Those Ornery Chinese

The ignorant lawyers are at it again in our Incumbent Party Congress.  Join me in the New Blood Party; vote them out in November.  They are too ignorant of economics to make laws that affect economic choices that people make.

News Alert

from The Wall Street Journal

"The U.S. House of Representatives passed by a wide 348 to 79 margin legislation to penalize China's foreign-exchange practices, sending a powerful signal to Beijing to change its policies but risking a backlash that could harm U.S. companies and consumers."

The bill passed by the Incumbent Party lawyers is ridiculous on so many levels, it's truly hard to know where to begin to explain why.  But I'll give it the good college try.

First, the Chinese government and central bank cannot make China's goods and services cheaper by manipulating the exchange rate of its currency with other currencies. Cheapness of goods produced in China compared to the same goods produced elsewhere depends on the value of scarce resources used to produce the goods, not on the exchange rate between the Chinese renminbi (and its unit of account, the yuan) and the U.S. dollar.

After all, if all a government had to do to make its people economically prosperous was to devalue its currency with respect to other countries' currencies, then all the world would be filled with wealthy, prosperous people.

Second, anyone who says the Chinese government is keeping the exchange value of its currency below its "true value," must not understand much about international finance, exchange rates, and trade flows.  To say that a currency is "undervalued" is to assert that someone knows what the true exchange value of the currency should be.  But how in the world would anyone know that, if the currency is not traded in a free market?  There is only one correct answer; "they wouldn't."

Since the renminbi is not allowed by the Chinese government and central bank to float in the FOREX (the renminbi is pegged to the dollar by the Chinese government and its central bank),  no one can say what the exchange value of the renminbi with the U.S.dollar "should" be.  But nonetheless, the arrogant Incumbent Party of lawyers thinks it knows.  Please, please, join the NBP and  vote them out of office in November.

Third, just to humor them, let's suppose the U.S. Congress is really on to something.  Let's suppose that Chinese companies can be handed a comparative advantage in trade through manipulation of the exchange rate of the renminbi and the U.S. dollar (just for the sake of dialectical argument).  Why  would the Chinese government want to sell Americans more goods and services than Chinese citizens import from American companies?  

In the end, trade must be a two-way street, otherwise, one of the traders is giving stuff away.  Unless trade flows balance out over time, increased Chinese exports would amount to little more than Chinese companies giving U.S. citizens goods and services in return for pieces of paper with pictures of George Washington printed on them.  What would Chinese citizens be able to do with those pictures (they aren't particularly nutritious, and they make really poor clothing,  for example)?

Fourth (and I really do have to stop after this one; other things to do), if the Chinese government is able to give its citizens an advantage by manipulating the exchange rate, why doesn't the American government do the same?  You already know the right answer.

To whine about trade imbalances between China and America --- and to blame it on the Chinese manipulating exchange rates --- is to mistake causes and effects.  Worse still, to pass laws that pretend to tell the Chinese government what it must do is purely arrogant and moronic, don't you think?

Vote the morons out in November.

Join the NPB

News Alert

from The Wall Street Journal

"The tea-party movement has emerged as a potent force in American politics and center of gravity within the Republican Party, with a large majority of Republicans showing an affinity for the small-government movement, a new Wall Street Journal/NBC News poll has found.

In the survey, 71% of Republicans described themselves as tea-party supporters, saying they had a favorable image of the movement or hoped most tea-party candidates would win in the Nov. 2 elections."

Hallelujah!  I might point out that every one of the November candidates supported by the tea party movement would qualify for the New Blood Party (NBP).  Join the NBP.  It's even more fundamental than the tea party movement

Fed Is Ready to Muddle and Muck About

News Alert

from The Wall Street Journal

"Federal Reserve officials are considering new tactics if they resume purchases of long-term U.S. Treasury securities to bolster a disappointingly slow recovery. Rather than announcing massive bond purchases with a finite end, Fed officials are weighing a more open-ended, smaller-scale program that they could adjust as the recovery unfolds. The Fed hasn't yet decided to step up its bond purchases. After its last meeting, the Fed’s policy committee said it was “prepared” to take new steps if needed."

In other words, my friends, the Fed is prepared to to muddle and muck about however it pleases from week to month, pretty much indefinitely.  The Fed will use no systematic procedure or process, since the Fed has no definite ideas that it can explain and defend publicly.  That's why the Fed's activities are conducted in secrecy, obscurity, and mystery.  Just too complicated for us ordinary folk to understand, you know.

