Monday, March 30, 2009

Obama's Banking Folly

Here, two of the brightest people on the planet explain in some detail what's going on with BHO's toxic asset bailout plan. The press calls it Geithner's plan, but let's be clear about who to hold responsible for the mess.

Reading all of Posner's and Becker's articles is a bit of a slog; helpful if you can make it all the way through without your eyes glazing over. But in the end, neither Posner nor Becker mentions the really troubling element of BHO's toxic asset bailout plan. That would be the idea of bailout in the first place.

Someone needs to explain why really rich folks should be bailed out at all. That's all that's going on. Really rich folks who took too much risk and lost don't want to take it in the neck. Whaaahhhh, whaaaaahh. Suck it up, cry babies.

Henry Paulson got the ball rolling, but BHO has kicked it down the street. This is change we can live with? Yeh, right. Business as usual if you ask me.

Who's War On Drugs?

Jeffry Miron of Harvard explains here how drug laws foster violence in society, creating a hazard to your health that's completely unnecessary.

I'll go one step further. Imagine this. You are a member of Congress. Your phone rings at home one evening after dinner. The caller tells you he is prepared to donate $100,000 to your upcoming re-election campaign.

When you ask who is calling, he says he is a concerned citizen, but prefers to remain anonymous. The caller has only one request; that you support completely and absolutely the war on drugs. That's it. That's the only requirement.

The caller tells you the check will arrive within the week, provided you make a public statement about your unending and uncompromising support of strict drug laws buttressed by forceful prosecution of drug offenders.

Question: who do you suppose would make such a call? If you can figure that one out, you evidently understand people, economics, and the nature of the drug business. If you have no idea who would make such a call, think about who benefits most from drug laws and follow the money.

Thursday, March 26, 2009

Socialism Made Simple

A good friend of mine from Texas sent me this.
An economics professor at Texas Tech said he had never failed a single student before but had, once, failed an entire class. The class had insisted that redistribution of wealth would work to achieve social justice, where all worked but no one would be poor and no one would be rich.

The professor then said ok, we will have an experiment in this class. All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. All would work for the benefit of the class and for one another.

After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little studied even less and the ones who studied hard decided they wanted a free ride too; so they also studied less. The second Test average was a D! No one was happy. When the 3rd test rolled around the average was an F.

The scores never increased as bickering, blame, name calling all resulted in hard feelings and no one would study for anyone else. All failed to their great surprise and the professor told them that social redistribution would ultimately fail in similar fashion.

Success occurs when reward tracks increased hard work and delayed gratification. When government takes away the reward, no one tries as hard to succeed or willingly make sacrifices.
Any Questions?

Where Is America's Daniel Hannan?

Daniel Hannan speaks eloquently here about the economy of Great Britain. Everything he says applies in spades to the economy of the United States.

Where is America's Daniel Hannan? What Member of Congress would or even could speak as eloquently and truthfully to BHO? We the people thought they elected a great leader. But how will the people live after their leader and his Congress kill the goose laying the golden eggs?

The WSJ editorial here explains in more detail the near total disconnect now underway between the world of political fantasy and economic reality.

Put it this way: Imagine any of this generation's Democratic establishment taking a job at Procter and Gamble in Cincinnati as a middle-manager responsible for a division of employees and its annual profit and loss. It is wholly inconceivable. Or helping an owner of an auto-parts company manage through a real crisis. They wouldn't have a clue.

Even though it's quite a slog to work your way all the way through it, "Atlas Shrugged" remains mandatory reading for anyone who really wants to understand where the disconnect between political fantasy and economic reality leads.

Thursday, March 19, 2009

Quantitative Easing

Check out the interactive video explanation of "quantitative easing" here if you have heard or read the term and don't quite understand it.

After you listen to the explanation, see if you can get a perfect score on the following quiz.

1. How is "quantitative easing" different from printing new money?
2. How is "quantitative easing" different from what Zimbabwe has been doing for several years?
3. Is "quantitative easing" an increase in real income (i.e., increase in real GDP)?
4. Will "quantitative easing" help the economy return to growth?

Quiz answers: 1. It isn't; 2. It isn't; 3: It isn't; 4. It won't

How did you do?

Extra credit question: Why do you think the Fed is going to directly increase the money supply rapidly just now?

BHO Says He'll Take the Blame

BHO says here
"Washington is all in a tizzy and everybody is pointing fingers at each other and saying it's their fault, the Democrats' fault, the Republicans' fault," he said at a town hall meeting Wednesday. "Listen, I'll take responsibility. I'm the President."

