply and CPI during this time frame reveals the following trend appears supporting the claim made by Yoshio Suzuki regarding money supply and inflation during the 1980s in Japan.

Japanese Money Supply vs CPI 1980-1989

If we define inflation so narrowly as to only be a general increase in prices, then anything that increases prices can be called inflationary. A natural disaster, a decrease in unemployment, or increases in wages could be viewed as inflationary. This narrow definition further complicates matters because no longer is inflation the result of fractional-reserve banking and the central bank, but instead, is some amorphous loosely defined straw man known as "price increases".

I agree that there is confusion on the matter of inflation. However, it does not come as a result from the quoted referenced above. As Mises notes:

"But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it."

By improperly defining inflation, we are powerless to stop what makes it so harmful. How can we objectively say that the monetary policy that the Federal Reserve has undertaken since 2008 is dangerous, if we only define an expansive monetary policy as dangerous if it results in an increase in prices greater than 2% per year? What word or concept do we use to identify dangerous monetary expansions that don't immediately increase prices?

At the end of the day, we may just have to agree to disagree. I have a feeling that I will not be able to change your mind, and you will not be able to change mine. I do however value your (JK's and EE's) opinions on the matter as it forces me to really focus on and defend my positions.

Posted by: Bryan at March 15, 2012 12:09 PM

March 4, 2012

Disinflationary

Pity poor brother jg. Any other right-leaning blog would hop on his "Stealthflation" bandwagon and give him a heroic ride to the store to purchase overpriced commodities. Yet he encounters extreme obstinacy at ThreeSources. Has he a new ally in brother Bryan? Time will tell.

Milton Friedman said "Inflation is always and everywhere a monetary phenomenon" and argued for a rules-based "computer" FOMC. I would happily buy into that.

But if anybody is going to use a "basket of goods" deflator, they have to account for disinflationary forces. Insty links to an Arnold Kling excerpt from the book Abundance (which I just bought).

Twenty years ago, most well-off US citizens owned a camera, a video camera, a CD player, a stereo, a video game console, a cell phone, a watch, an alarm clock, a set of encyclopedias, a world atlas, a Thomas Guide, and a whole bunch of other assets that easily add up to more than $10,000. All of which come standard on today's smart phones...that's how quickly $10,000 worth of expenses can vanish.

I suggest that ten grand buys a few tortillas, and that corn prices are affected almost as much by ethanol mandates and subsidies as monetary policy.

Posted by John Kranz at 11:14 AM | Comments (11)
But johngalt thinks:

Enjoying the back-and-forth, and wanted to invite you to explain the economist jargon, like PCE, at least briefly. Then we lowly engineers can try to keep up. For the record, I fully agree with EE's analysis above.

While we wait for the next installment I'll insert my layman's view of inflation. The monetary inflation effects I worry about are dilution of value of saved wealth and the uncertainty of the future value of goods, both of which EE mentioned. However, my wrath is directed not at inflation per se, but high inflation that creates many times more and many times larger problems than does moderate (less than 2%) inflation.

A still greater negative consequence is monetary inflation's role in boom/bust cycles, such as it is. (And that will take an expert to explain.)

Posted by: johngalt at March 6, 2012 12:47 PM
But jk thinks:

Austrian Business Cycle Theory is clear on the effects of infla --

NUDE PICS OF OUR MRS. REYNOLDS?? (SFW, one level of indirection)

Sorry guys, blog law dictates that all monetary policy arguments must include at least a vague or comical reference to celebrity photos as a precaution against losing viewers.

Posted by: jk at March 6, 2012 2:50 PM
But jk thinks:

And if you read the linked post instead of just looking for the links, there is a poignant discussion of property rights:

The moral dilemma here is that these photos are not just stolen property. They represent the theft of a future revenue stream. Like everything else in a famous person's life, from tweets to party appearances, the nude photo can be monetized and by looking at them we are devaluing an asset belonging to someone else.

In the open market nude photographs can fetch up to $1 million if they retain the cache of novelty and are properly distributed. Each time we view one of these leaked or hacked photographs we are contributing to the decline in value of a potential future asset. The individual leaking the photos is exploiting a possible future revenue stream for the celebrity without their permission. Because a market exists for nudity, the leak is akin to someone stealing and releasing an early copy of a musician's single.

Plus, I don't think the link is there. Ah, well, back to work.

Posted by: jk at March 6, 2012 2:55 PM
But Bryan thinks:

I am also enjoying the discussion!

@ Mr. Galt here is a brief explanation of the PCE. Specifically the CPCE is the index that does not include energy and food.

http://en.wikipedia.org/wiki/Personal_consumption_expenditures_price_index

The more I have looked into my position on the matter, the more I realize that it warrants its own post. I will be working on a post regarding inflation and how it is measured and will try to post it by the end of the week.

Posted by: Bryan at March 6, 2012 2:55 PM
But Bryan thinks:

I've loved her since Firefly...:)

Posted by: Bryan at March 6, 2012 2:58 PM
But jk thinks:

Toldja he was a great find!

Firefly is something of a religion 'round these parts... I confess I have not seem her big hit new show, but I'm happy it has launched her.

Posted by: jk at March 6, 2012 3:06 PM

March 2, 2012

JimiP and the Jacket

(James Pethokoukis and Nick Gillespie on their drivers' licences.) One of my favorite Kudlow guests and blogger makes it to Reason.tv.

Posted by John Kranz at 11:14 AM | Comments (0)

February 29, 2012

Stealthflation to hit 15% by 2014?

I've said it a few times since August and been chastened for it, but this time it comes from the pen of an actual economist. UConn's Steven R. Cunningham writes in IBD, The Fed's Anti-Recession Effort May Unleash 15% Inflation

For about a decade before the autumn of 2008, when the U.S. economy tanked, the multiplier stood steady at the 8-to-9 range. That means every new dollar in the monetary base resulted in an $8 to $9 increase in the money supply. After the financial meltdown, bank lending dried up and the multiplier fell roughly to the 3.5-to-4 level.

At the same time, the Fed made a decision to ensure liquidity for transactions in order to encourage the recovery. To do so, it boosted the monetary base through the expansion of bank reserves and currency, at whichever rate was required to keep M2 expanding at around the same rate it had been. Between October 2008 and December 2011, the Fed expanded the base by $1.45 trillion, more than doubling the base to nearly $2.6 trillion.

The problem is that as the recovery progresses, the multiplier will move back toward normal levels, and the money supply will expand. Because of this, inflation could increase significantly beyond the 7.2% projected from 2011 data.

Fed Chairman Ben Bernanke says the Fed is working on methods to drain the excess reserves from the system and lessen the risks of high inflation. But there are reasons to doubt the Fed's ability to do so.

Maybe if some huge national emergency were to materialize, prompting the spending of those reserves "in the national interest." A war, perhaps.

Cunningham's conclusion is less ambiguous:

Despite the many uncertainties, one fact remains: An enormous wall of money has built up in the banking system. If it finds its way into the general economy at pre-recession rates, the United States is in for quite a ride.
Posted by JohnGalt at 3:22 PM | Comments (4)
But EE thinks:

What's the standard error on that 2 year forecast? Regardless of what one believes about inflation, there are simply too many variables and too much time between now and then to make any meaningful predictions.

Posted by: EE at February 29, 2012 6:56 PM
But jk thinks:

I don't know which ThreeSourcers are on record saying there will never be inflation; the FOMC is certainly playing with fire. I'm just not sold on stealthflation. In spite of the cool name, I disagree that severe inflation is already here and just not accounted for in the Core PCE defaltor.

Stay stealthy, my friend. Else they'll kick me outta the Ron Paul club.

Posted by: jk at February 29, 2012 7:16 PM
But johngalt thinks:

CPI: 3.1 percent

American Institute for Economic Research's EPI: 8 percent.

Causes notwithstanding, the dollar buys less than CPI says it does.

Posted by: johngalt at March 1, 2012 12:38 PM
But EE thinks:

JG,

Did you read the article? It says at the bottom of the article that this really isn't a representative sample of what people actually purchase. It is meant to be provocative -- just like the study that will come out next week about lower productivity due to March Madness.

Along with Barry Ritholtz, I used to make fun of "inflation ex inflation" where somebody would dispel fears of rising inflation by saying, "if we remove...then inflation really isn't that bad." I used to make fun of this by saying that "if we remove the rising prices, there is no inflation." However, this isn't one of those times. Inflation is low.

Do excess reserves pose a threat? Perhaps, but not at the present.

By the way, the CPI thinks housing prices have risen. So that means that it overstates inflation.

Posted by: EE at March 2, 2012 1:33 PM

Krugman Curve

We all know the Laffer Curve. James Pethokoukis introduces us to its intellectual adversary: The Krugman Curve!
Posted by John Kranz at 1:05 PM | Comments (1)
But johngalt thinks:

It just naturally slants to the left.

Posted by: johngalt at February 29, 2012 3:20 PM

February 24, 2012

Is it April First Already?

Economic insight and analysis from The Wall Street Journal. That's a prestigious subhead for you. Clearly the "Real Time Economics Blog" is probably a serious force in the spread of Free Markets, Free People and...oh dear.

Economists Argue Government Should Boost House Rental Stock

As they see it, assisting investors to buy the unoccupied and distressed supply of housing is a win for all concerned. They recommend the government offer "bulk" financing to investors, and support a relaxation of lending restrictions currently put in place by Fannie Mae and Freddie Mac.

"Most investor buyers are currently paying cash and very few have government sponsored funding," while a lot of the easiest to convert housing has already most likely been bought up. The government could help get the rest of this housing inventory back into play.

Fixing the rental situation aids those displaced by events. Because of the collapse of housing, the paper sees a "seismic population shift" away from owning to renting, and adds ongoing home foreclosures could put 7.5 million more families out of their home, and create between five and six million more renters.

As it now stands, "the housing stock is not prepared for this flow of renters," the paper said. Given the current housing landscape and the level of new construction, there currently is very little capacity to deal with the new flow of prospective renters.


Where does one start? I know the news pages lean left and I cannot hold Paul Gigot responsible, but what drivel!

If 7.5 million families are kicked out of their homes, math dictates that there should be somewhere around . . . let's see, divide by seven, carry the one . . . oh, roughly 7.5 million empty homes available to rent (I'll check my figures later).

Of course, this could never reify without Fannie and Freddie relaxing standards ("What," I hear a Tennessee law prof whispering, "could possibly go wrong?") and brings to mind my favorite free market rant: "How are we going to get shoes for all these people???? We'll need different colors and sizes, and each will need a left and a right, and some will need laces! 'Economists Argue Government Should Boost Shoe Production'"

One wonders, further, if those "Economists" ever encountered the idea of unintended consequences. If this keeps the market from clearing (as it is 99.5% likely to do), it will hurt the chances of investors buying up houses to rent.

It sounds like a great plan to create a housing shortage while 7.5 million homes lie empty. Another day's work for gub'mint man!

Posted by John Kranz at 3:03 PM | Comments (1)
But johngalt thinks:

There is only one good way to respond to this: In song.

A Red Solo Cup is cheap and disposable,

In fourteen years they are decomposable,

And unlike my house they are not foreclosable,

Freddie Mac can kiss my a**.

Posted by: johngalt at February 26, 2012 10:02 PM

Guitarnomics

The musical instrument trade is great for considering economic principles. You can explain price, scarcity, supply and demand. Moving on you can consider currency risk and arbitrage. I made a mental exercise in my (brief) student days to translate all the principles to guitars.

I bought this jewel for $1200, which is the bottom end for the Les Paul model. There are a few reasons why, but the ostensible reason was to allow Gibson to get rid of some wood that had cosmetic flaws from the 2010 Nashville flood. The high end models would select the most cosmetically pleasing wood and use a translucent finish to show it off. The archtop jazz guitars that are my true weakness vary by thousands of dollars depending on the finish color -- and the finish color is defined by the quality of the wood. A natural Super 400 would be $10K-ish, but the lowly Wine Red one that I had saved about $4K.

To protect this important input investment, the good folks at Gibson spend quite a bit of money controlling humidity, temperature, and everything short of 100 year floods and US Fish and Game SWAT raids.

Anybody thinking the government is taking good care of the wood in their custody? Six months, no charges, a half million dollars worth.

Citizens or subjects?

Posted by John Kranz at 9:28 AM | Comments (0)

February 20, 2012

THAT'S DISGUSTING!

Amazing that they are allowed to publish this smut:

Hat-tip @jamestaranto

Posted by John Kranz at 4:47 PM | Comments (6)
But johngalt thinks:

Alright, I've put up with every sort of affront to deceny to which these pages have subjected me and our other dear readers. This is crossing the line. Of all the things you could have linked in that magazine, you chose ... Paul Krugman. Sickening. And pictures too? Right out there in the open, without even burying them in "continue reading?" You should be ashamed.

Now that I've seen this I must read three chapters of Atlas Shrugged and repeat twenty times: "Without money the only means men would have of dealing with each other is force."

Posted by: johngalt at February 20, 2012 5:48 PM
But Keith Arnold thinks:

Just be grateful that Krugman ain't Miss February.

I'm sure that Krugman is there SOLELY for all those guys who swear they only get that magazine for them articles.

Posted by: Keith Arnold at February 20, 2012 6:10 PM
But johngalt thinks:

Talk about corruption of the mind. This is it, brother.

Posted by: johngalt at February 20, 2012 6:45 PM
But jk thinks:

In spirit of atonement, I offer a link to the superb Who Is That Hot Ad Girl? I can pretty much guarantee a Krugman-free zone at WITHAG.

Posted by: jk at February 21, 2012 12:40 PM
But jk thinks:

Safe to say, nobody reads Who Is That Hot Ad Girl? for the articles, though the prose style is quite entertaining.

Posted by: jk at February 21, 2012 12:42 PM
But hb thinks:

Nsfw

Posted by: hb at February 21, 2012 7:45 PM

February 14, 2012

Greece

Micro review corner: "My Life in Ruins" is a Chick Flick romantic comedy that is enjoyable across genders. Screenplay by and starring Nia Vardalos (of Big Fat Greek Wedding fame), it has some superb performances and good pacing. Vardalos plays an American who returns to Greece and does not immediately appreciate its Old World charms. Quoting from memory: "Greece led the world in art, athletics and philosophy. We invented Democracy and Science! Then, we discovered 'the nap...'"

Today's bloggers' coffee klatch discussed the woes in Greece and whether enough Americans see the riots and fires as our potential future. The WSJ Ed Page lays it out well: What happens to countries that choose economic decline

To top it off, the technocrats in Brussels and at the IMF have misdiagnosed the crisis from the beginning. First, they thought Athens had a liquidity problem that could be eased by large infusions of loans, rather than a fundamental solvency problem. Second, they believed that what Athens needed most was a balanced budget and a smaller debt load, to be solved arithmetically with less spending and higher taxes. But Greece's real problem is the lack of economic growth, itself a product of policies that discourage private enterprise. That's why Greece ranks 100th on the World Bank's most recent rankings of "ease of doing business"--right behind Yemen.

In other words, the fires in Athens are the result of the combustible mix of a desiccated welfare state and the burning embers of Keynes's cigarette. Don't expect those fires to be put out by this latest round of austerity. In theory, Athens has agreed to carve €3.3 billion out of this year's budget (including €300 million out of pensions), slash the minimum wage by 22%, and eliminate 150,000 government jobs by 2015.


The piece ends "The larger question is whether the rest of Europe and America will learn from Greece's chaos before they experience the same fate. " To which we all agreed this morning that the investment advice of the day was to "go long European Tear Gas."

Posted by John Kranz at 12:59 PM | Comments (2)
But Boulder Refugee thinks:

European tear gas... is that the stuff that hooks to the left when you throw it and disperses its contents with a Gallic hiss?

Posted by: Boulder Refugee at February 14, 2012 3:11 PM
But johngalt thinks:

"...combustible mix of a desiccated welfare state and the burning embers of Keynes's cigarette."

A poetic description of the wages of demanding, and granting, the unearned.

Posted by: johngalt at February 14, 2012 7:41 PM

February 8, 2012

2,000 Words on the Buffett Rule

c/o James Pethokoukis:


That's right, Buffett and Obama failed to mention the double tax on his income and how he chose to leave most of his massive fortune to charity, the Bill & Melinda Gates Foundation, and avoid estate taxes. And the Buffett rule is somehow supposed to help create an economy that's "built to last"? Not if this new economy is built on a foundation of demagoguery and deception.

Posted by John Kranz at 1:59 PM | Comments (0)

January 27, 2012

Bambi-nomics

Better throw a bone to Brother jg; I have been pretty harsh of late.

Here's a great piece in AEI's The American on Bambi-nomics, where Robert McHenry fleshes out a jg theme -- this time with maggots!

Businesses that do what Bain does are sensitive about the common analogy comparing them to scavenger species in nature. In large part this is owing to how we are trained from childhood to think of nature in terms of postcard vistas, pettable furry things with large eyes, and the romantic notion of some sort of sweetly cooperative community of creatures. We tend not to teach children about vultures, fungi, slime molds, or maggots. More importantly, we do not teach them why such things are every bit as important to the ecology as Bambi. Without them, the world would soon be tree-deep in corpses, large and small, and life would become impossible. With them, the soil is constantly enriched with recycled nutrients, and life continues abundant. But this kind of comparison clearly doesn't help Bain's image very much.

Posted by John Kranz at 2:13 PM | Comments (1)
But johngalt thinks:

Feelin' the love! Thanks bro. But fortunately, a password isn't needed for a sneak-attack in the comments. :)

I also liked this passage:

Imagine that the world consists of just you and me, and that you have $10 and I have $12. After some time, during which various things happen, you have $11 and I have $379,842. We are both better off, and our average wealth has increased enormously, and yet you are noticeably ungrateful. Surly, even. This is why Romney is presently in the hot seat.

I will award or withold my endorsement of this scenario depending on the nature of those "various things." Verily, McHenry even mentions me (and brother PE) almost by name in the succeeding paragraph:

Ignoring the disruption at the human scale that flows from the creative destruction so celebrated by economic enthusiasts is certainly possible, just as it is possible to pretend that jackals and hyenas aren't really part of dear Mother Nature's realm. Strident Austrian or Randian pundits do it all the time, comfortable in the knowledge that, unlike a worker in an auto plant or a textile mill, their own skills are conveniently portable.

And workers with non-portable skills can learn new skills, but I'll not abide the need to retrain oil-field workers when their industry is harmed by enviro-regulation and wind/solar subsidization - two classic examples of crony capitalism - rather than free-market evolution. And neither should Bill Moyers.

Posted by: johngalt at January 27, 2012 3:01 PM

January 26, 2012

Corporations are not people!

After watching a large part of this David Stockman interview with Bill Moyers I'm about ready to adopt the dirty hippies #Occupy meme. When they villified "Wall Street" and "Greedy Corporations" I always had a mental image of Fidelity Investments and WalMart. But if I replace that with Goldman Sachs and General Electric I think we would agree on more than we differ.

This also magnifies my distrust of the GOP establishment and, by association, the Romney candidacy.

David Stockman on Crony Capitalism from BillMoyers.com on Vimeo.

Posted by JohnGalt at 1:15 AM | Comments (12)
But jk thinks:

Made it through. Clearly I'm going to have to change brother jg's password. It's one thing to hack somebody's account for personal gain, but this character assassination borders on libel.

Okay, he doesn't like Jeff Immelt -- thus 50% as reliable as a broken clock.

What what what did you like? A constitutional amendment to keep corporate money out of politics -- a $100 limit on contributions? Government dictating the size, structure, and allowed transactions of banks (my largest disagreement with Gov Huntsman)? Or did you just dig the repudiation of Reagan's economic vision?

If I may quote In Living Color's "Men on Film" segement: "hated it!"

Posted by: jk at January 26, 2012 6:04 PM
But johngalt thinks:

If memory serves, I came in at about 21:30 when I switched on PBS last night. Anything before that I'll defer to a future debate.

I liked the expose of GE's bailout and how it should have been done through a dilution of shareholder value and not by a FED bailout.

I liked the assertion, "Free markets are not free. They've been bought and paid for by large financial institutions."

I liked the identification of the "entitled class" of "Wall Street financiers and corporate CEOs" who "believe the government is there to do whatever is necessary ... whatever it takes to keep the game going and their stock price moving upward."

And most of all, I appreciated Stockman's correction that "it is important to put the word crony capitalism on there, because free-market capitalism is a different thing. True free-market capitalists never go to Washington with their hand out. True free-market capitalists running a bank do not expect that whenever they make a mistake or whenever they get themselves too leveraged, or they end up with too many risky assets that don't work out, they don't expect to be able to go to the Federal Reserve and get some cheap or free money and go on as before. They expect consequences, maybe even failure of their firm. Certainly loss of their bonuses, maybe loss of their jobs. So we don't have free-market capitalism left in this country anymore, we have everyone believing that if they can hire the right lobbyists, raise enough political action committee money, spend enough time prowling the halls of the Senate and the House and the office buildings arguing for the benefit of their narrow parochial interests then that is the way things will work out. That's crony capitalism and it's very dangerous. It seems to be becoming more embedded in our system."

What's not to like with any of this? We can argue about causes and solutions, but can we agree on this particular problem?

Posted by: johngalt at January 26, 2012 7:40 PM
But Boulder Refugee thinks:

The Refugee listened to all 34 scintillating minutes and can't quite see what sent JK 'round the bend. Yes, Moyers is an insufferable nincompoop, but we knew that going in. The irony, of course, is that the far left and the fiscal right have finally found common ground in deploring crony capitalism.

The most objectionable part of Stockman's comments was his assertion that we need to change the First Amendment to deny corporations the right to lobby and give political contributions. (Why corporations should be muzzled but not unions or enviros remains a mystery.) Nevertheless, his comments against crony capitalism and in support of pure capitalism seemed to make a lot of sense.

Posted by: Boulder Refugee at January 26, 2012 9:55 PM
But jk thinks:

Well, at least our ratings are up. I got an email from a good friend of the blog who is enjoying this argument very much.

You know, brothers, Governor Howard Dean doesn't like bailouts and crony capitalism either. I'm sure I can find a clip of his discussing it with Katrina Vanden Heuvel and Rachel Maddow. I'll post it and we'll all agree how very swell it is.

I do not trust either of these men. Both have done extreme damage to this great nation and our concept of liberty and personal achievement. Just because we all agree Jeff Immelt is a dickhead, I am not going to embrace them.

When Stockman longs for the Republican Party of his youth, he is longing for Eisenhower and Ford. Moyers, of course, never came to grips with the idea of a Democrat Party without LBJ.

"Free markets aren't really free" does sound like ThreeSources and I'm sure he'd like to sell us each a copy of his book. But when it comes from a guy who wants to dictate banks' size and business practice, propose extreme campaign finance rules, and has an, ahem, history of government expansion -- I do not accept that he is now calling for lasseiz faire.

Posted by: jk at January 27, 2012 10:47 AM
But johngalt thinks:

I must say my first reaction to this recording was one of excitement over the fact that it could lead to a bridge between left and right so wide and so strong as to absolutely overpower the entrenched crony establishment with a popular laissez-faire revolution. After a second viewing I remain hopeful, and as long as my password continues to function I will strive to advance the topic. (Yes, I know yer just joking about yanking it.)

Let me ask that we seek a point of agreement before we debate whether Stockman is the GOP antichrist or Phil Gramm precipitated TARP. I'm sure we're all on board with "crony capitalism is very dangerous" so how about, this:

When the net worth of a collection of six financial services conglomerations and their six boards of directors approaches the annual GDP of the entire United States private sector, and the members of those boards of directors have unprecedented influence throughout the depth and breadth of the federal government, our principled free-speech rules may no longer be sufficient for preventing this "entitled class" from manipulating the government for their own narrow interests to the detriment of individual liberty and property, particularly in a mixed economic system with fiat currency.

In my youth, "Ma Bell" was deemed "too big" and was broken up. Today, "Wall Street" is deemed "too big to fail" and is instead propped up - by devaluing the net worth of every dollar-denominated individual. Cui bono?

Posted by: johngalt at January 27, 2012 12:44 PM
But Boulder Refugee thinks:

While The Bad Guys and Three Sourcers can agree that crony capitalism is bad, our reasons for believing so are very different. The Bad Guys view capitalism, in toto, as undesireable. Thus, anything that props it up in any form is a bad thing. Three Sourcers, on the other hand, view crony capitalism as a misuse of taxpayer funds, misallocation of resources and questionable ethics. Because The Bad Guys believe that all things good emanate from the government, when crony capitalism falls capitalism will fall with it. Three Sourcers believe the opposite, and that a lack of crony capitalism will lead to better allocation of resources and therefore economic expansion. Thus, we are willing to accept this deal with The Bad Guys (all other things being equal).

We don't have to embrace them, we just have to outmaneuver them.

Posted by: Boulder Refugee at January 27, 2012 12:46 PM

January 25, 2012

Jobs vs. Environment

Thousands of loggers lost their jobs in the American Northwest because of dubious claims about wiping out the last of the spotted owls. This is just one example of environmental extremists' non-linear cost benefit analysis doing irreparable harm to the livelihoods of American workers.

The latest glaring example of this is TransCanada Corporation's Keystone XL Pipeline project. Despite the safety record showing pipelines to be the "safest, most efficient and economical way" to move the natural resource called crude oil, environmental activists have chosen spill hazards as the primary reason to oppose private construction of the new pipeline. But America is already criss-crossed by 55,000 miles of oil pipelines, many of which are small, old and in disrepair. And the spill rate [pg. 9] for those lines is 0.00109 incidents (spill of 50 bbl or more) per mile per year. That calculates to 60 spills every year. The estimated spill rate for the modern new Keystone XL [pg. 10] is 0.186 spills per year, anywhere over its entire 1371 mile length. (.000136 incidents per mile per year)

So the question every American voter should ask himself is, would I quit my job and ask 19,999 of my neighbors to quit theirs in order to avoid increasing the pipeline spill incident rate by 0.3 percent? (And have you even noticed any of the sixty-odd spills that already happen each year?)

Posted by JohnGalt at 2:57 PM | Comments (1)
But J thinks:

"Sometimes people hold a core belief that is very strong. When they are presented with evidence that works against that belief, the new evidence cannot be accepted. It would create a feeling that is extremely uncomfortable called cognitive dissonance. And because it is so important to protect the core belief, they will rationalize, ignore and even deny anything that doesn't fit in with the core belief. - Frantz Fanon

Three Sources should consider re-branding to "Three Sources of Cognitive Dissonance" ;-) Rationalize, ignore and deny anything that does not fit within your core beliefs. Spotted owls, fracking, deforestation, pollution, environmental degradation and job loss included. Cheers! ;-)

Posted by: J at August 8, 2012 5:22 PM

January 18, 2012

Occupy: Mission Accomplished!

I'm considering instigating a Facebook fight. I haven't really started one in a long while, and Megan McArdle's piece on New York would be an excellent foundation.

Shorter McArdle: You won! Income equality is waaay down in New York.

After a disappointing year, the big banks are pulling back on their bonus pools. A lot. This is going to be hard on bankers whose salaries are usually a very small part of their overall compensation--and yes, yes, before you drag out the world's smallest violin, let me agree that they have no entitlement to anything more. Nonetheless, people tend to build their life around their expected salaries, and in New York, this choice is particularly important. You not only acquire a large mortgage that's often difficult to unload quickly (closings in New York take months at minimum, longer if it's a co-op), but also things like enormous school fees, higher food costs, and so forth.

So, those fat, greedy bankers have finally got what's coming to them. And they won't have money to spend on, um, schools and restaurants and museums and tips and taxes and things.

Income equality is on its way to Gotham. Woot!

Could the creatives pay the bills if Wall Street stopped? New York's bills are very hefty; about one in three people in the city (and one in five in the state) are on Medicaid, with the city paying half of that; the MTA has an operating budget of over $11 billion a year; and the city's annual pension bill runs about $7 billion. New York's generous social services are what nearly bankrupted the city in the 1970s, until they finally found an industry that would just pay hefty taxes instead of moving south and west.

Raising that money from the creatives means, among other things, raising money from the less affluent--people who are less able to shrug off a tax increase as the cost of living in the Big Apple. Creatives may also be a bit more mobile than folks who needed--until the last decade, anyway--proximity to a trading floor.


I recall Ms. McArdle has her detractors around ThreeSources. But, Facebook friends, this is an Obama supporter whose mentor is Professor Austan Goolsbee, President Obama's economic architect. And it's in The Atlantic, not AEI's American or the WSJ Ed Page or FOX News.

Income equality suddenly looks less like Steinbeck and more like Mad Max.

Posted by John Kranz at 11:48 AM | Comments (0)

January 12, 2012

Newt Gingrich meets Michael Moore

Fortune Magazine editor Dan Primack reviews the new "Winning Our Future" PAC smearomercial about Mitt Romney and Bain Capital. He says, "The 'Bain Bomb' is full of wet fuses."

We've been keeping regular track of claims made about Mitt Romney's business history over at our Mitt Meter, but today's video "documentary" from the Gingrich-affiliated Winning Our Future PAC requires its own post. The ominous music, deep-voiced narrator and tails of worker woe were all to be expected. But I also thought that the video would get most of its basic facts correct (and then cover them in innuendo). I was wrong.

Gotta admire Newt's tenacity and dedication to political victory but objectivity, fairness and free market fundamentals obviously escape him.

Posted by JohnGalt at 3:10 PM | Comments (3)
But jk thinks:

Stephen Moore (who called himself a "libertarian" and came out for legalized marijuana on Kudlow last night) sez:

The buzz is getting stronger that GOP presidential candidate Newt Gingrich will pull back on his planned $3 million ad campaign that accuses rival Mitt Romney of "looting" companies and ruining workers' lives when he headed Bain Capital.

One can only hope.

Posted by: jk at January 12, 2012 3:25 PM
But Keith Arnold thinks:

"... came out for legalized marijuana..."

"'The buzz is getting stronger...'"

You just can't write that kind of straight line. Precisely how buzzed?

Posted by: Keith Arnold at January 12, 2012 7:43 PM
But jk thinks:


If Stephen Moore is suggesting legalization for reasons of his own personal use, I might join with the ThreeSources Drug War crowd and oppose.

It was actually an interesting segment, where Robert Reich suggests Ron Paul followers are dirty hippies and not Austrian Economists.

Posted by: jk at January 12, 2012 8:02 PM

January 4, 2012

Quote of the Day

What's great about this country is that America started the tradition where the richest consumers buy essentially the same things as the poorest. You can be watching TV and see Coca-Cola, and you know that the president drinks Coke, Liz Taylor drinks Coke, and just think, you can drink Coke, too. A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking. All the Cokes are the same and all the Cokes are good. Liz Taylor knows it, the president knows it, the bum knows it, and you know it. -- Andy Warhol
Warhol published his journal many years back. I recommend it highly.
Posted by John Kranz at 4:30 PM | Comments (1)
But johngalt thinks:

I saw a Chevy Volt driving down Hover Street in Longmont this week, with a private license plate. (First I've ever seen.) The driver seemed rather self-conscious, looking back at me when I peered in to see what kind of person drives a Chevy Volt. A - Middle-aged white guy.

Posted by: johngalt at January 5, 2012 2:32 PM

January 3, 2012

Schumpterian Gales

July 24, 2003: jk writes about Kodak.

I was reading a story of job layoffs at Kodak when the title of this column came to me. Some nine thousand in the film and film processing division will be let go this month. I feel sad for the people and have a certain empathy as it has been 18 months since I have had a regular paycheck. Politics and Economics both require a certain cold rationality that does not come naturally to me. Liberals will be in business for many years.

At the same time, this article, in the Wall Street Journal no less, read as if this were ample evidence that the slowdown is still in force. It is quite obviously a sign of wealth creation and economic vitality. Quick. Grab a 3 x 5" white index card with no lines on at least one side and a fine point marker and a ruler - got it? Great. Chart your film purchases over the last decade. The x-axis is time and the y-axis is the amount of film you bought that year. The area under the curve is your total film purchases in the last ten years and the slope of that line is why Kodak is releasing 9000 workers.


January 3, 2012: Kodak is threatened with de-listing off the NYSE.
Kodak last closed above $1 on Dec. 7. A year ago, it was around $5.85.

Kodak has six months to fix the below-a-buck situation, although with directors jumping ship -- three over the past two weeks -- it's hard to have much confidence in the struggling photography icon.

Posted by John Kranz at 4:50 PM | Comments (0)

December 30, 2011

Embracing Schumpeter

James Pethokoukis tweeted yesterday "@JimPethokoukis For 2012, I think GOPers need to think more about Schumpeter than Hayek."

Last night on The Kudlow Report, Larry had a friendly interview with Senator Rick Santorum. At the very end, Larry blasts him (deservedly) for his 0% manufacturing tax. Senator Santorum was pretty bummed that he did not have time to respond, but the panel, which included Jimi P, established that "real supply side economics" means to get rid of cutouts and let the market decide.

Pethokoukis develops the theme further on the AEI blog today.

But two other elements are also necessary. First, America must remain open to the change and Schumpeterian creative destruction that innovation brings and not try to stifle it through regulation, crony capitalism, and anti-competitive trade barriers. Second, America needs to improve its supply of human capital so, as economist Joel Mokyr puts it, there is a "cadre of ingenious and resourceful innovators who are both willing and able to challenge their physical environment for their own improvement."

This "cadre" can be both imported from overseas (via more high-skilled immigration) and developed at home (through an education system that better cultivates and challenges high-ability individuals). Education reform, in particular, should be the next great battleground for supply-siders. And just as the supply-side tax revolution started at the state level with California's Proposition 13 in 1978, supply-side education reform is starting local, too, in Wisconsin and New Jersey as republican governors there battle government teachers unions. This is going to be one my big policy themes for 2012, and hopefully I won't be alone.

Sadly, Schumpeter will be a harder sell to voters than Laffer. "Good economics dictates that I lower your taxes" is a winning message; "good economics dictates that I let your plant close"...not...so...much.

Posted by John Kranz at 11:57 AM | Comments (1)
But johngalt thinks:

You could try reminding them how South Carolina textile mills were replaced by Toyota and BMW plants. Where would you rather work?

Posted by: johngalt at December 30, 2011 12:53 PM

December 21, 2011

The Risk-On Trade II

One must collect and enumerate one's investments and assets before the new year.

I have a Starbucks gift card with $2.17 on it, some change in the ash tray, and a bet I plan to collect on next August.

After gold got hammered, I got to wondering whether I could find the details of an internecine ThreeSources wager and its status. I found it and am glad to report that I'm looking good (like I'd post an incremental update t'were I losing!)

To recap, Brother jg and I placed virtual $100 bets on August 27, 2011. He whose is worth more on August 27, 2012 will be drinking on the other's tab:

JG: GLD 0.578 * 157.16 = $ 90.84
JK: SPY 0.862 * 124.17 + $ 107.03

Posted by John Kranz at 6:24 PM | Comments (4)
But johngalt thinks:

Buy high, sell ... err ... well, I'm not sellin' yet. Still got my fingers crossed for a Euro collapse to send those GLD shares soarin'!

(And I'm pleased, as much as I consider myself an optimist, that b. brother JK is more so.)

Posted by: johngalt at December 22, 2011 11:29 AM
But jk thinks:

Chins up, Jimi P and Mohamed A. El-Erian have a less-than-rosy outlook: Is this as good as it gets? 2012 could see big downshift for U.S. economy

Posted by: jk at December 22, 2011 1:14 PM
But Keith Arnold thinks:

Friends, it's never too late to invest in precious metals. And by "precious metals," I mean lead.

I note that there are exactly two industries in America that are having an upswing in retail sales: McDonald's and gun shops. McDonald's' new-found profit may well be spite buying as a response to the First Klingon's pronouncements; on firearms, draw your own conclusions, but my take is that if your wish-list of stocking stuffers includes "ammo" at any point, it's no longer a sign that you might be a redneck.

Posted by: Keith Arnold at December 22, 2011 1:50 PM
But jk thinks:

Mondo heh! But don't forget the 100W light bulb. I fully expect to use them as currency in a post Obama dystopia.

Posted by: jk at December 22, 2011 2:04 PM

December 19, 2011

I Hired Greg Mankiw to Write my Blog Post

No, not really. But that was an awesome headline, huh?

I wanted to write a devastating takedown of Yoram Bauman's evil NYTimes article. Bauman is the very humorous "Stand Up Economist" whose work has graced these pages. I've drawn some cold air around my molars at some of the political/philosophical positions in his comedy routines, but they are funny and smart, so I enjoy them as one might enjoy NPR.

Bauman proves that economists are greedy bastards, because -- and here I must borrow heavily from @ModeledBehavior 's 140 character takedown -- "Students are 'free riding' by not donating to left wing interest groups?"

That's the gist of it. It is pure tommyrot, wrapped in a bow and presented as data. I was determined to show my beloved ThreeSourcers its folly. Thankfully, Professor N. Gregory Mankiw of Harvard beat me to the punch:

Yet I am not persuaded by the evidence he gives that economics classes are failing to do that. Maybe, having heard both sides of the story, the students make better decisions, just not the ones that Yoram appears to approve of! Perhaps the students were persuaded by this famous insight: "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

And no, that is not Gordon Gekko.


Posted by John Kranz at 12:43 PM | Comments (0)

December 6, 2011

Quote of the Day

If Congress raises top tax rates on capital gains and dividends, the highest income earners would report less income from capital gains and dividends and hold more tax-exempt bonds. Such tax policies would reduce the share of reported income of the top earners almost as effectively as the recession the policies would likely provoke. The top 1% would then pay a much smaller portion of federal income taxes, just as they did in 1979. And the other 99% would pay more. As the CBO found, "the federal income tax was notably more progressive in 2007 than in 1979." -- Alan Reynolds
Posted by John Kranz at 11:36 AM | Comments (0)

December 5, 2011

Harold & Kumar Recession

I'm a huge H&K fan. While I have not seen the latest, I love the allusion. I hope young people listen to the Forbes writer and not the interviewer. (Hat-tip: Insty)

Posted by John Kranz at 10:41 AM | Comments (0)

November 28, 2011

Trickle Down from Ten-feet-six

I hate the disparaging term "Trickle Down Economics." Those who would use that fail to understand economics at all. It is not the leftovers of the rich that the poor get in a free market, it is the chance at all of it.

And yet I found myself ready to embrace it this weekend. Two different moronic, anti-business, local teevee news stations both portrayed the NBA walkout resolution in terms of its positive effects on small local businesses. Wait staff had been laid off downtown restaurants. Unlicensed vendors who sell snacks and souvenirs outside were ecstatic.

At the end of the day, a bunch of people were going to have jobs because the rich, spoiled brat players' union came to terms with the rich and spoiled owners and agreed to make fistfulls of money together. Plus, some will enjoy watching.

I find myself immune to the game's charms. But I share the exuberance of the economic community that thrives on those who are not.

UPDATE: THE WSJ claims it is a win for the owners. Good, I generally root for capital over labor: "Scrooge, Scrooge, he's our man!..."

The biggest changes will be off the court after owners scored an obvious economic win. The two sides will split the league's $4 billion in annual revenue almost equally, while in previous agreements the players received 57%. On the court, despite systematic changes like reducing contract length and increasing fees for high-spending teams, most think it will be business as usual.

Posted by John Kranz at 4:02 PM | Comments (2)
But Lisa M thinks:

Wait....you mean they still play professional basketball?

Posted by: Lisa M at November 28, 2011 7:34 PM
But jk thinks:

Not in Philly...

Posted by: jk at November 28, 2011 8:24 PM

November 14, 2011

But our Best Minds in Government are Running Things...

James Pethokoukis has two depressing (too depressing?) unemployment charts.

Posted by John Kranz at 11:51 AM | Comments (3)
But johngalt thinks:

I'm guessin' brother Keith thinks this estimate of a 2016 recovery for the Golden State is a rosy scenario he'd be overjoyed with, were it to manifest in reality.

Posted by: johngalt at November 14, 2011 3:18 PM
But Keith Arnold thinks:

The only way California makes a recovery by 2016 is for it to go bankrupt by the middle of 2013 and implode, giving those who survive a mere three years to build something on the ashes.

Posted by: Keith Arnold at November 15, 2011 5:19 PM
But jk thinks:

They have extra special brilliant minds ruinning things in the Golden State: California -- Toxic for Business.

Another troubling sign: California is even losing the battle for green manufacturing jobs. Earlier this year, Bing Energy, a fuel-cell maker, announced that it would relocate from Chino in San Bernardino County to Tallahassee, Fla., where it expected to hire nearly 250 workers. "I just can't imagine any corporation in their right mind would decide to set up in California today," Dean Minardi, Bing's chief financial officer, said.

Posted by: jk at November 15, 2011 6:34 PM

November 9, 2011

Comprehensive Review of "Reckless Endangerment"

No luck getting any of my #OWS supporting Facebook friends to dive into Gretchen Morgenstern's "Reckless Endangerment." Can't win 'em all.

But I might get some to plow through this very good review in Reason. I highly recommend reading and sharing it.

Posted by John Kranz at 6:13 PM | Comments (0)

November 7, 2011

"We Can't Wait...

...to pass my jobs bill!" That's the campaign strategy of President Obama in the face of the wascally wepubwicans who refuse to sign on to another government spending "stimulus" escapade. While implying that what we "can't wait" for is the jobs supposedly to be created, what he really can't wait for is the chance to take credit for jobs already growing in the private sector.

Since Republicans took control of the House in January and secured enough votes in the Senate to block big spending bills, the economy has created 1.5 million private-sector jobs, according to the Friday report from the Bureau of Labor Statistics.

That's well above the 1.2 million created in all of 2010, when Democrats ran everything in Washington, and when stimulus money was still pouring into the economy. In fact, if you compare private job growth with stimulus spending, they practically move in opposite directions.

(...)

This might be uncomfortable news for big-spending Keynesians like Obama and liberal economist pals who remain convinced growth depends on never-ending stimulus. But it's an indication that when it comes to job creation, government spending is the problem, not the solution.

Posted by JohnGalt at 2:35 PM | Comments (0)

November 6, 2011

She Can't be Serious

Can she?

Occupy%20Dummy.bmp

Related: Hippie chicks strip for free. (I can't believe I'm pushing Charisma Carpenter off the front page for this.) As a public service: Charisma Carpenter link. Come to think of it, maybe we'll just include that with every "Occupy" post. Sort of an ... innoculation.

Posted by JohnGalt at 10:38 AM | Comments (1)
But jk thinks:

Oh, my.

Not to beat on a theme too badly, but I'm certain the HTG&L Studies sign is a joke. Had she really obtained such a degree, there would be an apostrophe in studie's.

Posted by: jk at November 6, 2011 11:46 AM

October 29, 2011

Occupy Wall Street Shrugs

Robert Tracinski has additional analysis of events such as in the New York Post story JK posted last weekend. In a TIA Daily email he explains how Occupy Wall Street Shrugged.

Over at Occupy Boston, a protester complains, "It's turning into us against them. They come in here and they're looking at it as a way of getting a free meal and a place to crash, which is totally fine, but they don't bring anything to the table at all." Another report concludes with a similar sentiment.
"We have compassion toward everyone. However, we have certain rules and guidelines," said Lauren Digioia, 26, a member of the sanitation committee. "If you're going to come here and get our food, bedding and clothing, have books and medical supplies for no charge, they need to give back," Digioia said. "There's a lot of takers here and they feel entitled."

These people had better watch out. If they start thinking that like this, pretty soon they might find themselves at a Tea Party rally.

"Our" food? What did they do to earn it? Who is it who really feels "entitled?"

Then he refrains a tale he dubs The Spaghetti Bolognese Incident.

The Occupy Wall Street volunteer kitchen staff launched a "counter" revolution yesterdaybecause they're angry about working 18-hour days to provide food for "professional homeless" people and ex-cons masquerading as protesters.

For three days beginning tomorrow, the cooks will serve only brown rice and other Spartan grub instead of the usual menu of organic chicken and vegetables, spaghetti Bolognese, and roasted beet and sheep's-milk-cheese salad.

They will also provide directions to local soup kitchens for the vagrants, criminals and other freeloaders who have been descending on Zuccotti Park in increasing numbers every day.

To show they mean business, the kitchen staff refused to serve any food for two hours yesterday in order to meet with organizers to air their grievances, sources said.

Behind the hypocrisy, there are real lessons to be learned: lessons about the relationship between productive people and freeloaders. About the need for police to protect decent people from criminals. About how con-men and the power-lusters always take over utopian schemes for their own benefit. About the taxing power and unaccountability of central authorities.

The spaghetti Bolognese incident sums it up. The workers who provide the goods everyone else lives off of are going on strike to protest against their exploitation by freeloaders. Has anyone else noticed that this is the basic plot premise of Ayn Rand's Atlas Shrugged? Yet that is the story line they are unintentionally acting out. Call it Occupy Wall Street Shrugged.

Posted by JohnGalt at 4:03 PM | Comments (0)

October 27, 2011

Truth. On Gub'mint TV!

Watch Does U.S. Economic Inequality Have a Good Side? on PBS. See more from PBS NewsHour.

Hat-tip: Insty via the superbly named Coalition of the Swilling

Posted by John Kranz at 2:39 PM | Comments (0)

October 18, 2011

All Hail Pethokoukis!

Jimi P delivers five reasons why income inequality is a myth -- and Occupy Wall Street is wrong. All well and good, and the first four are solidly backed up by economic research and published papers. But his number five is one I always think of, and one I'd love to ask Paul Krugman someday.

5. Set all the numbers aside for a moment. If you've lived through the past four decades, does it really seem like America is no better off today? It doesn't to Jason Furman, the deputy director of Obama's National Economic Council. Here is Furman back in 2006: "Remember when even upper-middle class families worried about staying on a long distance call for too long? When flying was an expensive luxury? When only a minority of the population had central air conditioning, dishwashers, and color televisions? When no one had DVD players, iPods, or digital cameras? And when most Americans owned a car that broke down frequently, guzzled fuel, spewed foul smelling pollution, and didn't have any of the now virtually standard items like air conditioning or tape/CD players?"

Maybe I'm a reaaaly old guy, but I remember all of that. Also that my father was technically above where I am today in social rank and income, yet our standard of living was much lower.

Posted by John Kranz at 4:14 PM | Comments (2)
But nanobrewer thinks:

I've been arguing just this for ... cheesh, must be over a decade... since whenever I first heard it I suppose.

Most alarmingly, those who make the claim live in bigger, nicer houses than the ones they grew up in and drive nice cars etc. The one-liner I've learned to throw out when hearing this bit is "why do those studies always use pre-tax income?" It makes people stop the tirade and... well, 'think' may be stretching it, but at least they're ready to question the concept.

"What about the destruction of the middle class?" only gets an eye-roll from me anymore.

Posted by: nanobrewer at October 18, 2011 11:07 PM
But jk thinks:

Alan Reynolds's Income and Wealth does an incredible job of demolishing the statistics which "prove" stagnation. It's a book length version of Jimi P's four points.

But I always like to compare the 1972 Ford Pinto with a 2012 Focus. Yup, no improvement. My 42" LCD versus a 19" CRT Color set. Yeah, same diff.

Posted by: jk at October 19, 2011 11:30 AM

October 14, 2011

Job Creators Alliance

My first impression of it was a "Creators Union." A collection of free-market capitalism's best informed businessmen and women speaking out against government interference with the American dream. I heard founder Bernie Marcus talk about it during a teleconference interview with Rusty Humphries of theteaparty.net yesterday. He espoused views of competition and creation that would make Ayn Rand proud. And with this effort he's standing up for his values as Rand insisted that businessmen must do, or perish.

JCA acts as a public advocate agressively making public appearances and interviews to evangelize the free market private sector's role in creating wealth, prosperity and jobs. Marcus' recent interview in IBD is a good example.

Are they making a difference? Perhaps I was too sanguine in a comment last October when I said, "Capitalism is becoming 'cool'". The nationwide "Occupy" protests underway might contradict my optimism. But an equally likely verdict is that the "we want our fair share" crowd is playing to an empty theater. Despite media attempts to portray it as "a pretty massive protest movement" that "could well turn out to be the protest of this current era" (- That NBC lead anchor guy with the crooked nose, Brian Williams I believe) there really aren't very many people involved. Compared to the TEA Party demonstrations of 2009 and 2010 the self-proclaimed "ninety nine percent" are a mockery.

President Obama is quick to make villains of anyone who earns "too much" money. Job Creators Alliance is a long overdue voice that counters, "Hey, wait just a minute."

Posted by JohnGalt at 12:56 AM | Comments (1)
But nanobrewer thinks:

Another problem for the crowd from Oz Occupying XYZ is the apologizer-in-chief has run on (therefore, away with) all the good lines.

My first choice to be slain with a splintery stake is "fairness." Who remembers this?

Gibson: So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
Obama: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness.


Posted by: nanobrewer at October 15, 2011 1:52 AM

October 5, 2011

Otequay of the Ayday

The other day Cornel West showed up at the Occupy Wall Street protest with a sign reading, "If only the war on poverty was a real war, then we would actually be putting money into it." Funny. But the premise is flat-out wrong. In 2009 alone Washington spent $591 billion on means-tested anti-poverty programs. (Others, such as Medicare and Social Security, are not means-tested.) By comparison, 2009 federal appropriations for the wars in Iraq and Afghanistan were $130 billion. Since the War on Poverty began, Americans have shelled out more than $13 trillion to fight it.

A. Barton Hinkle in The Poverty of Nations

Posted by JohnGalt at 3:05 PM | Comments (3)
But Keith Arnold thinks:

War on poverty? Quagmire.

Posted by: Keith Arnold at October 5, 2011 3:20 PM
But johngalt thinks:

"Support the troops - send them home!"

Posted by: johngalt at October 5, 2011 4:47 PM
But jk thinks:

No blood for government cheese!

Posted by: jk at October 5, 2011 4:53 PM

October 3, 2011

Paris of the Midwest

Today's Bing wallpaper image of Cleveland, shown below, made me think of another midwestern city with an ornate history and a rust-belt reputation - Detroit.

That ornate history is tangentially referenced in the "Imported from Detroit" ad campaign for new Chryslers, and more directly so in this one they didn't use. Adorned with original architecture and art works funded by the private wealth of twentieth century industrial prosperity, Detroit was dubbed "the Paris of the Midwest." Today, however, articles are written about the city's death. Investor's Business Daily wrote last March ?Who, or What, Killed Detroit? Union Greed."

Two years ago, the Center for Automotive Research estimated that for every job created by a foreign transplant, 6.1 jobs were lost by the Big Three - many of them in Detroit. No city can take that much economic abuse.

Nor has the $77 billion bailout of GM and Chrysler - which enriched the UAW at the expense of bondholders and shareholders - helped. True enough, sales have bounced back some, but neither one is out of the woods.

Even as Detroit collapses, new UAW chief Bob King promises to "pound" the transplants into submission and force them to drink his union's poison, too.

And in November 2008, Patrick J. Buchanan had his own explanation for the Motor City's demise: "What killed Detroit was Washington, the government of the United States, politicians, journalists and muckrakers who have long harbored a deep animus against the manufacturing class that ran the smokestack industries that won World War II​."

Obviously both authors are correct. An overburdening regulatory government and big-time labor unions were both responsible for the demise of Detroit's industrial base, and that of the nation. Indeed, they were co-conspirators, for without each other they could scarcely exist.

Remember this the next time you hear President Obama make a speech about how government "needs to create American jobs."

Posted by JohnGalt at 2:46 PM | Comments (3)
But jk thinks:

Kinda like Paris, but I don't think that's cheese I'm smelling...

If you have not seen Reason.tv's "Drew Carey saves Cleveland," do yourself a favor.

Posted by: jk at October 3, 2011 4:36 PM
But Keith Arnold thinks:

If that's cheese you're smelling, perhaps it's government cheese.

Posted by: Keith Arnold at October 3, 2011 4:48 PM
But Sy thinks:

More RW whining

Posted by: Sy at March 1, 2013 2:03 PM

September 19, 2011

StealthFlation News

A couple of articles on RealClearMarkets today relate to the stealth inflation I mused about some time back. We've Overshot the Fed's Upper Inflation Limit by Alfred Tella and A Little Inflation Can Be a Dangerous Thing by Paul Volcker. But I won't discuss them for fear of driving off readers.

Posted by JohnGalt at 2:52 PM | Comments (3)
But jk thinks:

Both of them?

Posted by: jk at September 19, 2011 3:12 PM
But johngalt thinks:

Thus my cautiousness.

Posted by: johngalt at September 19, 2011 3:20 PM
But jk thinks:

Corporate just faxed that they appreciate it..

Posted by: jk at September 19, 2011 3:44 PM

September 15, 2011

JK's Big Idea

Following up on JG's tweet, I see the WSJ Ed Page enjoying a paternity hunt for Solyndra loan guarantees:

Committee Democrats and two Administration officials tried to pin the tail on the Bush Administration by noting that the Solyndra loan consideration began before President Obama took office. There's no doubt the late-Bush Presidency slid into big government senescence.

However in the Solyndra case, the Bush Administration's review board declined in January 2009 to act on the loan proposal, calling it "premature" and asking for more information. Two months later, in March, the Obama Administration's board signed off. Energy Department Loans Program Office Executive Director Jonathan Silver told the committee that "additional due diligence" was conducted in the short interim.


