August 2009

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When the facts change, I change my mind. What do you do, sir?

-John Maynard Keynes

August 21, 2009

Collected Thoughts on Health Care Reform

Let's start with Steven Malanga on How Free Health Care Got So Expensive:

State government mandates and favorable tax treatment in Washington have so distorted the market for health insurance that a generation of Americans now look on medical coverage as something very different from other kinds of insurance that we buy. While we will pay several hundred bucks out of our own pockets to have a plumber come repair a leaky pipe, we'll balk at deductibles and a $50 co-pay for a doctor's visit. We've been schooled in this attitude by politicians who have mandated that health insurance do things that we'd never expect from other kinds of insurance, and by consumer advocates who will demand our legislators do something about a health insurance company that doesn't cover some optional procedure that has nothing to do with life and death.

Next, Charles Krauthammer on the promise of savings through universal preventative medicine:

The idea that prevention is somehow intrinsically economically different from treatment -- that treatment increases costs and prevention lowers them -- is simply nonsense.

If you instinctively think he's wrong, please read his article, and follow his links to the CBO.

Also, Robert Samuelson asks readers to "Just imagine what the health care debate would be like if it truly focused on controlling spending."

Incidentally, Samuelson's proposal to use vouchers to cut costs--"Medicare recipients would receive a fixed amount and shop for networks with the lowest cost and highest quality,"--steps directly into the larger conversation about the problem conservatives and libertarians have in fighting the expansion of government programs. A lot of people are afraid of being ripped off in the free market. They don't want to hear that they paid more than their friends for a plumber or auto mechanic or cell phone service. They don't want to compare plans, when they could just demand a "fair" plan that would apply to everybody. To some voters, the thought of a health care voucher is just a nightmare. They want to be able to go to a doctor when they are sick, without having to think about the cost. They want a mom, as noted on NPR's Morning Edition today.

Free market advocates just don't have a nuanced answer to that. We can keep telling people to grow up and take responsibility for themselves, but while we do that they'll keep voting for politicians who offer to take care of them. It is possible that there is no way out.

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April 13, 2009

Saving by Spending

I can't quite figure this one out:

Transportation Department officials say that because so many contractors want a share of stimulus money, competition is driving down costs by about 15 percent to 20 percent.

So before the stimulus money, when Transportation Department money was "scarce", there wasn't competition for the money? But now that there is a lot of money available, there is competition that drives down costs?

Hrm. It sounds to me that the government should definitely spend money on infrastructure during a recession. Not because Keynes said so, but because the contractors will scramble for any job and do it on the cheap. I mean, government has to attend to infrastructure anyway, so I guess the cheapest time to do it is when workers are down and out and will do anything for a buck.

The trick to that, of course, is getting government to stop spending money when the economy is booming, because then it's expensive again.

Anybody following that logic?

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January 28, 2009

Protectionism: Everybody stimulate yourself!

At the annual World Economic Forum in Davos, Switzerland, economists are discussing the world economic downturn and possible reactions to it. One item that caught my attention was the conversation on protectionism.

[T]he downturn could persuade politicians to introduce trade barriers and steer investments only into their own economies.

This would harm developing countries the most, said South Africa's finance minister Trevor Manuel.

Well, yeah. That's the point of protectionism.

Anybody who advocates protectionist economic policies is looking to (how do I say this) protect some people by increasing the exposure of others. And since political borders define the jobs of most government officials, those are the lines that define who various policies are intended to benefit. Everybody outside those lines is (how do I say this) foreign, and therefore given a whole lot less consideration.

There are several reasons why I think protectionist policies are asinine and unhelpful, but I don't expect to be able to persuade the protectionist advocates with high talk of universal values or the proper role of government, or even by dumping tea in the harbor. The best shot I've got is to quote Justin Yifu Lin, Senior Vice-President of Development Economics and Chief Economist at the World Bank:

The whole world is a closed economy. Fiscal stimuli will not work if they are not coordinated.

While it will strike some of our regular readers as quite collectivist, I think he makes an excellent point. If a government is capable of promoting or causing economic stimulus at all, it certainly can't do so in a vacuum. On the grand scale, it would be foolish and harmful for the developed nations to even try to stimulate their own economies at the expense of everybody else.

In the modern global economy, those lines on the map are in many ways less important than the lines of commerce. This is becoming more so than ever before. Most major corporations are multinationals whose health and profits are dependent on many parts of the globe. Your investments, your bank, your employment, your food staples and clothes and widgets are all a part of a global market.

Simply put, wealth is not made through isolationism.

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January 18, 2009

Shovels are so 1933

Over at The Next Right, Matt Dabrowski asks:

If Obama's stimulus plan doesn't give jobs to the white-collar, educated people who need them, can the stimulus possibly work?

Let's leave aside for the moment whether or not the nation needs these projects (which I believe we do), or whether we support them (which I do as well). Will these infrastructure projects even work?

The answer is "No, they won't".

The Wall Street Journal says that "many Americans have been out of work for months and are resorting to lower-wage or part-time jobs to make ends meet." But infrastructure construction jobs are skill positions--the era of digging ditches with shovels is long gone. It's not a matter of handing out shovels to millions of laborers who have been locked out of their factories or whose farms have failed. That's not how things are built these days. And after decades of changing the shape of the American workforce, it is finally time to admit that the shape of the workforce has changed.

This is not 1933, and the old New Deal simply can't be enacted in today's America.

Anybody who wants to address ways to lower unemployment needs to consider this point made by the Economist:

The New Deal was introduced into a world of giant organisations—of big businesses and big trade unions that were capable of striking deals with big government. But today’s economy is much more fluid. America’s most successful companies are entrepreneurial outfits like Apple and Google, which thrive on flexibility; even giant companies such as General Electric are breaking themselves up into entrepreneurial divisions. More Americans own their own companies (15%) than belong to trade unions (12%).

Please re-read that last sentence again before advocating any government-works plans to address today's unemployment.

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January 14, 2009

Funny Because It's True (yet again)

The Onion recently ran an article that harkens back to the days when the site was funny on a regular basis:

Cash-strapped American Airlines announced a new series of fees this week that will apply to all customers not currently flying, scheduled to fly, or even thinking about flying aboard the commercial carrier.

