Sunday, April 29, 2012

Chris Christie on Merit Pay for Teachers

Saturday, April 28, 2012

The Hayek Series at Duke University: "How did economists of the day think about the Great Depression -during- the Great Depression?

The 04/09/2012 installment of The Hayek Series at Duke University consisted of visiting professors Lawrence H. White of George Mason University and Douglas A. Irwin, Dartmouth College. Dr. Caldwell of Duke University, the organizer of the Hayek Series, announced at the onset the narrowing of the subject to: "how did economists of the day think about the Great Depression during the Great Depression". Stated alternatively, what were economists real time impressions and real time solutions when they were actually experiencing the Great Depression.

F.A. Hayek made this observation during the Great Depression (circa 1938) [paraphrasing]: monetary policy manipulation can certainly create a boom, however monetary policy alone can’t sustain a boom and it always ends up a bust. His basic point being that monetary policy has limitations and if one is not careful you create a boom/bust cycle through monetary manipulation.

Notes taken during the lecture indicated that between White and Irwin they stated:

(1) Keynes thought monetary policy would not help and advocated fiscal policy intervention,

(2) that Hayek advocated allowing the recession/depression cycle to run its course,

(3) that between the two choices the public sided with "doing something" aka intervention.


Keeping the above lecture points in mind; consider the Friday 04/06/2012 jobs report. Further, consider aggregating every jobs report from 06/2009 [official end of the recession] right up to the 04/06/2012 jobs report. If we aggregate the jobs reports we find 140 million employed 06/2009 and 140 million employed today. That is, the aggregation over three years of every jobs report places us in the same exact square that we started from three years ago: 140 million employed.

One might say that monetary policy has done what it can do. That is, its reached Hayek’s “limitation”. Keynes, as well, did not think monetary policy would help.

Returning to the Hayek Series at Duke, Hayek’s recommendation in the Great Depression was to let the recessionary cycle run its course. That is, market intervention merely prolongs the cycle. Keynes on the other hand wanted intervention (fiscal policy) as the implicit and explicit assumption is that we cannot merely do nothing (which, by-the-way, may very well be the forerunner of today’s politico needing to show voters they are “doing something”).

Taking Hayek’s position and fast forwarding to 04/2012 one sees a world of monetary limitations [monetary policy has reach its limitations] with market intervention fiscal policy prolonging the recessionary cycle.

Let us leave the lecture for a moment and travel back to 1923.

Consider Frank Knight’s book Risk, Uncertainty and Profit. Paul Krugman aside, Frank Knight produced a most excellent argument that most certainly risk exists, but uncertainty exists as a separate phenomena.

One should consider spontaneous order/emergent uncertainty vs. purposefully created uncertainty or purposeful policy creating uncertainty as a byproduct. One might say the rule of law has become uncertain, regulation (property rights) has become uncertain and taxes of all sorts and sizes have become uncertain. That is, we are experiencing man-made created uncertainty beyond any emergent uncertainty.

Hence we arrive at the junction of: limitations, prolonging and uncertainty. Rod Serling would be proud!

Returning to Hayek’s “let it run its course” vs. “we cannot merely do nothing”, it’s likely a combination of doing what we know we can do, not doing what we don’t know how to do, stop creating manmade obstacles and leaving the remainder to market forces.

People have become accustomed to the idea that you must intervene. However, intervention means you actually know what you are doing. Maybe, just maybe we don’t know what we are doing.

U.S. Federal Budget: the un-balanceable budget!

Wednesday, April 25, 2012

Economics vs. Politics: speculators and lemming stories


Economics: Price is a rationing agent.

Politics: Price is a valuable talking point.


Economics: Speculation can and does smooth out price over time.

Politics: Speculation is a smooth talking point.


Thomas Sowell once wrote [paraphrasing] that people actually do not want rational explanations i.e. the truth is no fun nor entertaining. What people want is a villain, a white knight, a "story", and the story must follow the line of the white knight vanquishing the evil villain. That is, lemmings beget lemming stories.