Anyway, this gave me a big idea. Now stick with me on this it is pretty complicated.

What if, instead of governments' providing these loans and funding, there were some kind of opportunity for individual investors to offer capital either as a loan or for a partial equity stake. Individuals, or groups, could then share in the profits of successful firms, probably taking advantage of greater distributed knowledge than the government funders. I don't know what to call it, but it's so crazy it seems it just might work.

Posted by John Kranz at 12:41 PM | Comments (4)
But johngalt thinks:

In addition to loaning half a billion to Solyndra and killing bin Laden I only wish Bush had also had the foresight to set in motion a new division of the Secret Service dedicated to ensuring Presidential fidelity to the oath of office.

(And let no refuge be taken in that "to the best of my ability" bit.)

Posted by: johngalt at September 15, 2011 2:44 PM
But Boulder Refugee thinks:

But JG, yer missin' the point as well as not properly parsing of the language. Obama has preserved, protected and defended the Constition. As proof, it's right there in the Smithsonian using the latest preservation methods and nobody's touched it on his watch. In fact, I doubt they've even refered to it.

Posted by: Boulder Refugee at September 15, 2011 3:22 PM
But Boulder Refugee thinks:

JK, I expect to see you perform John Lennon's "Imagine" in the virtual coffee house soon.

Posted by: Boulder Refugee at September 15, 2011 3:37 PM
But Keith Arnold thinks:

BR, I'm just grateful that the Constitution isn't currently hanging on a four-and-a-half-inch cardboard roll in the Oval Office latrine. As for JG's excellent suggestion for a new Secret Service division, I would settle for a single taxpayer, following the President around, quietly reminding him: "You are but a man. Memento mori."

Job created or saved.

Posted by: Keith Arnold at September 15, 2011 6:03 PM

September 13, 2011

NR Does not go for Anna Nicole Smith Photos

Too bad, because EE's stunning exegesis on monetary policy deserves wider currency (get it? currency?)

Let's start over. The Everyday Economist (Josh Hendrickson) has been a great friend to this blog. And he has a superb piece in National Review Online today: "The Case for Nominal Growth Targeting."

EE created something of a monster by getting me to read Chairman Bernanke's textbook on Inflation Targeting. It made sense to me and has kept me out of the Ron Paul, mettalism camp that is gaining devotees among Tea Party Republicans with whom I find much to agree. He has pretty well brought me around that income targeting includes the policies I like from inflation targeting yet uses a better model. (The fact that he's an Assistant Professor of Economics with a PhD and I am a hippie dropout guitar player with three out of print CDs should be noted.)

I finally got the great pleasure of meeting the corporeal incarnation of blog friend GD last week. He, jg, Dagny, and I quaffed Starbucks at 8am and discussed, well, monetary policy of course. We each left with some reading assignments for the next bout. I suggest EE's piece be put at the top of the list.

Posted by John Kranz at 11:56 AM | Comments (7)
But johngalt thinks:

OK. Good. Nominal growth targeting (NGT) eliminates reliance on inflation indices in the first place. A major plus.

But before laymen like me and Governor Perry can champion this idea we must first understand it. My understanding is that NGT is essentially GDP targeting. A supply of money is created based on the expected growth in GDP and readjusted periodically to match actual growth. Fair simplification?

On first analysis this sounds intuitive. The economy needs as much currency as there are things to purchase with it. More than that is inflationary and less risks a bank panic.

Posted by: johngalt at September 13, 2011 3:39 PM
But johngalt thinks:

And I see this is EE's first NRO publication. Congratulations! You even have a bomb-throwing commenter already!

Posted by: johngalt at September 13, 2011 3:41 PM
But jk thinks:

Yeah, Mom is pretty hard on him...

Posted by: jk at September 13, 2011 3:54 PM
But EE thinks:

JG,

Stabilizing nominal income is a means to an end. The real goal is to equate actual money held by the public with their desired holdings. This is precisely what would occur under a free banking system (i.e. a world with no Fed and in which banks are free to issue their own notes backed by some type of "outside money", like gold or silver or seashells or whatever).

[I apologize in advance for the terse description that follows. I hope to do a post on this later, but I am going to try to be brief because this is the comments section.]

Under such a system, banks would issue notes redeemable in gold, for example. Each individual bank would accept other the notes of other banks and thus all banks would exchange at par value. In this type of scenario, there is a feedback mechanism through which each bank knows to adjust their note issuances. The feedback mechanism is their reserve ratio (the amount of gold they have relative to outstanding notes and deposits). Since all banks accept one another's notes, they would naturally find notes issued by other banks in the vault at the end of the day because of the fact that a customer made a deposit using those notes. Naturally, a bank would want to redeem these notes for gold at the bank that originally issued them (because this increases their gold reserves). But no doubt there are other banks that have accepted their notes for deposit. Thus, a clearinghouse association settles the balances of notes between banks.

So why do we care about all of this? Well, we care because this process suggests that banks that issue too many notes will see an increase in redemptions and a reduction in their reserves. If the bank wants to remain solvent, they have to pull notes out of circulation. On the other hand, if banks see their redemptions fall, they can expand their note issuance. Thus, if there is an increase in the demand for money in the public at large, the net effect will be the increase of bank notes. In other words, the money supply (all the bank notes in circulation) will vary according to money demand.

We, however, live in a world with a central bank. Thus, in the wake of rising money demand, we are dependent on the central bank to supply to money to meet the excess demand. Targeting nominal income allows the central bank to accomplish that goal.

For those who quit reading, it is safe to return after this point.

What I have described above is entirely too terse to effectively communicate the inner-workings of a free banking system. However, I think that this point is important, especially to those who populate Three Sources, appreciate liberty, etc.

Thus, I would recommend that the group adds The Theory of Free Banking by George Selgin to its list of readings. George's book explains the evolution of free banking, how a free banking system works, and why we care so much about deviations between actual and desire money balances.

As an added bonus, I will throw in this book for free (sorry I thought it was starting to sound like an infomercial). But seriously, you can get an electronic copy of the book free of charge via the Liberty Fund's Online Library of Liberty. You can download a copy for a Kindle, Nook, and I believe iPad -- for those of you who have such devices. You can also download an HTML or .pdf format as well.

Hopefully this comment was informative in one way or another.

Posted by: EE at September 14, 2011 1:04 PM
But johngalt thinks:

Your paraphrasing of The Theory of Free Banking makes it sound very desirable. Why not just replace our central bank with a network of free banks? (Probably a rhetorical question, but what say you?)

The book looks very interesting. I'll put my copy under the matress with the rest of my ANNA NICOLE SMITH PHOTOS. Sincerely though, thank you for the education. I hope it inspires me to become a prophet.

Posted by: johngalt at September 14, 2011 3:30 PM
But EE thinks:

JG,

I think that a free banking system would be desirable. However, it would be extremely difficult at present to undertake. It would require the effective abolition of the Federal Reserve, significant deregulation in the banking sector, etc.

A start would be to have the Federal Reserve freeze the monetary base and let individual banks issue their own notes. According to Kurt Schuler, banks might have that ability presently.

In the absence of such reform, however, nominal income targeting is a second-best solution.

BTW, there is a new blog devoted to free banking and George Selgin is one of the contributors. Here is the link:

http://www.freebanking.org

Posted by: EE at September 14, 2011 4:22 PM

September 3, 2011

Mankiw's Ten Principles in Limerick Form

In deference to Brother jg, I will lead with #9: Prices Rise When the Government Prints Too Much Money.

To her daughter said Mrs. McNeilly,
With a look that was solemn and steely:
"Your currency, dear,
Will be cheapened, I fear,
If you fling it about very freely."

Though I enjoy #3: Rational People Think at the Margin.
Said a rational woman: "What then of it?
Though it's pointless persuading the men of it,
The marginal cost
Of virginity lost
May outweigh the marginal benefit."

Have a great weekend!

Posted by John Kranz at 11:30 AM | Comments (6)
But johngalt thinks:

Mmmmm, limericks!

A man from the Fed named Bernanke,

Held inflation at two with his bank;

The index he used,

Was based on a ruse,

And made dollars go straight in the tank.

Posted by: johngalt at September 3, 2011 5:46 PM
But johngalt thinks:

Doh. I just read the rest of them and I clearly missed the genre. I'll try again, though I may risk arrest here in Colorado.

Posted by: johngalt at September 3, 2011 6:48 PM
But jk thinks:

His cell mate asks, "What are ya in for?" And the bard of ThreeSources replies:

A dashing young rhymer from Weld County,
Made sport of Fed balance sheet's bounty,
Becoming non-plussed,
A.G. Holder fussed:
"We can do without critics, Barack, Can't we?"

Posted by: jk at September 4, 2011 11:45 AM
But johngalt thinks:

A thousand thank you's for leaving out the ribaldry in a jail cell.

Posted by: johngalt at September 5, 2011 11:19 AM
But jk thinks:

Reason subscribers are proscribed from joking about violations of the Eighth Amendment.

Posted by: jk at September 5, 2011 11:49 AM
But johngalt thinks:
For trade use these dollars my dear,
They price goods and services near,
But when I print them double,
Your life savings will trouble,
To hooking you'll turn, while I leer.
Posted by: johngalt at September 5, 2011 11:49 AM

August 29, 2011

Funniest thing ever on the Internet

Some informative text on the writings of Hayek and his running battle with Lord Keynes.

Illustrated less dismally than some.

Hat-tip: Instapundit

Posted by John Kranz at 7:28 PM | Comments (3)
But johngalt thinks:

"Hey dear, what are you reading?"
"Oh, just a little essay on monetary policy and government induced boom/bust economic cycles."
"Yeah, sure you are."


Our Anna Nicole Smith Photos idea was obviously not original.

Posted by: johngalt at August 30, 2011 12:21 AM
But johngalt thinks:

Heh.

"but monetary factors alone are not enough to explain the fullness of the bust."

Posted by: johngalt at August 30, 2011 12:32 AM
But jk thinks:

I spoiled the joke for the rest of you. Insty linked and it was something about Hayek. Yadda yadda. I do not know the young lady. The first picture seems a little large for a profile pic or illustrative photo. But, whatever, it's about Hayek, right?

The second picture is a bit more coquettish and one starts asking "who is that young lady and what has she to do with the story?"

By the third or fourth, I did get the "what are you reading?" inquisition. Some facets of human life are truly universal. "Hayek, dear. FA Hayek."

Posted by: jk at August 30, 2011 10:39 AM

August 26, 2011

Tea Party Can Go Straight to Hell

Those were the celebrated words of California Democrat U.S. Rep. Maxine Waters during a town-hall style meeting in her district last week. Whether premeditated or extemporaneous, the remarks garnered nationwide publicity for the congresswoman. Presumably she meant that taxes are not too high and government spending should be raised rather than lowered, both sentiments contrary to those of TEA Party advocates.

Well, I'm here to help. A bullet-proof counter argument to people like"some folks in the congress who'd rather see their opponents lose than America win" is this chart of inflation-adjusted monthly government spending showing that real spending is trending down, not up, from a 1993 peak (thank you President Clinton).

govtspending-CPI%20adj.png
Reposted from the National Inflation Association.

And that green line for "US Government Spending, monthly, in millions, CPI adjusted, with additional corrections for real inflation" isn't just some fly-by-night San Francisco lawyer's idea of a more equitable inflation index. It's a fly-by-night San Francisco lawyer's computation of CPI as though the method officially used by the U.S. government 25 years ago had continued to present day. [See third bold heading: Special Consumer Inflation Focus, or click continue reading.]

Go ahead Ms. Waters. Publicize this chart. Throw the TEA Party in that there briar patch.

Excerpted from John Williams' Shadow Government Statistics August 2006 Newsletter:

The key is how you define consumer inflation. I operate on the premise that the post-World War II CPI concept of inflation measured based on a fixed-basket of goods -- a measure of the changes in prices related to maintaining a constant standard of living -- was a reasonable, meaningful and useful approach for most consumers (see the CPI background article on the home page{LINK}).

Some years back, then Fed Chairman Alan Greenspan began making public noises about how the CPI overstated inflation. Where the fixed-basket of goods approach would measure the cost of steak, year after year, Mr. Greenspan argued that if steak went up in price, people would buy more hamburger meat, mitigating the increase in their cost of living. The fact that switching the CPI concept to a substitution-based basket of market goods from a fixed-basket violated the original intent, purpose and concept of the CPI, never seemed to be a concern to those in Washington. Artificially reducing reported CPI inflation would have a variety of benefits, beginning with reduction of the budget deficit due to the cutting of cost-of-living adjustments for Social Security payments.

Accordingly, geometric weighting was introduced to the CPI reporting methodology, which had the effect of mimicking a substitution basis. Since the revised CPI still did not show as low an inflation rate as a fully substitution-based index would, Mr. Greenspan began focusing the Fed's inflation targeting and measurement on the inflation rate used to deflate personal consumption expenditure (PCE) in the GDP. Such was a substitution-based measure.

More recently, the BLS introduced the Chained CPI-U (C-CPI-U) as an experimental substitution-based inflation index, which closes follows PCE inflation.

Yet, as oil prices began their current uptrend, substitution-based inflation reporting still was not low enough for the former Fed Chairman, as he began embracing the concept of "core" inflation, inflation net of food and energy price changes. Eliminating bothersome price increases in energy and food products -- such as seen with oil at present -- would make the Fed's job of containing reported inflation all the easier.

In general, if a government economic measure does match common public experience, it has little use outside of academia or the spin-doctoring rooms of the Fed and Wall Street. The two SGS measures included in the above table have gimmicked methodological changes removed from the reporting so as to reflect more accurately the common public experience as embodied by the post-World War II CPI.


Posted by JohnGalt at 12:36 AM | Comments (0)

August 24, 2011

Monetary Policy -- I Mean Anna Nicole Smith Photos!

Blog Friend The Everyday Economist has a good piece up on Gold prices vis-a-vis inflation.

A number of individuals have claimed that the recent rise in the price of gold is a sign of a coming inflation. However, this doesn't square with the numbers or the gold market. Over the longer term, gold prices have been rising due to the factors of supply and demand. Over the shorter term, the current increase in the price of gold is consistent with deflationary/disinflationary headwinds -- as economic theory predicts.

Increasing demand might support my contrarian monetary policy, yet it may well undermine the fundamentals of my recent wager.

Posted by John Kranz at 1:35 PM | Comments (6)
But johngalt thinks:

OK, I've read the EE piece a few times now and considered and rejected more than one contrarian point of view. I'm now ready to attempt careful consideration of one very specific ANNA NICOLE SMITH PHOTO.

EE argues that under a gold standard, which I take to mean 'absent monetary fluctuation' the following occurs:

"An increase in the stock demand for gold causes a corresponding decrease in the demand for consumption goods and the relative price of gold increases (the relative price of consumption goods falls)."

Now this seems to assume the entire market lives hand to mouth and the demand for gold is satisfied through wealth which is earmarked for consumption, rather than from accumulated savings converted from other assets but that is not where I chose to focus. Instead I'll take this at face value and contend that the combined demand for gold and consumption goods reflects an overall price inflation, and that absent the flight to a "safe haven" by "a number of individuals as well as central banks" the price of consumption goods would indeed be going up.

[If you're going to disprove my argument it seems this is where it is vulnerable. Would consumer prices be rising if less money were being sunk into gold?]

In essence, CPI inflation appears to be under control because in addition to food and energy, gold is intentionally ignored in the feedback loop used to set monetary policy. The price of gold goes through the roof as ANNA NICOLE SMITH PHOTOS are debased and economists with their inflation targeting and price indices pay absolutely no attention to the gold inflation (other than to say it isn't an indicator of inflation.) But this inflation is as real as that in any other commodity and even if the other eighty thousand items in the CPI price basket remain constant, hyperinflation in gold can correspond to hyper devaluation of the currency.

Posted by: johngalt at August 25, 2011 3:22 PM
But Boulder Refugee thinks:

You guys keep forgetting to include the link for the photos...

Posted by: Boulder Refugee at August 25, 2011 4:37 PM
But johngalt thinks:

Quite right. Here's a treasure trove.

We aims to pleeze!

Posted by: johngalt at August 25, 2011 10:29 PM
But EE thinks:

Jg,

I discuss commodity money in more detail here:

http://everydayecon.wordpress.com/2011/01/12/commodity-money-a-primer/

Regarding consumption. If this comes from savings, where does savings come from? Individuals would have to sell financial assets, withdraw deposits, etc. in order to purchase gold. There will still be real effects.

Posted by: EE at August 26, 2011 8:00 AM
But johngalt thinks:

Thank you EE. I look forward to reading.

Yes I understand that converting saved equities to gold or "putting it in the mattress" has an effect on liquidity but isn't the coefficient for the corresponding decrease in demand for consumption goods rather small? After all, borrowers don't get to use savers money for consumption without some cost. Presumably they do so only when their consumption is for profitable (i.e. wealth creating) purposes and will lead to further consumption. The direct consumption from savings is typically deferred into the future, right?

Posted by: johngalt at August 26, 2011 11:26 AM
But EE thinks:

JG,

Sorry for the confusion. I did not mean to imply that the selling of assets or converting some form of savings to gold would reduce consumption. What I meant to imply is that it would reduce spending (whether that be consumption or investment spending). In the post referenced above as well as the link I provided, I abstracted from investment just to make a more simplified case. If I make a withdrawal from the bank and use the proceeds to by gold, it is unlikely to have any impact on consumption and my savings hasn't changed either. However, that withdrawal reduces the reserves of the bank in question and therefore has an impact on funds available to borrow. (Of course, by saying "I", this is really referring to a general flight to liquidity.) Moreover, if the flight to liquidity is driven by selling stocks and moving into gold, this drives stock prices down. This reduces wealth (which does impact consumption) and also reduces the capacity to borrow (lower net worth equals less collateral, this is especially important for individuals and small firms). In any case, we would expect to see a reduction in spending.

If the gold price was a sign of inflation, one would expect it to be positively correlated with bond yields and stock prices. Currently, gold prices have been rising while bond yields have been falling. Either bond traders are collectively ignorant of the coming inflation or this correlation reflects the belief of an economic slowdown and a flight to liquidity.

Posted by: EE at August 26, 2011 12:47 PM

I Think We Can Say The "Risk-Off" Trade is On

Surprised to see this and hope I am reading too much into it:

With gold prices nearing $1,900 and more assets flowing in, the SPDR Gold ETF has become the largest ETF in the world, surpassing the heavily-traded S&P 500 SPDR.

The SPDR Gold ETF [GLD 173.9228 -3.7472 (-2.11%) ] passed the S&P 500 SPDR [SPY 116.22 -0.22 (-0.19%) ] for the first time on Friday. It remained #1 as of yesterday's close with $77.5 billion in assets, about $1 billion more than the S&P 500 SPDR, according to State Street Global Advisors, the marketer of the 2 ETFs.


I'm not going to bet my sizable personal fortune either way. But I have a cold beverage of the winner's choice saying that Aug 24, 2012, a virtual $100 investment in GLD (0.578 shares) will be worth much less than the same in SPY (0.862 shares). Anybody?

Posted by John Kranz at 12:07 PM | Comments (4)
But johngalt thinks:

I'll be your (first) huckleberry.

Posted by: johngalt at August 24, 2011 12:49 PM
But jk thinks:

I struck the word "much" because it is hard to adjudicate. If you were counting on that, you may back out.

Posted by: jk at August 24, 2011 1:10 PM
But johngalt thinks:

Nope. I'm still in unless you change the finish line date from 8/24/12 to 8/24/13.

(Hey, you don't like that expensive and unpalatable Belgian ale do you?) ;)

Posted by: johngalt at August 24, 2011 1:58 PM
But jk thinks:

I think I would do better with the later date, but might get thirsty sooner.

A Brazilian Xingu, or an Alaskan Smoke Porter would do if equities prevail.

Posted by: jk at August 24, 2011 2:31 PM

Split Rated

Take it away, Curtis Threadneedle & Merle Hazard:

Hat-tip: Prof. Mankiw

Posted by John Kranz at 11:52 AM | Comments (0)

Poponomics

I think I'll take Matt Damonomics. Richard Epstein asks "How Is Warren Buffett Like the Pope?" And the Peter and Kirsten Bedford Senior Fellow and member of the Property Rights, Freedom, and Prosperity Task Force at the Hoover Institution answers: "They are both dead wrong on economic policy."

The Pope was on his way to recession-torn Spain--to lead the Roman Catholic Church's weeklong celebration of World Youth Day--when he denounced those nameless persons who put "profits before people." He told journalists, "The economy cannot be measured by the maximum profit but by the common good. The economy cannot function only with mercantile self-regulation but needs an ethical reason in order to work for man." Standing alone, these words mirror the refrains of countless Spanish socialists, whose relations with the Pope have soured in recent years. Their shared premises help explain why Spain finds itself in such a sorry state.

Epstein follows with a Michael Novak-worthy celebration of the morality of free markets that I think every ThreeSourcer will enjoy.
Structure a system that puts people before profits, and both capital and labor will dry up. The scarcity of private investment capital will force the public sector to first raise and allocate capital and labor, though it has no idea how these resources should be deployed to help the people, writ large. A set of ill-conceived public investments will not provide useful goods and services for consumers (who are, after all, people), nor will it provide sustainable wages for workers (who are also people). Poor investment decisions will lead to a massive constriction in social output that harms all people equally.

Posted by John Kranz at 9:58 AM | Comments (0)

August 21, 2011

Otequay of the Ayday

The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process.

Ludwig von Mises, from the sine qua non economics post below.

Posted by JohnGalt at 11:16 AM | Comments (0)

August 20, 2011

The World Economic Disorder Explained

In a single link. I try to avoid the "read it all" exhortation but this is the one. The sine qua non for understanding the causes and remedies for the international banking crises and related economic maladies we're living through. Hint: Fiat currency.

So what did the presumably most important representatives of the Austrian School Ludwig von Mises (18811973) and Friedrich August von Hayek (18991992) have to say about fiat money?

They found that the injection of fiat money through bank credit expansion[6] lowers the market interest rate to below the natural rate level as the Swedish economist J.G. Knut Wicksell (18511926) called it that is, the interest rate that would prevail had the credit and money supply not been artificially increased.

The artificially suppressed interest rate makes firms increasingly shift scarce resources into more time-consuming production processes for capital goods at the expense of production processes for consumer goods, causing intertemporal distortions of the economy's production structure, leading to malinvestment.

Fiat-money injection increases consumption out of current income at the expense of savings, and, in addition, leads to higher investment, so that the economy enters an inflationary boom, living beyond its means.

If the injection of fiat money created through bank-circulation credit out of thin air were a one-off affair, it presumably wouldn't take long for the artificial boom to unwind. A recession would restore the economy to equilibrium as people returned to their truly desired consumption-savings-investment relation (as determined by time preference).

In a fiat-money regime, however, increases in credit and money are not a one-off affair. As soon as signs of recession appear on the horizon, public opinion calls for countermeasures, and central banks try their best to "fight the crisis" by increasing the fiat-money supply through bank-circulation-credit expansion, thereby bringing interest rates to even lower levels.

In other words, monetary policy usually to the great applause of mainstream economists fights the correction of the problem by recourse to the very action that has caused the debacle in the first place.

Such a strategy cannot be pursued indefinitely, though. When credit expansion comes to a shrieking halt that is, when banks refrain from lending the inevitable adjustment unfolds. Borrowers default, and firms liquidate unsound investments and cut jobs.

But there is a cure.

In contrast to these concepts which are, and unsurprisingly so, interventionist by nature economists from the Austrian School have been putting forward recommendations and strategies for reforming the monetary system along free-market principles.

Their recommendations are driven by the insight that the great financial and economic crises are not inherent in capitalism, but result from government interventionism in monetary affairs, most importantly by monopolizing money production. Hayek put it succinctly in 1976:

The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process.[11]

Austrian economists are of the opinion based on elaborate economic-ethical considerations that curing the current financial and economic crisis would require a return to sound money. By "sound money," they mean money that is compatible with the principles guiding the free-market economy.

Sound money is free-market money, money that is the result of the free supply of and the free demand for money. It is money that is produced in unhampered markets where there are no longer any legal privileges for, for instance, central banks.

While those of us in the Liberty Movement think cutting government spending to sustainable levels is a sisyphean task, dislodging the self-dealing central bankers will be even more difficult, perhaps requiring something on the order of the French Revolution. Maybe that "treason" remark by Governor Perry wasn't as misguided as first believed.

Posted by JohnGalt at 11:23 AM | Comments (3)
But jk thinks:

I have long found ABCT elegant and do not doubt its validity. I put monetary policy at the top of my causes for the housing bust and Panic of '08. I even complained when Gretchen Morgenstern did not in her otherwise excellent "Reckless Endangerment."

I'm on board and have on occasion called myself an Austrian "Ich bin ein Österreicher!" I even have the Aryan features to pull it off. But I get off the train right before Vienna.

My appreciation for Mises is long established, but I cannot accept a gold anchor. Why gold? If we perfect alchemy or find a big mine under Cleveland, we have an expansionary boom? If not we risk deflation?

Hayek seems closer with competing currencies, though it is difficult to wrap one's head around it.

I return to the Constitutional, enumerated power "To coin Money, regulate the Value thereof." An economics professor suggested we made a big error there, but it is there. I don't think going back to Breton Woods is the answer.

The phrase "Sound Money" -- if not "coined" -- popularized by President William McKinley. He did not give a fig about monetary policy, but had to run twice against William Jennings Bryan who wanted to talk about nothing else. "I'm for sound money" allowed the candidate to quickly talk about the tariff, which was his concern, without providing any specifics. I accuse today's rabble of the same offense. Do you mean metalism? I'll ask Well, not necessarily, [and the vowels get longer and the tone falters] but sound money.

I purport that a 2% inflation target fiat currency is sound money. And that QEn were required to keep the target when the FOMC could not inject liquidity using normal methods.

Yes, I worry that it will be overused and I dislike giving the government the option to monetize the debt. But I don't see a gold peg as the answer.

I always think I got off the Austrian Express at Chicago: Milton Friedman's computer Fed, really a set of rules to set rates and supply without human intervention or opinion is the best way to go. In the meantime, Chairmen Bernanke (the greatest villain since Hitler to some) is essentially doing that and doing it pretty well.

The other thing I have noticed, is that when ThreeSources discusses monetary policy, readership asymptotically approaches zero.

Posted by: jk at August 21, 2011 12:07 PM
But johngalt thinks:

Anna Nicole Smith photos. PLAYMATE.
Anna Nicole Smith photos. PLAYMATE.
Anna Nicole Smith photos. PLAYMATE.
Anna Nicole Smith photos. PLAYMATE.
Anna Nicole Smith photos. PLAYMATE.
Anna Nicole Smith photos. PLAYMATE.
Anna Nicole Smith photos. PLAYMATE.

Posted by: johngalt at August 21, 2011 6:28 PM
But johngalt thinks:

(That oughtta buy us a few more volleys back and forth. I'll just let it soak a while...)

Posted by: johngalt at August 21, 2011 6:30 PM

When Cash is Outlawed, Only Outlaws Will Use Cash

This might explain why it feels like people think I'm a drug dealer when they see my money clip.

Bankers see cash the way government does. Theres always going to be some people, for good or nefarious reasons, who want to use cash, Doug Johnson, vice president for risk management policy at the American Bankers Association, tells the Times.

So while Keynesians see cash hoarding as evil, government and bankers believe those using cash are up to no good.


Posted by JohnGalt at 11:00 AM | Comments (0)

August 19, 2011

Cross of Gold

After 8 1/2 years slaving over a hot keyboard, I have finally found the way to launch a blog into the big time: insult my heroes! It's awesome. I ragged on Jonathan V. Last awhile back and got some nice emails. Today, I was pleased to see Brian Wesbury had commented on a post.

I confess that I never was a William Jennings Bryan fan. I consider him the Tom Tancredo of his day, pushing bimetallism instead of immigration enforcement. A stint as President Wilson's Sec State does little to burnish his credentials.

Wesbury points out that he is not endorsing Bryan, just reminding the public that monetary policy has been in American elections before. (I'd toss in Jackson/Taney's Bank War, which captivated politics for several elections.)

In essence, Perry and Bryan raise a centuries-old argument. Governments have always been tempted to manipulate the value of money. Most have done so, sometimes for purposes of greed or power; other times because of misguided policy reasons. Bryan wanted inflation for farmers. Rising productivity was pushing prices down and those farmers who were not increasing production were hurt financially. They wrongly blamed the gold standard, or "hard money," for their problems. And even though it took another 17 years, his arguments ushered in the era of the Federal Reserve.

As what I guess is now the official ThreeSources Inflation Dove, I'd call Bryan names while conceding that "hard money" was not blameless in a series of postwar downturns. They were using bank receipts and homemade currency in 1873. But Wesbury's article is unsurprisingly well considered and interesting. And he provides valuable ammunition for my ThreeSources antagonists.
The U.S. deserves a transparent debate about monetary policy, a stable dollar, the dual mandate, the gold standard, a price rule for money and the Humphrey-Hawkins Act. As William Jennings Bryan knew, sometimes the only way to get people to focus on an issue is to wrap it up in some fiery and passionate language. For that, Rick Perry should be congratulated, not castigated.

Posted by John Kranz at 11:09 AM | Comments (1)
But johngalt thinks:

Cool!

Posted by: johngalt at August 19, 2011 3:34 PM

August 18, 2011

Deflationary M2 explosion?

All the bank money a sign of plunging velocity? Kudlow is considering it:

"The recent pickup in broad money in the U.S. looks like a dash for risk-free cash assets," writes [Michael] Darda. He also notes that widening corporate-credit risk spreads and shrinking government-bond rates signal a recession risk, not a coming boom.

So contrary to monetarist theory, the M2 explosion seems more closely related to a deflation/recession risk. Economist-blogger Scott Grannis writes, "The recent growth of M2 surpasses even the explosive safe-haven demand for money that accompanied 9/11 and the financial crisis of late 2008. Something big is going on, and it can only be the financial panic that is sweeping Europe as money flees a banking system that is loaded to the gills with PIIGS debt."


I think highly of Darda and see where he is headed. But this is on the intuitive level of record snowfall and Arctic ice accumulation as proof of global warming.

Posted by John Kranz at 6:14 PM | Comments (0)

Three Guys I Like a Lot, Fighting.

That could be the name of the blog, if it lent itself to a snappy url.

You know I dig Larry and I'm not fit to lace Brian Wesbury's laptop bag, but I have to go with Don here:

If you don't agree with Don Luskin on inflation, you must admit that William Jennings Bryan was a crackpot. I don't think Wesbury did himself any favors with his "cross of gold" closing argument.

Game on.

Posted by John Kranz at 10:34 AM | Comments (17)
But johngalt thinks:

I believe B-Dub addressed this in the article he linked:

"The U.S. deserves a transparent debate about monetary policy, a stable dollar, the dual mandate, the gold standard, a price rule for money and the Humphrey-Hawkins Act."

I've no objection to a federal currency per se. I object to fiat money.

Posted by: johngalt at August 19, 2011 5:28 PM
But jk thinks:

I love a transparent debate. I'd love to take Milton Friedman's idea of replacing the Fed with a computer with a published algorithm. I'd love to boot the dual mandate. I'd love to take a half hour and look up what the Humphrey-Hawkins Act is.

But we started this monetary squall with my linking to Greg Mankiw that -- if you read "Inflation Targeting" by Dr. Benjamin Bernanke -- he is on track. Keep the core CPI right around 2% ("habituated," says Mister Luskin). The guy is doing EXACTLY what the textbook HE WROTE says to do. And Governor Perry questions his patriotism. He's Public Enemy #1.

I just ask my hard money friends to respect the ravages of deflation. That's not a Tea Party talking point, but it should be concerning. Picking whether Luskin or Wesbury is right is above my pay grade and everyone is allowed to ignore the Central Bank advice of the dropout, hippie guitar player. But there is a feeding frenzy in the punditocracy and I'm calling blogger's right to be a contrarian.

Posted by: jk at August 19, 2011 6:45 PM
But johngalt thinks:

Interestin'. I thought I, and now the good Mr. Wesbury, were the only ones saying there's real inflation even though "official" inflation is low. Are you really being the contrarian or are you just siding with the government and establishment press?

I re-read the Mankiw piece and here's what I still don't understand. why do economists seem to believe that a moderate inflation rate, guided by an inflation target, even when made as ironclad and certain as anything possibly could be in Washington, is somehow supposed to overcome the uncertainties and disincentives of Obamacare, waivers-on-demand, 99 weeks of unemployment insurance (with requisite higher premium payments demanded from employers), fuel prices doubling since Obama's inaguration, mortgage "restructuring," bondholder renegging, "green" job overpromising, credit rating downgrading and the almost single-minded determination to get America's national debt to 100% of GDP during Obama's first term as president. If anyone really believes the Fed can turn industrial production, and therefore job growth, up and down with monetary policy despite all else he should have his head examined. We may as well ask the Fed to manipulate the global climate while they're at it.

Posted by: johngalt at August 20, 2011 2:16 AM
But jk thinks:

You caught me, Brother. Shillin' for big government and establishment media.

Firstly, I think that using CPI as a deflator, official Fed-recognized inflation has been around the 2% target: lower before, a little higher now. As Mankiw says, this is in the book. You can say the book is wrong (EE has presented me with some better ideas than inflation targeting) but you bought the tractor, you read the owners manual, you took it for a test drive. If you wish you'd bought a Ferrari I can't help you.

I found his book made sense. The reason for 2% is that accuracy in measuring and efficacy is difficult. Consider 2% the error rate. If you miss to the upside pull back, but if you miss to the downside you have not created deflation. Design a crankcase that holds too much oil because running out is very very bad.

Secondly, you see it as enabling Obamanomics. I cede that real runaway inflation would, but I stand by Helicopter Ben because he has had to keep things moving in spite of and in opposition to all the nasty things on your list. If we had better fiscal policy, we could perhaps afford better monetary policy. But the Bernank has kept things going in spite of administration created "bad luck."

Posted by: jk at August 20, 2011 12:03 PM
But johngalt thinks:

Whether there's a dual purpose or not, expanding the money supply does enable Obamanomics. Obamanomics defined as unprecedented government spending, preferrably for the benefit of political constituencies.

Everything you said is very reasonable. I think my disconnect with you is over the idea that I "bought" this tractor. I don't think quantitative easing is what Uncle Milton had in mind. But I could be wrong.

What I and the rest of my fellow flyover country rubes really want is a sound money system. We seem to be approaching the day when monopolistic central bankers have no place in polite society.

Posted by: johngalt at August 20, 2011 11:58 PM
But jk thinks:

You bought the tractor when you supported George W. Bush and he appointed the Princeton guy with the well trimmed whiskers. You have every right to remorse if you choose.

My point is that there is no bait and switch, kids. The guy wrote a book with his views on Central Banking and implemented those policies pretty successfully.

By all means sign me up for sound money. But as I ramble above, everybody likes it without agreeing what it is. Kinda like "Hope & Change."

Posted by: jk at August 21, 2011 12:16 PM

August 17, 2011

Stealthflation Looms

When I first posted about the sneaky, under-the-radar inflation I dubbed Stealthflation, a discussion ensued over what constitutes inflation and how to measure it. WaPo carries this AP story: Companies paid more for wholesale goods, though inflation pressures muted (Note the reporting of prices rising with a "don't worry about inflation" modifier.)

A key measure of wholesale inflation rose in July by the most in six months.

The measure, called core wholesale inflation, excludes volatile food and energy prices. It surged 0.4 percent last month.

But monthly figures are only useful to professional economists and journalists who need something new to talk about every month.

Over the past 12 months, the PPI has jumped 7.2 percent. That's up sharply from earlier this year, though below May's 7.3 percent rise, the biggest in 2 1/2; years.

That's Producer Price Index - a measure of the cost of goods for companies that make things. But while producers see inflation in the 7 percent range consumers see only a couple percent.

Higher wholesale prices tend to raise pressure on department stores, groceries and restaurants to pass along higher costs to consumers. But that will be difficult now at a time of high unemployment and stagnant wages, which have caused consumers to tighten spending.

Combined with falling oil and gas prices, lower consumer spending should slow inflationary pressures, economists say.

You see, if retailers raise prices to track costs they're liable to lose sales and cut profits more than if they just absorb the cost inflation. This is good for government because they can claim low inflation but as the enviro-hippies like to say, it isn't sustainable.

Last week, Fed policymakers said they will keep its benchmark short-term rate at nearly zero at least until mid-2013. Previously, the central bank had never given a clear time frame. It hopes the certainty of low rates will encourage consumers and businesses to borrow and spend more.

The central bank forecast in June that inflation will remain within its informal target range of below 2 percent this year and next.

But won't borrowing more and spending more cause consumer prices, and therefore official inflation, to rise? Perhaps, but not likely anywhere near the 7 percent that producers see.

In a rational world the prices of goods would be set by supply and demand. In the modern global economy they are instead set by the "hopes" of the Federal Reserve Board.

Posted by JohnGalt at 2:49 PM | Comments (5)
But jk thinks:

Perhaps the retailers could be more productive, absorbing the input costs without raising prices: Sam? Mister Walton?

M2 is way up and we might be well into some corporeal, non-stealthy inflation. But that treasonous traitor Bernanke looked into the best economic stats any of us got and thought to promise two years of negative real rates.

Still not on board, though to be fair, my dovishness has put me outside the sentiment of my hero, Larry Kudlow.

Posted by: jk at August 17, 2011 3:59 PM
But johngalt thinks:

Yeah, what HE (Kudlow) said.

Let’s take a quick look at Bernanke’s QE2 record of pump-priming: The dollar fell 12 percent on foreign-exchange markets. The consumer price index jumped over 5 percent at an annual rate. And the $600 billion cheapening of the greenback led to skyrocketing commodity prices, including oil, gasoline, and food. That oil-price shock is one of the principal factors behind the 0.8 percent first-half economic stutter. As a result of the jump in inflation linked to QE2, real consumer incomes slumped badly and consumer spending fell substantially.

TWELVE PERCENT! Naah, gold just hit $1800 because investors are racist sons of bitches.

This Kudlow piece added a few points to my Nominate Perry index.

Posted by: johngalt at August 17, 2011 6:06 PM
But Boulder Refugee thinks:

More practically (that is to say, less wonkishly), businesses faced with a margin squeeze that cannot be passed on will either layoff workers or freeze hiring. Either way, it's not good for unemployment.

Posted by: Boulder Refugee at August 17, 2011 6:30 PM
But Perry Eidelbus thinks:

Didn't you see one of the big causes? Tobacco. Not even a fifth of Americans smoke, and the industry doesn't quite sell $3 billion a year, yet somehow at the manufacturer level that's a major cause of core inflation.

Posted by: Perry Eidelbus at August 17, 2011 11:47 PM
But johngalt thinks:

Shucks, PE, that's an easy one. Personal use is just one market for tobacco products. Much, much more of it is sold to governments for use with mirrors. And haven't you noticed the Stimulus Plan for Smoke and Mirrors since the 2008 elections? Federal consumption is WAAAY up.

Posted by: johngalt at August 18, 2011 3:02 PM

August 10, 2011

Tweet of the Day

@JonahNRO has read his Bastiat!

Honorable mention: @Jewtastic:

Spitzer: "This White House Doesn't Know How To Negotiate" | Irony: Guy who pays $10k for a hooker bragging about 'negotiation' skills.'

Posted by John Kranz at 5:17 PM | Comments (0)

Volatility Culprit

The DJIA is down 444 as I write this. The lovely bride says it's my fault for voting for George W. Bush. I had almost forgotten...

Posted by John Kranz at 12:04 PM | Comments (2)
But AlexC thinks:

I'm really kicking myself for not buying VIX at 16.

Posted by: AlexC at August 10, 2011 12:22 PM
But jk thinks:

Yeah, when Geithner agreed to stay on, we should have all gone long.

Posted by: jk at August 10, 2011 1:14 PM

August 8, 2011

Stealthflation Awareness Check

Heh.


But I must grudgingly concede that Scott Bradford used the term more than six months before me and Forbes magazine four months ago.

Manipulating the CPI is a game government plays to help solve its fiscal problems through increased inflation. It is a tax on wealth and can be imposed without public debate or a legislative vote. While inflation is beneficial to government in the short term, its long-term effects are always negative. Hence, it must be done in secret--call it stealthflation. What this means for fixed-income investors is that long-term interest rates are going higher, as they have since last August. Look for a ferocious rise after June 30, when the Fed's QE2 program comes to an end.

(He doesn't say how long after June 30.)

Posted by JohnGalt at 3:21 PM | Comments (5)
But jk thinks:

Like "Climate Change," it does not pick a direction. You may claim victory after inflation or deflation!

Posted by: jk at August 8, 2011 3:53 PM
But johngalt thinks:

The "flation" in Stagflation is universally understood to be in-flation and Stealthflation is no different. I hereby irrevocably declare that Stealthflation is a stealthy inflation.

Besides, I'm beginning to think deflation is an imaginary concept that makes the math work, like infinity and imaginary numbers.

Posted by: johngalt at August 8, 2011 4:14 PM
But jk thinks:

Sob...........sniff........weep.........

Posted by: jk at August 8, 2011 6:53 PM
But johngalt thinks:

??

Posted by: johngalt at August 9, 2011 2:53 AM
But jk thinks:

It happens I believe in deflation (cf. 1836, 1873, 1907, 1931), infinity (without which 1 + 9/9 != 2), and imaginary numbers (Isaac Asimov, call your office).

Posted by: jk at August 9, 2011 9:50 AM

August 5, 2011

A Cheer and a Quarter for Chairman Bernanke!

Blog friend The Everyday Economist has admitted that he created a monster.

Under his advisement, I read Ben Bernanke's textbook on Inflation Targeting. After that, I became something of a disciple, just as my academic friend was turning away. Oh well, you can't win 'em all, EE!

Agree or not, it certainly gives you a context for the Fed's actions under his watch. Anybody who is surprised did not read Helicopter Ben's book. Target kinda-a-twoish inflation rate on the core CPI and keep the beard well trimmed -- and you're there.

Professor Mankiw agrees with me, without directly mentioning the beard.

Mr. Bernanke became the Fed chairman in February 2006. Since then, the inflation measure favored by the Fed -- the price index for personal consumption, excluding food and energy -- has averaged 1.9 percent, annualized. A broader price index that includes food and energy has averaged 2.1 percent.

Either way, the outcome is remarkably close to the Fed's unofficial inflation target of 2 percent. So, despite the economic turmoil of the last five years, the Fed has kept inflation on track.


The other thing that keeps me out of the hate-the-Bernank Brigade is the horrendously awful fiscal policy on his watch. Volcker and Reagan were able to bring sound money and supply-side tax cuts in tandem. Chairman Bernanke has the Obama administration demonizing corporate jets, while he tries to do monetary policy. That's as tough as setting up your oscilloscope with a your groucho glasses on.

Posted by John Kranz at 12:33 PM | Comments (3)
But johngalt thinks:

The Kantian Method: Make a reasonable sounding statement with a hidden flaw and build an airtight case upon that faulty foundation.

... the inflation measure favored by the Fed — the price index for personal consumption, excluding food and energy — has averaged 1.9 percent, annualized. A broader price index that includes food and energy has averaged 2.1 percent.

Either way, the outcome is remarkably close to the Fed’s unofficial inflation target of 2 percent. So, despite the economic turmoil of the last five years, the Fed has kept inflation on track.

But as we just learned, [2nd comment] "... on either version of the CPI. It's so massaged, with the government economists overweighting and underweighting whatever they can to meet the agenda."

So Mankiw's laudable ambition to "add more certainty to the economy" by somehow "codify(ing) its projected price path of 2 percent" is as uncertain as the massaged CPI it is so cunningly tied to.

History will show that Bernanke's crowning achievement is Stealthflation. Save this prediction and Mankiw's "the Fed has kept inflation on track" and we'll see who was the more brilliant economist way back in ought-eleven.

Posted by: johngalt at August 7, 2011 8:10 PM
But gd thinks:

Jg, we are almost on the same page, but I am starting to think that there is a lot of validity to the Austrians who claim that we are going to see deflation first as global demand continues to decline. The debt burden will continue to act as an albatross on the economy so any attempts to create stimulus or monetize debt will only act as an immediate shot in the arm, but then the long-term drag of the debt will bring the overall global economy back to a grinding halt. Bernanke has demonstrated that he will continue this negative feedback loop and I will not be the least bit surprised if we eventually see QE3 and QE4 in a desperate attempt to lift the economy. Given there are very few long-term investment options, this will not have the intended effect as cash will continue to sit idle on the sidelines.

The trouble with these artificial attempts to boost the economy is that people eventually become aware that the government has no intention of ever paying off the debt. And as Ludwig von Mises postulated, eventually the government will be forced to print money. Don’t take my word for it though (Alan Greenspan on “Meet the Press” yesterday:

http://www.youtube.com/watch?v=h3cY6_z0ceg

There may appear to be some contradiction in the near-term, but it is going to be very important to stay calm and focused on the long-term effects of the enormous debt burden being run up by nearly all governments around the world.

Posted by: gd at August 8, 2011 10:03 AM
But gd thinks:

I should also add that that this deflationary impact would bring down commodity prices in the near term such as oil and copper. Gold is not a normal commodity (it is more of an investment since it has very little industrial use) and has an inverse relationship to the money supply so gold will continue to increase until there is a serious attempt at paying down debt (which is becoming more unlikely to ever come).

The US dollar is in big trouble as well because we have been flooded with foreign investment the past 30+ years, but as investors see a declining dollar and a lack of viable investment options in the U.S. they will pull their money out which will only continue to put more pressure on the dollar. This is why I am bullish on gold and bearish on the U.S. dollar (bonds and equities) in the long term.

And yes, jg, I love your “stealthflation” terminology and am going to start using it as well. None of us may fully understand just how “stealth” it is at this point in time.

Posted by: gd at August 8, 2011 10:50 AM

August 4, 2011

Picture of the Day

Got to laugh to keep from cryin', right? Something about this picture of ECB Chief Trichet does not inspire confidence:

Photo credit: Reuters, from a very good WSJ Editorial on the global sell-off as the last call for Keynesians.

Posted by John Kranz at 6:50 PM | Comments (0)

August 3, 2011

"Stealthflation"

During the Ford-Carter-Reagan era, before I was of voting age, the economic situation gave rise to the term "stagflation" which referred to high inflation and low economic growth as a percentage of GDP. We might say that the same conditions exist now except that in the 70's and 80's inflation was measured by interest rates. Today interest rates are near record lows, with T-bills around 2.7 percent leading to 30 year mortgages on the order of 4 percent. Yet inflation fears are alive and well given QE1 and 2 and the record price of $1660 US for gold. In other words, we have real inflation, as the costs of energy, food, health care, and other durable goods go up, but it isn't reflected in Fed policy. It is a hidden or "stealth" inflation. But like Oz's wizard it can't go unnoticed forever.

saupload_debt_ceiling_news_1.jpg

Back to stagflation:

The concept is notable because, in Keynesian macroeconomic theory which was dominant between the end of WWII and the late-1970's, inflation and recession were regarded as mutually exclusive, the relationship between the two being described by the Phillips curve. In addition because stagflation has generally proven to be difficult and, in human terms as well as budget deficits, very costly to eradicate once it starts.

In the political arena one measure of stagflation termed the Misery Index (derived by the simple addition of the inflation rate to the unemployment rate) was used to swing presidential elections in the United States in 1976 and 1980.

So let's see, unemployment rate plus the price of gold...

Yikes! I'm goin' camping. Please save civilization while I'm gone.

Posted by JohnGalt at 12:16 PM | Comments (6)
But jk thinks:

Concerned but still not sold on inflation fears. I'm pretty happy using core CPI as a deflator and see Gold as global growth + "risk-on" trade + a wise inflation hedge with a loose Fed. As even the core pushes comfort levels, I hope Helicopter Ben will keep QE3 in his pants as it were.

But your Oz reference was well timed. I thought of you as I watched "Tin Man" again and remembered our agreeing on its virtues. It is available on the Netflix Instant Queue, and comes with substantive endorsements from jg and jk.

Posted by: jk at August 3, 2011 1:13 PM
But Perry Eidelbus thinks:

JK, you're very trusting on either version of the CPI. It's so massaged, with the government economists overweighting and underweighting whatever they can to meet the agenda. Check shadowstats.com, which doesn't do any tricks. It merely uses the methodology in place in 1980, rather than the trickery employed today.

Bill Dudley can point to iPads. I point to commodity prices whose rise cannot be explained by supply and demand. I point to standard groceries, and container sizes continually shrinking so we can pay the same for less. Things are worse than we care to admit.

Posted by: Perry Eidelbus at August 3, 2011 11:48 PM
But gd thinks:

The government CPI is pretty close to worthless for Austrians (it is intentionally manipulated to favor Keynesianism). When it comes to real inflation risk, keep a close eye on gold, oil, and food prices.

Posted by: gd at August 4, 2011 11:23 AM
But jk thinks:

jg starts a monetary policy debate and then heads out camping -- gonna have to have a talk with that lad...

Guess I am a Chicagoan then, gd. Inflation as always a monetary phenomenon. Core CPI has its flaws (I think it underestimates inflation – burn the heretic!) but its flaws normalize over long-term historical comparisons. Gold is subject to speculation and varies with world risk appetite, oil is a cartelized and highly regulated commodity. Yes, it is denominated in dollars, but I wouldn't use it as an accurate measurement. Food is a global growth play and is manipulated by biofuel mandates.


Posted by: jk at August 4, 2011 11:47 AM
But gd thinks:

JK, I think you are correct about gold, oil, and food being subject to price manipulation and speculation, but I look at these price movements as more of a short term phenomenon. Over the long run more money in supply means higher prices unless there is a change in supply or demand for products/resources. That is why I do not put too much emphasis on short term calculations; I am more concerned with how the long term prices of gold, oil, and food are trending relative to wages, employment, and the overall supply of money.

Ludwig von Mises postulated that Keynesianism will always fail in the long run for one of two reasons: 1. The crack-up boom (the destruction of both monetary order and economic productivity in a wave of mass inflation) or 2. A deflationary contraction in which men, business, and banks go bankrupt when the expected increase of fiat money does not occur.

There is some divergence going on in the Austrian camp right now about whether hyperinflation or deflation will come first, but I think the stagflation risk is worthy of consideration.

Posted by: gd at August 4, 2011 12:55 PM
But johngalt thinks:

Stealthflation, gd, Stealthflation. A proper noun, coined by this blog brother. Help me promote this trademarked economic malady and I'll cut you in on the rake!

I'm not backing down on the validity of commodity prices as inflation indices. Yes, food prices are manipulated by government regulation, as are oil and gold prices. But the prices are ontic. [A word I learned when double-checking the definition of 'noumenal.'] For each commodity the price Is what it Is. No matter the cause of inflation, higher prices equal monetary inflation.

(They're from the government, and they're here to "help.")

And if gold is "subject to speculation and varies with world risk appetite" is that not a crowd-sourced, market-driven "inflation future?"

Posted by: johngalt at August 7, 2011 7:06 PM

July 27, 2011

Who Are These Guys?

The Internet Segue Machine® is set to 11 this morning. Last night, I watched Larry Kudlow interview David Beers, head of Standard &Poor's sovereign debt rating committee, and this morning I found the video clip:












It was a good interview, and Beers seeks to stay out of the political fray. But I became quite annoyed. Who the hell is this guy to speculate on matters of liberty and governance? The opinion of a trusted, sovereign debt ratings agency is not inconsequential -- but do you know of any? These guys picked the Lions to win the Super Bowl and now we're supposed to tweak the legislation of a free people to seek their approbation.

Or, as Holman Jenkins more diplomatically asks: Who Elected the Rating Agencies?

But now we have a new problem. The rating agencies, especially Standard & Poor's, have decided to join the politicians in turning an artificial crisis into a real one. S&P says it plans a U.S. debt downgrade, regardless of any debt-ceiling outcome, unless it sees a "credible" plan to reduce future deficits by $4 trillion over the next 10 years.

This has become the real worry for Wall Street, but why? America's spending debate does not remotely make it any more of a default threat than it was a week or month or year ago. America's IOUs are still completely acceptable to the markets.

Even in the long term, the threat is not to bondholders. The threat is to Americans under 50 who think they can rely on Social Security and Medicare. The threat is to countries that hope the U.S. will fight their wars for them. The threat is to K Street bandits trying to live off federal handouts.


Y'all know where I stand. It is time to take what we can get, move on, and make the 2012 elections a serious referendum on the size of government. But S&P plays into the hands of the fear mongers.

Posted by John Kranz at 11:11 AM | Comments (0)

July 26, 2011

Usdebtogon

Or, "I was told there would be no math on this post."

I needed a big number to illustrate a math concept, and I found the math concept enlightened me by illustrating how big the number actually was. See if you enjoy.

I found a seven year old notepad on which I had solved John Derbyshire's August 2004 "Math Corner" problem. Explaining the solution (spoiler alert) to a friend, I described a polygon with a million sides. Then I added with a flourish that in math as in government, a million was a puny number. Imagine, asks I, a polygon with 14 Trillion sides. The usdebtogon was born.