And how exactly is this funny? Er, well, it's funny because in the real world a corporation couldn't do that to us. I mean, without the help of the government, who most certainly can and does enable some corporations to do that to us. Please, think about your taxes and what is done with them when you read lines like this one:

...non-passengers of American Airlines should expect to pay a small fee when making Greyhound bus reservations, choosing to drive to their final destination, or simply being a citizen of the United States with a valid Social Security number.

Hrm. Suddenly it's not so funny.

But it can be, if you consider the irony in the way corporations are viewed as evil and oppressive to so many people, when in reality their ability to limit our freedom is largely through the government.

Possibly even more humorous is the way many libertarians think that corporations are Capitalists. It is often said that corporations exist to make money. But this view assumes a level of integrity and morality that many corporate executives simply do not maintain. Corporations exist to gain money. If they can get it by charging non-customers, e.g. via a government intermediary, then some of them will do exactly that.

It's hilarious.

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November 24, 2008

Quick points on the auto industry bailout

A couple of things to consider about the American automobile industry:

First, Matthew Symonds of the Economist, as interviewed on NPR, makes an interesting point.

[Emerging markets Brazil, Russia, India, and China] will have sales this year larger than that of North America...

Well over 60% of GM's sales are outside of North America now...

GM has 10% of the Chinese market, which will be larger than the US market within 5 or 6 years.

That's pretty interesting, and it makes GM sound like a much healthier company than what I'm generally hearing in the discussions of a bailout these last few weeks. Sure, they are bleeding cash and are in trouble in the short term. But the long term sounds a bit different.

And Daniel Ikenson of Cato:

Even if one or all of the Big Three failed, there would still be plenty of strong auto companies operating throughout the United States. The Big Three currently account for slightly more than half of all light vehicle production and slightly less than half of all light vehicle sales in the United States. The rest of the U.S. auto industry includes Honda, Toyota, Nissan, Kia, Hyundai, BMW, and the other foreign nameplate producers who manufacture vehicles here. These companies employ American workers, pay U.S. taxes, support local businesses, contribute to local charities, have genuine stakes in their communities, and face the same cyclical contraction in demand as do the Big Three.

As Ikenson notes, most of us are well aware of the intellectual arguments against a bailout, and we are well aware that in one form or another the bailout is coming anyway. I've pointed out before that capitalists and businessmen tend to be painted as the bad guys in this sort of thing--they don't seem to know how to avoid that. so it's likely that in the public eye, this bailout will end up being the fault of the CEOs. Ikenson says as much, if you read his conclusion closely:

The politicians must know that bankruptcy is the better course for auto companies and their workers (indeed, it could save 100,000 jobs). But they also know who fills their political coffers, and the UAW leadership is opposed to Chapter 11 because its labor contracts would be deemed toxic and abrogated by a bankruptcy judge.

Just some things to keep in mind when the money flows.

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October 26, 2008

A note to both campaigns:

Update your economic talking points, because gasoline is now about a penny cheaper than it was a year ago...

Just sayin'.

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October 11, 2008

The failed public relations campaign of Capitalism and Capitalists

Capitalism is taking quite a beating lately, and the course and future of capitalism may well be defined by how well current government actions are seen to work in stabilizing the economy and the investments, homes, and jobs of individuals across the USA and around the world. It doesn’t matter whether capitalism is truly at fault. What matters most is whether capitalism gets the blame in the political arena and in the eyes of the general public. You can gnash your teeth all you like about how the general public is ignorant of the Truth, but that by itself will have no influence on the regulations and laws that emerge to “protect” us all from the free markets in the future.

The fact is that free-market capitalism has had a terrible PR campaign for years, and its legacy has largely been defined by its detractors.

Consider the galling fact that the USA is hearing “I told you so” from Latin American dictators:

David Rothkopf, who headed the International Trade Administration under President Clinton, says [Venezuelan President Hugo Chavez, Bolivian President Evo Morales, and Ecuadorian President Rafael Correa ] can now cite U.S. government intervention in the economy to justify their policies.

Notes NPR’s Tom Gjelten:

The policies pursued by Chavez in Venezuela have discouraged private investment and may yet prove disastrous. But other Latin governments that have taken more moderate steps away from free-market orthodoxy are doing relatively well.

Brazil, Chile and Ecuador experienced sharp financial crises in the 1980s and '90s, and in response, they implemented policies to bring more stability to their economies… The lesson being that markets left entirely on their own don't always work in a country's best interests.

Of course, free markets are not supposed to work in a country’s best interests. They are ignorant of nations. Markets only serve buyers and sellers. When we elevate the collective national economy to a greater importance than the free market, we no longer have a free market to laud or blame. But that only matters if we are all being honest with one another. And if we were being honest with one another, why would be elevate the collective national economy to a greater importance than the free market?

Rothkopf:

"I think it's quite possible that over the next 25 years, the prescriptions for reform you see are going to have a bigger government component, perhaps a bigger regulatory component on the global stage, as opposed to the national stage"

Oh, capitalism, what brought you to this lowly state? That question is best answered by Ayn Rand, who knew all along that the morality of an economic system will never be defended so long as its practitioners care more about practicing it than in defending its intellectual purity:

There is a fundamental difference between our approach and that of capitalism's classical defenders and modern apologists. With very few exceptions, they are responsible - by defeault - for capitalism's destruction. The default consisted of their inability or unwillingness to fight the battle where it had to be fought: on moral-philosophical grounds.

No politico-economic system in history has ever proved its value so eloquently or has benefited mankind so greatly as capitalism - and none has ever been attacked so savagely, viciously, and blindly. The flood of misinformation, misrepresentation, distortion, and outright falsehood about capitalism is such that the young people of today (1970 -ed) have no idea (and virtually no way of discovering any idea) of its actual nature...

By their silence... by their evasion of the clash between capitalism and altruism - it is capitalism's alleged champions who are responsible for the fact that capitalism is being destroyed without a hearing, without a trial, without any public knowledge of its principles, its nature, its history, or its moral meaning.