“It is the interest of the people that their daily, weekly, and monthly consumption should be proportioned as exactly as possible to the supply of the season. The interest of the inland corn dealer is the same. By supplying them, as nearly as he can judge, in this proportion, he is likely to sell all his corn for the highest price, and with the greatest profit; and his knowledge of the state of the crop, and of his daily, weekly, and monthly sales, enable him to judge, with more or less accuracy, how far they really are supplied in this manner. Without intending the interest of the people, he is necessarily led, by a regard to his own interest, to treat them, even in years of scarcity, pretty much in the same manner as the prudent master of a vessel is sometimes obliged to treat his crew. When he foresees that provisions are likely to run short, he puts them upon short allowance. Though from excess of caution he should sometimes do this without any real necessity, yet all the inconveniences which his crew can thereby suffer are inconsiderable in comparison of the danger, misery, and ruin to which they might sometimes be exposed by a less provident conduct. Though from excess of avarice, in the same manner, the inland corn merchant should sometimes raise the price of his corn somewhat higher than the scarcity of the season requires, yet all the inconveniences which the people can suffer from this conduct, which effectually secures them from a famine in the end of the season, are inconsiderable in comparison of what they might have been exposed to by a more liberal way of dealing in the beginning of it.” - Adam Smith’s 1776 An Inquiry Into the Nature and Causes of the Wealth of Nations


H/T Café Hayek regarding Adam Smith


One can learn from onions regarding speculation? How so? A very enlightening post appears at Carpe Diem entitled What Can Onions Teach Us About Oil Speculators? Link appears below:

http://mjperry.blogspot.com/2012/04/what-can-onions-teach-us-about-oil.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FmmMP+%28CARPE+DIEM%29

 



 

Student Loans: a burden or a purposeful politico transfer of cost?

On April 24, 2012 president Obama visited Chapel Hill, NC the home of the University of North Carolina to make his political pitch regarding student loan interest rates. Leaving aside many items that circulate around the topic and proposal, one might want to focus upon his talking point that student loans “become a burden”.

One might say the “burden” is due to too much loan value in relation to income earned after graduation. One might say the “burden” is the inability to finance other items in the near term such as a car or home until student loan balances are paid down/off. However, one might want to also consider that the burden is purposely placed upon the student. How so?

If one considers public universities one must consider that these institutions are public sector entities. That the same over staffed and over paid bureaucracy exists at universities that exists in many other public sector entities albeit the bureaucracy is entitled “administration” at a university.

At many, many universities a long-term trend stretching back to approximately 1979 is the ever increasing size of the administration at universities. Today the number of employees within university administrations is approaching , equaling or exceeding the number of professors at particular institutions. Therefore, like any other public sector entity a very well paid and benefit laden bureaucracy exists.

If one goes back to the explosion in college costs, one will see the escalation began in 1979 which coincides with the explosion in administration size.

Returning to the concept of “burden”, is the burden purposefully placed upon the student in that their loan amount reflects an exploding tuition cost associated with an exponential growth in public sector bureaucracy at universities? Is the “become a burden” political dupery as politicos through the mechanism of government have encourage the administrative increase as a dependent political constituency building exercise with the student “burdened” with the cost?

Stated alternatively, has the politico through dependent political constituency building regarding the increased sized of public sector university administration shifted such cost of the dependent political constituency building exercise onto the unknowing student and consequently the size of the students’ loans? Is the “burden” no more than the burden of the cost purposely transferred to the student by the politico and then “become a burden” is merely a politico dupery talking point to deflect the real source of the burden?



Update 04/29/2012: The Political Obsession with College Education Has Created an Unsustainable College Tuition Bubble, carpe diem blog, Dr. Mark Perry. Link appears below:

http://mjperry.blogspot.com/2012/04/political-obsession-with-college.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FmmMP+%28CARPE+DIEM%29

Tuesday, April 24, 2012

Trends Regarding Adding Young Adults to Parents Health-Insurance

A political talking point by many advocates of ObamaCare is that certain provisions of the legislation are popular. One area routinely pointed to is the provision regarding expansion of coverage of young adults allowed them to stay on their parents health insurance policy until age 26.

However, the actual percentage of uninsured within the age group 18-25 has only changed from 27.6% in January 2008 to 24.5% in January 2012.

