Restricting Size and Scope of Government Based on Externalities?

The following is a question put forth by Dr. Donald Boudreaux, department of economics George Mason University:

“The point, rather, is to provide background for asking why the free-rider, collective-action, externality problems that are regularly identified as sufficient reason for restricting the role and scope of markets are so seldom identified as reasons for restricting the role and scope of government”. (1)

A most excellent question.

If neighborhood effects aka externalities exist in the private sector, do they not exist in the government sector? In essence one is examining a subsection of : if markets fail, governments fail too.

One might observe the following: externality problems, in a market environment, are many times depicted without the counterpart of positive externalities. Stated alternatively, the proposition of externalities is only a negative sum with no countervailing positive sum.

The above depiction is not an economic position. The purposeful ommission to depict, expound upon, discuss and otherwise recognize the positive externality or summations of interacting positive externalities is a political proposition.

The afore mentioned market externality proposition framed as a political position creates an  incentive for the particular politico to depict government intervention as zero or positive externalities. Negative externalities are, extrodinarily, and purposely, not present. Hence, no cascading unintended consequences reflecting back upon market mechanisms.


Going back to the original question: “The point, rather, is to provide background for asking why the free-rider, collective-action, externality problems that are regularly identified as sufficient reason for restricting the role and scope of markets are so seldom identified as reasons for restricting the role and scope of government”.

The answer may exist in purposeful politics.


Notes:

(1)  An Asymmetry, http://cafehayek.com/2011/11/an-asymmetry.html

OWS, Owls and Turkeys

“Undoubtedly the man who possesses capital has a great advantage over the man who has no capital, in all the struggle for existence.

This does not mean one man has an advantage against the other, but that, when they are rivals in the effort to get the means of subsistence from Nature, the one who has capital has immeasurable advantages over the other. If were not so capital would not be formed. Capital is only formed by self-denial….

The first accumulation costs by far the most, and the rate of increase by profits at first seems pitiful. Its first accumulation is slow, but as it proceeds the accumulation becomes rapid in a high ratio, and the element of self-denial declines.

Hence it appears that the man who has his self-denial before him, however good may be his intention, cannot be as the man who has his self-denial behind him. Some seem to think that this is very unjust, but they get their notions of justice from some occult source of inspiration, not from observing the facts of the world as it has been made and exists.

The maxim, or injunction, to which a study of capital leads us is, get capital.

That it [capital] requires energy, courage, perseverance, and prudence is not to be denied. Any one who believes that any good thing on this earth can be got without those virtues may believe in the philosopher’s stone or the fountain of youth. If there were any Utopia its inhabitants would certainly be very insipid and characterless“.

- William Graham Sumner, 1883, What Social Classes Owe to Each Other, pages 49 and 50.

Millionaires Promoting More Tax on Themselves? -Or- Millionaires Promoting More Tax on Other Millionaires? -Or- Just Plain Old Hypocrisy? - The Daily Caller

Political Constituency Building in Fail-Safe Mode

Public debt in percent of GDP (2010), CIA fact book 09/2011


Particular politicos that champion more or constant spending in the face of unsustainable debt loads point out that their particular political constituency recipient groups enjoy their particular taxpayer funded transfer payment and do not want benefits cut. Go figure.

Its an interesting argument in that the politico points to their own purposely politically built constituency group, funded through taxpayer dollars, and state the recipient group enjoys their taxpayer funded benefit. Problem being the benefit would not exist without the purposeful creation of the benefit by the politico to garner political constituency. Go figure x 2.

In essence, the politico purposely created a dependent recipient class and now points to the purposely created group in its “constituency form“ i.e. in its voting block form. Stated alternatively, the political constituency building episode is a fail-safe, in that, the politico purposely built a dependency class through political promises all the while knowing that the dependent political constituency class will never give up its dependency benefit and hence act as purposely designed and call for supporting the particular politico for more or constant spending.


“The state is the great fiction by which everybody seeks to live at the expense of everybody else“.

- Frederic Bastiat

The Austerity Argument: Real GDP Growth vs. False GDP Growth

Of the many problems with the "austerity argument" regarding lower GDP growth are:

(a) the argument regarding "austerity" leading to lower GDP growth relies on the implicit assumption that the previous false GDP growth number, created through endless government deficit spending, was in fact a real growth number, yet in fact the GDP growth number was false,

(b) the false GDP number is then used as a base measurement,

(d) austerity merely returns one to a real GDP growth number and/or a real GDP growth number base,

(e) the movement from false to real is depicted as "lower growth" when in fact it is a movement from false growth to real growth.

Euro Zone: Interactive Debt Graphic

Below is a link to a most excellent interactive graph showing what the many players of the euro zone crisis owe to one another. The graph also shows gross domestic product [GDP], foreign debt outstanding, foreign debt per person, foreign debt to GDP, and government debt to GDP.

Eurozone debt web: Who owes what to whom? BBC 11/18/2011

 http://www.bbc.co.uk/news/business-15748696

h/t Mark Perry at Carpe Diem

Supercommittee -or- how politicos cause the taxpayer to foot their bill

The technical name for the Supercommittee is The Joint Select Committee on Deficit Reduction. The committee is made up of six democrats and six republicans of which six are from the Senate and six from The House of Representatives. Their charge is to reduce the deficit by one and one half trillion dollars over a ten year period. The dead line for their recommendation is November 23, 2011. Their recommendation then goes before Congress for a simple up or down vote that must occur before December 23, 2011.