(This is from the introduction to Capitalism: The Unknown Ideal.)

In our new era of global markets, will nationalistic economics be subverted in favor of global economics? Perhaps. But in that case, the markets are not serving the buyer and the seller. They're serving political purposes. I guess if you trust that, you should be happy with the direction we're heading.

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September 28, 2008

Michael Ramirez sees it clearly

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September 25, 2008

Talking the talk

'Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.' - Ronald Reagan

To the tune of $700 billion, baby.

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August 27, 2008

Reich's advice to Democrats

American Public Media's Marketplace asks, What aren't the Democrats proposing that they ought to be?

Robert Reich answers that Democrats ought to advocate changing affirmative action from race-based to income-based.

Of course the point of affirmative action is identity politics, and not bald-faced redistribution of wealth. While I suspect that most Americans would support Reich's point, I wonder what Reich thinks would happen if government-mandated affirmative action were simply done away with, and not replaced with anything. I mean, he's been a college professor at a few prestigious schools. Surely he recognizes that merit is a better predictor of academic success than race or socioeconomic status. And surely he recognizes that universities would continue to recruit students who look different, in the name of diversity and education.

Closing thought... would he mean to apply this new brand of affirmative action to government hiring policies? After all, affirmative action covers a lot more than college admission policies.

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August 16, 2008

David Paterson and a hint of fiscal responsibility

David Paterson is the governor of New York State. He is a Democrat. And he recently gave the state legislature $1 billion worth of suggested budget cuts and told them to agree on $600 million worth from that list - something Republicans like to claim is their forté, despite the way government continues to grow on all levels, even when under Republican control. Paterson has ruled out tax increases ("for the time being"), including a proposal by Democrat legislators to hike income taxes of those making over $1 million. Even to talk the talk on this point is a big deal for a Democrat in the Empire State. But he's facing the reality that the budget deficit is an even bigger deal.

From BusinessWeek:

Comptroller Thomas DiNapoli said Paterson's proposed cuts come when "New York State is facing serious fiscal challenges and spending well beyond our means."

Always a problem, right? And the solution is pretty obvious, right? What would your business or household do?

So Paterson's proposed cuts are going over about as well as you might think they are, meaning that lawmakers have ranged between opposing him and being shrewdly mum, while special interest groups and various unions have been outraged.

It's been suggested that "The pieces are in place for a big deal or near-big deal" in Patterson's emergency economic session that will begin this Tuesday. I don't know how promising to find that, considering that the state Assembly has gone for "no deal" before.

Who would feel the brunt of the cuts Patterson proposes?

He seeks cuts across the board in most funding areas including health care, nursing homes, the City University of New York, economic development, aid to local governments, and anti-crime programs. Exempt is school aid.

Even despite that last point, the teachers union is incensed over a property-tax cap that would limit annual increases to 4% or 120% of the consumer price index, whichever is lower.

I'd like to offer my encouragement to Governor Paterson, because he is proposing steps in the right direction, and he is doing so in the face of fierce opposition and at his own political peril. New York legislators seem to be completely out of touch with reality on where the money will come from. Consider the following points from the Newsday/AP article I linked:

Senate Majority Leader Dean Skelos also wants the state to collect state taxes on cigarettes sold by Indian tribes to non-Indians. He says it's worth at least $400 million.

They've tried that before, and they couldn't make any headway because the tribes won't cooperate. You can get all internet-tough-guy if you like, but we're not about to build a fence around the reservations. Enforcement would be more costly than it would be worth.

The Assembly wants to keep New Yorkers from choosing between heating their homes this winter and eating. That will cost $550 million to increase the Home Energy Assistance Program to meet the rising cost of heat for low- and moderate-income families. The Assembly would make oil companies pay for it.

Out of their profits, I assume? Sigh. Corporations don't pay taxes, you morons. Customers do. Always. Every time. Period.

Maybe Governor Paterson can give the legislators a quick lesson in basic economics. Maybe he can convince them to face reality. If so, I hope politicians across America are taking notes.

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August 12, 2008

Cleaning up the Big Easy - Corruption Charges in the New Orleans Affordable Homeownership Corporation

New Orleans has long (always?) had corrupt government. So it is no surprise that FBI and HUD investigators are finding taxpayer money is being paid out to certain well-connected contractors for work that was never done.

According to the Times Picayne, contractors were paid for “remediating” blighted homes that were never actually “remediated”. Some contractors were paid for gutting homes for demolition, but the work is known to have been performed by volunteer groups.

[The mayor’s office] has said that city staffers visited sites to ensure the work invoiced was actually performed. But it is not clear what efforts the city has made to ensure that the contractor who billed taxpayers actually did the work, as opposed to a volunteer group.

Similarly, in cases where a house the city paid to gut has since been demolished, it's not clear how, or whether, city staffers are attempting to verify the work.

It's also unclear how the administration sought to determine whether grass-cutting was performed. That was the only service provided at about 110 of the 870 addresses where remediation work was done, according to city records.

Grass cutting? Seriously?

Right now would be a great time to make the argument that this is an outrage and a travesty. And that it was completely predictable. But instead, I will take this opportunity to note that the FBI and HUD investigators seem to be on top of the issue. This kind of corruption is being dragged out into the light for close scrutiny, and people in New Orleans will learn that local corruption is one thing, but corruption with federal dollars brings serious consequences. The US taxpayer will not stand for this kind of financial irresponsibility and chicanery!

Incidentally, how much do you suppose it costs to have all of these federal agents collect evidence, issue subpoenas, and carry out a full investigation? How much will it cost to prosecute the wrongdoers? Probably a lot more than the value of the disputed work--$103,517, according to the article. Even if they get the money back, there is no way to come out ahead on this. It may just be that there's just no amount of money that could clean up this town.

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August 11, 2008

Does Hollywood support violent cartels of illegal immigrants defiling US national forests?

Yes, according to US Drug Czar John Walters:

“Illegal immigrants connected to Mexico's drug cartels are growing hundreds of millions of dollars worth of marijuana in the heart of one of America's national treasures, authorities say. It's a booming business that, federal officials say, feeds Mexico's most violent drug traffickers."