Albeit an improvement in the realm of uninsured, its worth one’s attention that the uninsured percentage of 18 - 25 age group has reached a plateau. The percentage uninsured has held constant in the area of 24% since the first quarter of 2011. That is, if the provision of the ObamaCare is popular, its popularity would supposedly plateau as well.

Therefore, the political capital of the political talking point, the provision regarding expansion of coverage of young adults allowed to stay on their parents health insurance policy until age 26, has likely reached its zenith. (1)

Notes:

(1) In U.S., Uninsured Rate for 18- to 25-Year-Olds Plateaus, The Gallup-Healthways Well-Being Index, 04/03/2012

http://www.gallup.com/poll/153737/Uninsured-Rate-Year-Olds-Plateaus.aspx

Sunday, April 22, 2012

Obama Jobs Stimulus? No way! Way! Try a 30% Rise in Jobs within the Firearms Sector.


“The Obama years have proved to be a boon to the nation’s gun industry, which has posted strong gains in jobs, sales, economic impact and taxes paid in the teeth of an economic downturn.



The economic impact of the firearms and ammunition industry - a figure that includes jobs, taxes and sales - hit $31 billion in 2011, up from $19 billion in 2008, according to a survey released Thursday by the National Shooting Sports Foundation (NSSF). Background check requests for firearms purchases set records in 2010 and 2011, according to FBI data.


Jobs in the firearms business jumped 30 percent from 2008 to 2011, when the industry employed 98,750. The industry paid $2.5 billion in federal taxes in 2011, up 66 percent in three years.” – Tim Devaney, Obama is named gun ‘salesman of the year’, Washington Times, 04/19/2012



A link to the entire essay appears below:

ObamaCare Funding Accelerates Despite Supreme Court Case


“While President Obama and his Senate allies continue to spend more tax dollars implementing an unpopular and unworkable law that may very well be struck down as unconstitutional in a matter of months, I’ll continue to stand with the American people who want to repeal this law and replace it with something that will actually address the cost of healthcare,” said Rep. Denny Rehberg (R-Mont.), who chairs the House Appropriations subcommittee for healthcare and is in a closely contested Senate race this year.

The Obama administration has plowed ahead despite the legal and political challenges.

 It has moved aggressively to get important policies in place. And, according to a review of budget documents and figures provided by congressional staff, the administration is also burning through implementation funding provided in the healthcare law.

The law contains dozens of targeted appropriations to implement specific provisions. It also gave the Department of Health and Human Services (HHS) a $1 billion implementation fund, to use as it sees fit. Republicans have called it a “slush fund.”

“HHS plans to drain the entire fund by September — before the presidential election, and more than a year before most of the healthcare law takes effect. Roughly half of that money will ultimately go to the IRS.” – Sam Baker, thehill.com, 04/09/2012


A link to the entire article appears below:





Saturday, April 21, 2012

Norquist and Lott from the book Debacle: are you better off after $53,000+ of additional debt?


In the book Debacle by Grover Norquist and John R. Lott, Jr. the authors on many occasions examine statements by New York Times columnist Paul Krugman and disprove his statements with empirical evidence. On pages 109 - 111 of Debacle, Norquist and Lott disprove Krugman yet again regarding Krugman’s 02/25/2011 assertion that “…the size of the deficit in the next year or two hardy matters or the U.S. fiscal position.…and in fact the size over the next decade is barely significant.”  (1) (2)

Moreover, they make an observation of the share of the national debt based on an average family basis. That the share of national debt on the average family went from $87,000 to $140,000 so far (that was at the $11 trillion national debt level) under Obama and the $140,000 will balloon to $186,000 by 2016. That puts the numbers in a more digestible form [trillions can be difficult to comprehend].

They then take the above observation and go back to the last budget proposed by Bill Clinton. They take Clinton’s budget; project it forward to the 2012 budget year by adjusting for inflation and the growth in population. The result? A $70 billion surplus in 2012.  That makes for an eye opening comparison of what has happened over the last 12 years with the major ramp up in national debt occurring during Obama Administration.

