Saturday, December 31, 2011

Upon Further Review: “the aristocracy of labor”.

Milton Friedman referred to unions and their particular associated unionized labor as “the aristocracy of labor”. In other words a special class of labor with special wages, special benefits, and special political clout. That the remaining non-unionized labor pays directly and indirectly for the aristocracy class, in this case “the aristocracy of labor”. (1)

If ninety percent of private sector labor is not associated with a union, what about that ninety percent? Why not an argument about the economy of the ninety percent? Why is the argument always about the economy of the ten percent that is unionized?

Consider the following from William Graham Sumner:

A trades-union raises wages (aside from the legitimate and economic means noticed in Chapter VI.) by restricting the number of apprentices who may be taken into the trade. This device acts directly on the supply of laborers, and that produces effects on wages. If, however, the number of apprentices is limited, some are kept out who want to get in. Those who are in have, therefore, made a monopoly, and constituted themselves a privileged class on a basis exactly analogous to that of the old privileged aristocracies. But whatever is gained by this arrangement for those who are in is won at a greater loss to those who are kept out. Hence it is not upon the masters nor upon the public that trades-unions exert the pressure by which they raise wages; it is upon other persons of the labor class who want to get into the trades, but, not being able to do so, are pushed down into the unskilled labor class. These persons, however, are passed by entirely without notice in all the discussions about trades-unions. They are the Forgotten Men. But, since they want to get into the trade and win their living in it, it is fair to suppose that they are fit for it, would succeed at it, would do well for themselves and society in it; that is to say, that, of all persons interested or concerned, they most deserve our sympathy and attention. (2)

Now consider the public sector unions and their particular associated unionized labor as “the aristocracy of labor”. In the public sector the rate of unionization is 36.2% [three and one-half times the rate of private sector labor]. (3) As the argument goes, no one wants to be a public sector employee, hence as the argument goes there would be no excluded class of labor as exogenous labor, as well as current public employees, loath and despise, in the main, employment in the public sector. Stated alternatively, considering the highly used talking point of “no one ever entered a public sector job to get rich”, then logically the talking point argument is that the public sector is an employer of last resort.

Why a three and a half times larger unionized work force in the public sector than private sector? Why unionize if, as the argument goes, the union need not exclude potential workers [the forgotten man] as no one really wants the public sector job? Merely unionizing against a straw man?

In the public sector union arrangement the forgotten man is transposed. The forgotten man is not the excluded laborer who would like the job, the forgotten man is the taxpayer. The highly diffused , unorganized, and largely unrepresented taxpayer who pays for this particular brand of “the aristocracy of labor“. (4)

 

Notes:

(1) Free to Choose, PBS 1980, "Free To Choose 1980 - Vol. 08 Who Protects the Worker?"

(2) What Social Classes Owe to Each Other, 1883, William Graham Sumner, chapter nine, pages 78 and 79.

(3) Bureau of Labor Statistics, Union Members Summary, 01/21/2011.

http://www.bls.gov/news.release/union2.nr0.htm



(4) Wisconsin is coming to a state capital near you!, 02/19/2011.

http://thelastembassy.blogspot.com/2011/02/wisconsin-is-coming-to-state-capital.html#!/2011/02/wisconsin-is-coming-to-state-capital.html

Thursday, December 29, 2011

Journalistic Sun Stroke - IowaHawk

“Sometimes our intrepid media class chooses to cover a story that perfectly (if inadvertently) illustrates the real problem: our intrepid media class.”

http://iowahawk.typepad.com/iowahawk/2011/12/journalistic-sun-stroke.html

13 Questions for 12

Donald J. Boudreaux, professor of economics at George Mason University, asks thirteen very interesting questions in his essay And the answer is? One might contemplate these questions as we enter 2012. Below are several of the questions as well as the link to the entire TribLive [Pittsburgh Tribune] column/essay:

“Why do so many "progressives" believe that higher marginal tax rates on incomes will not dampen workers' efforts to earn income, but that higher marginal tax ("tariff") rates on imports will dampen importers' efforts to supply imports?

Why do so many "progressives" who preen publicly about their magnanimity toward the poor want to prevent foreign workers -- most of whom are far poorer than is any American -- from bettering their lots by competing freely against relatively rich American workers?

In the same vein, why do so many "progressives" -- nearly all of whom seem to regard differences in income earnings across workers to be an Olympian injustice -- support protectionist policies that artificially enhance the incomes earned by relatively rich American workers by artificially reducing the incomes earned by much-poorer foreign workers? Why is this greater income inequality of no concern to "progressives"?

Why are "progressives" madly obsessed with inequality of incomes but not with inequality of work effort, risk taking, prudence, courage, honesty, integrity, ambition and dedication? Monetary incomes, after all, are largely a result of the application of these qualities: Those who apply more of these qualities to their lives and careers generally earn higher incomes than are earned by those who apply fewer of these qualities to their lives and careers.”



http://www.pittsburghlive.com/x/pittsburghtrib/opinion/columnists/boudreaux/s_773501.html






Wednesday, December 28, 2011

The Camel’s Nose: Cell Phone Bans, Medicare, and the 16th Amendment

‘But back to the proposed cellphone ban. NTSB Chairwoman Hersman said: "It's going to be very unpopular with some people. We're not here to win a popularity contest. We're here to do the right thing." C.S. Lewis warned us about people like Hersman, saying: "Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience." ‘ - Walter E. Williams, from the essay Gullible Americans, 12/28/2011.