"People who farm now are not doing this for laughs, despite the fact Hollywood still thinks that.”

Hollywood still thinks that? Mr. Walters, the Corsican Brothers was a quarter century ago. Rumors of a Cheech and Chong reunion notwithstanding, I think the Drug Czar sounds very, very out of touch. Hollywood (like most of America) may not think it’s a big deal to grow a little bit of recreational marijuana and get high occasionally, but Hollywood is also known for being very environmentalist. While I haven’t heard any official Hollywood spokespersons discussing the issue, I suspect that the entertainers Mr. Walters is talking about are as a group fairly protective of national forests, and wouldn’t like international cartels using them for anything (including commercial cannabis farms). This is a bit different from this (NSFW language warning). Equating the two seems about as silly as, well, that second clip I just linked.

A quick aside on my comment that most of America doesn’t think that recreational use is a big deal: A CNN poll a few years back showed that 80% of Americans support decriminalizing medicinal marijuana. I couldn’t find a poll stating what percentage of Americans favor decriminalization for recreational use, but reports indicate that 25% of Americans admit to having used marijuana before, and that same CNN poll showed that only 19% of Americans support jailing recreational pot smokers. 72% favored fines over jail. And given that the difference between a fine and a tax is largely a matter of the participation rate, I find it hard to believe that most Americans would be upset to see recreational marijuana legalized, regulated, and taxed.

But all of this is beside my main point, which is that I think Mr. Walters was off base to invoke Hollywood as somehow feeding the problem. Am I wrong?

If Hollywood and Washington were ever to cooperate on these issues as Mr Walters implores them to do, I would hope that the goal might be decriminalization. To quote Robert Guest of the NORML legal committee,

Last time I checked Mexican drug cartels were not using illegal immigrants to growing tobacco, or run moonshine stills. If you are really want to end these drug cartel pot farms in national parks, legalize pot.

And I hope you know this old tune, and can join me in the chorus:

Replacing marijuana prohibition with a system of taxation and regulation similar to that used for alcoholic beverages would produce combined savings and tax revenues of between $10 billion and $14 billion per year, finds a June 2005 report by Dr. Jeffrey Miron, visiting professor of economics at Harvard University.

The report has been endorsed by more than 530 distinguished economists, who have signed an open letter to President Bush and other public officials calling for "an open and honest debate about marijuana prohibition," adding, "We believe such a debate will favor a regime in which marijuana is legal but taxed and regulated like other goods."

Chief among the endorsing economists are three Nobel Laureates in economics: Dr. Milton Friedman of the Hoover Institute, Dr. George Akerlof of the University of California at Berkeley, and Dr. Vernon Smith of George Mason University.

You don’t need to be a Nobel Laureate in economics to realize that the War on (some) Drugs is a failure. It is not only based on an immoral premise that what I inhale, inject, or ingest is the legitimate business of the government. It is also grossly impractical. It doesn’t work, and that’s not some piece of Hollywood fiction.

Costly and ineffective. That's a poor track record compared to Cheech and Chong's body of work. Put that in your pipe and smoke it, Mr. Walters.

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August 6, 2008

Gas Prices and Party Lines

It's like watching an auction for something that isn't for sale.

I just wonder if Sen. Ken Salazar (D-CO) could articulate the reason for his objections. Or if a rank-and-file Democrat could. Because on the surface, that sure looks like a Democrat saying that $10.00 per gallon isn't an unacceptable price for gasoline.

How it would go over if Dick Cheney were to say the exact same thing?

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July 25, 2008

Hair of the Dog

You may have heard that the President recently used an alcohol metaphor to describe the financial affairs of our nation. "[Wall Street] got drunk and now it's got a hangover. The question is, how long will it sober up and not try to do all these fancy financial instruments?"

First, I'd like to point out that the media hype about this is a bit overblown, as they have made it sound like he made these comments with some expectation of secrecy and confidentiality because Bush had asked people to turn off their cameras. But that's a load of crap. Clearly he knew cameras were being used -- there are repeated flashes, and the camcorder visible at 0:13 of the video doesn't appear to be hidden in any way. In fact if you listen, he says that he asked for the television cameras to be turned off. That's all. Besides, he's the President. He knows that when he speaks to any crowd anywhere, it's simply not confidential.

But second, I'd like to know what the President or Congress have suggested as a remedy, other than some hair of the dog that bit us.

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July 24, 2008

We demand that you supply!

What timing. Just yesterday I linked to one of my favorite posts ever from this blog. In that old post, I had a go-round with a blogger named Mac about the evils of "Big Box Mart".

As we all know, "Big Box Mart" and other evil corporations are constantly alleged to put Mom and Pop out of business. And as I pointed out to Mac, that's a load of crap.

WalMart doesn't put competitors out of business - the customers do. Even Hollywood got that one right.

When my wife and I first saw You've Got Mail, she pointed out to me that Fox Books is clearly supposed to represent Barnes and Noble - right down to the font on the Fox Books storefront. The customers who complained about Meg Ryan's bookstore going out of business had a way to keep it open -- they could have shopped there. But they partook of the convenience and low prices that are available in the Tom Hanks' big chain store, and the small bookstore did what it was supposed to do. It followed the laws of economics. And customers were so, so sad. They never even realized the part they played -- that they had complete control over which store would thrive.

This aspect of the movie was funny because it is true. So it should be no surprise to see people in real life failing to understand the laws of economics. Via Captain Capitalism, a WSJ article on how upset people are about certain Starbucks locations closing. Letters are being written. Calls are being made. Petitions are being signed. But these things don't pay the bills. Starbucks will, of course, keep open any stores where cappuccinos are being ordered. Just like in the movie, consumers have control over which stores will thrive.

Cap asks; "Anybody want to point out the OBVIOUS freaking solution to this problem then?"

