Tuesday, July 31, 2012

Green Tape, Yellow Tape, Red Tape and the Cost of Tape

Saturday, July 28, 2012

Public Choice, Pluralism, The Neo-Corporatist State, and the book The Amateur by Ed Klein [page 65 specifically]

In the book Government Failure, A Primer in Public Choice by Gordon Tullock, Arthur Seldon, and Gordon Brady, Gordon Tullock makes an excellent observation that many if not all economies prior to 1700 were economies based on rent seeking [gaining privilege from/through government to gain success]. That the 13 colonies where the exception and by 1700 rent seeking economies where on the decline and by the time Adam Smith wrote the Wealth of Nations rent seeking economies were being replaced in a wide spread fashion.

However, and strictly speaking of the USA, Tullock points out that an economy based upon rent seeking was once again advocated beginning around 1910 [Woodrow Wilson era] and continuing through today. The insight being that rent seeking economies are an old form of economic organization and have once again been adopted by politicos in the US. Keep this point in mind for a moment.

The neo-corporatist state, those economic organizations adopted infamously by Adolph Hitler and Francisco Franco, economies based on society seen as a corporation and government dominates all sectors of society and all sectors of society are required to work for “the public interest” where the public interest is defined by politicos through the mechanism of government. The neo-corporatist state is generally swept aside and dismissed mainly due to the end result of Adolph Hitler’s Germany.

Ah, but not so fast. Although the concept of the neo-corporatist state is many times swept aside, by no means is the neo-corporatist state concept dead. Pluralism, where competing interest groups in a rent seeking economy compete for government privileges can easily morph into a neo-corporatist state where politicos through the mechanism of government merely set the agenda and all follow the “interest agenda” rather than the politico being competitively lobbied by various special interests. That is to say, rather than politicos being faced with competing interests, politicos merely end competition and set the interest-agenda in a monopolistic fashion.

Which brings us to page 65 of the book The Amateur by Ed Klein. Klein states [paraphrasing] that Michael Dukakis and Gary Hart were advocates of the neo-corporatist state as is Barrack Obama and his inner circle of advisors. That the “transformational” mantra of Obama is in essence neo-corporatism where: “ He planned to achieve his “transformational” presidency by vastly expanding the reach of Washington into the everyday life of American citizens”.

Klein certainly brings up an interesting point.

Sunday, July 22, 2012

Planning Has a Limit

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

We flatter ourselves undeservedly if we represent human civilization as entirely the product of conscious reason or as the product of human design, or when we assume that it is necessarily in our power deliberately to re-create or to maintain what we have built without knowing what we are doing. Though our civilization is the result of a cumulation of individual knowledge, it is not by the explicit or conscious combination of all this knowledge in any individual brain, but by its embodiment in symbols which we use without understanding them, in habits and institutions, tools and concepts, that man in society is constantly able to profit from a body of knowledge neither he nor any other man completely possesses. Many of the greatest things that man has achieved are the result not of consciously directed thought, and still less the product of a deliberately coordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand. They are greater than any individual precisely because they result from the combination of knowledge more extensive than a single mind can master. -
F.A. Hayek from pages 149-150 of the 1979 Liberty Fund edition of Hayek’s 1952 study, The Counter-Revolution of Science

Hayek made the point outlined in the quotations above on many occasions and in many ways. Associated, but not exactly the same, Milton Friedman wrote a book and did a ten-part PBS series entitled Free to Choose. The point being made by Hayek and Friedman is that in the aggregate, in the real world, in the real time world where a zillion decisions are made daily.....it's mainly a spontaneous order phenomena [the plans of the many in an environment of free choice] that brings greatest satisfaction, value, wealth, etc. to the greatest number of people.

A confusion that reins supreme surrounds the idea of "planning". Yes, you can make dinner plans, plan the family's evening meal for the evening or even the evening meals for the entire week, you can make wedding plans, plan production, make shopping plans....you can plan your brains out...BUT those plans are, in fact, the plans of the many and are in fact the zillion decisions mentioned above.

Some want to transpose the concept "plan" or "planning" as a second coming of the concept "plan". That is to say, a plan exists ahead of the already conjured up plan -or- as a second coordinating factor ahead of those plans, that are in fact, the plans of the many and are in fact the zillion decisions mentioned above. Somehow a value exists in a second plan, the-plan-of-the-plans, a plan not of emergent order, rather a plan of mass coordination. Stated alternatively, the concept that if the conjured up plans yield value, then certainly the-plan-of-the-plans adds more value.