The debate leading up to and surrounding the recommendation, in the main, is a debate of raising taxes, reducing spending or a combination of both. One item worth noting is a particular and long standing debate point used by particular politicos that promote raising taxes. The particular debate point is: the Reagan Administration caused deficits by reducing taxes.

This long standing debate point is in essence a long standing fallacy. How so? Evidence shows that tax receipts actually increased significantly after the Reagan tax cuts and moreover during the eight years of the Reagan Administration. In the last year of the Carter Administration federal tax receipts equalled $517 billion. During the last year of the Reagan Administration tax receipts were $909 billion. Stated alternatively, with a tax reduction in place, tax revenues increased by 75% over an eight year period. (1)

Then how do particular politicos construct their argument that the Reagan tax cuts left us with a deficit? That tax cuts cause a deficit? It’s merely a fallacious debate point that does not account for “spending” during the same eight years. The debate point is carefully constructed to avoid the increasing tax receipts fact and concentrates/focuses on the actual deficit which occurred. Simultaneously the debate point carefully avoids the enormous spending increases that occurred during the exact same period. Hence the debate point links deficit with tax when in fact the link is fallacious given rising revenue after the tax cut. That the link between spending and deficit is purposely removed from the debate point.

Federal spending was $678 billion in 1981 while spending stood at $1.064 trillion in 1988. Each and every year of the Reagan Administration tax revenues increased while each and every year spending increases where above the tax revenue increase. (2)

The Reagan Administration did not make appropriations for spending, congress appropriates spending. Hence the spending outpaced the tax receipts and hence a deficit. Ops!

What is the reasoning behind making such a fallacious debate point when the evidence shows otherwise? One must examine that particular politicos depend upon taxpayer dollars to bestow such dollars upon current politically constructed constituency groups and to fund future political constituency building exercises through the use of taxpayer dollars. That is to say, in order for the politico to build a growing constituency base the politico is dependent upon growing expenditures to conserve and expand the constituency base. Stated alternatively, the politico is much like the going concern business in that growth in revenue is a basic goal. However, unlike a firm producing a valuable product that consumers voluntarily purchase, the politico merely transfers money from the aggregate taxpayer to specific special interest groups and/or recipient classes that make up the politico’s constituency base constructed by the use of tax dollars.

Hence the argument from the politico’s point of view must be directed away from spending cuts. That the debate must concentrate on conserving and expanding spending in order to conserve and expand constituency and constituency building exercises.

Notes:

(1) (2) Budget of the United States Government: Historical Tables, Washington D.C. , U.S. government printing office, 1994, page 14.

Solyndra: Purple Marbles and Dupery.

‘Testifying under oath on a widening controversy, Chu said he was unaware of his staff predictions in 2009 that Solyndra was likely to face severe cash-flow problems. He said that market changes which led to a steep decline in the price of solar panels were "totally unexpected." ‘

‘Solyndra went belly-up after getting the $528 million loan from the government and Chu told the House Energy and Commerce Committee that he made all decisions involving the loan to the solar-panel manufacturer. He said he made all judgments regarding Solyndra with the best interests of the taxpayer in mind’.

‘"I want to be clear: Over the course of Solyndra's loan guarantee, I did not make any decision based on political considerations," Chu said. He was facing sharp questions in the biggest showdown so far in the energy panel's nine-month investigation of Solyndra’.

‘Chu said his decision to approve the loan was based on the analysis of experienced professionals and on the strength of the information they had available to them at the time.

"The Solyndra transaction went through more than two years of rigorous technical, financial and legal due diligence, spanning two administrations, before a loan guarantee was issued," he said. "Based on thorough internal and external analysis of both the market and the technology, and extensive review of information provided by Solyndra and others, the (Energy) Department concluded that Solyndra was poised to compete in the marketplace and had a good prospect of repaying the government's loan."’

Chu also took responsibility for a later decision to approve a restructuring of Solyndra's debt that allowed two private investors to move ahead of taxpayers for repayment in case of default

‘Although both options involved significant uncertainty, Chu said he made the judgment that restructuring was the better option to recover the maximum amount of the government's loan. The decision also meant continued employment for the company's approximately 1,100 workers, he said.

Chu said it was worth noting that U.S. taxpayers remain first in line for repayment of the initial loan and noted that private groups invested nearly $1 billion in the company.

Solyndra faced another crisis in August, Chu said. This time, after consulting with outside analysts, he decided that the U.S. should not provide additional support to Solyndra. Days later, the company filed for bankruptcy.

While disappointed, Chu said the U.S. should continue to support clean energy.

"When it comes to the clean energy race, America faces a simple choice: compete or accept defeat. I believe we can and must compete," he said.

Solyndra was the first renewable-energy company to receive a loan guarantee under the 2009 stimulus law, and the Obama administration frequently touted the company as a model for its clean energy program. Chu attended a 2009 groundbreaking when the loan was announced, and President Barack Obama visited the company's Fremont, Calif., headquarters last year’. (1)

Regarding the above testimony of Mr. Chu in front of the House Energy and Commerce Committee, one needs to take special note of the following references: no political considerations involved, sudden market changes, loan guarantees, rigorous technical considerations of the loan, the clean energy race, that we must compete [clean energy race], and ultimate bankruptcy of  Solyndra. It’s very likely that Mr. Chu does not realize he is explaining the very building blocks of economic rent seeking of taxpayer dollars which is in fact a politico constructed event through the mechanism of government. That Chu is indirectly explaining public choice theory in action. Stated alternatively, Chu is explaining a classic case of rent seeking in action.

