Saturday, September 29, 2012

Thomas Sowell and the Political Proposition of “Trickle Down”

Thomas Sowell recently published a 14 page pamphlet: “Trickle Down” Theory and “Tax Cuts for the Rich”.

Thomas Sowell has pointed out on many occasions that no such economic theory, known as "trickle down", exists. You read that correctly, in all of economic literature no such theory exists. Sowell is correct, no such theory known as “trickle down” exists within the realm of economics. That "trickle down" and its companion "tax cuts for the rich" are merely notional political concepts and such misinterpretation goes all the way back to the 1920's.

Sowell has expressed the concepts which appear in the pamphlet many times, but this time around he expands upon the argument in that he clearly delineates between the change in behavior associated with taxes reductions and the mistaken conclusion of change in income flows to a particular class.

Also, left out of the discussion by many pundits, talking heads and commentators is Andrew Mellon. Mellon merely showed the paradox between lower tax rates and higher government revenue. Mellon’s book Taxation: The People’s Business is in fact a discussion of the change in behavior regarding taxes. (1)

However, Mellon has been vilified by many mainstream historians based on notional propositions without looking at the hard data. Mellon was correct and these particular historians are wrong. Maybe particular historians enjoy vilifying Mellon as he was FDR’s favorite target of: bring government powers to bear against an individual citizen due to FDR’s own personal notional vendetta.(2)

Link to Sowell’s recent publication appears below:


(1) Andrew W. Mellon, Taxation: The People’s Business, New York, The Macmillan Company, 1924.

(2) Burton Folsom Jr., New Deal or Raw Deal, NewYork, Simon and Schuster, 2008, pages 159-162.


Wednesday, September 26, 2012

Simpson-Bowles Commission Lecture featuring Mr. Simpson and Mr. Bowles at Wake Forest University 09/25/2012

Simpson-Bowles [National Commission on Fiscal Responsibility and Reform] lecture was held last evening 09/25/2012 at Wait Chapel on the campus of Wake Forest University with the lecturers being none other than Mr. Simpson and Mr. Bowles. 

The lecture was merely a rehash of their findings/recommendations from the original report issued by the commission. Nothing new that can‘t be found in the original report. Was more of an infomercial for their recommendations.

Three items that might be of interest from the lecture were: (a) the use of the word “crazy” used many times to describe the overspending vs. tax revenue available, (b) the failure to explain what phenomena was/is at work that brought us to the point of having the commission in the first place, (c) the whining that they [Mr. Simpson and Mr. Bowles] are "lashed out at" by everyone who would suffer a cutback of their government sponsored privilege via the Simpson-Bowles recommendations.

The “crazy” depiction consisted of:

(1) how can we spend more than what we bring in (crazy),

(2) how can people believe that the system will not go bust (crazy).

What they fail to recognize is the phenomena of rational-irrationality. They call it a catch-all “crazy” and leave it as a murky phenomena rather than in fact explaining rational-irrationality. That is, politicos through the mechanism of government have created an economic system of government privilege as a political constituency building exercise that is going broke. On one hand politicos dispense privilege knowing the system will go broke while on the other hand people accept privilege knowing the system is self destructing. Hence it becomes rational to gain from the purposely built system (politico and recipient class) while simultaneously knowing it is irrational to gain from a system that can not last. It boils down to the old expression of “get it while the getting’s good”.

They completely failed to explain what underlying phenomena was/is at work that brought us to the point of having the commission in the first place. Their position is explained from the starting point of: here we are and this is how to fix it. If one is to “fix” something what exactly went wrong in the first place that caused one to have “fix”? Which then begs a question of: if one “fixed it” why would the something that went wrong merely manifest itself again? That is, the chronic condition is never addressed, only a particular cure is addressed. Completely left out of the discussion is James M. Buchanan’s observation that a purposeful system of government privilege has been created by politicos as an ongoing political constituency building program. That a free market model has been supplanted by politicos with a government privilege model.

The failure to explain the underlying problem leaves them whining about being ““lashed out at“ by everyone who would suffer a cutback of their government sponsored privilege via the Simpson-Bowles recommendations. That is, the “lashed out at” is depicted as “woe is me” for telling the truth. Nay, nay. If they explained the underlying problem and the purposely built government privilege system then they would know such a system generates special interests that have their own politically built constituency that require the privilege to continue or else the special interest and associated constituency disappear. Hence the special interest and associated constituency are rational in lashing out as they want to retain privilege and the “woe is me” proposition misses the point completely.