He also make(s) clear that it isn't really his fault. "We didn't grant these contracts," he said.
That's impressive. BHO says he'll take the blame, then immediately says it really isn't his fault. That's reassuring.

I'm worn out with politicians like BHO saying "I'll take the blame." What does that mean? I really don't care if he takes the blame or not. How about doing things right instead of telling us that he'll accept the blame.

The real issue has almost nothing to do with the executive bonuses. All that is a huge red herring intended to divert we the peoples' attention away from the real problem. The real problem is federal intervention in private enterprise. The real problem is the lousy butts of financial giants that are being bailed out by the Treasury and the Fed. The real problem is the violation of the Constitution by the Treasury, Congress, and the Fed by buying ownership in AIG with tax dollars in the first place. Wake up, folks!

$165 million paid in bonuses to AIG executives is literally chicken feed when lined up beside the bailout hundreds of billions of dollars and the hundreds of billions of dollars in the Pork Pool Bill, er ... stimulus bill the politicians of the "Incumbent Party" passed a couple of weeks ago. Never mind Republican or Democrat. It's the Incumbent Party that rules.

Global Warming Redux

A fellow scientist sent me the article you can read here about the continuing unraveling of the global warming myth.
Led off with stirring speeches from the Czech President Vaclav Klaus, the acting head of the European Union, and Professor Richard Lindzen of MIT, perhaps the most distinguished climatologist in the world, the message of this gathering was that the scare over global warming has been deliberately stoked up for political reasons and has long since parted company with proper scientific evidence.

Nothing has more acutely demonstrated this than the reliance of the IPCC on computer models to predict what is going to happen to global temperatures over the next 100 years. On these predictions, that temperatures are likely to rise by up to 5.3C, all their other predictions and recommendations depend, yet nearly 10 years into the 21st century it is already painfully clear that the computer forecasts are going hopelessly astray. Far from rising with CO2, as the models are programmed to predict they should, the satellite-measured temperature curve has flattened out and then dropped. If the present trend were to continue, the world in 2100 would not in fact be hotter but 1.1C cooler than the 1979-1998 average.

Yet it is on this fundamental inability of the computer models to predict what has already happened that all else hangs. For two days in New York we heard distinguished experts, such as Professor Syun-Ichi Akasofu, former director of the International Arctic Research Center, Dr Willie Soon of the Harvard-Smithsonian Center for Astrophysics and Professor Paul Reiter of the Pasteur Institute, authoritatively (and often wittily) tear apart one piece of the scare orthodoxy after another.

Sea levels are not shooting up but only continuing their modest 3mm a year rise over the past 200 years. The vast Antarctic ice-sheet is not melting, except in one tiny corner, the Antarctic Peninsula. Tropical hurricane activity, far from increasing, is at its lowest level for 30 years. The best correlation for temperature fluctuations is not CO2 but the magnetic activity of the sun. (For an admirable summary of proceedings by the Australian paleoclimatologist Professor Bob Carter, Google "Heartland" and "Quadrant").
Reams have been been written about global warming, but most of it is pure propaganda. It's reassuring to see that scientists who are qualified to speak on the subject are winning back the high ground from Al Gore and the hoards of sheeple who swallowed his hook.

Objective science, uninfluenced by the political agenda of the IPCC, has established these indisputable facts:

1. Computer models on which the IPCC bases its dramatic climate predictions have been unable to predict what we've been experiencing for the past decade.

2. Changes in average global temperatures are well within the range of natural fluctuations, to the best of scientists' ability to measure such things.

3. Cost-benefit analysis conducted by reputable economists demonstrates that the cost of reducing CO2 emissions to levels proposed by BHO exceeds the benefits, even if the predictions of the IPCC were accurate, which they evidently are not.

As people who are not climatologists with little ability to sort through the arguments and data, who will the rest of us choose to believe about global warming? People who choose Al Gore over Professor Richard Lindzen of MIT, perhaps the most distinguished climatologist in the world, are really beginning to look quite ridiculous.

Wednesday, March 18, 2009

Send Them To Jail

News Alert
from The Wall Street Journal
March 18, 2009
Bernard Madoff's longtime accountant was charged Wednesday as prosecutors expand their probe of the sprawling fraud. David Friehling, who served as Madoff's auditor for several years, faces up to 105 years in prison if convicted of the fraud charges. Last week, Madoff pleaded guilty to what could be the largest fraud in history. His sentencing is set for June.
Here's a thought. How about putting all the regulators at the SEC and the Fed and FDIC in jail along with Madoff's accountant. It is, after all, the regulators who looked the other way for at least 10 years.