Link to the complete essay appears below:

http://townhall.com/columnists/walterewilliams/2011/12/28/gullible_americans

What Fannie and Freddie Knew, The SEC shows how the toxic twins turbocharged the housing bubble. - WSJ

Democrats have spent years arguing that private lenders created the housing boom and bust, and that Fannie Mae and Freddie Mac merely came along for the ride. This was always a politically convenient fiction, and now thanks to the unlikely source of the Securities and Exchange Commission we have a trail of evidence showing how the failed mortgage giants turbocharged the crisis. - The Wall Street Journal, 12/23/2011

Link to entire essay appears below:


http://online.wsj.com/article/SB10001424052970204791104577110643650732030.html


Note: for additional perspective, one might consider reading Stanford University economist John B. Taylor’s book Getting Off Track, how government actions and interventions caused, prolonged, and worsened the financial crisis.

http://www.amazon.com/Getting-Off-Track-Interventions-PUBLICATION/dp/0817949712/ref=sr_1_5?s=books&ie=UTF8&qid=1325044510&sr=1-5

Tuesday, December 27, 2011

Third Party Satisfaction Bandits

The term “Utility“, in economics, is basically the amount of satisfaction one receives from the consumption of a good, service or action. Marginal utility is the amount of satisfaction one receives from consuming additional units of the same good, service, or action. Since marginal utility drops off regarding consumption of additional units of the same good, service or action, the general proposition is that consumers consume a basket of goods, services, and actions of which each item has maximum utility hence reaching maximum total utility.

For example, rather than a basket comprising twenty identical packages of chocolate chip cookies with diminishing marginal utility regarding each addition package of cookies, one has a basket comprising a variety of items such as cookies, milk, coffee, lettuce, tomatoes, a haircut and a book with each item having maximum marginal utility thus yielding maximum total utility for the particular basket.

Let us assume on a given day consumer A acquires basket X of goods, services, and actions and has achieved maximum total utility. That the particular basket yields maximum satisfaction given price and the allocation of scare resources with alternative uses. All is tidy and neat as consumer A has reached maximum total utility!

-Or- did A not reach maximum total utility due to market intervention-distortions by third parties? The assumptions in the example above is that A reaches maximum utility given “market constraints“. However, if market constraints become market constraints and market intervention-distortions by third parties, does A reach maximum total utility?

What if third party decisions, resulting in market intervention-distortion, cause consumer A to acquire basket X3P [where X3P represents the assortment of goods, services, and actions available due to third party market intervention-distortion]. That is to say, consumer A wanted to reach maximum total utility by having the freedom to choose and hence acquiring basket X of goods, services, and actions. However consumer A was unable to actually find X.

Consumer A could not find X as third party market intervention-distortion precluded X and substituted X with available option X3P.

 
Therefore consumer A does not reach his particular maximum total utility as he never acquired X. In essence, A acquires X3P due to third party market intervention-distortion. A is not at the point of maximum total utility. If A is not at maximum total utility where did the difference go?

Before we examine the missing maximum total utility, we need to consider a statement by Harold Demsetz, department of economics UCLA, from his book From Economic Man to Economic System, Chapter 10, pages 141 -159, entitled The Public Corporation: Its Ownership and Control. Demsetz writes on page 158:

‘A tax levied on corporate profit reduces the care and effort owners put into its operation, since part of the return that would have been received by owners will go to the state. Defacto, private owners of the corporation are saddled with a shirking partner, the state, which takes part of the revenue and provides none of the effort to improve the firm’s return. Consequently the greater is the corporate tax rate, the greater the incentive for corporate owners and management to pursue the “quiet life”.’
If state [government] acts as a “shirking partner” (which takes part of the revenue and provides none of the effort to improve the firm’s return) then do third party market intervention-distortions also act as a “shirking partner” in regards to A‘s quest for maximum total utility? Since A is not at maximum total utility did the difference go to the shirking partner represented by a third party advocating market intervention-distortions?

Now examine these observations by Thomas Sowell from his book The Vision of the Anointed, pages 74 and 75:

‘One of the problems faced by “consumer advocates” in general is how to make the consumers’ own preferences disappear from the argument, since consumer sovereignty conflicts with moral surrogacy by the anointed.’

‘Displacing responsibility from the consumer to the producer has been a crucial part of consumer advocacy.’

‘…approach boils down to is that third parties should preempt the consumer’s choice…’


Sowell is basically stating that third parties that advocate their particular choices know its poor politics to attack the consumers’ particular preference hence they preempt the consumers’ preference at the producer level. That its much better politics to attack the producer. By attacking the producer the third party advocate superimposes their particular choices on the producer and hence preempts the choices of the consumer.

Now we return to the question:
If A is not at maximum total utility where did the difference go?

The missing utility is captured by the third party. The third party might merely be do-gooders that capture utility in the form of “satisfaction” [utility] that they have somehow, some way, solved/improved the consumer’s preference by morphing the preference into their particular preference. Other third parties, acting as economic rent seekers, benefit from the morphing preference. Stated alternatively, a second set of third parties directly benefit from the preference being directed to the preference they in fact produce.

Monday, December 26, 2011

The End of Nowhere


Drinking, gambling, and prostitution were 24/7 pursuits across the river in the Ballyhack district, where the Dunglen Hotel was said to have hosted a poker game that lasted 14 years.Richmond Federal Reserve, Regional Focus, The End Of Nowhere, third quarter 2011.



Link to the entire article appears below:

http://www.richmondfed.org/publications/research/region_focus/2011/q3/pdf/feature2.pdf

Sunday, December 25, 2011

Regarding Self Appointed Minor Deities: Lisa Jackson of the EPA


The Wall Street Journal

 Editorial: Lisa Jackson's Power Play





Date: 12/22/2011



At an unusual gala ceremony on the release of a major new Environmental Protection Agency rule yesterday, chief Lisa Jackson called it "historic" and "a great victory." And she's right: The rule may be the most expensive the agency has ever issued, and it represents the triumph of the Obama Administration's green agenda over economic growth and job creation. Congratulations.



The so-called utility rule requires power plants to install "maximum achievable control technology" to reduce mercury emissions and other trace gases. But the true goal of the rule's 1,117 pages is to harm coal-fired power plants and force large parts of the fleet -- the U.S. power system workhorse -- to shut down in the name of climate change. The EPA figures the rule will cost $9.6 billion, which is a gross, deliberate underestimate.