As you add more sides to an inscribed polygon, the more it approximates a circle. The diagram shows four, five, and six sides.

I got to wondering how large a circle would be required to visibly show the difference between a usdebtogon and the circle in which it was inscribed. My first guess was a circle inscribed in the square that defines the District of Colombia. Poetic, huh?

But DC is ten miles a side. I do not have machinery I trust to compute the side length of R * 2sin(π/14000000000000) so I will use arc length as a proxy. A ten mile diameter circle is 1990513 inches in circumference. Divide by 14T and that's 1.4 * 10-7 for each arc. Nobody in the world could see the difference. I was expecting it would be an inch or so -- I was only off by a magnitude of seven!

A circle around the earth (7900 mile diameter) is 1572505353 inches in circumference. A usdebtogon would slice the circle into 0.0001123 inch arcs. Nope, not going to see that.

[UPDATED]
How about inscribing a usdebtogon inside a circle to the moon? 240,000,000 mile radius if I recall is a circumference of 95544629055095 inches, so each side would be 6.8" Finally, we have found a circle into which we could inscribe a usdebtogon and a viewer could discern the difference. But he would have to be on the moon.

How about inscribing a usdebtogon inside a circle to the moon? 240,000 mile radius [as I have been corrected]* provides a circumference of 95544629055 inches, so each side would be .0068" Pretty tough to see. Especially on the moon with one of those bubbly helmets on.

*Mr. Derbyshire himself corrects my erroneous moon orbit and suggests "Now if you use Pluto's orbit, you get an arc of about 16 inches. Of course, Pluto's not a planet any more......."

Earth's orbit (93,000,000 mile radius) gives me 0.84 inches; I'm going to call that visible, providing you use one of the fine-line Sharpies®

UPDATE II: In thanks for technical editing, I should at least hawk his superb Prime Obsession: Bernhard Riemann and the Greatest Unsolved Problem in Mathematics. I acquired a signed copy when the author came to Boulder on a book tour.

Posted by John Kranz at 10:57 AM | Comments (2)
But Boulder Refugee thinks:

Anybody got an aspirin?

Posted by: Boulder Refugee at July 26, 2011 6:33 PM
But dagny thinks:

In a similar story that requires no math, my oldest daughter and her cousins (kindergarten age or so) were playing a familiar game of one-ups-man-ship. One cousin says, "I have 10," and the next cousin says, "well I have 20," followed by 100, 1,000 and progressively larger numbers that they could come up with. We told our oldest to use, "Barack Obama's Budget," as the largest number known to man. This has been added to the family lexicon for describing infinitely large quantities. How big is it? As big as Barack Obama;s budget...

Posted by: dagny at July 26, 2011 7:39 PM

July 24, 2011

Unfettered Capitalism

One of my favorite "party stopping" conversations is to attack the notion that the so-called Robber Barons accumulated wealth (with all the assumed deletrious effects) by use of monopolization of markets that - as those more wise that I - assure me always are in need of more regulation.

Thomas Woods article is a short and well-researched article attacking this icon of the nanny-staters. Here's what I think is the money quote:

contrary to the consensus of historians," acknowledges New Left historian Gabriel Kolko, "it was not the existence of monopoly that caused the federal government to intervene in the economy, but the lack of it."

The reaction of those who always assume more regulation is needed (who obviously have never researched LASIK, nor understand how cell phones got to be what they are) remind me of a joke we engineers like to tell: An engineer thinks that anything that's not broken doesn't have enough features.

Posted by nanobrewer at 10:20 AM | Comments (7)
But johngalt thinks:

Great topic. Looking forward to reading the linked article. But here's something to think about: Why do Americans always hold private sector bad actors responsible when they are caught doing bad deeds but virtually never their public sector co-conspirators?

Posted by: johngalt at July 24, 2011 12:09 PM
But jk thinks:

Maiden post I believe? Very well done. I'm sure all will join me in welcoming "Brother nb" to ThreeSources. I've enjoyed his insightful comments and aggressively recruited him (I think the red Porsche really clinched the deal...)

Clicking through, I'd recommend following the links back to part one and part two. Part one includes this jewel:

There is nothing natural or inevitable about the availability of this productivity-enhancing capital equipment. It does not fall out of the sky. It comes from the wicked capitalists' abstention from consumption, and the allocation of the unconsumed resources in capital investment.

Stossel (replaying on FNC most weekends now) used the same argument (from part one) with a union guy about forklifts: how could a business ever dream of a paying a union forklift driver's wage to individuals stacking pallets by hand?

Posted by: jk at July 24, 2011 12:23 PM
But jk thinks:

Duh alert. It was the author, Thomas E. Woods, Jr, on Stossel. (Video)

Posted by: jk at July 24, 2011 12:28 PM
But nanobrewer thinks:


Who's a maiden? :-)

Why do Americans always hold private sector bad actors responsible when they are caught doing bad deeds but virtually never their public sector co-conspirators?

B/c the mass media don't tell them about the miscreants in public office. Who rembers Dan Rostenkowski? Who can forget Ken Lay?

nb

Posted by: nanobrewer at July 25, 2011 1:29 AM
But nanobrewer thinks:


And who knew they made Porsche in mini-Matchbox? Not me, nooooo.....

Posted by: nanobrewer at July 25, 2011 1:38 AM
But jk thinks:

Ahem! Mini-Matchbox Collector's Edition®...

Posted by: jk at July 25, 2011 10:50 AM

July 21, 2011

Gangster Government

Shall we play, duelling pretty-smart folk? While the WSJ Ed page can find some nuggets to praise in the Gang-of-Six plan outline, the pretty-smart people at Investors Business Daily's Ed page see worse and worser.

And what details it does contain show that the gang has employed some of the most egregious budget tricks available to make the spending cuts look bigger and tax hikes smaller than they actually are.

The best example of this is the plan's tax proposal, which alternately boasts that it cuts taxes by $1.5 trillion and raises them by $1 trillion, but which more likely will result in taxes going up by more than $3 trillion.

And then there are the spending "cuts."

Plus, most plans take current spending levels as a given, and make "cuts" off this hugely inflated base, ignoring the fact that federal spending has rocketed upward by an astonishing 24% in just the past three years.

A credible plan would bring spending as a share of the economy back to prerecession levels. That would mean a spending cut in the neighborhood of $450 billion next year.

And the close:

The fact that more and more lawmakers on both sides of the aisle are willing to sign onto the phony Gang of Six plan, and that Obama would lend it his effusive praise, is a testament to why the country is in such deep fiscal trouble.

UPDATE: Washington Examiner Ed page - Gang of Six Plan is More Smoke and Mirrors

Posted by JohnGalt at 2:54 PM | Comments (0)

July 19, 2011

Ohh boy, do you really want to start this?

Professor Mankiw links to a paper that describes the, umm, well, a relationship between GDP growth and uhh...

This paper explores the link between economic development and penile length between 1960 and 1985. It estimates an augmented Solow model utilizing the Mankiw-Romer-Weil 121 country dataset. The size of male organ is found to have an inverse U-shaped relationship with the level of GDP in 1985. It can alone explain over 15% of the variation in GDP. The GDP maximizing size is around 13.5 centimetres, and a collapse in economic development is identified as the size of male organ exceeds 16 centimetres.

Now this is a serious, academic instrument and I don't want to see discussion degrading into puerile puns and childish observations. Like for instance, "inverse U-shaped? Ow!" That's definitely out of bounds.

Hat-tip: N. Gregory Mankiw, Size Matters

Posted by John Kranz at 2:20 PM | Comments (2)
But Keith Arnold thinks:

"Laffer curve." 'Nuff said.

Posted by: Keith Arnold at July 19, 2011 2:43 PM
But jk thinks:

Kknnnnccccchhhhhhhhhhhh!

Posted by: jk at July 19, 2011 2:50 PM

July 18, 2011

Reinstating Liberty Would Cost How Many Jobs?

James Pethokoukis has some substantive ammo against the claim that "Cutting spending by $111 billion, as some Republicans want to do, would cost the economy 700,000 jobs."

Now I will admit that I am not sure if those are jobs somehow not created, jobs somehow not saved or what exactly.

But the basic point is that less government spending means fewer jobs. But to believe that, you also have to believe that more government spending means more jobs.


Jimi P shares some data on both sides and comes down squarely in the "bull****" camp:
I have expressed my doubts about this before, as has economist John Taylor who, after examining data as opposed to models, concludes this about the Obama stimulus (bold is mine):
Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers. Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view.

Have to agree with his conclusion: "Kill jobs? The GOP plan would potentially be a powerful job creator."

The point essentially becomes a referendum on Keynesianism. David Boaz reminds (in a different context):

Everybody talks about the return of Keynesianism these days. We've ratcheted up federal spending in a vain attempt to put people back to work. But Lord Keynes himself suggested that 25 percent of GDP was the "maximum tolerable proportion" that the government should take. And total government spending in the United States is already around 39 percent and headed up if we don't make changes. We are creating an unaffordable and economically destructive transfer state.

Posted by John Kranz at 3:04 PM | Comments (3)
But Keith Arnold thinks:

"Cutting spending by $111 billion, as some Republicans want to do, would cost the economy 700,000 jobs."

I have no problem with that, assuming it's public-sector jobs - bureaucrats, apparatchiks, welfare workers, DMV drones, BATF gunwalkers, IRS martinets, and the vast army of other slugs drinking from the government trough - that we're talking about. Imagine the powerhouse of the American economy, fueled by this addition of laborers suddenly having to find something useful and productive to do in order to survive!

Posted by: Keith Arnold at July 18, 2011 4:21 PM
But jk thinks:

I can think of 535 folks we could live without...

Posted by: jk at July 18, 2011 4:29 PM
But Keith Arnold thinks:

Yes, but how many of those 535 could compete for productive jobs? Can you honestly imagine Sheila Jackson Lee, Henry Waxman, Barbara Boxer, or several hundred of those in this sample, seeking employment in this economy? Cruel man, you would force these people into bread lines and soup kitchens.

I can see myself hiring a downsized IRS desk jockey to do my bookkeeping, or maybe collections; for members of Congress, though, we'd gain by their firing (getting their hands off the controls), but not the secondary goal of turning them into productive members of society. I'm not convinced many of them have that ability.

Snark.

Posted by: Keith Arnold at July 18, 2011 6:30 PM

July 13, 2011

Leftist Democrat cites Laffer; Calls for Tax Cuts to Grow Government Revenue

First-term Democratic Congressman Jared Polis, representing Colorado's second congressional district including the very left-leaning city of Boulder, wrote an op-ed for the Wall Street Journal today that among other things suggested lowering tax rates "to more reasonable levels" in order to "make revenues increase." He calls it Raise Revenues, Not Taxes.

In my home state of Colorado, and in 15 other states and the District of Columbia, local revenues have increased by millions of dollars since lawmakers decided to legalize and regulate medical marijuana. By reducing the current 100% confiscatory tax on marijuana to more reasonable levels, we can make revenues increase. If we were to nationally legalize, regulate and reduce federal taxes on marijuana, we could receive as much as $2.4 billion in additional revenue annually, according to a 2005 study conducted by Harvard economist Jeffrey Miron.

If true, this could be the tip of a very large iceberg of new government funds. If lowering tax rates on the relatively small market commodity marijuana can bring in upwards of two billion dollars the results would be even more substantial when applied to mainstream commodities such as tobacco, transportation, communications, and even coal, oil and other fuels. And there's no reason to limit this new principle to excise taxes. Income taxes, capital gains taxes and inheritance taxes are all ripe targets for this simple approach to replentish the government's coffers.

Please call or write your congressman today and urge them to give their full support to Representative Polis' plan to pay off the debt and grow the economy buy cutting tax rates wherever they may be found. Congressman Polis is brilliant and his idea could be the bipartisan breakthrough we've been waiting for! And if his plan is implemented he deserves to be re-elected for as long as he remains its champion.

Posted by JohnGalt at 2:58 PM | Comments (2)
But jk thinks:

At the risk of contravening the gag rule...

I think the point is that the Feds currently have a ridiculous fake tax on marijuana that exists only to provide the enforcement community with an Al Capone prosecution play: "Your honor, Mister Dogg failed to purchase tax stamps for that illegal stuff he was caught with." A bona-fide tax similar to liquor, collected by legal vendors would create an actual revenue source where none exists now.

Posted by: jk at July 13, 2011 6:24 PM
But johngalt thinks:

I'm not very well versed in marijuana law or taxation, but if Congressman Polis says reducing the tax rate on it will increase tax revenues I'm willing to take him at his word. Let's do it! Reduce the tax rates on marijuana and every other excise, income, capital gains, inheritance and any other tax across-the-board. I'm sure such a bill could easily be written within the 2000-page scope that has become fashionable since January of 2009. Then we can avert a budget crisis and consider omnibus goverment spending reform without fear, uncertainty and doubt.

Posted by: johngalt at July 13, 2011 9:15 PM

June 22, 2011

Newt: Audit the Fed!

One of many good outcomes from the cratering of the Newt2012 campaign is that the man is becoming bolder. Now he says, "Audit the Federal Reserve."

"This economy is going to stay mired in a bad economy until we bring the Fed under control, and we repeal the Dodd-Frank bill."

Now, linking arms with Ron Paul, we have two candidates who won't be elected calling for the audit of Greenbacks Incorporated.

Full Disclosure: I agree with them.

Posted by JohnGalt at 3:36 PM | Comments (6)
But jk thinks:

The Fed has problems. I cannot see how "add Congressional meddling" fixes any of them.

Repeal Dodd-Frank, though, I am on board all the way!

Posted by: jk at June 22, 2011 4:04 PM
But johngalt thinks:

Oh, I dunno, disinfecting sunlight?

For a long time the Quixotic "audit the Fed" mission has been the baileywick of crackpots like G. Edward Griffin, Bernard von Nothaus and Ron Paul. Now it's either become a respectable idea or Newt's become a crackpot. Time will tell.

Posted by: johngalt at June 22, 2011 8:12 PM
But gd thinks:

Yesterday's crackpot oftentimes becomes tomorrow's genius. Yet another Republican following the lead of "crazy" Ron Paul.

The movement to audit the Fed is far more about transparency and figuring out just how much the Fed has devalued the dollar as it is congressional meddling. Faith vs. Truth my friends.

Posted by: gd at June 22, 2011 10:47 PM
But jk thinks:

When you guys say "Fed Audit" you picture Rep. Ron Paul grilling the FOMC over the devaluation of fiat money and demanding Constitutional purview for expanding their balance sheet.

When I hear "Fed Audit" I picture Reps. Henry Waxman and Barney Frank grilling an unknown Fed Governor over "why weren't more loans made to minority homeowners?"

Fed independence is worth cherishing. The Executive Branch may name the Chair.

Posted by: jk at June 23, 2011 12:08 PM
But Boulder Refugee thinks:

The Refugee has often said that Newt would be a great cabinet-level functionary. POTUS? Fugedaboudit. Whether he's a crackpot or not, his campaign is cracked up.

Posted by: Boulder Refugee at June 23, 2011 3:05 PM
But johngalt thinks:

I see a world of difference between auditing and regulating. Are you saying America is better off not knowing who gets the rake-off from old dollars being replaced with new, devalued dollars - and how much unearned wealth that amounts to? Or how much the US has in gold bullion reserves (and maybe how much it has gone up or down over time?)

I'm with gd. This is one "crazy" idea I'm on board with.

Posted by: johngalt at June 23, 2011 3:46 PM

June 20, 2011

Another Stimulus. This One for Free

Permanent tax reform would be the best, but James Pethokoukis makes a powerful case that a temporary tax holiday for repatriation would still be good. Quoting Economist Douglas Holtz-Eakin in a study for the U.S. Chamber of Commerce

If you think of it this way: There's over a $1 trillion out there, so let's suppose something like $830 billion came back, which I chose specifically to match exactly what [President Obama's American Recovery and Reinvestment Act] was. Like the [ARRA], this would flow into the economy and go into corporations first, but they would then either make real purchases with it -- salaries, payroll, capital investment, R&D and that would would further flow into the economy -- or they would change their financial structure: share repurchases, debt reduction, dividends.

Secretary Reich and Paul Krugman love to whine that the stimulus wasn't big enough. Well, lads, here's a chance to double it without passing the bill to our grandchildren. What's not to like? Oh yeah, some rich people will be happy. Nevermind.

Posted by John Kranz at 12:42 PM | Comments (0)

June 2, 2011

From the Bridge - Report of the Watch

On this day after the S&P 500 and NASDAQ both took 2.3% hits let's review the "Latest News" story links on Investors.com.

10-Year Real Wage Gains Worse Than During Depression
For-Profit School Stocks Soar On Less-Harsh Rule
Hiring, Factory Growth Stalling -- Just Temporary?
White House Touts Auto Bailout Losses as Big Success
(Skip a couple, and then)
Editorial: U.S. Is Already In a Growth Recession

Ya think?

Recent data show a shocking turn south. While some worry we might soon experience a double-dip recession, we're already in a kind of recession a growth recession. That's where the economy is barely eking out enough growth to create jobs. And the number of jobs being created isn't enough to sop up the unemployed and new entrants to the workforce.

Consider these data, all from one day:

You'll have to click through for the full, grisly accounting. Meanwhile, try to find a dry, secure place to hunker down on the U.S.S. Titanic.

Posted by JohnGalt at 2:56 PM | Comments (0)

May 24, 2011

Professor Miron!

For all your friends who think you're a crank, but would listen to your goofy ideas were they said by a Harvard Professor:

Posted by John Kranz at 3:14 PM | Comments (1)
But johngalt thinks:

Dang, he sounds just like JK!

Posted by: johngalt at May 25, 2011 3:02 PM

May 18, 2011

Limericks Économiques

Answers Professor Mankiw's Connundrum:

Said a Harvard professor of econ,
"That Google's got something unique on:
They have cash by the score,
Yet still borrow more;
This is something I've puzzled all week on."

Said an expert in cross-border taxes,
"I should hope the professor relaxes;
As Google keeps cash
In an overseas stash,
'Til taxation here wanes and not waxes."

Posted by John Kranz at 1:46 PM | Comments (0)

May 17, 2011

Chart of the Day

I saw this on Stossel last week. I did know that it was illegal to trade futures contracts for onions. Should we open one in Ireland? Maybe a seasteading Vidalia Merc, like Pirate Radio?

The powers that were could not tolerate those evil speculators driving the price up. So, in 1958, it was outlawed. I wake up every day thinking government has lost the power to astonish me, and I am nearly always proven wrong.

So, derivative foes, you got your wish. How's that hopey-changey unhedged commodity market working for you:

Ouch -- it looks a lot more volatile than oil. Huh...

Posted by John Kranz at 1:01 PM | Comments (0)

May 11, 2011

Slate-o-nomics

Andrew Leonard writes a balanced and informative piece on Austrian economics in Slate. It's good enough to get an approbationary link from the LvM Institute Facebook page.

But it is Slate after all, so it has this explanation in the second-to-last paragraph:

But the correctness of Austrian theory is beside the point. Because if it was ever applied in practice by actual politicians, the voting public would become more than just annoyed. If the response of the Bush and Obama administrations to the financial crisis of 2007-08 had been to allow every beleaguered financial institution to go bankrupt while simultaneously endeavoring to balance the budget while government revenues tanked and social welfare obligations spiked, the economic devastation would have been well nigh unthinkable. There simply would be no political future for politicians who simply abandoned the general public to the viciousness of the free market.

Oh yes, that would have sucked, huh? What if we had not thrown trillions of dollars at market distortions? Almost too horrible to think of.

UPDATE: The Jacket notices the article as well in "Ludwig von Mises is My Homeboy or, Praxeology Today, Praxeology Tomorrow, Praxeology Forever!" (Just how many headlines of the day can we have around here?)

Posted by John Kranz at 4:43 PM | Comments (1)
But Perry Eidelbus thinks:

Don Boudreaux recently explained:

Economically literate opponents of the Detroit bailout never denied that pumping hundreds of millions of taxpayer dollars into Detroit automakers would restore those companies to health. Instead, they argued, first, that bailing out Detroit takes resources from other valuable uses. Because he doesn't even recognize that other valuable uses were sacrificed by this bailout, Mr. Dionne offers no reason to think that the value of saving Detroit automakers exceeds the value of what was sacrificed to do so. No legitimate declaration that the bailout is successful is possible, however, without evidence that the value of what was saved exceeds the value of what was sacrificed.
Now, I myself argued both "the unseen" and that it was a bad idea. I've only said a hundred times that there's a damn good reason private investors wouldn't touch these companies or toxic assets with a 10-foot pole.

Some of the largest banks, e.g. Goldman, repaid the federal loans by issuing new shares...something they could have done in the first place.

Posted by: Perry Eidelbus at May 11, 2011 10:40 PM

May 9, 2011

Somebody Call a Waaaaambulance!

WSJ:

When silver prices hit a three-decade high last week, David Zornetsky decided to do some buying. Searching for a job, the 31-year old in Beacon, N.Y., hoped to use gains from silver to finance a move to New York City and to pay down student loans. "I had been hearing that silver could go up to $150 an ounce this year," says Mr. Zornetsky.

Yeah, he could move to New York City and be a trader! Start his own hedge fund -- I'd call it the Three-Decade-High Super Awesome Fund!

Posted by John Kranz at 5:50 PM | Comments (2)
But Keith Arnold thinks:

Thoughts:

(1) Speculator! Clap him in irons and send this capitalist oppressor of the masses to a re-education camp!

(2) Oh, smart - buy in when the commodity hits a high. The dictum here is "buy low, sell high." If we're near the peak of a metals bubble, I hope the student loans he's trying to pay down weren't for a degree in Economics. Perhaps he could get his money back on that diploma.

Posted by: Keith Arnold at May 9, 2011 5:59 PM
But jk thinks:

The TDHSAF only purchases assets when they are at three decade highs! Please read prospectus carefully before investing...

Posted by: jk at May 10, 2011 10:27 AM

Disposal of the Means of Production

Mises defines ownership as the ability to dispose of the means of production. As they say 90 years later: <singsong>Geeen - ius!</singsong>.

Free market folk love rent control because it is so easy to discredit. It harms those it is supposed to help. It harms those it is supposed to harm. And it harms those it is not supposed to affect. A real lose-lose-lose proposition.

Professor Mankiw links to a look at rent control in San Francisco, CA. The city by the bay has -- in addition to Tony Bennett's heart -- 31,000 vacant residential housing units: one in 12! While it, of course, remains perhaps the most difficult renter's market in the country.

Huh? What could possibly disconnect supply from demand so?

To know one big reason why, ask Wayne Koniuk. By trade, Koniuk fashions artificial limbs for amputees. By habit, he fits prostheses at no charge for people who cannot pay. This has left him a less-than-wealthy man.

But he does have one substantial asset: a Divisadero Street building that his father, Walter, an orthotist, bought in 1970 and gave to his only son in 2001 so Wayne could run his business on the ground floor and Waynes adult children would always have a place to live.
[...]
Koniuk, who himself lives in suburban Belmont, gave a half-interest in the building to his older son in 2007 so he could evict a tenant and move in himself. But under San Francisco's extraordinarily pro-tenant housing laws, landlords can do this only once per building.

So while Koniuk desperately wants to move his younger son into the building's other four-bedroom apartment, he cannot. He is exploring legal options. Robert Murphy, who has lived there for 30 years without a lease, remains, paying $525.82 a month.

Last spring, Koniuk offered Murphy $45,000 to move out. Murphy's lawyer demanded $70,000, a sum Koniuk says he does not have. Meanwhile, the city's Rent Board notified Koniuk that he was allowed to increase Murphy's monthly rent this year by $2.63.


By what insane definition does Koniuk "own" this asset? No doubt, he has the privilege of paying taxes on it (those probably aren't very high in San Francisco, huh?)

Perhaps he should hit his tenant with the full allowed rate increase of $2.63/month. Murphy would never pay $528.45 for a four bedroom...

Sickening.

Posted by John Kranz at 11:05 AM | Comments (11)
But Boulder Refugee thinks:

Let's get the guy's address and send him one of JG's bumper stickers.

Posted by: Boulder Refugee at May 9, 2011 5:35 PM
But Keith Arnold thinks:

I made the mistake of reading the reader comments to the Bay Citizen article. I wouldn't wish upon any of you the damage I may have suffered. People sympathize with Koniuk, not because he owns the property, but because he "gives back to the community;" others sympathize with Murphy, not because he has any just ownership rights, but because he's older and has lived there so long. No surprise that both sides are motivated by feelings and class warfare.

It occurs to me that Kuniak's only real ability to dispose of the means of production is to make sure he has an alibi, burn the building to the ground, and collect the insurance. Just try to tell me you didn't think the very same thought.

Posted by: Keith Arnold at May 9, 2011 5:55 PM
But jk thinks:

Again, I'm laughing. This guy's a doctor in SF. Serving the underserved. I am betting his Prius is covered in Obama-Biden and Boxer 2010 stickers.

Posted by: jk at May 9, 2011 5:57 PM
But jk thinks:

I dunno, Brother Keith, when the US officially moves to an economic system basted on sympathy, I might have severe comparative advantage...

Posted by: jk at May 9, 2011 6:07 PM
But johngalt thinks:

I've been debating whether to ever put this in writing lest it get me on a (rhymes with scotch) list somewhere but it just feels so right I can't keep it to myself any longer. (And if there ever was a story to which it was an appropriate comment, this is it.) "You can't beat city hall... but you can blow it up." Seems to me that'd be a good T-shirt. [Note to FBI and Homeland Security - This is SPEECH. See First Amendment.]

Posted by: johngalt at May 9, 2011 7:34 PM
But dagny thinks:

If and this is a BIG if, "his Prius is covered in Obama-Biden and Boxer 2010 stickers," then I say he should be allowed to reap what he has sown and I have little sympathy.

Posted by: dagny at May 9, 2011 8:54 PM

April 29, 2011

Degrees of Selfishness

Another rich, white, male, "gay-hater" says capitalism is better than socialism:

Yet, while [entitlements are] producing increasingly selfish people, the mantra of the left, and therefore of the universities and the media, has been for generations that capitalism and the free market, not the welfare state, produces selfish people.

They succeed in part because demonizing conservatives and their values is a left-wing art. But the truth is that capitalism and the free market produce less selfish people. Teaching people to work hard and take care of themselves (and others) produces a less, not a more, selfish citizen.

But does that make him wrong?

And I love his close: "Capitalism teaches people to work harder; the welfare state teaches people to want harder."

Posted by JohnGalt at 10:50 AM | Comments (2)
But jk thinks:

Of course he's not wrong. I agree with a lot of Mr. Prager's opinions. I used to enjoy his column in JWF -- those were the days!

Likewise, I loved Michelle Malkin, read a couple of Ann Coulter's early books. A short time ago, Brother br quoted Bernie Goldberg. Goldberg wrote two incredibly powerful and important books on media: "Bias" and "Arrogance."

Then he wrote "The 100 Worst People in the World." I bet that was cathartic and I have no doubt that he was hurt by the bridges he burned writing his serous media critiques.

But I find Prager, Coulter, Malkin and Goldberg to be of little worth in any serious advocacy. Like the swiftboaters, you bring up a substantive comment or opinion and immediately have to defend the speaker's most outlandish statements.

I don't know if that is fair but I know it to be real. I don't mind defending the most outlandish statements of Milton Friedman, FA Hayek, or Ludwig von Mises.

Posted by: jk at April 29, 2011 11:38 AM
But johngalt thinks:

I think that was my point: "But does that make him wrong?" In other words, do you have any rebuttal aside from ad hominem?

One need not defend every statement a man makes in order to defend one such statement.

Peace on.

Posted by: johngalt at May 1, 2011 1:31 AM

April 28, 2011

It's Time to Weigh In...

I love these, but ten minutes seems a little long. Oh well:

Posted by John Kranz at 10:49 AM | Comments (1)
But johngalt thinks:

Well done! Fittingly that guy who got the anal exam really kicked some ass. And yet...

Let me get this straight: The guys at the top need to decide, "What should we have, more bottom up or more top down?" What could possibly go wrong?

The reaction of the crowd on the other hand is explained by the travails of one Gail Wynand.

Wynand had thought he had power. He believed that his papers molded public opinion. Bitterly, he discovers that his papers never belonged to him, but to the crowd -- and that public opinion dictated his policies, not vice versa.
Posted by: johngalt at April 28, 2011 3:13 PM

April 23, 2011

"No one should ever underestimate politicians' ability to continue to make the wrong policy choices"

While the Fourth Estate sleeps at the switch it is good to see that someone is watching out for icebergs on the horizon for the "full faith and credit of the United States." The "young pinkies from Columbia and Harvard" who roam the halls of the Obama Administration seem to think they can steer the ship of state directly toward said icebergs with no consequence.

It's no surprise that the White House would try to hide its poor stewardship of the public fisc in order to continue its perverse policies that have only made the problem worse.

It would at least be consistent. As we noted last Tuesday, the administration is reportedly engaged in a disinformation campaign to cover up the depth of the burden that's been dumped on American families.

The fiction is found on the White House's Federal Tax Receipt website. It says a family of three earning $50,000 a year pays a mere $19 in interest on the national debt.

Whether it's an honest mistake or a cynical fabrication, the administration's claim is still wrong.


Posted by JohnGalt at 2:05 PM | Comments (0)

April 13, 2011

Can't Do It Justice

Walter E. Williams, apparently anticipating POTUS's plan to soak the rich in order to close the budget, penned a piece in Townhall.com titled "Eat the Rich." Basically, he lays out in hard numbers how this can't possibly be enough.

No pulled quotes here. You have to read it for yourself - it's that good.

Hat tip: Mike Rosen, KOA Radio

Posted by Boulder Refugee at 6:10 PM | Comments (0)

Goring The Refugee's Ox

Three Sourcers may know that The Refugee is an avid hunter, has a bird dog in training and loves tromping through the weeds hoping that a non-native ringneck pheasant will spring into the air. Recently, he decided that he should support Pheasants Forever (PF), a group dedicated to improving habitat.

He just received his first magazine issue from the group, the Spring 2011 publication. The theme for this edition was the Conservation Reserve Program (CRP). For the non-hunter/non-farmer types reading this blog, CRP is a program in which the government pays farmers to not plant crops. The payments can be as high as $190 per acre; approximately 30 million acres are in CRP. At $190/acre, that's $5.7 ba-ba-billion, though the actual number is probably somewhat less. In return, the farmer agrees to keep the land out of production for 10-15 years and plant it with native grasses and other habitat cover. Many organizations, including PF, credit CRP with a resurgence in pheasant, duck and other huntable populations.

Without giving any actual numbers, PF claims in an article that CRP has a "proven track record of taxpayer return on investment worth celebrating." Really? How does the taxpayer get money back? According to PF, it comes back in the form of hunter dollars spent at motels, restaurants, gas stations and the like. Five billion worth? Doubtful. But even if true, the vast majority of taxpayers never see a dime of the "return." It just another government-sponsored money transfer.

A later article in same issue infuriated The Refugee. Basically, it was a how-to guide for landowners to qualify for the most Federal jack. The author, Rob Drieslein quotes Brooks York, who manages 300 acres:

My message to many farmers is that you've got $280 per acre in fertilizer, chemical costs and seed and you've got a piece of ground that producing $100 or maybe zero dollars in crops, then you're much better off getting paid $135 from the government not to farm it.

Not to put too fine a point on it, but if your costs are $280 and your revenue is $100, you're better off not planting it even without the government cheese. Why should the taxpayer fork over his hard-earned money so that the farmer can sit in and easy chair and get paid?

The perverse aspect of this arrangement is that the government provides price supports that guarantee a profit to the farmer, which is an incentive to farm more. Then, too many acres are farmed, so Uncle Sam pays them to not farm it. How 'bout if we take away the price supports and the CRP funds? Then, farmers will make an intellegent economic decision. Fallow acres will still supply habitat for critters.

The Paul Ryan budget supposedly removes farm subsidies. How far it goes is unknown to The Refugee. Even though The Refugee's hunting might be impacted, there's no reason for taxpayers in suburban Orlando to pay farmers in Kansas to plant grass just so The Refugee can blast away at glorified chickens.

May the ox rest in peace. In his own budget cutting move, The Refugee will be saving the cost of a PF membership next year.

Posted by Boulder Refugee at 2:38 PM | Comments (4)
But johngalt thinks:

Stop government grants not to farm that are more valuable than government subsidies to farm? EXTREMIST!

For what it's worth, as I drove home to the farm last night a male pheasant flew directly across my path from one fallow field to another. [sarcasm] Ain't that proof that government works?[/sarcasm]

Posted by: johngalt at April 13, 2011 3:42 PM
But Boulder Refugee thinks:

Nah, JG, you're missin' out here. Think about putting your place into CRP. At $190/acre, it's entirely possible that you could buy hay to replace what you wouldn't grow on yours. Consider: no irrigating, swathing, baleing or stacking. Sell your baler and swather and take the family to Disneyland. Best part: the taxpayer pays to feed Sampson. Pretty attractive, no?

Posted by: Boulder Refugee at April 13, 2011 5:54 PM
But mdmhvonpa thinks:

PF bought our family farm in upstate MN a while back. Minus the DNR (Mn Dpt of Natural Resources) acres, it just was not panning out any more.

Posted by: mdmhvonpa at April 14, 2011 11:52 AM
But Boulder Refugee thinks:

I have no issue with PF buying land for habitat preservation or conducting habitat improvement projects (and they do a lot of them.) Those activities are done with private donations and (mostly) volunteer labor. They also have staff biologist to advise on habitat restoration.

My issue is when they lobby for and promote the use of public funds for those purposes or when the biologist become consultants for maximizing government jack. At that point, they are just another rent-seeking organization.

Posted by: Boulder Refugee at April 14, 2011 1:32 PM

April 12, 2011

Quote of the Day

Moody's estimated that the original Republican plan for $61 billion in cuts would cost 700,000 jobs. It looks like the final package will end up with cuts that are roughly two-thirds this size, which should translate into 400,000 lost jobs. -- CEPR's Dean Baker, in an interesting compendium on the budget deal.
Simple math, really.
Posted by John Kranz at 11:24 AM | Comments (0)

April 11, 2011

Economic Laws Still in Effect

"Unintended consequences?" Heck, I'd file it under "unimaginable success:"

Although only 142 homes were built under the ordinance, they went up in all parts of the city to help diversify Longmont's housing stock, Fedler said.

But some say the program left Longmont with a glut of affordable homes -- more than 690 have been built through the affordable-housing fund -- while stifling home construction in today's tight economy.

The 10 percent requirement, they say, is dragging down profits and cutting into a builder's ability to get credit.


I thought they wanted affordable housing...

Posted by John Kranz at 1:38 PM | Comments (2)
But johngalt thinks:

Affordable for whom? City taxpayers can't think a $988,000 foreclosure writeoff is any kind of bargain for them.

Posted by: johngalt at April 11, 2011 3:41 PM
But jk thinks:

I wish our out-of-staters were familiar with the city of Longmont. It is an oasis of non-Boulderism within Boulder County. With trailer parks and meat-packing plants beside high tech industries and Boulder commuters, I'd call the city pretty diverse without the aid of gub'mint. You have an equal chance of seeing a mullet or a Porsche on Main Street.

But legislators love to close the barn doors when the cows are safely away, and this response to an overheated housing market arrives just in time to thwart any chance at recovery.

Seems like there might be a lesson in here somewhere.

Posted by: jk at April 11, 2011 7:11 PM

March 30, 2011

On Energy Independence

Brother jg suggested that I might enjoy a turn shooting down the moronic idea of energy independence. My usual response is to admit to my interlocutor that I am completely dependent on the grocery stores for food. How do I know that King Soopers likes me? This is my family's life we're talking about...

But I'll do one better by outsourcing my response to Professor Allen Sanderson.

My fellow Americans,

For too long, the United States of America has been at the mercy of foreign interests -- and nations in faraway lands that are often at odds with our core values -- when it comes to the production of perhaps the vital resource that drives our economy. We remain far too dependent on this imported commodity that could, in the time of emergency or international political crisis, be denied to us and thus cripple our productivity and reduce us to quivering masses of migraines in a matter of hours. The time for change is now.

I speak, of course, of our complete dependence on coffee that we are importing mainly from Brazil and Colombia. It's time to wean ourselves from this harmful addiction. My "Coffee Independence" proposal is the key first step.

We may constitute only 5 percent of the world's population, but we consume fully a third of the planet's coffee. This nation runs off coffee, most all of it from a sketchy continent. Should we be cut off by one of these sources, for our caffeine fix we'd be forced to drink Coca-Cola for breakfast as well as 10 other times a day.


His solution? I'll just say that involves Detroit...

Hat-tip: Prof Mankiw

Posted by John Kranz at 5:15 PM | Comments (0)

March 28, 2011

Comparative Advantage

Hat-tip: Ludvig von Mises Institute's Facebook page

Posted by John Kranz at 5:19 PM | Comments (0)

March 22, 2011

TARP Bait

Whether it is Barney Frank and Chris Dodd, or Franklin Raines, or Jimmy Carter and Bill Clinton, or "Wall Street" who is really to blame for the 2008 mortgage crisis that launched the current recession, the silver lining is that we've seen what harm can be done by lending large sums of money to people who can't pay it back and the government will certainly put an end to that dubious practice, right? Umm, no.

The Federal Government has a home loan program specifically for federally enrolled tribal members, on or off reservation land.

30 year fixed rates with NO PREPAYMENT PENALTY
Maximum loan amount $544,185
Minimum down payment 2.25% (in some cases 1.25%)
Seller can pay up to 6% of your closing costs
No credit history required
Flexible underwriting for credit issues
No history of receiving per capita required
No monthly mortgage insurance required
Single family, 2-4 units, condos, manufactured homes
Purchase loans
Refinance
Rehab loans
Construction loans
Homebuyer counseling service available for all clients

[emphasis mine]

Posted by JohnGalt at 3:26 PM | Comments (1)
But jk thinks:

What. Could. Possibly. Go. Wrong?

I will throw in a good Tyler Cowen Quote. He points out that there are many parties you can blame for the financial panic, but it can all be explained in eight words:

We thought we were richer than we were.

Posted by: jk at March 22, 2011 3:39 PM

Tyler Cowen vs. Steve Forbes

I've been a big fan of George Mason Economist Tyler Cowen (what do they put in the water at GMU?) so I took a flyer and ponied up $3.99 for a Kindle version of his essay "How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better"

That's an uneconomical title, but an interesting essay, and an interesting sales model: publishing directly to econ fanboys like me. The problem with the model is that I have to summarize the piece to discuss it. Thankfully, the extended title helps. According to Cowen, we have achieved astounding growth and productivity gains because we have taken advantage of "low hanging fruit." And, according to Cowen, much of the current malaise is the absence of easy gains.

This runs counter to everything I believe. I confess that if I did not respect the author I would have discarded it halfway in. I'm one of the right wing zealots Cowen dismisses who thinks we can just lower taxes and return to historical growth. Not really, he is dismissive of those who feel the Laffer Curve will provide for huge spending increases. I ain't one of those.

Yet Steve Forbes (and I) think some better policies in Washington would unleash a little animal spirits, and that animal spirits will climb the tree if they need to find fruit (pardon the metaphor mash).

Reagan came into the White House facing an economy as troubled as ours--one that had even higher unemployment, catastrophic interest rates (18% for mortgages) and a stock market that in real terms had fallen 60% from its mid-1960s levels. When he left office eight years later, the U.S. had become an economic miracle: 18 million new jobs had been created; Silicon Valley had blossomed, becoming a global symbol for innovation; and the stock market was experiencing a bull run that, despite dramatic ups and downs, didn't end until the turn of the 21st century, after the Dow had expanded 15-fold. The expansion of the U.S. economy exceeded the entire size of West Germany's economy, then the world's third-largest.

I do not discard Cowen's theory. We need to recognize the headwinds we had. Free land, smart uneducated kids, game changing innovation in communication and transportation set up some easy growth scenarios. But if we could get Washington "the hell out of the way," a little Postrelian Dynamism would put us back on track.


Posted by John Kranz at 10:58 AM | Comments (2)
But Boulder Refugee thinks:

If I'm understanding Cowan's hypothesis correctly, it sounds like the famous misquote that "everything that could be invented already had been." Or, that all the oil in the world has already been discovered.

There are still huge gains to be made in transportation, technology and science. Someday, the car will look like the horse and buggy - hopefully in my lifetime. The biggest obstacle remains misallocation of capital due to government interference and crony capitalism plus crushing regulations that halt start-ups before they can start up.

Posted by: Boulder Refugee at March 22, 2011 1:13 PM
But jk thinks:

Down the (Wall) street from Forbes's article is an Ed Page piece, Whatever Happened to IPOs? that reminds:

New companies are the lifeblood of a capitalist economy. Every venture-backed start-up that grows into a public company could be the next Google, Intel, Starbucks or Amgen. Venture investment adds up to 0.2% of U.S. GDP, but the revenue of companies created with such investment amounted to 21% of the economy in 2008. The diminished ability of start-ups to hit the long ball with an IPO discourages investments at all the earlier stages. Venture capitalists know they need some equity home runs to offset losses in the thousands of firms that never find a market.

But, post SarbOx, annual IPOs have fallen to an average of only about 50. Doctor Cowen! Call your office!

At the same time, I have to say Cowen is not a run-of-the-mill pessimist. He takes many of the arguments you or I would make head on. If I can play GMU professor for a minute, he might say that transportation is likely to see incremental improvements. The economic benefit of anything short of teleportation, however, will not likely match the broad-based economic growth afforded by the trans-continental railroad.

Posted by: jk at March 22, 2011 1:32 PM

March 20, 2011

Adventures in Costco Shopping

As we endure our personal "pioneer decade" living in a 1913 home with 1913 size and slightly better amenities while first improving the rest of the property, we've been inattentive to the condition of the cookware in our miniscule kitchen with a paucity of storage space. One day last week I finally noticed the thoroughly worn-out condition of our, at one time, non-skick skillets. "Would you look for some new skillets the next time you're out shopping" I asked my dear dagny.

Her first shopping venture thereafter was to Costco, second only to WalMart as a purveyor of Chinese goods. She returned with a set of three heavy aluminum skillets with non-stick coating. When I asked what she paid I was told, "Twenty-four dollars." "Must be Chinese" said I. Au contraire! "This cookware was proudly made and assembled by U.S. workers." The fine print: "Cookware vessels made in U.S.A. Handles made in China. Designed, assembled and packaged in U.S.A."

All of this as entre to the popular myth that "everything is made in China now." Even the people who repeat this realize that America is still a manufacturing nation but believes that other nations, particularly China, produce more than America does. This November '09 blog post using 2007 data shows otherwise.

It's interesting that U.S. factories produced almost twice as much output in 2007 as China, and the U.S. produced an amount equivalent to the total manufacturing output of the four BRIC countries combined (Brazil, Russia, India and China).

But as I said, that was 2007 data. According to this data, linked from an Answers.com page, the 2009 manufacturing output of China was $2.05 trillion US dollars, of a total GDP of $4.98 trillion. By comparision, the manufacturing share of the US economy is $1.78 trillion of a $14.1 trillion total economy. (And that mfg. number is down slightly from 2008.)

So the big story is not just the incredible growth rate of Chinese manufacturing versus the meager growth, or even recession, of US manufacturing output. But that China has now, apparently, surpassed America in output of manufactured goods.

Perhaps a $14 trillion economy should be expected to produce more durable goods than a $5 trillion economy? The irony of course is that the nominally communist nation embraces capitalism with some vigor while the nominally free country villifies capitalism in many, many circles.

Posted by JohnGalt at 11:10 AM | Comments (4)
But jk thinks:

Call Lou Dobbs! How can a nation call itself great when others make its pot handles?

Posted by: jk at March 20, 2011 12:16 PM
But johngalt thinks:

Thank you for highlighting the weakness in my prose. I regrettably left myself open for misinterpretation: I consider the pot handles to be inconsequential. I only included all that detail because "made and assembled by U.S. workers" seemed like a dodge compared to "made in U.S.A." I was genuinely pleased by the origin of these pans.

And as I said, that was an entre to the main story.

Posted by: johngalt at March 20, 2011 2:10 PM
But jk thinks:

That goes in the blog comment compliment Hall of Fame I think: "Thank you for missing my entire point by such a wide margin..." Heh!

I did not know and am surprised that the US has been surpassed in manufacturing output. I find that interesting but not as relevant as many. I can cede comparative advantage in hard goods manufacturing to other countries.

As a hard-line Ricardian, I should admit that there might be room for more nuance than I give. But the Dobbsosphere has been energized by the new and deeply concerning political ideas of Donald Trump. I expect a bumpy ride.

Posted by: jk at March 21, 2011 10:31 AM
But johngalt thinks:

Right! Where you and I want China to produce and us to produce more, Trump wants to try tamping China's production down. (He'll argue that he wants a "level playing field" but he's still trying to achieve it by restricting China to complement how Washington has restricted America.)

Whether the loss of America' manufacturing crown is consequential or not, and whether the statistics are accurate or not (U.N. data?) it is quite clearly a watershed if and when it happens. And using the "shining city on a hill" approach by a decent GOP candidate (rather than the aforementioned protectionism of Trump) I would endorse its use in the 2012 presidential campaign against President Make-Believe.

Posted by: johngalt at March 21, 2011 3:13 PM

March 15, 2011

Growth Skepticism

While JK reads how to Make Peace With the Planet I am reminded of the strange dichotomy whereby "Progressives" oppose prosperity. For most of my life I took as a fact of nature that human prosperity is a necessary component of a happier and more rewarding life. For a long time it never seemed necessary to defend that idea, as it must certainly be universal held.

In Let it Grow, Daniel Ben Ami explains that the anti-growth agenda of Progressives is not merely a yearning for ecological preservation or social equality, but a reflexive response to what they viewed as the death of social progress.

Finally, and probably most important, is the demise of believing in social progress. For a long time, economic growth was closely linked to the more general idea of progress, including scientific and cultural advances. A more prosperous society was also seen as having the potential to be more humane. But as social pessimism has gripped America, the vision of the progressive potential of economic growth has also diminished.

What caused this social pessimism on the left?

This social pessimism has emerged over several decades. Its roots can be seen in the counterculture of the 1960s when the political Left, traditionally the most ardent supporters of social change, began to embrace green ideas. Rather than consider humans capable of reshaping nature for their own benefit, the outlook switched to one obsessed with natural limits.

The downbeat attitude was further reinforced with the end of the Cold War in the late 1980s. It was widely understood that this represented the death of socialism's traditional conceptions. Less commonly appreciated was the general acceptance that no form of improved society is possible. The "end of history" proclaimed at the time was really the end, at least for the time being, of the idea of progress.

Just as one America was going to the moon and inventing bioengineered crops and ever cheaper sources of energy, the other America viewed the death of the Soviet Union as the end of hope for a just society. For them, the vision of technological achievement no longer had any application. And if man can't even perfect his own social order, what business has he trying to perfect any other aspect of life on Earth?

In response I say, check your premises. What if socialism really isn't the perfect social order?

Posted by JohnGalt at 3:16 PM | Comments (1)
But jk thinks:

Both Mises and Postrel discuss a yearning for a utopia that never existed. Before capitalism, everything was swell.

Umm, yeah, if you don't mind freezing in the dark, dying at 42, devoting most of your time to sustenance...

Posted by: jk at March 15, 2011 5:58 PM

On The Other Hand...

I know. You're wondering what the typical professor of evolutionary biology and philosophy thinks about the tragic Japanese earthquake. Internet (via Insty) to the rescue:

Fortunately, the dead hand of Milton Friedman hasnt pushed laissez-faire capitalism upon the Japanese, as it threatens the United States. The Chicago school of economics had nothing but disdain, for example, for building codes, arguing that the all-mighty market would simply discriminate against shoddy construction and that consumers, free to make their own informed choices, would reward builders who make safe and solid houses. Who needs a nanny state when the market is free to work its magic? In fact, we all do!

This from David Barash of the University of Washington, writing in The Chronicle of Higher Education. See, Japan did better than Haiti (no codes) and China (codes not followed due to corruption). Ergo, only Japanese imperviousness to Austrian economics saved them.

I should be a professor...I could write this stuff all day. I look good in a tweed jacket with elbow patches. I already wear glasses...

Posted by John Kranz at 10:47 AM | Comments (1)
But johngalt thinks:

Japan needs to rewrite her building code to improve the anchor strength of structures to their foundations. All of those well-built homes floating around town caused some otherwise avoidable damage.

And I like how the NY Times credits Japan for "all along the Japanese coast, tsunami warning signs, towering seawalls and well-marked escape routes offer some protection from walls of water." Yet when New Orleans' seawalls were breached with far less fury no quarter was given to the Corps of Engineers for failing to anticipate that the surge would be 1 foot higher than the walls were designed to withstand.

Posted by: johngalt at March 15, 2011 5:50 PM

March 11, 2011

David Ricardo, Call Your Office!

This be good. America's Socialist Senator is outraged to find Chinese Tchotchkes (hey, that's a good band name...) in the Smithsonian! Take it away, John Stossel and Don Boudreaux:

I like GMU economics professor Don Boudreaux's response to this:
Does Bernie Sanders believe that America's future is made brighter by having American entrepreneurs and workers spending their resources, creativity, and efforts making trinkets?

It's appalling that a U.S. Senator is so utterly uncritical in his thinking that he judges the state of American manufacturing from the trinket shops. It's appalling that he is so magnificently uninformed that he describes as "collapsed" the manufacturing sector in the country whose manufacturing output is the world's highest.

What has happened is that American manufacturing has moved up-scale. Here's a quotation from an article that appeared in 2009 in the San Francisco Chronicle:

" -- America makes things that other countries can't. Today, 'Made in USA' is more likely to be stamped on heavy equipment or the circuits that go inside other products than the TVs, toys, clothes and other items found on store shelves."

The wages that would be paid to Americans employed in manufacturing such trinkets would be abysmally low by American standards -- wages so low that, were today's unemployed blue-collar workers willing to work at such wages, they could likely today find jobs as clerks at fast-food restaurants or as baggers and grocery-cart fetchers at supermarkets.

The Smithsonian itself is something of an import: James Smithson was a Brit. Is America made worse because this non-American's resources are used to provide services to Americans?


Posted by John Kranz at 2:24 PM | Comments (0)

March 10, 2011

When Jobs are Outlawed...

It's almost as if the minimum wage laws are not a good idea or something.

nom-min-wage-2006-2010.gif

Interestingly, the average number of employed members of the civilian labor force in 2006 was 144,427,000. In 2010, the average number of employed members of the civilian labor force in the U.S. was 5,363,000 less, standing at 139,064,000.

So, in percentage terms of the change in total employment level from 2006 to 2010, jobs affected by the federal minimum wage hikes of 2007, 2008 and 2009 account for 41.8% of the total reduction in jobs seen since 2006.


Wait a minute. You outlaw jobs and have fewer of them? If only there were some branch of science that could advise these politicians on items like this...

Hat-tip: Mankiw.

Posted by John Kranz at 4:38 PM | Comments (3)
But mike thinks:

how much of this is because of inflation, though? of course more people earned 7.25 or less in 2006 than 2010. the price and wage level has risen since then.

Posted by: mike at March 10, 2011 6:18 PM
But jk thinks:

Fair point, Mike. But I compute 2006-2010 Inflation at a hair under 8% using these against almost 41% increase in the minimum wage (from here). Not negligible, to be certain, but it does not invalidate the point.

Posted by: jk at March 10, 2011 8:59 PM
But johngalt thinks:

Shouldn't the graph heading refer to the number of individuals earning $7.25? There can't be any earning less than that, can there? That would be illegal, right? Illegal wages must mean illegal workers.

So to really understand what's going on I guess we need to know how many are paid the minimum wage and how many are paid less.

Posted by: johngalt at March 11, 2011 3:15 PM

February 25, 2011

WE'RE NUMBER ONE!

Mankiw finds:

The U.S. effective corporate tax rate on new investment was 34.6 percent in 2010, which was the highest rate in the OECD and the fifth-highest rate among 83 countries. The average OECD rate was 18.6 percent, and the average rate for 83 countries was 17.7 percent.

Take that, Sweden!

Posted by John Kranz at 1:40 PM | Comments (0)

February 23, 2011

Just Sayin'

Talk about a dual mandate:

In accounts of the political unrest sweeping through the Middle East, one factor, inflation, deserves more attention. Nothing can be more demoralizing to people at the low end of the income scalewhere great masses in that region residethan increases in the cost of basic necessities like food and fuel. It brings them out into the streets to protest government policies, especially in places where mass protests are the only means available to shake the existing power structure. -- George Melloan

Okay, Mister Bernanke, you have to keep the US at full employment, keep the currency stable, and preserve peace in the Mideast. For tools, we give you the discount window, bond purchases through the FOMC, and in extreme circumstances you may expand the Fed's balance sheet through other asset purchases.

When can you start?