One of two things must be true. You decide which you believe. Either the regulators are totally incompetent---in which case we should have no confidence in them whatsoever. Or, the regulators are part of the fraud---in which case they should go to jail. Which is it?

Tuesday, March 17, 2009

Markets Have Failed, Right?

Thomas Woods writes here about the absurd assertion coming from people who ought to know better that voluntary exchange in private enterprise markets has failed.

Just in case you hadn't noticed, we have not had anything like free markets in the United States since at least 1913. In fact, every industry is regulated. Some industries, such as financial services, are regulated beyond imagination.

The banking system is in fact a cartel authorized and operated by the federal government through its wholly controlled subsidiary, the Fed. The investment industry is heavily regulated by the SEC, state regulators, FINRA (Financial Industry Regulatory Authority), FDIC, SIPC, and a whole host of additional alphabet soup agencies it would take me about 30 minutes to compile. We have no fewer than 8 major acts passed by Congress since 1913 that empower one or another agency of bureaucrats to dictate the operation of and ride herd on the financial services industry.

So I ask you, if what we see around us today is called "failure," just who or what is it that has failed?" It's so totally obvious that it is government and regulators who have failed---not voluntary exchange in private enterprise. Only an institution like the academy would fail to notice such an obvious fact. Oops. Sorry, politicians would also fail to notice that fact, wouldn't they.

Monday, March 16, 2009

How Much Will Your Dollars Buy In 10 Years

Here are a couple of charts that you might want to study for a while.

The top chart shows the Consumer Price Index(CPI). We can estimate the rate of inflation between any two years by calculating the percentage change in the index value between those years.

For example, from 1970 to 2008, the CPI rose from about 40 to about 200. That means the average level of consumer prices rose by a factor of 4 over that 38 year period, or about 10.5 percent per year on average (200 - 40)/40 = 4.0 = 400%, or 400%/38 = 10.5% per year.

The bottom chart shows what's called the monetary base, which is pretty much under control of the Fed. Notice the close correlation between the growth rate of the monetary base and the resulting rate of inflation. If it appears to you that expansion of the monetary base leads to inflation, congratulations; you got it.

Now notice the sky rocketing of the monetary base that the Fed has caused over the last several months. Does this look frightening to you? Do you think it could be a problem in a few years? Me too.

The Fed will have to withdraw monetary base from the banking system to battle inflation in future. How long do we have before that begins? No one knows for sure, since the banks will have to start lending again, expanding the money supply, before the giant rise in the monetary base will lead to giant rises in consumer prices.

Does it seem like a great idea to you that the Fed alternately pumps up the monetary base and then contracts it? If you were wondering where recessions come from, you need look no further.

Contracts? Fo-geddah-boud-it

Professor Mankiw notes here that a mortgage is a contract. What a novel idea. Does BHO, who is supposed to be a talented attorney, understand contract law? Guess not. I wonder if it's okay if I ignore the provisions of some of the contracts I've signed?

Hey, how about the "social contract" that John Locke was so keen on. Maybe we should abrogate that one, too. For a guy who's supposed to be brighter than light, BHO doesn't seem much concerned about letting contract law go by the way side. I think that is a mistake, personally.

Saturday, March 14, 2009

Who Will Pay for Cap and Trade?

Thanks to my friend Mike for sending me this article from the WSJ on cap and trade.
Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions. With President Obama depending on vast new carbon revenues in his budget and Congress promising a bill by May, perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups. Full article here

Thursday, March 5, 2009

Want The Truth About Renewable Energy?

From the WSJ 3-5-09
During his address to Congress last week, President Barack Obama declared, "We will double this nation's supply of renewable energy in the next three years."

While that statement -- along with his pledge to impose a "cap on carbon pollution" -- drew applause, let's slow down for a moment and get realistic about this country's energy future. Consider two factors that are too-often overlooked: George W. Bush's record on renewables, and the problem of scale.

By promising to double our supply of renewables, Mr. Obama is only trying to keep pace with his predecessor. Yes, that's right: From 2005 to 2007, the former Texas oil man oversaw a near-doubling of the electrical output from solar and wind power. And between 2007 and 2008, output from those sources grew by another 30%.

... For the sake of convenience, let's convert the energy produced by U.S. wind and solar installations into oil equivalents.

The conversion of electricity into oil terms is straightforward: one barrel of oil contains the energy equivalent of 1.64 megawatt-hours of electricity. Thus, 45,493,000 megawatt-hours divided by 1.64 megawatt-hours per barrel of oil equals 27.7 million barrels of oil equivalent from solar and wind for all of 2008.