Upon further examination, Chu is explaining a “clean energy race” that only exists in the minds of those wanting such a “race”. That the clean energy race, if in fact it did exist, is an energy race that would require market participants to compete in the greater energy market place by gathering private capital and then deploying the capital, human capital, and technology to create economically competitive energy sources in the greater energy market. However, in essence, the “clean energy race” is merely a political urgency condition created by rent seekers through politicos that want to create a clean energy market which somehow, someway is framed as walled off from the greater energy market. The entire “clean energy race” is in fact a political attempt to segregate a market subsection from the real market place which is in fact “energy” with all forms of energy competing in a private free market environment.

Think about Chu’s testimony is the following light:

(1)    if the clean energy  market place is indeed not a political market place for energy i.e. “clean energy race”,

(2)    then the market place is a private market place,

      (3)    then no loan guarantees would exist,



      (4)     meaning no taxpayer money would be involved,

     
      (5)    hence no hearings and no story being told in front of House Energy and  Commerce Committee.

Hence Chu invalidates his position that no political considerations were involved as the entire clean energy rent seeking process is in fact political and in fact the taxpayer was involved. How did taxpayer money become involved if politicos did not bestow the taxpayer funds through the mechanism of government? It’s of no matter that Chu, the White House, the energy department, or any other entity is denying political considerations are involved as any statement of such non-consideration of politics is ridiculous when the entire environment of clean energy is in fact a political rent seeking exercise to seek taxpayer dollars to subsidize uncompetitive energy sources.

This particular situation is in fact a case of certain special interests championing clean energy. These special interests have a preference for clean energy. Next an urgency condition is created much like the implicit urgency condition which exists in the concept “advertising”. This urgency condition is then promoted and advertised [clean energy race] as a notional proposition that somehow validates the special interest seeking taxpayer dollars through politicos.

Note: one needs to reflect upon the above described situation for a moment. That the special interest has in fact created a notional proposition, promoted the notional proposition, and then seeks taxpayer dollars based upon a notional proposition. Nothing empirical exists in this exercise. In essence, one likes purple marbles, one promotes the urgency of producing purple marbles, then one has purple marbles produced and paid for by a third party. Pure purple marble dupery.

However, supposed clean energy is not in fact competitive within the greater energy market place. In order to make supposed clean energy competitive the special interests lobby politicos for subsidies which come in the form of taxpayer money. The politico then grants subsidies through the mechanism of government as a political constituency building exercise i.e. those receiving the subsidy will then support the politico through campaign donations and other campaigning efforts. Therefore the entire process is political with the entire political process funded by the taxpayer.

Notes:

(1) Chu: No White House Influence on Solyndra Deal.

http://www.newsmax.com/Newsfront/SolarInvestigation/2011/11/17/id/418395?s=al&promo_code=D899-1

The PIIGS: Austerity Upon Further Review.

One argument you hear from talking heads is that economic growth in Italy and Greece (the PIIGS in general) will be very low in coming years, even negative, due to "austerity". Austerity is used in terms of reduced government spending. That reduced government spending will reduce growth.

In regards to the above argument an item worth considering is how did one arrive at Z amount of public sector spending/promises/workers/tax rates? Stated alternatively, the constant rise in tax-types and tax rates coupled with rising debt lead to level Z.

We now know, for certain, that the PIGGS, in the main, engaged in rising tax-types and rising tax rates coupled with ever growing debt leading to the ever increasing role of politico promises through the mechanism of government. The phenomena then became a disincentive nightmare on one hand and politico promised pipe dreams on the other hand. Its exactly what F.A. Hayek explained as late stage socialism implosion.

Hence Z is/was a false number. Z-1 is the true number. Therefore, reducing to Z-1 is not “austerity” its merely returning from a false/bubble number. Any reduction in growth associated with the movement from Z to Z-1 is not a reduction in true growth.

Matter-of-fact, "austerity" is the incorrect term. Austerity would mean doing without. How can you "do without" something you could not afford in the first place? Hence the talking head argument is: living within one's means equates to low or no growth.

Keystone Pipeline Decision: Environmentalism or Crony Capitalism?

This week Mr. Obama put off a decision on the Keystone pipeline until after the 11/2012 presidential election. That somehow, some way unresolved environmental items existed.

‘Obama said in a statement that he supports delaying a decision.

“Because this permit decision could affect the health and safety of the American people as well as the environment, and because a number of concerns have been raised through a public process, we should take the time to ensure that all questions are properly addressed and all the potential impacts are properly understood,” Obama said.

“The final decision should be guided by an open, transparent process that is informed by the best available science and the voices of the American people. At the same time, my administration will build on the unprecedented progress we’ve made towards strengthening our nation’s energy security, from responsibly expanding domestic oil and gas production to nearly doubling the fuel efficiency of our cars and trucks, to continued progress in the development of a clean energy economy."‘ (1)



Put aside for a moment the politics of environmentalism. Also put aside drill, drill, drill politics for a moment. View the Keystone decision in crony capitalism terms. More specifically think in “crony capitalism market terms“:


(1) crony capitalism, in and of itself , is affected by market forces,


(1a) one market force is: although economic rent seekers want to insulate themselves from markets, competition, and actual profitable productive endeavors, that in fact crony capitalist compete among themselves for taxpayer dollars e.g. wind vs. solar, solar vs. bio-fuels, wind vs. ethanol, and so on.