I'll point out an opportunity. Rather than think as a consumer, these folks should think as potential owners. If, as the WSJ says, "Starbucks outlets serve as key draws for other retailers, making the loss of one a blow to the surrounding area," then it shouldn't be impossible to lease the location of your favorite Starbucks and open your own coffeehouse. In fact, it should be pretty easy to convince some of the local retailers to cooperate in shared advertising, WiFi, and discounts or deliveries that would encourage sales to the employees of the nearby stores.

Sound crazy? It is. Too bad Meg Ryan's character didn't think of that. I think it would have made the movie a lot better.

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July 23, 2008

Mistrust Misplaced

There is a fundamental difference between our approach and that of capitalism's classical defenders and modern apologists. With very few exceptions, they are responsible - by defeault - for capitalism's destruction. The default consisted of their inability or unwillingness to fight the battle where it had to be fought: on moral-philosophical grounds.

This is from the introduction to Capitalism: The Unknown Ideal. I have mentioned that very important work a few times on this blog. When I first read that book, I recognized immediately that Rand was putting any future failure of Capitalism squarely on the shoulders of Capitalists. Capitalism is not in danger of failing on its merits, but it is in danger of being scuttled by those who would crossbreed it with socialism for the sake of personal profit. Either system can be used to gain wealth, so it is natural that some people would attempt to use both at the same time. Natural, but immoral.

The current situation with Fannie Mae and Freddie Mac has attracted a lot of attention, and little of it could be considered good for the image of Capitalism among the economically illiterate voters who struggle at America’s rudder. More regulation surely looms ahead. Could this actually be a good and necessary thing?

The Economist:

[Freddie Mac’s and Fannie Mae’s] importance lies in what their rescue says about the financial system. At Fannie and Freddie—and, shockingly, at the investment banks—the profits were privatised, but the risks were socialised. One Republican senator complained that he thought he had “woken up in France”. Mr Paulson was still right to intervene: the collapse of Fannie and Freddie would have been a catastrophe. But by not formally nationalising them, he has let down taxpayers and made the same deeply uncapitalist mistake the British government initially made with Northern Rock, a failed mortgage bank it tried to prop up.

Let me emphasize that the profits were privatised, but the risks were socialised. Silly British spelling aside, this is immoral and it ought to be illegal.

In the past, we have argued for privatising Fannie and Freddie completely. But now that the guarantee is explicit, Mr Paulson should seek to secure the gains for taxpayers and treat Fannie and Freddie like one of their own mortgages, by nationalising them, breaking them up and selling them on.

I don’t see why not. It’s got to be one or the other, but the current structure cannot be allowed to continue. Um, obviously.

One last comment from the Economist:

If you cannot let firms fail in a bust, then you must contain them in the boom. That helps explain why the investment banks now need more supervision; why financial firms should have to hold more capital as a boom gathers pace; and why monetary policy should lean against rising asset prices. Regulation is necessary, but beware the state being seduced into taking on duties it cannot possibly carry out well. As Fannie and Freddie show, regulators are easily captured and outwitted. The best controls are transparency and competition. When possible the government needs to stand back. Sadly, it failed to do so in the American mortgage market.

I don’t hear much of this type of commentary from American media and politicians, but this is exactly the case.

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June 28, 2008

What is keeping oil prices so high?

The BBC tries to explain the five things that are working together to drive oil prices to their current levels (and beyond).

I always thought it was fat old white men in dark suits. That's what they're saying, right?

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February 17, 2008

Subprime Primer

Via Barry L. Ritholtz at The Big Picture, allow me to share a slideshow that explains the subprime situation. The language may offend but the stickfigure cartoons are very work safe. Click the cartoon below to launch the slideshow.

Whether it's funny or sad may depend on how much money you have lost in the housing market. The same was true of this post from a couple of weeks ago, which highlights exactly what bothers me about this "housing crisis". It's a correction in a market that has long known to be overvalued, and it is not an issue of children sleeping on the streets, as far as I can tell.

Language frames public opinion, which determines legislative action, so calling it a "housing crisis" will attract more government action (and sell more newspapers) than admitting that it's just investors trying to mitigate financial losses by walking out on mortgages and into apartments. Repeat the phrase at your own peril.

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August 3, 2007

Who Owns the Treasures of the Sea?

An interesting piece in The Economist regarding the rights of deep-sea treasure hunters…

[Odyssey Marine Exploration]’s business is based on the notion that the ocean floor is littered with valuable old stuff that, thanks to new deep-sea technology, can now be recovered…

Step forward the lawyers for Spain... “The owners of sunken ships have rights. Spain has not abandoned its sunken property and it does not permit unauthorised salvage.” If Odyssey is forced to hand over a large part of its Black Swan haul a cloud will fall over all commercial treasure-hunting. Who, after all, wants to invest large amounts of money looking for something only to see a government then claim full ownership?

My initial reaction is to be torn. On the one hand, the claims of Spain seem plainly to be lame. But as usual, I want to know exactly where the line is drawn.

If the crew has to abandon ship, but it doesn’t sink, the owners don't automatically give up legal rights to the ship or the cargo. To just take it because it is in international waters would be piracy. Even if the ship is left bobbing and unmanned for days, weeks, years – at what point would it not be piracy just to take it?

Wulf: So you are going to take the ship and its cargo?

Phaedrus: Yeah.

Wulf: That's not yours?

Phaedrus: Well it becomes ours.

Wulf: How is that not stealing?

And I also don’t see how the morality or legality of the situation suddenly changes when the ship goes under water. Now I’m no expert on international salvage law, and I’ve only ever perused the Law of the Sea Treaty. I’m not sure it would apply. But I’m hoping somebody reading this knows a thing or two about how this all works, and could try to explain it.

I agree with the conclusions laid out in the Economist article:

If private treasure-hunters do not seek out wrecks, nobody else will. Governments rarely take any initiative. One alternative may be to adopt a British model. The British government has just signed a deal with Odyssey to recover treasure, and then to split the proceeds, from HMS Sussex, which went down off Gibraltar in 1693, carrying a million pounds in coins. The deal also provides archaeological guarantees…

Until treasure-hunters and governments start working together, every find is liable to be followed by complex legal wrangling, in which the only certain winners will be the lawyers.

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July 31, 2007

Socialism: So Pretty!