In return Ms. Jackson says the public will get billions of dollars of health benefits like less asthma if not a cure for cancer. Those credulous enough to believe her should understand that the total benefits of mercury reduction amount to all of $6 million. That's total present value, not benefits per year -- oh, and that's an -illion with an "m," which is not normally how things work out in President Obama's Washington.



The rest of the purported benefits -- to be precise, 99.99% -- come by double-counting pollution reductions like soot that the EPA regulates through separate programs and therefore most will happen anyway. Using such "co-benefits" is an abuse of the cost-benefit process and shows that Cass Sunstein's team at the White House regulatory office -- many of whom opposed the rule -- got steamrolled.



As baseload coal power is retired or idled, the reliability of the electrical grid will be compromised, as every neutral analyst expects. Some utilities like Calpine Corp. and PSEG have claimed in these pages that the reliability concerns are overblown, but the Alfred E. Newman crowd has a vested interest in profiting from the higher wholesale electricity clearing prices that the EPA wants to cause.



Meanwhile, the Federal Energy Regulatory Commission, which is charged with protecting reliability, abnegated its statutory responsibilities as the rule was being written.



One FERC economist wrote in a March email that "I don't think there is any value in continuing to engage EPA on the issues. EPA has indicated that these are their assumptions and have made it clear that are not changed [sic] anything on reliability . . . [EPA] does not directly answer anything associated with local reliability." The EPA repeatedly told Congress that it had "very frequent substantive contact and consultation with FERC."



The EPA also took the extraordinary step of issuing a pre-emptive "enforcement memorandum," which is typically issued only after the EPA determines its rules are being broken. The memo tells utilities that they must admit to violating clean air laws if they can't retrofit their plants within the EPA's timeframe at any cost or if shutting down a plant will lead to regional blackouts. Such legal admissions force companies into a de facto EPA receivership and expose them to lawsuits and other liabilities.



The economic harm here is vast, and the utility rule saga -- from the EPA's reckless endangerment to the White House's failure to temper Ms. Jackson -- has been a disgrace.


It is December 25th! Which is it? Merry Christmas, Happy Holidays, Wonderful Winter Solstice?


With December 25th now upon us many reflect upon the exact meaning of the date. When considering the meaning one might want to consider your personal meaning vs. third party meanings. Stated alternatively, the individual meaning, your meaning, is much more important than your-third-party-betters inflicting their particular brand of meaning upon you.



When one reflects upon one’s personal and individual meaning of December 25th, regardless of your particular preference, one should note the attempted influence of your-third-party-betters inflicting their particular brand of meaning upon you. One should take fastidious note of those third-party-betters that want to define the moment, tell you their definition should be your definition, that their particular view is supposedly more enlightened and much more intellectual.



One needs to be sure to understand that December 25th is merely one of three hundred and sixty five days in which your-third-party-betters inflict their particular brand of meaning upon you.



With the above in mind, here are some interesting observations from Jonah Goldberg and Daniel Henninger:



“And those are just the highlights. Incapable of getting around the inconvenient first six letters of the word “Christmas,” more and more people have decided to duck the issue entirely. Increasing numbers of public schools insist on celebrating “winter solstice.” Congress cannot send out “Christmas” cards. The governor of Rhode Island declared that the traditional Christmas tree would henceforth be christened — whoops! I mean called — a “holiday tree.”



I have no grand solutions. I don’t know how you could pass a law to fix any of this. Nor am I sure we would want to. This is a cultural problem, and the only way to fix it is to work it out in the culture. To that end, I have some small observations to mull alongside the eggnog.



While it’s absolutely true that there are sincere and committed Christophobes and joyless atheistic boobs out there, one of the major culprits is capitalism itself. I like capitalism — a lot. Heck, the best Christmas present I could get would be a Scrooge-like conversion on the part of the president after a visit from the Ghost of Socialism Past. But the downside of capitalism is that it will, eventually, encourage the commercialization of everything sacred. For instance, there’s an online “dating” company dedicated entirely to facilitating adultery. It shouldn’t surprise anyone that a holiday symbolized by a man who gives presents would be exploited. That doesn’t mean we have to surrender to the trend, but we should recognize all of the trend’s sources, not just the convenient ones.



On a different note, the supposed champions of making Christmas more “inclusive” should at least ponder the irony that they are being intolerant. If you take offense when someone says “Merry Christmas,” you, quite simply, are the jerk.



And for the atheists who see “winter solstice” as some kind of victory, you might consider the fact that what you’re doing is clearing the field not for glorious logic (which ain’t so glorious Christmas morning — socks are a logical gift), but a rank, petty, and vastly more commercialized paganism that lacks anything like the intellectual and moral rigor of Christianity”. - Jonah Goldberg (1)



‘Christmas is out of sync with the times. Christmas cards, shopping for loved ones, wrapping presents, dressing up the kids to see Santa, going to Christmas Eve church services—one by one, the time to do them has gone to wherever the time for everything else has gone. The Higgs boson may solve the mysteries of the universe, but it won’t give us one more minute daily to accomplish Christmas.



People talk all the time now about time compression. Yesterday it was Dec. 1; the next day it’s Dec. 15. These days time doesn’t fly. It barely exists. In such a world, Christmas gets squished. We may be a few years away from when people just skip Christmas. Or phone the whole thing in.