(1b) a second market force phenomena is the unsubsidized entities or minor subsidized entities [in this particular case coal, natural gas, and oil] are constantly butting up against the wall of insulation crony capitalists crave/enjoy. (2) (3)


Was/is the Keystone decision merely Obama and his ilk’s purposefully protecting their purposely created subsidized crony capitalist market of wind, solar, bio-fuels, and ethanol against the much less subsidized and more free market oriented energy producing items?


Did the crony capitalist competitors of wind, solar, ethanol and bio-fuels come together to oppose Keystone to protect their greater crony market (regardless of internal crony competition for tax dollars)?


Now put this proposition into action. If Keystone was approved you have twenty-some thousand well paying jobs immediately created with say one hundred thousand spin off jobs created in increments over time [some estimates of job creation are higher]. The energy market becomes more competitive as less costly oil can be delivered to refineries. Hence we have a no or low subsidy item creating actual profitable production and intensifying competition. The entire phenomena of Keystone puts pressure on the highly subsidized, non-productive endeavors of wind, solar, bio-fuels, and ethanol. In the main, Keystone is about competition.


The other item is the actual long term private sector jobs created by Keystone for all to see vs. the declining employment, bankruptcies, etc. of the subsidized wind, solar, bio-fuel, and ethanol propositions.


Therefore Keystone’s delay may not be about environmentalism,  it may be about crony capitalism. By politicos through the mechanism of government distorting markets, benefits accrue to the crony capitalist. Stated alternatively , limiting competition rewards the purposely built crony capitalism constituency base of the politico.

Note: its long been lamented that the Department of Energy (DOE) in conjunction with the Environmental Protection Agency (EPA) have never come up with a low cost energy plan. That is, after decades and decades where is the “energy plan”? One might ponder that the lack of an energy plan may if fact be purposeful. That no plan exists as the DOE and EPA are merely conduits, pipelines if you will, for crony capitalism within the energy sector.

Notes:

(1) Obama punts Keystone XL pipeline, Politico, 11/10/2100 http://www.politico.com/news/stories/1111/68089.html

(2) Crony Capitalism
http://dangerousintersection.org/2011/10/16/crony-capitalism-defined-by-a-libertarian/

http://www.answers.com/topic/crony-capitalism

(3) Economic Rent Seekers

http://www.econlib.org/library/Enc/RentSeeking.html

Rising Health-Care Costs: A Government Bridge to Nowhere

Innovation/technology and machines, many times through the aid of the phenomena of creative destruction, have advanced the quality and reduced the real cost of many, many items in our lives. Items once only attainable by the most affluent, are now merely everyday items used and enjoyed by James and Jane Goodfellow. Communications, computers, transportation, etc., etc. are lower in real cost and higher in quality. (1)


There is a glaring exception. What exception?

One needs to look no further than the opening paragraphs of Milton Friedman’s essay How to Cure Health Care, 2001. While automation and innovation/technology have affected health-care in a very, very large way, prices have actually increased hence not allowing us to satisfying other wants.


How can machines and innovation/technology drive up cost? Simple: Government!


　
Since the end of World War II, the provision of medical care in the United States and other advanced countries has displayed three major features: first, rapid advances in the science of medicine; second, large increases in spending, both in terms of inflation-adjusted dollars per person and the fraction of national income spent on medical care; and third, rising dissatisfaction with the delivery of medical care, on the part of both consumers of medical care and physicians and other suppliers of medical care.

Rapid technological advances have occurred repeatedly since the Industrial Revolution—in agriculture, steam engines, railroads, telephones, electricity, automobiles, radio, television, and, most recently, computers and telecommunication. The other two features seem unique to medicine. It is true that spending initially increased after nonmedical technical advances, but the fraction of national income spent did not increase dramatically after the initial phase of widespread acceptance. On the contrary, technological development lowered cost, so that the fraction of national income spent on food, transportation, communication, and much more has gone down, releasing resources to produce new products or services. Similarly, there seems no counterpart in these other areas to the rising dissatisfaction with the delivery of medical care.

International Comparison

These developments in medicine have been worldwide. By their very nature, scientific advances know no geographic boundaries. Data on spending are readily available for 29 Organization for Economic Cooperation and Development (OECD) countries. In every one, medical spending has gone up significantly both in inflation-adjusted dollars per person and as a fraction of national income. In 1997, the United States spent 14 percent of gross domestic product on medical care, the highest of any OECD country. Germany was a distant second at 11 percent; Turkey was the lowest at 4 percent.

A key difference between medical care and the other technological revolutions is the role of government. In other technological revolutions, the initiative, financing, production, and distribution were primarily private, though government sometimes played a supporting or regulatory role. In medical care, government has come to play a leading role in financing, producing, and delivering medical service. Direct government spending on health care exceeds 75 percent of total health spending for 15 OECD countries. The United States is next to the lowest of the 29 countries, at 46 percent. In addition, some governments indirectly subsidize medical care through favorable tax treatment. For the United States, such subsidization raises the fraction of health spending financed directly or indirectly by government to more than 50 percent.

What are countries getting for the money they are spending on medical care? What is the relation between input and output? Spending on medical care provides a reasonably good measure of input, but, unfortunately, there is no remotely satisfactory objective measure of output.