The Daily Texan is the student newspaper of UT Austin. It’s one of the largest student newspapers in the country. And yesterday, it ran an opinion piece advocating that Westerners re-evaluate the wonders of socialism. Under normal circumstances, I don’t pay much attention to student newspapers and their opinion pieces, as they just aren’t that well written. But this piece is an exception, and it therefore deserves to be highlighted.

The author is history student Colin Pace, who writes:

Socialism is not a monolithic ideology and it is not a terrible, fear-driven beast that threatens the U.S. masses. In fact, it is quite the opposite. To understand this, one need not look further than Michael Moore's recent movie, "Sicko." Though gimmicky and biased, like his other movies, the film raises an important question about why universal health care systems rank so high above the United States' privatized system in a global comparison.

But Wulf! Michael Moore is a dirty propagandist and his movie is full of lies! We’ve debunked “Sicko”!

But Wulf! The US health care system isn’t actually private, it’s half government funded already!

Come on, Wulf! We have the best health care in the world! People come here from Canada for our health care! The metrics are not fair!

Oh, Wulf! It’s just an undergrad in social sciences, spouting off his dirty collectivist delusions!

Yes, yes, I know all of that. And I also know that every year there a few million kids turning 18 and getting the right to vote. And they don’t read your blog. And most of them don’t know what is inherently unjust about socialism. Rolling your eyes and dismissing them may make you feel better about yourself, but it doesn’t actually advance the cause of liberty. So let’s take a closer look.

Colin Pace represents an articulate voice pointing out that “[i]nstitutions ranging from news stations to school systems teach that socialist and nationalized programs are doomed to collapse under the weight of bureaucracy and corruption.” I would love for this to be the case, but I simply don’t agree that the prevailing theme taught to our youth is that nationalized programs are too big to succeed. Privatized education, health care, public transit, and other government services? No, that’s certainly not the predominant agenda being pushed to our youth by the sources I know of. But to an audience lacking an articulate source to the contrary, Mr. Pace can play the role of the guy who questions authority, and that gives his point the ironic advantage of being anti-authority. “Rebel against convention and think for yourself about the benefits of letting bureaucrats make more decisions for you!”

Pace then makes another appeal guaranteed to garner attention on any college campus: class warfare and rich white guilt. “Factory workers thousands of miles away are harshly exploited so consumer goods such as clothing and TVs can be sold at low prices to American consumers.” For Pace, it’s not a matter of comparing the standard of living for the workers today vs. 40 years ago. It’s a matter of comparing their standard of living to mine, or better yet to Dick Cheney’s. And again, rolling your eyes and dismissing him is not the same as refuting him - or socialism.

But the real reason I chose to highlight this article is not because it’s easy to cherry pick a couple of weak points and mock him. It’s because Mr. Pace really does make an excellent point that we should all consider:

People should not judge the word "socialism" solely by what they know of "socialist" leaders. Leaders like Joseph Stalin and Fidel Castro may have upheld socialist aspects of their administrations, but they were not actually "socialists"…

Spot on. The more distant Stalin and Castro become, the easier it will be to note that they did not actually uphold socialist ideals… and therefore they do not provide an honest example of what is wrong about socialism. Those who wish to refute socialism should beware not to let their argument stop with Stalin and Castro, because it (rightly) won’t sway a collectivist who recognizes that these men were not socialists. There is a difference between oppression by a tyrant and oppression by a democracy. One is appealing to the tyrant and his cult of personality, while the other is appealing to 51% of the population. If we only know how to refute the ills of the former, we will eventually suffer the latter.

In other words, Colin Pace’s final paragraph is one that should be considered by every thinking person the world over:

Even those who are staunchly opposed to the nationalization of industry, believing that the free market is the only means for progress, should question the objectivity of the Western view of socialism. The word is loaded with connotations, but that should not stop people from asking what the system is really about.

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July 25, 2007

For Future Reference

WaPo:

President Bush this month is giving an obscure White House office new powers over regulations affecting health, worker safety and the environment. Calling it a power grab, Democrats running Congress are intent on stopping him.

This is great news. First, it’s an attempt to block the executive branch from acting without oversight, and instead gives the power to act without oversight to legislators and their aides, which is where that power ought to be, dammit. Secondly, and more seriously, I’ll be able to refer to this post the next time a Democrat is in the White House (cough-544 days-cough) and the shoe is on the other foot. That’s always fun.

As to the details, WaPo reports that the House voted to prohibit the Office of Information and Regulatory Affairs (OIRA) from spending federal money on Executive Order 13422. Cutting federal spending, I suppose – so far, so good. But what is Executive Order 13422? It amends an executive order from 1993… let’s check the text:

Each agency shall identify in writing the specific market failure (such as externalities, market power, lack of information) or other specific problem that it intends to address (including, where applicable, the failures of public institutions) that warrant new agency action, as well as assess the significance of that problem, to enable assessment of whether any new regulation is warranted.

That gives me the creeps just reading it. But… I can imagine the argument that it is a damn good thing that each federal agency should have to identify in writing the specific problem it intends to address. So far, I don’t see what the Dems object to.

Unless specifically authorized by the head of the agency, no rulemaking shall commence nor be included on the Plan without the approval of the agency's Regulatory Policy Office…

The Post summarizes this as “No rulemaking can go forward without the approval of an agency's Regulatory Policy Office, to be headed by a presidential appointee.” Is it a big deal to drop the first clause? But the point about the presidential appointee is a good one. Please read “presidential appointee” as “partisan political hack”. The Right Wing would do well to imagine what their reaction to this would have been under Bill Clinton… or what it will be someday under Hillary. Why do we continually have to point this out? In fact, that’s really the bottom line regarding each and every action the Bush administration has taken to gather and centralize power. While it may be fun for some of you to cheer as Bush, Cheney, et alii thumb their noses at the Democrats, it’s going to come back to bite you in the ass.

PS - I am not sympathetic to the desire that some federally employed scientists have for everybody to shut up and let them do what they feel they need to do. When you fund your own research initiative, I’ll support your desire for the government to back off.