Posted by John Kranz at 12:33 PM | Comments (0)

February 21, 2011

Telling Tale of the Day

Allison Luthe, a community organizer with Jobs for Justice in Indiana (and apparently on the fast-track to POTUS) commented on right-to-work efforts in states including Indiana:

"Businesses look at right-to-work as, like, number 24 out of 25 in their decision-making," she said. Asked about what the proposal could do to union membership, Luthe said it would be "devastating" but that it's not just a membership issue."
Sure, it's not a membership issue. She's admitting that workers would leave unions in droves if not forced to belong by antiquated laws.

Hat tip (and source): FoxNew.com

Posted by Boulder Refugee at 3:53 PM | Comments (0)

February 11, 2011

WSJ Ed Page 1, Kudlow 0

I'll give Larry Kudlow credit: he had this story on his show the night before last. The WSJ gets to it today.

But I was <Sen Tom Daschle voice>saddened and disappointed</Sen Tom Daschle voice> to hear Larry take a populist, nationalist, anti-free trade stance. Kudlow's a free trader, but he liked this deal about as much as Green Bay would like a Chinese purchase of the Packers. He had former SEC Chief Harvey Pitt on to explore avenues to hold up the deal through regulation and litigation.

The NYSE is a holy temple to Kudlow, I can dig that. But if you believe in what it stands for, and not the symbol, you must say "willkommen" to a firm that has the capital and thinks it can provide comparative advantage, no matter where it is located.

Kudlow's guests didn't push back, but most voiced the concerns of today's WSJ Editorial. The problem is that we starved the golden goose, not a Teutonic penchant for goosemeat.

If the merger proceeds, the temptation in Washington will be to fret about foreign ownership of U.S. financial assets. But far more constructive would be some reflection about Washington's contribution to sending these assets and trading offshore. The Dodd-Frank law requires mountains of new rules that will further burden U.S. financial players, not least in the new derivatives regime emerging from the Commodity Futures Trading Commission. We would not be surprised if the NYSE Euronext managers view the Deutsche Börse merger as a potential refuge for its derivatives business if CFTC Chairman Gary Gensler realizes all of his regulatory ambitions.

I think everybody would agree on the WSJ's conclusion:
For most of the last century, America could count on the size of its economy and quality of its technology to give it a competitive edge. No more. If we want the U.S. to be home to the next great financial institution, or even to keep the ones we have, our politicians need to make America a more inviting place to trade and do business.

Posted by John Kranz at 11:44 AM | Comments (1)
But Boulder Refugee thinks:

"...Teutonic penchant for goosemeat." Beautiful!

Posted by: Boulder Refugee at February 11, 2011 1:03 PM

February 10, 2011

Economic Euphamisms

Neoclassical theory certainly allows for agents to have high disutility of work (i.e., to be "lazy") and high discount rates (i.e., to be "short-sighted"). The logic of neoclassical welfare economics still applies to those at the extreme tails of the preference distribution: expanding the opportunity set of the lazy and short-sighted makes them subjectively better off. -- Scott Beaulier and Bryan Caplan
From a very interesting paper: Behavioral Economics and Perverse Effects of the Welfare State. (Hat-tip: Nick Shulz.)

Practice with me: "I am not lazy, I have a high 'disutility for work,' and can, on occasion, 'have a high discount rate.'"

UPDATE: And I'll pass out a Quote of the Day to the same paper:

It is wise to pursue paternalistic reasoning cautiously. (Glaeser 2006) There is a risk of redefining all behaviors you disapprove of as "self-control problems," and all beliefs you disagree with as "judgmental biases." The danger you pose to yourself is probably trivial compared to the danger of living under the veto of a randomly selected behavioral economist.

Posted by John Kranz at 1:05 PM | Comments (0)

February 9, 2011

Joke of the Day

Hey, today we learn economists can be attractive. And a noted professor displays actual humor:

The St. Louis Fed is running a video contest on the importance of an independent central bank. Winner gets a free lunch with Ron Paul.

Actually, $1,000.

Posted by John Kranz at 5:11 PM | Comments (2)
But Boulder Refugee thinks:

I sincerely hope the Fed Board passed the hat between them to get the $1,000. I fear, however, that they are using taxpayer money to create a justification for using taxpayer money. The joke is on us.

Posted by: Boulder Refugee at February 9, 2011 6:00 PM
But jk thinks:

They sold a few bonds in the FOMC, br, no biggie.

Posted by: jk at February 9, 2011 6:10 PM

February 2, 2011

America Falls to #9 in Economic Freedom

In the article JK linked on Ayn Rand's birthday the author lamented how even those who derive personal inspiration from Rand's opus 'Atlas Shrugged' "engage in the same tried-and-failed tactics of behind-the-scenes lobbying and appeals to the "public good" that have led to the shrinking of economic freedom over the past century."

Cue the Heritage Foundation, who compiles a worldwide Index of Economic Freedom each year. In the 2011 edition the USA is ranked #9, having been surpassed by Denmark last year and avoiding by 0.1 points being #10 behind ... Bahrain.

Posted by JohnGalt at 2:52 PM | Comments (1)
But jk thinks:

I'm shopping for a giant foam rubber hand on a stick with nine fingers held up. Maybe something in Red, White and Blue to show my pride.

Posted by: jk at February 2, 2011 3:08 PM

Good News

Administration opponents enjoy acc - cent - tu -at - ing the negative. Much as I love Professor Glenn Reynolds, he's a good example. His "CHANGE: " series has had a lot of value, especially when many media outlets were too enthusiastic in finding the cheeriest economic data.

But you can't fight the tape, and I posit it is wrong to cherry pick the worst data. It will spoil your beer and ruin your investment portfolio. The DJIA is well over 12K and the S&P500 over 1300 as I type. Life has got to be somewhere between Reynolds and Kudlow.

And this, from Mark Perry, is the greatest thing I have seen in a long time:
GDP_q42010.jpg
We have recovered ALL our pre-recession production without recovering employment. Now I feel for every American who struggles to find work. But productivity gains are where wealth comes from.

Of course, there are limits to efficiency gains, and as we soon reach those limits, hiring will pick up and the jobless rate will decline. But for now we can consider it a testament to the resiliency and efficiency of the U.S. economy, employing the world's most productive workers, that we were able to amazingly produce a record level of output in 2010 with 7 million fewer workers than in took three years ago to produce that same amount.

Posted by John Kranz at 2:42 PM | Comments (3)
But Boulder Refugee thinks:

The degree to which employment rebounds will be determined by the marginal cost of adding an employee. To that extent, the cost of Obamacare will be factored into a hiring decision and retard employment proportionally until higher productivity gains exceed higher costs.

Posted by: Boulder Refugee at February 2, 2011 5:39 PM
But jk thinks:

Oh yeah. This is NOT to let President Obama and the 111th off the hook for horrendous policy, just glowing in the resiliency of our national product that "we ain't dead yet!"

I would also suggest that as we start to reduce the marginal costs of which you speak and make future burdens less frightening, that we could enjoy an honest-to-goodness rebound.

Posted by: jk at February 2, 2011 5:47 PM
But johngalt thinks:

Macho Duck points out, via email, that GDP figures include government spending.

"The rationale for doing that is that "they" can't put a value on government activity, therefore it must be worth what it costs. I'm not making this up."

He estimated that a "real honest GDP" measure would flatten out around the bottom of the blue curve, mirroring civilian employment.

The author called this figure "Real GDP" but I'm not sure his BEA and BLS sources define "real" the same way he does.

Posted by: johngalt at February 9, 2011 1:10 AM

January 20, 2011

Honesty and Morality in Taxation

I didn't do so well in yesterday's effort to find a potent list of federal regulatory reforms for our ersatz "pro-business" president. Fortunately, blog brother JK was there to bail me out with the Armey/Kibbey article. But today I think I've done better.

Anyone who's been here more than a week knows that I believe taxation is moral issue, i.e. taking money from people against their will is theft, even if done by our "democratic" government. If I'm right, thinks I, then there's probably a high proportion of taxpayers who do whatever they can to lower their tax burden and consequently, limit how badly they are robbed.

This Freakonomics Quorum from 2009 includes some data related by University of Michigan economics professor Joel Slemrod:

About two-thirds of all underreporting of income happens on the individual income tax. Of that, business income -- as opposed to wages or investment income -- accounts for about two-thirds.

(...)

The I.R.S. estimates that the net misreporting rate is 53.9 percent, 8.5 percent, and 4.5 percent for income types subject to "little or no," "some," and "substantial" information reporting, respectively, and is just 1.2 percent for those amounts subject to both withholding and substantial information reporting.

So when taxpayers know they are being watched, they are honest, and when they know they are not, 53.9 percent of them are not. But how can this be? In the next paragraph Slemrod wrote, "In a recent survey, 96 percent of people mostly or completely agreed that 'It is every Americans civic duty to pay their fair share of taxes;'"

So 96 percent of us believe that paying "their fair share" is his duty but only 46 percent report all of the income that isn't traceable. Is there a better case to be made that roughly half of American taxpayers don't consider their tax rate to be representative of "their fair share?"

Posted by JohnGalt at 3:11 PM | Comments (2)
But Keith Arnold thinks:

Thought-provoking article, and an even more thought-provoking post. My contributions:

(1) 96% of people agreed that it is our civic duty to pay our fair share of taxes, but nearly half of Americans pay no income tax. Translation: at least half of America thinks it is everyone else's duty to pay their fair share of taxes, but not theirs.

(2) In light of your observation that "roughly half of American taxpayers don't consider their tax rate to be representative of 'their fair share'" and in tandem with point 1 above, the half that thinks their tax rate is too high is the half that is paying the taxes. Ergo, everyone actually paying taxes believe their taxes to be too high.

(3) We're all familiar with the respective levels of taxation of America, broken down by decile of income. I'd love to see that survey broken down by decile.

(4) Something not addressed is a discussion of how much of that underreporting is taking place in the margins of the shadow economy. This would appear to be more a function of the lower strata of our socioeconomic ladder, rather than the higher.

(5) None of the experts in the article propose as a solution simply doing away with the income tax system entirely, and relying instead on business taxes or a national sales/consumption tax.

Thoughts?

Posted by: Keith Arnold at January 20, 2011 4:30 PM
But jk thinks:

Milton Friedman is correct that the real tax rate is the rate of government spending. Looked at that way, I think more would consider their taxes too high.

Yet perhaps Professor Reynolds's words may be more germane than any economist's. Even though Brother Keith's #5 will bring in more revenue, more fairly, with minimal compliance and maximum growth: "there isn't enough chance for graft."

Posted by: jk at January 20, 2011 6:11 PM

January 19, 2011

Federal Regulatory Reform

President Obama issued an executive order yesterday that "requires Federal agencies to design cost-effective, evidence-based regulations that are compatible with economic growth, job creation, and competitiveness." This is not quite the "reform" language that was peddled in the press but that is ostensibly the goal: Start to get government out of the way of private sector job growth, at least a little bit.

On the same day, Politico reported that Congressman Darrell Issa (R-CA), incoming chairman of the House Government Reform and Oversight Committee, sought input from the private sector on what sorts of reforms would be helpful. This led to predictable outrage at HuffPo that Issa intends to mount a "purely partisan crusade" aimed at "protecting big corporations instead of creating middle class jobs." As if it is inconceivable that private sector job growth is the purview of corporations and trade associations.

I found this story while searching for reform ideas. Since I didn't find any I will start, as a public service, a group-sourced list of suggested reforms. My first entries are as follows. Please pile on in the comments.

- Abolish the federal minimum wage.

- Abort EPA efforts to regulate CO2 emissions.

- Eliminate all federal mandates for health insurance coverage and eliminate any federal restrictions on writing policies across state lines.

- Eliminate oil and gas severance taxes and expedite leases on so-called "public" lands outside of the National Parks system.

Posted by JohnGalt at 2:19 PM | Comments (15)
But jk thinks:

JG just wants practical, common-sense initiatives that can attract broad public and bipartisan legislative support. That's why he starts his list with "Abolish the federal minimum wage."

It's his world, he only lets us live in it...

Posted by: jk at January 20, 2011 3:36 PM
But johngalt thinks:

I forgot to mention that the minimum wage elimination idea was dagny's. I thought it was so good though I put it first on the list.

Here's my repeal the minimum wage 'elevator talk.' "You did say you wanted to stimulate job growth, right? Well, the federal minimum wage law lowers employment by outlawing low-wage jobs. It also makes everything more expensive, driving up everyone's cost of living. And most people being paid minimum wage are entry level workers, typically kids, who would have more jobs to choose from without the minimum wage. So let's try getting rid of it and see how it goes, OK?"

Posted by: johngalt at January 20, 2011 4:02 PM
But jk thinks:

Yeah, sorry for the snark. But your talk appeals to the people who scored 66%+ on the civics quiz, and do not watch sitcoms.

On the way down, the person you educated will hear: "They want to let greedy corporations exploit poor people and pay them $1 an hour! -- Do you want to work for one dollar an hour?????"

Posted by: jk at January 20, 2011 4:24 PM
But johngalt thinks:

OK, I'll try again.

"Americans at every career stage, from entry level to expert, are finding jobs to be scarce. When new jobs as police officers or WalMart greeters are advertised the applicants for those few jobs stand in lines that stretch around the block. Througout American history, corporations and entrepreneurs have hired people because they could make more money from employees' output than they had to pay in wages, benefits and taxes. But in many jobs today this is no longer the case, and the minimum wage law is one big reason. Repealing it will result in more jobs for those people standing in line."

And for those who believe government is great and corporations are "evil" I ask, "How many jobs can government create without corporations to tax? And how many corporations rely upon taxing the government to create their jobs?

Posted by: johngalt at January 23, 2011 11:48 AM
But jk thinks:

I'm glad you're still on it. I think it's important.

John Stossel talked about minimum wage in his "unintended consequences" special. He quoted a Pew poll that said 86% of Americans supported the recent raise. I looked a little for a link but did not find it.

I think you'll find it's up there if not that high. Your argument is solid, airtight, accurate, and compelling. But you will never win. The hope is to keep it so small that it does little damage.

Posted by: jk at January 24, 2011 11:28 AM
But johngalt thinks:

Yours is the safe bet. But dagny's suggestion and my defense are meant to swing a pendulum the other way more than achieve a policy goal in the current congress. Rome wasn't built (or destroyed) in 2 years.

Posted by: johngalt at January 24, 2011 11:50 AM

January 16, 2011

The "TEA Movement" is More Popular Than a "Big-Tent"

Comity? Who needs comity?

Jared Rhoads of The Lucidicus Project (Helping medical students understand free markets) agrees with me (and Robert Tracinski) that limited government is not merely a practical issue, but a moral one.

I used to think that Republicans did stand for individual rights on principle, but that they shied away from moral arguments because they deemed it better public relations to be "big-tent," inclusive, neutral. Well, over the past two years, the Tea movement has demonstrated that pro-individualist moral sentiments are popular and effective. We are still waiting for the Republicans to catch up.

What is holding them back? As writer Craig Biddle explains in a recent article in The Objective Standard, Republicans face a self-imposed obstacle in their effort to limit government to its proper functions: they still believe that being moral consists of sacrificing oneself for the needs of others.

Imagine approaching your moderate Republican Congressperson and making the case for cutting government based on the morality of individual rights. He may smile and nod in agreement, but as Biddle indicates, there is conflict churning in his head:

Repeal Obamacare? How can we do that if the right thing to do is to sacrifice for others? People need medical care, and Obamacare will provide it by forcing everyone to sacrifice as he should.

Phase out Medicare? How can we do that if we are morally obliged to provide for the needy? The elderly need medical care, and Medicare provides it by forcing everyone to pony up.

Phase out Social Security? How can we do that if, as the bible tells us, we are our brother's keeper? The elderly need money for retirement, and Social Security provides it by forcing everyone to do the right thing.

The only proper purpose of government is to protect individual rights. It is not to oversee our healthcare, help us be charitable, or assist with our retirement planning. There is no way to roll back Obamacare or other government encroachments without recognizing this fact and stating it openly on the floors of the House and Senate.

The next time we circulate a petition, let's tell the supporters of Obamacare that what they have done is not simply impractical, unfair, or too expensive. Let's tell them it is wrong.


Posted by JohnGalt at 1:52 PM | Comments (0)

January 14, 2011

"Green Job" Flight

In President Obama's first year in office there was a major push to create "green jobs" in the U.S. In October of that year his Commerce Secretary said, "Building a green economy isn't going to be easy, but if government and businesses work together, America can and will be a world leader in clean energy."

Oops. Evergreen Solar to Shut Down U.S. Manufacturing, Move to China

CEO Michael El-Hillow commented: "While overall demand for solar may increase, we expect that significant capacity expansions in low cost manufacturing regions combined with potential adverse changes in government subsidies in several markets in Europe will likely result in continuing pressure on selling prices throughout 2011. Solar manufacturers in China have received considerable government and financial support and, together with their low manufacturing costs, have become price leaders within the industry. While the United States and other western industrial economies are beneficiaries of rapidly declining installation costs of solar energy, we expect the United States will continue to be at a disadvantage from a manufacturing standpoint."

"Low cost manufacturing regions..." and their "low manufacturing costs" put the U.S. at a "disadvantage from a manufacturing standpoint." Perhaps there are forces at work here other than generous government subsidies for preferred sectors. Maybe it's just too damned expensive to hire employees in the U.S.

These new numbers show that even though global wage differentials are narrowing, policy-induced costs in the United States, especially corporate taxes, continue to undermine manufacturers ability to compete with our largest trading partners, Duesterberg said.
Posted by JohnGalt at 11:50 AM | Comments (1)
But Keith Arnold thinks:

So, our government is borrowing massive amounts of money from China, which we're using to subsidize "green economy" jobs, and the companies offering those jobs are moving their production (and those job openings) to China. We're paying interest on the borrowed money to facilitate China expanding their own industrial base.

I'm not certain how this is supposed to work, but I've got a pretty good suspicion it ends with:

"3 - Profit!"

Posted by: Keith Arnold at January 14, 2011 12:20 PM

January 6, 2011

Here Comes John Galt

To the big screen.

Here IT comes. The film version of my favorite novel, which we last discussed here and here, is in post production and should appear in theaters "No later than Tax Day, April 15."

Many of my trepidations about making this story into a movie have been salved by this interview with executive producer and financier (read: owner) of the film, John Aglialoro.

Ranked by Forbes Small Business as the 10th richest executive of any small publicly-traded company (revenues under $200 million) in 2007, Aglialoro is one of those rare corporate executives who fully "gets" the philosophical message in Atlas Shrugged.

So the storyline should be safe. The scope of this movie is Part I of the book, which readers can review key points from by reading those entitled entries in Three Sources' "Atlas Shrugged QOTD" archive.

And the casting appears excellent as well. In my mind's eye I can envision Ms. Schilling walking through an abandoned factory, or consoling her poor, misguided young sister-in-law. And the movie's Hank Reardon, played by Grant Bowler, seems a perfect fit. I can easily see him telling Tinky Holloway that his game is up.

But we'll have to wait for the second sequel for that scene. I've heard that the intentions for Parts II and III of the book are to be separate sequels, each following about a year after it's predecessor.

Judging by some of the scene photos the setting of the movie will be decidedly modern. Apparently it will be set in our time, not in that of the book's writing. This is as it should be. The uninitiated youth will be more captivated than with a more faithful portrayal of the book. And, more importantly, we are closer to the events of the story becoming reality today than at any time in history.

Posted by JohnGalt at 2:46 PM | Comments (4)
But jk thinks:

Fun. But how's he intend to make a film without the wisdom of Hollywood?

They should steal Glenn Reynolds's tagline: "It's Ayn Rand's world, we're just living in it."

Posted by: jk at January 6, 2011 4:48 PM
But johngalt thinks:

I expect that production values will be the last thing for which critics will pan this film.

Posted by: johngalt at January 6, 2011 5:32 PM
But jk thinks:

I was being a liiiiiitle more sarcastic than that.

Posted by: jk at January 6, 2011 6:32 PM
But johngalt thinks:

Yes, I read the sarcasm. But I took it as a "quantum comment." It can have multiple meanings at the same time. (Alas, in our era it has no literal meaning whatsoever until a judge says it does.)

Posted by: johngalt at January 6, 2011 8:21 PM

January 5, 2011

Animated Prosperity Index

This is fascinating. The per capita income and average lifespan of the citizens of 200 countries over the past 200 years animated in just 4 minutes. Fascinating and thought provoking.

Hat tip: Brother Russ

Posted by JohnGalt at 1:29 AM | Comments (3)
But jk thinks:

Y'know, I have had a lot of lefties send this to me. It seems to appeal to them, yet I agree (and always respond) that it shows both the prosperity that comes from property rights and a natural amelioration of population caused by that prosperity.

On that note [segue alert!], I almost linked this yesterday: Kenneth P. Green at The American suggests the Earth's population could fit in Texas, receive adequate water from half the flow of the Colombia River, and feed itself with American agriculture. All the rest of them other countries could be a theme park or something.

Posted by: jk at January 5, 2011 11:39 AM
But johngalt thinks:

I'll posit that it appeals to them because it shows how "the differences between the countries of the world was wider than ever" in 1948 and beyond, and the "huge inequalities within countries" today. But the answers to those lefties are many:

The countries whose wealth increased were the industrialized nations, who particated in the industrial revolution.

The lifespan in today's Congo (about 45 years) now exceeds that of even the most prosperous countries, even as recently as the late 19th century.

Advances in health and wealth in the prosperous countries were not contemporary with declines in the poorer ones. ALL nations improved over time, but at different rates.

Lefties probably also beam at the sunshine and lollipops forecast from Mr. Rosling: "That huge historical gap between the west and the rest is now closing. We have become an entirely new converging world. And I see a clear trend into the future. With aid, trade, green technology and peace it's fully possible that everyone can make it to the healthy, wealthy corner."

I agree with the forecast but I'll quibble with him on the causes: Trade, technology and peace. No aid. No "green" caveat on technology. And peace.

Yes, peace, but how? Translating John Lennon's "Imagine" into every language? Probably already done, but to no avail. Here's an idea - COEXI$T.

Posted by: johngalt at January 5, 2011 2:32 PM
But Boulder Refugee thinks:

It would be interesting to see this graph adjusted for inflation (he did not say if it was or not) to measure real earnings gains.

It would be even more interesting to see the expression of wealth as marginal income exceeding survival requirements. In other words, it's nice to see that African incomes are going up, but if 95% of the population barely makes enough to survive, that's vastly different than the United States where 87% of the population has income exceeding survival requirements. That's a much better measure of wealth and probably would throw the graph back to huge disproportion.

Posted by: Boulder Refugee at January 5, 2011 2:54 PM

January 2, 2011

The Next Moral Crusade -- Capitalism


Over the New Year's holiday spent here in Seattle with Mr. and Mrs. Macho Duck I re-read an article in a 2008 issue of The Intellectual Activist (Vol. 20, No. 1.) The article's title is 'Fusionism Comes Unfused.' It reopened some internecine disputes in a clearly stated way so I wanted to share. Checking first for posts containing the word "Tracinski" (the author) I found a drought from 2007 until 2010. Shame on me!

The piece reviews the 2008 GOP primary season, where Rudy Giuliani and Mike Huckabee's early leads evaporated, for no apparent reason, to leave the field wide open. Tracinski attributes the cause to a "desperate desire" on the part of GOP voters to avoid the stark choice between a pro-defense, pro-markets and "not particularly religious" Giuliani and a "strongly religious, anti-abortion candidate who has nothing particular to offer on the war and denounces the pro-free-market Club for Growth as the 'Club for Greed."

"But in avoiding the choice between a religious agenda and a secular agenda, Republicans were forced to evade the substantive issues at stake in th election and focus instead on the personal qualities of the candidates. (...)

In short, faced with a big ideological question on the role of religion, Republicans dodged the issue and instead chose a candidate on non-ideological grounds. [McCain, the flip-flip-flopper]

Yet the conflict between the religious and secular wings of the conservative agenda cannot be avoided, even if Republicans declined to resolve it this year.

Republican fusionism is unstable because its basic premise -- that the moral foundation of free markets and Americanism can be left to the religious traditionalists -- is false. For five decades, under the influence of fusionism, conservatives have largely ceded to the religious right the job of providing the moral fire to sustain their movement. But they are discovering that the religionists do not have a strong moral commitment to free markets. In fact, the religious right seems to be working on its own version of 'fusion' -- with the religious left.

(...)

The reason for this shift toward the religious left is that religion ultimately cannot support the real basis for capitalism and a strong American national defense: a morality of rational self-interest. Christianity is too deeply committed to a philosophy of self-abnegation, a destructive morality that urges men to renounce any interest in worldly goods and to turn the other cheek in the face of aggression. (...)

Tricked by William F. Buckley and his fusionists into outsourcing moral questions to the guardians of religious tradition, the right has never been able to develop the moral case for rational self-interest -- which means that it never developed the moral case for the profit motive, property rights, and the free market. Many on the right are implicitly sympathetic to capitalism; they sense its virtues, but thanks to "fusionism," they are unable to articulate them. And this means that they have never been able to turn the defense of free markets into a moral crusade."

To my religious brothers and sisters I urge you not to read this as an indictment of your faith. Religious morality has much to offer in the realm of personal values. But as a universal guide for the conduct of civilizations it is too easily co-opted by the forces of World Socialism.

A defense of capitalism as the means for men to deal with one another is not only not an abandonment of moral values, it is the only moral crusade that can hope to ever have a peaceful end.

Posted by JohnGalt at 12:39 PM | Comments (2)
But jk thinks:

I guess this post means holiday comity is now officially over. It was fun.

I don't know that Mr. Tracinski has changed his tune since 2008, but I posit that the Tea Party and the 2010 elections have about completely debunked his argument.

I had the good fortune to meet, via one of my most leftist friends, one of Hizzoner's state campaign chairmen, I parroted the media line about how Giuliani erred in waiting for the Florida primaries, yadda, yadda. This person, 25 years my junior looked at me as a naive waif and said "yeah, that's what we said -- we spent piles of money in New Hampshire and couldn't get anywhere." Without dismissing the candidate's faults, the GOP is clearly not ready for a social libertarian of Giuliani's stripes.

But by the same token, they did not pick His Huckness. TIA sees that as some nefarious plot, I see it as recognition of electoral exigencies. Moderates appeal to the American electorate and prosper in the American system.

Yet I return to the Tea Party, which brought a bounty of serious freedom candidates like Marco Rubio, Ron Johnson, Rand Paul. Subtract the evangelicals from the Tea Party and you have a typical libertarian gabfest with some angry bearded guys.

I think this comment still holds: we have to hold our uneasy partnership together to hold back the forces of collectivism. Frank Meyers was right -- it's worth it.

Posted by: jk at January 3, 2011 11:03 AM
But johngalt thinks:

And I say the TPM validates his argument.

I read you as focusing on one aspect of the post: why Rudy and Huckabee were rejected. It is a fact that they were, and you passed right on by the new fusion of the religious right with the religious left or the assertion that Republican fusionism is fundamentally unstable.

As for the TEA Party verdict, consider from the last quoted paragraph - "Many on the right are implicitly sympathetic to capitalism; they sense its virtues..." But they don't understand why it is virtuous. The closest they usually come is to quote the Declaration of Independence's "life, liberty, and the pursuit of happiness." The World Socialists slay this foe with the ol' "200 year-old dead white guys" argument.

The past quote you linked celebrated that "pro-lifers line up to vote when it's 40 below." They do so because it is a moral cause for them. You couldn't oppose making the profit motive, property rights and the free market an equally or more powerful moral cause, so you must just consider it impossible. "If man were meant to fly then God would have given him wings."

Posted by: johngalt at January 3, 2011 2:52 PM

December 29, 2010

Quote of the Day

Reading about the [Japanese] government's behavior reminds me of the worst accounts of compulsive spenders on the verge of personal bankruptcy--a sort of "What the hell, we're screwed anyway, so let's not think about it and maybe go to Cabo for the weekend." The budget's structural position is what is known technically to economists as "completely hosed" -- Megan McArdle
Posted by John Kranz at 4:13 PM | Comments (0)

December 21, 2010

Quote of the Day II

Oregon raised its income tax on the richest 2% of its residents last year to fix its budget hole, but now the state treasury admits it collected nearly one-third less revenue than the bean counters projected. The sun also rose in the east, and the Cubs didn't win the World Series. -- WSJ Ed Page
Posted by John Kranz at 1:23 PM | Comments (0)

December 20, 2010

Hybrid Chic

Q- What do you get if you build a car with two motors (a gasoline-electric "hybrid") and let the driver use both of them at the same time?

A- Honda's new CR-Z "sport hybrid."

So market forces can even conquer the hair-shirt principle of the eco-mobile. Young buyers value "green" cars but still care what they look like when cruisin' Main Street. No surprise there. How long until the modifier "hybrid" is as non-descript as "GT?"

Worth mentioning: Honda's commercial (bottom right corner of linked page) for the new kid-rod, which implies that fire and ice can coexist. "Complete opposites, in complete harmony."

Posted by JohnGalt at 3:07 PM | Comments (0)

December 10, 2010

The "Tax Bill" Christmas Tree

Blog patriarch JK thinks we "did not know what we got till it was gone" in the Obama/Boehner deal to not raise taxes on "the rich." For my part, I didn't make numerous treks to the capitol steps over the last two years and spend numerous weekends knocking on neighbors doors to sign up GOP absentee ballots just to keep taxes and spending at their 2010 levels.

And then, to make matters worse, there's this:

Despite opposition from academics, environmental organizations, libertarian organizations, editorial boards across the country, and dozens of other groups, the ethanol tax credit and resulting tariff is said to be locked into the tax bill that will be passed before the end of the year.

How many stakes must we drive through the hearts of Congressional Democrats to be rid of their Frankensteinian monsters?

Posted by JohnGalt at 2:58 PM | Comments (2)
But jk thinks:

Two words: Chuck. Grassley.

Posted by: jk at December 10, 2010 3:36 PM
But jk thinks:

I've been called out by name a couple times today. I still think that the Obama/Boehner deal would be good for the economy: avoid a new year's tax increase and year end tax selling. Offer a down payment on better policy in the 112th and, for NED's sake, send our 535 elves home for Christmas.

But Mutual Forbearance is me and Mister Van Buren. I offer to compromise on today's WSJ Ed Page position (that Brother br linked). This, but no more:

Republicans would be fools to give Democrats a single new concession, even a token one. They certainly shouldn't let Mrs. Pelosi think she can get away with such blackmail in the next Congress. If Democrats defeat the current deal in the House, Republicans can return as a majority in January and write a bill that is better tax policy and more popular with their voters. Democrats will have been responsible for the tax increase, and Mr. Obama and Senate Democrats will have much less leverage. That's why we think the Pelosi Democrats are really hostage fakers and will fold if their bluster is called.

Apart from the near-term economic damage, the stakes in this debate are highest for Mr. Obama. In November voters repudiated the policies of his first two years, but the polls show a reservoir of respect for him as a leader. If he can be pounded into retreat by a soon-to-be-former Speaker whose approval rating is barely north of 10%, Mr. Obama is headed for the unhappy resting place for failed Presidencies known as Carterville.

Posted by: jk at December 10, 2010 5:08 PM

December 2, 2010

Funny Money

Michael Ramirez nails it again.


Posted by JohnGalt at 3:32 PM | Comments (2)
But Keith Arnold thinks:

Clearly faked. Obama's not bowing.

Posted by: Keith Arnold at December 2, 2010 4:31 PM
But johngalt thinks:

OK brother Keith, here's one just for you.
http://www.investors.com/EditorialCartoons/Cartoon.aspx?id=552353

Posted by: johngalt at December 2, 2010 9:10 PM

November 30, 2010

The Ben Bernank and The Goldman Sacks

I could be wrong ... I may have missed it ... but I don't think any ThreeSources post explained "The Quantitative Easing" (I or II) as well or as in-context as this.

Posted by JohnGalt at 2:58 PM | Comments (9)
But Keith Arnold thinks:

Clearly, the people over at the Treasury Department have decided that waiting for Nicholas Cage to find where the Masons hid all the Founding Fathers' gold is no longer a viable strategy to revive the economy. This was Plan B.

Posted by: Keith Arnold at November 30, 2010 6:15 PM
But Lisa M thinks:

OMG--I can't believe you guys posted this. I stumbled across this last week while working on an assignment for my Econ class. My professor, who is complete Keynsian tool and BEA employee to boot, asked us a question on a topic we never covered in class---quantitative easing--- for an exam. I googled it and this was one of the first hits. AWESOME. I learned more from this video than I have all semester.

Posted by: Lisa M at November 30, 2010 9:43 PM
But johngalt thinks:

A friend posted this on his FB page. That's where I found it.

So this liquidity injection - it doesn't all go to the government? For their stimulus spending? Some can legitimately be given as unearned profit on these fairly simple, bulk transactions?

Finally, KA: You mean "the Nicholas Cage?"

Posted by: johngalt at December 1, 2010 12:44 AM
But jk thinks:

The Nicholas Cage indeed.

They got the money. If Ben's Helicopter is broken, how do they get it to the little peoples?

The FOMC buys bonds from banks, increasing their reserves against which they may lend. That's the root function of the Fed, the only real difference of Quantitative Easing is expanding the Fed's balance sheet to other asset classes because they have gone about as far as they can with traditional methods.

If you pay yourself to mow the lawn, your kid is still broke.

In the spirit of Facebook, let me introduce two great friends of this blog: Lisa, you should spend a little time at Josh Hendrickson's The Everyday Economist. It is a great source for monetary policy. And, unlike your professor, you won't have to check your free market principles in at the door.

Posted by: jk at December 1, 2010 10:17 AM
But Keith Arnold thinks:

Hey, all you folks that understand economics better than me: I was just reading that the United States is moving to bail out the euro (link: http://www.cnbc.com/id/40454469). This may be a week bit naive, but - we have more unused money just lying around? We're borrowing from the Red Chinese as it is. Did someone just give the administration a shiny new AmEx card I didn't know about?

I may be just a poor dumb country boy, but this seems pretty deep in Whiskey-Tango-Foxtrot-Interrogatory territory. I mean, if this was a deliberate and premeditated plan to destroy the entire world's economy, it would make perfect sense.

Oh, wait...

Posted by: Keith Arnold at December 1, 2010 3:20 PM
But jk thinks:

The Ben Bernank is going to need a refueling helicopter.

Umm, can you check the link?

Posted by: jk at December 1, 2010 5:18 PM

November 29, 2010

Simpson-Bowles, the Winners and Losers

Prof Mankiw links to a great overview of the Simpson - Bowles debt reduction plan. It's a political plan, so one must ask: "Who are the winners and who are the losers?" Charles Blahous answers:

A complete answer would be fairly complex given the broad array of Social Security's distributional patterns by income level, sex, longevity, birth year, marital status and other factors. I will instead simplify and focus on three obvious categories of winners:

1) Low-income workers;

2) Fiscal conservatives concerned with the growth of taxpayer burdens;

3) Advocates of bipartisan problem-solving.

And, three categories of losers:

1) Advocates of a solution based primarily on tax increases;

2) Advocates of improving intergenerational equity through funded savings accounts;

3) Senior-scaring political opportunists.

It's notable that each of these groups of three winners/losers includes one thought of as being on the philosophical left, one on the right, and one more removed from philosophy or ideology. (This simply happened; I didn't purposely select to produce this result).


Well worthy of a whole thing reading...

Posted by John Kranz at 1:03 PM | Comments (1)
But johngalt thinks:

OK, I'll read the whole thing, but for now I'm not buyin' that fiscal conservatives are "winners" in this plan. The changes to SS appear to be minor and quantitative without abandoning the defined benefit. And while advocates of closing the deficit primarily with tax increases may be losers this plan clearly intends to increase tax rates and/or categories. The vaunted Clinton "surplus" resulted from tax rate cuts yet the Simpson-Bowles wizards somehow seemed to forget that.

Posted by: johngalt at November 29, 2010 3:30 PM

November 16, 2010

The Other Side of QE2

Port, or starboard?

A lot of my economic betters are okay with the Fed's increasing its balance sheet. Don Luskin parries with "King Dollar" Kudlow, Alan Blinder's WSJ column was superb, and the list goes on.

Ramesh Ponnuru warns the right not to get too invested in monetary policy.

Maybe Bernankes critics are right. Certainly there are a lot of smart monetary economists who agree that QE2 is a bad idea, and the skeptics include many of the people on whom I usually rely to form judgments about economic policy. But I find the economists on the other side of the argumentIve started reading these three economists dailymore persuasive.

"These three" includes a link to blog friend Josh Hendrickson, The Everyday Economist.

I'm one of Helicopter Ben's last remaining fans, so I'll go $600Billion further. But the most compelling cases on the other (starboard?) side include commodity price inflation and -- more importantly -- the idea that monetary policy is being asked to compensate for abysmal fiscal policy. We can't cut taxes, we can't cut spending, we can't stop overregulating -- so let's trash cash and force investors into riskier investments. If the fiscal side were not completely broken, I'd be more likely to accept the monetary side.

Posted by John Kranz at 11:51 AM | Comments (1)
But johngalt thinks:

Here's one convincing explanation from EE's list of "Welcome NRO Readers" suggested articles - 'Inflation is a Monetary Phenomenon, But This Isn't Inflation:'

Ultimately, the money multiplier (M1) has fallen from around 1.6 prior to the recession to .93 as of June 17. At the beginning of January 2008, the monetary base was roughly $848 billion. Given that money multiplier, this would suggest that M1 was around $1.356 trillion. Thus, given the current money multiplier, this would suggest that the monetary base would have to be about $1.458 trillion today to maintain the same money supply — an increase of roughly 72%. Given that we are currently in a recession, this suggests that the Fed wants to increase the money supply rather than simply maintain the earlier level. Given that the monetary base is about 90% higher than it was at this time last year, this would suggest that the Fed is expansionary, but hardly over-expansionary given the circumstances surrounding money demand.

With that being said, the Fed must be careful and begin pulling money out of the economy when this demand for base money subsides and the money multiplier begins to rise again. A failure to do so would result in a substantial period of inflation. However, at the current time, the evidence suggests that the massive increase in the monetary base is justified by the increase in the demand for base money. Thus, the increase is in the monetary base doesn’t suggest that massive inflation is on the horizon … yet.

Expanding the money supply by 90% would most certainly have caused inflation by now if the effects EE describes were not happening. And he cautions the Fed to reduce the monetary base, i.e. "burn" dollars, as the demand goes down. Makes sense to me.

Posted by: johngalt at November 16, 2010 3:31 PM

November 12, 2010

I See QE2 being pulled out of Mexico by six Tugs...

Professor Mankiw (and I) posted this on Nov 2, but I fear I got lost in election season.

So -- on the big day -- I'll spin it once more for Helicopter Ben and all the dudes and dudettes out there in listener-land. Curtis Threadbare, babies:


Posted by John Kranz at 11:35 AM | Comments (0)

November 10, 2010

Political Salesmanship of the Income Tax

New commenter "PoppaGary" (welcome!) explains that Washington State's defeated "income tax for the rich" was distrusted, in part, because "in Washington, most initiatives can be changed after 2 yrs by a simple majority of the Legislature" and "based on their past behavior, in 2 yrs they would have forced it on everyone." This reminded me of the way the federal income tax was foisted upon Americans in 1913. It was justified as a tax "only on the rich."

I did some crude analysis based on data for income tax rates and brackets [Table 1.] and using an inflation calculator:

Beginning in 1913 the income tax was levied against "adjusted gross income" as it is today. Considering just the personal exemptions the tax was zero on the first $3000 of earnings for single persons or $4000 for married couples. Adjusted for inflation from 1913 to 2010 these tax floors are equivalent to $66,193.64 and $88,258.18, respectively.

The tax on adjusted incomes up to $20,000 ($441,290.91) was just 1 percent, or a maximum of $200 ($3,750.97).

The top tax bracket was for adjusted incomes over $500,000 ($11,032,272.73) and was just 7 percent.

These numbers make today's argument that individuals earning over $200,000 are "the rich" pretty da_n laughable: $200,000 today is equivalent to $9,064.32 in 1913 dollars, resulting in a tax of $90.64 ($1999.93.) I don't make anywhere near 200K but I'd gladly trade my tax burden for that of 1913's version of "the rich."

Posted by JohnGalt at 3:08 PM | Comments (0)

November 4, 2010

Allusion of the Day

The WSJ Ed Page: More Cowbell!

In a famous "Saturday Night Live" skit, Christopher Walken plays a legendary rock music impresario whose advice, his only advice, to a young band is "more cowbell." The actor Will Ferrell furiously pounds away on a cowbell but it's never enough for Mr. Walken, who ultimately shouts, "I got a fever, and the only prescription is more cowbell!"

Federal Reserve Chairman Ben Bernanke must be a fan of that skit because he is applying the same logic to monetary policy: The economy isn't growing fast enough, and the only prescription is more money.


Posted by John Kranz at 12:06 PM | Comments (2)
But Perry Eidelbus thinks:

As I've been meaning to blog for a couple of weeks, but I keep getting sidetracked:

This "additional stimulus" is horse****. It's a smokescreen. Obama's puppy, Timmy, is running out of money again. China's tapped, as are Japan, South Korea and the UK. Ergo, the Fed needs to create new money, but it needs a cover story.

Posted by: Perry Eidelbus at November 4, 2010 2:12 PM
But johngalt thinks:

I remember that skit!

Posted by: johngalt at November 6, 2010 10:58 AM

November 2, 2010

Video of the Year

Elections count. But Larry Kudlow reminds that the Fed meeting tomorrow is important as well. I'm hoping for QE lite-to-non-existent myself. But "Curtis Threadneedle" is ready to go long:

Hat-tip: Prof Mankiw

Posted by John Kranz at 5:20 PM | Comments (0)

Otequay of the Ayday

Not from today, actually, but brought to us today by Thomas Sowell:

Guess who said the following: "We have tried spending money. We are spending more than we have ever spent before and it does not work." Was it Sarah Palin? Rush Limbaugh? Karl Rove?

Not even close. It was Henry Morgenthau, Secretary of the Treasury under Franklin D. Roosevelt and one of FDR's closest advisers. He added, "after eight years of this Administration we have just as much unemployment as when we started. . . And an enormous debt to boot!"


Posted by JohnGalt at 2:36 PM | Comments (0)

November 1, 2010

Quote of the Day II

"The whole business thing is predicated a lot on the tax laws," says [The Rolling Stones'] Keith [Richards], Marlboro in one hand, vodka and juice in the other. "It's why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left, and they lost out. No taxes at all. -- Forbes?
Hat-tip: Prof Mankiw, defending his assertion that incentives matter.
Posted by John Kranz at 6:35 PM | Comments (3)
But Keith Arnold thinks:

I guess Keith Richards can kiss knighthood goodbye. I was beginning to think knighthood was being handed out like Nobel Peace Prizes. (C'mon: Sir Elton?)

What are the odds on Mick Jagger's knighthood being revoked retroactively, once the Her Royal Highness' Royal Exchequer reads that Sir Mick is a tax dodger?

Posted by: Keith Arnold at November 1, 2010 7:00 PM
But jk thinks:

We'll make 'em both "Knights of Connecticut." Sprinkle a little Nutmeg, say the magic words...

Posted by: jk at November 1, 2010 7:04 PM
But Keith Arnold thinks:

Then they'd be Connecticut Yankees from Queen Elizabeth's Court? Wicked good.

Posted by: Keith Arnold at November 1, 2010 7:19 PM

No, YOU'RE the Doo-Doo Head!

The week before last, Denver's David Harsanyi gave us a celebration of the TEA Party's "Stupid Stupidity." Last weekend his antipode, Denver's David Sirota, explains why they're 'stoopid' in "It's the Stupidity, Stupid." He starts out wondering how "red-baiting crusades by the plutocrats" are managing to get such traction with the electorate.

As Wall Street executives make bank off bailouts, as millions of Americans see paychecks slashed and as our economic Darwinism sends more wealth up the income ladder - it's surprising that appeals to capitalist piggery carry more electoral agency than ever.

What could cause this intensifying politics of free-market fundamentalism at the very historical moment that proves the failure of such an ideology? Two new studies suggest all roads lead to ignorance.

But since Sirota is "smarter" than Harsanyi he uses "science" to support his claims.

As Northwestern University's David Gal and Derek Rucker recently documented in a paper titled, "When in Doubt, Shout!", many Americans respond to convention-challenging facts not by re-evaluating their worldview. Instead, they become more adamant in defense of wrongheaded ideas.

So, for instance, we may be aware that our broken economy is creating destructive inequality; we may know the neighbor's opulence is underwritten by loans. We may even see the connection between our personal financial struggles and census figures showing inequality at a record high. But many of us nonetheless react by more passionately insisting our economic system sows equality.

Or we may write opinion columns asserting that free-market economics is a proven failure and that "equality" is somehow the panacea, and if you don't agree with us you are "stupid."

Posted by JohnGalt at 3:03 PM | Comments (1)
But jk thinks:

I'm going to hijack your post for a segue. I did not know what to do with this but it has captured my heart: The Rally to Restore Vanity.

It's far from perfect, as blog friend tg admits on Facebook, yet it has some important ideas. The most interesting to me was the Stewart/Colbert crowds' primacy to "not appearing stupid." Amid some generational psychoanalysis and some curious political generalizations, lives a superb point that to stand up at a Tea Party (or a Code Pink rally) is to take a stand and risk appearing stupid. Yes, you will be standing near a stupid person.

Yet to not say anything, not take a stand, and if you must stand up have it be at the gathering of those who are waaaay too hip to take a stand. That's cool, baby!

Posted by: jk at November 1, 2010 4:49 PM

October 27, 2010

Out-Ponziing Charles?

PIMCO's Bill Gross is. let's say, not a fan of QE2:

I ask you: Has there ever been a Ponzi scheme so brazen? There has not. This one is so unique that it requires a new name. I call it a Sammy scheme, in honor of Uncle Sam and the politicians (as well as its citizens) who have brought us to this critical moment in time. It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin. It is a Sammy scheme you and I, and the politicians that we elect every two years deserve all the blame.

Courtesy of James Pethokoukis who shares more of the letter and commentary.

Posted by John Kranz at 7:13 PM | Comments (0)

WWMFD

What Would Milton Friedman Do?

Not sure the answer is correct, but the Wall Street Journal tries (and has the decency to hedge its assertions).

Friedman believed in the power of money: the more money, the more income and, eventually, the more inflation. He didn't think the Fed could deliver full employment. He regarded interest rates as a misleading measure of whether the Fed was loose or tight. He favored flexible exchange rates, and would have lectured China against pegging its yuan to the dollar.

He didn't trust central bankers. He blamed the Bank of Japan for the deflation of the 1990s and the Fed for the Great Depression of the 1930s and the Great Inflation of the 1970s. He would, if his sharp-tongued co-author Anna Schwartz is any clue, have condemned the bank bailouts of recent years. "They should not be recapitalizing firms that should be shut down," she told the Journal in October 2008.

David Wessel looks at what would Milton Friedman, the University of Chicago champion of monetary discipline, do now? Would he approve of Federal Reserve Chairman Ben Bernanke's move to buy more U.S. Treasury bonds to put more money into the economy?
.Friedman would have scoffed at the notion that the Fed is out of ammunition. He believed in the potency of "quantitative easing," or QEprinting money to buy bonds.

Posted by John Kranz at 6:17 PM | Comments (1)
But johngalt thinks:

From what I've read so far in Friedman and Friedman's 'Free to Choose' I concur that he "didn't trust central bankers" and "he favored flexible exchange rates." These seem somewhat incompatible, but nonetheless true. In fact, Friedman's views on the money supply have tempered my fears of hyperinflation in coming years.

But over the first two years of the O-ministration a more illustrative question than "what would Milton Friedman do" is what would he NOT do. I can't think of a single policy in the past two years that Friedman would endorse.

Posted by: johngalt at October 28, 2010 3:05 PM

Barney Isn't Frank

Does anybody remember when politicians used to at least pretend to tell the truth? Now they just deny there is such a thing as truth.

Fast forward now to 2008, after the risky mortgages had led to huge numbers of defaults, dragging down Fannie Mae, Freddie Mac and the financial markets in general -- and with them the whole economy.

Barney Frank was all over the media, pointing the finger of blame at everybody else. When financial analyst Maria Bartiromo asked Congressman Frank who was responsible for the financial crisis, he said, "right-wing Republicans." It so happens that conservatives were the loudest critics who had warned for years against the policies that Barney Frank pushed, but why let facts get in the way?

Ms. Bartiromo did not just accept whatever Barney Frank said. She said: "With all due respect, congressman, I saw videotapes of you saying in the past: 'Oh, let's open up the lending. The housing market is fine.'" His reply? "No, you didn't see any such tapes."


Posted by JohnGalt at 3:02 PM | Comments (1)
But jk thinks:

Clearly, we have always been at war with Eurasia.

Posted by: jk at October 27, 2010 3:28 PM

October 19, 2010

Hail Mankiw!












Awesome! There's only four seconds out of 11:12 ThreeSourcers won't like. (And a half minute on on QE2 we might split on...)

Posted by John Kranz at 3:24 PM | Comments (0)

More fallout from the Dr. Hal Lewis Resignation

One of the Update links at the linked article in the Dr. Hal Lewis resignation story was a copy of the APS's public response with rebuttal by Dr. Lewis and two others interspersed in context. While the resignation letter itself is scathing evidence of Global Warming as hoax, it doesn't directly address the issue of "well-funded people believing" and thus, it "not going away." This does: [First the APS' statement, then Lewis' rebuttal.]

Dr. Lewis specific charge that APS as an organization is benefitting financially from climate change funding is equally false. Neither the operating officers nor the elected leaders of the Society have a monetary stake in such funding.
The chair of the Panel on Public Affairs (POPA) that re-endorsed the 2007 APS Statement on Climate Change sits on the science advisory board of a large international bank http://annualreport.deutsche-bank.com/2009/ar/supplementaryinformation/advisoryboards.html The bank has a $60+ billion Green portfolio, which it wishes to assure investors is safenot to mention their income from carbon trading. Other members of this board include current IPCC chief Pachauri and Lord Oxburgh, of Climategate exoneration fame. The viability of these banks activities depends on continued concern over CO2 emissions. Then there is the member of the Kleppner Committee (that reviewed the APS 2007 Statement prior to POPA) who served on that committee while under consideration for the position of Chief Scientist at BP. The position had been vacated when Steve Koonin left to take a post in the administration at DOE. Soon after the Kleppner Committee report in late 2009, this committee member took the BP job. BP had previously funded the new Energy Laboratory at Berkeley, which was headed by current Energy Secretary Steve Chu.

UPDATE: Reformatted for clarity and bolded text for emphasis.

Posted by JohnGalt at 3:09 PM | Comments (0)

October 18, 2010

Global Warming takes another body blow -

- This time from a renowned nuclear scientist.

Last November 20 I posted this first news of Climategate, which included James Delingpole's headline: Climategate: The final nail in the coffin of 'antropogenic global warming?'

JK was more circumspect but by December 1 admitted that the scandal was a "game changer." Yet, he still hedged: "But it does not expose a hoax as some have claimed. The believers truly believe. As long as well funded people believe, it is not going away."

Today, or rather October 8, the hoax is exposed.

Harold Lewis - Emeritus Professor of Physics, University of California, Santa Barbara, former Chairman; Former member Defense Science Board, chmn of Technology panel; Chairman DSB study on Nuclear Winter; Former member Advisory Committee on Reactor Safeguards; Former member, Presidents Nuclear Safety Oversight Committee; Chairman APS study on Nuclear Reactor Safety Chairman Risk Assessment Review Group; Co-founder and former Chairman of JASON; Former member USAF Scientific Advisory Board - resigned from the American Physical Society over events that have transpired since Climategate.

In discussing the publicly released resignation letter Anthony Watts says,

This is an important moment in science history. I would describe it as a letter on the scale of Martin Luther, nailing his 95 theses to the Wittenburg church door. It is worthy of repeating this letter in entirety on every blog that discusses science.

From the letter:

It is of course, the global warming scam, with the (literally) trillions of dollars driving it, that has corrupted so many scientists, and has carried APS before it like a rogue wave. It is the greatest and most successful pseudoscientific fraud I have seen in my long life as a physicist. Anyone who has the faintest doubt that this is so should force himself to read the ClimateGate documents, which lay it bare. (Montford's book organizes the facts very well.) I don't believe that any real physicist, nay scientist, can read that stuff without revulsion. I would almost make that revulsion a definition of the word scientist.

He then goes on to expose the calculated lengths that APS management went to defeat his efforts to establish a Topic Group on Climate Change within the APS. Sharp, smart and irretrievably damaging to APS and the Climate Change movement.

Posted by JohnGalt at 2:46 PM | Comments (3)
But jk thinks:

Put me down as still hedging, brother. The letter you link says "What I would really like to see though, is this public resignation letter given the same editorial space as Michael Mann in today’s Washington Post." I fear this sermon will be heard only by the choir.

It's "Green Week!" at work. Thankfully, as a remote worker, I am impervious to all but eye rolling. Onsite workers went without lights for some time today and were told to shut off and unplug computers overnight for baseline current measurements.

This is from a private company, headed by a CEO who doesn't generally buy in to such nonsense. I guess they are buying off the earnest young employees. Whatever the case, we ain't won yet.

Posted by: jk at October 18, 2010 6:36 PM
But johngalt thinks:

I included your complete original "hedge" on purpose, to show it's a step-by-step process.