But they don’t stop there. They pose this question [paraphrasing]: Ask yourself if all this new debt [your family’s share increasing from $87,000 to $140,000], which basically comes in the form of government spending, has greatly improved your life? Good question. That is, if your family’s share of debt went up $53,000, can you say you have experienced $53,000 worth of value? Stated alternatively, are you $53,000 better off?



Notes:

(1) Paul Krugman, New York Times, Feb. 25, 2011

(2) Paul Krugman, “The Arithmetic of Near-term Deficits and Debt”, New York Times, August 6, 2011

Thursday, April 19, 2012

Barney Frank on ObamaCare 04/15/2012: A Political Mistake


“You think Obama overinterpreted his mandate with health care?

 The problem with health care is this: Health care is enormously important to people. When you tell them that you’re going to extend health care to people who don’t now have it, they don’t see how you can do that without hurting them. So I think he underestimated, as did Clinton, the sensitivity of people to what they see as an effort to make them share the health care with poor people. I think we paid a terrible price for health care. I would not have pushed it as hard. As a matter of fact, after Scott Brown won, I suggested going back. I would have started with financial reform but certainly not health care.”
- In Conversation: Barney Frank, by Jason Zengerle, nymag.com, 04/15/2012 http://nymag.com/news/features/barney-frank-2012-4/

The Purposely Politico-Designed Rent Seeker Extravaganza


How did it come to the point that federal, state and local government systems are perceived as rent seeking opportunities? Moreover, do such systems then lend to a notion that rent seeking is a natural, acceptable and everyday way of doing business?



Beyond Buchanan and Tullock and all the other public choice theory leaders from the school of thought known as the Virginia School of Political Economy, one of the best quotes that sums up the current atmosphere for rent seeking was made long ago:



 "The state is the great fiction by which everybody seeks to live at the expense of everybody else." - Frederic Bastiat, French economist, 1850



 Hence what you are watching, observing and playing out is the end product of Bastiat’s observation in which people manipulate a system and those same people think it's perfectly fine, natural and required to play the game of rent seeking as it’s at someone else’s expense.







How did Bastiat’s observation come to be present reality? The present U.S. state, local and federal environment for rent seeking [beyond the mechanics explained in public choice theory which is an explanation of how it all works after the environment is created] goes back to the 1930's:



 “Keynes was exceedingly effective in persuading a broad group—economists, policymakers, government officials, and interested citizens—of the two concepts implicit in his letter to Hayek: first, the public interest concept of government; second, the benevolent dictatorship concept that all will be well if only good men are in power. Clearly, Keynes’s agreement with “virtually the whole” of the Road to Serfdom did not extend to the chapter titled “Why the Worst Get on Top.”

Keynes believed that economists (and others) could best contribute to the improvement of society by investigating how to manipulate the levers actually or potentially under control of the political authorities so as to achieve desirable ends, and then persuading benevolent civil servants and elected officials to follow their advice. The role of voters is to elect persons with the right moral values to office and then let them run the country."



- Milton Friedman, Richmond Federal Reserve Economic Quarterly, volume 83/2 Spring 1997.



 The concept of politicos manipulating the levers is an important Keynesian axiom that is missed by many as they want to concentrate on spending, debt, tax, Keynesian economic models, etc.



 The achievement of desirable ends is another item much overlooked. That "outcomes" can somehow be managed in a complex society through political planning. That is an erroneous assumption and one can merely point to the results as evidence. However, consider this observation:



 "This way lies charlatanism and worse. To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.


But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims." - F.A. Hayek, from the essay The Pretense of Knowledge



 The next proposition one should consider is the size and scope of government. That the mere "size" creates the environment for shenanigans. From $800 defence department toilet seats, to recent GSA parties, to our subject at hand of rent seeking are all magnified by such size and scope. That is, if government was limited in size and scope then shenanigans, would too, in the main, be limited in size and scope.



 What has been purposely-political developed is a giant hulking money trap run by politicos and the manipulation thereof by politicos creates an environment of rent seeking purposely promoted by the system itself [a politically driven economy directed by politicos through the mechanaism of government rather than an economic driven economy directed by free people in free markets, with government also based on economics rather than pure politics] as well as the size of the system itself [the sheer size makes it out of control at the margins].