Ultimately, the purpose of this article is to examine the situation in the United States. I have mentioned the data on the OECD countries primarily to document the two (related?) respects in which the United States is exceptional: we spend a higher percentage of national income on medical care (and more per capita) than any other OECD country, and our government finances a smaller fraction of that spending than all countries except Korea.” (2)

Notes:

(1) http://www.investopedia.com/terms/c/creativedestruction.asp#axzz1dSO2KzTl

(2) How to Cure Health Care, 2001, Milton Friedman

http://www.hoover.org/publications/hoover-digest/article/7298

Elizabeth Warren's Class Warfare Argument: Upon Further Review.....

Elizabeth Warren made the following statement in September, 2011:

  “Nobody in this country got rich on his own. Nobody. You built a factory out there good for you, but I want to be clear, you moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because the police forces and the fire forces the rest of us paid for….because of the work the rest of us did”.

Before considering Warren’s statement, please review the following:

“The notion of civil liberty which we have inherited is that of a status created for the individual by laws and institutions, the effect of which is that each man is guaranteed the use of all his own powers exclusively for his own welfare.

…. Hence, liberty for labor and security for earnings are the ends for which civil institutions exist, not means which may be employed for ulterior ends“.

“An immoral political system is created whenever there are privileged classes - that is, classes who have arrogated to themselves rights while throwing the duties upon others.

….the real danger of democracy is, that the classes which have the power under it will assume all the rights and reject all the duties - that is, that they will use the political power to plunder those-who-have.

….[democracy] must oppose the same cold resistance to any claims for favor on the ground of poverty, as on the ground of birth and rank.

….It [democracy] must put down schemes for making “the rich” pay for whatever “the poor” want, just as it tramples on the old theories that only the rich are fit to regulate society.”

“A free man in a free democracy has no duty whatever toward other men of the same rank and standing, except respect, courtesy, and good-will. We cannot say that there are no classes, when we are speaking politically, and then say that there are classes, when we are telling A what it is his duty to do for B. In a free state every man is held and expected to take care of himself and his family, to make no trouble for his neighbor, and to contribute his full share to public interests and common necessities. If he fails in this he throws burdens on others. He does not thereby acquire rights against others. On the contrary, he only accumulates obligations toward them; and if he is allowed to make his deficiencies a ground of the new claims, he passes over into the position of a privileged or petted person-emancipated from duties, endowed with claims. This is the inevitable result of the combining democratic political theories with humanitarian social theories.”

Pages 26-29, What Social Classes Owe to Each Other, William Graham Sumner, 1883

Now consider this:

“There is an old ecclesiastical prejudice in favor of the poor and against the rich. In days when men acted by ecclesiastical rules these prejudices produced waste of capital, and helped mightily to replunge Europe into barbarism“.

“We all agree that he is a good member of society who works his way up from poverty to wealth, but as soon as he has worked his way up we begin to regard him with suspicion, as a dangerous member of society. A newspaper starts the silly fallacy that “the rich are rich because the poor are industrious”, and its copied from one end of the country to the other as if it were a brilliant apothegm”.

Page 32, What Social Classes Owe to Each Other, William Graham Sumner, 1883


Please note that William Graham Sumner is writing in the year 1883 and he is drawing on circa 1883 political arguments as well as prior/past arguments in history occurring before 1883. That is to say the same class warfare arguments have been made for centuries on end. Hence Ms. Warren’s argument is absolutely and positively a centuries old class warfare argument.


Upon further review….

One must examine the debate strategy of Warren framing her notional political argument into three classes: “we”, “ you” and “them” with the implicit assumption that “we” and “you” are the same whereas “them“ is an outside group/class diametrically opposed to the group/class “we-you“. Sumner explains above that the only class that actually exists in a democracy based upon freedom of the individual is in fact “you”. There is no such thing as “we” and “them”. However, as a purposeful debate point Warren merely creates classes in a classless society them divides the classes as opposing forces.

The next notional political concept framed by Warren is that goods are moved to market on roads paid for by the class “we-you”, workers are educated by the class “we-you” and that somehow, someway the class “them” uses the roads and educated worker for their exclusive use. What Warren purposely leaves out is the concept of “public goods”. Public goods are those items collectively provided by all the “you(s)” for the collective benefit of all the “you(s)”. That the movement from the ancient concept of many small protective societies to one state is partially based on all the “you(s)” collectively empowering the state to provide limited government, of which one function of limited government is to provide public goods such as infrastructure financing and educational financing. That is to say, all the “you(s)” collectively finance a limited amount of public goods that all the “you(s)” benefit from collectively (collectively benefit from the existence of such public goods). (1)

Police forces and fire forces are yet another public good, of which, is a function of the limited government of the state to provide through the financing of/by the single class “you(s)” for the benefit of all “you(s)”. The idea that some “you(s) provide police and fire for the fictional class “them” for their exclusive use is fallacious. (2)

The next item Warren implicitly employs in the perfect vs. the known. Warren creates the perfect [her perfect] world and contrasts it against the real world. That the real world is not her perfect world and hence she rejects the real world in favor of her perfect world skipping by the fact that “perfect” does not exist.

Another implicit assumption put forth by Warren is the “me” vs. “them” argument of transposing the political and economic power purveyor. Stated alternatively, who ever “them” might be, what ever political and economic power “them” might have, should be given to “me” [Warren] as with the power moved from “them” to “me” allows “me” to pursue the notional world of “me” as exclusive power has been transferred to “me”. That exclusive power transferred to Warren to shape her world is better than diffused power which results in Warren not being able to pursue her perfect world.