A few years ago, online shopping and e-cards were merely a supplement to the ancient traditions of selecting and buying a gift across a counter from a real person, or signing and addressing each Christmas card. Truth is that in a solid Sunday afternoon spent pounding the keys, you can do Christmas for anyone able to receive a $10 gift delivered overnight for $16. A wry events website called “The Rundown” tagged the new spirit in a post this week: “E-gifts that at least look like you thought about it.” ‘

“Christmas has become just one more item on the never-ending to-do list”. – Daniel Henninger (2)



Notes:



(1)    Santa's not pagan, Jonah Goldberg. American Enterprise Institute, 12/23/2011

http://www.aei.org/article/society-and-culture/santas-not-pagan/



(2)    No Time for Christmas, Daniel Henninger, The Wall Street Journal, 12/22/2011











Friday, December 23, 2011

US Public Education: Wealth Accumulation Through Barking Cats

Milton Friedman wrote two important essays that one should be aware of:

(1) The first essay is The Role of Government in Education, 1955. In this 1955 essay was the birth of the school voucher proposition and the return of K-12 education to the private sector. Of Friedman’s many outstanding points within the essay was the observation that politicos through the mechanism of government, bestowing money on the institution rather than the student, creates the environment for financial shenanigans. By bestowing resources on the institution and not the student, the student is short changed as the student has not the freedom to choose what institution delivers education. (1)

 

(2) The second essay is Barking Cats, 1973. This essay dealt with a particular broken model known as the FDA [US Food and Drug Administration]. Friedman had written a prior essay [Frustrating Drug Advancement] which argued that the FDA does more harm than good hence abolish the FDA.

People wrote in:

“The column evoked letters from a number of persons in pharmaceutical work offering tales of woe to confirm my allegation that the FDA was indeed “Frustrating Drug Advancement,” as I titled the column. But most also said something like, “In contrast to your opinion, I do not believe that the FDA should be abolished, but I do believe that its power should be” changed in such and such a way – to quote from a typical letter”. – Milton Friedman, 02/19/1973 from the essay Barking Cats. (2)

 

“I replied as follows: What would you think of someone who said, " I would like to have a cat, provided it barked"? Yet your statement that you favor an FDA provided it behaves as you believe desirable is precisely equivalent. The biological laws that specify the characteristics of cats are no more rigid than the political laws that specify the behavior of governmental agencies once they are established. The way the FDA now behaves, and the adverse consequences are not an accident, not a result of some easily corrected human mistake, but a consequence of its constitution in precisely the same way that a meow is related to the constitution of a cat. As a natural scientist, you recognize that you cannot assign characteristics at will to chemical and biological entities, cannot demand that cats bark or water burn. Why do you suppose that the situation is different in the "social sciences?"

 

The point being, advancing conditional objections regarding broken models i.e. Barking Cats, is to say, the broken model is fine as long as you change this aspect and that aspect and then the broken model will work. Stated alternatively, the broken model will now miraculously work, as now, it fits my-your-they conditional objection I.e. a particular view of the world. That is, by painting the broken model in your own particular self-image somehow repairs the broken model.

Keeping Friedman’s afore mentioned essays in mind, consider the 300% real dollar [dollars adjusted for inflation] increase in spending that has occurred since the 1960’s regarding K-12 public education. Now consider that math, science, and language skill scores have remained flat or even declining during the same period of escalating spending. Dramatic increase in spending followed by not output enhancement. Four decades of escalating spending resulting in stagnate or declining test scores.

Many pundits, talking heads, and media types point to the declining test scores into two separate and distinct arguments:

(1) we need to spend more,

(2) we have wasted the spending as no appreciable enhancements to scores have resulted.

 

The question that rarely is asked is: where did the 300% real dollar increase in spending go if in fact scores are stagnate? Where’s Waldo?

Returning to Milton Friedman, one needs to examine “wealth” within Friedman’s Permanent Income Hypothesis. Wealth is defined as capital and human capital. Hence the 300% real dollar increase in spending did not appear to enhance the “wealth” of human capital i.e. the student. (3)

Hence we have a US K-12 public education system that that is directed by politicos who bestow resources on the institution rather than the student, a broken model in that US K-12 public education is producing abysmal results, a series of Barking Cat arguments over four decades, accompanied by a 300% real increase in spending.

Where is Waldo? If the increased spending did not appear as an enhancement to the “wealth” of human capital represented by the student, then the spending ended up in the educational delivery model [the institution and participants thereof]. Stated alternatively, the 300% real dollar increase in spending never reaches the student as the spending is absorbed for the benefit of the institution and participants thereof.

One might consider and ponder this proposition: wealth has been transferred from the student’s human capital to the institution and participants thereof. The spending has enhanced all participants for the exception of the student participants.


Notes:



 

(1) The Role of Government in Education, Milton Friedman, 1955

 

http://www.freerepublic.com/focus/f-news/1173402/posts

 

(2) Barking Cats, Milton Friedman, Newsweek, 02/19/1973


http://www.johnlatour.com/barking_cats.htm



(3) Permanent Income Hypothesis, Milton Friedman, 1957


http://ingrimayne.com/econ/FiscalDead/PermIncome.html

http://www.investopedia.com/terms/p/permanent-income-hypothesis.asp#axzz1hMGmRjQK

 

 

 

 

 

 

 

 

Thursday, December 22, 2011

Macro Santa And The Austerity Grinch - Forbes 12/22/2011

“The year is nearly over. The holidays have arrived. The news media is stirring with visions of holiday consumer spending sugar plums, terrifying debt crisis, and depression. ‘Tis the season for John Maynard Keynes! That’s right, there’s no better time to reflect on the maestro of modern macro and more importantly his many modern followers. Each year the public enjoys a sleigh full of Keynesianism shoved down our collective chimneys by a media obsessed with Christmas consumer spending because “we have a consumer economy”, or so we’re told. Nothing gets that so-called “marginal propensity to consume” into high gear like the holidays!

Indeed, Lord Keynes is our modern Macro Santa.

Like Santa’s busy elves, today’s Keynesian economists believe that when we’re in an economic rut, government spending transforms into a magical debt-financed multiplier sack, able to create a limitless bounty of goodies. Meanwhile, they warn that our current woes are because the “austerity” Grinch has stolen Christmas! The only way for us to get the recovery bell to ring is to close our eyes and believe in the magic of Macro Santa“.