F.A. Hayek made an observation many years ago that identifies the above problems as well as offers a solution. It’s a solution not a panacea. Hayek observed that if the greater public wants collective action to address a need or desire [defence, education, fire protection, welfare, social security, etc., etc.] then government through collective action can tax to create funds to address such items.


Keep this in mind: a tax created to fund. One then must examine a fork in the road. How does one then go from the "fund created" to implementation of the "action" that the fund is intends to do??


Hayek argued two choices exist for the created fund leading to the action phase: act through the private sector or deliver through a created public sector. That is, if you now want the "action" to occur, the delivery method appears as the next step and two distinct choices appear: private or public.


The politico opts for public means as political power is gained in a much greater magnitude than opting for private delivery of the action. The political power leads to dependent political constituency building of the public sector workers themselves and others that now supply items to the now public and politico directed delivery system.

 Therefore, in the main, what you see, experience, and lament as "government" is not an economic organization, it’s a pure political machine of the nth degree by, for, and designed by politicos. The rent seeking pattern is promoted by the purposely built political system. Further, rent seeking is welcomed by the same politicos running the system as the rent seeking activity further dependent political constituency exercises that politicos depend upon.












Tuesday, April 17, 2012

The Buffett Tax Defeated in the Senate -or- How They Learned Not To Love Eleven Hours of Tax Revenue


"Buffett Tax Baloney - So the Buffett tax ruse is finally dead.



The millionaire tax—named for financier Warren Buffett and designed to ensure that high earners pay at least 30% in federal income tax—failed to get the 60 Senate votes necessary and went down 51 to 45.



The Senate's class warfare champion, Democrat Sheldon Whitehouse of Rhode Island, even acknowledged that this is not about growth or deficit reduction or raising tax revenues. Rather, it's about "tax fairness." Republican presidential candidate Mitt Romney noted that the plan "would pay for government for less than 11 hours. This isn't a grand idea." But President Obama thinks it is. Mr. Obama wasted no time blasting Republicans for "spending money" on tax cuts for the "wealthy that they don't need."



Only one Republican senator, Susan Collins of Maine, supported the tax. Mark Pryor, a Democrat from Arkansas voted no. Democrats thought that this issue was solid political gold, and polling seemed to show that two of three Americans supported the tax hike on "millionaires and billionaires." But what this exercise has accomplished for the Democrats is an open question. Sen. Chuck Schumer of New York promised after the vote to bring the issue up again and again. The party now appears to be more obsessed with socking it to the rich than with creating jobs, growing the economy, or solving the middle-class squeeze." - Stephen Moore, The Wall Street Journal, Political Diary, 04/17/2012

“Making a Difference”: Curing Others Through Snake Oil


Population growth as a driver of economic demise has been recycled for centuries. The Malthusian population trap was shown as a fallacy long ago yet lives on to this very day. What if one differentiates between fallacies being the classic snake oil argument/fallacy vs. the shaping societal outcomes argument/fallacy? (1)



A fallacy must have an author and a receiver/believer. The author wants the receiver to believe the author’s notion as an outcome is desired. What if one concentrates on outcome and divides “outcome” into individual outcome vs. individual and others outcomes?



In the classic case of the snake oil salesman the salesman wants the receiver to believe the potion in the bottle will alleviate the problems of the receiver. The desired outcome being the snake oil salesman, on an individual basis, gains while the receiver/believer, on an individual basis, is duped [although some are not duped in that the mind is a weird and wonderful place and a placebo can have positive effects]. Moreover, in the main, the same snake oil salesman and same snake oil potion cannot return to the same individual as his dupery has been uncovered. That is, there is little chance for repeat fallacy sales.

Although snake oil salesmen continue to exist today and wild remedies continue to abound, a second fallacy category has emerged regarding shaping outcomes via fallacy. It’s the same snake oil salesman, and the same salesman wants to gain [notoriety, sell books, interviews, speaking engagements, etc. ….the classic Al Gore case] and the author still is concentrating on the individual receiver/believer, but the remedy is much less individual as societal based. Stated alternatively, rather than buying a bottle of snake oil and individually being cured of what ails you as an individual, you buy an abstract notion that by owning the abstract notion you cure not only yourself but you cure others as well.