All and all, Warren’s argument is merely the classic debate position as outlined by Thomas Sowell: a notional proposition is put forth as fact, the notional proposition is then argued to be an empirical fact, the notional proposition is delivered through verbal virtuosity, and the notional proposition ends merely in one [Warren] painting the world in one’s own self image [the self image of Warren]. (3)

If James and Jane Goodfellow feel that politicians dupe them, James and Jane really need to look further into notional propositions put forth as fact.

Notes:

(1) (2) Anarchy, State, and Utopia, Robert Nozick

(3) Intellectuals and Society, Thomas Sowell

Austerity vs. Stimulus: a False Choice?

Above is a CNBC Squawkbox video from 11/07. Note 8 minutes to 9:50. Below is an excerpt of the text which is of interest:

Question/statement by Liesman of CNBC: If you look at the jobs numbers, there certainly should be higher or would be -- there would be more robust numbers that could engender more confidence if the state and local governments weren't laying off.

Answer by John Ryding of RDO Economics: Steve, let me make this point. I always believe that the distinction between austerity and stimulus is a false choice. It's about sustainability of government programs and the problem is we have a large fiscal deficit at the time of two unsustainable government programs, Medicare and Social Security are kicking in. Now we have to reform those programs ultimately. So they remain viable for the long term. But the U.S. has as many problems with political groups blocking reform....

What Ryding is stating is that X amount of public sector workers, that is completely unsustainable, replaced by a new level of X-1 public sector workers, is not “austerity”. Rather it’s a basic business budget proposition. That remaining at level X as a stimulus approach is a false choice.

An item worth considering is how did one arrive at X amount of public sector workers? X was achieved with state government experiencing increasing tax revenue 2002-2007 (which most states did experience) and additional debt (which many states exercised). Underlying these two phenomena leading to level X amount of public sector workers was politicos that had the same exact mindset as residential homeowners, that is, what goes up continues to go up. Stated alternatively, the rise in tax revenue was considered a constant unending revenue stream leading to level X based upon endlessly rising revenue. In turn additional hiring caused by additional debt which was also based/financed upon the misplaced concept of endlessly rising revenue.

Hence X is/was a false number aka a bubble number. X-1 is the true number. Therefore, reducing to X-1 is not “austerity” its merely returning from a bubble number.

That being said, the counter argument [Keynesian counter argument] is that laying off the public sector workers (movement from X to X-1) reduces demand and hence is counter productive. That “stimulus” needs added to stop the movement from X to X-1 which then stabilizes or enhances demand.

One of the many problems with the Keynesian argument is that “stimulus” proposed to keep X from declining is in essence a continuation of a false bubble number. That in fact the argument regarding "stimulus" is to sustain a component of a larger previous bubble.

Republican Debate : Housing Values.

In the Republican debate Wednesday evening 11/09/2011, the moderator asked a question about housing. The CNBC moderator prefaced the question by putting up statistics on a screen, of which, one of the statistics mentioned that $7 trillion dollars of home value has been lost since 2007.


That statistic, as a preface, implicitly assumes that the values in 2007 were true economic values [earned values]. How in the world can a bubble value be shown as a reference point for loss? Stated alternatively, is the $7 trillion “loss” merely the true value revealed ?

Keynesianism In One Easy Lesson

"For policy, the central fact is that Keynesian policy recommendations have no sounder basis, in a scientific sense, than recommendations of non-Keynesian economists or, for that matter, non economists". -

After Keynesian Economics aka After the Phillips Curve: Persistence of High Inflation and High Unemployment, page 57, Lucas and Sargent.


http://www.bos.frb.org/economic/conf/conf19/conf19.pdf

Moving Your Clock Back One Hour to “Railroad Time”

“People in the continental United States have become so accustomed to four standardized time zones–Eastern, Central, Mountain, and Pacific–that it’s hard to believe that we ever kept time any other way. But until a crucial date in 1883, what time it was depended on the nearest city or town. The time of day was a purely local matter as determined by the position of the sun. Noon was when the sun was at its highest point in the sky. Local people set their timepieces by some well-known clock in their respective communities, such as one on a prominent church steeple or in a jeweler’s window”.

“Two men in particular are credited with “inventing” standard time and the time zones that define it. Professor C. F. Dowd, principal of Temple Grove Seminary for Young Ladies at Saratoga Springs, New York, first suggested the general concept of four or more “time belts.” Later, William Frederick Allen, a railroad engineer, adapted and improved it and won acceptance for it by a crucial panel.

In 1872 railroad officials from around the country met in Missouri to arrange summer passenger schedules. To address the time problem they formed the General Time Convention. Allen was named secretary and immediately set to work on making Dowd’s idea into a detailed proposal. In October 1883 the Convention approved Allen’s plan. Government was not part of the picture at all; the Dowd-Allen solution to establish standardized time zones was conceived and fine-tuned to fruition entirely by the ingenuity of private citizens. The Convention chose November 18, 1883, for adoption of the new system by virtually every railroad in the country. “Railroad time” quickly became the new “local time” everywhere–or at least almost everywhere”.  - The Freeman, Lawrence Reed, It Wasn’t Government that Fixed Your Clock, How Two Private Citizens Developed Standard Time, August 2002

To read the entire essay please use the link directly below:

http://www.thefreemanonline.org/columns/it-wasnt-government-that-fixed-your-clock/

Distribution of Income and the Transfer Agent

Distribution of income statistics and statistics in general can be manipulated to make particular arguments the particular presenter wants to represent. That said, a point made many times by Thomas Sowell is that the numbers shown in many, many presentations of distribution of income statistics are not “net”. That is, subtract taxes from the producer class and add back entitlements and transfer payments to recipient classes and you find the numbers flatten.