The believers do still believe, and as long as well funded people believe it is not going to go away. BUT, this does expose a hoax.

Posted by: johngalt at October 19, 2010 2:44 PM
But JC thinks:

No hoaxes here just a bunch of horses blowing hot air out their tail pipes! I have been studying this issue for several years. Based on the recent increase in reputable scientific organizations that accept "antropogenic global warming" as fact, Harold Lewis' single resignation letter fails to provide "an important moment in science history". The one and only effect of his resignation letter is that of providing fuel for the bloggers and non-believers.

Posted by: JC at April 1, 2011 9:47 PM

October 11, 2010

Mankiw on Marginal Benefit

He's lucky enough to know one of those $250K+ folks, so he can run the numbers on taxes' effect on production. He shows the reduced incentive for him to write, consult or teach more.

Now you might not care if I supply less of my services to the marketplace -- although, because you are reading this article, you are one of my customers. But I bet there are some high-income taxpayers whose services you enjoy.

Maybe you are looking forward to a particular actor's next movie or a particular novelist's next book. Perhaps you wish that your favorite singer would have a concert near where you live. Or, someday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist. Like me, these individuals respond to incentives. (Indeed, some studies report that high-income taxpayers are particularly responsive to taxes.) As they face higher tax rates, their services will be in shorter supply.

Reasonable people can disagree about whether and how much the government should redistribute income. And, to be sure, the looming budget deficits require hard choices about spending and taxes. But don't let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.


Posted by John Kranz at 3:36 PM | Comments (2)
But jk thinks:

Got a nice but sad letter about somebody who has just started taking every other Friday off. I won't do details but this is a net loss to humanity, if a wash to a ThreeSourcer's personal balance sheet.

Posted by: jk at October 11, 2010 6:41 PM
But johngalt thinks:

I think we need a better definition for what he means by "reasonable people."

Posted by: johngalt at October 12, 2010 2:35 PM

October 2, 2010

Stand Up Economist

Happy Saturday!

Posted by John Kranz at 1:54 AM | Comments (0)

September 22, 2010

A "Right" to Loss Prevention

One of the bright spots of the recent Boulder, CO wildfire that destroyed 169 mountain homes in Four Mile Canyon is this story about loss prevention specialists responding like firemen to help save homes insured by the Chubb insurance company. The New Jersey based private insurer contracts with a Montana-based private company Wildfire Defense Systems to protect the homes of insureds. And Wildfire Defense Systems had negotiated an agreement with the Boulder Office of Emergency Management that stipulated their rights and responsibilities while working in the evacuation area. But, just hold on a doggone minnit...

Janice Wheeler, who lost her house on County Road 83 to the Fourmile Fire, likes the sound of Chubb's wildfire protection plan.

"I think it would be a very nice service to have," she said. "I would like to know that someone was specifically looking out for my house."

But Wheeler, an Allstate customer, wasn't entirely comfortable with the notion that people of higher means could buy additional protection for their homes when others couldn't.

"When you don't have that policy and someone else does, it sets up a have and have-nots kind of feeling," she said.

In America's entitlement culture you knew it was coming, didn't you? So which would you prefer, Janice? Outlaw such private fire suppression services or make them yet another government service offered to all residents "by right?" (Wait - don't answer that.)

Posted by JohnGalt at 2:23 PM | Comments (2)
But jk thinks:

This is Boulder County after all.

But it remains deeply disturbing that people prefer egalitarian privation to distributed prosperity. I whined seven years ago about the "Lexus Lanes:" even though it reduced congestion for all, we couldn't allow people to pay for express lanes. At least that one has a happy ending in Colorado.

Posted by: jk at September 22, 2010 2:49 PM
But johngalt thinks:

But there's a special irony in the private firemen situation: The fire protection specialists, or "Sparkies" I'll call them, are not provided by the insurer because the insureds paid more for their homeowners insurance; conversely, Chubb sends them to the rescue so that they can keep insurance premiums lower.

It's cheaper to pay the Sparkies, even quite handsomely, than to rebuild million-dollar homes that could have been saved from destruction with a bit of foresight, pre-planning and a well-placed garden hose.

P.S. Much of that foresight and pre-planning is available for free to those who choose to use them.

Posted by: johngalt at September 22, 2010 3:13 PM

Balderdash!

I am an optimist before a partisan hack. Government is likely to destroy liberty and it might well ruin the economy in the process. But dreams will live.

Insty links to law grad Ted Brassfield's asking the President "Is the American Dream dead for me?" There is video at the link but I actually liked the President's answer. Brassfield is disappointed that the President is not going to do a program designed to help Ted Brassfield.

I took whacks at all the leftists who said the American Dream was dead during President Bush's tenure. I have escalated concerns now but will not sit idly by as innovation and freedom and prosperity are besmirched.

The dream is fine. Brassfield will soon have a cell phone that can do brain surgery. There is enough freedom (I'd like more!) to allow innovation and prosperity. As a segue I offer the 2011 Chevy Cruze. I'm not recommending you buy one and I'll be keeping "The Mister Two." But let's applaud the innovation. For the same inflation adjusted cost as the 1994 Chevy Cavalier, you get a car that compares favorably with the safety features of a Mercedes Benz. WSJ:

This General Motors Co. compact car has 10 standard airbags--including a set for the front passengers' knees--electronic stability control, a system that senses when the car is at risk of rolling over, and another that automatically tightens the seatbelts in advance of a crash.

The Cruze's airbag count is the same as that for a Lexus GS sedan priced at just under $50,000.


Not many Cruze owners are likely to feel they've achieved the American Dream because they've purchased a compact. But they will be getting what their parents were paying Mercedes and Volvo prices for. And they have cell phones, laptops and the Internet.

Dream on.

Jonah Goldberg has been a reliable fellow traveler on this. He links as well in The Good Old Days Are Now.

Posted by John Kranz at 2:02 PM | Comments (0)

September 20, 2010

Wrapped Up With a Bow

Contra Krugman, (is there a better two word opening for a blog post?) I believe it is very important to understand how we got in the economic soup we're in.

In a NYRB review, he blasts Raghuram Rajan for wasting the time writing a book to investigate the causes for the crisis, when we all know we should be stimulating our way out of it. I paraphrase, but not much.

Given this bleak prospect, shouldn't we expect urgency on the part of policymakers and economists, a scramble to put forward plans for promoting growth and restoring jobs? Apparently not: a casual survey of recent books and articles shows nothing of the kind. Books on the Great Recession are still pouring off the presses--but for the most part they are backward-looking, asking how we got into this mess rather than telling us how to get out. To be fair, many recent books do offer prescriptions about how to avoid the next bubble; but they don't offer much guidance on the most pressing problem at hand, which is how to deal with the continuing consequences of the last one.

Rajan replies with an American.com column that closely matches my beliefs: loose money, accommodative GSE's and governmental measures to increase homeownership in lower income sectors. Again, I paraphrase.

If the government itself took credit for its successes in expanding home ownership then, why is Krugman not willing to accept its contribution to the subsequent bust as too many lower middle-class families ended up in homes they could not afford? I agree there is room for legitimate differences of opinion on the quality of data and the extent of government responsibility, but to argue that the government had no role in directing credit, or in the subsequent bust, is simply ideological myopia.

The article is not short, but it is for its comprehensiveness. It expertly takes on the main causes of the crisis and backs them up with data, including an almost amusing press release from Countrywide friend-of-Senator-Dodd Angelo Mozilo boasting of $8 Billion in Fannie backed loans for "underserved borrowers" (those would be the ones without assets and incomes) and a promise to lend that quickly so they can come back with more.

A reasonable person who agreed that the problem was, as Candidate Obama said, "the reckless policies of eight years of the Bush administration" or, as Candidate McCain declared "greed and corruption on Wall Street" would be very well served by reading this piece. It does not let President Bush nor Wall Street off the hook, but it underscores government's culpability and reinforces the law of unintended consequence.

Hat-tip: Prof Mankiw

Posted by John Kranz at 1:26 PM | Comments (1)
But johngalt thinks:

You gave a lay definition for "underserved borrowers" so let me give one for "ideological myopia" - partisan bullcrap.

Posted by: johngalt at September 20, 2010 3:05 PM

Crocodile Tears

The Refugee is no fan of the NCAA ruling class, believing that many of their decisions regarding discipline, eligibility and so on are often capricious and lacking common sense. Nevertheless, the current lawsuits by former athletes demanding a share of NCAA sports revenue seems, dare he say, out of bounds.

ED O'Bannon, a formal basketball player at UCLA, and Sam Keller, a quarterback at Arizona State and Nebraska, have filed separate suits. In essense, both want a cut of the money that the NCAA gets from marketing their images.

There are millions and millions of dollars being made off the sweat and grind of the student-athlete," said O'Bannon, a former power forward at UCLA. "Student-athletes see none of that other than their education.

"...other than their education"?!? Like that's a throwaway? Even so, who's getting rich off the deal? Most of that money goes to the individual schools and pays for the scholarships and programs that allow these athletes to showcase their talent on a national stage. Without such a showcase, it is likely that many would never reap the millions in professional contracts that they sign after just one or two years of "school." Most college athletes don't get those mega-contracts, but do get an education that many could never afford without a scholarship and could not qualify for academically. Without the marketing revenue, fewer athletes get either mega-contracts or scholarships.

Cry me a river.

Posted by Boulder Refugee at 10:07 AM | Comments (7)
But Boulder Refugee thinks:

Then by all means, Mr. Athlete, don't sign the contract and don't accept the scholarship. Ain't no chains for this gang. Courts have ruled that pro leagues cannot bar anyone 18 or older from joining directly. Try to go straight from high school to the pros and see where that gets ya (baseball perhaps being an exception due to the developmental leagues). The LaBron James' of the world can be counted on one hand with digits to spare.

Posted by: Boulder Refugee at September 20, 2010 11:36 AM
But jk thinks:

Worms, can, opener, and I show up with a Cusinart®.

Your exception is the way I think it should be: a farm system that would allow players to develop and be paid. They are being developed but are also threatened with injury and certainly by senior year giving away prime earning potential.

There is a great tradition of college athletics, and most players will not pursue a pro career. How about we compromise and allow colleges to pay athletes?

Posted by: jk at September 20, 2010 11:49 AM
But Boulder Refugee thinks:

I could have gone all day without the visual of worms in a Cuisinart. :-)

Your point about developmental leagues is well taken. Under the current system, the NFL and NBA (and to lesser degrees NHL and MLB) have a "developmental league" in college sports without having to pick up the tab. I'm all for direct, compensated, developmental leagues. I'm not sure how paying college athletes would work out. I won't reject it out of hand, but need to consider it.

Posted by: Boulder Refugee at September 20, 2010 1:12 PM
But johngalt thinks:

Just make it market based. Eliminate the ridiculous "amateur athelete" rule and let college players be paid by agents. The market will decide the worth. (And Reggie Bush could keep his Heisman.)

As for that college education - it would be worth far more if it taught Austrian economic theory.

Posted by: johngalt at September 20, 2010 3:14 PM
But Boulder Refugee thinks:

Sure, JG, but riddle me this: When was the last time you heard of an econ major, Austrian or otherwise, who could shoot 8 out of 10 free throws or run a 4.3 40?

If we move to this pay-for-play model, I don't know about you guys, but I would look forward to the annual National Championship game between USC and Notre Dame. CU, on the on the other hand, would be no more miserable than they already are. (Ouch, that's gotta hurt!)

Posted by: Boulder Refugee at September 20, 2010 3:34 PM
But johngalt thinks:

They don't have to major in economics, or even have econ courses be mandatory. But whenever economics is taught it should be all market economy, all the time.

(And I'll let that Buff bashing slide on the heels of CU's drubbing of the Rainbows.) You and my brother - bandwagon hoppers!

Posted by: johngalt at September 20, 2010 4:15 PM

September 14, 2010

Does the Econ Department have a Separate Cafeteria?

I just cannot believe the rest of the faculty hangs out with Mankiw, Miron and Robert Barro.

Barro pens a perfect piece on today's WSJ Ed Page on the importance of incentives. He correctly claims them as the foundation of "Supply Side Economics." And he correctly contrasts them with the economic policies of the current Administration.

My hope is that the administration will shift away from programs based on Keynesian reasoning and toward policies that emphasize favorable economic incentives. Extension of the full tax cuts of 2001-03 and a reduction in the period of eligibility for unemployment insurance would be good starts.

Yeah. Good luck with that, Professor. And I want a pony.

UPDATE: Huh? Did somebody say Jeffrey Miron?

Posted by John Kranz at 10:51 AM | Comments (1)
But johngalt thinks:

The administration has no compunction if the world's most prosperous nation must be impoverished in order to make it "just."

Posted by: johngalt at September 14, 2010 3:01 PM

September 3, 2010

Ron Paul: Audit our Gold Reserves

I'm not a reflexive gold-standard guy, but I do believe that the Federal Reserve Banking system is hopelessly corrupt. I'd be glad to see stuff like this discussed in our nation's capitol:

Paul said everyone accuses him of wanting the gold standard but he said he doesn't accept that. I accept the idea of a gold coin standard and I think we can do much better than what we had," he said. "There was a lot that they did pre-Fed that was not exactly right but we never had a disastrous loss of purchasing power long-term, we didnt have a great depression, we didnt have the 1970s with stagflation and we wouldnt have what we have right now.

(...)

Paul also said he wants to legalize the freedom for people to choose. My proposal for now is to legalize the constitution to use gold and silver as legal tender in a parallel standard and have it compete with paper money. If people get tired of using the paper standard they can deal in gold or silver, he said.

Hat tip: Our buddy Gabe

Posted by JohnGalt at 3:38 PM | Comments (4)
But jk thinks:

Do I know Gabe? I have two buddies Gabe and cannot imagine either one passing this along.

No argument on a Fort Knox Audit or legalizing specie. I do not support Rep. Paul on an audit of the Fed. Craptastic though its results have been, I do not see an inquiry by Rep. Henry Waxman's (Moonbat - CA) improving them.

Posted by: jk at September 3, 2010 4:04 PM
But johngalt thinks:

No, that wasn't a "royal" our. Jus' mine and the misses. I did send him a link though and encourage him to join in with our blathering.

Posted by: johngalt at September 3, 2010 4:25 PM
But Boulder Refugee thinks:

I can just picture a $1 gold coin. Anybody got a microscope?

Posted by: Boulder Refugee at September 3, 2010 4:44 PM
But johngalt thinks:

A $20 silver coin is roughly 1 ounce.

And if someone bought something from you using one you would feel like you had actually been paid.

Posted by: johngalt at September 3, 2010 5:44 PM

August 24, 2010

Merle Hazzard

Love this guy -- HT: Prof Mankiw

Posted by John Kranz at 1:40 PM | Comments (0)

Deadonomics

I may have to get this book. Doug French at the Ludwig von Mises Institute reviews Marketing Lessons from the Grateful Dead.

I like the Dead okay, they have a bunch of good songs and their music is real and honest. But living in Boulder County I frequently had to tell friends "there are actually other bands. Like the Dead, they get together and play songs. But they are different people...and they play different songs!"

But it is time to respect one genius aspect: their business acumen. I remember reading In Rolling Stone in the late seventies that they came back from the Egypt tour completely broke. Jerry Garcia didn't have $20 to his name, he told the editors. After that they did okay.

Without going into the five P's of Marketing, they figured out what they were selling. That protected them financially from technological shifts and capricious buying patterns.

So if there were all these bootleg tapes floating around, has anyone been buying Dead albums? I guess so: the band has had 19 gold albums, 6 platinum albums, and 4 albums that have gone multiplatinum.

In their punchy little book, Scott and Halligan point out that the Grateful Dead turned the "the-band-tours-to-support-the-album" concept completely on it's head. For the Dead, the concerts are the experience they are selling. The scarce good is that particular night's performance, and the band makes each performance radically different. The band in its various forms has done over 2,300 shows, and no 2 are alike. Not only have the song lists been different each night, but the band plays different versions of all the songs. Instead of only touring periodically in support of a new album, the Dead has toured constantly.

Committed Deadheads have followed the band around to see hundreds of shows. In some cases these fans support their Dead habit by selling merchandise or food items in the parking lot, and this activity is endorsed by the band. Like Amazon with its affiliate program, the Dead supports anyone who sells band merchandise.

Because the concert experience is the product the band is selling, "technology has continued to be an essential element of live shows," write Halligan and Scott. "In the 1970s it was live concert technology and in 2009 it was a real-time iPhone application."


Create and sell a scarce good; promote it by giving away the non-scarce. Not bad for a bunch of hippies.

Posted by John Kranz at 11:27 AM | Comments (0)

August 16, 2010

Quote of the Day II

Paul Krugman is someone I would call "A Quantum Economist" which is someone -- you can't understand him and his position at the same time -- David Gordon (~9:40)
Posted by John Kranz at 1:50 PM | Comments (0)

August 13, 2010

All your CPI are belong to us!

I love stories like this!

James Rummel of ChicagoBoyz finds a 1979 flyer from a local grocery store. Not requiring the Internet to make a segue, Rummel checks his front step and finds today's insert from the same outfit.

 19792010
Chopped Ham$1.59/lb$1.89
Hot Dogs$1.39$2
Milk$1.39/gal$2.50
These prices are not adjusted for inflation, else the tube steaks would be $3.77.

Arguing about monetary policy, I've complained that the CPI overstates inflation by ignoring disinflationary effects from trade and technology. That may be academic, but the entitlement spending indexed to CPI is bankrupting us.

Let's index Social Security payments to all meat franks. Old folks love 'em and we would solve our funding crisis overnight.

Posted by John Kranz at 4:47 PM | Comments (1)
But Keith Arnold thinks:

John - that's an astute observation - and for my money, demonstrates pretty clearly that the CPI is a faulty index. It was chosen (and since being chosen, has been manipulated) for political reasons, and not honest economic ones. A better standard, and one I've seen numerous times, is "how many hours does the average worker in [pick your country] have to labor in exchange for [pick your product]" - and demonstrating how much more a car costs in Russia or in Japan compared to America.

I've always preferred to measure economies by what I call the "Standard B&P Index" - the unit of measurement being a large draft Beer and large two-item Pizza (hence the name). It's an effective and universal measuring system, and the beauty of it is that it is reversible. You can easily measure an economic system by how many hours an average laborer must work for 1 B&P, or how many B&Ps a product equates to in any given economy.

Economics! No longer a dismal science.

Posted by: Keith Arnold at August 13, 2010 6:11 PM

August 11, 2010

Black Wednesday

James Pethokoukis declares "Recovery Summer" officially over. Three firms expect serious downward revisions of the Q2 GDP numbers. Action Economics:

The markets might face their biggest downside economic surprise of this recent growth slowdown yet in the form of a downward Q2 GDP revision, which todays U.S. trade deficit figures suggest will be a whopper. We now expect the 2.4% advance Q2 GDP gain to face a huge downward adjustment to the 1% area, with a hit from trade of as much as $18 bln that we conservatively peg at $12 bln, as the BEAs seemingly pessimistic $45 bln deficit assumption for June turned out to be excessively optimistic instead. A change in Chinas VAT rebate policy in June may explain a part of the surprise, though the GDP gain in Q2 is likely poised for an alarming 1-handle regardless of this distortion.

Jimmy P. concludes:
More and more, Wall Street seems to be converging on the Goldman Sachs forecast of a second-half growth slowdown. Hard to see how that helps unemployment or Democrat chances of holding both the House and Senate. Remember, if the labor force had not shrunk by one million workers since April, the unemployment rate would be 10.4 percent. Voters may not know those numbers, but they know the economy is far from healthy.

NOTE: I cannot get a good link to the post. Scroll to "Black Wednesday and the 2010 midterms"

Posted by John Kranz at 8:11 PM | Comments (1)
But Perry Eidelbus thinks:

Just want to point something out here. At work, I've corrected our economic commentary writers on saying that the trade deficit "subtracted" from GDP growth. That in and of itself is inaccurate.

But when it comes to estimating a particular quarter's GDP, the trade deficit does get factored in. Take total spending on goods and services, subtract what was imported, and it's a decent approximation of how much was produced domestically. This works for a country, a state or province, or a locality of any size, as long as you can estimate what was spent there and what was imported/exported.

If the trade deficit is larger than what was previously estimated, then GDP must be revised downward. That's why this is so bad. However, it is NOT a problem with the trade deficit, or trade in general. I know you're not saying this, but keep this in mind the next time a protectionist claims that the economy would have been better had we not imported so much. It's based on an "all else being equal" fallacy, because as a matter of American history, importing less has never meant buying the difference at home.

Posted by: Perry Eidelbus at August 12, 2010 11:54 AM

August 8, 2010

And Only ThreeSourcers Know Whom to Blame

My blog brothers and sisters were certain I had lost my mind when I floated my refi plan a couple months back.

I mentioned in the ensuing discussion that I was sure it was a bad idea, I just had not yet figured out why. I think we might, as James Pethokoukis claims it was presented to the Senate by a Morgan Stanley economist.

Is it time for another "free" lunch? One Wall Street idea to boost U.S. growth is for the government to loosen rules so millions more Americans can refinance mortgages, thereby freeing up cash for spending. A desperate Washington might be tempted, but should think twice. It's too reminiscent of how the economy first fell into trouble.

A top Morgan Stanley economist ran the slam dunk stimulus plan past the Senate Budget Committee on Tuesday. With the political mood making it almost impossible to contemplate spending more taxpayer money to juice demand, the bank's economists are suggesting a different route to a stimulus -- namely having government-run mortgage lenders loosen the refinancing rules on 37 million mortgages they currently guarantee. That would open the door to many homeowners who haven't been able to take advantage of the current low interest rates because they owe more than their homes are worth, are unemployed or have low credit scores.

The logic is that with the government already on the hook for these loans, theres nothing to lose from dispensing with any creditworthiness criteria for refinancing. The median interest rate on the mortgages concerned is 5.75 percent. These loans, the thinking goes, could be refinanced to around 4.50 percent. The 125 basis-point reduction would leave a borrower with a typical $200,000 mortgage better off to the tune of $2,500 a year. If, as Morgan Stanley guesstimates, half the affected homeowners took advantage of this, they would collectively have an extra $46 billion a year burning a hole in their pockets.


One of my personality flaws is that I hold onto my ideas too long. Jimmy P. makes some arguments against, but I still have not seen the deal breaker. I'd love gub'mint to leave the housing market alone. But they're gonna do something and this is one of the least intrusive and potentially most stimulative plans I can envision. I know y'all and Mister Pethokoukis hate it. But trust me on this: we're likely to get something much worse!

Have a nice day!

Posted by John Kranz at 10:34 AM | Comments (13)
But Lisa M thinks:

jk--apologies because I confused your plan with the so-calld "August surprise" rumors floating about. My understanding is that that plan actually is a forgiveness of principal.

The problem as I see it is this: what if the housing market rebounds? As a banker, we have many people who call us every time rates go down and want to refi at a lower rate; understandable enough. But when rates go back up, do we as a bank get to refi you then at a higher rate?

And if the housing market rebounds, and home values go back up eventually, when all these people who got principal forgiveness under the August Surprise plan then have to refi for what they actually owed for pre-forgivenss?

I get what you're saying jk (and I didn't admittedly at first) and I think you should be allowed to refi at the same competetive rate that anyone else does, regardless of whether or not you ar upside down in your mortgage; in other words, your home's present value doesn't dictate special refi privileges just to curtail defaults---those who are going to default will do it anyway; it only encourages moral hazard to validate that those who bought at the end of the housing boom are somehow immune to the risks all of us take when we make a major investment purchase and it declines in value.

Posted by: Lisa M at August 11, 2010 7:43 AM
But jk thinks:

I think we can all agree that the August Surprise is evil. And I will think none the less of you if you think jk's September Madness is bad as well; it is fraught with moral hazard.

You as a mortgage banker are indeed the aggrieved party. You are being asked to give up the higher interest rate, making you the victim of my crime. But my hunch is that:

a) not many of you are holding any of the paper any more. I done been securitized;

b) I grant you your pessimism, but at the margins some borrowers will be able to keep up with the lower payments.

c) the profits from new activity would be more interesting than the higher return of the old loans.

Your biz, not mine -- let me know if I am all wet.

Posted by: jk at August 11, 2010 10:36 AM
But Lisa M thinks:

What I can't quite wrap my head around is why you need or should have your mortgage modified. Your payments have stayed the same; the value of your home has dropped. The current value of your home doesn't have any impact on whether you can afford your payments or not--that was presumably determined when you got your mortgage. If your employment status or financial situation has not changed, there is no reason that you cannot still afford to make your payments; your financial situation and/or employment status is in no way related to your home value, therefore should not predicate whether or not you qualify for a loan mod. One thing has absolutely nothing to do with another; ergo, moral hazard.

It would be the same as asking to have your car payments modified three months into ownership because the value of the car has dropped.

For the record, I'm a commercial banker, but my bank also handles residential mortgage loans, and you are correct, we don't hold much of our resi mortgage paper anymore.

That being said, if a customer is struggling with their mortgage, it's in our best interests in a lot of cases to work with a troubled client prior to default. Most banks have absolutely no interest in being in the real estate business; they simply wish customers to honor their side of the contract. If a customer demonstrates a need, most banks would be willing to work with a customer in good standing to help keep him in his home. But because our esteemed President and his cronies in congress have made nice political hay in demonizing the banking industry, many folks are leery of approaching their bankers for help when they first feel they need it. Which ends up landing them in foreclosure sometimes.

Posted by: Lisa M at August 11, 2010 8:15 PM
But jk thinks:

Completely agree that I do not deserve an adjustment. I signed a contract. I must pay the contracted amount. (And I am really going to regret using myself as an example. For the record, I am solvent, employed and up to date on payments.)

But I contend that said hazard happened when I acquired the FHA loan. Y'all placed an implied put on my mortgage. Since you have, I come back and ask "Hey, you backstopped me before, why not do it again so I can take advantage of a lower rate?"

I'm exploiting an anomaly. And it seems that it might help others and provide a little stimulus, without increasing the government's liability. Hazard happened already. I'm shifting it.

A better analogy is rolling credit card debt onto an intro rate. My Uncle has cosigned both cards...

Posted by: jk at August 11, 2010 8:51 PM
But Lisa M thinks:

jk, please interpret my use of "you" in the previous post as the "royal you" in that I did not mean YOU in particular, but simply anyone in that situation.

That being said, what would probably result from that is two things: the loss of profits in the banking industry (which no one but me and my colleagues who earn our living from this industry are going to shed tears over) and an eventual tightening of the credit market. The tightening of the credit market is, admittedly, overdue and was a significant contributor to our current fiscal mess.

But what these two effects will eventually end up wreaking on our economy are the closure of our small community banks (one of which employs me). If the big boys are not going to earn their proper rate of interest, they are not going to want to pay the little guys to originate the mortgages. Couple that with draconian regulations that address all manner of issues that have pretty much nothing to do with the financial crisis and completely ignore chief culprits Fannie and Freddie, Community Banks, the banks that finance your local small businesses, will get squeezed out, unable to shoulder the financial burdens that the new regs and the diminished profits that result from the skittish lending environment.

The bell may already be tolling for small community banks like mine.

Posted by: Lisa M at August 11, 2010 9:16 PM
But jk thinks:

No offense taken. I oscillate between royal and standard first person because I am underwater and I first proposed this free government lunch program to benefit, ahem, myself. Wouldn't your bank like the business of closing all these newly enabled refis?

No doubt that secondary securiizers will be more wary of mortgage backed instruments with additional early repayment risk. It seems that train left the station some time ago, but I think that's legitimate evil in this scheme -- it would further depress MBS' already toxic value.

Posted by: jk at August 11, 2010 9:47 PM

August 2, 2010

Broken Window Fallacy

Or, YouTube tries to explalin Bastiat to Krugman in 3:31:

Posted by John Kranz at 7:12 PM | Comments (0)

An Economic Mystery

I'd love to hear some ThreeSources speculation on a short conversion with one of my beloved but non-moonbat relatives.

Their friend has had a well known automotive repair shop in a working class neighborhood for 30 years or so. Business is way down, and his parts supplier assures him that this is the case all over.

Huh? What? Granted this is an nth level anecdote, but I would speculate that car repair would profit in an economic downturn. Owners would be less likely to purchase a new car and repairing the old one would seem more attractive.

Perhaps more owners would do more repairs DIY-style, perhaps lower cost alternatives like Grease Monkey or Meineke look better that the local garage. Desperate folks might forego repairs altogether. None of these seem compelling.

Am I missing one? Does somebody want to call "shenanigans" on the whole story? I don't know but I cannot put it together.

Posted by John Kranz at 4:47 PM | Comments (4)
But Boulder Refugee thinks:

First of all, what is the shop owner's definition of "way down?" The shop owner's idea could be 25% and the supplier's 5%; each number tells a different tale. Moreover, is the supplier being fully honest or just commiserating with a customer and telling a "white lie" when in fact their business has been flat-to-decent?

Auto repair is not a recession-proof business for all the reasons that you note. However, if your friend's business is off - say - 25%, then he's got problems beyond the economy. Perhaps he's got new mechanics who aren't doing a great job, or his customer service rep is crabby and customers have gone elsewhere.

If he has extra time on his hands from slow business, he should be on the horn to customers asking how their car is running and finding out he can do to provide better service. Maybe offer a free oil change with any repair service. He may drum up business or he may get an earful.

Posted by: Boulder Refugee at August 2, 2010 6:05 PM
But jk thinks:

It would be good to see stats. I confess this to be incredibly anecdotal.

There is one thought I mentioned in conversation but did not include in the post. Are cars just getting better? I told beloved-non-moonbat relative "he's not seeing you, you have a Toyota!" I put preternaturally low miles on a car, but my Toyota is six years old and has never seen the inside of any place but a Grease Monkey. I wonder if the industry isn't built around 1978 Plymouth Volares and is thusly overcapacity for modern import and domestic vehicles.

Posted by: jk at August 2, 2010 6:28 PM
But Keith Arnold thinks:

The customers can't afford car repairs. Any discretionary money they had left is going to pay for somebody else's Volt.

Seriously, though - I know people who are putting off all but the most essential auto repairs, hoping they can keep it together with spit, glue, and baling wire until the economy rights itself. I hope their optimism is justified.

Posted by: Keith Arnold at August 2, 2010 6:28 PM
But sugarchuck thinks:

I think a lot of viable used cars that would have been coming in for repairs had they worked their way into the system were crushed as clunkers instead. Now the real clunkers still left are not worth repairing so they'll go up on blocks or get set out in fields. The irony of the Obamanation never stops. Rich guys that were going to buy new cars anyway got Govt. jack to help with the purchase and lower income guys lost out on the opportunity to buy affordable used cars that had plenty of shelf life left in them provided they received proper maintenance and parts. Hmmm... now low income guy has a harder time getting to work, parts guy has fewer parts to sell and rich guy, who thought he made out great on cash for clunkers will pay more taxes to compensate for the government meddling in the auto markets. More hopey changey goodness from the Obamassiah!

Posted by: sugarchuck at August 3, 2010 10:27 AM

July 30, 2010

Jobs Diverted or Destroyed

The Obama administration loves to tout wholly ficticious "jobs created or saved" statistics for its $1.1 trillion stimulous. Warren Meyer, in a Forbes.com article, absolutely destroys the notion that government stimulus is an investment. ThreeSourcer's homework this weekend is to read this article and forward it to three moonbat friends. It will not be news to any Three Sources regulars, but it is the most resonating argument to date. The section about government regulation stifling small business especially hits home as The Refugee has lived that one.

Meyer's concluding paragraph:

To every one of the supporters of these government projects who claim to have created some number of jobs, I encourage the reader to ask a simple question--who was using the money before the government diverted it, and how many jobs were they creating?

Beautiful. One must ask: "How many jobs has Obama diverted or destroyed?" I think we're up to about eight million. For those keeping score at home, that means it has cost the taxpayer only $137,500 for every job diverted or destroyed.

Posted by Boulder Refugee at 2:40 PM | Comments (2)
But Perry Eidelbus thinks:

He gets an A today. Would have been an A+ if he had mentioned Bastiat, who he definitely has read, but he was probably constrained for space. :)

Posted by: Perry Eidelbus at July 30, 2010 3:19 PM
But jk thinks:

When Professor Refugee gave us all weekend for the assignment, I feared it was 100 pages. Nope, it is brief and readable and punchy. Awesome.

(I did change your link to point at page one instead of two.)

Posted by: jk at July 30, 2010 3:49 PM

FREE CARS! FREE CARS!

The New York Times published an OpEd by Edward Niedermeyer that takes to task the amount of taxpayer money pumped into GM's Volt electric vehicle. (Separately, The Refugee is furiously seaching the Web weather reports for confirmation that hell has indeed frozen over. It's gonna be a bad year for oranges.) Here's the "money" paragraph:

Quantifying just how much taxpayer money will have been wasted on the hastily developed Volt is no easy feat. Start with the $50 billion bailout (without which none of this would have been necessary), add $240 million in Energy Department grants doled out to G.M. last summer, $150 million in federal money to the Volts Korean battery supplier, up to $1.5 billion in tax breaks for purchasers and other consumer incentives, and some significant portion of the $14 billion loan G.M. got in 2008 for retooling its plants, and youve got some idea of how much taxpayer cash is built into every Volt.

If you arbitrarily take about 20% of this total and allocate it to the Volt, then taxpayers have ponied up about $11 billion. That's enough to produce 268, 292 Volts at the $41,000 sticker. But wait, only 10,000 are being produced. So, it's costing the taxpayer about $1.1 million per unit. (Don't like The Refugee's numbers? Insert your own. They're horrifying no matter what assumptions you use.)

Here's a marketing idea that would make Bob Barker look like a piker: give every net-taxpayer a new Volt under the notion that they've already paid for them. Under this plan, net tax receivers need not apply, for obvious reasons. Of course, Obama would turn that on its head and give them to the poor and disavantaged in the name of Social Justice. But at least they wouldn't have an excuse for not getting to work.

Posted by Boulder Refugee at 11:59 AM | Comments (2)
But johngalt thinks:

Don't think so? How 'bout, "My electricity was shut off and I couldn't charge my new free car."

Posted by: johngalt at July 30, 2010 5:04 PM
But jk thinks:

Of course we'd give them electricity, too jg. Man you think we're completely heartless?

Posted by: jk at July 30, 2010 5:33 PM

July 22, 2010

Quote of the Day

If there had been no Earl Butz, the organic and sustainable food movement would have had to invent him. -- Blake Hurst

Hurst is a Missouri farmer and he pens a great column in the American today. The back-to-the-cave types would not only have us freeze in the dark, they'd have us starve.

Posted by John Kranz at 1:08 PM | Comments (0)

July 20, 2010

Two Great Looks at Taxes

First James Pethokoukis brings some bone-numbingly-pessimistic but important facts. Trying to solve the budget deficit through increasing taxes is no problem, providing you do one of the following:


  • Enact a 25% VAT (Greece is still a mess with a 19% VAT);

  • Take 130% of the taxable profits earned by U.S. companies this year (thats what you call net operating losses);

  • Raise the top three tax brackets (28%, 33%, and 35%) to 100%. Actually, this would still not raise enough money to erase the deficit of course, assuming all the wealthy taxpayers didnt flee to Switzerland.

  • Take 100% of the business income earned by individual taxpayers in 2008


Martin Feldstein wants to remove some social-engineering deductions that he claims are really spending. The master is President Obama, who claims he cut taxes because he gave clunker and caulker rebates.

But Feldstein makes a powerful case against even popular and long-standing deductions. Supply-siders may have to bite on a piece of leather, but in tough times, his arguments are very convincing. And liberty lovers should be circumspect about government choosing good (buying) versus bad (renting) behavior through the tax code.

But eliminating tax expenditures does not increase marginal tax rates or reduce the reward for saving, investment or risk-taking. It would also increase overall economic efficiency by removing incentives that distort private spending decisions. And eliminating or consolidating the large number of overlapping tax-based subsidies would also greatly simplify tax filing. In short, cutting tax expenditures is not at all like other ways of raising revenue.

If tax expenditures are not cut, taxes on households and businesses will have to rise to prevent an explosion of the national debt, which is now projected to increase to 90% of GDP by 2020 from today's 63%. When benefits for Social Security and Medicare are set aside, the rest of the outlay side of the budget is too small7.5% of GDPto provide much scope for reducing annual budget deficits that are now projected to average 5% of GDP for the rest of this decade. In contrast, total tax expenditures are now 6.4% of GDP.


Holler if you want me to email around Rupert's cruel pay wall. It bears careful consideration.

Posted by John Kranz at 5:41 PM | Comments (0)

July 15, 2010

Naturally Grouchy.

Like Veronique de Rugy, I like Steve Pearlstein. He's a frequent guest on Larry Kudlow's show, and while we do not see eye-to-eye, he's a sharp guy and usually open to other viewpoints.

Several people link to an NPR interview where, ensconced in the ideologically safety of gub'ment media, he lets his freak flag fly a bit:

Steven Pearlstein is a business columnist for The Washington Post. I asked him what he makes of the argument heard often these days from big business that $1.8 trillion is a measure of their uncertainty about taxes or regulations to come from Washington.

Mr. STEVEN PEARLSTEIN (Business Columnist, The Washington Post): I don't make much of it. There's no doubt that in the last year and a half things have changed for business. After really more than a decade of essentially writing their own regulatory rules and after a decade of declining corporate taxes as a share of GDP, things are going in the other direction. So they are naturally a grouchy bunch right now.


This is one of those instances where you have lost the war if you let your opponent define terms. Pearlstein describes a natural oscillation between "becoming grouchy" when regulation and taxes go up, followed by good cheer when the mean old Republicans let you do whatever you want.

Absent from the clip -- and the interview as near as I can tell -- is any consideration of liberty. It is not a natural state, Mr. Pearlstein, to have your property confiscated in a free society. Regulation is not supposed to be a pendulum. You are free to run your business as you see fit without harming others or you are not.

Posted by John Kranz at 12:31 PM | Comments (0)

July 12, 2010

Jefferson, Rand ... Friedman

I consider myself fairly well read in science and philosophy but economics and its jargon have always managed to keep me at arms length. As a result, and despite JK's repeated efforts, I never truly grasped the magnificent greatness of Milton Friedman.

Last weekend dagny and I drove the horses to New Mexico for a vaulting competition and engaged in our beloved "read to the driver" tradition. We finished the first few chapters of 'Free to Choose' and I was blown away. Not long ago I proclaimed that 'Robin Hood' is the TEA-Party "must see" movie of 2010. I'll now add that this book is the "must read" book for Republican candidates in '10 and '12. In particular, an ambitious presidential candidate could build an entire campaign around just the ideas in Chapters 2 and 3. Imagine if the citizens who inherited the greatest economy on Earth finally pulled enough of their heads from dark places and followed the lead of Albania. [And having now read these chapters I better understand the genesis of Prime Minister Laar's strategy.] Can you say, "zero deficit?" Of course, a few people might actually become more wealthy than the average pipefitter or schoolteacher, perhaps even obscenely so, but you've got to break a few eggs to make an omlette.

As dagny read I experienced the same reaction that I had on first reading 'Atlas Shrugged.' Friedman's explanations of causes and effects with historical perspective formed a perfect fit between my observations of reality and the integrated whole of my belief system in the realm of political economy. "I should have read this ages ago!" I lamented.

I made a mental note of some passages I wanted to quote here but don't have the book with me now. Until then, if you haven't already read it then put it on your list. You won't be disappointed.

UPDATE (7/13): Remembered the book today...

From Chapter 2 - 'The Tyranny of Controls (The Economic Case for Free Trade)'

"We are a great nation, the leader of the free world. It ill behooves us to require Hong Kong and Taiwan to impose export quotas on textiles to "protect" our textile industry at the expense of U.S. consumers and of Chinese workers in Hong Kong and Taiwan. We speak glowingly of the virtues of free trade, while we use our political and economic power to induce Japan to restrict exports of steel and TV sets. We should move unilaterally to free trade, not instantaneously, but over a period of, say, five years, at a pace announced in advance.

Few measures that we could take would do more to promote the cause of freedom at home and abroad than complete free trade. Instead of making grants to foreign governments in the name of economic aid - thereby promoting socialism - while at the same time imposing restrictions on the products they produce - thereby hindering free enterprise - we could assume a consistent and principled stance. We could say to the rest of the world: we believe in freedom and intend to practice it. We cannot force you to be free. But we can offer full cooperation on equal terms to all. Our market is open to you without tariffs or other restrictions. Sell here what you can and wish to. Buy whatever you can and wish to. In that way cooperation among individuals can be worldwide and free."

This is my definition of utopia. This is also the main idea I suggested an ambitious Republican presidential candidate could build a movement upon. He (or she) would be dubbed "the next Reagan." If he or she succeeded she would become the new standard by which future presidents are judged.

Posted by JohnGalt at 3:01 PM | Comments (1)
But jk thinks:

I weep tears of joy (of course, I've been on IV streroids and experimental immunosupressants all day, so I might be emotional).

PBS (yes, PBS) did a nice series on Free to Choose that is widley available. John Stossel just had a show on it (I think it was a repeat so it might be on Hulu already).

Stossel showed footage of his being hectorred as he was accepting his (Friedman's) Nobel Prize.

Posted by: jk at July 12, 2010 8:16 PM

July 9, 2010

Quote of the Day

Even economist John Maynard Keynes noticed the damage to utilities, asking [President Franklin] Roosevelt, "what's the use of chasing them around the lot every other week?"-- Amity Schlaes
The whole piece is superb.
Posted by John Kranz at 11:42 AM | Comments (0)

June 25, 2010

"Libertarian Paternalism?"

I heard this term on the radio recently and thought it sounded like a threat to liberty in the same vein as 'neo-conservativism.' According to the Mises Institute's David Gordon I was right.

Given these uncontroversial characterizations of the two positions, is it not obvious that they cannot be combined with each other? To devise a libertarian paternalism seems no more promising an endeavor than to construct a square circle. Our eminent authors, though, are not convinced: libertarian paternalism is exactly the position they wish to defend.

Amongst "our eminent authors" is Cass Sunstein.

Posted by JohnGalt at 3:10 PM | Comments (0)

June 24, 2010

All Hail Stossel!

Animal rights activists are for some odd reason displeased with a Mesa, AZ restaurant serving lion burgers. John Stossel wonders

But why? Lions are listed as threatened. The best way to save threatened and endangered species is toeat them.

The American bison are the best example. A hundred years ago, they were on the verge of extinction. They were hunted almost to extinction because no one owned them. It was the Tragedy of the Commons . No one owned the bison, so no one had an incentive to protect them.

Then ranchers began to fence in the bison and (gasp!) farm them. Today, America has half a million bison. We dont have a shortage of chickens, either.


Posted by John Kranz at 4:17 PM | Comments (12)
But T. Greer thinks:

GGS has its good points and its bad. I am uncomfortable with the level of geographic determinism it subscribes, to however, particularly when Diamond moves out of prehistory and starts discussing things like Chinese unity and European capitals. But on the broad scale - why was technology spread quickly in the Old world, but unable to spread in Africa or the Americas, for example - I think Diamond is right. (Not that he was the first one to say any of it. The best parts of that book were ripped straight from Alfred Crosby's Ecological Imperialism: The Biological Expansion of Europe, 900-1900 , which, despite the title meant to draw in lefty academic types, is one of the best written and well argued history books I have read. I will never understand how Diamond managed to steal Crosby's thunder.)

In any case, I have seen little evidence that Diamond was wrong concerning domestication. One does not see many veal farms around.


As for the free markets bit - This is really a debate of semantics. No market has beaten nature. Understand that the nature I speak of is not the Mother Nature of wants and fears that environmentalists like to talk about. Nature is the unliving system that surrounds it. And that system works with rules we can't break. We may fly, but we do not break gravity. We may dam rivers but we do not break the laws of thermodynamics.

Markets do use nature quite a bit, of course. And in the future we may use our knowledge of the laws of genetics to produce Lions and Deer and Musk Ox that can be readily domesticated. But that lies beyond our capabilities - and that of the market - for now.

Posted by: T. Greer at June 25, 2010 1:41 PM
But johngalt thinks:

At some small risk of oversimplification, markets ARE nature. Nature is a synonym for reality, which markets interact with unapologetically. It is therefore misguided to debate whether markets "beat" nature. But nature does make some things economically unviable and therefore only as plentiful as the number of men willing to meet their expense.

Posted by: johngalt at June 25, 2010 2:21 PM
But T. Greer thinks:

JG wins.

Posted by: T. Greer at June 25, 2010 3:18 PM
But jk thinks:

Yeah, but don't ever tell him.

Posted by: jk at June 25, 2010 4:04 PM
But Terri thinks:

"But nature does make some things economically unviable and therefore only as plentiful as the number of men willing to meet their expense."

For now of course.
But the expense part is the part that is always a bit more subjective.

It's X expensive to come up with a lion farm. In cold hard cash.

What is the expense to the lion?

Yes we run the earth - that doesn't mean we should own everyone who lives on it.

Posted by: Terri at June 25, 2010 6:02 PM
But johngalt thinks:

"Everyone?" That term applies only to humans.

Animals can neither grasp the concept "rights," nor live by it. It simply does not pertain to entities that survive by brutally devouring one another, rather than by production and trade. If animals have rights, then man's right to live is negated. For he is then unable to hunt or fish. He cannot clear land for planting, because he disturbs numerous bugs in the process. He cannot even rid his life of disease-causing germs because he is violating the rights of microorganisms.

This does not mean that it is moral to treat animals inhumanely but there is a bottomless chasm separating kindness and respect for life from the lowering of humanity to parity with the animal world.

Posted by: johngalt at June 28, 2010 2:53 PM

June 14, 2010

Sovereign Debt is sooooo hot!

June 9 (Bloomberg) -- Japanese women are seeking men who invest in government bonds, according to an advertisement being run by the Ministry of Finance.

I want my future husband to be diligent about money, a 27-year-old woman says in an ad being run in free magazines promoting a fixed-rate, three-year note that Japan started selling last week. Playboys are no good. Shes one of five women featured in the page, which says Men who hold JGBs are popular with women!!

The ministry commissioned the ads to appeal to citizens for money at a time when record government borrowing threatens to outstrip demand. Prime Minister Naoto Kan, who took office yesterday, said he doesnt have an instant fix to rein in the worlds largest public debt.


And don't get me started on chicks with naked puts...

Hat-tip: Prof Mankiw

Posted by John Kranz at 6:07 PM | Comments (1)
But Perry Eidelbus thinks:

Talk about smart. These women want to hook up with men whose investments will be funded by, uh, those men's tax dollars. The more they make, the bigger their share. And the more the men invest in these bonds, the more they encourage the system to keep borrowing and spending.

Posted by: Perry Eidelbus at June 14, 2010 10:03 PM

Afghan Land Rush

For millenia, Afghanistan has been trapped in a cycle of tribal subsistance without the natural resources as a basis to lift it into an industrial economy. The result has been a backward society largely based on drug smuggling that created a petri dish for radical militants that neither the British, Russians nor (so far) Americans have been able to transform.

That may be about to change. A recent discovery of major mineral deposits have been announced. US officials estimate about $1 trillion in copper, cobalt, gold and lithium. Afghan officials have estimated it at more like $3 trillion, which may be wishful thinking. Either way, this would be a huge, transformative discovery for a country whose 2008 GDP was $10.6 billion. Afghanistan may become the "Saudi Arabia" of lithium.

We certainly know from the Middle East experience that wealth does not necessarily reduce radicalism. However, without an industrial base, there is little chance of having the education, jobs and infrastructure needed to lift the populace out of abject poverty.

Here's hoping that this is the catalyst needed to break the cycle, give the population an alternative and turn Afghanistan into a success story.

Posted by Boulder Refugee at 10:51 AM | Comments (8)
But Boulder Refugee thinks:

Good one, JG!

JK, I assume that you mean "mineral wealth is contrary to liberty" as "mineral wealth can be contrary..." It is not inherently contrary, as we see in examples such as Rockefeller, Carnegie, etc. A few will become fabulously wealthy while most will see their lot significantly improved.

The problem in Saudi Arabia an other Middle East countries is that the wealth is owned by a monarchy which hoards it. That's not the case in Afghanistan, though it will likely be state owned. Afghanistan's biggest problem is the official corruption that will stymie the proper flow of capital, wages and industry. On the plus side, that may leave little room for the Taliban.

Posted by: Boulder Refugee at June 14, 2010 3:30 PM
But jk thinks:

No, I meant it in the absolute sense, but I meant it in terms of land-mass or nation.

I hold that it was great luck that what is now New England lacked mineral resources (cf. Disney's Pocahontas), leaving it of little interest to Spain. I look at the gold rich counties of Latin America and the oil rich countries of the Middle East and see centuries of despotism. I look at the empty sand lot that is Israel, the barren Isle that is England, and I thank the stars that North American mineral wealth required the discovery and development of a Carnegie or Rockefeller.

Posted by: jk at June 14, 2010 3:46 PM
But Perry Eidelbus thinks:

The only solution: property rights. If it's on your property, you own it. Unfortunately that's unlikely to happen. Only in recent years has Afghanistan started to buck 5000 years of tribal tradition, and catching up to the West's last two centuries is naturally slow. It doesn't help when the West is going backward.

So which will happen first, the Taliban stops fighting because they realize it's better to mine lithium and trade, or they redouble their efforts to conquer so they can control the lithium?

Posted by: Perry Eidelbus at June 14, 2010 10:08 PM
But Perry Eidelbus thinks:

BTW, JK, ancient Israel was indeed a land of milk and honey. The Mount of Olives wasn't just a wishful name, but because of what grew so abundantly there. But after the Jews were scattered, the Arabs for centuries didn't take care of the land, which became large areas of desert.

Arabs initially didn't care when the Jews started returning in the 19th century. The Jews settled in the worst plots of land that no Arab wanted, and the first thing they did was plant trees to control erosion. Once the land was restored, suddenly the Arabs wanted the Jews to get out.

Posted by: Perry Eidelbus at June 14, 2010 10:12 PM
But jk thinks:

Property rights would require rule of law and I do not see that coming to our Afghani brothers too soon.

I would love nothing more than to see the Taliban take up bearded mining but they have chosen religious wackoism over money. They could have sold the 3000 year old Buddha statues for "a bob or two" but they chose the sledgehammer. The Taliban will figure how to get a few million out of a trillion dollar deposit so that they can continue jihad.

Fertile agricultural land is not the curse of mineral wealth because it attracts those who would develop it. Oil, Gold, Lithium, what have you encourages a more rapacious cycle. This former NMIMT student is not running down the profession of mining -- just the added allure to bad government that mineral wealth creates.


Posted by: jk at June 15, 2010 10:25 AM
But johngalt thinks:

When a primitive land discovers material wealth that could lead to bountiful prosperity for each and every one of her citizens, where does it start? What is the first step? How is it possible to apply these newfound resources in beneficial ways?

PE is right: Private property rights are a prerequisite. But before that is required an even more elemental value - Reason. While Iraq has shown some promise in this regard, who can reasonably expect the Afghanis to follow a path charted by reason when even the land of Neil Armstrong has largely abandoned it?

Posted by: johngalt at June 15, 2010 2:48 PM

June 6, 2010

Employers On Strike

How can a sentient being really be surprised by lackluster private sector jobs growth? The WSJ says "Employers on Strike:"

Almost everything Congress has done in recent months has made private businesses less inclined to hire new workers. ObamaCare imposes new taxes and mandates on private employers. Even with record unemployment, Congress raised the minimum wage to $7.25, pricing more workers out of jobs. The teen unemployment rate rose to 26.4% in May, and for those between the ages of 25 and 34 it rose to 10.5%. These should be some of the first to be hired in an expansion because they are relatively cheap and have the potential for large productivity gains as they add skills.

The "jobs" bill that the House passed last week expands jobless insurance to 99 weeks, while raising taxes by $80 billion on small employers and U.S-based corporations. On January 1, Congress is set to let taxes rise on capital gains, dividends and small businesses. None of these are incentives to hire more Americans.

Hmmm, somebody should write a book...

Posted by John Kranz at 10:56 AM | Comments (1)
But johngalt thinks:

Life, meet art. Art, life. You two mingle a while ... I'm going for another martini.

Posted by: johngalt at June 8, 2010 4:04 PM

June 3, 2010

Why copy Europe now?

Much as this June 1 post made one ponder why America is so eager to emulate Canadian-style health care, Victor Davis Hanson muses about the example of Europe...

In short, as a reaction to the self-destruction of Europe in World War II and the twin monsters of fascism and communism, Europeans thought they could change human nature itself through the creation of an all-caring, all-wise European Union uber-citizen. Instead of dealing with human sins, European wise men of the last half-century would simply declare them pass.

But human-driven history is now roaring back with a fury in Europe -- from Mediterranean insolvency, to the threat of radical Islam, to demographic decline, to new international dangers on the horizon.

Only one question remains: At a time when Europe is discovering that its democratic socialism does not work, why in the world is the United States doing its best to copy it?

Both are good questions, and I have a single answer for both of them: If America doesn't follow suit quickly enough the "utopian" Euro-centric systems may crumble of their own weight before we get there.