Hence the fallacy of the bottle-of-potion is merely substituted by the abstract-potion. However, where the bottle full of potion was an individual cure the abstract potion is your supposed ability to cure yourself and cure others as well.

The supposed ability of being able to cure others through the abstract potion is related to a fallacy- facilitator known as “making a difference”. That is, rather than concentrating on one’s self and if you as an individual improve as an individual [improvement of one sort or another] than society improves as society is merely a summation of all individuals. Conversely, the abstract potion regarding curing others is based on you making a difference in society as society is not viewed as a summation of individuals rather society is an abstract notion of a preconceived outcome of altruistic attributes of society and to meet these societal attributes individuals should conform to the preconceived society. That is, society becomes a real thing with real attributes and leaves the realm of the abstract. You hence “make a difference” by curing others through having others conform to the preconceived attributes. Your “making a difference” becomes your ability to make others conform to the fallacy [curing others through snake oil].



Returning to the proposition that the shaping of societal outcomes through fallacy is a separate form of snake oil, let us examine some real life examples:



(1)    As stated earlier the Malthusian population trap that lives on without end,

(2)    The living wage and the minimum wage,

(3)    Fair and greed,

(4)    Social justice,

(5)    Global warming, global cooling finally morphing into the all-inclusive “climate change”,

(6)    Gender gap,

(7)    Achievement gap,

(8)    Add you fallacy here ---> ___________.



In the classic snake oil salesman case the same snake oil salesman and same snake oil potion cannot return to the same individual for more fallacy sales as his dupery has been uncovered. That is, there is little chance for repeat fallacy sales. However, the shaping societal outcomes argument/fallacy does in fact repeat itself over and over again. Why? Thomas Sowell made an excellent observation regarding fallacy in his book A Conflict of Visions. When a proposition such as the Malthusian population trap is disproved the author merely comes back and amends the original proposition so that there is no way to prove or disprove the proposition. (2)

 Here is a real life/real-time example: global cooling was disproved and then amended to global warming which was disproved and finally is amended to "climate change". Global cooling was disproved, global warming was supported by a hoax, hence one merely changes the proposition to "climate change" and the subject is so broad and so encompassing it leaves the author with the ability to point to any change.... cooling, warning and for that matter no-change as evidence of "climate change". Hence the author has purposely re-framed the proposition in such a way that there is no way to prove or disprove the proposition.

Notes:

(1) From Economic Man to Economic System, Harold Demsetz

(2) A Conflict of Visions, Thomas Sowell










Sunday, April 15, 2012

April 15, 1913 and April 15, 1936 and First Degree Political Dupery: Great Politico Counterfactual Arguments


What about those politically driven counterfactual arguments that make the assertion that without government intervention all would have been lost?



If Markets fail, then governments fail too. However, politicos enjoy framing positive externalities of government intervention without ever mentioning the negative externalities of government intervention [also known as cascading unintended consequences]. The politico argument is based on the “counterfactual”. That is, the politico frames the abstract and unknown outcomes that surely included dire consequences vs. politicos stepping into the breach via intervention and creating wonderful outcomes. Stated alternatively, the politico compares the first stages of intervention outcomes with the unknown non-intervention outcome –or- politically framed opinion based reality is compared with politically framed opinion of non-reality.

Since politicos enjoy comparing their supposed grand accomplishments [positive externalities only] with non-reality, what if one went one step further and out counterfactual-ed the politico? That is, what if one went back to April 15th 1912 and wiped the slate clean of income tax, the Federal Reserve and the 1930’s proposition of politicos manipulating economic levers to achieve supposed outcomes?