 

“American pundits and macro partisans love the stimulus. As for the actual Japanese citizens subjected to it? Not so much. As nobel-prize winning economist James Buchanan cataloged in “Democracy in Deficit: The Political Legacy of Lord Keynes”, Macro Santa’s magical sack provides a pseudo-scientific justification for pandering politicians to pilfer from the future, buying votes and building bigger government in the name of stimulating the economy“. - John Papola

Link to the entire article appears below:

http://www.forbes.com/sites/beltway/2011/12/22/macro-santa-and-the-austerity-grinch/

 

Beyond the Aggregate Demand Argument


Just because macroeconomic textbooks and journal articles focus overwhelmingly on changes in aggregate demand as the chief cause of changes in the vigor of economic activity is no reason for a scholar not to search for some other cause, especially if another identifiable cause is solidly grounded in economic theory.



Becoming More Certain about the Role of Regime Uncertainty - Donald J. Boudreaux, economics departments, George Mason University


http://www.cato-unbound.org/2011/12/20/donald-j-boudreaux/becoming-more-certain-about-the-role-of-regime-uncertainty/

Tuesday, December 20, 2011

Chuck Woolery on Budget Cuts

The Dreadful Legacy of North Korean Dictator Kim Jong Il in One Satellite Picture and One Chart - Carpe Diem

"This one picture above of the Korean peninsula does a pretty good job of capturing the legacy of Kim Jong Il by comparing electricity usage at night between North and South Korea".  - Dr. Mark Perry


Link appears below.










http://mjperry.blogspot.com/2011/12/legacy-of-n-korean-dictator-kim-jong-il.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FmmMP+%28CARPE+DIEM%29


Monday, December 19, 2011

A and B decide on what C is going to do for D [W.G. Sumner's famous formula]


When William Graham Sumner wrote the essay The Forgotten Man he outlined a now famous formula: A and B decide on what C is going to do for D. The underlying concept is that A wants to solve a perceived problem which D is supposedly suffering from. A recruits B who is of like mind. A and B then extract something from C to give to D. The Forgotten Man being C. (1)

Sumner defined the formula as follows:

“The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C's interests, are entirely overlooked. I call C the Forgotten Man”. (2)

How does Sumner define The Forgotten Man?

“….the Forgotten Man and any one who wants to truly understand the matter in question must go and search for the Forgotten Man. He will be found to be worthy, industrious, independent, and self-supporting. He is not, technically, "poor" or "weak"; he minds his own business, and makes no complaint. Consequently the philanthropists never think of him, and trample on him”. (3)

One needs to further consider A and B. Beyond A and B fancying themselves as philanthropic or humanitarians, they in practice act as third party decision makers. The “is going to do” or “made to do”, in the formula above, is the third party decision process.

What prompts A and B to think they have the presence, the knowledge, and the moral high ground to make third party decisions for others? Why must C, The Forgotten Man, need relied upon? If The Forgotten Man is self-sufficient, industrious and requires no assistance, then has not The Forgotten Man done his duty? If C, The Forgotten Man, owes some exogenous duty, would that duty not be the decision of The Forgotten Man?

The next question regarding A and B is why do they merely want to extract from C and give to D …rather than making D like C? One may want to consider that D is not like C, in the main, as D may not be industrious. That is, D likes being D. Moreover, A and B, being that A and B are in point of fact functioning as third party decision makers, may well be made up of two categories: “do-gooders” and those seeking power derived as the third party decision makers. In either case of do-gooders or power extractors, solving D’s perceived problem may well not be their aim. The do-gooder can’t feel “good” nor can the power extractor gain power, without the existence of D and the consequential “is going to do” or “made to do”, in the formula above.

The following are several observations by Sumner that might be enlightening regarding the above discussion:

…the characteristic of all social doctors is, that they fix their minds on some man or group of men whose case appeals to the sympathies and the imagination, and they plan remedies addressed to the particular trouble…

They [social doctors] are always under the dominion of the superstition of government, and, forgetting that a government produces nothing at all, they leave out of sight the first fact to be remembered in all social discussion—that the State cannot get a cent for any man without taking it from some other man, and this latter must be a man who has produced and saved it. This latter is the Forgotten Man.

Hence the real sufferer by that kind of benevolence which consists in an expenditure of capital to protect the good-for-nothing is the industrious laborer. The latter, however, is never thought of in this connection. It is assumed that he is provided for and out of the account.

For our present purpose it is most important to notice that if we lift any man up we must have a fulcrum, or point of reaction. In society that means that to lift one man up we push another down. The schemes for improving the condition of the working classes interfere in the competition of workmen with each other. The beneficiaries are selected by favoritism, and are apt to be those who have recommended themselves to the friends of humanity by language or conduct which does not betoken independence and energy. Those who suffer a corresponding depression by the interference are the independent and self-reliant, who once more are forgotten or passed over; and the friends of humanity once more appear, in their zeal to help somebody, to be trampling on those who are trying to help themselves.

The friends of humanity start out with certain benevolent feelings toward "the poor," "the weak," "the laborers," and others of whom they make pets. They generalize these classes, and render them impersonal, and so constitute the classes into social pets.  (4)



Notes:




(1) The Forgotten Man, and Other Essays ed. Albert Galloway Keller (New Haven, Yale University Press, 1918)

(2) William Graham Sumner, What Social Classes Owe to Each Other, 1883, chapter nine, On the Case of a Certain Man Who is Never Thought of, pages 75 -78

(3) and (4) Ibid










Sunday, December 18, 2011

The Mighty Dollar, a wealth of worthless observations about money – P.J. O’Rourke


Upon which fallacious comparison and self-sanctimony my bird dog lifts his leg. – P.J. O’Rourke

The entire essay appears in the link below:

Globular Objects


The Light Bulb Cops

The budgetary gridlock in Washington in the final legislative days before Christmas took on a farcical atmosphere when Senate Majority Leader Harry Reid refused to move a government-funding bill because, among several other features he objects to, it would overturn a de facto federal ban on incandescent light bulbs.