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July 17, 2007

Economic Growth

Afghanistan's poppy crop set another record this growing season. I mean, it won't be official until the folks from Guinness verify it of course. But unofficially, we're talking a record crop.

That's a lot of cash flowing into Afghanistan. I hope most of it is going towards infrastructure and education.

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A Challenge to Captain Capitalism

Captain Capitalism is a man who loves three things in life: Soap, Shampoo, and Graphs. Since I'm not quite the graphophile as he, I would like to extend the following challenge to Captain Capitalism:

What would a graph look like whose x-axis was the years 1776 through 2007 and y-axis was GDP (adjusted for inflation) divided by population? I am really curious to see what that looks like. My prediction is that it’d be a steady slope upwards with spikes during the industrial and information revolution. But I’m interested to see if any sort of correlation can be made with the “value” per capita and the expansion of the government, or if there are any other trends that can be culled.

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May 9, 2007

One Day at a Time

Nancy Pelosi might be on to something with this idea of funding the war a couple of months at a time.

In fact, I propose we move to this kind of funding plan for other government policies whose “success” is in doubt or ill-defined. We can pony up a couple months of funding, attach some strings, and put it all under the microscope this summer with a budget axe at the ready. Not just the Iraq war. The War on Drugs, too. Health and Human Services. Campaign money, salaries and amenities for elected officials. Anything you consider pork.

Finally, a Democratic proposal I can really get behind. I’m even willing to suggest that federal education money comes up near the top of the list. It's friggin genius.

But why stop at two months? How about one month at a time, like most of my household expenses? Or even more frequently? We can go daily, like my junk food budget. Hey, I’ve studied Riemann sums. I’ve learned about compound interest. You let the time intervals shrink and the whole thing goes a lot smoother. And isn't that what we want in Iraq? Smoother! Again, it's friggin genius.

I’m on board, Ms. Speaker.

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May 8, 2007

What Limited Government?

Allow me to link BK Marcus on a point worth repeating... libertarians just might not be justified in their fond memories of that "small government conservative" Ronald Reagan. Was he better than the guys who have followed him? Sure. And is that really the point? I'm not sure. Markus links a Jeffrey Tucker article at Mises.Org that makes some points you really should remember when the 2008 GOP candidates embrace Reagan's legacy in their ads and debates.

Saul Friedman quotes Reagan himself, speaking at Oxford in 1992:

Let me tell you of another dream I have…a dream I have long had…Just as the world’s democracies banded together to advance the cause of freedom in the face of totalitarianism, might we not now unite to impose civilized standards of behavior on those who flout every measure of human decency? Are we not nearing a point in world history where civilized nations can in unison stand up to the most immoral and deadly excesses against humanity, such as those now defacing Somalia and Bosnia?

And later in that speech,

As long as military power remains a necessary fact of modern existence, then we should use it as a humanitarian tool…

What exactly did Reagan stand for, again?

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April 28, 2007

Hippocrates Shrugged

I don’t read the Volokh Conspiracy, mostly because I find his format unwieldy and distasteful. And that’s a shame, because my understanding is that Mr Volokh puts out some good content. But I sometimes run across his work by proxy, as was the case today. Inspired by one of Mr Volokh’s posts, Coyote Blog ponders, Does the Hippocratic Oath Make Doctors Our Slaves?

(The text of the Hippocratic Oath can be found here, if you’re the type to do research from the primary source.)

Coyote’s post is one that explains well the general libertarian philosophy as it applies to a specific situation. Libertarians (as he notes) are often written off in policy debates, because our positions come across to the average person as extreme and unworkable. And in our society, in the short term, maybe they are. But these aren’t knee-jerk, anti-social obstructionist positions. They are principled positions, stemming directly from classical liberalism. Most of our opponents are not willfully authoritarian, e.g. monarchists or the like. They are simply ignorant of how to draw political conclusions from philosophical values. They don’t recognize their own inconsistencies. And occasionally, when confronted with the issue in the simplest of terms and with the underlying philosophies and values, they recognize what’s going on.

So here it is: Just because a person has something that you want, or even something that you legitimately need, does not mean that you have a right to it. The only way to deny this fact is to reject egalitarianism* at its core – and who is willing to do that, explicitly? Most people – even those who support government medicine – will not. The failure of the collectivist philosophy that is so popular among intellectuals is not a failure to recognize that all men are created equal, but a failure to understand that they are endowed by their Creator with certain unalienable Rights, and that your right to life is not to come at the expense of my right to liberty.

Often, I feel like I am preaching to the choir here at AtlasBlogged. Occasionally, I figure there is little value in doing so. But sometimes people are able to break down an issue so clearly that it is of great value to share it. Does the Hippocratic Oath make doctors our slaves? I know people who have taken that oath and believe in government health care – a “right” to medical treatment. They would never advocate their own slavery, if they recognized it for what it was. But they don’t see the issue in those terms, and they don’t fear for their own liberty. They just feel overwhelmed by hospital administrators and insurance companies. They feel badly for sick people. They know there is a better way than the current way, and they want to bulldoze everything that impedes their ability to give the absolute best treatment to everyone. What better bulldozer than the federal government?

My father would never count himself a libertarian. But he understands this issue very clearly. He took the Hippocratic Oath, and he took it seriously. And when the hospital administration asked too much of him, and he felt that the insurance companies limited him, he faced a serious clash of values. He is a man who gives of himself relentlessly. He has literally given the shirt off his back – to strangers. But he will not be enslaved, and he knew his slaver when he saw him. He quit medicine several years ago. He wasn’t eligible for retirement, but he stood by his principles and shrugged the expectations (and chains) right off. I’ve been proud of him my entire life, but never more than on this issue.

* I use the term “egalitarianism” to mean a belief in human equality especially with respect to social, political, and economic rights and privileges, definition 1 at Merriam Webster. The term is sometimes ignorantly hijacked to mean equality in results – redistribution of wealth or something even more reminiscent of the short story Harrison Bergeron. People who do so are jackasses.

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January 21, 2007

Regulating Payday Loans

Doug Mataconis tackles an issue at the Liberty Papers that I've been meaning to write about all week. The Virginia General Assembly is considering a repeal of the Payday Loan Act of 2002, which legalized the short-term, high-interest loans commonly known as Payday Loans.