In 1913, the 16th Amendment to the Constitution made the income tax a permanent in the U.S. tax system. Prior to the 16th Amendment the U.S. tax system was basically a tariff on imported goods [tariffs not being a wonderful world in and of itself]. The tariff tax revenue funded a government of very limited size and scope. (1)



Also during 1913 The Federal Reserve Act was passed. (2)



“In one respect the System [the Fed] has remained completely consistent throughout. It blames all problems on external influences beyond its control and takes credit for any and all favorable occurrences. It thereby continues to promote the myth that the private economy is unstable, while its behavior continues to document the reality that government is today the major source of economic instability.” - Milton and Rose Friedman (3)



During The Great Depression John Maynard Keynes advocated intervention into the economy by politicos. That is, that politicos should manipulate the economic levels and intervene into the free market to create outcomes:



“Keynes was exceedingly effective in persuading a broad group—economists, policymakers, government officials, and interested citizens—of the two concepts implicit in his letter to Hayek: first, the public interest concept of government; second, the benevolent dictatorship concept that all will be well if only good men are in power. Clearly, Keynes’s agreement with “virtually the whole” of the Road to Serfdom did not extend to the chapter titled “Why the Worst Get on Top.”



Keynes believed that economists (and others) could best contribute to the improvement of society by investigating how to manipulate the levers actually or potentially under control of the political authorities so as to achieve desirable ends, and then persuading benevolent civil servants and elected officials to follow their advice. The role of voters is to elect persons with the right moral values to office and then let them run the country.” - Milton Friedman (4) (5)



Hence one can surely go back to 1912 and create the ultimate counterfactual world of no income tax, free banking, and an economy based on economics rather than politics. What is to say this counterfactual world is not much more free and prosperous than the reality of politically driven taxation, politically driven banking, and politically driven economy?

The point being that politically framed counterfactual arguments that without government intervention outcomes would have been world-ending is political dupery of the first degree. Any counter-factual argument can be created to support or deny the outcomes.



Notes:



(1)    History of the Income Tax in the United States


(2)    Federal Reserve Act

http://en.wikipedia.org/wiki/Federal_Reserve_Act

(3) Free to Choose, Milton and Rose Friedman

(4) Milton Friedman, Richmond Federal Reserve Economic Quarterly, volume 83/2 spring 1997.

(5) The General Theory of Employment, Interest and Money







If Markets Fail, Then Governments Fail Too – The Song

Wednesday, April 11, 2012

PIIGS: Remember it is Portugal, Italy, Ireland, Greece and……Spain.


“…the historically important central puzzle of economics was to explain how independently acting people in an unplanned decentralized, private ownership economic system allocate their resources and, in particular, to explain how it is that the uses they seem to make of resources seem to be well coordinated”. - Harold Demsetz (1)

Independently acting people in the unplanned aggregate economic environment coordinate well. Man-made systems do not coordinate well in a vast and aggregate economic environment. (2)

Imagine if one is faced with having to “unwind” man-made political systems masquerading as economic systems in Europe. Europe being a vast economic environment. The unwind becomes a crisis for many as the man-made politico systems, the larger and more complex they are, breed larger and more complex negatives that public choice theory explains. (3)

Robert Higgs at the Independent Institute has made the assertion that legislation leading to regulation “ratchets up”. That is, little is ever repealed, merely more is added on. Hence we have a corpus of regulation that can never erode, only expand. A zero floor of erosion in corpus with all new gains in regulation becoming part of the corpus – rarely or never to erode. (4)


Imagine being on the ground in Europe and trying to ratchet back/unwind all the man-made politico silliness and during every step of the way encountering Marie, Thomas, and Peter living off of, and depending upon, the zero floor of erosion of corpus that sustains his/her income in one form or another.


Notes:

(1) From Economic Man to Economic System, Harold Demsetz
http://www.amazon.com/From-Economic-Man-System-Institutions/dp/1107640857

(2) F.A. Hayek, from the essay The Pretense of Knowledge

(3) James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy, 1958

(4) Dr. Robert Higgs, http://www.independent.org/aboutus/person_detail.asp?id=489

Nitwitery Warning: Math Quest and ObamaCare. Ops! We Spent the Savings Twice.





“Under Obamacare, Medicare cut's [$500 billion] is transferred into Medicaid to pay for the expansion of uninsured coverage outlined above--but, it is also simultaneously credited as savings to the [Medicare] trust fund.


 The CBO and Medicare's own economic estimators already said the government can't spend the same money twice.”