If you think about it, to plan the zillion plans is to undo the zillion plans in some shape or fashion to meet the supposed super coordinated plan which is the-plan-of-the-plans. Greatest satisfaction of all is now reduced to a third party satisfaction. The third party being the few that authored the-plan-of-the-plans.

Moreover, the zillion decisions resulting in a zillion plans are made in real-time, with real information based on current conditions of alternatives. Any super coordinated plan, the plan-of-the-plans, would be after the fact based on post information and post conditions of alternatives. Further the knowledge of the many making the zillion decisions/plans would be supplanted by the few. The few, no matter how smart, knowledgeable or expert, have less total knowledge than the total knowledge of the many.

Hayek and Friedman's observations are counterintuitive: that planning has a limit.

Occasionally history records the coming of politico-ideologist they believe they can plan the zillion plans, that in essence, planning has no limit, and they have the-plan-of-the-plans . They merely plan to restrict, with their monumental plan-of-the-plans, the spontaneous order phenomena that brings greatest satisfaction, value, wealth...you name it...to the greatest number of people.

The result? The plan-of-the-plans is abysmal.

Tuesday, July 17, 2012

Considering the Fiscal Cliff: the Laffer Curve, Hauser’s Law, Recession Spending, Additional Spending Through Stimulus and Additional Other Spending

Within the fiscal cliff is the tax component and its associated tax level. The tax component’s tax level is related to levels of tax avoidance which in turn is related to taxable transactions.

Given the tax component and its associated tax level, the economic contraction phase of a business cycle, with known social welfare state programs existing, generally causes additional spending on these programs e.g. increased spending regarding unemployment insurance benefits. The additional spending occurs while simultaneously the economic contraction phase of a business cycle erodes tax revenue. The spend more/less tax revenue is nothing new regarding the economic contraction phase and should be common place and planned for by politicos through the mechanism of government (a known-known). Keep this in mind for a moment.

Hauser’s Law states:

Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90).

Over this period there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes, and the number of tax brackets among others. Yet during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.

Hauser’s Law and the Laffer Curve may well be related, in that, an optimal tax exists [Laffer] that yields the just under 19% [Hauser]? Stated alternatively, if 19% is the average yield from a varying array of taxes and tax rates over the last six decades, then one would assume an “optimal” exists given a varying array of taxes and tax rates that generated (generates) 19%. 

What if the current taxes and tax rates are close to optimal? For a moment let us assume current tax and tax rates are close to optimal. Then the tax revenue currently collected, which is currently/temporarily under the historical average of 19%, is due to reasons other than the tax and tax rate. The major reason pointed to, if the above assumption is considered, is that the number of transactions that are taxable transactions are very low, historically speaking. Hence the culprit may well be the amount of transactions throwing off tax revenue [the very low current velocity of money makes the case] not the tax or associated tax level, all other things remaining equal.

Returning to the economic contraction phase of a business cycle, if one is generally faced with lower revenue and higher social welfare plan costs, what if one adds a Keynesian stimulus plan based on social engineering? Beyond the cost of the stimulus [even with deficit spending there is a “cost“], and beyond this cost being initiated during a period of reduced tax revenue [timing]; how does a Keynesian stimulus plan based on social engineering “jump start” the private sector? That is, the theory behind a Keynesian stimulus plan is that the stimulus is not suppose to solve the economy’s ills, it’s suppose to “jump start” the private sector which then expands causing economic prosperity. This now-expanding economy creates increased transactions and associates tax revenue.

Keynesian deficit spending stimulus plans have never been successful, however they have been unsuccessful to various degrees. If one recalls, Keynesian stimulus theory is based on raising taxes after the supposed jump start causes the economy to expand. That the deficit spending is now repaid through increased tax.

The most successful-unsuccessful Keynesian stimulus plans have been infrastructure related. However, the most recent Keynesian stimulus attempt, which is merely transferring money in hopes of increased demand, also includes transferring money with political constituency building as a clear aim, transferring money based on social engineering and infrastructure as a complete after thought. One sees the most unsuccessful of the unsuccessful Keynesian deficit spending stimulus plans ever deployed and results duly recorded.

Not only are the politicos associated with the recent stimulus plan associated with the most unsuccessful stimulus plan ever recorded, they paid no heed to the known-known of additional spending occurring while simultaneously the economic contraction phase of a business cycle erodes tax revenue. Plus the same group added additional spending too boot. Now we need more revenue? The tax and tax rate is politically framed as the culprit when in fact it’s the folly of certain associated politicos. The folly is deflected as class warfare taxation argument when in fact it’s political folly to the first degree.

