Thursday, December 03, 2009

Jobs Economics

I've become a really big fan of MARIO RIZZO:
"Nevertheless, both economists are, I think, too much in the spell of the Principle of Aggregate Demand. Aggregate demand theories abstract from concern about the need for readjustments in lines of production after credit-induced unsustainable sectoral expansions."

Sunday, October 25, 2009

New Deal History

I've been reading a very interesting and entertaining history of the United States written by Garet Garrett and entitled THE AMERICAN STORY. Mr. Garrett has a marvelous ability to see through the fog. Here is a sample:
In all these New Deal laws there was infringement of the individual's liberty. The employer was no longer free to hire and fire whom he would, nor to buy labor below a certain price; neither side to the labor contract was free. An American boy, with a tear in his eye and adventure in his heart, was no longer free to steal away over the kitchen roof at night and go forth to meet the world; there was no work for him in the world out there because the law said he was child labor and any employer who hired him would be forbidden access to the channels of interstate commerce. The wage earner had to have a union card and a Social Security number. The farmer was no longer free to do what he would with his own ground or his own wheat. No wage earner was any longer free to be so improvident as to consume the whole of his own earnings and forget his old age.

To enforce these laws it was necessary to create new agencies of government. Each new agency issued its own rules and regulations, having the force of law; and in a little while these administrative agencies were passing ten times as many laws as Congress, all binding on the people.

So bureaucratic authority developed and became not only aggressive but indispensable--indispensable, that is, if the hand of government was going to touch every kind of human activity. Congress, the only elective law-making body, could pass only general laws, and then only after long debate; whereas the administrative agencies could pass specific laws, which were sometimes not printed at all but only mimeographed, and often got mislaid at the source. The confusion was unbearable until they were required to publish their laws in a bulletin called the Federal Register. After that any body who wanted to know what the law was--even a member of Congress--had to read the Federal Register.

And not only did the administrative agency make its own laws--that is, rules and regulations having the force of law--but when it came to the enforcement of them it acted as prosecutor, jury and judge, all three in one, and appeals from its decisions to regular courts of law were, for technical reasons, costly and difficult.

All of this took place in the executive sphere of government, with its axis in the Office of the President. Never before had the executive principle of government been so exalted--over the parliamentary principle, which is the Congress, and the judicial principle, which is the Supreme Court.

But this was a new time. Jealous individualism was waning. These New Deal laws were popular with the people; and the Supreme Court, after having liberalized itself, consistently upheld them. Two of the conservative Justices retired. In their room Mr. Roosevelt appointed men to his own liking. Then Chief Justice Hughes, who apparently thought he had saved the Court from disaster, resigned, and that was the end of the feud. The President had won. As it turned out the Supreme Court did the New Deal no harm at all. It got all the laws it really wanted. (pp. 281-282)
I highly recommend this book.

Tuesday, October 20, 2009

Middle School Economics 3

Here is another good one from the same middle school civics and economics textbook I've been quoting from:
“The federal government may sometimes intervene in business to help control prices. One way the government does this is by subsidizing, or giving money to, certain industries. For example, to make sure that people can buy flour, cereal, and other wheat products cheaply, the government might give subsidies to wheat farmers. Because they are receiving money from the government, the farmers do not have to charge high prices for their crops. As a result, prices for wheat products stay low.”
Yes, indeed, this has been the history of U.S. government intervention into agriculture, eh? Anyone else getting nervous yet?

UPDATE 10-24: Before I write about my concerns with this quote, I want to comment on the comments by Craig and Tim.

I agree with Craig that this illustration of a subsidy is incomplete because it does not include a consideration of where the money for the subsidy comes from. If government chooses to subsidize any activity, we can certainly confine our analysis of the impact of the subsidy to what happens after the subsidy is received. But, government gets the money for the subsidy because it has the power to tax. The power to tax means that the money for the subsidy is taken from people. It is money that people would have spent or saved if it had not been taken from them. Perhaps the subsidy will indeed result in more of some good thing, but because the subsidy money is taken from people it is is also the case that the money reduces other good things. A good economic lesson to learn is: "There is no such thing as a free lunch." That lesson could be taught by this textbook if it offered a more complete discussion of what must be the case with any government subsidy. But it doesn't.

Now Tim's comment seems a bit out of place relative to what I've quoted. I think he is thinking about how the U.S. government has actually intervened in the market process for wheat production, which has resulted in a greater quantity of wheat produced in the U.S. than would have otherwise have been the case. I think this is why he is considering crowding out wheat production in other countries. And, if you read my update to my first post on middle school economics, Tim's comment is another illustration of one U.S. government policy being at odds with other U.S. government efforts in some other arena. Certainly, this seems to me another important lesson for our middle school students to learn about how the real world works, but it seems it is going to be neglected.

My first reaction to the quote is that if the author wants to discuss government efforts to control prices, then the discussion should not be about subsidies. Actual government efforts to control prices have mostly involved government trying to set minimum prices (e.g., minimum wages) or maximum prices (e.g. rent controls).

A second point to suggest is that the author should not use an agricultural illustration for keeping prices down because historically the U.S. government policy toward agriculture has been to impose a price floor. Even in the middle of The Great Depression when so many people were without jobs and thus without their usual source of income, U.S. government policy was to impose a price floor on agricultural products so that prices would by higher than they otherwise would have been. Still today, the prices of agricultural products are often higher than they otherwise would be because of U.S. government agricultural policies. So, by choosing to offer up this specific illustration, it seems to me this textbook encourages our middle school students to think U.S. government policy is to keep agricultural prices low, which is pretty much the opposite what is true.

A third point is about what economic analysis suggests in the general result of a subsidy. If government offers to subsidize an activity, you are going to get more of that activity. Government really cannot directly subsidize a price. This is why government is likely to use a price ceiling if the goal is to try to keep a price low. Typically when economists discuss a government subsidy, the outcome is expected to be a higher price associated with the subsidized activity, not a lower price. And, I think this brings us back to the U.S. government policies toward agriculture. The government has wanted to subsidize farmers, but the way this was done was for government to impose a price floor. Instead of keeping agricultural prices low, the U.S. government has acted in an effort to keep prices for agricultural products higher than they would otherwise be, and these efforts have gone so far is to directly pay agricultural producers to take land out of cultivation.

Agricultural policy is a great case study for the economic analysis of price floors, but it is a really poor case study for discussing the results of government subsidies. And, if the author wants to discuss government efforts to keep a price low, then the discussion should really be about an illustration of a price ceiling, e.g., rent controls.

Middle School Economics 2

The following is a suggestion in a middle school text on civics and economics for teachers to discuss with their students:
The U.S. Economic System – Identify – What are some ways the government helps protect workers? By establishing minimum wage laws, laws guaranteeing workers' safety, and laws to protect people from discrimination – Make Judgments – Do you think that the U.S. Government should control parts of our economy? Why or why not? Possible answers: Yes – without government control some companies would take advantage of the public interest by polluting, creating monopolies, and other problems. No – the government should stay out of business because it interferes with people's ability to make a living.
The material in italics are suggestions about what the answers to the questions might be. As you might guess, I have concerns. How about you?

UPDATE 10-24: As I read the text, it seems to me at this point the students do not have sufficient understanding of the economic world to make these judgments. Perhaps this is proven by the answers given to the question how government helps protects workers. Minimum wage laws do not protect workers, unless you mean only the workers who keep or are able to get jobs after the minimum wage is imposed. Minimum wages lead to unemployment, which surely cannot be protecting those unemployed workers who would otherwise have had jobs. And, is it ironic? In the list of ways government helps workers we have both minimum wage laws and protecting people from discrimination. Of course, if people have preferences for discriminating in hiring employees, minimum wages laws reduce the cost of acting on such preferences, and thus lead to increased discrimination that government wants to protect people from. In other words, if students had sufficient economic understanding, they would perhaps be as perplexed as I am, when their teacher notes that government protects workers with minimum wage laws. And, they would perhaps be curious about why government would attempt to protect workers with minimum wage laws and anti-employment discrimination laws, when the first policy makes it more likely there will be a perceived need for the second policy. But, perhaps there is an opportunity here as well to teach the lesson that being a politician is a pretty good gig because there is always a need for making more public policy to deal with the messes made by your earlier public policies.

Now consider the government control question. The answer yes to whether government should control the economy is enormously na├»ve, even though this sort of stuff is standard political bill of fare. I think the idea that companies take advantage by polluting seems nonsense to most economists (and remember this is in the section of the textbook teaching economics). One of the greatest sources of pollution are all of us in our role as consumers and workers when we drive cars to play and to work and to school and to shop, even when we shop for “needs” such as the weekly groceries. Companies pollute for the same reasons we as consumers pollute, we find it is cheaper than collecting the waste to dispose of in some other way. Of course, the monopoly part of this answer is nonsense because most monopolies are created, even enforced (see unions), by government. In addition, the answer completely neglects one of the most important issues concerning this question, and that is whether government can get sufficient information to do better with any identified problem than would voluntary action, not to mention whether the incentives faced by our governors, even when they are our elected representatives, will choose to act in ways that would direct government to truly serve the public interest rather than rent seeking. And, the no response is simple and inadequate for the same reasons. The incentives and information issues both suggest government cannot accomplish what it states it seeks to accomplish.

So, here again, I have to wonder if trying to bring economics to our middle schools might be such a good idea. I do think our middle school students should learn about how the world around them works. But, the quotes I've posted here suggest to me it is pretty likely that what our middle school students will learn from their textbooks on Civics & Economics will be at odds with learning how the world around them works.

Monday, October 19, 2009

Economics In Middle School

Recently I've been reading bits and pieces of a few middle school textbooks on Civics and Economics. I'm sure at least a few economists think it is a good idea to begin teaching economics earlier in the educational life of our kids. After all, there seem to have been many surveys that suggest the level of economic literacy is pretty darn low. So, let's start earlier to help our citizens become economically literate. But, perhaps it is also possible that what gets taught reduces economic literacy. Consider the following from one of those middle school textbooks:
In order to make a profit, people need to provide a good or service. In order to provide a good or service, they need resources. As you know, however, resources are not unlimited. As a result, businesses and individuals must compete for the resources they need. This competition eventually affects everyone, not just business owners. In time, it affects the prices we pay for the goods we want.

One result of the competition for these resources is scarcity. Scarcity is the lack of a particular resource. When a resource becomes scarce, it is harder for producers to obtain. Products made with that resource also become more difficult to obtain. As a result, the prices for these items usually rise.
I have to say that in all my years of teaching I don't think I've ever said any thing like this to my students. Oh, on the face of it, the words written here do sound a bit like economics, and I suppose they do sound a bit like things I have talked with my students about, especially in a course in microeconomic principles. But, there are aspects of what is written above that concern me.

So, what do you think? Could the quotation above tend to encourage our middle school students to misunderstand the nature of the real world?

UPDATE 10-24: I like the comments by both Kari and Casey, and Casey comes close to my response when I read the quoted passage. The textbook is suggesting that competition leads to scarcity. Of course, this is not a lesson that comes from the study of economics. Scarcity is a given. As Casey points out, competition through the market process mitigates or lessens the impact of scarcity in our lives. So, the lesson told in this quote is pretty much just the opposite of the lessons learned from economics. In addition, if we look again at the first paragraph quoted, there is a suggestion that competition affects our individual lives. This is surely the case. But, when you look at both paragraphs together, this textbook seems to suggest that competition affects our lives in a bad way. This of course is not true. At least, it is not true if economists understand at least something about how the world works. Competition within the market process is one part of the explanation for the wonderful material prosperity we enjoy today, and as Casey suggests, without that material prosperity far, far fewer people would live on this earth today. Thus, I am concerned that the lessons suggested by this quotation may well encourage our middle school students to misunderstand the nature of the real world.

Thursday, October 01, 2009

Sole Task of Economics

Ludgwig von Mises:
Economics is not about goods and services, it is about the actions of living men. Its goal is not to dwell upon imaginary constructions such as equilibrium. These constructions are only tools of reasoning. The sole task of economics is analysis of the actions of men, is the analysis of processes. (Human Action, p. 354)

Sunday, September 27, 2009

Health Care Reform: Essential Economic Insights

COGAN, HUBBARD, & KESSLER:
According to provisions in both House and Senate bills, mandated plans must have low copayments and provide coverage of health-care services that is at least equal in scope to a typical, current employer-sponsored plan. But these are the very flaws that are responsible for high and rising health-care costs, flaws that stem directly from the misguided tax exclusion for and the extensive state regulation of health insurance. By locking in these flaws, the mandates will inhibit precisely the innovation needed to reform U.S. health care....Comprehensive, low-deductible, low-copayment insurance has brought us to where we are today. The administration's plan to expand and lock-in this flawed paradigm will ultimately defeat the goal of making health services more affordable for everyone.
If one wants to use government and public policy to "solve" a "problem," then it seems to make good sense to first understand the cause of the "problem." These 3 economists understand the sources of the health care problem today are past government policies. Thus, government actions today that do not correct the past bad government policies, even more that lock in the past bad policies, should not be expected to lead to better results in the future.

[HT: Greg Mankiw]

Of Entrepreneurs & Philosophers

LUDWIG VON MISES:
It is not the business of the entrepreneurs to make people substitute sound ideologies for unsound. It rests with the philosophers to change people's ideas and ideals. The entrepreneur serves the consumers as they are today, however wicked and ignorant. [Human Action, p. 297]

Wednesday, September 23, 2009

Consumers Captain Economic Ship

LUDWIG VON MISES:
The direction of all economics affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain's orders. The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him." [Human Action, p. 270]

Monday, September 21, 2009

Intergenerational Injustice

Pajamas TV offers an interesting look at the intergenerational impact of the national government's recent bailouts and stimulus.

If you are college age or younger this is must viewing.

If you are an adult with children, you may also be interested in viewing, but maybe you will be even more interested in trying to keep this away from your children. Why?

Consider that when I followed this link I discovered that I can expect to pay about $276 per month until I die for the bailouts and the stimulus. That will be a total of only about $76,000 because of these government actions. In contrast, my son, who is now 9, will pay about $285 per month across all the years that he is a federal income taxpayer. My son's total payments for bailouts and stimulus, this time around, will be about $154,000 over his lifetime. Of course, this is only a small part of the impact of today's government policies on my son since it calculates nothing for the impact of social security, medicare, health care "reform," etc., etc., etc.

I think this illustrates pretty nicely why I follow Thomas Jefferson in concluding that government debt is intergenerationally unjust. My son is still quite a number of years away from voting age, and by the policies of our government we are binding him to pay for our own bailouts and stimulus.

Obama & His Taxes

WSJ REVIEW & OUTLOOK:
"President Obama didn't make much news on his round of five Sunday talk shows yesterday, with one notable exception. The President revealed a great deal about his philosophy of government and how he defines a tax increase. It turns out the President thinks a health-care tax is not a tax if he thinks the tax is for your own good."
Yeah, I know. I'm very lucky the President is looking out for my own good.

The Wages of Government

THE WSJ REPORTS that:
"A group of blue-chip companies is lining up behind efforts to voluntarily change their pay practices, in part to head off potentially more onerous restrictions out of Washington. . . . .

Many of the Conference Board's principles resemble those of the Obama administration, including tying a 'significant portion' of incentive compensation to a company's long-term success, rather than rewarding short-term gains that some worry promote risky behavior. The proposal also calls for doing away with certain pay practices, such as 'overly generous golden-parachute payments' in the event of a takeover, and long-term employment contracts that require generous severance payments."
I suppose rhetoric is a beautiful thing, at least to some. I would like an explanation as to why it makes sense to say a group of companies will voluntarily change their pay policies when at the same time these companies are trying to placate government.

It seems to me more accurate to say that "a group of companies are being coerced by government to change their pay policies." And, if government passes legislation or writes regulations about pay policies, then it would seem accurate to say that government has forced companies to change their pay policies. Or, if we would prefer to match rhetoric with more rhetoric, how about we say instead that "a group of companies have decided to give into to the big government bully." I think my use of coercion and force is more accurate, but telling the story in terms of the "big government bully" might help tell a story with more political traction.

Check out the paragraph that lists some of the proposed changes. I've read this entire news article, and I don't think I can find any analysis that explains why it is thought that these companies have bad pay policies now. So, I have no way to judge whether these changes make any sense. What's more, it seems to me that any company's pay policies should seek to achieve the company's purposes, and not the purposes of government.

Oh, and I wonder how "generous" is defined?

Finally, since we are considering the responses of business to the coercion of government, is it completely silly to ask where Congress or President Obama constitutionally have the power to coerce, or to force, businesses to change their pay policies? I can't see that they do in the Constitution I have.

Friday, September 18, 2009

Never Merely Consumer

Ludwig von Mises:
"Living and acting man by necessity combines various functions. He is never merely a consumer. He is in addition either an entrepreneur, landowner, capitalist, or worker, or a person supported by the intake earned by such people." [Human Action p. 253]
Hmm, where does the politician fit? Or, has Mises neglected to include politician in his list of various functions?

Thursday, September 17, 2009

Happy Constitution Day!

If you would like to celebrate our constitution, then I have a suggestion. Check out the POLITICIAN'S PLEDGE at the 10th Amendment Center. Take a look around while you are there. I like the looks of the center. While you are there, consider clicking on "Petition" and letting your representatives know what you think about the constitution and our government.

Saturday, September 12, 2009

ObamaCare: Would I lie to you?

GREG MANKIW:
"At first, it sounds like the President is threatening to veto the bills being considered in Congress because, according to CBO, they will add significantly to deficits in the out years. If true, that would be a big story. But the provision he mentions in the next sentence seems to suggest he is just passing the buck.

Translation: 'I promise to fix the problem. And if I do not fix the problem now, I will fix it later, or some future president will, after I am long gone. I promise he will. Absolutely, positively, I am committed to that future president fixing the problem. You can count on it. Would I lie to you?'"

Chinese Tire Tariffs & The President

WSJ:
"The White House leaked word late Friday evening that the U.S. will impose heavy tariffs on imported Chinese tires used by millions of low-income Americans. We wonder if President Obama understands the political forces he's unleashing with this blatant protectionism.

[ . . . ]

As a candidate, Mr. Obama courted union support, and the United Steelworkers filed the tire case anticipating he would pay them back. Some in the business and policy communities thought Mr. Obama didn't really mean it, and that like Bill Clinton he would stand for the national economic interest in open trade once he became President. Mark that down as another misjudgment. In his first big trade test in the White House, Mr. Obama has allied himself with the protectionists, and the world will see his political surrender and rush to exploit it."
Well, I guess that's okay since I like paying higher prices for tires.

Obama's Takeover of Student Loans

WSJ:
"The furor over President Obama's trillion-dollar restructuring of American health care has left his other trillion-dollar plan starved for attention. That's how much the federal balance sheet will expand over the next decade if Mr. Obama can convince Congress to approve his pending takeover of the student-loan market.

The Obama plan calls for the U.S. Department of Education to move from its current 20% share of the student-loan origination market to 80% on July 1, 2010, when private lenders will be barred from making government-guaranteed loans. The remaining 20% of the market that is now completely private will likely shrink further as lenders try to comply with regulations Congress created last year. Starting next summer, taxpayers will have to put up roughly $100 billion per year to lend to students."
I guess "ObamaCare" has been used as shorthand for "health care reform." But, maybe we should start to see "ObamaCare" as President Obama's view of government, i.e, Obama's government is one that cares for all our needs.

Wednesday, September 02, 2009

The Age of Liberalism

LUDWIG VON MISES:
It is a purposeful distortion of facts to blame the age of liberalism for an alleged materialism. The nineteenth century was not only a century of unprecedented improvement in technical methods of production and in the material well being of the masses. It did much more than extend the average length of human life. Its scientific and artistic accomplishments are imperishable. It was an age of immortal musicians, writers, poets, painters, and sculptors; it revolutionized philosophy, economics, mathematics, physics, chemistry, and biology. And, for the first time in history, it made the great works and the great thoughts accessible to the common man. (p. 155)

Cap & Trade

Sounds like the climate bill has stalled.

Tuesday, September 01, 2009

President To Speak To Your Kids On September 8

PRESIDENT OBAMA is going to speak to all the nation's school kids on September 8. What do you think about that?

I think the President is a politician, and this President seems to think he is pretty special and awe inspiring. So, of course, if the President asks the nation's youth to study hard, then I'm sure they will. But, because the President is a politician I'm afraid this is truly intended to be another one of his political events. I may be wrong. I think this is a very bad idea because it seems like something from one of the other counties in the world which has little use for individual liberty. Then again, a President who thinks redistributing wealth is good seems not to have high regard for individual liberty to begin with. Maybe the recent election is some measure of how far this country now falls short of holding liberty in high regard?

If you click through on the link above you can find another link to "resources" to help teachers figure out what they should teach their students about the President's address to them. Here is one of the suggestions for talking with students before his speech:
"Why is it important that we listen to the President and other elected officials, like the mayor, senators, members of congress, or the governor? Why is what they say important?"
Let me take a stab at answering. It is important to listen to those in government because they are the men and women who use force in our daily lives. Government uses force in our lives properly when it functions basically as the "protective state," which means it uses force to enforce private property rights and voluntary contracts, and it means government uses power and force to protect us from attack by people living in other countries of the world. It is important to listen to those in government because it seems these days that most of the people in government do not understand this. Instead, most of the people in government today support public policies that use force in ways that are predatory on activities of all of those outside of government who every day try to do the best for themselves and their family by being productive. Therefore, it is important to listen to those in government because if we don't pay close enough attention (and remember the old adage "watch what they do, not what they say"), then those in government will become ever more successful predators and the prosperity we enjoy today will be foolishly lost to ourselves and the very kids the President will speak to next week.

How many kids do you think will offer this answer? I think not very many because it seems to me our schools are no longer very good at teaching a curriculum for a prosperous republic.

Friday, August 28, 2009

Cash for Clunkers Follow Up

BRUCE YANDLE has a nice essay on the economic analysis of cash for clunkers:
"Frederic Bastiat’s brilliant parable of the broken window reminds us that a street hoodlum throwing a brick through a window generates a series of job-generating transactions that might raise GDP by a trivial amount, if it could be measured. Indeed, the idea seems so compelling that people today often speak of the silver lining found in the clouds that create hurricanes. Think of the roofers that become employed. But Bastiat’s key lesson is that a window has been destroyed—and it had value. Before touting the total benefits of clunkers, we must take account of the destroyed vehicles and engines that represented part of the wealth of the nation. As Tony Liller, vice president for Goodwill, put it: “They’re crushing these cars, and they’re perfectly good. These are cars the poor need to buy.”

Finally, over the eons, human communities have contrived all kinds of devices to transmit critical survival skills and compatible behavioral norms. One of these has to do with conservation of wealth. “Waste not, want not,” we are told. “A penny saved, is a penny earned,” we are reminded. Using politics to pay people who destroy valuable vehicles, or to hold crops off the market, or to produce ethanol that may use more energy in production than it adds when burned, teaches a lesson of anti-matter and wealth destruction. When all these considerations are made, Cash for Clunkers sounds like a sorry idea that should not be the model for future policy.

Let’s stop Cash for Refrigerators before the idea spreads further."
Read the whole piece and gain a significant measure of economic literacy.

Thursday, August 27, 2009

The President's Art Endowment For Health & The Environment

JIM LINDGREN directs our attention to commentary by Patrick Courrielche with this quotation:
"Artists shouldn’t be used as tools of the state to help create a climate amenable to their positions, which is what appears to be happening in this instance. If the art community wants to tackle those issues on its own then fine. But tackling them shouldn’t come as an encouragement from the NEA to those they potentially fund at this coincidental time.

And if you think that my fear regarding the arts becoming a tool of the state is still unfounded, I leave you with a few statements made by the NEA to the art community participants on the conference call. “This is just the beginning. This is the first telephone call of a brand new conversation. We are just now learning how to really bring this community together to speak with the government. What that looks like legally?…bare with us as we learn the language so that we can speak to each other safely… “

Is the hair on your arms standing up yet?"
Jim warned of this last summer, and relevant portions of that warning are also a part of his posting about the NEA. I encourage you to read the whole thing.

Some of the things I took notice of: the idea of helping to lay a new foundation for growth, the idea of promoting a more civically engaged America, and the idea that we all celebrate the arts for positive change (perhaps one day there can even be a national holiday to celebrate the arts for positive change). Did you know there was a White House Office of Public Engagement? If you are curious about the mission of such an office, follow the link and see for yourself. While you are there be sure to download you very own copy of "Citizens Briefing Book." Right up front in that document you will find that "out of the tens of thousands of submissions, these ideas found the most support; here they are, unvarnished and unedited." "Unvarnished and unedited" is credible, right?

Oh, my, I think my posting yesterday on social engineering and planning is worth considering along with Lindgren's posting of today.

Wednesday, August 26, 2009

The President & His Plans

Ludwig von Mises on social engineering and planning:
It is customary nowadays to speak of "social engineering." Like planning, this term is a synonym for dictatorship and totalitarian tyranny. The idea is to treat human beings in the same way in which the engineer treats the stuff out of which he builds his bridges, roads, and machines. The social engineer's will is to be substituted for the will of the various people he plans to use for the construction of his utopia. Mankind is to be divided into two classes: the almighty dictator, on the one hand, and the underlings who are to be reduced to the status of mere pawns in his plans and cogs in his machinery, on the other. If this were feasible, then of course the social engineer would not have to bother about understanding other people's actions. He would be free to deal with them as technology deals with lumber and iron. (p. 113)
These days it seems we hear politicians talking about this plan and that, and President Obama seems to take pride in all his plans. What do you think, does Mises characterize our planning President accurately?

Cash for Clunkers Death

Here is a YOUTUBE VIDEO documenting a "cash for clunkers" death. The video is an excellent illustration of the inherent inefficiency of this public policy. The "cash for clunkers" program provides incentives for people to buy automobiles they would not otherwise have bought, while at the same time it leads to the destruction of a productive tool for transporting people and things from here to there.

The video is well worth watching, but I should warn that the audio portion is R-rated for use of the f-word (although I'm sure many watchers will find the language quite appropriate). If you look around on the YouTube web page you will see links to many other videos documenting government's destruction of productive resources.

One of my thoughts after watching this video was to wonder if there are other illustrations of public policies that directly destroy productive resources. Can you think of any?

Then, I was led to wonder if this video is perhaps a useful metaphor for any government action that involves policies outside the role of the "protective state." When government policy does something other than strictly enforce private property and voluntary contracts, government tends to become predatory, and predatory activities in an economy mean that actual prosperity falls short of potential prosperity. But, we can't easily see this because we can only ever experience actual prosperity not potential prosperity. It is difficult for us to visualize what it means when an economist points to a policy and says it diminishes our prosperity. Well, isn't this video pretty much what that means? That is, it means something that could have been real and tangible like the Mazda in this video will be lost to us.

Monday, August 24, 2009

Vanishing Externality

DAVID HENDERSON tells a tale of a vanishing externality.

Vanishing Middle Class?

Some politicians and pundits have been wringing their hands over a vanishing middle class. No worries. STEVE HORWITZ mines some data to suggest that those who have vanished are prospering:
"Let me repeat that: over 30% of US households in 2006 earned above $75K compared to under 20% in 1980. Over the same period, the percentage of US households earning under $35K fell from 42.8% to 36.7%. Fewer households are poor, fewer are middle class, and a hunk more are above $75K."

Saturday, August 22, 2009

Parable of the Sovereign & the Leech

GOING JOHN GALT:
"When a private individual incurs debts in another’s name without his consent, that is called identity theft. Why is it considered to be a binding agreement when perpetrated by government?"
This is kind of fun. Read the whole thing. It's short.

You're Getting Sleepy

VICTOR DAVIS HANSON:
"Suddenly hope and change no longer worked like the swinging watch and “you’re getting sleepy” lingo. Voters are feeling they’ve been “had” and were mesmerized into being used for an extremist agenda."
Hey, this seems like another fun way to talk about rational irrationality.

How Are You Thinking?

DAVE PRYCHITKO:
"Job market applicants are often asked to write up something about their teaching philosophy. If I were to ever do so, I'd sum up mine in one sentence: I have no teaching philosophy, or at least none that I'm aware of. (I also have no clear method, no bag of tricks, nothing special to offer.) I do, however, have a single purpose -- to encourage my students to think like an economist."

Thursday, August 13, 2009

Charter Schools

THE MIGHT BE GOOD NEWS:
"The U.S. Education Department is engaged in a high-pressure campaign to get states to lift limits on charter schools through a $4 billion education fund, Race to the Top, that encourages more charters as one of the criteria for states to qualify for a piece of the pie. A total of 40 states and the District of Columbia permit charter schools."
Even better news would be that the U.S. Education Department wanted to see public education move to a voucher system.

Pay Czar

WSJ:
"'I don't think the American people begrudge that people make big salaries, as long as they're not jeopardizing the goodwill of the public in doing so,' White House spokesman Robert Gibbs said Wednesday."
What does this mean? Submitting wage proposals to a czar is very troubling, eh?

Tuesday, August 11, 2009

What Is The Mechanism? Or Is It Just A Miracle?

MARIO RIZZO on PAUL KRUGMAN:
"Let me go back to Krugman’s article. I italicized an interesting phrase. Big government can work when it is run by people who understand its virtues. He should have said big government can work when it is run by people who themselves determine how well it works."
Of course, Professor Krugman says:
"So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government."
It seems to me that Professor Krugman is pretty good at politics in his commentary, and probably not so good at economics.

I think Professor Rizzo is better on the economics, and thus, his commentary exposes the politics and the politicians.

Specifically, how does "stimulus spending" of 1/2 of 1 percent of GDP save the economy from a second Great Depression? I don't see an answer in Krugman's commentary, except perhaps in the faithful reliance in Keynesian models with an "automatic stabilizer" built in. Of course, Rizzo's skepticism in a "super multiplier" is more sensible than faithful reliance.

Krugman's analysis and commentary seem to start with the extra government spending of 1/2 of 1 percent of GDP, and this seems to me to be like starting his analysis with the assumption that the money government spends grows on trees. Where did government get this extra $70 billion dollars it has spent on "stimulus?" I suppose one answer is that this money did grow on trees, or that government simply printed $70 billion extra dollar bills. Is the reason the economy was saved from a great depression that there a now lovers of government governing the economy that had the foresight to plant some new money trees? Or, should I say, has the economy been saved from a second great depression by inflation?

Another possible answer to this question about where government got the extra money is that government increased tax revenue collected. In this recession tax revenue has decreased, and thus to increase tax revenue collected government would have to raise taxes. And, how would raising taxes for this $70 billion save the economy? Tax revenues are transfers from people and businesses to government. In this regard, government is a middle-man that collects (takes) money from you and me, and then it spends that money by giving it to other people just like you and me. I suppose we can focus on just the way government spends this money and say things like "this spending has created many millions of new jobs," and this has saved the economy from a second great depression. But, I'm pretty sure that if government hadn't taken the money from you and I to begin with, you and I would have also spent or saved that money. Spending our money, instead of having it taken to Washington as tax collections, would also have been associated with "new jobs." Do you believe that government spending an extra $70 billion of revenues collected makes more jobs than the number of jobs that will be lost, or will not have been created by you and I spending our money? I don't, at least not in general. The process of transfer is costly and government is wasteful in this process, not to mention that economists have long known that taxation creates an efficiency burden on economic activity as well.

Well, so far I'm not sure that the government's "stimulus" can be accounted for by either inflation or an increase in present taxes. Of course, either or both may be in our future, and if so, then either or both will then be like "brakes" on new prosperity.

There is another way for government to get the additional $70 billion for "stimulus" spending. It can borrow the money. This also looks like a transfer from people that lend this money to the government, but in this case it really is a transfer of future income to present consumption. A key question is then how will this increased money for present consumption be paid for? Obviously the answer is it will be paid for out of future tax collections, from either ourselves and/or from our children and grandchildren. In this regard, the implications are the same as I described just above, i.e., "brakes" on new prosperity for ourselves and/or our children and grandchildren.

I don't see a mechanism by which government spending an extra 1/2 of 1 percent of GDP can possibly have saved us from a second great depression. And, it seems to me that if you do believe extra spending by government saves, then you must also believe that saving today is of greater value than the cost in diminished prosperity in the future, and that it is not unjust to take prosperity from our children and grandchildren to save ourselves today.

Tuesday, August 04, 2009

L'Obamatized

What is the definition of L'Obamatized? ANDREW WILSON:
That is the highly scientific condition of having half of your brain removed and the other half turned into jelly with no off/on switch to control veneration of the 44th president."
Kind of a cute term for RATIONAL IRRATIONALITY, eh?

Tires & Freedom

WSJ REVIEW & OUTLOOK:
"As Mr. Obama faces his moment of truth on tires, he ought to look at a report issued last week by Rutgers economist Thomas J. Prusa examining how the ITC’s proposed tariffs would ripple through the U.S. economy. Mr. Prusa calculates that each job “saved” by the ITC’s tariffs would come at the cost of at least 12 jobs lost, and possibly more than 25. Most tire-related employment in America consists of the people who distribute and install tires, not people who produce them. By depressing tire sales, a tariff would jeopardize those jobs."
Tariffs on tires, tax the wealthy, now TAX THE REST, cap & trade, socialized medical insurance, government czars for salaries, and government panels to design our cars and decide how to treat our illnesses, etc., etc., etc. Economic liberty slips away. The INDEX OF ECONOMIC FREEDOM is already down a bit. How far will it slide down before the next presidential election?

Liberty = Prosperity. So, the gap between potential prosperity and actual prosperity will grow ever larger now. How much lost liberty will be tolerated by those who vote for our fearless political leaders?

Wednesday, July 22, 2009

Professor

GREG MANKIW:
"I learned long ago the three best reasons for being a professor: June, July, and August."
Hmmm, I wonder what he's talking about?

Economic Problems

MARIO RIZZO has a very interesting and thought provoking post about problems in macroeconomics:
"Second, what is the root of the difficulty in which macroeconomics finds itself?

I think it is the inability to reconcile a reasonable treatment of radical uncertainty with the strictures of out-of-control formalism. We have come a long way from Alfred Marshall’s idea that one does the mathematics and then burns it. In a 1906 letter to A.L. Bowley (of the Edgeworth-Bowley box fame) Marshall says:

“But I know I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules – (1) Use mathematics as a shorthand language, rather than an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in (4), burn (3). This last I did often.”


Clearly, the adherents of DSGE did not follow points (4) through (6). "
DSGE is shorthand for the dominant macro model today. I had never heard of this idea of Marshall before, but it seems to me one worthy of much reflection. It also seems to me that most micro economists today also miss the significance of radical uncertainty for the questions and issues they study.

Saturday, July 18, 2009

Constitutional Matters

I've been looking through middle school textbooks on Civics and Economics. I just ran across the following in one of the textbooks:
Why It Matters: The Constitution outlines the ideals of American government and describes how they should be achieved. It tells you what your rights and privileges are. The Constitution affects you, your family, and your friends as much today as it affected those who wrote it more than 200 years ago.
I suspect there are many who would agree with this, but I think it is a view of the Constitution that has a great deal wrong with it.

The key problem with this view is that we are told that the Constitution tells us what our rights and privileges are. On the contrary, the view of government and the citizen that provides the conceptual foundations for the Constitution are those of Locke, which were marvelously expressed by Jefferson in the Declaration of Independence:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.
In other words, instead of finding a list of our rights and privileges in the Constitution, we are each born with (endowed with) unalienable rights. These rights are prior to both the Constitution and to government, while the view expressed in the textbook suggests that the Constitution and government come before our individual rights.

Furthermore, while we do find an explicit accounting of some of our individual rights in the amendments to the Constitution known as the Bill of Rights, the Bill of Rights itself includes explicit statements consistent with the idea that our rights come prior to government:
9th Amendment: The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

10 Amendment: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
In other words, our rights are prior to government and we do not find a list of those rights in our Constitution.

A second concern I have with this statement about why the Constitution matters involves the idea that "the Constitution affects you." I'm sure it is accurate to say that the Constitution in some way affects each of us in our daily lives. But I think this is not a very important idea to note about the Constitution, and I think one of the most important ideas to note about the Constitution is completely neglected, perhaps entirely obscured, by the idea that the Constitution affects you. Our Constitution defines a government of only specific enumerated powers. It is a Constitution, along with the Bill of Rights, which explicitly constrains our national government by limiting its power over our daily lives. Our Constitution is directly about government and its constraints and limits, and only very indirectly about you and me. The Constitution indirectly affects you and me in that the government which follows from the Constitution uses its power to create and enforce statutes which have direct effects on our daily lives. The Constitution is about defining and constraining the nature of government we have to live with.

Why is it important to fuss over a statement like this in a middle school textbook? The conceptual view I express here about the Constitution is a view which has been vital to the prosperity you and I enjoy in our lives today. Most of economic history, in all places and all times, has been a history of poverty for most people, and at least some scholars have suggested that the conceptual view of government and the individual I believe is the foundation of our Constitution is the key change in conceptual views of the world that has made the prosperity we enjoy today possible. If this is the case, then the view of the Constitution I'm concerned with here has played a significant role in allowing government to break free of the bounds and constraints written into our Constitution with the result that our system of political economy today, while certainly prosperous, falls significantly short of its potential for people to enjoy prosperous lives. It is also my view that the greater the extent to which people see our Constitution from the perspective I'm concerned with here, the greater will be the extent to which the prosperity of our children and our grandchildren will fall below potential prosperity.

A curriculum for a prosperous republic would present a view of the Constitution which is consistent with Locke, Jefferson, and Madison (who drafted the 9th Amendment), and not the view I'm fussing over here today.

Thursday, July 16, 2009

We Are All Fascists Now

Roger Koppl:
"We have forgotten the foundations of liberty and we may not have long to save them from oblivion. The search to recover our lost heritage of liberty will begin when we question the leadership principle, when we begin to wonder what might keep our “leaders” from oppressing us. The search to recover our lost liberty will begin, in other words, when we remember to ask the question the ancient Roman satirical poet Juvenal asked: Sed quis custodiet ipsos custodes? “And who will guard the guardians themselves?” The search to recover our lost liberties will have been put on the right path when we remember the marvelously compact lesson in good government provided by James Madison’s defense of the Constitutional system of checks and balances.

But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

Madison’s “auxiliary precautions” have been swept away by militarism, collective economics, and the leadership principle. It is time to recall the lessons of Juvenal and Madison. It is time to turn away from state power and the leadership principle. We are all fascists now. Let us remember, however, that we were once Americans and can be so again if we so choose."

Well put.

Sunday, May 17, 2009

Live Free or Die

DON BOUDREAUX:
"I can find no words to describe just how frightening and infuriating this letter is. A private citizen objects peacefully to a proposed government action, and, as a result, is not only forced to appear before Congress to explain but also to be threatened with further burdens if he doesn't cooperate with the arrogant power-mongers on Capitol Hill."
You can read the letter here. Six members of the House of Representatives (Barney Frank, Maxine Waters, Luis Gutierrez, Paul Kanjorski, Carolyn Maloney, and Melvin Watt) write:
"For the hedge fund industry . . . to take steps so actively in opposition to what is currently in the national economic interest is deeply troubling and will clearly have serious implications for the rules by which we operate in the future if this posture of obstruction of our efforts is maintained. We very much hope you will be able to tell us very soon that you have reversed your position of trying to obstruct . . ."
As I read this I was reminded of a recent speech by MARK STEYN in which he said:
MY REMARKS are titled tonight after the words of General Stark, New Hampshire's great hero of the Revolutionary War: "Live free or die!" When I first moved to New Hampshire, where this appears on our license plates, I assumed General Stark had said it before some battle or other—a bit of red meat to rally the boys for the charge; a touch of the old Henry V-at-Agincourt routine. But I soon discovered that the general had made his famous statement decades after the war, in a letter regretting that he would be unable to attend a dinner. And in a curious way I found that even more impressive. In extreme circumstances, many people can rouse themselves to rediscover the primal impulses: The brave men on Flight 93 did. They took off on what they thought was a routine business trip, and, when they realized it wasn't, they went into General Stark mode and cried "Let's roll!" But it's harder to maintain the "Live free or die!" spirit when you're facing not an immediate crisis but just a slow, remorseless, incremental, unceasing ratchet effect. "Live free or die!" sounds like a battle cry: We'll win this thing or die trying, die an honorable death. But in fact it's something far less dramatic: It's a bald statement of the reality of our lives in the prosperous West. You can live as free men, but, if you choose not to, your society will die.
It seems to me this letter by members elected to Congress is an affront to liberty and to our Constitution, and especially to the First Amendment, which is thought to be part of our so-called "Bill of Rights." Perhaps there are so few citizens today who can be as infuriated and frightened as Professor Boudreaux (and I) by this letter that we should indeed suspect that our society is choosing more and more often not to live free. Our ability to prosper in the future seems more and more threatened these days. It seems to me that more of us should want to obstruct such efforts by those in Congress who seek to use government's power to silence those with opposing views. "LIVE FREE OR DIE."

Friday, May 08, 2009

Happy Birthday F.A. Hayek



TOM SOWELL:
“The 20th Century looked for many decades as if it were going to be the century of collectivism .. Anyone who would have predicted the reversal of this trend .. would have been considered mad just a dozen years ago. Innumerable factors led to [the reversal of the rise of collectivism], not the least of which was the bitter experience of seeing ‘rational planning’ degenerate into economic chaos and Utopian dreams turn into police-state nightmares. Still, it takes a vision to beat a vision .. An alternative vision had to become viable before the reversal of the collectivist tide could begin with Margaret Thatcher in Britain and Ronald Reagan in the United States. That vision came from many sources, but if one point in time could mark the beginning of the intellectual turning of the tide which made later political changes possible, it was the publication of The Road to Serfdom by Friedrich A. Hayek ..”.

Tuesday, April 28, 2009

What Is Going On In This Country?

LARRY KUDLOW:
"What is going on in this country? The government is about to take over GM in a plan that completely screws private bondholders and favors the unions. Get this: The GM bondholders own $27 billion and they’re getting 10 percent of the common stock in an expected exchange. And the UAW owns $10 billion of the bonds and they’re getting 40 percent of the stock. Huh? Did I miss something here? And Uncle Sam will have a controlling share of the stock with something close to 50 percent ownership. And no bankruptcy judge. So this is a political restructuring run by the White House, not a rule-of-law bankruptcy-court reorganization."

Flu

If you are wondering about the flu, then you might find this WSJ COMMENTARY useful reading.

Wednesday, April 22, 2009

President Obama's Fiscal Policy

Look what I found over at GREG MANKIW'S BLOG.


The picture shows federal government revenues and outlays as a percentage of GDP. This does look like significant change to me. But, I am not in favor of the national government's outlays being in the neighborhood of 25% of GDP or more. Nor can I applaud the significant borrowing by the national government which is depicted in this picture, especially since it seems that so much of this debt will be incurred for current consumption.

Wednesday, April 15, 2009

Happy Tax Day!

MARY THEROUX:
"In sum, please refund the taxes collected fraudulently for services never provided. If you need additional evidence, please do not hesitate to ask: there’s plenty more where this came from."
Her letter is kind of fun. Read the whole thing.

Beer Taxing

WSJ COMMENTARY:
"Today is the dreaded April 15, but at least in Oregon it's even going to cost you more to drown in your tax sorrows. In their sober unwisdom, the state's pols plan to raise taxes by 1,900% on . . . beer. The tax would catapult to $52.21 from $2.60 a barrel. The money is intended to reduce Oregon's $3 billion budget deficit and, ostensibly, to pay for drug treatment."

And, according to this commentary, taxes are already the most expensive "ingredient" in beer.

Is there a bright side in this? Perhaps in the future economists will have an example of price elasticity of demand that Econ 101 students can relate to. Is beer demand price elastic?

Monday, April 13, 2009

Crisis

Economists STEVEN GJERSTAD AND VERNON SMITH take a look at the reasons for this economic crisis. They are interested in why the collapse of one bubble would lead to a crisis for the financial system while another would not.

Gjerstad and Smith provide a very interesting chart that shows 3 bubbles in housing prices over the past 40 years.



The first housing price bubble over this time period ended in 1979 and the second ended in 1989. Gjerstad and Smith explain that for various reasons pricing bubbles happen and can be expected to collapse at some point. The collapse of a pricing bubble does not have to portend grave implications for the rest of economic activity. The chart suggests the earlier 2 housing price bubbles were rather modest in size and in impact when they collapsed, at least when compared with the most recent housing price bubble.

The housing price bubble that recently collapsed began in 1997. Gjerstad and Smith believe there were 2 basic reasons for this recent price bubble. There was an increase in household income (beginning around 1992)which would have increased the demand for owning homes. There was also a significant change in income tax law that allowed a capital gain of $1/2 million in a home. This would also have increased the demand for owning homes. The first of these reasons would be a "natural" economic explanation, i.e., increased income and increased demand resulting from an increased standard of living due to a prospering economy. The second of these reasons was the result of a specific government action.

Gjerstad and Smith suggest that this most recent housing price bubble might well have ended with the recession of 2001, and if that had been the case it looks to me like this recent bubble would have looked very much like the other two price bubbles we see in the chart. Why did this housing price bubble continue?

Gjerstad and Smith point to one of the reasons in their chart. The Federal Reserve "decided to pursue and unusually expansionary monetary policy." The increased liquidity was then utilized by the rapidly expanding housing sector of the economy, and the bubble continued to inflate. During the earlier two bubbles the Federal Reserve acted in a way that worked against and that mitigated the increase in the bubbles. In contrast, for the latest bubble the Federal Reserve's actions enhanced the bubble.

Gjerstad and Smith also explain that explicit government policy actions also contributed to the expanded housing price bubble. Both the Clinton and the Bush administrations acted to aggressively increase home ownership and this government policy was translated into decreased mortgage credit standards.

There was another interesting government action that Gjerstad and Smith point out. In 1983 government changed the way it calculated inflation. The result was that in 2004 for example the reported inflation rate was about 1/2 the actual inflation rate. The Federal Reserve was choosing an expansionary monetary policy with an inaccurate view both of inflation and the real interest rate. The real interest rate was near zero, and of course "household borrowing took off."

So, the latest housing price bubble peaked in early 2006. We probably remember that the deflating housing price bubble didn't really enter our public consciousness until around Labor Day and the Presidential election in 2008. It took nearly 3 years for the crisis to become a crisis.

Gjerstad and Smith note that the downturn in the equities market from about December 1999 until about September 2002 saw a loss of about $10 trillion of asset value. In contrast the lost asset value for housing was only about $3 trillion of asset value. They wonder why the smaller loss in asset value led to our current financial crisis, when a larger loss in asset value did not.

The answer they suggest is that the people who lost the asset value in the equity market downturn were largely individuals and were not financial businesses/institutions themselves. In contrast, the current financial crisis involves a large number of households who were unable to continue to pay off their mortgage loans. This is alot like saying the losers in the equity market downturn were individuals, but there are important differences.

When households default on their mortgage loans the real asset, the home, becomes owned by a financial business/institution. The lenders were of course making their business decisions in loaning money for the original mortgage based on the knowledge that if the borrower failed in making payments the real asset would become part of the lender's assets. Unfortunately, as the housing price bubble began to deflate, the housing prices across the country began falling very rapidly. In many cases, the loans which were in default apparently involved properties who had decreased in value by 50% or more, and most of these properties had been purchased on 90% to 100% margins.

Gjerstad and Smith suggest that the earlier and larger asset value losses in the equity markets had relatively little impact on our financial system because the lost asset values did not get into the financial institutions and system itself. In contrast, the very inflated recent housing price bubble relatively quickly was moved into losses for the financial institutions themselves.

Perhaps if the housing price bubble had not been overwhelmingly large in historical terms, the losses for the lenders would not have led to the current crisis. So, I think it is important to keep in mind the reasons noted above that government actions and policies have much to do with explaining the existence and the size of the third housing price bubble in 40 years.

Tuesday, April 07, 2009

The Real City

SANDY IKEDA:
"A city is not a man-made thing. Rather, it emerges from the actions of its inhabitants, who interact in unpredictable yet orderly ways. Under the right conditions – the right “rules of the game” – what arises is vital, creative, radically unpredictable, and profitable: the living city.

The modern demand to rationalize the city and to make it “more efficient” is misplaced. A living city cannot be efficient. Efficiency, in the economic sense, presupposes an overarching plan against which measured outcomes can be evaluated. A living city, however, follows no such plan. It is itself the unplanned, collective result of the countless individual plans executed continuously in it, day after day.

[ . . . ]

Earnest attempts to preserve large parts of the city or to consciously direct its evolution, like trying to preserve or control any complex living thing, will drain the life from it."
Ikeda is one of my economist heroes.

Wednesday, March 25, 2009

Predator Government

HOLMAN JENKINS:
"But the biggest lesson here is the old one that the price of freedom is eternal vigilance -- beginning with insistence on the rule of law. Americans clearly cannot trust their elected officials to defend their rights and interests, or care whether justice is served, when the slightest political risk might attach to doing so.

Which brings us back to Mr. Cuomo, whose office has been implicitly threatening to publish names of AIG employees who don't relinquish pay they were contractually entitled to.

Mr. Cuomo is a thug, but at least he reminds us: It can happen here."
It seems that only 2-3 months in to a new government in Washington that government is becoming more and more predatory. In order to spend more today and grow government in size, Washington is borrowing heavily against the future productivity and incomes of our kids and grandkids. Government is laying claim to the incomes of people who aren't even able to vote yet. (Talk about taxation without representation, eh?) Government is buying into businesses and industries in the name of ending a "crisis" and then it follows with efforts to control salaries and even business plans. Government one day passes a law that guarantees to enforce contractually agreed to bonuses to productive employees, and then the next it seeks to confiscate those very bonus payments. Stories abound out of Washington that people in government are looking high and low for any new source for increased taxation. There are many other government actions at the national, state, and local levels of government that could be included here.

In POWER AND PROSPERITY Mancur Olson explains that there are some basic necessary conditions for prosperity. These necessary conditions boil down to the strict enforcement of private property rights, which includes the strict enforcement of voluntary contracts, and a lack of predation. When government itself becomes the biggest predator, and when government begins to violate rather than enforce private property and voluntary contracts, these necessary conditions for prosperity are significantly diminished. After just 3 months into 2009 the actions of government suggest that our country's future prosperity is likely to be significantly diminished.

Monday, March 23, 2009

President Deficit & Debt

WSJ COMMENTARY:
"President Obama's 2010 budget looks more astounding by the day, especially when someone other than the White House budget office is analyzing it. The latest case of epic sticker shock came Friday when the Congressional Budget Office published its assessment, which found that the proposals would increase the federal deficit by $2.3 trillion more over 10 years than the White House had claimed.

[ . . . ]

And by the way, all of this is without including the costs of Mr. Obama's plan to offer "free" health care for the middle class. The White House budget includes only a "down payment" on health care, with every serious person figuring it will cost at least $1.2 trillion, and probably more. Incredibly, Democrats on Capitol Hill are, with White House encouragement, talking about jamming health care through Congress with a special procedure that requires only 50 Senate votes."
I'm reminded of the rock song lyric: "The future's so bright I gotta wear shades." If the President and the Congress are allowed to continue expanding national government, our kids and grandkids can probably save a little money for their taxes by dumping the shades.

Perhaps we should beware the "special procedure." Not only is the national government looking to grow and get bigger, but it seems that this President and this Congress may be getting more predatory as well.

Thursday, March 19, 2009

The President's Power

KARL ROVE:
"President Barack Obama and his West Wing lieutenants are playing on the world's largest stage, yet act as if no one is watching them when they contradict their campaign promises. That behavior is unwittingly giving the Republicans an opening.

For example, Team Obama thinks the president, having spent a good portion of the campaign decrying the $2.9 trillion in deficits during the Bush years, can now double the national debt held by the public in 10 years. Having condemned earmarks during the campaign, the Obama administration now believes it can wave through 8,500 of them in the omnibus-spending bill, part of the biggest spending increase since World War II.

With the Dow at 7,486 and unemployment at 8.1%, Mr. Obama says the economy is fundamentally sound. Does he suppose the nation won't recall him attacking John McCain last September for saying the same thing -- when the Dow was at 11,000 and unemployment at 6.2%?"
I have to wonder, does the President think "we the people" are rationally ignorant or rationally irrational?

Here is Mr. Rove's parting observation:
Every president eventually depletes his political capital. Some have done so advancing great, difficult causes. Others squander it because of missteps, and what the public views as breaches of faith. Having been president for all of eight weeks, Mr. Obama retains much residual goodwill and could still change course on the budget to reach across the aisle. But his current strategy has made him weaker than he was and weaker than he needs to be. It's turning into a costly two months for America's 44th president.
Just a week ago, I discussed with my students in my public choice course whether the Congressional leadership or this President had the greater power. Even with all the good will and support President Obama garnered in his election, perhaps he is too young and too inexperienced to effectively use the potential power of the Presidency? Does it seem he is still campaigning rather than governing?

Wednesday, March 18, 2009

Endless Screwups

GLENN REYNOLDS:
"Our political class lacks the self-discipline needed to handle a crisis. They’re too busy reacting to headlines, polls, and fears of headlines and polls. The result is . . . well, endless screwups like this."
Maybe we should say this is the basic source of government failure, eh?

Tuesday, March 17, 2009

Tax My Products, Please

WSJ commentary:
"Mr. Mulally offered his own solution to the mismatch, artfully explaining that we needed to 'involve the consumer in our energy policy.' In case anyone missed his point, Michael Jackson, CEO of AutoNation, the largest auto dealer in the country, was more explicit: 'Mr. Mulally said it very elegantly last night and I will say it more straightforward. We need more expensive gasoline.'

While last year's energy spike briefly encouraged small-car sales, Mr. Jackson complained that those sales have plummeted with gas prices. "I have fuel-efficient vehicles parked at my dealerships as far as the eye can see. I can't give them away." He figures a tax that guarantees a gas-price floor of $4 a gallon is a "good start." Mr. Mulally, for his part, talked about how good Ford's sales of small cars were in Europe, and that "one of the reasons is that gasoline and diesel is somewhere between seven and nine dollars a gallon."

So: The U.S. government mandates fuel-economy standards that force Detroit to make cars Americans don't want to drive. When Detroit loses money on those cars, Washington throws taxpayer dollars at its mistake, and the car makers demand a tax increase that would prod Americans to buy the unpopular cars that Washington mandates. As for what the American consumer or taxpayer wants -- or can afford in today's economy -- who cares? Welcome to government-run energy policy."

For those of you who have read Mancur Olson's The Rise and Decline of Nations, isn't this just a "textbook" illustration of sclerosis?

Folly & Washington Finger Pointing

A very interesting story is told today in a WALL STREET JOURNAL commentary:
"Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government's AIG 'rescue.' This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.

Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties around the world. This includes at least $20 billion to European banks. The list also includes American charity cases like Goldman Sachs, which received at least $13 billion. This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no "bailout." Why take $13 billion then? This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts."
Have you ever been suspicious when the those in the Washington political class are out in front of the cameras pointing fingers? I've come to suspect that when this happens the finger pointing is about trying to play offense to cover up the mistakes of government. The WSJ suggests this is the reason for the fingers pointing and wagging over greedy others right now:
The politicians also prefer to talk about AIG's latest bonus payments because they deflect attention from Washington's failure to supervise AIG. The Beltway crowd has been selling the story that AIG failed because it operated in a shadowy unregulated world and cleverly exploited gaps among Washington overseers. Said President Obama yesterday, "This is a corporation that finds itself in financial distress due to recklessness and greed." That's true, but Washington doesn't want you to know that various arms of government approved, enabled and encouraged AIG's disastrous bet on the U.S. housing market.

Scott Polakoff, acting director of the Office of Thrift Supervision, told the Senate Banking Committee this month that, contrary to media myth, AIG's infamous Financial Products unit did not slip through the regulatory cracks. Mr. Polakoff said that the whole of AIG, including this unit, was regulated by his agency and by a "college" of global bureaucrats.
Here is the bottom line to the commentary:
The Washington crowd wants to focus on bonuses because it aims public anger on private actors, not the political class. But our politicians and regulators should direct some of their anger back on themselves -- for kicking off AIG's demise by ousting Mr. Greenberg, for failing to supervise its bets, and then for blowing a mountain of taxpayer cash on their AIG nationalization.
Of course the people of government will not blame themselves. They will instead try to help us overlook their accountability. As Ronald Reagan famously said, government is not the solution, government is the problem. It seems folly to turn to government thinking government can fix a mess it's earlier actions helped create.

Sunday, March 15, 2009

Mankiw's Lessons From The President's Budget

GREG MANKIW takes a look at President Obama's first budget proposal. He finds several lessons revealed in this proposal: (1) he is an economic optimist, especially concerning his PLAN (assumes 4% growth rate in the economy over the next 4 years), (2) he likes to spend, (3) he is serious about climate change, and (4) he is a deficit dove (i.e., the deficits are rising with his plans).

I guess I'm not surprised by any of the lessons Mankiw sees in the President's first budget. His campaign speeches suggested he would be a big spender, and of course if so, then most likely he would really be a deficit dove. And, what President wouldn't choose a rosy scenario for economic growth when assuming the President's PLAN for government and the economy was implemented?

But, it seems to me the assumption of 4% growth over the next 4 years is quite inconsistent with assuming the President will successfully impose carbon cap-and-trade policies. If government policy forces significant additional reductions in carbon emissions, the relative prices of energy will be much increased, which will reduce both consumption and production.

Here is the bottom line in Mankiw's commentary:
"So if you are a deficit hawk who lamented the Bush budget deficits, the new president’s budget should not make you feel much better. President Obama offers different fiscal priorities than President Bush did: less military spending, more domestic spending and higher marginal tax rates to “spread the wealth around.” But the borrowing and debt imposed on future generations will not be very different, at least if the numbers in the Obama administration’s own budget document can be trusted."

Saturday, March 14, 2009

The Cookie Cartel

From the WASHINGTON TIMES:
Wild Freeborn — adorable and age 8 — has caused considerable hubbub with entrepreneurial spirit and a little homemade video.

"Help me help others. Buy cookies. They're yummy," little Wild says in her one-minute sales pitch for Thin Mints, Samoas and other traditional mainstays of Girl Scout cookie cuisine.

The modest message included an online order form, was videotaped by her father, Bryan Freeborn, in the family living room in Brevard, N.C., and posted at YouTube.com

[ . . . ]

The Girl Scouts were not pleased with Wild's intention to sell 12,000 boxes of cookies and help send her troop to summer camp. The organization ordered the video removed from the social-networking site on the grounds that it violated a policy that bars online sales of Girl Scout cookies. Officials were also concerned that Wild's methods could put less techno-enabled young ladies at a disadvantage.

Thursday, March 05, 2009

Federal Government Changes Size

GREG MANKIW looks at federal outlays as a percent of GDP, which seems to be something President Obama wants to change in the direction of larger and larger:
"HOW WILL IT ALL END? Over the last century, the largest increase in the size of the government occurred during the Great Depression and World War II. Even after these crises were over, they left a legacy of higher spending and taxes. To this day, we have yet to come to grips with how to pay for all that the government created during that era — a problem that will become acute as more baby boomers retire and start collecting the benefits promised.

Rahm Emanuel, the incoming White House chief of staff, has said, “You don’t ever want to let a crisis go to waste: it’s an opportunity to do important things that you would otherwise avoid.”

What he has in mind is not entirely clear. One possibility is that he wants to use a temporary crisis as a pretense for engineering a permanent increase in the size and scope of the government. Believers in limited government have reason to be wary."

The Corruption Continues

WSJ:
"Speaking of earmarks, they've quickly made a comeback even by the old definition. The $410 billion omnibus spending bill for fiscal 2009 now making its way through Congress contains at least 8,570 of them at a cost of $7.7 billion. Mr. Obama is not signaling any concern, much less a veto."
Please read this short editorial. We should all be paying attention. The corruption in Washington continues. It seems to me the corruption that is represented by earmarks is not being changed to un-corruption, but instead the direction of change we seem to be able to count out is a deepening of the corruption.

The number of earmarks in this omnibus spending bill alone represents, on average, about 20 personally determined, secret, spending projects for each member of Congress. In dollar terms, this means about $18 million is being spent secretly by each member of Congress.

Monday, March 02, 2009

President's Road Map?

CONGRESSMAN PAUL RYAN:
"The budget the president released last week, however, does provide some certainty about where we are headed: higher taxes on small businesses, work and capital investment.

Add to this the costly burdens of a cap-and-trade carbon emissions scheme and an effective nationalization of health care, and it is clear that the government is going to grow while the economy will shrink. In a nutshell, the president's budget seemingly seeks to replace the American political idea of equalizing opportunity with the European notion of equalizing results."
It seems to me this is the President's vision of the future, and it's not a vision I like? What do you say?

Wednesday, February 25, 2009

Seen & Unseen

I didn't watch the President's speech last night. I had to walk my dog. And, I haven't yet had time to read his speech, so I can't comment directly. But STEVE HORWITZ watched it, well he apparently watched as long as he could take it:
"It is quite clear after listening to Obama's talk tonight that he, and those who applauded him wildly, have no clue as to this fundamental point in political economy. Not once in all of his talk of what government would do did he ever even come close to acknowledging that what government spends on the one hand must be taken from the private spending stream on the other. In fact, at one point he touted his 'transparency' plan by saying that it would enable 'taxpayers to see how government money is being spent helping other taxpayers.' Maybe so, but he glosses over the fact that the money being spent came from those same taxpayers and would have been spent on other things, without the waste of the transfer, were it not for government's intervention. Robbing Peter to 'help' Paul only damages both in the process, and certainly stimulates no economic activity."

This Crisis & Sowell Clarity

TOM SOWELL:
"From television specials to newspaper editorials, the media are pushing the idea that current economic problems were caused by the market and that only the government can rescue us.

What was lacking in the housing market, they say, was government regulation of the market's 'greed.' That makes great moral melodrama, but it turns the facts upside down.

It was precisely government intervention which turned a thriving industry into a basket case.

An economist specializing in financial markets gave a glimpse of the history of housing markets when he said: 'Lending money to American homebuyers had been one of the least risky and most profitable businesses a bank could engage in for nearly a century.'

That was what the market was like before the government intervened. Like many government interventions, it began small and later grew."
If you want insight, then you really should read the whole thing.

On the other hand, if you choose either rational ignorance or irrationality, then you want to stay far, far away from Tom Sowell.

Tuesday, February 24, 2009

Presidential Confidence?



I've recently heard quite a number of talking heads discussing what has happened with the stock market indexes since the election of President Obama. I found this chart in A WSJ COMMENTARY today. Perhaps this suggests a lack of confidence in the new President. Then again, it could also reflect a lack of confidence in a Congress which already seems adamantly partisan and Democrat.

In any case, it seems the more Washington says it will fix the economy and this recession, the more it looks like the recession will continue. It seems to me that an increasingly interventionist Washington is making matters worse, not better.