The Progressives/Marxists/Euro-socialists will, of course, tell us that once America is integrated into the collective it will suddenly become sustainable. How, exactly, they never say. Nor do they explain our lack of recourse if, once the "bill is passed," we find it undesirable.

Posted by JohnGalt at 3:12 PM | Comments (1)
But Perry Eidelbus thinks:

Or the explanation for why communism failed in the USSR: "It wasn't done right, but here we'll make it work! We won't make the same mistakes." This ignores that the entire collectivist "experiment" is one big gigantic mistake.

Posted by: Perry Eidelbus at June 4, 2010 10:57 AM

June 1, 2010

Pretending we can measure...

Maybe I can make a blog franchise of this, but we make a lot of policy decisions based on parameters we cannot measure.

The classic would be global temperature. What's the temperature of the Earth today? The world has no rectum into which we can insert a thermometer (though I have claimed that many of the clubs I have played might qualify). So we construct an average of surface temp or satellite data or thousand year old tree rings. NASA has an algorithm, but will not share it with the taxpayers who funded it.

But that's hard, jk, Scientists are doing their best at a difficult problem. Fair enough -- a little humility would go a long way but I'll concede the difficulty.

We have no shortage of data about income, and yet we cannot or will not measure poverty. Alan Reynolds has done a yeoman job debunking historical comparisons of Income and Wealth.

Those who want to drive an agenda need not falsify data or leave their thumb on the scale. All they need do is design the metric. Today I read one more tale of Europe's attempt to replace the cold hard measurement of Gross Domestic Product (GDP) with a Goofy Kumbaya Index (GKI).

Invariably, suggestions about how to improve or replace the GDP metric come at the expense of the U.S. Mr. Sarkozy's commission would have the cooking and cleaning you do at home count in the aggregate output statistic, just as take-out food or maid service already does. Leisure time would be thrown into the scales as a positive, time spent in traffic as a negative. And so the output gap between Europe and the U.S. would conveniently disappear.

I don't think the GKI will spread, but a) it might; b) look at similarly bad metrics that do define policy. Robert Samuelson shows that the "poverty line" is bad:
It was originally designed in the early 1960s by Mollie Orshansky, an analyst at the Social Security Administration, and became part of Lyndon Johnson's War on Poverty. She took the Agriculture Department's estimated cost for a bare-bones -- but adequate -- diet and multiplied it by three. That figure is adjusted annually for inflation. In 2008, the poverty threshold was $21,834 for a four-member family with two children under 18.

By this measure, we haven't made much progress. Except for recessions, when the poverty rate can rise to 15 percent, it has stayed in a narrow range for decades. In 2007 -- the peak of the last business cycle -- the poverty rate was 12.5 percent; one out of eight Americans was "poor." In 1969, another business cycle peak, the poverty rate was 12.1 percent. But the apparent lack of progress is misleading for two reasons.


and efforts are underway to replace it with something worse.
The new indicator is a "propaganda device" to promote income redistribution by showing that poverty is stubborn or increasing, says the Heritage Foundation's Robert Rector. He has a point. The Census Bureau has estimated statistics similar to the administration's proposal. In 2008, the traditional poverty rate was 13.2 percent; estimates of the new statistic range up to 17 percent. The new poverty statistic exceeds the old, and the gap grows larger over time.

Great post (Hat-tip: Mankiw) and worth a read in full.

Next week: the Body Mass Index...

Posted by John Kranz at 5:36 PM | Comments (0)

Smoot Schumer & Hawley Graham!

A good friend of this blog (rhymes with "squeegee") sends along this link and an admonition to read the comments if I really want to be depressed.

What's the key to economic recovery? Why less trade of course! (The title of this post is stolen from Larry Kudlow). To ensure that the crappiest jobs in the whole wide world are properly apportioned to 'Mer'cans, His Smootness think companies should be forced to disclose and pay fines on outsourced call centers.

Customers calling 800 numbers are often transferred overseas, and in such cases the bill would mandate that callers be told where their calls were rerouted.

Companies would also be required to certify to the Federal Trade Commission annually that they were complying with the requirement, and face penalties if they did not certify.

Schumer's bill would also impose a $0.25 excise tax on any customer service call placed inside the United States which is transferred to an agent in a foreign location. The fee would be assessed on the company that transferred the call.


My friend is right, The comments run five to one in approbation. I am less depressed about that as I discount every internet comment area outside of this domain. I guess some of those people vote but I do not expect they move a lot of minds with brilliant repartee.

You can see the Great Depression though. It is a vicious cycle of lower prosperity at home fueling the calls for protectionism, which in turn lowers prosperity et cetera et cetera...

The only cure is to have brave, wise leaders in the Executive and Legislative branches who will -- oh wait a minute, we are screwed.

UPDATE: A Tea Party Candidate to oopose him? I don't think I'd bet the farm, but I'd send him a few bucks...

Posted by John Kranz at 10:12 AM | Comments (0)

May 25, 2010

Read Worthy

Border porosity advocate that I am, even I have come around to the swelling admonition, purported fearlessly on these pages by Brother jg, that opponents of the Arizona Immigration statute should read the law's text before opining. And I will if somebody agrees to diagram the previous sentence.

BUT -- I'd rather our legislators and executive branch officers read WHITHER FANNIE AND FREDDIE? A PROPOSAL FOR REFORMING THE HOUSING GSES.. Professor Mankiw links to this superb -- and very accessible -- paper from Donald Marron and Phillip Swagel. It suggests a realistic plan for privatization of Fannie Mae and Freddie Mac, It provides for a continuation of secondary mortgage securitization by a clearly private Fan & Fred. The open ended exposure of a government put does not disappear, but it is clarified, managed and mitigated.

It might not be a libertarian dream, but it would be great to awaken from our present nightmare into such a system.

Based on this evaluation, we believe that the reformed Fannie and Freddie should continue to play a central role in the securitization and guaranteeing of mortgage securities, but as purely private companies with competition from other private companies. Structured correctly including with fees paid to the government in return for an explicit guarantee the firms can provide significant benefits to American homeowners with manageable risk to taxpayers and the financial system. Competition from other firms will help ensure that any government subsidy is passed on to homebuyers and people looking to refinance their mortgage. Allowing entry into the market for government-backed mortgage securities will also spur innovation, and make it possible for one or more of the firms to fail without raising the possibility of a substantial adverse impact on the broad economy.

Conversely, we do not believe that the new Fannie and Freddie should have a significant role in the other three activities for the foreseeable future. The multi-trillion dollar investment portfolios amassed by Fannie and Freddie were the primary source of moral hazard in their operations as GSEs. At the same time, the widespread bank ownership of the GSE debt used to fund the portfolio activities posed a systemic risk to the financial sector. In July and September 2008, taxpayers had to stand behind the GSE debt to avoid the possibility that losses in the event of a default would force banks to recapitalize en masse at a time when markets were already under stress. The risks to taxpayers and the economy from large portfolios overwhelm any potential economic benefits from the incremental liquidity they might provide to the mortgage market.


Well worth a read -- get a full cup of coffee first.

Posted by John Kranz at 12:53 PM | Comments (0)

May 20, 2010

Currency Topology

How cool is this?

Hat-tip: Mankiw

Posted by John Kranz at 5:02 PM | Comments (1)
But T. Greer thinks:

This is cool. Going in my next Notes From All Over for sure.

Posted by: T. Greer at May 21, 2010 5:26 PM

Time to worry?

Megan McArdle asks whether it's time to shift your investment strategy toward shoving Krugerrands under the bed and stocking up on water and ammunition. I'll not comment, though the headwinds always seem pretty strong against Larry Kudlow's V-shaped recovery.

But I have to credit her lead paragraph as a "Media and Blogging" item:

I loathe those neat little summary headlines that purport to tell you why things sold off--"Dow Drops 100 points on unemployment worries" and so forth--as if the journalist surveyed all the millions of people who bought and sold stocks and found out why they did what they did. So any attempt to fully explain this morning's ugly market behavior in terms of one factor or another is bound to be deeply flawed.

These guys on TV wouldn't know a naked put from a shot put, and they are always willing to go twice as far as an actual analyst. Whatever. I bet they'll all buy the wrong water and ammunition as well.

UPDATE: Rereading this, it is not clear that the bad jokes about "time to shift your investment strategy toward shoving Krugerrands under the bed and stocking up on water and ammunition" come from me and not McArdle. She's worried, but it's your beloved correspondent flying off the handle.

Posted by John Kranz at 12:21 PM | Comments (5)
But Perry Eidelbus thinks:

I've been saying this for years. It's just stupidity to attribute "the market moved this way" to single factors. The news is bad on retailers and jobless claims, so everything is supposedly crashing subsequently? Geithner's nomination is announced, so "stocks rallied"?

What really gets me are the idiots who say that gold and other commodities are rising in price because investors are buying more to hedge against inflation. What an unnecessary complication. The price is rising in the first place because of inflation.

Posted by: Perry Eidelbus at May 20, 2010 12:48 PM
But Keith Arnold thinks:

I am not the economic whiz that the rest of you are, but I seem to recall that quite some time ago, I was the one recommending investing in metals - specifically, lead.

It's not unforeseeable that we will live to see transactions done on the basis of a different legal tender: canned food, liquor, water, sex, and ammo. No time like the present to stock up...

Posted by: Keith Arnold at May 20, 2010 1:18 PM
But Boulder Refugee thinks:

Thanks for the tip, Keith. I am going to take your advice and stock up on liquor and sex. Got plenty of food, water and ammo.

Posted by: Boulder Refugee at May 20, 2010 5:51 PM
But jk thinks:

Huh. Br once told me "you can never have enough ammo..."

Posted by: jk at May 20, 2010 6:01 PM
But Boulder Refugee thinks:

Good point! To make up for it, I spent some time reloading tonight.

Posted by: Boulder Refugee at May 21, 2010 12:20 AM

Thanking What Lucky Stars Remain

I've been upholding the sacred honor of short sellers. Somebody's gotta do it.

Thw WSJ Ed Page suggests I give a quick danke schön that great-grandpa left the Fatherland:

Americans who think Washington is out of control should look on the bright side: You could live in Europe, where the political class is confronting its sovereign debt crisis by shooting the messengers and imposing new taxes on an almost daily basis.

German regulators on Tuesday decided to ban certain kinds of short-selling on euro-zone government bonds and credit-default swaps, as well as on the shares of 10 large German financial institutions, including Deutsche Bank and Commerzbank. European stock markets promptly sold off because investors don't much like it when politicians decree that stocks shouldn't fall in price. The silver lining is that the proposal wasn't coordinated with other governments, and the French (bless them) quickly said they won't go along.

Posted by John Kranz at 11:22 AM | Comments (1)
But Perry Eidelbus thinks:

The ban is only on naked short-selling, and even then only on government bonds and certain financial companies' issues. But the media has barely clarified this and has typically generalized it as "a ban on short-selling."

But it's a red herring, and the media's generalization is just another part of the scapegoating of short-sellers. The real problem, what really caused investors to pull out, were the new restrictions on CDS. What's the point of buying government bonds or other bix fixed-income products if you can't insure them with swaps?

But wherever those investors were putting their money yesterday, it wasn't into American stocks yesterday. Looks like more Treasuries, and again today.

Posted by: Perry Eidelbus at May 20, 2010 12:57 PM

May 14, 2010

Whenceforth Thou, EU?

JK has charted a rosy future for the Euro currency, but five years ago the National Intelligence Council predicted something different if they failed to reform the opulent welfare state.

Posted by JohnGalt at 3:49 PM | Comments (4)
But jk thinks:

Not sure I said "rosy future" but I (intellectual David) did contradict Robert Samuelson (intellectual Goliath)suggesting past successes.

Posted by: jk at May 14, 2010 4:10 PM
But johngalt thinks:

Perhaps a misleading synopsis of your post, but you did give them advice that would "preserve" the Euro and force PIG states to clean up their act. I'd call that rosy. (And your title suggested you were mapping the Euro's future...)

The purpose of the link was to document that grownups have seen the welfare-state train wreck coming for some time now. Choir, meet preacher.

Posted by: johngalt at May 15, 2010 1:45 PM
But jk thinks:

Fair cop, guv! Seeing a future for the common currency might put me in the "rosy scenario" camp now that you mention it.

We can compute, Perry, but:

a) it is not cost free. I spend a gob of time converting Euros and pounds to dollars for accounting purposes;

b) I'm not sure we can effortlessly exchange even though computation is cheap. You’re visiting France and would like to hop over to Spain -- do you exchange paper at the train station? Do you trust your credit card company to give you the most advantageous conversion?

c) From Maastricht to now, the Euro has provided stability as nations like Ireland could outsource their central banking to Trichet.

So yeah, put me down for "Rosy." They might need to kick some or all of the PIGS out, but I hope they do not devolve into Deutschmarks, Francs, and Shamrocks (or whatever the Irish currency was).

Posted by: jk at May 15, 2010 3:16 PM
But Perry Eidelbus thinks:

a) I never said it was cost-free, only that "exchange rates aren't much of a hindrance, if any, to trading partners." These days, if you're spending a lot of time on exchange rates, something's wrong.

b) So before the euro, the French and Spanish did not visit each other's nations? Or did the euro really increase mutual tourism?

Even where tourism has increased (supposedly Slovakia), it benefits the tourism industry at the expense of everyone else. It's the same old collectivist game of distributing costs so the irresponsible few can benefit.

I tend not to bring too much cash in my international travels, because from personal experience, exchange kiosks don't give significantly better rates. Wads of cash also tend to attract the attention of pickpockets and customs agents. So, I tend to withdraw money at ATMs for lesser expenses, and my credit card companies give me quite competitive rates. Exchanging paper money might save a few cents here and there in the end, but it's not worth my time to realize that benefit.

c) Are you serious? Having the ECB determine Ireland's monetary policy is just about the last thing Ireland wants. Ireland now has no choice but to go along for the ride, and its leaders by now are looking with envy across the Irish sea. The Bank of England, thankfully, retains sovereignty and can rescue itself.

The ECB alone will spend (read: print) a trillion euros to buy eurozone public debt, in an attempt to defend the euro's value. Oh, excuse me, there's a chip in my windshield, so I'm going to fix it by smashing it in.

Posted by: Perry Eidelbus at May 15, 2010 6:50 PM

May 13, 2010

Question of the Year

No, not a new ThreeSources franchise, but I like Tim Cavanaugh's style:

Why Isn't the Government Hiring Short Sellers?

'Cause when we put them all in jail, who's going to tell us the market is going to crash?

It is a seriously magnificent piece accompanied by a seriously evil photo of Senator Dodd (that must've takes some time -- probably a Photoshop!)

Former Paulson analyst Paolo Pellegrini -- who is best known for providing information to the Securities and Exchange Commission and for somehow being rich -- discovered where the biggest bubbles had grown and which were in the process of blowing up. His bets against these bubbles, of course, turned out to be right.

Pellegrini figured all this out using information that was readily available to anybody who was sufficiently motivated. You would think somewhere in the United States government there might be such motivated people. After all, we have an SEC, a Federal Reserve Bank, a Treasury Department, the formerly government sponsored entities Fannie Mae and Freddie Mac, the Census Bureau, many data collection and analysis agencies, and too many congressional committees. All of these entities have the stability of the economy as part of their job description. Yet all of them combined could not manage your money as intelligently as one short seller from Rome managed John Paulson's.


The Dodd bill, of course, aims to restrict derivatives. Wouldn't want that information ruining our wonderful capital markets now, would we?
A smarter regulatory approach would be to encourage the creation of these crazy derivatives and complicated bets against the market, because these contain information that the market needs and regulators could pay attention to. At the very least, Dodd's financial regulatory bill should not be doing more to suppress the information that bears, short sellers and other "speculators" provide.

Needless to say, the Dodd bill takes a different approach. It also continues to get worse. Yesterday Senate Democrats stripped out one of the few sensible things in it -- an amendment to wind down the failed GSEs. (If you're keeping score at home, keeping Fannie and Freddie on life support has cost your grandchildren another $40.1 billion just in the last ten days.)


Perfect. (HT -- Instapundit)

Posted by John Kranz at 12:14 PM | Comments (2)
But Perry Eidelbus thinks:

Michelle Malkin has used that same picture of Dodd, and I believe it's genuine. "Chutzpah" doesn't begin to describe that SOB's attitude in redistributing other people's property and telling them how to behave.

As I've laid out, I believe Goldman and Paulson did wrong. However, this has naturally turned into a huge witch hunt against everyone who uses legitimate investment methods. Speculators and short-sellers and now saboteurs (for last Thursday), oh my!

And yet Congress recently decided that, after all, it doesn't need to be held to the same insider-trading laws as the rest of us. Damn hypocrites. In 2005, a certain senator personally invested $50K in Baxter, then later steered federal money toward it for avian flu vaccinations. It was the junior senator for Illinois.

Posted by: Perry Eidelbus at May 13, 2010 3:24 PM
But jk thinks:

I think you need a big poster of that picture. Then, whenever a friend discusses benevolent government’s taking over something from the evil, profit-driven, private sector, you can say "yeah, let's put this guy in charge!"

Posted by: jk at May 13, 2010 3:50 PM

May 11, 2010

JK Defends the Euro and Maps Its Future

Blog Brother jg beat Professor Mankiw by at least a day in linking to this Robert Samuelson piece, I agree with the idea of "The Welfare State's Death Spiral."

But I firmly disagree with Samuelson and many others who are piling on the common currency.

Euro coins and notes were introduced in 2002. The currency clearly hasn't lived up to its promises. It was supposed to lubricate faster economic growth by eliminating the cost and confusion of constantly converting between national currencies. More important, it would promote political unity. With a common currency, people would feel "European." Their identities as Germans, Italians and Spaniards would gradually blend into a continental identity.

Strong words from a smart man, but I humbly disagree. The Euro has been an incredible success by many measures. And though it is in peril, the strong members of the EU who use it would be best to continue so to do.

Samuelson correctly identifies anti-growth policies for anemic growth, but cannot calculate whether it would have been worse had they kept Kronas, Deutschmarks, Lira, and Drachmas. The common currency facilitated free trade and free trade is an unalloyed good.

Secondly, currency critics are correct to complain about labor mobility among Eurozone nations, but incorrect to claim that the Euro did nothing to help. We recruited all across Europe for our Ireland-based business and were not the only ones.

Most importantly, the Euro allowed Ireland's low-tax system to restrain tax growth in other EU nations. Suddenly there was a competitor -- and thanks to the common currency, it counted.

No, the Euro did not fix or counteract Socialism. But I think it was a net gain and should be preserved. By making it an exclusive club, which I believe is actually in the Maastricht Treaty. Don't bail Greece out, kick them out! Require and enforce ratios of reserves to debt and debt to GDP. This will force the "PIGS" to clean up their act before bankruptcy. They will be forced to clean house to avoid being dropped out of the Euro club.

I think European Socialism has been a failure. But the Euro (still trading at $1.26 after a massive beating) has been a success by almost any metric.

Posted by John Kranz at 7:05 PM | Comments (1)
But Perry Eidelbus thinks:

"The common currency facilitated free trade and free trade is an unalloyed good."

Well, free trade is always desirable, but at what price? For the more successful European nations to bail out Greece and Spain? When you have many different governments and economies, the advantage of different currencies is that exchange rates will reflect in marketplaces how a country is perceived. How would a Greek drachma be doing today against Italian lira?

So don't give too much credit to the concept of a common currency. If Canada and Mexico were to go to the dollar, would that necessarily increase trade? The U.S. and China have done very well, but it isn't because the Chinese peg theirs to ours. (Actually, as I've pointed out on my blog, the Chinese need the peg to keep the yuan from depreciating, not that they need to depreciate the yuan, meaning Schumer and Graham are full of it to accuse China of making their exports "artificially cheap"). So though China has tied their currency to ours, the real factor is that Americans love and can afford all these Chinese-made goods.

In these times of rapid calculation, exchange rates aren't much of a hindrance, if any, to trading partners. The big hindrances are protectionism, whether tariffs and quotas or capital flows. Even before calculators capable of decimal places, people could calculate and negotiate between different currencies. When exchange rates didn't fluctuate as quickly as now, it likewise wasn't necessary to convert currencies lightning-quick.

Posted by: Perry Eidelbus at May 12, 2010 4:01 PM

I'm About Ready for Metalism

Pass along my apologies to Representative Doctor Ron Paul for my past comments. I might be swinging around.

I've had the unfortunate task of advancing the banner for "fiat money" 'round these parts against principles of liberty and empirical history. All the same, I have thought that just because we suck at it, does not mean it is intrinsically bad. The dual mandate of the Fed and its complete non-independence have forced errors.

But that doesn't mean Central Banking is doomed. Why look at Jean Claude Trichet!

Or dont. Trichet blinked yesterday, and while the stock market liked it, I fear it proves that a Central Bank can never be independent. And if that dog is to be wagged by the tail of politics, it really is nothing more than "fiat money."

I would still prefer a Milton Friedman computerized FOMC to Gold, but it's game over for central banking. Here's the WSJ Ed Page's take:

In a sense, Europe has decided to TARP itself. German taxpayers have undertaken to underwrite the spending of Southern European governments, with Greece playing AIG, and Portugal starring as Citigroup. Spain, we suppose, is Goldman Sachs. Perhaps it will all work. But our guess is that Germany and France will have a harder time shedding responsibility for the fiscal policies of entire nations than the U.S. Treasury has had selling shares in bailed-out banks.

It was funny to watch my poor Prosperitarian hero last night. Larry Kudlow was happy to see the DJIA go up 400 points, and declare "contagion is off the table, the V shaped recovery continues." And yet, Kudlow also admitted that "we just bailed out Socialism."

UPDATE: Larry's leaning away from the deal in the bright light of day:

Oops. What the European leaders really meant to do with their big-bang, trillion-dollar sovereign-debt rescue was to save the euro currency, not to bury it. But with the cave in by European Central Bank head Jean-Claude Trichet (formerly a hard-money man and closet gold watcher) to use the nuclear option to buy up dubious sovereign debt, the euro is likely to keep depreciating.

When central banks buy bonds they pay for it with new cash. Thats almost always negative for currency values. Ben Bernanke bought a ton of new mortgage and Treasury bonds last year, and until the Greek crisis came along, the dollar sunk like a stone. Get ready for more euro declines.

And then you wonder if the European leaders came to save welfare socialism rather than bury it. The mere fact that this rescue package will provide loan guarantees to the very countries that boast the largest welfare states and cant afford to pay for them probably suggests that the loan guarantees will guarantee more welfarism.

(Hat-tip Jimmy P)

Posted by John Kranz at 11:19 AM | Comments (3)
But Perry Eidelbus thinks:

Well, I think I said (or should have) that it isn't the paper money itself that's the problem. The real problem is that there's a central authority capable of inflating the supply of money at will, and forcing everyone to use that money. At a family member's retail store, she's legally required to accept these slips of paper that lose a little bit more value every day.

Posted by: Perry Eidelbus at May 11, 2010 2:46 PM
But johngalt thinks:

WSJ's read is about the same as mine - "Euroland" saw what big-daddy America did with TARP and said, "Hey, we can just press the 'Easy' Button too!"

All of this fiat currency monkey business reminds me of Chapter 1 in Friedman's 'Money Mischief.' If everyone agrees that a giant stone wheel at the bottom of a lagoon (or some number on a fund statement) is still someone's possessed wealth and trades with him on that basis then the wealth is still of value. In other words, if all the world's central banks agree that international exchange rates will stay more or less unchanged then nobody's fiat currency can be devalued without a large-scale return to barter.

I'm looking forward to more informed commentary on this than my own.

Posted by: johngalt at May 11, 2010 3:05 PM
But Perry Eidelbus thinks:

Well, the other end (fixed exchanged rates, a la Bretton Woods) is just as bad. It's still a government's way of controlling the value of money as it sees fit. Bretton Woods defined all major currencies in terms of gold, and it broke down when other nations drained the U.S. of gold to sell at higher prices in other nations.

If a barter system is the only way for people to deal honestly, then so be it. Eventually people will come up with a common denominator -- something that the willing participants believe has value, not something that a third party tells them to trust has value.

Posted by: Perry Eidelbus at May 12, 2010 4:36 PM

May 10, 2010

Calling all 'conomists

Robert Samuelson describes The Welfare State's Death Spiral:

The welfare state's death spiral is this: Almost anything governments might do with their budgets threatens to make matters worse by slowing the economy or triggering a recession. By allowing deficits to balloon, they risk a financial crisis as investors one day -- no one knows when -- doubt governments' ability to service their debts and, as with Greece, refuse to lend except at exorbitant rates. Cutting welfare benefits or raising taxes all would, at least temporarily, weaken the economy. Perversely, that would make paying the remaining benefits harder.

OK, sez I, then cut welfare benefits enough that paying them becomes easier. That's not so difficult to imagine, is it? The "draconian" austerity measures the Greeks have been forced to impose (in order to get the IMF bailout) are an 11% cut in pension benefits and 14% cut in government wages. Please! The Greek government retirement age is fifty-two! Cut their pensions by 50 percent and make them "work" another 13 years. They'll be no worse off than their private sector neighbors.

And to hell with this talk of a "right" to an overseas holiday.

Posted by JohnGalt at 3:26 PM | Comments (0)

May 5, 2010

Market Mechanisms Will NOT Be Tolerated!

Jeff Jacoby hits it out of Fenway on charges of "price gouging" after the water main break.

We have begun hearing anecdotal reports of the possible price gouging of store-bought water, Coakley announced Sunday. Businesses and individuals cannot and should not take advantage of this public emergency to unfairly charge consumers . . . for water. Inspectors were being dispatched, spot-checks were being conducted, and if we discover that businesses are engaging in price gouging, she warned, we will take appropriate legal action.

Do yourself a favor and buy two copies of Russ Roberts's "The Price of Everything." Read one and give both away.

Roberts and Jacoby both know that without "gouging" buyers will have incentive to hoard and there will be shortages. No water is always better to these demagogues than water at a high price.

Yet there is never a shortage of foolish politicians. Hat-tip: Mankiw

Posted by John Kranz at 12:03 PM | Comments (1)
But johngalt thinks:

You mean, I don't have a RIGHT to buy water at yesterday's price forever?

(Has anyone else noticed the sarcasm level on these pages is rising faster than the water level in the Grand Old Opryhouse?)

Posted by: johngalt at May 5, 2010 2:06 PM

April 26, 2010

Your Goldman Stooge

Doth he protest too much? It's just that most people who stooge for Goldman Sachs get paid -- really well - for it. I'm just disappointed that I'm dong it fer nothin'.

Gordon Crovitz piles in on my side today, defending synthetic CDOs, short positions, and yes even GS. When the housing bubble was about to burst, who knew? Regulators? Condo flippers? Nope: short sellers and one Mister John Paulson.

Beginning in 2006, Mr. Paulson concluded that the end of the bubble was near. Goldman Sachs created special securities to facilitate trading, in this case synthetic collateralized debt obligationssynthetic because this instrument didn't include mortgage-backed securities but was designed to move in line with them. Mr. Paulson thus communicated his wisdom to the market through these securities, which, far from undermining markets are best understood as an efficient information medium for resetting prices.

Thus allocating capital to its best use. Somebody took the other side of the trade with imperfect but reasonable disclosure..
There was no secret about why these securities were created. "All our dealings were through arm's-length transactions with experienced counterparties who had opposing views based on all available information at the time," a spokesman for Mr. Paulson said last week. "We were straightforward in our dislike of these securities, but the vast majority of the people in the market thought we were dead wrong and openly and aggressively purchased the securities we were selling."

I'm going to excerpt Crovitz's ending for those who have yet to knuckle to Rupert's Iron Will:
Do we really want the next bubble to continue even longer before it bursts? Derivatives are more important as a way to trade on information about housing than about many other markets, because houses are not as liquid as, say, shares in companies.

Easy money, easy mortgages, and banks too big to fail were key causes of the credit crisis. It was also Wall Street's greatest information failure in many years. We need more trading, not less, and more signals in the market faster that prices need to be adjusted. The last thing we need is outlawing opportunities for people like Mr. Paulson to bring vital information to market.


I for one am pretty happy to know that the SEC regulators are watching porn all day on my tax dollar. It's when they work that they really screw things up.

Posted by John Kranz at 11:50 AM | Comments (1)
But Perry Eidelbus thinks:

"Mr. Paulson thus communicated his wisdom to the market through these securities,"

Oh? And where was the information that he was the very counterparty on something he was helping to promote?

"imperfect but reasonable disclosure.."

But that's exactly the problem: it wasn't reasonable. Goldman didn't reveal a simple connection that would have materially mattered to some clients, and that's why they're as culpable as Paulson. Oh yes, Paulson was already well-known for shorting real estate markets, and that only enhanced the reputation of his subadvisory position: "Hey, this reall must be something Paulson believes in!" But what if clients were told, "Paulson advised this part of the portfolio, but he's going against it." Wouldn't some people have decided not to go through with it?

If Paulson had duped Goldman by using a shell company as the counterparty, Goldman might have some excuse. They knew, though, exactly who Paulson was as their advisor and as their client. It's a total conflict of interest that this Crovitz jackass ignores. I'm calling him a jackass because he's ignoring the real issue while portraying things as something they're not. Obama might be using this as an excuse to "attack derivatives," but I am not. I don't talk about "fairness" in terms of socialist "Let everyone have the same information." I'm talking about "fairness" in terms of two contracting parties engaging in full disclosure of relevant terms.

I'm not a subscriber to the WSJ, but the last part of what's available is only half the story. Crovitz says, "The investment bank crafted securities that let him put his money where his analysis was, pointing to the housing boom as unsustainable." This is not entirely true. "The investment bank crafted securities partially based on Paulson's subadvising, which let him put his money where his analysis was, although by going contrary to the very portfolio he helped create (and implicitly advised would do well)."

As I commented in the other post: why would you buy a product that I'm subadvising but directly shorting? Maybe you would, if you think I'm wrong, but Goldman never revealed this. So much for communicating information. A grocery store doesn't have to telling a customer that fruit is cheaper down the road, but this is much more complex. This is a contract where this conflict of interest should have been disclosed: "Here, try these oranges. We hired this guy to help pick only the best. BTW, he's a local dentist who specializes in repairing chipped teeth."

How would a dialogue of proper disclosure have gone?

"One more thing, Mr. Client. Mr. Paulson helped subadvise this, but he's the counterparty. He's betting this will go down."

"I see, and so why then is he subadvising in a direction contrary to his own money?"

It would have been fair for Paulson to remain an advisor but not be the counterparty, or to be the counterparty and not the subadvisor. Not both. He could have been an advisor and shorted a similar product, possibly even one at Goldman, but certainly not the same one he helped create.

Posted by: Perry Eidelbus at April 26, 2010 1:22 PM

April 25, 2010

Yield Chaser

Man, I have to take a shower twice a day now that I have taken up defending Goldman Sachs -- but if the ACLU can go to bat for Illinois Nazis (man, I hate Illinois Nazis!), I can keep up the truth telling.

Teri Buhl and John Carney post in the Atlantic that "Goldman's 'Victim' in SEC Case Was a Yield Chaser" (scare quotes in original).

This single-minded pursuit of yield provides an important context for the SEC's case against Goldman. In hindsight, it can appear that Goldman must have been committing some kind of fraud in order to sell subprime CDOs that performed so badly. But at the time, the buyers of these instruments were actively seeking exposure to subprime risk.

So, the "victim" was not some 65 year old woman from Dubuque who lost her retirement savings and now has to eat cat food. It was a German bank "so absorbed in the pursuit of high-yield returns from financial instruments linked to the U.S. housing market that it preferred to lose one of its top executives rather than change course."

The SEC should pick up the flag and let the boys play.

HT: Insty

Posted by John Kranz at 12:09 PM | Comments (3)
But Perry Eidelbus thinks:

It's not so much the showers, but the quality of your asbestos suit. :p

The victim doesn't matter. At least, it shouldn't matter that someone can "afford." It could be a widow, or a huge bank investing money, and the crime is still the same. Remember that banks, even through their own accounts as a firm, are ultimately investing individuals' money.

Of course Goldman's clients were looking for profit. That's implied. But why would Paulson, as an advisor on the product, then take a contrary position in his own portfolio if he believed the GS product would do well?

Posted by: Perry Eidelbus at April 25, 2010 2:16 PM
But jk thinks:

Agreed that the sympathetic value of the victim doesn't matter. Good point.

I am less willing to cede that the sophistication and risk appetite of the so called victim doesn't matter. Der Wienerbankers* not only knew they were getting a high-risk vehicle -- they were actively seeking them out.

*(Sorry for the racial slur, I was figuring that Herren Kranz and Eidelbus could exchange such a remark -- don't the rest if you try it, though!)

Posted by: jk at April 26, 2010 10:25 AM
But Perry Eidelbus thinks:

Well, talking about risk only takes us away from the issue. It doesn't matter who was seeking risk, or how much. What matters is that Paulson was an advisor on the product, implicitly promoting that position, and was the counterparty. Would you buy into a fund that you know I'm subadvising, when I'm the same counterparty that will benefit when the investment goes south? Maybe you would, but you have to ask yourself: "Why is this guy betting against something he's telling me to go long on?"

There are lots of SEC regulations and NASD rules that forbid players from taking positions contrary to what they promote. For example, a research analyst generally can't even trade in the opposite direction from his last published rating. I consider these rules and regulations as common sense that reputable firms already follow. Requiring compliance with rules and regs, though, gives jobs to SEC staff who otherwise couldn't survive in the private sector. We don't need them, or "regulations" or "law," to recognize conflicts of interest. Goldman isn't in trouble because of risk, but because they didn't reveal Paulson's contradictory positions. If he were simply the counterparty, that would have been fine. If he had been just an advisor, that would have been fine. Both? Not fine.

Posted by: Perry Eidelbus at April 26, 2010 12:53 PM

April 21, 2010

Unavoidable economic catastrophe? Not quite

In the first of what is sure to be many linked articles from Independent Women's Forum, Nicole Kurokawa cites a Heritage Foundation report explaining how easy it would be to balance the budget with spending cuts-

Instead of finding new ways to take money from American's pockets, government should focus on cutting spending. And there is plenty to cut. The Heritage Foundation's Brian Riedl notes, "Simply bringing real federal spending back to the $21,000 per household average that prevailed in the 1980s and 1990s would balance the budget by 2012 without raising a single tax on anyone.

"Never let a crisis go to waste," even if you have to create it yourself.

Posted by JohnGalt at 3:49 PM | Comments (0)

Quote of the Day

Nobody wants to be caught defending GS. But I will fight to my last beath defending shorts.

Remember, the long investors could have bought mortgages directly if they wanted to invest in housing. They wanted the more attractive premium stream from insuring mortgages for an investor who was betting they would fail. And only in hindsight has Mr. Paulson become the mastermind who made billions betting against what now is judged to have been a bubble. -- Holman W Jenkins, Jr.

From a great column, "The War on Shorts, Cont. Start with a villain. Find a crime."

Posted by John Kranz at 12:14 PM | Comments (6)
But Lisa M thinks:

jk, if you liked Jenkins (and who doesn't?) you'll like McCarthy. here.

Posted by: Lisa M at April 21, 2010 6:48 PM
But jk thinks:

Awesome link, thanks. I tend to agree with McCarthy -- I even saw language in the prospectus that suggested GS held short positions.

The Dr, K quote "shame they can't both lose" is perfect here. Even if Paulson or GS get slapped down for this, I'm okay. My real fear is that this populist anti-Wall Street frenzy will be whipped up to where short positions or complex vehicles or naked options will be disallowed. "It's witchcraft! She's short on positions he doesn't own! Burn the witch!"

Posted by: jk at April 22, 2010 10:20 AM
But Perry Eidelbus thinks:

I've read too many contradictory reports to know, but it does sound bad for GS and Paulson.

The SEC's complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors....

The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for ABACUS 2007-AC1. Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process. In addition, he misled ACA into believing that Paulson & Co. invested approximately $200 million in the equity of ABACUS, indicating that Paulson & Co.'s interests in the collateral selection process were closely aligned with ACA's interests. In reality, however, their interests were sharply conflicting.

In and of itself, a short position is nothing. It could be a hedge, like holding gold in your portfolio, or credit default swaps against CDOs. The latter is what's involved here, and many firms use CDS and other legitimate investment tools to hedge. A firm could sell one thing to one client, then something inversely performing to another client. But it's improper if a firm sells something to clients and then hedges in its own accounts as a complete offset of what it sells to clients. Forget rules: it's fraud when you're representing something to clients as potentially good, but betting against it yourself.

GS apparently didn't short in its own accounts what they sold to clients. But Paulson held an advisory position when constructing the original portfolio, and then his own hedge fund took out massive CDS on that portfolio -- CDS through Goldman! If the SEC's complaint is correct that this relationship was not disclosed, then it's a very serious case of misrepresentaton, breach of fiduciary responsibility, and conflict of interest.

You don't need "regulations" or "law" to acknowledge that it's wrong to present a strategy as good while deliberately hiding that an advisor is betting against it in his own business. My employer subadvises other firms' mutual funds, in firm-to-firm relationships. What if one of our portfolio managers helped create a position in a fund he was subadvising, then created a short position in one of our own funds?

Paulson and his hedge fund haven't yet been charged with wrongdoing, and I wonder why. They're just as complicit, if the charges are true, but Paulson's friendship with Chuck Schumer might have something to do with it. If worse comes to worst, he'll just run to Switzerland until Obama gives him a midnight pardon...in exchange for a campaign contribution for Michelle's Senate run.

Posted by: Perry Eidelbus at April 22, 2010 1:56 PM
But jk thinks:

I hear you, but don't you think it hinges on disclosure? I don't know what constitutes "material" disclosure that they are fighting about, but it was disclosed in the prospectus that the firm might take a contrary position.

Don't I have a right to say "Perry, I think these Lady Gaga Albums are all a pile of crap, but if you'd like them, I'll make you a deal..."

Posted by: jk at April 22, 2010 2:23 PM
But Perry Eidelbus thinks:

Oh, couple more things on the timing. The SEC announced this on the very same day that Obama said that financial reform must include derivatives regulations. Humm!

Also, I'm accustomed to seeing stupid explanations on the third Friday of the month for the typical afternoon market rallies. November 21, 2008: markets rallied after Geithner's nomination was announced? Baloney. Options expire at market close on the third Friday of each month, so you generally see a bit of a rally as people have to cover positions. It was the liberal media looking for any excuse to make it seem, "Hey, those capitalists love Timmy!"

Last Friday was...the third Friday of the month. There was some recovery in the afternoon from the morning plunge, but imagine how fortunate it was for those who knew about the announcement in advance, then purchased a lot of put options on GS at, say, a strike price of $180. Minimal premium, lotsa profit. And Treasury and Federal Reserve staff are not subject to insider trading laws.

Posted by: Perry Eidelbus at April 22, 2010 3:00 PM
But Perry Eidelbus thinks:

But that isn't quite what Goldman said. Goldman said, "We can't make any promises about returns, but you can reasonably infer that we're constructing a portfolio here, with the assistance of outside advisors, with good potential for positive returns." The firm may take a contrary position somewhere, but at minimum it's a conflict of interest when an outside advisor takes a contrary position in his own business.

Note that I'm not going by the law, only by what's right. I'm the first to accuse the SEC of shaking down companies over "disclosure," but it appears that GS and Paulson didn't just fail to disclose something obvious. "Hey John, want to buy these Lady Gaga CDs? I think they're a good opportunity for you, and my outside advisor JP helped pick them out. By the way, he may have helped with the selection, but he's going to make a huge profit if these CDs turn out to be duds."

Someone at Seeking Alpha said that, sure, Paulson would profit, because he was on the other side of the deal. Goldman's clients in Abacus 2007-AC1 would have known there was someone on the other side, by definition. But the other person turned out to be an advisor who's part of the team saying they expect a positive return for GS clients!

Posted by: Perry Eidelbus at April 22, 2010 4:04 PM

April 16, 2010

Quote of the Day

This is worth parsing because it gets to the heart of what's wrong with Obamanomics. The Summers argument is that increasing unemployment insurance increases aggregate demand and thus reduces unemployment. This is because he and the neo-Keynesians believe that the impact on macroeconomic demand of this jobless spending outweighs the microeconomic harm on individual incentives.

In other words, if government pays people for not working, then more people will work. Subsidize unemployment and you will somehow get less of it. But if this were true, we could lower unemployment even more if we increased jobless benefits to $100,000 a year per person to cause an even greater surge in demand. -- WSJ Ed Page comparing Larry Summers's academic analysis of jobless benefits to his new-found political view.


Posted by John Kranz at 1:07 PM | Comments (0)

April 8, 2010

TARP I vs. Bailout Mania.

Our abortion discussion is set to roll off the page today. Don't worry: jg, dagny, lisam and I got it pretty much resolved. We also seem to have reached kumbayanistan on immigration (though I suspect the enforcement lovers didn't spend too much time on the Reason "legal immigration" flowchart).

So, there's only one issue which divides us. I supported the first TARP. To reiterate, I think Secretary Paulson looked into the abyss and took dramatic action to avert a potential market Armageddon. We can debate moral hazard, precedent, counter-party versus liquidity risk, actual versus perceived seriousness, and the efficacy of action. All are fair game. And I have admitted that all make me a little queasy as I defend my original support.

Yet, I will not accept the blurring between TARP I, the stimulus, and the auto bailouts. Those have all been lumped together which I find convenient for the Obama Administration to share culpability with the Bush Administration.

TARP I was diverted before execution to provide liquidity beyond the purchase of "troubled assets," the T&A in TARP (not to be confused with the T&A on RNC expense accounts). Even with this, the original relief recipients have done well, paid back the government and, as suggested, the Treasury made profit on some of its investments.

The part that ain't worked, won't work, never will work is the expansion of TARP to include GM and Chrysler. Megan McArdle has some sobering figures on the pension obligations that we now own, But I want to highlight this gem of an admission:

Make no mistake, these companies are still on life support. The CBO expects that the lion's share of the government's losses on TARP will come, not from anything the Bush administration did, but from the Obama administration's decision to bail out the automakers and to a lesser extent, its bailout of homeowners. It seems that a big chunk of our cost may come from picking up the gold plated pensions . . . "Cadillac Plans", if you will . . . of the automakers. And lest you think I'm picking on unions over management, it was management that used the UAW as a prop to extract these gargantuan sums from the pockets of innocent taxpayers.

History is being rewritten for the 2010 and 2012 elections. For those who love intervention, the stimulus saved the economy; for those who hate bailouts, Bush did it.

If you imagine a continuation of Paulson's TARP I without the stimulus or UAW bailouts, you don't get a picture of libertarian utopia, but you get a much better balance sheet. A delimiter is required between President Bush's actions and President Obama's. Luckily, I am here to keep up the fight.

Posted by John Kranz at 11:58 AM | Comments (11)
But jk thinks:

Ten bucks!

Posted by: jk at April 8, 2010 6:39 PM
But T. Greer thinks:

That is cheating and you know it. :P

Besides, we all know you are just trying to get another thread with 20 comments on it. ^_~

Posted by: T. Greer at April 8, 2010 7:41 PM
But Perry Eidelbus thinks:

Even going by your rules of the Constitution, where are the enumerated powers for Congress and the Executive to take tax money to give to private institutions?

Even the concepts of police, courts and a military must be funded by purely voluntary means, otherwise it's still force. The third I'd contribute to, but the first two have done nothing positive for me. In fact, the first two have done many negative things for me and my family, which is really to be expected because their authority over me is not by my consent.

Or are you saying that freedom is not quite as free as it seems to be, that you don't have full rights to your property (in that your neighbors can vote to tax you)? Are you saying you're not quite free to associate with whomever you want, because your neighbors will have some dominion over you regardless of your wishes? I'm not trying to be mean or argumentative here, I'm just trying to show you the line of thought that led me to where I am today. It's a stark realization that government, by definition, cannot allow for complete liberty. I don't mean going around murdering and stealing, I mean having full personal sovereignty over your person, your mind and your property.

TG, you know me all too well. Once again:

Since no individual acting separately can lawfully use force to destroy the rights of others, does it not logically follow that the same principle also applies to the common force that is nothing more than the organized combination of the individual forces?

If my neighbors as individuals cannot compel me to give money against my will, then how can they do that under the guise of "government"? If my neighbors come to me and I consent without duress, then there's no need for a government in the first place. But a government is necessary when peaceful individuals aren't willing to give up their lives and property to the decisions of others.

Posted by: Perry Eidelbus at April 8, 2010 11:39 PM
But johngalt thinks:

Amen brother.

Posted by: johngalt at April 9, 2010 10:26 AM
But johngalt thinks:

And yet, we do have government and we do have a Constitution. I'm willing to live here under the former so long as it is actually constrained by the latter. The fact of being passed in a Constitutional manner doesn't make government's laws constitutional. Congress "doesn't care" about the Constitution and the Supreme Court often doesn't understand it. For the whole of the 20th century the three branches were more often in collusion rather than in constitutional balance. And now more than ever.

Posted by: johngalt at April 9, 2010 10:33 AM
But Perry Eidelbus thinks:

You have to realize that the Constitution is just another set of laws by men. GWB was right, in the wrong way, when he said it's "just a goddamn piece of paper." It may be the "Supreme Law of the land," but so what? Kings' decrees have been supreme law as well. At best it's something corruptible -- "The law perverted!"

And what about when the Constitution has been clearly wrong, like sanctioning slavery, and being amended to forbid alcohol? It only goes to show that being law, even the top law, doesn't mean something is right or just.

"I'm willing to live here under the former so long as it is actually constrained by the latter."

But it's not, of course. It hasn't since the early 19th century, with the beginning of "internal improvements" redistribution. And who stood up to Lincoln's centralization of power, e.g. conscription and income taxes? Well, a few hundred newspaper editors, so he suspected habeas corpus and threw them in jail. My friend Sheldon Richman, at the top of his blog, quotes Madison's "but bind him down by the chains of the Constitution" and replies, "Fat chance."

Remember that in every case that "Congress shall have power to ____," it means Congress shall have power to take from someone to give to someone else. I don't consent to that. I don't believe in a post office or public roads supported by my own money, and if I believe enough in an army or navy, I'm quite capable of giving my own money. I don't consent to nine justices and their staff having the power to decide -- to rule -- that a woman must sell her house to a private developer.

Posted by: Perry Eidelbus at April 9, 2010 3:21 PM

March 24, 2010

Other Really Bad Stuff

Don't let the health care monstrosity take your eye off all the other really bad things.

Kudlow has been talking about this -- and no, it is not unrelated. But we live in interesting times. The "full faith and credit" of the United States has been supplanted in importance by the "full faith and credit" of one Warren Buffett. Professor Mankiw links to Bloomberg:

The bond market is saying that its safer to lend to Warren Buffett than Barack Obama.

Two-year notes sold by the billionaires Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowes Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an exceedingly rare event in the history of the bond market.


These are exceedingly rare times. Only a fool bets against the bond traders.

Click through to Mankiw for more intelligent commentary and a bonus Paul Krugman whack.

UPDATE: New Momentum for Legislation on Financial Rules

The White House and Congressional Democrats are intensifying efforts to pass their financial regulatory overhaul, buoyed by the enactment of health-care legislation and an acknowledgment by some top Republicans that the initiative is likely to pass.

Posted by John Kranz at 12:52 PM | Comments (0)

March 13, 2010

In Markets We Trust

Larry Kudlow knocked it out of the park last night. Like the White House releasing bad news on Friday night, I fear it will vanish into the aether. He hat-tipped Barry Ritholtz on the show but I do not see anything to link to in Ritholtz's blog or Kudlow's.

Thursday, more evidence came out that Lehman Bros. was "cooking the books" with the delightfully named accounting trick Repo 105. In short, Lehman moved a lot of paper off-balance sheet to lower its apparent leverage. Curiously, it was high grade debt that they could park at a hedge fund, not so much hiding the toxic assets.

The point Kudlow makes (and attributes to Ritholtz) is that only the short sellers discovered this chicanery. Kudlow listed the soi disant watchmen who missed it:

  • Ernst & Young -- nope, nothing to see here folks!

  • The New York Fed, chaired at the time by one Timothy Geithner

  • The layers and layers of bullshit and suffocating regulations dictated by SarbOx

  • The SEC

So, let me get this straight. No government regulator or oversight board got a whiff this was going on. Or worse, problems were found and were hidden. One of the last of the Big Eight accounting firms signed off on a Sgt Schultz audit.

And yet, at the same time, those who make a living trading Financials (and a pretty decent living I am led to believe) realized that it smelled funny. They sold short -- adding information to the market and positioning themselves to make a tidy profit if they were right (and limitless loss t'were they not). These people found the problem, caught it, and shut the company down. No regulator, no legislator, the aggregate wisdom of the market discovered and corrected the problem, while the regulators and regulations did nothing but add deadweight to all firms.

So how are we making sure this doesn't happen again? More regulation of course! A bigger role for Timothy Geithner to "manage" systemic risk: to bring that New York miracle to the whole country!

Oh, yeah, and propose a rule to ban short sellers.

Stop. World. Me want off.

Posted by John Kranz at 10:47 AM | Comments (3)
But Perry Eidelbus thinks:

Well, as I was telling a friend Friday, short-selling is the big scapegoat. Not only is it a legitimate investment tool, it hardly does what its detractors claim it does. However, the SEC in particular needs a scapegoat because all its regulations (especially record-keeping, which I can personally attest to) and all its audits failed to do the job the SEC claims as its mission. The rightful outrage at the SEC's incompetence with Bernie Madoff, when they had a smoking gun, was quickly forgotten.

In and of itself, short-selling had and still has nothing to do with "attacking" financial companies' stocks so the prices would go down. When you buy shares of XYZ, you have no idea if the person is selling shares he currently owns or if he's shorting. You're simply buying whatever shares are offered.

So when you short XYZ, your motive stays with you, and your buyer implicitly thinks the shares are going up -- otherwise why would he be buying? (Barring that he sold someone some uncovered calls and had the market move against him, but this is a tiny minority of cases.) Thus both sides cancel each other out, just like so-called "speculators" weren't driving up oil prices.

If blame lies with short-sellers, it should also lie with others who owned the shares and dumped them. Even though John Q. Public felt Lehman was going down the tubes, he was sending just as much of a signal to the markets when he placed the order to sell it all. Why isn't the SEC going after owners also, for "market manipulation" and other nonsense?

The reason financial companies' stock prices went down is very simple: buyers weren't willing to pay the asking prices. That's it. Buyers who were aware or prescient of those companies' problems, or even just guessing, wouldn't budge at current market prices, so sellers had to keep bidding lower. It's buyers who send the strongest signals, because they are ultimately the ones in control of prices.

Mises said, "The captain is the consumer." In stock exchanges, buyers are "the consumer."

One thing I mentioned to my friend: what if Larry Wildman had made good with his threat to dump Anacott to "burn" Gekko? In real life, any knowledgeable investor would have laughed to himself at such a wonderful opportunity. Once Wildman dumped his own shares, Gekko should have been the first to start buying!

Posted by: Perry Eidelbus at March 14, 2010 7:02 PM
But Boulder Refugee thinks:

Excellent post, JK! It's like blaming the canary:

"Gentlemen, we've noticed a high correlation between canaries dying and mine disasters. Everytime the canary dies, we have a disaster. Clearly, we need to get rid of the canaries."

"Yeah, damn canaries can't be trusted."

Next, the New York Times runs a front page expose' on the Republican canaries.

Posted by: Boulder Refugee at March 14, 2010 7:30 PM
But Terri thinks:

Excellent Post, that I overquoted since most people never link through. Thanks!

Posted by: Terri at March 15, 2010 8:47 AM

February 11, 2010

Do Love the Internet

Want to be an Econ geek or just dress like one?

Blog Friend Everyday Economist embeds a cool YouTube.

Federal Reserves monetary policy actions is to use a graphical representation of the market for reserves. Frederic Mishkins textbook on money and banking is an excellent print resource. Meanwhile, Mark Thoma illustrates the model, and Fed policy changes, in this YouTube clip:

Posted by John Kranz at 5:03 PM | Comments (0)

February 10, 2010

Value

Many people still cannot get their heads around the idea of creating wealth ex nihlo. It's easier to see it in the software business, but people always look at an item and confuse its marginal production cost for its value.

Here's an abstraction for you: WSJ Tweets that it is close to a deal to sell its stock indices.

CME Group Inc. was on Wednesday close to finalizing a deal to purchase Dow Jones & Co.'s stock-indexing business, said people familiar with the matter.

The price was expected to be greater than $600 million, said one of these people, though an exact price couldn't be determined.


Six hundred million for a list of stocks and permission to use the name. I hope we do not kill this wonderful country.

Posted by John Kranz at 2:47 PM | Comments (1)
But Perry Eidelbus thinks:

Careful, my friend, or you'll give the socialists ideas. Clearly these are evil capitalist vultures who are stealing $600 million from the hands of their customers!

Unfortunately the NYSE operates under a government charter, so the $600 million is inflated because of a lack of competition. However, your point and its basis are no less valid. The NYSE originated because people needed a trustworthy means of exchanging information and property. As in all things, the state's sanction didn't bring something into being: the "thing" already existed or was made possible before the state declared it.