Consider a third path. Take the numbers, before netting out taxes and adding back transfer payments/entitlements, and create a third category known as state or government. Please see the following:

Scenario One [common depiction of showing “net”]

(1)    X pays Y transfer/entitlement tax and the tax is removed from gross. Hence we might say X’s income is 100 minus 30 transfer/entitlement tax leaving 70. Z’s income is 60 minus 20 transfer/entitlement tax leaving 40,

(2)    Q’s income is 10 plus 20 transfer received equaling 30. P’s income is 30 plus entitlement 10 equals 40.

Scenario two [new path/alternate]

(1)    show X,Z,Q and P’s income,

(2)    show the total transfer/entitlement tax,

(3)    show the true recipient of the transfer/entitlement tax as the transfer agent [state],

(4)    show the transfer agent’s costs applied to the transfer process [administration charge].

(5)    Now we have X and Y in the same position yet Q and P are in lesser positions as less income remains to transfer.

Upon further review, those that advocate class warfare to facilitate the redistribution of income based upon social justice purposely leave out the conduit of the entire process they champion. In this case the middle-man is not a market maker with special knowledge to facilitate markets; the middle man is purely a transfer agent facilitating nothing other than a pure transfer. Stated alternatively, in this particular case a subtraction of value rather than the addition of value [facilitating markets with information] are the product of the middle man.

This subtraction of value is not done so at a bare minimum. We are not gazing at a robust competitive system to deliver the transfer/entitlement at the lowest possible subtraction value. Rather, we have a monopoly delivering the subtraction value. A monopoly is going to deliver the subtraction of value at the highest possible cost. Beware the extraction of consumer surplus by a monopoly.

In the classic case of the economically uninformed “do-gooder”, referred to many times by Milton Friedman, the do-gooder advocates a program yet fails to follow through on the cascading unintended consequences that spider across an economy.

Geographic Structural Unemployment and the Housing Market

The above video is the last half of Ben Bernanke’s news conference held 11/02/2011. At the 16:05 mark in the video a reporter asked how the tools in the Fed’s "tool kit" would work against unemployment this time around [if needed to be deployed] since the Fed’s tools/policy have not seemed to work in the recent past regarding reducing the u3 unemployment rate of 9.1% nor the u6 unemployment rate of approximately 17% (an excellent question). Bernanke went into a discussion of cyclical and structure unemployment. Bernanke went into a discussion of structural unemployment including geographic structural unemployment at the 17:14 mark.

Geographic structural unemployment is basically a situation where the demand for particular job skills appears in one section of the country but the matching skills appear in a separate part(s) of the country.

Regarding a geographical mismatch of the demand and supply of particular job skills one must consider that in many recent recessions the housing market suffered, but it wasn't illiquid. That is to say, in the past one could sell a home and take a small haircut or even a gain (just not as large of a gain). Conversely, you could, in the main, buy a home. Meaning that geographic mismatch was brought back to equilibrium as job seekers moved including job seeking home owners.

This time around, a distinct subsection of job seekers that are also home owners are upside down in home equity, near bankruptcy and unable to pay home mortgage loans or the haircut to sell is onerous. Also buying a home is very difficult for a large number of would be buyers. Hence a large number of homeowners are landlocked. They can't move [mobile to match skills to out-of-locale jobs available as they have in the past.

Note: a major recent exception was in the late 1970’s and very early 1980’s when mortgage interest rates were at record high levels which impeded buying and selling a home.

A counter trend is the “new renter” (recent marginal homeowners, now good renters) are mobile hence they can match geographically. But the "homeowner" is clearly geographically challenged regarding matching jobs to skills that require movement.

The "mobile society" is to one degree or another temporarily immobile.

“ObamaCare” Disallowed in Congressional Mailings. Orwellian?

‘In the latest battle in the Congressional franking wars, Democrats have been vetoing use of the word “Obamacare” in taxpayer-financed mass mailings, saying it violates rules against using the franking privilege for “personal, partisan or political reasons.” ‘ (1)(2)




(1) Using the Word 'Obamacare' for Political Gain, Roll Call, 10/27/2011

http://www.rollcall.com/issues/57_49/Using-the-Word-Obamacare-for-Political-Gain-209793-1.html?pos=hftxt

(2) Democrats Block Usage of the Word 'Obamacare' in Congressional Mailings, Forbes, 10/26/2011
http://www.forbes.com/sites/aroy/2011/10/26/democrats-ban-usage-of-the-word-obamacare-in-congressional-mailings/

“Buy American” -or- “Buy Union Assembled”?

John Stossel recently wrote an essay entitled The Stupidity of "Buy American". Link to the essay appears below:

http://townhall.com/columnists/johnstossel/2011/11/02/the_stupidity_of_buy_american/page/2

Stossel is correct in that the rational consumer buys the best value regardless of the nation of origin. Many times the rational consumer buys American as it represents the best value. However, “buy American” is basically presented as a particular duty of the rational consumer to act irrational by limiting choice. That the irrational behavior will somehow, someway create American jobs. As pointed out by Stossel, if rational behavior yields basket of goods Y at price P, irrational behavior yields basket of goods Y at P+1 or basket of goods Y-1 at price P. In both situations, P+1 or Y-1 represents a value forgone by the irrational path. Where does this forgone value go?

One must think about who hypes “buy American”. Answer: unions and industry trade groups that benefit. The union wants artificially high wages and the trade group is having trouble competing. The forgone value of the irrational consumer is then transferred as artificially high union wages and supporting the uncompetitive trade group.