In summary, we end this politico spending spree exercise with the exact same politicos framing the spending as necessary, needed and required. Hence the spending needs paid for by the taxpayer as the new level of spending and the cummulative spending is "necessary, needed and required". One is to set aside the abysmal results of spending based on necessary, needed and required. tion was good but the result was poor and hence one is politicdirected to intention not result. And about the increased tax? Using the oldest play in the polictical playbook: class warfare argument, the politico splits the taxpayer into two classes and dupes one class on the concept that they will benefit from the other class being taxed.

Frédéric Bastiat explained such political dupery in the mid 1800's: Government is the great fiction through which everybody endeavors to live at the expense of everybody else.

“Social science has pursued many blind alleys - and ignored many promising ones -- out of the misguided insistence that every model be a ‘story without fools’ even in areas like politics where folly is central” - Bryan Caplan , The Myth of the Rational Voter


Tuesday, July 10, 2012

BLS Employment Situation 07/06/2012 [BLS Jobs Report]: the Average Work Week and the Fiscal Cliff

Perusing the Bureau of Labor Statistics Employment Situation 07/06/2012 report/press release one might find insight by looking at the top of page three. The report states that the average work week for production and non supervisory employees stands at 33.8 hours. That means the average firm X, assuming average firm X needed more production, average firm X has many more hours to employ current employees before they reach the tipping point of adding more employees. That is, average firm X has another 6.2 hours per week to employ per worker assuming a 40 hour work week and that workers desire a 40 hour work week and the income associated with 40 hours. (1)

Further, if average firm X reached 40 hours per employee, many firms will run production based overtime initially, in that, they want to be certain (expectations/uncertainty) that demand is such that extra employees are warranted (run overtime production as a wait-and-see strategy). Keep this in mind for a moment.

On the other hand, note at the bottom of page two, continuing to page three, that manufacturing is at 40.1 hour work week with overtime at 3.3 hours for the fifth consecutive month. Hence manufacturing is exhibiting the phenomena mentioned in the above paragraph i.e. run overtime production as a wait-and-see strategy. (2)

Hence “being ahead of the curve” for the firm regarding human capital is heavily weighted to the expectation of “certainty”. It’s not that the average firm doesn’t see trends approaching, but the average firm wants certainty in the trend.

Now consider the fiscal cliff which is the simultaneous series of tax increases and spending cuts scheduled for year end 2012. Some pundits and talking heads are holding forth the notional proposition ridiculous that as the fiscal cliff to approaches and nothing of significance will occur e.g. Chad Stone at the Center for Budget and Ppolicy Priorities, a union funded think tank. Merely one example of a zillion appears above, in that, the expectation of a trend of uncertainty, caused by the approaching fiscal cliff, would affect the employment phenomena mentioned above, in a negative way.  (3) (4)

Expectations do count. Uncertainty does count.




(2) ibid, pages 2 and 3

(3) What is the Fiscal Cliff? About.com
(4) Misguided “Fiscal Cliff” Fears Pose Challenges to Productive Budget Negotiations, Chad Stone, 06/18/2012, Center for Budget and Policy Priorities


Wednesday, July 4, 2012

ObamaCare [ObamaTax] and the "informed voter"

In Public Choice Theory the proposition put forth on a regular basis is that the average consumer is more informed than the average voter. That the average consumer purchasing a good or service will search for information, compare options, compare price and seek referrals/advise regarding a purchase. The average voter does not spend comparable time and expense to become informed when deciding on an issue or candidate to vote for come election time.


However, Public Choice Theory observes that the average voter considers himself/herself an “informed voter“. Upon further investigation, the “informed” portion really means informed regarding the issues that directly affect them. Generally speaking, the issues that the average voter is informed about are either localized issues such as a damn being built nearby or sector related issues such as a proposed tariff on imported steel when the voter works in the steel industry. In both cases the “informed” portion is related to the “directly affected by” portion.

It is worth noting, that in the main, voter A is likely completely uninformed about a separate local issue affecting voter B five states away. The same uninformed situation occurs in sector based issues.

Occasionally an issue is local and national, meaning it is a similar issue in each locale. Stated alternatively, assume every voter worked in the steel industry supporting a tariff on import steel and every voter was having a damn proposed right next door to their home. What occurs is many localities are being affected in a similar fashion and hence all the local voters are similarly “informed“.

Obamacare is one of those occasional issues that create a wide population, locale after locale, of “informed” voter on a single issue.