But late last night Mr. Reid and House Speaker John Boehner agreed to terms on the spending bill, and Republicans won on the light bulb issue. The ban is suspended for one year. The GOP also prevailed on its prohibition of funding for abortions in the District of Columbia, though most of their deregulatory policy directives were stripped from the legislation.



The fact that the light bulb ban even made the list of Mr. Reid's grievances indicates how captive Democrats are to the anti-carbon police. Fluorescent light bulbs are more energy efficient, and though they cost more they last longer than traditional incandescent bulbs. But many consumers just haven't taken to the curly cue bulbs and prefer the older, cheaper kind. So Congress decided to take away the choice for consumers by requiring that all bulbs meet energy efficiency standards. This has meant that stores like Wal-Mart and Home Depot have been clearing the shelves of the traditional bulbs.



The new "green" bulbs can cost as much as $40, which in these tough times is a financial pinch. It's also the height of global warming hysteria to think that letting a family screw a traditional light bulb into the bedroom lamp is going to melt the Arctic ice caps. For another year, at least, American consumers can still by the light bulbs they want. It was a rare victory for liberty on Capitol Hill.



-- Stephen Moore, The Wall Street Journal,  Political Diary, 12/16/2011

More on the Keystone XL pipeline

Saturday, December 17, 2011

The Politico Painted Corner


“Those politically painful steps [in the euro zone] involve selling off state enterprises, firing tens of thousands of politically connected state employees and removing jealously guarded protections that limit competition in dozens of professions."

“Herein lays the crux of the European problem. Although most of the other troubled European countries may not have the same degree of tax evasion and nepotism that Greece has, each of these countries will be forced to implement painful reforms that are likely to endanger the jobs of many European politicians. None of these lessons should be lost in the US either”. – Michael Farr (1)

The above observation finds its root in public choice theory. That is,  politicos through the mechanism of government build dependent constituency classes through taxpayer dollars and/or special conditions. “Dependency” comes in many varieties such as direct transfer payments, crony capitalism, bloated public payrolls, creating special conditions, etc. The basic flaw with political constituency building exercise is that the process is built upon maintaining or increasing taxpayer dollars funnelled to the constituency and/or maintaining or expanding special conditions. Failure to produce the taxpayer dollars or special conditions means loss of the political constituency.

An example may better illustrate. Politico A knows the taxpayer is a widely diffused and to a major degree unorganized/an unrepresented group regarding tax increases. If the politico raises taxes by $1 on the very diffuse group and bestows the many, many one dollar tax extractions to a much smaller and focused group, then the recipient group will support the politico bestowing the taxpayer funds upon them. The highly diffused and unrepresented individual tax payer will make the rational decision that opposing the $1 tax increase is not worth the time and effort to oppose. Hence we have hundreds, maybe thousands, or even millions of taxpayers who individually will not take the time to oppose a $1 tax increase and the small incremental tax increase is then bundled and given to a smaller group which then become the dependent political constituency of the sponsoring politico.

Special conditions act in the same manner. If competition is lessen or distorted for the benefit of a small group which then causes a $1 increase in item XYZ’s  price, the widely diffused taxpayer/consumer once again will not take the time to oppose the $1 increase yet the $1 multiplied over many purchases of item XYZ is bestowed on a particular small and focused group.

A third rail occurs when the politico uses debt to finance political constituency building. That is to say, when a tax increase is unpopular, or taxes themselves will not create the needed revenue for the particular or aggregate political constituency building exercise(s) then debt becomes an optional revenue stream to bestow or create conditions. As more and more political constituency exercises are initiated by wider and wider number of politicos, debt is used in a fashion that increases at an increasing rate.

An overriding assumption by politicos is that the recipient class will not give up their advantage and hence the politico has created a perpetual constituency.  If the advantage is threatened, the politico champions the advantage with the built-in dependency constituency supporting the politico’s effort to retain the advantage for the group.

Hence it becomes problematic that the withdrawal of the incremental tax or incremental price causing special conditions will alienate the particular associated recipient class.  Therefore, the politico cannot allow, nor heaven forbid sponsor, the withdrawal of the advantage.

The alienation of losing a particular advantage [dependency] causes the recipient group to seek the advantage elsewhere. That is to say, the politico has created a Frankenstein of sorts in that political constituency building exercises are self-completing regardless of the sponsoring politico i.e. if politico A will not deliver, the recipient class will merely search and support an alternate politico that will deliver. Hence the politico perceives that the power emanates from the politico, that the politico thinks he has created the perpetual constituency that re-elects the politico come hell or high water, when in fact the politico has created something much larger that can consume the politico.

The above examples of political constituency building through taxpayer dollars, special conditions, and mounting debt occur based on the implicit assumption that unlimited taxes can be levied [which cannot] and that competition can be continuously reduced and the costs constantly passed on [which it cannot], and unlimited debt can be issued and accepted [which it cannot]



What happens when taxes are at a maximum, competition at a minimum, prices at a maximum, and debt at a maximum? The politico has painted them self into the proverbial corner. However, the momentum of political constituency building exercise continues. The recipient class demands its advantage. However, politico A-Z have nothing else to provide  when taxes are at a maximum, competition at a minimum, prices at a maximum, and debt at a maximum. To continue on the same course is assured collapse and to retrace steps is assured political defeat.

Therefore, the politico, so sure of the perpetuation of political constituency through political constituency building exercises find their self-assuredness of constituency building through taxpayer dollars, special conditions, and escalating debt was no more than a path to the eventual demise of the politico by system failure/collapse or political defeat caused by the exact same dependency recipient group the politico purposely created.



“But we have inherited a vast number of social ills which never came from Nature. They are the complicated products of all the tinkering, muddling, and blundering of social doctors in the past. These products of social quackery are now buttressed by habit, fashion, prejudice, platitudinarian thinking, and new quackery in political economy and social science”.