Posted by: Perry Eidelbus at February 11, 2010 10:23 AM

February 4, 2010

Quote of the Day

We are all Austrians now. Over the past few weeks, in Los Angeles, San Francisco, Sacramento, New York City, and London, I've run into more and more institutional investors whose economic and financial views either knowingly or unknowingly reflect the influence of the Austrian School of Economics. I am in Zurich today and Geneva tomorrow. How do you know if you are an Austrian? Here is a simple test. Answer yes or no to the following question: "I believe that this will all end very badly." -- Ed Yardeni (via James Pethokoukis)
Posted by John Kranz at 4:10 PM | Comments (0)

January 29, 2010

Idiotic Idea of the Day

The Refugee has decided to nominate a new category for daily award: Idiotic Idea of the Day (IIOTD). Trust him, this is going to be big.

Today, Barack Obama announced that a $5000 credit would be given to small business for each "net new" job created in 2010. Which really goes to show how little the preznit (credit to Keith) understands about running a business.

So, I'm a small businessman (and The Refugee has been one): Am I really going to hire someone at $60,000 (or pick a number) this year and every year thereafter just to get a $5,000 tax credit? Heck no. I would hire said person based on the economic business justification and a $5,000 subsidy would not even be a tipping point. However, I would gladly take the credit anyway thankyouverymuch.

So, how many jobs will this credit create that would not have been created without it? Zero. How much will it add to the deficit? About $33 billion. IIOTD.

Posted by Boulder Refugee at 3:57 PM | Comments (5)
But Keith Arnold thinks:

By remarkable coincidence, my wife and I were at a business meeting during the Wednesday speech - we'd just filed incorporation papers for a small business. We'll be creating (not "creating or saving") ten jobs. We're actually DOING something to stimulate the economy. Didn't even know about the $5,000 credit - but whatever part of that is left over after the offsetting tax increases and health coverage increased will be donated to the campaign funds of business-oriented, free-market candidates for office.

On the other hand: opening an escrow company in California's depressed real estate market? I may be guilty of the next Idiotic Idea Of The Day.

Posted by: Keith Arnold at January 29, 2010 5:59 PM
But jk thinks:

Where will you get enough ideas to populate this new feature, br? Is it sustainable?

Posted by: jk at January 29, 2010 6:14 PM
But Boulder Refugee thinks:

OK, KA (like the moniker?), here's the dirty little secret: you have to have enough taxes due to cover the tax credit. In other words, if you lose money or break even, like most start-ups do for the first few years, you have no taxes payable and therefore nothing to offset the credit.

BTW, got any openings? I might as well be the first to apply!

Posted by: Boulder Refugee at January 29, 2010 6:26 PM
But Boulder Refugee thinks:

Nevertheless, I'm sure the preznit will happily take credit for creating those jobs! What a guy...

Posted by: Boulder Refugee at January 29, 2010 6:28 PM
But Keith Arnold thinks:

Maybe I ought to tell the Preznit I'm creating these jobs in spite of him, not because of him.

Nuance.

Posted by: Keith Arnold at January 29, 2010 6:46 PM

January 28, 2010

Economics for Progressives

I went looking for reasons why the GOP's Big Tent actually gets bigger when Progressives are kicked out of it to advance a discussion with jk and found this gem. I'm not sure yet how it relates to my premise but I have to share it, for it seems to tie in with several internecine issues around here.

The admitted Progressive author, UT-Austin professor of [not specified] argues that not only should Medicare and SoschSecurity NOT be slashed (in the name of deficit reduction or anything else) but that large, long term deficits are actually ... desirable.

So the fetish of long-term deficit reduction is politically poisonous -- and economically pointless. In reality, we need big budget deficits. We need them now. We need bigger deficits than we've got, to stabilize state and local governments and to provide jobs and payroll tax relief. And we may need them for a long time, on an increasing scale, and in the service of a sustained investment strategy aimed at solving our jobs, energy, environment and climate change problems. To pretend that expansionary policies are needed only for now, gives all this away.

But don't worry, boys and girls, nothing bad will happen.

The CAF coalition concedes that "long-term deficit reduction" is vital. But why? No reason is given. Are they worried about a threat of inflation? If so, why not look at interest rates? Last December's average 20-year Treasury bond rate was 4.40 percent -- lower than it was before the crash sent deficits soaring. Clearly, the markets aren't worried -- or the government would have to pay more to borrow. Equally obviously, the markets aren't worried about "default" or "national bankruptcy" either. Investors know those concepts don't apply to the government of the United States.

[Pause until your jaw returns to normal position.]

I mentioned tie-ins. This guy sounds like an uber-Progressive, and he's bashing CAF for doing the right thing for the wrong reasons. Sound familiar?

I said McCain should be opposed in the AZ GOP primary because he won't support the "massive structural reform" that it will take to rescue America economically. Slashing Social Security and Medicare are two such reforms.

Posted by JohnGalt at 3:14 PM | Comments (5)
But jk thinks:

If your jaw drops, you've been away from Boulder for awhile. I'd consider most of those arguments mainstream. Wrong, yes, but mainstream. Paul Krugman would make most of those statements and he was awarded the Nobel Prize.

We're stuck in label hell. I have tried to use the word "progressive" as others use "liberal" in an (speaking of quixotic) attempt to rehabilitate liberal to its Mises definition.

Taking ka's cue and using progressive in the TR-Wilson mode, I think it describes the maverick-y Senator from Arizona pretty well. It ain't limited government. Conversely, McCain has been tough on spending and earmark reform. His Presidential campaign included some good free-market ideas. I fear a party that could not find room for Senator John McCain would be a small party.

Posted by: jk at January 28, 2010 4:13 PM
But Keith Arnold thinks:

"...We need bigger deficits ... to provide payroll tax relief..."

Wait, whoa - what? We need to go deeper into debt through more government spending, one benefit of which would be... lower taxes?

I'm just a tyro on economics, but is he smokin' what I think he's smokin'? To quote Ricky Ricardo, he's got some 'splainin to do, because I don't get it. Might one of you smarter guys be able to help out?

Posted by: Keith Arnold at January 28, 2010 4:39 PM
But jk thinks:

WOW Did I lose calibration sometime in the third hour of the SOTU last night? I've read it twice now and still don't see anything in here you would not read in any issue of TNR or the NYTimes.

And, maybe I am misreading Keith, but I think he refers to the one stimulus idea that I could actually accept: a large reduction (I'd say complete holiday) from payroll taxes for employer and employee.

An extremely attractive GMU grad student was pushing this last year in a YouTube clip (if you share my love of economics, you might remember her...) For the same price as the craptastic porkulus bill, she claimed, we could give everybody a year off payroll taxes. That would create jobs.

And the pain of expiring it would advertise the underlying pain of withholding. Don't know if the numbers add up, but I have great faith in GMU's economists.

Posted by: jk at January 28, 2010 5:08 PM
But Keith Arnold thinks:

Amassing additional deficits AS A RESULT OF a payroll tax holiday is one thing (but the obvious answer "stop spending so damb much money, too!" prolly doesn't occur to such sophisticated, nuanced thinkers); amassing greater deficits IN ORDER TO provide tax savings is quite another. If I'd had enough sense to major in Economics instead of English, maybe I could get past what could just be a crappy grasp of syntax and not actually faulty cause-and-effect thinking.

Still, our budget problem is a spending addiction, not a shortage of income. If Uncle Sugar didn't have such a love for grabbing the check...

That's it - Uncle Sugar needs an intervention.

Posted by: Keith Arnold at January 28, 2010 7:27 PM
But johngalt thinks:

'xactly. "IT'S THE SPENDING, STUPID!"

What I'm slack jawed about is not the list of "mainstream" ideas, but the last one specificallly: "...these concepts don't apply to the government of the United States." Do they think China's lending wealth, patience and cooperation are limitless?

It's just my opinion mind you, but I say there's plenty of room in the Tent for McCain and other Progressives, just not for their ideas and values.

Posted by: johngalt at January 28, 2010 9:36 PM

January 26, 2010

Everything I believe in one picture

Here's a chart for the Prosperitarians:

miseryhistory.gif

This is why I rail at those who would take up back to the caves. The "live simply so that others may simply live" movement misses this. Curiously, I think the Objectivists do as well. I suppose I understand -- after repetitive beatings -- that no concept of collective good can be reified, but I still find this to be a powerful selling point. Everybody gets happy as we move down the X axis toward modernity.

Hat-tip: Scrivener

Posted by John Kranz at 4:57 PM | Comments (11)
But johngalt thinks:

Dagny's working overtime to help America's subjects comply with the brutal rules of the illegal and corrupt IRS so you'll have to settle for my disjointed ramblings instead.

What I recoiled at was your suggestion that Objectivists (or Randians) are somehow against, as suggested by the chart, industry, wealth, technology and specialization or population growth. I didn't realize you were rehashing the old argument of society's benefit being the cause or the effect of our political system. The brothers, ka* and nb**, did a good job of defending dagny's overall point using both general and specific arguments. But I think none of us would disagree with the chart. What it shows us is that technology and human ingenuity is where true progress comes from - not from Progressives. (More on that later.)

* "ka" as in "kick-ass!" Rock on, brother.
** Nuthin' wrong with anonymity. I presume someone knows your identity in the Matrix.

Posted by: johngalt at January 27, 2010 12:27 PM
But jk thinks:

I thought ka*** was the character in "Batman Begins" that you like...

Anonymity is a good choice in this company, nb, stick around. I have your real email but will protect it to my grisly death if Vice President Cheney comes for it. But if there is a personal tie I am not aware of it.

Posted by: jk at January 27, 2010 1:09 PM
But Perry Eidelbus thinks:

Keith and NB, thanks for making the very point I did some months back. "Public good" is too imprecisely thrown about, and Bastiat would remind us to look at who's paying for it in the first place.

Fireworks and beautiful vistas could be called public goods, but is someone being made to pay for them against his will? "Non-rivalrous and non-excludable" is only half of the picture, particularly when the so-called "public good" is government's way of crowding out a viable competing good in the private sector.

"The military" is most certainly not a public good, as I pointed out, even by the simplistic definition (because it's consumption is definitely rivalrous). It's a service I'm coerced into paying for but hope not to need to use.

"Free trade" isn't considered a public good, yet it does make "society" better off.

Posted by: Perry Eidelbus at January 27, 2010 2:42 PM
But Perry Eidelbus thinks:

"Curiously, I think the Objectivists do as well."

Now jk, I have no idea where you got this.

Posted by: Perry Eidelbus at January 27, 2010 2:47 PM
But jk thinks:

Clarification: I think that the pantheists will deny that progress was made. Sure we used to freeze in caves -- but they never had to watch commercials of view the decadence in Walmart*

Objectivists, I feared, would not let me celebrate this collective good. For the record, I mean good in the most abstract usage. I celebrate that freedom, innovation, modernity, trade, comparative advantage and the infield fly rule have made us all richer and less prone to morbidity. But I was concerned that celebrating this "collective good" would attract disapprobation from the Three Sources Objectivist community.

So I'll leave you all with a Democrat apology: "If I worded it poorly, I apologize to those hurt by their misunderstanding of my comments."

Posted by: jk at January 27, 2010 7:10 PM
But Perry Eidelbuse thinks:

No offense, you know, but that's quite a misunderstanding.

When a collectivist talks about "collective good" or "public good," you know he's talking about the forced, shared equality of poverty and state oppression.

An Objectivist would never have a problem with you living your life on your own terms, harming no one else without consent. If you asked him why he didn't object to the collectively good situation of society, he would reply that you're looking at an abstract average of individuals and their voluntary networks.

Posted by: Perry Eidelbuse at January 31, 2010 9:45 PM

January 15, 2010

Another Krugman Smackdown

Ahh, my favorite argument. The Europhiles versus the forces of liberty and reason.

We started with Mankiw vs. Krugman. Hopping over the pond to pick up his Nobel, Krugman looks around his five star hotel and says "Europe is doing great!" Mankiw lists the per capita GDP numbers and begs to disagree.

Megan McArdle goes toe-to-toe, anecdote-to-anecdote with Krugman and says something I've always seen and argued. People go to Europe for two weeks and fall in love with its aesthetics, charm, and history. And it's great. When you spend more time or look a little deeper, you see that they are poorer than us. Period, the end, QED.

I don't want to sound as if I'm saying Britain's a terrible place--it's lovely, and I miss it. But the amount that people are able to consume is much less than the amount Americans are able to consume, and many of the things they forego make real difference in things like personal comfort. (Based on my admittedly limited sample of British mattresses, they must be unimaginably hardy sleepers). Consumption isn't everything. But it is something, and that is what's being captured in the GDP differences.

They have these microscopic refrigerators. And all my friends, especially my progressive friends, say "isn't that cute -- we could learn a lot from them on how to live simply."

But my European friends were rich. And they had American-sized refrigerators. So my takeaway was that you had to be a millionaire in the UK or Ireland to live like a US plumber. Same for those adorable dinky-ass cars. Millionaires drive Mercedeses and Range Rovers.

Posted by John Kranz at 10:30 AM | Comments (0)

January 11, 2010

Hey! You're Misusing My Rule!

Procrastination pays in blogging. I wanted to post on John Taylor's guest editorial in the WSJ today. Taylor is the author of the "Taylor Rule" and he takes Chairman Bernanke to task for quoting it but not using is correctly.

Blog friend Josh Hendrickson at The Everyday Economist has beaten me to the punch:

The entire piece is a must-read, but I would like to focus attention on Bernankes use of the Taylor rule. What is troubling about the recent debate and framing it in terms of the Taylor rule is that it seems that everyone has their own definition. Over time, many economists have statistically fit the parameters of the Taylor rule in order to estimate the Feds reaction function. However, we have to be careful about what these estimates actually mean. These types of estimates are certainly useful for policy comparisons and other positive analyses. However, they are not useful for drawing normative conclusions because the fitted parameters incorporate policy mistakes in the estimation period.

Posted by John Kranz at 5:45 PM | Comments (0)

Economist Smackdown!

Nobel laureate Paul Krugman says:

As health care reform nears the finish line, there is much wailing and rending of garments among conservatives. And Im not just talking about the tea partiers. Even calmer conservatives have been issuing dire warnings that Obamacare will turn America into a European-style social democracy. And everyone knows that Europe has lost all its economic dynamism.

Strange to say, however, what everyone knows isnt true.


Harvard Professor N. Gregory Mankiw says:
Here is GDP per capita, adjusted for differences in price levels (PPP), from the IMF, for the United States and the most populous countries in Western Europe:


United States47,440
United Kingdom 36,358
Germany35,539
France34,205
Italy30,631
Spain30,589

Readers of today's column by Paul Krugman might find these figures useful to keep in mind.

Ow! That's gotta hurt!

Posted by John Kranz at 11:43 AM | Comments (2)
But johngalt thinks:

Yeah, those numbers impress me. So what could Americans do with that extra $11,000 of GDP per capita (if the government didn't tax it all away?) Maybe they could buy their own health insurance. And if insurers could compete across state lines and doctors could practice without fear of insanely frivolous lawsuits, maybe buy a new bedroom set, a new wardrobe or finance a new car with what's left AFTER paying for your own health insurance.

Or, we could just let the government spend that money and much, much more on the health insurance THEY think we should have.

(P.S. I'm not preaching to the choir any more - Silence is back!) :)

Posted by: johngalt at January 11, 2010 3:03 PM
But Silence Dogood thinks:

Yeah, but I am at least in the pews on this one. I am all for allowing national health insurers. When you think about how many companies have offices and workers in many states it just doesn't make sense any more. Ditto for reform of malpractice rules.

I will add however that I do not see doctors as pure white hats in all this either. The AMA has staunchly fought any attempt to inject scientific testing into medical procedures. Your doctor is just right, no sense anyone attempting to prove the efficacy of his treatment. Here is where I think the health insurers could lead, it would actually be in their financial interest to fund studies to determine the most effective treatments.

Posted by: Silence Dogood at January 13, 2010 10:59 PM

January 1, 2010

"Where are the thinking people?"

Did anyone else watch JK's Merry Christmas video with Larry Kudlow interviewing Don Luskin and CNBC business correspondent Jerry Bowyer on the significance of Ayn Rand's resurgence in the Obamanomics era? It really is quite revealing. [Better quality audio and video here.] You see, Bowyer is a Chief Economist and a Christian though not necessarily in that order. He says that Ayn Rand's philosophy actually "handicaps our message. The American people will not be persuaded by that case for capitalism."

Later he said, "The Randians have never been able to really make the sale because Americans have an inherent sense that selfishness is not a good thing. So the Rand case that says selfishness really is good and embrace capitalism because it's selfish probably hurts us more than it helps us." This statement, however, and Jerry's meaning of "selfish" must be put into context by Bowyer's later assertion that "freedom is not a selfish thing."

Probably worse that the true-believer Bowyer is Kudlow. After saying that he "totally regards himself as a free-market capitalist" he conducts the entire interview from a sort of "Rand was half-right" point of view.

"Can one agree to like Rand on her free-market capitalism and at the same time put away, put aside her atheism? I personally have a lot of problems with that part. I don't see how you run a country, I don't see how you run a society, I don't see how you run your life, and I draw on my own life, without some spiritual, moral and religious rules of the road. I think that's what God teaches us. I think that's what the New and the Old Testament teaches us and that's why I think charity and helping others is so important. (...) On the other hand Jerry I hope that I am open enough to realize her ideas on free-market capitalism, we need a bigger dose of that right now in American history."

[The sound you hear is me pulling my hair out.]

I think I need to send my Rand on Capitalism vs. Altruism post to Kudlow. Check your premises Larry!

Noted Objectivist philosopher Dr. Harry Binswanger saw the program and forwarded it to his subscription email list with a long analysis (reprinted in whole below the fold).

What I want to know is where are the thinking people? Thinking in regard to being pro-reason and pro-independence. That is, why isn't a frequent reaction: "She's an atheist--that's good; she was for radical selfishness? How interesting! I've never heard of anyone taking that position. Maybe Nietzsche (but maybe not). Let me hear more."

Harry feels my pain. Heinlein, help us!

"The hardest part about gaining any new idea is sweeping out the false idea occupying that niche. As long as that niche is occupied, evidence and proof and logical demonstration get nowhere. But once the niche is emptied of the wrong idea that has been filling it once you can honestly say, "I don't know", then it becomes possible to get at the truth." -The Cat Who Walks Through Walls, 1985

Subject: HBL You want bitter? I'll give you bitter.
December 24, 2009


From Harry Binswanger

You've got to watch this CNBC show on Ayn Rand. It's about 10 minutes out of
the Larry Kudlow show. Kudlow and a creep named Jerry Bowyer are critical of
Ayn Rand for her atheism and selfishness. Her defender is Donald Luskin, a
name that's vaguely familiar, but whom I don't know. Luskin does try to make
some points, but he is not deep and he is not given enough time.

http://www.cnbc.com/id/15840232?play=1&video=1367652591

But here comes the bitter part. In the mounting publicity about Ayn Rand,
I've seen commentator after commentator make these same
criticisms: she's an atheist and she's for selfish greed. What the hell is
wrong with these people? Those are not criticisms: those are her virtues.

What I want to know is where are the thinking people? Thinking in regard to
being pro-reason and pro-independence. That is, why isn't a frequent
reaction: "She's an atheist--that's good; she was for radical selfishness?
How interesting! I've never heard of anyone taking that position. Maybe
Nietzsche (but maybe not). Let me hear more."

A thinking person would then pursue some further thoughts along the lines of
"What reasons have ever been offered for unselfishness? I know Ancient Greek
culture was not inclined toward that 'meek shall inherit the earth' stuff.
Were the Ancient Greeks pro-altruism, or did that begin with Christianity?
Is the drivel I always hear about unselfishness something that's just a
leftover of Christian nonsense?"

I can only go by what *my* reaction was when I first encountered Ayn Rand's
atheism and pro-selfishness. When I came to her talk on the Objectivist
ethics my Freshman year at MIT (Spring, 1962), I had slid back from an
earlier atheism into speculating as to if maybe there was a (non-conscious)
"something"--like a basic law of the universe (e.g., that all processes move
toward equilibrium) that was God in an impersonal sense. When I say I was
"speculating," I mean I was indulging in absurd, arbitrary, "what if's?"

At any rate, in the Q&A following her lecture, she was asked whether she was
an atheist, and she answered, in a tone of some surprise at even being
asked, "Of course." It was as if she had been asked whether she wore a coat
when she went out in cold weather. I heard an answering "Of course" in my
own mind, and that was that. To be sure, she went on to explain that she
accepted only reason and that there had never been any reason given to
believe in God. That solidified my "Of course," but all that had been really
necessary was what she did by her tone: to indicate that this was not an
occasion for fantasy but a question of fact--like whether or not there
gravity holds the moon in orbit. Once the issue had been put into that
rational, factual, scientific context, there was nothing to consider. "Of
course."

Now my reaction to her selfishness. Within days of her speech, I bought a
copy of Atlas Shrugged and began reading. I think it was this passage, from
page 51, that caused the mental light bulb to turn
on:

> "You're unbearably conceited," was one of the two
> sentences she heard throughout her childhood, even
> though she never spoke of her own ability. The
> other sentence was: "You're selfish." She asked
> what was meant, but never received an answer. She
> looked at the adults, wondering how they could
> imagine that she would feel guilt from an undefined accusation.

That had been exactly my reaction to my mother's nagging along the same
lines. It was either then or a few pages further on that I thought to
myself, "I had never bought into the idea that I should feel guilty for
being selfish, but this lady goes me one better: she thinks it's actually a
virtue to be selfish!" My reaction was one of admiration. Mixed with a vague
chagrin that I hadn't taken that step myself.

My purpose is not to brag. Alright, maybe a little--but only in retrospect.
At the time, I didn't think there was anything special about me in this
regard: it was just a matter of common sense and personal honesty. I thought
that half to a third of the population was in the same situation as I was.
Yes, there were the self-deceivers and the sheep, but there were also, I
thought, a goodly number of people just waiting to be told that
unselfishness makes no more sense than religion.

So where are those people? You can say they have been destroyed by the
comprachicos of our educational system--except that the comprachicos weren't
that numerous until the 70s, and there are amazingly few people among the
older population who are open to atheism and selfishness. Lawrence Kudlow
looks to be just a little younger than I am, and yet there he is taking his
belief in nomadic tribal tales as if it were the solid finding of science.

Is it that it's too hard to go back on a lifetime of accepting and acting on
altruism? Well, there were about a million copies of Atlas and hundreds of
thousands of copies of The Virtue of Selfishness sold to people who were
young in the pre-comprachio era.

My bitterness (probably temporary) is fueled by seeing *everyone* now raving
about Atlas Shrugged while missing the whole point of the novel, treating it
as if it were essentially a condemnation of over-regulation. I'm reading
dozens and dozens of articles on the web, pro and con, on the rising
interest in Ayn Rand. They are all depressing.

And what about the philosophic content of her non-fiction? What about the
incredible outpouring of knowledge, from the nature of existence to the
theory of concepts, to the theory of free will, and on and on? Sure, I can
understand why professional philosophers have tremendous difficulty in
grasping any of it, because of their automatized methodology (though that
took me decades to appreciate). But where are the thinking readers among the
non- philosophers?

Where are the people who are *at least intrigued* by ideas like:
"Psycho-epistemology is the study of man's cognitive processes from the
aspect of the interaction between the conscious mind and the automatic
functions of the subconscious"? Or, "Art is a selective re-creation of
reality according to an artist's metaphysical value- judgments"? Or,
"Emotions are the automatic results of man's value judgments integrated by
his subconscious; emotions are estimates of that which furthers man's values
or threatens them, that which is
*for* him or *against* him"? Or, "Sacrifice is the surrender of a greater
value for the sake of a lesser one or of a nonvalue"? Where are the people
who, even if they have questions or doubts, can recognize the power of such
ideas?

I guess most of them are on HBL.

Posted by JohnGalt at 5:53 PM | Comments (7)
But Keith thinks:

And here appears that local social conservative, starting the year by thanking the ThreeSourcers for having befriended him!

I, too, pull my hair out. I do my best to avoid theological tangents on this blog, but I'm going to shoot my mouth off for a moment and posit that for the thinking theist, Randian Objectivism and genuine Christianity not only are not opposed to each other, but actually complement each other nicely in life as partners, because Objectivism centers around recognition of the free individual as he was created to be.

And the place where I tear my hair out is that intersection of popular-culture Christianity and political conservatism, horribly misnamed "compassionate conservatism," where people see big-spending government programs as some sort of outworking of the kingdom of God. We could go on for pages and weeks talking causes and solutions.

I'll withhold my dissertation on the political distinctions between the Old Testament prophet in Israel and the New Testament evangelist in the Roman Empire - and simply leave it by saying that Bowyer's attempt at compartmentalizing his faith and his political philosophy in separate boxes is a mistake, and a tragic one.

Posted by: Keith at January 2, 2010 12:47 PM
But jk thinks:

ThreeSources being a case in point. What I consider devout Christians are a distinct majority around here. I guess the louder voices convey a different impression.

I feel enough in the minority seeking limited government and enumerated powers. If I chase off my friends who believe it gets a bit more lonely.

Posted by: jk at January 3, 2010 11:48 AM
But Brian Gregory thinks:


That show was painful; a textbook example of how TV in its quest for eyeballs can destroy a good topic. I liked Luskin up to the point where he began shouting at Bowyer (which might've been warranted, I stopped listening to him rather early).

I'm done pulling my hair out over any of this: the constant need to preach about limited gov't and personal responsibility (where Objectivism and Christianity are best met), means I've got to keep my head, stay focused and at least appear to be the happy warrior.

Rand was a polemic and did a disservice to her ideas with her lack of personal ideals. The biggest flaw with the 'conventional wisdom' that goes along with Rand is that selfish = greedy.

Look at her characters (and her life) just for a second, please. Selfish: yes. Greedy: absolutely not.

Posted by: Brian Gregory at January 3, 2010 6:13 PM
But johngalt thinks:

There are short term and long term goals. I have no delusions about discrediting altruism before the next election cycle but I do see it as the next step forward in human societal development. "Progress" if you will.

I'm as friendly with the social conservatives I meet as with any other conservative but when they say something I disagree with I'll speak my mind. If one says the state should abrogate my liberties because he finds some things I might do "immoral" I'll explain why he's wrong. If he laments that "we need a bigger dose of free-market capitalism but charity and helping others is just as important" I'll suggest he read Rand's explanation why capitalism and altruism are mutually exclusive ideas. And if he doesn't believe her I'll ask him to just look at the state of our government today.

Unfortunately the Believers have been convinced beyond question that altruism is a moral ideal. When I question their altruism they consider me hostile to their faith. If I don't question altruism then my children will have even less freedom than I do. Think badly of me if you'd like. I choose to fight for my kids future right to a life of happiness.

Posted by: johngalt at January 3, 2010 8:23 PM
But jk thinks:

We'd never think badly of you jg! I just worry about the short term goals.

And bg (you've commented a few times, you're initials...) is spot on about the tone of the piece and the cause. The old Kudlow & Cramer show sat astride "Firing Line" for serious and respectful exploration of disagreements. Now CNBC loves to show the boxing gloves (if you stayed up late, could you think of something more stupid?) and have clearly moved to book pugnacious guests.

That's Capitalism for ya' -- all about the might $$$!

Posted by: jk at January 4, 2010 10:43 AM
But johngalt thinks:

Kind words appreciated but I still wonder sometimes.

Describing my reply to dagny on the way to play hockey last night I expanded on the theme of what happens if I don't challenge altruism: "Our heirs and successors will be subjected to an endless series of collectivist tyrants, from either party, taxing them right to the limit of popular revolt."

So I'll continue to be a "louder voice" around here extolling the virtues of selfishness. Perhaps I'll one day discover a way to do it that evokes visions of bunnies and the smell of freshly baked cookies.

Posted by: johngalt at January 4, 2010 2:54 PM

December 17, 2009

Evolution to Extinction

Sanctimonious progressives ridicule social conservatives for refusing to acknowledge the validity of the theory of evolution. Too bad they are too dense to see the obvious parallel with their refusal to acknowledge the lessons of history. But IBD's Michael Ramirez sees it.

ramirez%2015DEC09.jpg

Posted by JohnGalt at 3:50 PM | Comments (1)
But Keith thinks:

I thought they all died in the Ice Age. These dinosaurs oughta stay away from the Gore Effect:

http://directorblue.blogspot.com/2009/03/gore-effect-strikes-again-giant-dc.html

Posted by: Keith at December 17, 2009 6:11 PM

December 16, 2009

QOTD Runner-up

This, from a WSJ house editorial titled, "The Audacity of Debt":

"Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren," Senator Barack Obama said during the 2006 debt-ceiling debate. "America has a debt problem and a failure of leadership. Americans deserve better." That was $2 trillion ago, when someone else was President.
Posted by Boulder Refugee at 3:44 PM | Comments (0)

Professional Courtesy

Close enough to Christmas to start pumping out the treacley, feel-good human interest stories at ThreeSources.

Seriously, Professor Mankiw's "Memories of Paul" [Samuelson] is a sweet story,

Posted by John Kranz at 1:24 PM | Comments (0)

November 18, 2009

Cloward-Piven

While trying to maintain a low profile on a plane yesterday, The Refugee caught the Glenn Beck show on Fox News. Beck showed a clip of Damon Vickers from Nine Points Management and Research on CNBC (I think) saying that the current direction of US debt would lead to a currency crisis that would result in a whole reworking of worldwide currency and a new world order. The Refugee does not do the analysis justice, but it was cogent and chilling.

Beck then interviewed Vickers and discussed Cloward-Piven. Columbia professors Cloward and Piven were two 1960's radicals intent on socializing America. On September 28, 2009, The American Thinker ran a piece on the Cloward-Piven strategy. Here is an excerpt:

The Strategy was first elucidated in the May 2, 1966 issue of The Nation magazine by a pair of radical socialist Columbia University professors, Richard Andrew Cloward and Frances Fox Piven. David Horowitz summarizes it as:


The strategy of forcing political change through orchestrated crisis. The "Cloward-Piven Strategy" seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse.


Cloward and Piven were inspired by radical organizer [and Hillary Clinton mentor] Saul Alinsky:


"Make the enemy live up to their (sic) own book of rules," Alinsky wrote in his 1989 book Rules for Radicals. When pressed to honor every word of every law and statute, every Judeo-Christian moral tenet, and every implicit promise of the liberal social contract, human agencies inevitably fall short. The system's failure to "live up" to its rule book can then be used to discredit it altogether, and to replace the capitalist "rule book" with a socialist one. (Courtesy Discover the Networks.org)

Hopefully, The Refugee is not just falling into a conspiracy theory trap. However, it all adds up very nicely. Worth the read and worth the thought. Scary.

Posted by Boulder Refugee at 3:37 PM | Comments (4)
But Lisa M thinks:

As Rahm Emmanuel famously said, "Never let a crisis go to waste." Obama is a huge Alinsky follower, too. Sign me up for the conspiracy society.

Posted by: Lisa M at November 18, 2009 7:15 PM
But jk thinks:

Pretty much the plotline of Hayek's "Road to Serfdom"

Posted by: jk at November 18, 2009 7:22 PM
But Boulder Refugee thinks:

The thing that scares me the most is that it could work.

Posted by: Boulder Refugee at November 19, 2009 11:02 AM
But jk thinks:

BR: it doesn't have to, all is lost already.

Maybe the Gibson guitar raid is too close to home (shh, don't tell AG Holder, but I've got a few of those...) but I read this as we have no liberty left to defend. Read the update link in my Turn out the lights post. This ain't the road to serfdom, we've arrived.

Posted by: jk at November 19, 2009 12:24 PM

November 12, 2009

Marginal Tax Rates

If the words put your friends to sleep, Professor Mankiw brings a picture:

implicit%20tax%20rates%202.png

And every time you do something nice for the poor, you make this worse. Then-Governor Bush campaigned in 2000 on "toll-booths to the middle class." We all have a gripe or two with President Fortythree, but he got it. President Obama obviously does not and I question how many GOP pols do.

This little picture says all the economics and it implies the morality of making people work through "The Dead Zone" for no gains.

Posted by John Kranz at 12:51 PM | Comments (2)
But Perry Eidelbus thinks:

Only government can make it so goddamn pathetic that you earn a little more but wind up with less net income, that earning $40K a year is only marginally better than mooching completely off taxpayers.

Posted by: Perry Eidelbus at November 12, 2009 3:27 PM
But johngalt thinks:

Ooh. Mister Presnit! Mister Presnit! I've found some waste and fraud for you to cut!

Posted by: johngalt at November 12, 2009 5:37 PM

Merle Hazzard

Hat-tip: Prof Mankiw

Posted by John Kranz at 12:13 AM | Comments (0)

November 3, 2009

Boom and Bust?

In last Thursday's Quote of the Day Veronique de Rugy described how America is more and more resembling an Ayn Rand novel. (I think we all know which novel she refers to.) She correctly identified "crony capitalism" as the culprit and government manipulation as an essential ingredient for said cronyism but I took her to task for her examples: Bailouts. Not to defend government bailouts but the best example of crony capitalism I can think of at the moment is how the mortgage crisis was 100 percent engineered by government regulation.

Brother Silence agreed in the comments, saying that government made sure the banks made loans that were not discriminatory against the poor (because we all know it's not their poorness that keeps them from repaying their debt?) But I was befuddled when our good brother lept from this obviously flawed economic transaction - flawed from the standpoint of a private lender ever receiving his principal back, with or without interest - to blame the mortgage meltdown on "the boom and bust effect." There is no denying the fact that financial professionals did their level best to profit from the preordained train wreck set in motion by our friends on the Senate Banking Committee, among others, but is it not also obvious to everyone that without said foolish lending "thou shalts" the opportunity wouldn't have existed in the first place?

The only way for government to fix the economy is to stop "fixing" the economy. Or am I mistaken?

UPDATE: I also meant to include excerpts from this Robert Skidelsky article I found on boom/bust cycles:

It is impossible to imagine a continuous gale of creative destruction taking place except in a context of boom and bust. Indeed, early theorists of business cycles understood this.

(...)

These are efficient responses to changes in real wages. No intervention by government is needed. Bailing out inefficient automobile companies such as General Motors only slows down the rate of progress. In fact, whereas most schools of economic thought maintain that one of government's key responsibilities is to smooth the cycle, "real" business-cycle theory argues that reducing volatility reduces welfare!

It is hard to see how this type of theory either explains today's economic turbulence, or offers sound instruction about how to deal with it. First, in contrast to the dot-com boom, it is difficult to identify the technological "shock" that set off the boom. Of course, the upswing was marked by super-abundant credit. But this was not used to finance new inventions: it was the invention. It was called securitised mortgages. It left no monuments to human invention, only piles of financial ruin.

There are those pesky bailouts again! But Skidelsky's point is that it's hard to have a boom-bust cycle in something where there is no production to boom and then bust.

Posted by JohnGalt at 12:31 PM | Comments (3)
But jk thinks:

I do remember the comment. I considered it a duty of the blog to reply with a link to Austrian Business Cycle Thoery nad you have caught me in my failure.

Here's a nice, short and accessible overview from the Mises Institute.

Posted by: jk at November 3, 2009 3:44 PM
But Perry Eidelbus thinks:

Remember, "financial professionals" does not necessarily mean, and today typically does not mean, "free-market capitalists."

I had been working off and on on quite a lengthy comment to what you guys had left there, but I found my work PC rebooted one morning and lost the Notepad session I was using to write the comment offline. I'll do it this week sometime.

Posted by: Perry Eidelbus at November 3, 2009 4:16 PM
But Silence Dogood thinks:

No boom and bust? I bet there are a whole bunch of home builders who would disagree. Doesn't Austrian theory basically state that boom and bust comes when more capital is invested in an area of the economy than it can support long term? Demand to get in causes prices to rise above a point that can be sustained, and when the price drops back to that level a bust has occurred. Did the dot-com boom really leave monuments to human invention? Pets.com? More people planning on advertising on the web than selling products?

My overall but possibly not well stated point was that the base role of Federal monetary policy, at least since the late 1800's, is to attempt to smooth the boom and bust cycle that really is part of capitalism. The question is how much you can do this without destroying the power of capitalism.

Posted by: Silence Dogood at November 8, 2009 11:59 AM

October 30, 2009

Too Big to Fail

ThreeSources blog friend the Everyday Economist has a great compendium post up. [Spoiler alert: EE is ag'in it!]

Ultimately, the debate about the limits of the Feds abilities as lender of last resort and the doctrine of too big to fail boil down to the same principles that arose in the rules versus discretion debate for monetary policy. Discretion generates uncertainty in that the behavior of the actor cannot be predicted. As John Taylor has documented so well in his recent research, the erratic and inconsistent behavior of the Federal Reserve and the Treasury during the financial crisis can explain why the crisis (and corresponding economic performance) got so much worse in the months of September and October of last year.

Moving forward, policy needs to be guided not by the discretion of the central bank or the Treasury secretary, but rather by the rule of law. Orderly and predictable bankruptcy procedures for all firms and the elimination of the doctrine of too big to fail would go a long way toward making potential future financial crises less severe (and might prevent others altogether).


Posted by John Kranz at 3:22 PM | Comments (1)
But johngalt thinks:

Firstly, "Hear, hear!"

Secondly, if "too big to fail" is an established doctrine shouldn't it be capitalized?

Finally, because something is Too Big to Fail doesn't mean that it won't, or can't, do exactly that. Take President Obama for example. His presidency is "too big to fail" but he continues to do so on a regular basis.

Posted by: johngalt at October 31, 2009 3:57 PM

October 27, 2009

Huh? Incentives Matter?

Instapundit continues his "going Galt" chronicles with some sobering statistics of NYC revenue.

The average Manhattan taxpayer who left the state earned $93,264 a year. The average newcomer to Manhattan earned only $72,726.

That's a difference of $20,538, the highest for any county in the state. Staten Island was second, with a $20,066 difference.

It all adds up to staggering loss in taxable income. During 2006-2007, the "migration flow" out of New York to other states amounted to a loss of $4.3 billion.


If these guys won't see liberty and principles, they should at least consider the Laffer Curve.

Posted by John Kranz at 11:05 AM | Comments (5)
But Perry Eidelbus thinks:

It's tempered a bit by the probability that some of those New Yorkers retired and moved to Florida, so I'd be curious to see how many left the state and kept working in their new state. But overall, I can personally assure you that it's too true.

Westchester is ridiculous with all the tax increases, but there's no way in hell I'd live in any of the boroughs. Were it not for a couple of things, we'd have moved to Connecticut by now, maybe Nassau County (except the LIRR sucketh rocks). As if either were significantly better, though? It's a matter of going to where the water isn't boiling...not yet.

And to hell with New Jersey, that cesspool.

Posted by: Perry Eidelbus at October 27, 2009 12:23 PM
But jk thinks:

Old country song had it: "'T' for Texas, 'T' for Tennessee."

At least New York was always bad (well, since John Jay died...) Here in Colorado we have to watch a low-tax, high freedom state being dismantled in front of our eyes.

Posted by: jk at October 27, 2009 1:00 PM
But Silence Dogood thinks:

Chin up JK, Colorado still rocks, and the property taxes have the east coast beat by a mile. We can sink quite a ways and still not be in their league. There is a beautiful snow falling tonight and the girls are warm in their beds hoping madly for a snow day tomorrow. Perry, you don't know what you are missing. I did my time in Jersey, 6 months was enough even if Westfield was an OK town. My wife worked on Wall Street (for AIG even, just to get the dirty laundry fully out) and hated the train and subway ride to the World Trade Center (RIP).

Posted by: Silence Dogood at October 28, 2009 12:11 AM
But jk thinks:

I don't give Governor Ritter and the all-Democratic bicameral legislature credit for the climate, which is so perfect, I will never leave. (Yes, in spite of the green jobs initiative, I still consider that supra-government!)

On the dark side, Silence, we don't have the money to pay prison guards but we're building light rail. But hay, maybe your wife can learn to hate the public transportation here in a couple of years.

Posted by: jk at October 28, 2009 11:55 AM
But Perry Eidelbus thinks:

I lived in Utah for 14 years, so I know how nice and inexpensive the Intermountain West can be. But my job is here, and I like where I live, so thus far it's worth it to put up with the politics.

It was also worth it for American colonists to put up with British policies until 1775. They did more than shrug.

Posted by: Perry Eidelbus at October 28, 2009 2:50 PM

October 23, 2009

Marginal Tax Rates

I say "Marginal Tax Rates" and even the ThreeSources choir gets heavy eyelids (I always say that by the time you get to EBITA, you can put any audience to sleep).

But here's a great story in Forbes that puts a 70% marginal tax rate into perspective. It enumerates the perverse incentives -- and puts human faces on them. Three workers are shown who would be better off working less or not at all.

There are now more than two dozen federal tax breaks, including seven created or expanded by February's $787 billion stimulus, that disappear (often simultaneously) as income rises. As her adjusted gross income climbs from $60,000 to $90,000, a single parent could lose some or all of the $1,000 per child credit, the $2,500 per college student credit, the $400 Making Work Pay credit and the $8,000 first-time home buyer credit, as well as deductions for contributions to an individual retirement account and for interest paid on a student loan. Such gotchas can push up the marginal federal income tax rate--that is, the tax on the next $1 earned--far beyond the top 35% rate imposed on rich folks. For a mom with a $30,000 income, the phaseout of the earned income credit and loss of a federal Pell college grant can produce a 40%-plus marginal rate, without counting Social Security and Medicare taxes.

This is a good column to mail. I don't know that it has any new news for the choir, but it does a superb job showing the tradeoffs from what seem like good programs.

Hat-tip: Instapundit, who sees it as "Going Galt."

Posted by John Kranz at 1:22 PM | Comments (1)
But johngalt thinks:

Have our friends in Mayo-ville seen this?

Posted by: johngalt at October 27, 2009 1:20 AM

October 21, 2009

Matt Drudge Takes Down the Dollar

A story at the Politico essentially argues that Drudge is playing politics with the decline of the U.S. dollar:


On Tuesday, Matt Drudge ran a headline about the weakening U.S. dollar on his website, Drudgereport.com. In and of itself, that would be unremarkable, except that it was the 18th time Drudge had posted a link to a story about the weak dollar this month.

And October was only 20 days old.

Clearly, Matt Drudge has developed a fascination with the declining U.S. dollar.

Hes fixated on it, said Tom Rosenstiel, director of the Pew Research Centers Project for Excellence in Journalism. Theres no question that Drudge can alter what people are paying attention to.

[...]

Drudge also has tried to tie President Barack Obama to the dollars plunge. Obama Dollar Retreats Most Against Commodities in Wealth Shift, noted Drudges link to a Bloomberg story Oct. 13. Obama Under Fire Over Dollar, he headlined Oct. 7, linking to a story in the Financial Times.


Nevermind the fact that he is linking to stories from other sources with this theme. Of course, such discussion is common regarding the dollar and the president. The BBC reported in 2004:

But the pace of the dollar's decline has picked up since President George W Bush - whose heavy spending has pushed the US finances into the red - was elected to a second term in office last week.

Are we to believe that the spending policies of the current administration will somehow have different effects on the value of the dollar?

The best part of the Politico is this excerpt:


Whats more, theres one economic upside to a soft dollar: increased exports for U.S. manufacturers. Reporter Nelson Schwartz noted in an article in The New York Times on Sunday: A weak dollar could prove beneficial to the American economy by aiding long-suffering manufacturers, rebuilding a stronger industrial base and lifting exports even if it makes life harder for trading partners around the world, especially in Europe.

But that Times article, titled In Dollars Fall, Upside for U.S. Exports, did not receive a link from Drudge.


Of course, the degree of this effect is dependent on elasticities. Even beyond that, however, defending the declining purchasing power around the world as a positive sign because it boosts exports is like arguing that the upside to unemployment is that we all get to experience more leisure.

Posted by Harrison Bergeron at 12:33 PM | Comments (4)
But jk thinks:

I hope Mr. Javers never tunes in to CNBC when Kudlow is on!

I'll quibble a bit with your closing analogy, hb. A large sector of the economy gets most of its revenue from exports, and those industries have a legitimate and rational reason to cheer a weaker dollar.

Don't report me to Larry -- I'm still a strong dollar guy!

Posted by: jk at October 21, 2009 1:31 PM
But jk thinks:

Better not read Jimmy P either: Paul Volcker: Obama’s forgotten man

Posted by: jk at October 21, 2009 1:43 PM
But Keith thinks:

Seems to me the Administration is doing enough damage without Matt Drudge's help. ThreeSourcers, of course, will not be surprised to read this; in fact, there's a bittersweet tinge to being able to say "we told you so - in advance" to this:

http://www.republicans.waysandmeans.house.gov/News/DocumentSingle.aspx?DocumentID=150826

Posted by: Keith at October 21, 2009 3:54 PM
But Perry Eidelbus thinks:

Keith, don't you know, Drudge must be the most dangerous man in the world. No matter how much the Fed is trying to save the dollar, Drudge's mere words are enough to convince the world to dump it!

JK, not everyone exports or is within a degree or two of separation from exports. However, most Americans are within a degree or two of imports. Now, no one can know the true value of the dollar. Only an entire free market, with all its uncountable transactions, can reveal it. Let's call that point X. If the dollar is weaker than X, it's a form of protectionism because it benefits the minority of the economy that exports.

Deliberately weakening the dollar is a favorite tool of people unnecessarily worried about the U.S. trade deficit. (Warren Buffett is one such idiot who thinks we shouldn't import more than we export.) These people either don't know or refuse to admit the havoc that would ensue.

All this is besides the fact that the Fed is inflating the money supply to monetize the huge increase in budget deficits. I've been saying it for damn near a year now: there just isn't enough money in the world to finance it. Even if foreigners did have the willingness, they're already tapped out.

Posted by: Perry Eidelbus at October 21, 2009 8:58 PM

October 19, 2009

The Ultimate Public Option

I had a blog post brewing in my head when I woke up this morning. Curiously, Blogging God James Taranto has thieved it:

British health care, it seems, resembles American elementary and secondary education, in that the government has a monopoly but there is an expensive private opt-out--and many of those who run the monopoly avail themselves of the private system. If you like the public schools, you'll love ObamaCare!

Taranto is following up on a story that British Heath Care workers will be given taxpayer-financed private care. Else, socialized medicine will kill all the providers. Beautiful, isn't it?

But I had two thoughts on education (all my family members are teachers, I'm a dead man if one of them ever stumbles on ThreeSources). The first is the title: public education is the ultimate public option. No, there's no law to keep us from opening up the ThreeSources Academy of Reason and Civics and Advanced PE, but all of our students will have to pay for both public education and our inflated tuition. The government will regulate how many days are taught and have great influence on our curricula. Lastly, if we do well and attract attention, we can be denied building permits, accreditation, fire code clearances, &c.

We can swim but they completely own the pool. A serious person cannot help but see that health care would be just like that. Crappy substandard care for all, and an escape of quality and innovation that only the rich could afford. Progressive, indeed!

The other point is that innovation in a sector is frozen to the time government takes over. The highly subsidized and regulated passenger railways are frozen at WWII technology, British Health Care in 1975 all the time. And American education has not progressed an inch since Wilson was President (most would say it has fallen). In spite of communications, Internet, advances in access to books and information, and ubiquitous, inexpensive computers, schools have seen no improvement.

Medicine has made startling gains, but it might be 2009 forever. Shame

Posted by John Kranz at 3:49 PM | Comments (1)
But johngalt thinks:

It is no surprise that British medical providers - the creators - must be appeased else even these socially-minded Europeans would strike from the system they know to be a travesty on the public. My exhortation to them is, "Revolt brothers!"

The "reformers" even admit that medical innovation would cease under their guidance. Just listen to Reich: "But that means less innovation, and that means less new products and less new drugs on the market, which means you are probably not going to live that much longer than your parents. Thank you." [1:50]

Dear cousin writes today that she'd like to see everyone work together and "try to find a compromise on health care." Sigh. Where does one begin? The general public, as cousin writes, is "honestly just not that interested." They simply want an end to the dispute.

Posted by: johngalt at October 19, 2009 5:30 PM

October 13, 2009

Mea Maxima Culpa!

Ooops.

I suggested that my initial reaction and remarks about Nobel Economics Prize winners President Barack Obama Elinor Ostrom and Oliver Williamson might have to be "revised and extended."

Reading yet another positive review today, this time from David Henderson of the Hoover Institution, I am going to stop digging and offer a full and fulsome retraction.

I, jk, misread the existence of structured, non-coercive association that is respectful of property rights as collectivism. I criticized without complete knowledge and my criticism was off base. I humbly recant and apologize to the Nobel committee and any ThreeSourcers who were inconvenienced.

I feel better.

Posted by John Kranz at 12:45 PM | Comments (0)

October 12, 2009

Feeling Better about the Peace Prize

After reading more about the Nobel Economics Prize -- which I do take seriously -- maybe the Hope and Change Prize was not poorly decided.

I reserve the right to revise and extend these remarks as I learn a little more. But the Michael Spense overview that Professor Mankiw links to puts me ill at ease. "The common theme underlying the prize this year is that markets do not solve all problems of resource allocation and incentives well or even at all."

The deeper insight that these scholars have helped us to come to understand is that there are many circumstances in which non-cooperative outcomes (nash equilibria) are deficient or sub-optimal, and that a good part of economic and social progress lies in the creative design of institutions whose purpose is to cause these non-cooperative equilibria to come closer to socially and economically efficient and fair results.

Climate change is a commons problem on a global scale with the added complication that collective action is designed not directly to produce results (in the sense of temperature reduction), but rather to acquire tail insurance by shifting the probability distributions against outcomes that are highly destructive but not certain to occur. Though some are not convinced this is a problem worth acting on, a majority globally recognize that there are risks to be taken seriously. This may be the most complex commons problem we have yet faced. We are in the midst of shifting values with respect to energy efficiency and clean technology. The challenge is to design institutions, mechanisms and incentives that move us in the right direction.


I stand ready to be disabused of my opposition. No doubt laureates Elinor Ostrom and Oliver Williamson know a couple of things that I do not. But the claim that "people and societies find ways through organizational structures and arrangements, political and other institutions, values, incentives and recognition, and the careful management of information, to solve these problems" leaves me cold.

UPDATE: Arnold Kling is more positive. CLearly I need to delve a little deeper.

UPDATE II: A roundup of positive reviews from FEE.org:

The bloggers emphasize that both economists have devoted their attention to voluntary forms of governance, Ostrom in commons (among other things) and Williamson in firms. Regarding Ostrom, Tabarrok notes, [H]er work has explored how between the atomized individual and the heavy-hand of government there is a range of voluntary, collective associations that over time can evolve efficient and equitable rules for the use of common resources. For Ostrom its not the tragedy of the commons but the opportunity of the commons.

Posted by John Kranz at 12:57 PM | Comments (4)
But johngalt thinks:

There's that word again... "progressive."

The best response to this latest load of unapologetic manure from the Nobel Committee is to reprise Lisa M's excellent C.S. Lewis quote. (last comment)

"We all want progress, but if you're on the wrong road, progress means doing an about-turn and walking back to the right road; in that case, the man who turns back soonest is the most progressive."

Damn, if we could only get this precise meaning onto a bumper sticker.

Posted by: johngalt at October 12, 2009 2:01 PM
But Keith thinks:

jg: yes we can! No only can we get that sentiment on a bumper sticker, we can put it in a form that The Won's adoring throngs will appreciate:

Hope and Change -
ur doing it rong

Posted by: Keith at October 12, 2009 7:25 PM
But EE thinks:

It is so funny to read the differing perspectives on the prize. Those on the left routinely point out that this is a prize rewarding behavioral economics or that markets don't always work. Meanwhile those who are more libertarian emphasize that this shows how private institutions emerge to alleviate problems that markets do not.

Posted by: EE at October 13, 2009 12:52 PM
But jk thinks:

I spoke a bit too soon and have decide to recant.

Posted by: jk at October 13, 2009 2:17 PM

October 5, 2009

Medicare and Freedom

I used to worry that other ABC News staffers would poison poor John Stossel's cocoa. He is safely ensconced in the vast-right-wing protectorate of FOXNews now.

So my concern turns to Professor Mankiw. Read his home run of a blog post on Medicare and Freedom:

Today, over at the NY Times, Paul Krugman writes:
the modern G.O.P. considers itself the party of Ronald Reagan -- and Reagan was a fierce opponent of Medicare's creation, warning that it would destroy American freedom. (Honest.)
Pretty silly of old Ronald, wasn't it?

Awesome on stilts with platform soles. But how long will the leading lights of Hahvaad let him live?

Posted by John Kranz at 11:26 AM | Comments (3)
But Perry Eidelbus thinks:

I am still being compelled, under the threat of fines and imprisonment (not to mention that my employer would be entirely shut down for "conspiracy") to pay Medicare premiums now. The hope is that when I retire, at minimum over three decades from now, I'll get at least a few cents on the dollar for what I've put in.

Silly me for not wanting to participate in a Ponzi scheme that makes musical chairs look equitable. Silly me for thinking that "freedom" means keeping what I earn and spending it on what I think is best for me.