Last November, the University of Virginia School of Law hosted a panel on the topic (sponsored by Family Resource Clinic, the American Constitution Society for Law and Policy, and the Federalist Society). An article in the newspaper UVA Today explains the loans as well as any other source:

Payday loans are generally governed by the states, explained moderator Prof. Daniel Nagin, director of the Law School’s Family Resource Clinic. But the federal government recently got involved when Congress passed legislation placing a 36-percent cap on the annual interest rate of loans taken out by active-duty military personnel.

Obtaining a payday loan in Virginia is as simple as writing a check, Nagin said. Anyone who has a checking account is qualified to take out a loan. The payday lender will charge the borrower $15 for every $100 that is loaned. At the end of the loan period, which can be as short as seven or up to 30 days, the borrower must return to the store to repay the loan, or the company can cash the check that was written at the beginning of the transaction. The maximum a borrower can take out under Virginia law is $500...

The payday loan industry in Virginia has grown from a $165 million business in 2002 to more than $1 billion worth of transactions in 2005, Nagin explained. There are approximately 750 authorized payday loan outlets throughout the state.

750? That sounds like there is quite a demand for these places. But Delegate Jennifer L. McClellan, D-Richmond, has a different take on that number:

There are over two payday lending stores for every McDonalds in Virginia and three for every Starbucks. This is ridiculous.

I am horrified to learn that this is the standard my lawmakers will use to judge the situation. [shudder] And that's clearly become a talking point. I have no idea where it started, but it's constantly repeated on the Richmond radio and in most news articles. My question: why have we allowed this disparity between the number of McDonalds and the number of Starbucks in the first place? What ever happened to equality in this country? And what is the ratio of payday lenders to Taco Bells? I demand an answer!

As Mataconis points out in the post at The Liberty Papers, we can question the wisdom of borrowers to enter into a payday loan, but what right does the state have to prevent it? Not that legislators give a damn about what they have the right to do, of course.

Since we're here, let's take a look at what proposals are on the table. Again from UVA Today,

The Virginia General Assembly is currently reviewing two bills that would affect the Payday Loan Act of 2002, which authorized payday lending companies to set up shop in Virginia and exempted the industry from the prior 36-percent interest rate cap. The first bill repeals the Act; the second bill introduces an amendment calling for a real-time database that would force payday lenders to report the identity of the borrower and the terms of the loan to the state. Lenders would be able to search the database when a prospective borrower wants to take out a loan. The lender would be prohibited from lending money to patrons who had three or more outstanding loans. Finally, lenders could not loan money to anyone who had terminated a loan contract within the previous 48 hours.

(emphasis mine)

I love the comments by Michele Satterlund, an attorney who represented the payday lending industry at the UVA panel:

There are no viable alternatives being presented and there is a market need. We are a product that serves that market.

When I hear [panel member Jay Speer, executive director of the Virginia Poverty Law Center] talk, it’s as if he’s saying people who find themselves in financial hardship are not very smart, that’s the message I get. They’re not very smart, they can’t control their money, let’s control their money for them.

Opponents of Payday lenders point to a lot of alternative sources, but when it comes down to it, they are trying to legislate away one of my options because they think they know what's best for me, and I don't. Doesn't that sound familiar?

For those who think the high interest rates warrant government action, consider a point illustrated in Wikipedia:

Payday loan makers also argue that the interest on a payday loan is less than the costs associated with bounced checks or late credit card payments. For example, bouncing a $100 check may inccur an NSF fee from the bank of $28 and a returned check fee of $25 from the merchant.

In comparison, when expressed as APRs for two-week terms:

$100 pawn loan with 20% service fee= 240% APR;
$100 payday advance with $15 fee= 391% APR;
$100 bounced check with $48 NSF/merchant fees = 1,251% APR;
$100 credit card balance with $26 late fee = 678% APR;
$100 utility bill with $50 late/reconnect fees = 1,304% APR.

I await the logical conclusion - a bipartisan proposal to outlaw usury. For the children.

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January 8, 2007

Metrics of Employment (updated)

I just read an article at autoDogmatic that I don't quite get. I wrote out what I thought was a very nice reply, but when I previewed the comment I got an error. The site is giving me a hard time about the links I tried to include. I figure it's easier to post my thoughts here, where I at least know how to make links happen.

Aaron, either I am missing your overall point, or you’ve gotten yourself sidetracked. Why do we keep and report an unemployment rate? It is not a figure for its own sake. There is a good reason the figure does not count prisoners – or the retired, or children, or stay-at-home spouses/parents, or the disabled.

The Bureau of Labor Statistics does keep track of the "Labor Participation Rate", which is more what you are really talking about. This past July, the Washington Post ran an article on the Labor Participation Rate, and it included this excellent graphic. Even though the graph starts with 1948, the article notes that the male labor force participation rate reached an all-time peak in 1949 (at more than 87 percent). But the rise in female participation has been greater than the decrease in male participation – we are at historic levels of absolute employment in this country, and it’s been pretty steady and predictable. The article even addresses reasons why the male rate has dropped, like greater numbers of men staying out of the workforce for education reasons – consider the fact that the leftmost column of this BLS chart is the only one to have a significant drop over the last quarter century.

Now, the Post article doesn’t address the fact that there are more men in prison today than ever before, but the BLS covers only the “noninstitutional population” aged 16 and over. But my point is that I don’t understand why you would want to count them. I agree completely that the US prison rate is an outrage – especially the nonviolent drug offenders. But what useful information do we get by counting them as “unemployed” or “underemployed” or having the BLS include them in the Labor Participation Rate?

Scott Lamb seems to be on the same track I am.

I think I might also have some issues when Aaron says the half with the "short end" of the stick doesn't have such bright employment prospects. The average time of unemployment is down, wages are up, non-wage compensation is up, and education is “free”. Why does the half with the “short end” of the stick lack?

Update at 10:43 ET, the links are now fixed and no longer go to Microsoft.com. Thank you Neal for pointing that out.

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