“The greatest reforms which could now be accomplished would consist in undoing the work of statesmen in the past, and the greatest difficulty in the way of reform is to find out how to undo their work without injury to what is natural and sound. All this mischief has been done by men who sat down to consider the problem (as I heard an apprentice of theirs once express it), What kind of a society do we want to make? When they had settled this question a priori to their satisfaction, they set to work to make their ideal society, and today we suffer the consequences. Human society tries hard to adapt itself to any conditions in which it finds itself, and we have been warped and distorted until we have got used to it, as the foot adapts itself to an ill-made boot. Next, we have come to think that that is the right way for things to be; and it is true that a change to a sound and normal condition would for a time hurt us, as a man whose foot has been distorted would suffer if he tried to wear a well-shaped boot. Finally, we have produced a lot of economists and social philosophers who have invented sophisms for fitting our thinking to the distorted facts.



Society, therefore, does not need any care or supervision. If we can acquire a science of society, based on observation of phenomena and study of forces, we may hope to gain some ground slowly toward the elimination of old errors and the re-establishment of a sound and natural social order. Whatever we gain that way will be by growth, never in the world by any reconstruction of society on the plan of some enthusiastic social architect. The latter is only repeating the old error over again, and postponing all our chances of real improvement. Society needs first of all to be freed from these meddlers—that is, to be let alone. Here we are, then, once more back at the old doctrine—Laissez faire. Let us translate it into blunt English, and it will read, Mind your own business. It is nothing but the doctrine of liberty. Let every man be happy in his own way”. William Graham Sumner, 1883 (2)

Notes:



(1)    Market Commentary from Michael Farr, 12/15/2011, Farr, Miller, and Washington.



(2)    What Social Classes Owe to Each Other, William Graham Sumner, 1883, page 72 and 73.




Friday, December 16, 2011

Greed: upon further review


Among the many other questions raised by the nebulous concept of “greed” is why it is a term applied almost exclusively to those who want to earn more money or to keep what they have already earned – never to those wanting to take other people’s money in taxes or to those wishing to live on the largess dispensed from such taxation. No amount of taxation is ever described by the anointed as “greed” on the part of government or the clientele of government. – Thomas Sowell, The Vision of the Anointed, page 186.

Wednesday, December 14, 2011

An Unlimited Supply of Amateur Reformers

“The most prevalent theme in President Barack Obama's Dec. 6 Osawatomie, Kan., speech was the need for greater "fairness." In fact, though the president never defined the term fair(ness), he used it 15 times“. - Walter E. Williams (1)

As previously elaborated upon, “fair” is what you are doing and the other person is not doing, -or- fair is where you go to get your pig judged. “Fair” or “fairness” are subjective contextual terms that boil down to political double speak.

However, deferring to William Graham Sumner, we find some insight:

“The amateurs always plan to use the individual for some constructive and inferential social purpose, or to use the society for some constructive and inferential individual purpose. For A to sit down and think, What shall I do? is commonplace; but to think what B ought to do is interesting, romantic, moral, self-flattering, and public-spirited all at once. It satisfies a great number of human weaknesses at once. To go on and plan what a whole class of people ought to do is to feel one's self a power on earth, to win a public position, to clothe one's self in dignity. Hence we have an unlimited supply of reformers, philanthropists, humanitarians, and would-be managers-in-general of society“. (2)



Notes:
(1) Economic Fairness, essay by Walter E. Williams, 12/14/2012

http://townhall.com/columnists/walterewilliams/2011/12/14/economic_fairness



(2) What Social Classes Owe to Each Other, William Graham Sumner, 1883, chapter eight: On the Value, as a Sociological Principle, of the Rule to Mind One’s Own Business, page 69.

The Keystone XL Pipeline Meets Public Choice Theory

If one considers alternative energy schemes as crony capitalist ventures, with taxpayer dollars being profit to the rent seeking special interests, then is the postponement of the XL pipeline  merely an exercise in the best interest of the special interest?

A special interest, in this case alternative energy, can only rent seek (acquire taxpayer dollars) if the special interest has a politico or collection of politico enablers. Governments do not think, act nor react. Only politicos think, act and react. Hence politicos through the mechanism of government allocate taxpayer dollars to special interests. Therefore, politicos associated with alternative energy have a vested interest in the political constituency exercise that taxpayer dollars generate.

Many of the politicos with a vested interest in the crony capitalism of alternative energy also have a vested interest in environmentalists. As the formula goes, the politico through the mechanism of government uses taxpayer dollars to build a political constituency. In this particular case the constituencies are associated in that the crony capitalist of alternative energy “appear” to also be the champion of the environmentalist. Therefore the politico enabler receives a double constituency building outcome through the awarding of taxpayer dollars.

Digressing for a moment, consider the concept of big oil windfall profit tax. Is crony capitalism, in the area of alternative energies, a substitute as it were for a big oil windfall profit tax, which creates the same "effect" for a particular political constituency? Stated alternatively, if one champions a big oil windfall profit tax and wants to capture the political constituency such a proposed tax caters to, then if one can not achieve the windfall profit tax does one use crony capitalism in the area of alternative energy to achieve the same political constituency building effect?

Now consider a fully engaged crony capitalist exercise in the area of alternative energy with hundreds of billions of taxpayers money allocated. Also consider that these alternative energies are not price competitive. Further consider that the same associated politicos have not only subsidized alternative energy but have mandated its usage. Therefore, a fully engaged crony capitalist system generating a non-competitive above market price has been guaranteed to perpetuate as the same politicos have added mandated usage. Political dupery at its zenith!

 
Enter the XL pipeline, a facilitator of lower priced, much less subsidized, and price competitive energy source. The fully engaged crony capitalist exercise, the political dupery as it were, views competition as a threat. Competition from the private sector no less. Hence simply eliminate competition and preserve the fully engaged crony capitalist exercise.

You see, its not that certain politicos are against monopoly, they are just against “private monopoly”.

 

 

 

 

 

Tuesday, December 13, 2011

The 12/02/2011 Jobs Report: An Unemployment Rate Illusion.