Now divide that 27.7 million barrels by 365 days and you find that solar and wind sources are providing the equivalent of 76,000 barrels of oil per day. America's total primary energy use is about 47.4 million barrels of oil equivalent per day.Full article here.
Declaring the we will double this nation's supply of renewable energy in the next three years sounds great on T.V. But like so many other things BHO says that sound great on T.V., his words are empty rhetoric.

Even if we could somehow increase solar and wind energy by 100 times (never mind a mere 2 times), we would still use hydrocarbon energy for about 86% of our annual demand for energy.

So who is BHO trying to fool. The sheeple, of course. Blaaah! How about talking about the only real non-hydrocarbon energy source around---nuclear power? The U.S. Navy has been operating nuclear powered submarines and aircraft carriers for nearly 60 years with a spotless safety record. Spent nuclear fuel can be reused in breeder reactors, which can also be operated safely. So let's not head off into the west waving our hands and screaming about storing nuclear waste.

Reliance on nuclear power around the globe dwarfs American use already and will doubtless continue to grow. So why does the federal government (the 545 people who set the limits of your existence) continue to favor hydrocarbon fuels while talking gibberish about solar and wind and putting arbitrary caps on carbon emissions? The answer to that question really isn't particularly difficult. See if you can figure it out.

Wednesday, March 4, 2009

Time To Worry?

You can read Professor Mankiw's latest post here. It appears that he is beginning to worry a bit. It's about time.

As I've noted in this space before on more than one occasion, I personally have great regard for Professor Mankiw. In recent weeks, though, I'd begun to wonder why he wasn't coming out much more clearly and forthrightly about the Pork Pool Bi ..., er Stimulus Bill. Looks like he's beginning to see things a bit differently.

You should also read the link in his article, which points to an editorial he wrote before the election of BHO. Interesting to compare the two pieces in tone, as well as content.

I've said it more than a few times in my blog. You cannot borrow what has not yet been produced. BHO's federal spending will be financed with massive borrowing. But since the real stuff hasn't been produced (which also means households haven't saved it yet to be borrowed), households will have to save from their future income to pay for the borrowing. Remember, saving by households is the only real source for borrowing by businesses and governments. If you've forgotten why you can't borrow what hasn't yet been produced, read this post again.

So just when did Americans decide that government bureaucrats and politicians knew better how to spend Americans' income than the people who earned it themselves? Just when did Americans decide that spreading the wealth (to use a phrase popular with BHO) was the way to prosperity? Just when did Americans decide that disregarding the Constitution and its guarantees to private property and private contracts was okay? Evidently, they decided when they elected BHO. Let's see how many of the electorate are happy with their decision by next year.

I hope the force will be with us; it appears that we are going to need it.

Wake Up, Economists

In the article you can read here, we have a good example of why academic economists, even those with highly recognizable names like Mankiw and Krugman, are usually viewed as egg heads who can be safely disregarded in serious policy discussions.

Who really cares what someone's statistical analysis purports to show (unit roots, of all things) when all of history speaks so loudly about what fosters economic prosperity and human well being? History also speaks loudly about what stifles economic prosperity and human well being. We really don't need unit root analysis to point the way.

Who is it that really doesn't understand why the decade of the 90s was the most prosperous in recorded history? Who is it that thinks taxing income away from whoever earned it and giving it to people who did not earn it promotes economic prosperity? People like BHO who think "spreading the wealth" is the answer evidently haven't studied much history.

The recession the world is now experiencing will begin to abate when the Fed quits trying to save the financial necks of the wealthiest people on the planet and when the Congress quits passing laws that commit the U.S. Treasury to spend beyond what Congress is willing to tax from current tax payers.

As I've told my students, if it takes sophisticated statistical analysis to discern something, then whatever it is that's discerned couldn't be particularly important.

Sunday, March 1, 2009

Disappearing U.S. Manufacturing?

It's common knowledge that manufacturing in the United States has been in decline for decades, right? The nearby chart should put the kibosh on that urban myth.

What's really been going on all these many years is that thanks to technological advances, we need less and less labor every year to produce real stuff. That's a good thing. It isn't jobs we want or need; it's real output. We could generate millions of new jobs tomorrow by outlawing the use of tractors in farming. Do you think that would be a good idea? Me neither.

BHO's rhetoric about "creating or saving jobs" and keeping jobs here at home through further distortions in the tax code just doesn't ring true. The "change" we really need is to move beyond the "jobs" rhetoric, no matter how much it appeals to obsolete labor in Detroit.

People hoeing the corn became obsolete during the 20th century. And its a good thing they did. It's time to move beyond the populist rhetoric and recognize that the world moves on. I'm glad I don't have to be out in the field hoeing the corn to stay alive; how about you?