Within the local informed voter situation mentioned earlier, local informed voters inform other local informed voters with additional, supplemental, technical and other information which increases the level of the informed voter on the local issue. Such trading of information can and does create associations, collaborations, meeting, movements, etc. regarding the issue.

With Obamacare you have a much, much wider population yet the same informed voter informing other informed voters with additional, supplemental, technical and other information. However, with the wider population you have more resources to uncover information as well as many more people trading information. Also you have a greater opportunity, due to the size of the informed voter population. for the creation of trading of information leading to associations, collaborations, meeting, movements, etc. regarding the issue. Also, due to the size of the similar informed voter population on the similar issue, scale comes into play where associations, collaborations, meeting, or movements can become national in scale and/or merge to become very large in nature and scope.

Returning to the traditional localized informed voter, national level politicos can trade votes [logrolling] so one politico can trade his/her vote to support another politicos local issue and visa versa. That is, the damn can be built and the tariff imposed as two politicos representing two completely unrelated issues can trade votes in support of one another’s issue. However, when the informed voter becomes national regarding an issue, logrolling becomes more difficult as the politico finds it difficult to hide their one vote for an obscure item regarding another locale/sector for support of the issue in the politicos locale as all locale become one locale.

It should be of interest of how a national informed voter on a particular issue with the absence of politico vote trading, plays out come November when the informed voter casts a ballot.

Tuesday, July 3, 2012

Politico action: “self-interest in a self-interest”? -Or- for those with a political agenda: “greed in a greed”?

Consider voluntary mutual self-interest at the point of exchange. Imagine, if you will, the very point in time at which the dynamic equilibrium is reached where, mutually and voluntarily, two parties reach exchange as both parties perceive value.

If one introduces to the above mutual exchange an exogenous item known as politicos through the mechanism of government generating market distortion through tax, subsidy, regulation and/or the reduction or removal of the freedom to choose, the result is reduced/diminished utility [satisfaction]. That is, the dynamic equilibrium reached at the point of exchange becomes much less economically efficient.

Is too much attention paid to, and the considering thereof, the forces that result in reduced efficiency at the point of exchange, and too little attention paid to the politics of self-interest? Set aside the economic forces for a moment. Is the collective action proposed by the politico merely “self-interest in a self-interest”? -Or- for those with a political agenda: “greed in a greed”?

If one acknowledges the politically introduced forces causing economic inefficiency at the point of exchange, is one in essence viewing the individualistic idea of self-interest being superimposed upon another self-interest? Stated alternatively, we have collective action through the mechanism of government advertised as supposedly for the benefit of the many yet the collective action is initiated through the appeal to the self-interest of the individuals making up the recipient group of the collective action. That is, the action phase of the collective proposal is delivered via the appeal to the self-interest of the individuals supposedly benefiting from the collective action.

Viewing the concept outlined above from another angle, the collective action in effect, politically, creates another set of individualist self-interests. That is to say, collective action or collectivism, when sold by the politico, in the main, is depicted as action for the benefit of the many. However, in essence, the “action phase” in and of itself, that supposedly is collectivist in nature, is really politically sold as individualistic in nature, as the action phase is a self-interest in a self interest.

Hence we find that a collective action which finds its roots in the altruistic view of redistribution to the many, sold to the many by appealing to each individuals self-interest that make up the many. That each individuals self-interest within the many are sold on their having a self-interest in a self-interest.

Returning to voluntary mutual self-interest at the point of exchange, the two parties to the exchange are enjoined by a third party which is the politico who is the self appointed surrogate for the "many". The politico proposes that an exogenous group has a self-interest in the self-interest occurring at exchange between the two parties. The politico frames the exercise as the third party benefiting from a collective action yet appeals to each individuals self-interest within the many. That is, the politico puts forth the notion that the many that supposedly benefit from the collective action should benefit as the many have a self-interest in the self-interest  occurring at exchange between the two parties.

The odd item is that the self-interest occurring at exchange between the two parties is depicted as greed and/or generating excessive benefits to the two parties and/or an exchange that the many should benefit from not just the two parties. Yet greed, the participation by the many in supposed excess benefit is simultaneously sold by the politico to the greed of the individuals making up the many [recipient class]. That somehow, someway, the many have a self interest in a self interest or greed in a greed.

Therefore the billboard advertises self-interest as your noble interest as defined by the politico, whereas greed is that other guy's ignoble self-interest. Yet the action phase of the advertisement is not selling the supposed beneficial outcome of a collective action, the warm and fuzzy benefits to the collective if you will; the action phase is selling you on your supposed self-interest in a self interest or greed in a greed.