You Didn't Build That: The Movie

Sunday, September 9, 2012

Should Majorities Decide Everything?

Obama Calls for Lower University Tuition Rates

‘This morning I heard President Obama call for universities to lower their tuition rates so that “everybody in America can go to college.”

I am virtually certain that the President is not stupid enough to think that if tuition rates fell to zero,there would magically be enough room in the colleges for everybody in America. So I’ve got to believe that he’s purposely saying stupid things in order to appeal to stupid voters — the sort of voters, in other words, who probably don’t belong in college.

To believe what the President wants you to believe, you’d have to be not just stupid but badly misinformed. At the University where I teach, we do not lack for applicants. The reason we don’t have more students is not that they can’t afford us; it’s that we don’t have room for them.

The President’s proposal would make sense if universities were ordinary monopolists, artificially restricting enrollments in order to keep prices high. But universities, insofar as they are monopolists, are by no means ordinary — they are price-discriminating monopolists — and extraordinarily effective ones at that.

Every year, I tell my Principles students with confidence that “You and the student on your right are probably not paying the same tuition rate”. Universities have detailed information on students’ academic records (which tells them where else those students are likely to be admitted) and detailed information on student’s (and their family’s) financial statuses. They exploit this information to tailor individual aid packages.

That’s important here, because, unlike an ordinary monopolist, a good price discriminator doesn’t leave seats in the classroom unfilled just to keep prices high. Instead, the price discriminator fills empty seats at bargain prices while still keeping prices high for those who are willing to pay full fare.' - Playing the Dunce, Steve Landsburg, 09/04/2012
Beyond Landburg’s monopoly aspect, what about land grant universities as “the second coming of the post office”? How so?

Administrative positions at universities, as reported many times by Mark Perry, economist University of Michigan,  are now at or exceed the number of professors and instructors at many, many universities. The administrative positions which are increasing at an increasing rate are well paying and come with a litany of benefits driving total compensation to high levels.(1)

Beginning in 1979 to present the escalating cost of higher education is accompanied by escalating administration positions and associated cost. These administrative position are to extent or another the result of a political constituency building process of certain politicos. These expanding public sector administrative positions then rationally require such persons holding such positions to support political candidates that support the growth and maintenance of the growing administration.

Therefore the escalating costs of higher education are politically driven as a political constituency building exercise. A few questions that beg to be asked are: would Mr. Obama be open to slashing this politically built constituency which is very likely part of his voter base? Capacity concerns aside, if institutions overnight jettisoned fifty percent of their administration and consequently lowered cost would Mr. Obama then complain of lost jobs or more succinctly complain of lost jobs which represent his now lost voter base?

In the final analysis, Landsburg is likely correct: “…to believe that he’s purposely saying stupid things in order to appeal to stupid voters”.



Peter Schiff at the DNC and His Spoof "Democrats: Let's Ban Profits!"

Sunday, September 2, 2012

Refrigerated Coal?

“Refrigerating coal-plant emissions would reduce levels of dangerous chemicals that pour into the air — including carbon dioxide by more than 90 percent — at a cost of 25 percent efficiency, according to a simple math-driven formula designed by a team of University of Oregon physicists.”
“The cryogenic concept is not new. Donnelly experimented briefly in the 1960s with a paper mill in Springfield, Ore., to successfully remove odor-causing gasses filling the area around the plant using cryogenics. Subsequently the National Science Foundation funded a major study to capture sulfur dioxide emissions — a contributor to acid rain — from coal burning plants. The grant included a detailed engineering study by the Bechtel Corp. of San Francisco.
The Bechtel study showed that the cryogenic process would work very well, but noted that large quantities of carbon dioxide also would be condensed, a consequence that raised no concerns in 1978. “Today we recognize that carbon dioxide emissions are a leading contributor to climate-warming factors attributed to humans,” Donnelly said.
Out came his previously published work on this concept, followed by a rigorous two-year project to recheck and update his thermodynamic calculations and compose “a spreadsheet-accessible” formula for potential use by industry. His earlier work on the cryogenic treatment of coal-plant emissions and natural gas sources had sparked widespread interest internationally.

While the required cooling machinery would be large — potentially the size of a football stadium — the cost for construction or retrofitting likely would not be dramatically larger than present systems that include scrubbers, which would no longer be necessary, Donnelly said. The new journal article does not address construction costs or the disposal of the captured pollutants, the latter of which would be dependent on engineering and perhaps geological considerations.” - Watts Up With That, 08/28/2012
Read the entire post at the following: