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

"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

"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?

"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 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

"'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?

"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


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

"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?