Taking this one step further, unions and trade groups are acting rational by advertising for the consumer to be irrational. Ah, the evil of it all!

Let us say one decides to “buy American”. Is the item 100% American? Are the machines, technology, capital, etc. that produce the product 100% American? In the main the answer is no.

Therefore, one may be able to translate “buy American” as merely “buy union assembled“.

No U.S. Energy Plan? -Or- Shadow Political Energy Plan of Very Comprehensive Design?

Those that debate U.S. energy production and energy delivery have common ground in pointing out that U.S. policy makers [politicos] have no comprehensive plan for energy. Since the oil shocks of the 1970’s, for thirty plus years, no “comprehensive energy plan” has come forth from policy makers.

Contrary to popular opinion, politicos do in fact have a very comprehensive plan. It’s a political plan for energy of very comprehensive design.

Starting with FDR and his administration and minions replacing private electric production and creating “public utilities” [legal monopoly] through current subsidies, tax preferences, mandatory purchase agreements, price fixing schemes, threat of tax if profits are too high, etc., etc. a comprehensive political energy policy has developed/evolved.

Where is this comprehensive plan? Why is it not bound in a four volume set so we can peruse the plan‘s intricacies, plan direction, plan cost, etc.? Because it lies in the shadows. A shadow politico plan if you will, that specializes in pandering to special interests for political constituency building purposes. Its an energy plan based on political constituency building through the mechanism of government and funded by taxpayer dollars.

Among the many, many flaws within the shadow politico energy program there exists one major and fatal flaw: taxpayer dollar subsidy. If politicos through the mechanism of government find that all subsidies for all energy sources are removed they will find their politically built constituencies through the use of taxpayer dollars suddenly dissolve.

Pundits, talking heads, and media types like to point out Big Oil. What about Big Wind and Big Solar? What about merely calling it “Big Energy Complex”.

If it is “Big Energy Complex” who is really the big and small within this complex regarding subsidies? The political framed argument coming from many is Big Oil. Is that true?

“So I ask the question: If wind has all these drawbacks, is a mature technology, and receives subsidies greater than any other form of energy per unit of actual energy produced, why are we subsidizing it with billions of dollars and not including it in [the energy subsidy] debate? Why are we talking about Big Oil and not talking about Big Wind?” -Senator Lamar Alexander

　

　
“Well, I am one Senator who is very intrigued with the idea of looking at all of the tax breaks in the tax code. There are currently about $1.2 trillion a year in what we call tax expenditures, and those are intended to be for tax breaks we think are desirable. I am ready to look at all of them and use the money to reduce the tax rate and/or reduce the Federal debt. But if we are going to talk about energy subsidies — tax subsidies — we ought to talk about all energy subsidies.”

Renewable vs. Fossil-energy Subsidies

Senator John Cornyn of Texas has asked the Congressional Research Service to do just this. It is an excellent study, and I commend Senator Cornyn for asking for it. This is some of what it finds: According to the report, fossil fuels contributed about 78 percent of our energy production in 2009 and received about 13 percent of the Federal tax support for energy.

However, during that same time 10.6 percent of our energy production was from renewables and 77.4 percent of our energy tax subsidies went to renewables. So if we are to compare the subsidy per unit of energy, the estimated federal support per million BTUs [or British Thermal Units] of fossil fuels was 4 cents, while support for renewables was $1.97 per million BTUs.

So, federal subsidies for renewables are almost 50 times as great per unit of energy as federal subsidies for fossil fuels. [But] this would be distorted because hydroelectric power is included within renewables. Most people think of renewables as ethanol, solar, or wind and those are the renewables that actually get the subsidies, while hydroelectric does not.

So, the federal taxpayer support for renewable energy is at least 50 times as great per unit of energy as compared with fossil fuel energy. So why aren’t we including subsidies for all renewables in our debate? Specifically, if we are talking about ‘Big Oil,’ why don’t we talk about ‘Big Wind?’ The Senate seems an appropriate place to talk about ‘Big Wind.’ (1)



The subsidies are in great peril of being removed. Why? Three items have come to the surface:


(a) one set of politicos want subsidies for oil companies removed in lieu of a windfall profits tax on oil companies,


(b) a subset of the group identified in (a) above and an exogenous group want subsidies for all energy companies removed,


(c)  subsidies in general are “discretionary” spending. With the U.S. Government now at $14.9 million of national debt, spending must be cut. Subsets of both groups (a) and (b) above and yet another exogenous group want to tackle the easier aspect of discretionary spending rather than entitlements. (2)


Those politicos that have championed subsidies and the inherent ability of the subsidy [taxpayer dollars] to reward special interests and hence lend to political constituency building will find some very nasty consequences in the reduction of “discretionary spending” and the consequential removal of subsidies:


(1) those politicos championing “subsidy” will easily be identifiable as they will quickly oppose removing all energy subsidies and want to retain the particular subsidy associated with their particular constituency building exercise,


(2) the price of energy from fossil fuel will rise marginally while renewables will rise many fold,


(3) the taxpayer-voter will suddenly have transparency regarding the comprehensive political energy plan,


(4) the consumer of energy will immediately have a true price signal regarding the cost of energy choices.


Notes


(1) Energy Subsidies and Big Wind: Sen. Alexander Sets the Record Straight (renewables 50x that of fossil fuels), Master Resource, http://www.masterresource.org/2011/05/big-wind-sen-alexander/

(2) http://www.usdebtclock.org/