“…the [independent] public trustee overseeing Medicare and Social Security finances, analyzed Obamacare, and found that it will add at least $340 billion to the national deficit--citing federal accounting practices that have obscured the true fiscal impact of ObamaCare. (1) (2) (3) (4)

Hold on, the CBO said last month ObamaCare would cost 1.76 trillion rather than $940 billion:


“President Obama's national health care law will cost $1.76 trillion over a decade, according to a new projection released today by the Congressional Budget Office, rather than the $940 billion forecast when it was signed into law.” (5)


Then $940 billion becomes $1.76 trillion last month which now becomes $2.1 trillion this month.


Notes:


(1)    Public Trustee Report: Obamacare deficit reduction mostly accounting fraud, Examiner.com, 04/10/2012 http://www.examiner.com/political-buzz-in-national/public-trustee-report-obamacare-deficit-reduction-mostly-accounting-fraud

(2)    New study shows ObamaCare increases deficit, knocking down president's vow, Foxnews.com, 04/10/2012 http://www.foxnews.com/politics/2012/04/09/study-claims-obamas-health-care-law-would-raise-deficit/#ixzz1res8ro73


(3)    HHS Secretary Sebelius admits to double-counting in Obamacare budget, Daily Caller, 03/04/2011 http://dailycaller.com/2011/03/04/hhs-secretary-sebelius-admits-to-double-counting-in-obamacare-budget/


(4)    America Crack Open Your Piggy Banks – Obamacare Costs Revealed, 60plus.org, 04/10/2012, http://60plus.org/america-crack-open-your-piggy-banks-obamacare-costs-revealed/


(5)    CBO: Obamacare to cost $1.76 trillion over 10 yrs, The Washington Examiner, 03/13/2012, http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/cbo-obamacare-cost-176-trillion-over-10-yrs/425831










Sunday, April 8, 2012

04/06/2012 Jobs Report: The Unemployed vs. The Employed and the Further Rise of the Discouraged Worker


The Friday 04/16/2012 jobs report is not a report that one would associate with a strengthening economy. However, it does follow the trend regarding the official end of recession 06/2009 when total number employed was 140 million, remaining roughly the same number employed today.....three years later. Yes, 140 million employed 06/2009 and 140 million employed today. Job creation? Nada! (1) (2) (3)

The jobs report showed 164,000 more leaving the work force. Yes, 164,000 more discouraged workers added to the army of 4.5 – 5 million already discouraged workers [left the work force]. Further, as has been pointed out many times, if a robust economy was perceived, the denominator of the formula regarding unemployment would be flooded by discouraged workers returning to the work force if they sensed a growing economy producing job opportunities. Hence an increasing unemployment rate would occur before a declining unemployment rate. Add in the "churn rate", those workers trading up to a better job at an all-time low, you end with a rather disturbing picture.

At the current trend of discourage workers leaving the work force, the unemployment rate is going to drop to 0.00% with 600 standing divisions of discouraged workers.

A disturbing picture? Oh it gets much better. Forward earnings, a forward looking predictor of economic activity, has been turning downward for months. If one removes Apple from the forward earnings picture the scene becomes onerous. (4)



Notes:






(2)    March jobs report: Hiring slows, Unemployment falls, CNN Money, 04/06/2012.




(3)    Debacle, Norquist and Lott, page 24.



(4)    S&P500 Q4 Profit Margins Decline By 27 bps, 52 bps Excluding Apple, Zero Hedge, 02/18/2012. http://www.zerohedge.com/news/sp500-q4-profit-margins-decline-27-bps-52-bps-excluding-apple




Saturday, April 7, 2012

Affordable Housing?


If one reads the book Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon by Morgenson and Rosner you will find a common thread preached by politicos of “affordable housing”.
That much of what politicos did to set the stage for a bubble and consequential bust in housing was to expand home ownership from its historical level of 64.5% to 67.5% by arguing for, financing of, and lower requirements based on “affordable housing”. (1) (2)



Keeping the above in mind for a moment, consider this observation by Thomas Sowell:

'The same politicians who have been talking about “affordable housing” for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?' (3)



Notes:


(1)    Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon by Morgenson and Rosner



(2)    Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, John B. Taylor



(3)    Dismantling America: and other controversial essays, Thomas Sowell, page 24.