The 12/02/2011 jobs report showed the unemployment rate fell to 8.6% from 9%. That’s an illusion. Why? If the economy was improving the unemployment rate would increase. Rather counter intuitive huh?

The reason for both the illusion and the counter intuitive point is related to the calculation of unemployment and the dynamics of the components. In the latest report the denominator shrunk by 315,000 people during the most recent measurement. That is, people seeking a job became totally discouraged and left the workforce [actively seeking a job]. Meanwhile the numerator grew by 278,000 jobs [employed]. Hence with the numerator growing and the denominator shrinking you get an illusion.

Why would the unemployment rate rise if the economy was growing? Growth of the economy would cause the discouraged worker (not currently seeking a job) to be attracted back to the workforce [those actively seeking a job]. Hence with growth, the initial response would be an upward movement in the measurement [unemployment rate] as the denominator would be flooded by people now seeking jobs. Hence the new 8.6% unemployment rate down from 9% is really an indicator of the overall weakness in the economy not a robust economy.

Furthermore, the January 2012 unemployment rate will likely fall as well. Why? Historically speaking, the January unemployment rate is below the preceding December unemployment rate due to an arbitrary statistical decision each January: a statistically significant number of workers are automatically retired by labor statisticians each January. Therefore the denominator is reduced and unemployment arbitrarily looks better in January than the preceding December all things being equal.

Sunday, December 11, 2011

Curb excessive drinking? Sell beer!

"West Virginia University says it has found a profitable way to curb excessive drinking at home football games: sell beer at concession stands.

By tapping kegs at Mountaineer Field, West Virginia has added $700,000 to the athletic department and reduced the number of incidents in which police were called because of excessive drinking by around 30 percent, Athletic Director Oliver Luck said in an interview".

http://www.bloomberg.com/news/2011-12-09/football-beer-taps-add-safety-700-000-to-west-virginia-university-sports.html


"Consider this—in 1989, Playboy magazine purposefully excluded WVU from the top ten list, noting that the magazine does not rank professional partiers".


http://www.onlineuniversities.com/rankings/10-biggest-party-schools/


Update 01/11/2012

“The same ethic applies to road games: In September, LSU and its fans traveled to West Virginia, which has one of the few college stadiums that serves alcohol.

According to a school spokesman, Mountaineer Field sold over $120,000 in beer alone that night—even though parts of the stadium sold out of cold Bud Light around halftime. Not only was that figure 33% higher than the figure for the next-highest game, it accounted for 23% of the season's total beer sales over seven games.

"The whole line was LSU fans buying four beers at a time," reports Judson Sanders, a 31-year-old Tigers fan who works in electrical contracting. “ - You Can't Spell 'Lush' Without L-S-U, The Wall Street Journal, 01/05/2012

http://online.wsj.com/article/SB10001424052970203471004577141180847382556.html

Wednesday, December 7, 2011

Obama’s Kansas Speech: Fairness, Pinocchio, and Pig Judging

"The Pinocchio Test"

"The president does not need to lard his case with such suspect data. There are few independent tax analysts who have much good to say about the Bush tax cuts. But it is difficult for Obama to justify blaming those tax cuts for being mostly responsible for today’s slow job growth, especially when he wants to retain a good chunk of those tax cuts.

To bolster his case about unfairness, the president is also relying on a suspect statistic about billionaires paying as little as one percent in taxes. Even if true, it is a clearly a rare event. Moreover, it is certainly surprising the White House would rely on such a dubious, unverified source for a major presidential address". - Glenn Kessler, Washington Post, 12/07/2011


"Moreover, it is certainly surprising the White House would rely on such a dubious, unverified source for a major presidential address".


Really? Its surprising? Whenever a politico debates "fairness" it has to be a notional argument as its rather apparent: fair is what you are doing and the other guy is not doing -or- fair is where you go to get your pig judged.


http://www.washingtonpost.com/blogs/fact-checker/post/obamas-kansas-speech-some-suspect-facts/2011/12/06/gIQAUU45aO_blog.html

Tuesday, December 6, 2011

Housing and Urban Development Secretary Shaun Donovan: “positive fund balance and the current book of business is strong”. Really?

More Housing Red Flags 


"Housing and Urban Development Secretary Shaun Donovan told the House Financial Services Committee last week that "unlike many other institutions," the taxpayer-backed Federal Housing Administration "retains a positive fund balance and the current book of business is strong." If only the numbers would cooperate.


The American Enterprise Institute's Ed Pinto recently unearthed new FHA lending data buried in a little-known HUD website called Neighborhood Watch. As of Oct. 31, 17% of FHA's loans were in delinquency or in trouble, up slightly from September. Of that total, 9% of FHA loans are "seriously delinquent," up from 8.2% at the end of June. To put this in perspective, FHA has around 75,000 more bad loans today than it had a few months ago. Meanwhile, the agency's capital reserves are languishing at 0.24%, well below the 2% legally mandated floor.


FHA waves away these worries by arguing that the business it did since the 2007 housing crash is in better shape than the guarantees made at the height of the boom. AEI's Mr. Pinto calculates that 1.9% of loans signed between Nov. 1, 2009, and Oct. 31 of this year are seriously delinquent, which is a far cry from 9% but still exceptionally high. And this comes after FHA installed a chief risk officer and boosted its underwriting standards, among other things.


In effect, FHA is betting that it can grow its way out of trouble by insuring higher-end homes and higher-quality borrowers. Mr. Donovan, in his written statement to Congress, also promised to raise premiums, crack down on bad lenders, look at reforming claims processes and more. But none of this will shrink the FHA down to its traditional role as a lender to first-time low- or moderate-income homebuyers. Until that happens, the agency will continue to dominate the mortgage insurance market, and private competitors will shrink or go bust. That's the last thing the U.S. economy needs".

-- Wall Street Journal, political diary, 12/05/2011, by Mary Kissel