Posted by: Perry Eidelbus at October 5, 2009 11:40 AM
But jk thinks:

Krugman wouldn't know freedom if it bit him in the ass. (See, I can play on the Beck/O'Reilly field as well as Friedman/Buckley.)

Seriously, he cannot opine on freedom because he does not understand it. Today, Medicare takes freedom from you, me, Perry, and the three AMA doctors Mankiw links to. In the future it is positioned to take all economic freedom and property rights from everyone as it cannot be funded and is too popular to cut.

Silly old Ronald, indeed.

Posted by: jk at October 5, 2009 11:55 AM
But johngalt thinks:

Speaking of Reagan and socialized medicine:

http://www.youtube.com/watch?v=BnLa1BvtaxM

Posted by: johngalt at October 5, 2009 1:41 PM

September 29, 2009

The State of Economics

Professor Mankiw embeds a video from the Stand Up Economist. I am a big fan, but he plays to academic prejudices a little in this one. Oh, well.

Better still is an ECON-SMACKDOWN between two of my favorites: Arnold Kling and Josh Hendrickson. I bow to both and would not presume to pick a winner, but the discussion is superb. All is expounded, linked and explained on Hendrickson's Everyday Economist blog:

-- Part I
-- Part II

Kling is never afraid to take a position outside of conventional thought and blog friend EE presents a substantive argument for the corpus of macro principles. Good stuff.

Posted by John Kranz at 1:14 PM | Comments (0)

September 24, 2009

The Rich get Richer

And the poor get richer, too! Don't tell anybody, it ruins a great meme.

James Pethokoukis links to new research that shows Income inequality in America is overstated. Robert Gordon:

The rise in American inequality has been exaggerated both in magnitude and timing. Commentators lament the large gap between the growth rates of real median household income and of private sector productivity. This paper shows that a conceptually consistent measure of this growth gap over 1979 to 2007 is only one-tenth of the conventional measure

Alan Reynolds's superb "Income and Wealth" does a great job counteracting this as well

Posted by John Kranz at 11:01 AM | Comments (2)
But Keith thinks:

Exhibit B on the the same meme: it has been told to me (I've never really taken the time to check it out myself) that if you were to compile a list of the 500 richest people in any given nation, and compare that to the same list from a generation before, you'd see the same names on both lists - either the same person or a descendant. In most countries, the wealthy class stays fixed. No so in America, which has far more turnover on that list than other nations. Average people penetrate wealth and worldly success far more frequently here than elsewhere, be it England, India, or Thailand.

That would seem to be the result of individual economic freedoms and our being a more classless society (trust fund babies notwithstanding). Not only to the rich get richer and the poor get richer here, but each person's place in that hierarchy is far less fixed. Thoughts?

Posted by: Keith at September 24, 2009 12:08 PM
But jk thinks:

Underscores and exclamation marks, Keith! In a free society people move among the quintiles -- another reason the income inequality attacks are so specious.

Posted by: jk at September 24, 2009 1:10 PM

September 22, 2009

Perverse Incentives

Another great argument for free trade is the conversion of tax avoidance to productivity: the same argument that is (appropriately) made for simplifying the domestic tax code.

Professor Mankiw links to a WSJ article that defies credulity. How's this for "Broken Windows:"

BALTIMORE -- Several times a month, Transit Connect vans from a Ford Motor Co. factory in Turkey roll off a ship here shiny and new, rear side windows gleaming, back seats firmly bolted to the floor.

Their first stop in America is a low-slung, brick warehouse where those same windows, never squeegeed at a gas station, and seats, never touched by human backsides, are promptly ripped out.

.The fabric is shredded, the steel parts are broken down, and everything is sent off along with the glass to be recycled.

Why all the fuss and feathers? Blame the "chicken tax."


The chicken tax -- the mohair subsidy's poultrified (-fried?) cousin -- is an LBJ-era trade spat that lives on. Western Europe taxed chicken from the US, so President Johnson taxed cargo vans. So now, the Turks make "passenger vans" with seats and windows that are removed and shredded. Presto, chango! Instant cargo van.

Any similarity you may feel between Chinese tires and chickens is all in your head. We wouldn't do anything that stupid -- this is the 21st Centaury!

Posted by John Kranz at 1:40 PM | Comments (0)

September 16, 2009

Quote of the Day

I'll defend Economics from Paul Krugman, but Nassim Nicholas Taleb has, as this article states, earned the right to some I-told-you-sos:

My whole idea is to lower risk in society by developing a system that can resist human error, rather than one where human error rules. The first step is to make sure that no financial institution is too big to fail. Next, make sure governments don't favour big companies. Governments should also decrease the role of economists they're no more reliable than astrologers, and they do more damage. -- Nassim Nicholas Taleb, "Suck It Up, America!"

Hat-tip: Jimmy P

Posted by John Kranz at 11:37 AM | Comments (3)
But Perry Eidelbus thinks:

All right, I finally read the interview. His powers of prediction are...overrated. He's correct about economists' and financiers' inability to predict the future, correct about debt, wrong about Iceland, incorrect about Canadian self-sufficiency, wrong about "developing a system," very wrong about the nature of human information, and utterly wrong about actively preventing "too big to fail."

"For the past decade, he's been warning that the global economy has become far more vulnerable to unpredictable events that can cause vast disruption."

That was no prediction, because such a "warning" is completely meaningless. What does it mean, exactly? He says economists as "no more reliable than astrologers," which is true, but his own "predictions" have all the precision of fortune cookies. When something happens to ripple through international financial markets, he pats himself on the back. That's a bunch of bull.

Of course the world economy, having grown so complex, is susceptible to "unforeseeable events that can cause vast disruption." Anyone can see that. But his prediction lacked any specifics

He was simply a stopped clock that was eventually right. Similarly, don't believe all this hype about Nouriel Roubini, who also didn't have these amazing powers of prognostication that the media would have you think. Mark Zandi of Moody's frequently provides soundbites, and too many in a way. career of predicting a recession every year since at least 1997, maybe before then. Of course these two would eventually be right if they keep predicting the same thing over and over.

As I said, he's correct that "Central bankers have no clue" and about economists' ability to predict the future. Anyone familiar with Hayek knows that, and why.

The Internet did not "bankrupt" Iceland, no more than it caused the tech bubble. The Internet was merely the conduit for information, not a cause. The British and Dutch governments were wondering as early as 2006 what would happen if Iceland's major banks couldn't cover British and Dutch citizens' deposits in Icelandic banks, because it was clear Iceland's equivalent of the FDIC, or the Icelander taxpayer, couldn't cover the deposits. If you want to talk about causes, William Butler and Anne Seibert released a paper in October 2008, originally done in April 2008 but kept secret, that explained Iceland's problems. They were already very well known. In short, its banking sector was simply too extended for the size of its economy, and policymakers tried to sustain the unsustainable.

He says Canada has "energy and minerals," is "not overspecialized" and "is self-sufficient." These could easily apply to the United States; why is Canada any better? Now, Canada, or any other nation, cannot be insulated from the world, nor should it want to be. Self-sufficiency is the road to ruin, as the Hawley-Smoot Tariff showed us. It's good to have a fallback position so you can have another way to trade your goods and services with others, like a trader who can switch to driving taxis, not to provide everything for yourself.

But if we get hyperinflation and Canada will be the best place to be, how much more overloaded will its socialized health care system be? As the signs say, where will Canadians go for health care if they don't want to die waiting in line?

He's wrong about "developing a system." Anyone familiar with Hayek (namely the concepts of spontaneous order and knowledge being distributed throughout society) will understand why this line of thinking is as bad as central planners' belief that they can steer an economy in the right direction. It's flatly impossible for him, or any group of people, no matter how smart, to regulate things as he dreams.

For all his well-regarded philosophy, he doesn't understand that human information, as a whole, is imperfect. That's the nature of our existence, and unavoidable. Austrian economics explains that market processes exist as the mechanism by which we eliminate errors (q.v. Hayek's "Competition as a Discovery Procedure") and approach the harmony of supply with demand. Some people will have better information, not necessarily scientific facts as Hayek explained, but knowledge of time and place. Israel Kirzner developed his concept of the entrepreneur as someone who has better information and will put it to use, expanding on Schumpeter's concept of the risk-bearer.

And how does he plan to prevent things from becoming "too big to fail"? The free market tempers the size of a firm by allowing it to fail when overextended, which then becomes a warning to others. But he's talking about an active regulation, which is done only through government -- which would rely on imperfect bureaucrats and economists whose track record is abysmal.

I'm not impressed.

Posted by: Perry Eidelbus at September 17, 2009 10:38 PM
But jk thinks:

Perry, I am 100% with you on Roubini and the permabears who have "predicted 12 of the last 5 recessions."

Taleb is an interesting --and different -- case. I think you would very much enjoy reading "The Black Swan" and you probably have to read it to see his complaint about economists. Economists, he complains, pretend that the world fits into nice Gaussian probability curves when many things do not.

Many things display a Mandelbrotian probability, and if you're expecting Gauss and get Mandelbrot, you are in for a big surprise.

His fund, developed around his beliefs, is not a super short bear fund, it is a CAPM model with a huge weight to low risk and a short percentage in outlier options that pay huge in large swings. He has done pretty well with it.

I don't worship at the altar or anything, but he is an interesting thinker and his book is certainly germane in 2009.

Posted by: jk at September 18, 2009 9:38 AM
But Perry Eidelbus thinks:

His book might be interesting if he sticks to economic thought, but as far as his "predictions," my point still stands: he was far too vague and general for his statements to have merit as prognostications. Red Sox fans had said for how many decades that their team would come back next year to win the World Series?

Modern economics (Taleb too?) largely forgets the Austrians, who recognize the imperfect nature of information. We don't along with the Keynesian, neo-Keynesian, neo-classical, etc. lines of thinking that oversimplify economic flows and assume equilibriums. Economics is nothing more than the science of human choice and its consequences, which will be chaotic. So Austrian economists fully expect that life will be closer to Mandelbrotian probabilities than Gaussian distributions, but uh, it's so obvious that Austrians consider it axiomatic. You don't need an entire book to talk about it.

I was taught to visualize things this way. Let's say you have sufficient data to chart a smooth-looking supply or demand curve. Now if you could zoom in closely enough, you'll see that it's not a smooth curve, but many infinitesimally small curves of their own (representing the choices of smaller and smaller groups until you zoom so closely that you see individual behavior). They all join together, end to end, to form the whole.

Taleb sounds almost Austrian when talking about his distrust of economists and central bankers, but then he starts talking about designing this system to minimize error. No human has the knowledge to design such a thing, nor should a person have that kind of power over others to create it. You let a system emerge on its own, out of a free society that doesn't have government trying to steer people one way or another.

Posted by: Perry Eidelbus at September 18, 2009 11:54 AM

September 15, 2009

Contrarian View on Monetary Policy

The Everyday Economist links to a superb essay in CATO unbound by Scott Sumner.

I cannot lie. (I could but I will not do it here.) This is a little lengthy and moderately turgid for the less academic of ThreeSourcers. But it pays big dividends in providing a brief overview of some leading monetary theories, and a serious look at the panic of 2008 from a fiscal and monetary policy perspective.

Then you get Sumner's suggestion of deflationary concerns and too-tight money's exacerbating the crisis, and then a very serious suggestion for a futures-based, automatic (Friedmanite) approach to central banking.

I'd call it a substantive return on your reading investment.

Posted by John Kranz at 7:03 PM | Comments (0)

September 14, 2009

Quote of the Day

If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it. Each dollar so transferred, in Krugmans world, generates an additional dollar and a half of national income. The analogy is even closer. Madoff didnt just take money from his savers, he essentially borrowed it from them, giving them phony accounts with promises of great profits to come. This looks a lot like government debt. -- John C. Cochrane, in an awesome takedown of Krugman's Times Magazine article (that even IT people are quoting at me today!)
Hat-tip: Don Luskin
Posted by John Kranz at 5:43 PM | Comments (0)

August 28, 2009

Fairness and Efficiency

I didn't know if there was a quorum around here interested in Don Luskin's editorial on Flash trading and the ensuing contretemps. I assumed those who were interested were probably already up to date from Luskin's site and the WSJ.

But it has taken a turn into the philosophical today, as Luskin's coauthor has answered their critics with a smart response. While regulators think they live to make markets "fair" any non-coerced market is intrinsically fair. Hynes talks of making markets efficient, which is my interest. Capital markets don't exist to make people rich, they exist to direct capital to its best use.

Free markets dont require equality of information. They require an absence of coercion, and protection against fraud. Free markets allow people and firms to develop expertise which create competitive advantages. Users of free markets who dont care to develop expertise can still benefit from them. Wal-Mart customers, with no sourcing skills of their own, benefit from Wal-Marts efficiencies in the form of lower prices.

Twenty years ago, retail stock traders had to call in orders and wait 20 minutes or more for reports. They might miss markets due to the lag between their broker getting an order and the order getting to the post. They could not have their bid or offer shown on NASDAQ. Spreads were a minimum of an eighth of a point, and often more. Today they can go to the web, enter an order and get an execution in seconds.


Follow this link to read the Hynes defense, which I think makes great reading whether you have read the rest or not. If you want to put your geek hat on, that post has links to the original editorial and Luskin's response.

Posted by John Kranz at 2:09 PM | Comments (0)

August 17, 2009

There Once Was an Economist in Nantucket...

Professor Mankiw discovers pricing models during time off.

Ec10 students: completion of the limerick is left as an excercise for the reader.

Posted by John Kranz at 3:40 PM | Comments (0)

August 6, 2009

Don't say I don't know how to have a good time!

I'm a huge fan of Dr. Deepak Lal of UCLA (I might have mentioned that once or twice...).

Here is a seven part (little over an hour) video lecture at the Adam Smith Institute on what caused the financial crises. It might not knock 30 Rock off the air or anything, but I found it enthralling.

Hat-tip: NRO

Posted by John Kranz at 12:01 AM | Comments (0)

August 3, 2009

U Chicago 1, Notre Dame 0

The Everyday Economist celebrated Milton Friedman's birthday last Friday with one of my favorite clips:

Posted by John Kranz at 10:38 AM | Comments (2)
But johngalt thinks:

Was Donohue incredibly polite to his guest, or merely speechless?

Hint: It's a rhetorical question.

Friedman hinted at this point at the end but I think he missed the hanging curveball on Phil's second question: Capitalism doesn't "reward ... ability to manipulate the system" unrestrained government does.

Posted by: johngalt at August 4, 2009 10:27 AM
But jk thinks:

I'll try for a rhetorical answer:

This is what made Friedman so great. He did not yell or spew or get upset, whomever the interlocutor. He would calmly make a compelling and substantive argument for economic freedom every time, completely extemporaneously.

We need a few more of those.

Posted by: jk at August 4, 2009 10:58 AM

July 27, 2009

Deng XioLaffer

Thousand Word Picture:
july272009china.jpg

James Pethokoukis celebrates the Sino-American econo-summit today with a look back:

Chinese and American officials meet today in the latest edition of the strategic dialogue between the two nations. Here is an interesting 1998 take from Alvin Rabushka of the Hoover Institution about the role of tax policy in Chinas economic ascent.

Let me get this straight. Cut tax rates, get more growth and revenue. You guys ever heard of that?

Posted by John Kranz at 5:51 PM | Comments (2)
But GK thinks:

It's working here with the tax credit for new homes and the increase in new home purchases.

Posted by: GK at July 27, 2009 6:53 PM
But johngalt thinks:

What I wouldn't give for a government that spends a LOWER share of GDP year over year. Who is the communist party candidate in 2012 anyway?

Posted by: johngalt at July 28, 2009 1:52 AM

July 19, 2009

Dark Thought of the Day

Only 21% of the people in an econ4u.org could correctly answer "how many millions are in a trillion?" To win an election generally requires at least twice that. Am I the only one not feelin' so good?


Hat-tip: scrivener.net

Posted by John Kranz at 11:29 AM | Comments (3)
But johngalt thinks:

The things we take for granted... "Everyone can recite the progression million, billion, trillion." I almost didn't watch the video. I know that lots of people have trouble with this. But this is truly breathtaking.

Posted by: johngalt at July 19, 2009 6:52 PM
But Boulder Refugee thinks:

21% got it right. The other 79% voted for Obama.

Posted by: Boulder Refugee at July 20, 2009 3:17 PM
But johngalt thinks:

We've been having a lot of fun with this topic around the galt household. I was surprised to learn just how uninformed even my own family members are on this. The engineers amongst us have it locked. After all, we deal with kilo, mega, giga, tera, or alternately, milli, micro, nano, femto, and their ilk on a regular basis. We automatically think in those terms. But for some reason everyone else I asked seemed to have difficulty of one sort or another. So here's what needs to be repeated throughout the blogosphere:

1 million = 1 thousand thousands (1000 thousands)
1 billion = 1 thousand millions (1000 millions)
1 trillion = 1 thousand billions (1000 billions)

The easy way to remember this is just to recite the progression "million, billion, trillion."

Now, when I was a kid in grammar school I remember being taught that a billion was a number so big that "nobody can count that high." Carl Sagan and the Democratic Congress have proven that wrong but it is still a mammoth figure. (Think: 1,000 millionaires) But now this mammoth figure isn't big enough anymore. (A billion here, a billion there - pretty soon you're talking about real money.) Now the government and the press throw around figures in the trillions of dollars, but to most Americans those numbers clearly have no meaning. Let's try to give them some:

One (single, measley little) trillion dollars is enough to create a million instant millionaires.

For perspective, this is like one of every 300 or so people in the US winning a million dollar lottery.

Or, on a state by state basis, 200,000 new millionaires in each of the fifty states. Add another half a trillion to this and it's 300,000 new millionaires ... in EVERY STATE IN THE UNION.

Repeat after me:

Million, Billion, Trillion
Million, Billion, Trillion
Million, Billion, Trillion
More ... Bucks .. Taken.

Posted by: johngalt at July 21, 2009 12:44 PM

July 17, 2009

Quote of the Day

It's pretty early in the day for making a call on QOTD, but this gem from Joe Biden is going to be tough to beat:

"We're going to go bankrupt as a nation," Biden warned at an event in the backyard of the House's No. 2 Republican.

"People, when I say that, look at me and say, 'What are you talking about, Joe? You're telling me we have to go spend money to keep from going bankrupt?" he said. "The answer is yes."

Unlike Joe, I'm speechless.

Hat tip: foxnews.com

Posted by Boulder Refugee at 11:18 AM | Comments (3)
But jk thinks:

3:07 PM Eastern and the Vice President still has a comanding lead.

Posted by: jk at July 17, 2009 3:08 PM
But johngalt thinks:

Yes, this statement from the Vice President of the United States is mildly embarrasing in its idiocy but it's not like he can't spell 'potato.' There's no reason for newspaper editors or columnists or TV anchors to bring this to America's attention (and tell us what we're supposed to think about it.)

Posted by: johngalt at July 18, 2009 10:09 AM
But johngalt thinks:

FNC's Elizabeth MacDonald gave us her own QOTD nominee this morning in describing the Biden line:

"Biden is effectively saying to the American people, 'Pile into the back of my spaceship while I point it at the center of the sun.' No one, no one, not McCain, not Obama, would have won the election last year if they'd told the truth, if they said what John Rutledge said, if they were straight and stopped whipping fastballs by the American people the size of Jupiter. You know, the debt that we're looking at is gonna be three-quarters the size of our country's GDP. This is beyond faith-based economics, it's delusional."

Posted by: johngalt at July 18, 2009 11:41 AM

July 14, 2009

DC to NYC: Drop Dead

New York's hegemony in financial services is under threat from Schumpeterian gales. But a bad regulatory environment could be far worse, says Luigi Zingales from the Chicago Business School:

If we look beyond the Americas to the broader world, however, New Yorks enduring supremacy is not a foregone conclusion. Besides the power of inertiapeople like to trade where others trade, so they trade in New Yorkthe city has benefited from three comparative advantages in the past: a sophisticated and well-trained workforce, reliable but not intrusive regulations, and (at least since Ronald Reagans presidency) a favorable tax and political environment. All these advantages have shrunk, if not vanished.

New Yorks skills advantage eroded long before the 2008 crisis. Thanks to its early deregulation of brokers commissions in 1974, New York took the lead in the quality and reliability of trade. Global companies came to the city to be traded and judged by New Yorks analysts. But during the 1990s, most European stock exchanges caught on. Their tardiness allowed them to adopt the most recent trading technology easily, and they moved faster and more decisively into electronic trading, creating markets that were at least as liquid as the traditional exchanges. Most of the daily trading in cross-listed companiescompanies traded on both the traditional and electronic exchangesmoved back to the country of origin, eliminating one of New Yorks advantages.


I daresay (and did) that when New York's Senior Senator defines innovation in financial services as "clever ways to dupe the consumers," it portends poorly.

Hat-tip: Mankiw

Posted by John Kranz at 12:14 PM | Comments (1)
But Perry Eidelbus thinks:

The status of "top financial city" is a matter of who wants it less. I guess New York has recovered the title from London, but for how long?

It's bad enough that D.C. evidently wants NYC to lose that status again. The city seems to want to drive people out, and the state seems to want to drive out non-city residents like me who work in the city. Albany has just finished raising taxes on everyone who works and buys things, down to a "payroll tax" of 34 cents per $100. (This is to bail out the transit system that's running itself into the ground because of UAW-like benefits for union workers. The tax is in all 11 counties served by the transit agency, so it affects people who don't even use public transportation.) But employers will pay that tax, right? Ha, yeah, just wait till I sit down with my boss in December to find out my paltry raise.

Greenwich is looking better and better, so NYC and Albany had better realize that people are as mobile as ever. Bloomberg, Paterson, Schumer and every last one of those dirty bastards had better realize that with the technology available to the financial sector, capital is even more mobile.

Posted by: Perry Eidelbus at July 14, 2009 4:41 PM

July 10, 2009

President Coolidge Smiles Down

Harvard Professor Jeffrey Miron lays out The Case For Doing Nothing. And it is a compelling case indeed.

When people try to pin the blame for the financial crisis on the introduction of derivatives, or the increase in securitization, or the failure of ratings agencies, it's important to remember that the magnitude of both boom and bust was increased exponentially because of the notion in the back of everyone's mind that if things went badly, the government would bail us out. And in fact, that is what the federal government has done. But before critiquing this series of interventions, perhaps we should ask what the alternative was. Lots of people talk as if there was no option other than bailing out financial institutions. But you always have a choice. You may not like the other choices, but you always have a choice. We could have, for example, done nothing.
[...]
From the distributional perspective, the choice is a no-brainer. Bailouts took money from the taxpayers and gave it to banks that willingly, knowingly, and repeatedly took huge amounts of risk, hoping they'd get bailed out by everyone else. It clearly was an unfair transfer of funds. Under bankruptcy, on the other hand, the people who take most or even all of the loss are the equity holders and creditors of these institutions. This is appropriate, because these are the stakeholders who win on the upside when there's money to be made. Distributionally, we clearly did the wrong thing.

I found it difficult to choose excerpts because the whole piece is pretty good. I recommend a read in full.

Hat-tip: Mankiw

Posted by John Kranz at 1:35 PM | Comments (2)
But Perry Eidelbus thinks:

How dare anyone accuse anyone of operating under any kind of moral hazard!

Posted by: Perry Eidelbus at July 10, 2009 3:12 PM
But johngalt thinks:

Damn. Where was rational thinking like this last September, when congress needed it? Hopefully this will help prevent another big bailout bill this September.

Posted by: johngalt at July 11, 2009 8:34 AM

July 6, 2009

Quote of the Day

Louis Woodhill, on the Leadership Council of the Club for Growth, pens a somewhat technical but compelling (and disturbing) analysis that points to 14% unemployment. That alone could have been the headline for this post, but this beauty of a paragraph fairly screams QOD:

"Stimulus" is based upon the superstition that government borrowing and spending creates "demand". In reality, it does no such thing. "Stimulus" is like trying to raise the level of the Hudson River by dipping out a bucket of water, walking five feet downstream, and pouring it back in. The only difference between the Bush and Obama plans is that Obama's bucket is bigger (and will create more debt). Ironically, the July 2 jobs report prompted calls from leftist economists for Obama to go back to the river with an even bigger bucket.

Hat tip: RealClearPolitics.com

Posted by Boulder Refugee at 5:14 PM | Comments (1)
But Perry Eidelbus thinks:

Bastiat's taught us this for only, oh, 160 years...

Posted by: Perry Eidelbus at July 6, 2009 10:49 PM

Stomping on the Green Shoots

An important turn of phrase, from Jimmy Bise: "Maybe We'd See Some "Green Shoots" if the Government Would Stop Stomping on Them "

In reality, the government is forcing small businesses to float the government a zero-interest loan to cover the insurance payment. The situation gets far, far worse when it comes to unemployment. As those of you who own a business know, when one of your employees files for unemployment, your insurance premiums go up. So what happens to those premiums now that unemployment insurance has been extended an extra 20 weeks? The government isn't picking up that slack. That money is coming straight from the businesses. So, says the blogger, he's far more hesitant to hire new employees, even if he could use a few new bodies, because the cost to hire, retain, and lose them is far too high.

This remains my concern. The American economy is powerful and resilient. I have no worries that it could bounce back from this contraction stronger than ever. But at the same time, Government seems to do everything it can to stop it.

I saw on the news that Colorado has enacted a new law that provides a $5,000/employee fine for first offense to an employer who miscategorizes a worker as a contractor. I think a lot of us have worked in very grey areas. And I'll even concede that it is a real problem. But to roll out a draconian solution like this in the middle of a recession is certain to provide less employment and fewer opportunities.

A labor lawyer on the news admitted that the laws are complicated. One of the big changes is to allow a worker to claim that he or she should be categorized as an employee to get benefits and withholding. Workers will be incentivized and empowered to turn their work providers in -- or just blackmail an employer.

As Bise points out, "jobs recovery" will come first from small business. Unless State and Federal government team up to squash them.

Posted by John Kranz at 11:24 AM | Comments (0)

June 29, 2009

Now, Some Nasty Words about Lord Keynes

I found myself in the peculiar position if defending the Keynes multiplier last week. On this very blog. It was not any fun but I felt that it needed to be done.

To get my mojo back, I pass along a Mankiw post and a recommendation that you click through and read Scott Sumner's original post. Sumner details an incident when a young JMK was caught in a quick currency flip and leaned on friends and family.

Translation, without help from his rich daddy and rich friends, this cocky, arrogant, smart-aleck would have fallen on his face, ended up digging ditches somewhere and we would never have heard of him. But he did have a rich daddy, who bailed him out...

Interstin'... While on topic, click over to scrivener.net to read "An odd thing about Keynesian deficit spending:"
"Despite the fact that the economics of deficit finance began with the Keynesian Revolution, it has been conclusively established by Kregel (1985) that Keynes himself did not ever directly recommend government deficits as a tool of stabilization policy. Keynes played a conservative political hand and viewed budget deficits with a 'clearly enunciated lack of enthusiasm'."

Posted by John Kranz at 11:41 AM | Comments (1)
But Perry Eidelbus thinks:

That's true. He was a "fiscally responsible" liberal, after all, in the same way that Bill and Hillary, and Robert Rubin, are. Government can borrow and spend if it needs to, but preferably it'll just tax the hell out of people and control all the spending.

Posted by: Perry Eidelbus at June 29, 2009 4:08 PM

June 23, 2009

See you in the funny papers!

I can't possibly excerpt or link. Don Luskin has discovered, read, scanned, and commented on a circa-2000 comic book put out by the FOMC to describe its structure and operations.

All of it. Now.

Posted by John Kranz at 12:00 PM | Comments (6)
But Keith thinks:

Such is the sad state of affairs in our public education system; after teething children on Sesame Street and raising them on a steady diet of MTV, the best we can muster up for students with the attention span of a ferret on crack cocaine is textbooks in the format of comics. I guess textbooks are more palatable when there are lots of pictures.

Maybe the only way to get our message out to the next generation of economists is to have Pixar produce Atlas Shrugged, or find an anime version of The Road to Serfdom.

Wait, what?

Posted by: Keith at June 23, 2009 12:47 PM
But Boulder Refugee thinks:

As an earlier post suggested, we'd have the best results with a 20-something Infobabe spokesperson with big hooties.

Posted by: Boulder Refugee at June 23, 2009 4:11 PM
But Keith thinks:

I stand corrected; hooties trump cartoons every time.

...

Great. Now all I can think of is Jessica Rabbit teaching economics and civics.

Posted by: Keith at June 23, 2009 4:28 PM
But jk thinks:

I'm not a strict constructionist, I'm just drawn that way.

Posted by: jk at June 23, 2009 4:38 PM
But Boulder Refugee thinks:

Dammit, Keith, you did it again - spluttered coffee all over the keyboard...

Posted by: Boulder Refugee at June 23, 2009 4:46 PM
But Keith thinks:

You're not alone, Refugee - jk did it to me with the "just drawn that way" reference, so I guess my karma just caught up with me.

'Scuze me while I go for paper towels and Windex.

Posted by: Keith at June 23, 2009 6:30 PM

June 14, 2009

Animal Spirits

This is a good story. Myopic political hacks like me need to remember there are other plays outside of regulation. Until, of course, the government hears about it.

James Hamilton at Econbrowser explains the trade, which is handy if you do not have a subscription to the original WSJ story.

The short story is that a small investment firm in Texas sold Credit Default Swaps to large firms against some shaky real estate holdings. When they got more revenue than the asset they were guaranteeing, they bought the underlying debt and made it good. The big guys who bought the swaps are not amused:

It appears from the WSJ account as if little Amherst Holdings of Austin, Texas was happy to sell the big guys like J.P. Morgan Chase, Royal Bank of Scotland, and Bank of America something like $130 million notional CDS on a $27 million credit event, used the proceeds to buy off and make good the underlying subprime loans, and pocketed $70 million or so for their troubles. The big guys, on the other hand, paid perhaps a hundred million and got back zip.

One might speculate that that is why the big guys took TARP funds and Amherst did not.

Hat-tip: a good friend's tweet.

Posted by John Kranz at 2:52 PM | Comments (0)

June 4, 2009

Staying Rich In The New Normal

PIMCO Managing Director William Gross offers some historica;l perspective, sound investment advice, and a bit of political punditry in a web address that is well worth a read.

I remember as a child my parents telling me, perhaps resentfully, that only a doctor, airline pilot, or a car dealer could afford to join a country club. My how things have changed. Now, as I write this overlooking the 16th hole on the Vintage Club near Palm Springs, the only golfers who shank seven irons into the lake are real estate developers, investment bankers, or heads of investment management companies. The rich are different, not only in the manner intoned by F. Scott Fitzgerald, but also in who they are and what they do for a living. Whether some or all of them are filthy is a judgment for society and history to make. Of one thing you can be sure however: over the next several decades, the ability to make a fortune by using other peoples money will be a lot harder. Deleveraging, reregulation, increased taxation, and compensation limits will allow only the most skillful or the shadiest into the Balzac or Forbes 400.

Hat-tip: a good friend via Twitter.

Posted by John Kranz at 4:48 PM | Comments (0)

His Batting is Poor, But He's Also a Bad Fielder...

Francis Cianfrocca has a devastating column in Commentary. Where Larry Kudlow and James Pethokoukis see green shoots and mustard seeds. Cianfrocca sees high taxes, inflation and slow growth.

Since we must scale back fiscal borrowing as we move into the future, there are only two alternatives: to accept far higher levels of taxation, or to accept a U.S. economy that is significantly smaller and slower-growing than it would otherwise have been. (The consequences of the latter, of course,are high unemployment and less material well-being for individuals.)

What would be a logical way to navigate between those alternatives? Adopt a high-tax policy that does as little as possible to burden highly-productive individuals, businesses and capital, thus lessening the impact on the size and dynamism of the economy.

But we already know that the President wants to do exactly the opposite. Faced with an evil choice between much higher taxes and a smaller economy, Obama is on track to give us both.


Hat-tip: Jimmy P

Posted by John Kranz at 1:54 PM | Comments (0)

May 13, 2009

Great Post on Monetary Policy

Blog friend The Everyday Economist has a great post up yesterday that I would highly recommend.

It's a serious look at monetary stability and the plusses and minuses of different targets for Central Bankers. It is certainly accessible to any bright person irrespective of economics training and gets nicely to the heart of an under-discussed topic: what are the goals of central bankers?

EE got me hooked up with Bernanke's textbook, and I remain very comfortable with the idea of inflation targeting. I think the problem with the FOMC is the so called "dual-mandate" to target price stability and employment. I think a firm commitment to inflation would be sufficient. EE makes some good points for income targeting and I wouldn't object. But I think the problem is more the dual mandate which contains an intrinsic acceptance of the Phillips Curve rather than any difference between a price and income target.

Do yourself a favor and read the whole thing.

Posted by John Kranz at 12:33 PM | Comments (6)
But johngalt thinks:

Whew. I'm not sure that word "accessible" means what you think it means.

But consider this: "Scott Sumner believes that we could have avoided the recession and simply experienced a burst of the housing bubble had we followed a nominal income target. I actually think that we might not have even had a housing bubble if we had a nominal income target (that allows for falling prices)." Alternately, could we have avoided both the recession AND the housing bubble with JK's October 1, 2008 'first, do no harm' prescription of government anti-meddling? [Like anti-matter, we can imagine it but can't seem to find it.]

"If you get the time machine and can go back, Terminator style, to fix our current problems, I would suggest:

1. Rein in Fannie Mae and Freddie Mac. Set the way-back machine far enough to prevent their birth if you can, but at the very least pass the reforms that President Bush and (some) GOP legislators proposed in 2004 and 2005. Cut their leverage in half and you cut the current mess to a fourth.

2. Get Andrea Mitchell to dope Greenspan's tea and get him to raise rates to at least 2% before handing the reins over to Princeton Boy.

3. Strangle mark-to-market accounting in the crib. Bank regulation makes accounting a legal endeavor. These rules are too harsh and give short sellers too powerful a tool to take a bank down.

4. Laugh the Community Reinvestment Act out of Congress. Do not require banks to make bad loans, they seem to do pretty well on their own.

Get halfway there on all of those and there's no panic."


Posted by: johngalt at May 13, 2009 1:42 PM
But EE thinks:

jk,

Thanks for the link. Also, it is somewhat ironic that I got you hooked on Bernanke's inflation targeting book when I am now unconvinced with that approach. However, there are elements of inflation targeting that I like. For example, the explicit goal allows the market to understand what the central bank is going to do as well as giving it the ability to evaluate whether or not they are successful.

The reason that I favor the nominal income target is because an exclusive focus on inflation can be misleading (perhaps I should write a post on that). What's more the nominal income target also serves to satisfy the dual mandate -- and without the inflationary bias.

JG,

Sorry.

In all seriousness, Sumner's point is basically that we could have avoided the recession in spite of the bursting of the housing bubble. I am not convinced that this is the case.

I will echo your point that government policy has not been anywhere close to ideal (see here, here, here, here, and here).

[Shameless plugging!]

Posted by: EE at May 13, 2009 2:46 PM
But johngalt thinks:

I'm a serious skeptic on that one too, EE. Not only is housing a high value segment of the economy, it was (necessarily) tightly coupled with financial markets and institutions.

I'll leave serious critique of inflation vs. income targeting to Perry but what irks me about inflation targeting - as I understand it, the Fed manipulates the money supply to maintain a small positive rate of inflation in order to promote stability and prevent recession - is that the rate of inflation acts as a fee for the priviledge of using the currency. The collector of the fee is the issuer of the currency (the Federal Reserve Banks) and it amounts to a profit at the expense of the entire dollar based economy.

Am I off base here?

I'm not opposed to private business making a profit, except when it is a government protected monopoly. How about "Federal Reserve Dollars" competing with "Halliburton Dollars" and "General Electric Dollars" and "Uncle Eric's Gold and Silver Backed Dollars" none carrying the backing of the United States government?

Posted by: johngalt at May 13, 2009 3:15 PM
But EE thinks:

jg,

You are correct in your critique of central bank-issued currency in that it generates revenue for the monopolist issuer. However, I don't know whether that fee is substantial enough to be my primary concern. I would prefer zero inflation, or more appropriately falling prices in a growing economy. For an accessible, yet thorough discussion of this view, see here:

http://www.cato.org/pubs/journal/cj28n3/cj28n3-1.pdf

This type of outcome can be accomplished using a nominal income target or through the method that you proposed -- free banking. I think that there is much to like about free banking. If you have a keen interest in this topic, I would recommend George Selgin's text, The Theory of Free Banking, and also his recent interview with the Richmond Fed.

Posted by: EE at May 13, 2009 3:29 PM
But jk thinks:

I feel a bit hoist on my own petard with JG's quote. I'll stand behind it as a way to avoid the panic. But I'd have to swap #2 with #1 and admit that Inflation Targeting generally allowed the Greenspan Fed to provide easy money without setting the trip wires.

On free banking: I'm sorry gents, but Mister Hamilton's train left the station a couple hundred years ago. Perry and Josh will laugh that I root for Taney and Jackson against Nicholas Biddle when I read history, yet I get less excited about "fiat money" than any other guy in the land with a subscription to Reason.

I'll have to read more on income targeting, but I am concerned that it would have squeezed the life out of the 1990s expansion. Near and dear to my geeky, technological heart is the belief that the Internet bubble was an unalloyed good. I'll trade a brief and shallow 2001 contraction for the fruits of the dot-com days any day of the week.

Posted by: jk at May 13, 2009 4:04 PM
But EE thinks:

jk,

Jackson is the hero in that story.

I'm am not sure why you think that a nominal income target would have restrained the 1990s boom. If real GDP is growing because of changes in productivity as it was during the 1990s (which I know will come as a shock to those on this blog who think that it was the Clinton tax policy), prices would fall. Thus, suppose that the nominal target is 3%. If rising productivity causes output to rise and prices to fall, you could have real GDP growing above the nominal target rate.

Again, Selgin's work is excellent on this point. This monograph specifically.

Posted by: EE at May 14, 2009 3:01 PM

May 4, 2009

New Protectionism

Hey, that tax revenue ain't gonna raise itself! President Obama is going to "take away the tax breaks that reward companies for moving jobs overseas." 'Bout damn time, huh? Who could possibly be against that?

When the President is speaking, hang on to what is left of your wallets and liberties. Professor Mankiw links to a Mahir Desai paper that exposes it as the "New Protectionism" that it is:

Tax policy toward American multinational firms would appear to be approaching a crossroads. The presumed linkages between domestic employment conditions and the growth of foreign operations by American firms have led to calls for increased taxation on foreign operations - the so-called end to tax breaks for companies that ship our jobs overseas. At the same time, the current tax regime employed by the U.S. is being abandoned by the two remaining large capital exporters - the UK and Japan - that had maintained similar regimes.
[...]
Similarly, the weight of the empirical evidence is that foreign activity is a complement, rather than a substitute, for domestic activity. Much as the formulation of trade policy requires resisting the tempting logic of protectionism, the appropriate taxation of multinational firms requires a similar fortitude.

Posted by John Kranz at 4:13 PM | Comments (0)

April 30, 2009

Capital Tea

Some posts ago, The Refugee made a point that conservatism in the '80s was diminished by the MSM through non-reporting and condescension. He postulated that the tea parties were getting the same treatment.

This opinion piece by Arthur Brooks in today's WSJ would seem to bear that out. It contains some encouraging statistics.

Still, the tea parties are not based on the cold wonkery of budget data. They are based on an "ethical populism." The protesters are homeowners who didn't walk away from their mortgages, small business owners who don't want corporate welfare and bankers who kept their heads during the frenzy and don't need bailouts. They were the people who were doing the important things right -- and who are now watching elected politicians reward those who did the important things wrong.

Voices in the media, academia, and the government will dismiss this ethical populism as a fringe movement -- maybe even dangerous extremism. In truth, free markets, limited government, and entrepreneurship are still a majoritarian taste. In March 2009, the Pew Research Center asked people if we are better off "in a free market economy even though there may be severe ups and downs from time to time." Fully 70% agreed, versus 20% who disagreed.

Blog Brother PE has often made the case against redistribution on moral grounds. According to Brooks, that's exactly the case that must be made.

Posted by Boulder Refugee at 11:19 AM | Comments (2)
But jk thinks:

I was just starting to post a link to the Brooks piece -- it is a compelling read. Allow me to tag along and provide the section a little farther down that I was going to excerpt:

To put a modern twist on the old axiom, a man who is not a socialist at 20 has no heart; a man who is still a socialist at 40 either has no head, or pays no taxes. Social Democrats are working to create a society where the majority are net recipients of the "sharing economy." They are fighting a culture war of attrition with economic tools. Defenders of capitalism risk getting caught flat-footed with increasingly antiquated arguments that free enterprise is a Main Street pocketbook issue. Progressives are working relentlessly to see that it is not.
Advocates of free enterprise must learn from the growing grass-roots protests, and make the moral case for freedom and entrepreneurship. They have to declare that it is a moral issue to confiscate more income from the minority simply because the government can. It's also a moral issue to lower the rewards for entrepreneurial success, and to spend what we don't have without regard for our children's future.
Enterprise defenders also have to define "fairness" as protecting merit and freedom. This is more intuitively appealing to Americans than anything involving forced redistribution. Take public attitudes toward the estate tax, which only a few (who leave estates in the millions of dollars) will ever pay, but which two-thirds of Americans believe is "not fair at all," according to a 2009 Harris poll. Millions of ordinary citizens believe it is unfair for the government to be predatory -- even if the prey are wealthy.

Posted by: jk at April 30, 2009 11:48 AM
But johngalt thinks:

It is very encouraging to see these kinds of ideas being discussed in mainstream publications by people who can influence GOP positions. (Almost as encouraging as seeng a British Petroleum TV commercial that advocates not only for wind, solar and biofuels, but oil and gas too!)

Dagny pointed out that the ideas expressed in the Brooks piece have appeared on these pages before. In the comments to a 2006 post dagny wrote:

"The second problem is philosophical (surprise). You are trying to defend individual freedoms on a collectivist basis. The reason we, “have the argument every time,” is that the majority of people including even you apparently have accepted the premise that the good or evil of a system is to be judged on a COLLECTIVE basis. This assumption allows any moonbat with an agenda to defend his policies on the, “my ideas are better for SOCIETY,” platform. Aka this time my Marxism will work. Your first paragraphs say that the classical liberal ideas result in better societies. This is true, but it is a by-product and not the reason why the ideas of Mises and Hayek are better.

Classical liberalism promotes individual freedom and that is the only standard of good that should be applied to governmental decisions."

AND ...

"As soon as you use the, “class improvement,” argument, especially as a primary argument, you are cutting out your own philosophical underpinnings. You have conceded the argument that governments should do some things because they are best for society. If idea X is best because it makes society better then I can suggest any idea X and insist that it hasn’t been tried exactly my way and it will make society better. This devolves into a he said/she said debate about how much curtailment of freedom is justified in order to make society “better”. THIS is why we keep having the argument “every time.” Because EVERY Marxist really does believe that HIS idea will make society “better.”

Freedom must be defended on an individual basis because then the latest Marxist idea X can be specifically, rationally, consistently and objectively refuted in terms of the freedoms it removes from specific individuals. Indeed, only individuals can possess freedom. (A “free society” is mere shorthand for a group of free individuals. Society is not an entity, it is an abstraction!) Individualism cannot be defended on a collective basis. To attempt to do so is philosophical suicide.

One cannot defeat an opponent’s argument by adopting it himself."

Go dagny!

Posted by: johngalt at May 1, 2009 1:33 PM

April 23, 2009

TARP As A Second Budget

One of many good points in this clip from Kudlow & Co.:





Hat-tip: Don Luskin

Posted by John Kranz at 11:10 AM | Comments (0)

April 22, 2009

Exploit-the-Earth Day

In 1970 a US Senator created 'Earth Day' to "inspire awareness and appreciation for the earth's environment." But this movement has since metastasized from "appreciating" the earth's environment to deifying it. As a result, any productive human activity can be villified as "pollution."

In contrast, Objectivist philosopher and publisher Craig Biddle wrote that the correct moral path is to celebrate "Exploit-the-Earth Day" instead. [email article - Click 'continue reading' for the full text.]

Environmentalism rejects the basic moral premise of capitalismthe idea that people should be free to act on their judgmentbecause it rejects a more fundamental idea on which capitalism rests: the idea that the requirements of human life constitute the standard of moral value. While the standard of value underlying capitalism is human life (meaning, that which is necessary for human beings to live and prosper), the standard of value underlying environmentalism is nature untouched by man.

For at least 45,000 years human beings have been exploiting the resources of earth and nature for their survival and prosperity. There is certainly no rational reason to quit now. In celebration of exploiting the earth I have created two original prints and I publish them here now for free public use.

There is no middle ground here. Either human life is the standard of moral value, or it is not. Either nature has intrinsic value, or it does not.

On April 22, make clear where you stand. Dont celebrate Earth Day; celebrate Exploit-the-Earth Dayand let your friends, family, and associates know why.

Hat tip: jg's friend, henceforth (and long overdue) to be known as 'brother' Russ.

{Hint: Right-click on 'save target as' not 'save picture as' below so that you'll get the high resolution versions.}


________________________________________________________________________
Op-ed from The Objective Standard

On April 22, Celebrate Exploit-the-Earth Day

by Craig Biddle


Because Earth Day is intended to further the cause of environmentalismand because environmentalism is an anti-human ideologyon April 22, those who care about human life should not celebrate Earth Day; they should celebrate Exploit-the-Earth Day.

Exploiting the Earthusing the raw materials of nature for ones life-serving purposesis a basic requirement of human life. Either man takes the Earths raw materialssuch as trees, petroleum, aluminum, and atomsand transforms them into the requirements of his life, or he dies. To live, man must produce the goods on which his life depends; he must produce homes, automobiles, computers, electricity, and the like; he must seize nature and use it to his advantage. There is no escaping this fact. Even the allegedly noble savage must pick or perish. Indeed, even if a person produces nothing, insofar as he remains alive he indirectly exploits the Earth by parasitically surviving off the exploitative efforts of others.

According to environmentalism, however, man should not use nature for his needs; he should keep his hands off the goods; he should leave nature alone, come what may. Environmentalism is not concerned with human health and wellbeingneither ours nor that of generations to come. If it were, it would advocate the one social system that ensures that the Earth and its elements are used in the most productive, life-serving manner possible: capitalism.

Capitalism is the only social system that recognizes and protects each individuals right to act in accordance with his basic means of living: the judgment of his mind. Environmentalism, of course, does not and cannot advocate capitalism, because if people are free to act on their judgment, they will strive to produce and prosper; they will transform the raw materials of nature into the requirements of human life; they will exploit the Earth and live.

Environmentalism rejects the basic moral premise of capitalismthe idea that people should be free to act on their judgmentbecause it rejects a more fundamental idea on which capitalism rests: the idea that the requirements of human life constitute the standard of moral value. While the standard of value underlying capitalism is human life (meaning, that which is necessary for human beings to live and prosper), the standard of value underlying environmentalism is nature untouched by man.

The basic principle of environmentalism is that nature (i.e., the environment) has intrinsic valuevalue in and of itself, value apart from and irrespective of the requirements of human lifeand that this value must be protected from its only adversary: man. Rivers must be left free to flow unimpeded by human dams, which divert natural flows, alter natural landscapes, and disrupt wildlife habitats. Glaciers must be left free to grow or shrink according to natural causes, but any human activity that might affect their size must be prohibited. Naturally generated carbon dioxide (such as that emitted by oceans and volcanoes) and naturally generated methane (such as that emitted by swamps and termites) may contribute to the greenhouse effect, but such gasses must not be produced by man. The globe may warm or cool naturally (e.g., via increases or decreases in sunspot activity), but man must not do anything to affect its temperature. And so on.

In short, according to environmentalism, if nature affects nature, the effect is good; if man affects nature, the effect is evil.

Stating the essence of environmentalism in such stark terms raises some illuminating questions: If the good is nature untouched by man, how is man to live? What is he to eat? What is he to wear? Where is he to reside? How can man do anything his life requires without altering, harming, or destroying some aspect of nature? In order to nourish himself, man must consume meats, fruits, and vegetables. In order to make clothing, he must skin animals, pick cotton, manufacture polyester, and the like. In order to build a houseor even a huthe must cut down trees, dig up clay, make fires, bake bricks, and so forth. Each and every action man takes to support or sustain his life entails the exploitation of nature. Thus, on the premise of environmentalism, man has no right to exist.

It comes down to this: Each of us has a choice to make. Will I recognize that mans life is the standard of moral valuethat the good is that which sustains and furthers human lifeand thus that people have a moral right to use the Earth and its elements for their life-serving needs? Or will I accept that nature has intrinsic valuevalue in and of itself, value apart from and irrespective of human needsand thus that people have no right to exist?

There is no middle ground here. Either human life is the standard of moral value, or it is not. Either nature has intrinsic value, or it does not.

On April 22, make clear where you stand. Dont celebrate Earth Day; celebrate Exploit-the-Earth Dayand let your friends, family, and associates know why.

***

Posted by JohnGalt at 9:18 AM | Comments (2)
But Keith thinks:

In honor of Earth Day, I suppose we should remind everyone of the awesome power of green energy:

http://www.youtube.com/watch?v=OKcD_aLZ9EI

Well, okay, it's more of a bluish-green.

Posted by: Keith at April 22, 2009 8:20 PM
But johngalt thinks:

HA! The people waiting with breathless anticipation remind me of the ones on the train in the 'Atlas Shrugged' tunnel scene.

Posted by: johngalt at April 23, 2009 12:33 PM

April 13, 2009

How Red the Sunrise is Getting

Don Luskin posts a political cartoon from 1934.

President Obama does fancy himself as FDR...

Posted by John Kranz at 2:39 PM | Comments (1)
But johngalt thinks:

“Young pinkies from Columbia and Harvard?” Obama went to BOTH!

Posted by: johngalt at April 14, 2009 12:48 PM

Great Column on Fair Taxation

Former Press Secretary Ari Fleischer has a superb guest editorial today in the WSJ. (My brother-in-law always suggested that I looked like Mr. Fleischer -- maybe he can play me in the ThreeSources Movie). Fleischer says that as bad as Madoff's pyramid scheme was, the tax code is worse:

Picture an upside-down pyramid with its narrow tip at the bottom and its base on top. The only way the pyramid can stand is by spinning fast enough or by having a wide enough tip so it won't fall down. The federal version of this spinning top is the tax code; the government collects its money almost entirely from the people at the narrow tip and then gives it to the people at the wider side. So long as the pyramid spins, the system can work. If it slows down enough, it falls.

The piece recites the litany of what percentage of the payers pay what percent of the taxes. These figures can never see print too many times. But the important part is his contention that every worker needs to pay to remove the incentive for the poor to vote for bread and circuses funded by the rich. President Obama seeks to free the bottom 50% of tax obligations from 40% now.
Mr. Obama is adding to this trend with his "Make Work Pay" tax cut that means almost 50% of the country will no longer pay any income taxes, up from a little over 40% today. A certain amount of income redistribution in a capitalistic society is healthy, but this goes too far. The economic and moral problem is that when 50% of the country gets benefits without paying for them and an increasingly smaller number of taxpayers foot the bill, the spinning triangle will no longer be able to support itself. Eventually, it will spin so slowly that it falls down, especially when the economy is contracting and the number of wealthy taxpayers is in sharp decline.

Whole read thing the for sure. He has some good suggestions at the end (though they don't all pass Constitutional muster). It's clear, concise and comprehensive intellectual ammunition as we fight a more collectivist world.

Posted by John Kranz at 11:29 AM | Comments (1)
But johngalt thinks:

Hallelujah. My t-shirt slogan for this one is:

NO REPRESENTATION WITHOUT TAXATION

although it leaves a bit to be desired. I'm trying to improve it along the lines of equitable, non-progressive taxation. Maybe:

EQUALITY NOW!
(In Taxation)

Posted by: johngalt at April 14, 2009 12:14 PM

April 8, 2009

johngalt's 3 minutes of fame

On Monday I found it appropriate to share my popular March 9 post on "One Reason Governments Spend So Much Money" with Denver talk show host Mike Rosen. I suggested it was worthy of reading on air. On Tuesday he did so.

This link is to an audio recording of the entire 3rd hour of his show. The segment I'm in starts at 25:10 (it only takes a minute or two to download to that point) with my specific content starting at 27:50 (about 3.5 minutes long). No, he doesn't mention my name or the name of the blog but he did put the idea out on 50,000 AM watts from Denver.

UPDATE: Just the clip.

Posted by JohnGalt at 11:31 AM | Comments (4)
But Terri thinks:

Excellent! Congratulations.

Posted by: Terri at April 8, 2009 12:22 PM
But jk thinks:

Do I not have the secret talk show decoder ring? At 25 past on mine, some monotone caller earnestly suggests that Rosen should pour through the 29-page budget summary and maybe do a whole show on it... Right link? it opens in QuickTime in Chrome so it has no time display (I could pull it into my new video studio software)

Posted by: jk at April 8, 2009 4:45 PM
But johngalt thinks:

The full length is 39 minutes so your slider should be just under 2/3 of the way over.

I managed to make a 96 bps mp3 out of the important 3:30 but it is 2.5 mb and I get a "too large" message when I tr