A Double-Dip Recession Becomes More Likely

Read here about our muddling Congress and politics as usual with the Incumbent Party. The 545 are evidently determined to shackle the economy with continuing uncertainty and misdirection of scarce resources, which is the one and only fundamental cause of recessions, as I have explained before here and here and here.

Recessions don't just happen; they are not naturally occurring phenomenon.  Worse still, recoveries that return employment and unemployment to reasonable levels don't just happen either.  Recoveries require removing what causes the recession in the first place.  By the way, it wasn't Wall Street and unregulated financial markets that caused the most recent recession.  I've explained all that before here and here. and here.

Read here about how the economy can be returned to a job-creating dynamo that raises all households' prosperity from bottom to top and left to right. But don't hold your breath until our Congress, full of incumbent lawyers as it is, does the right thing.  To get the right thing done, you will have to join the New Blood Party.  Read about the NBP here.  

The single most important cause of all recessions is simultaneous mistakes made on a massive scale by producers and consumers about what to produce, how much to produce, how much to consume, and how much to save.  Our most recent example is the mistaken production and consumption of housing that resulted in a bubble that simply had to collapse.  What do you suppose could cause all that wretched decision making simultaneously?  You already know.

The housing bubble simply could not have happened without the misguided policies of the Incumbent Party, policies embodied in Fannie Mae and Freddie Mac, and without a willing Fed that accommodated massive expansion of the nation's money supply of credit money.

Most of that credit money was borrowed first by the U.S. Treasury, and only later by wanna-be home owners and house flippers who couldn't or wouldn't make their mortgage payments. If you have forgotten how all this works, read about it here.

That truth has been explained and rehearsed so many times, both in this blog and elsewhere, it is truly hard to imagine how the Incumbent Party has not already been forced out of town in disgrace by us voters.

Our next chance is this November.  Get out front; lead the herd.   I urge you to join me in the NBP; vote the rascals out of office in 2010 and do it again each and every election hereafter.

Why Do We Have So Few New Jobs in America?

A good and wise friend sent this to me today.  Just in case you were wondering why we have so few new, productive, value adding jobs in America, part of the answer lies below.

I'd like to make you a business offer. Seriously. This is a real offer. In fact, you really can't turn me down, as you'll come to understand in a moment.

Here's the deal. You're going to start a business or expand the one you've got now. It doesn't really matter what you do or what you're going to do. I'll partner with you no matter what business you're in – as long as it's legal.

But I can't give you any capital – you have to come up with that on your own. I won't give you any labor – that's definitely up to you. What I will do, however, is demand you follow all sorts of rules about what products and services you can offer, how much (and how often) you pay your employees, and where and when you're allowed to operate your business. That's my role in the affair: to tell you what to do.

Now in return for my rules, I'm going to take roughly half of whatever you make in the business each year. Half seems fair, doesn't it? I think so. Of course, that's half of your profits.

You're also going to have to pay me about 12% of whatever you decide to pay your employees because you've got to cover my expenses for promulgating all of the rules about who you can employ, when, where, and how. Come on, you're my partner. It's only "fair."

Now... after you've put your hard-earned savings at risk to start this business, and after you've worked hard at it for a few decades (paying me my 50% or a bit more along the way each year), you might decide you'd like to cash out – to finally live the good life.

Whether or not this is "fair" – some people never can afford to retire – is a different argument. As your partner, I'm happy for you to sell whenever you'd like... because our agreement says, if you sell, you have to pay me an additional 20% of whatever the capitalized value of the business is at that time.

I know... I know... you put up all the original capital. You took all the risks. You put in all of the labor. That's all true. But I've done my part, too. I've collected 50% of the profits each year. And I've always come up with more rules for you to follow each year. Therefore, I deserve another, final 20% slice of the business.

Oh... and one more thing...
Even after you've sold the business and paid all of my fees... I'd recommend buying lots of life insurance. You see, even after you've been retired for years, when you die, you'll have to pay me 50% of whatever your estate is worth.

After all, I've got lots of partners and not all of them are as successful as you and your family. We don't think it's "fair" for your kids to have such a big advantage. But if you buy enough life insurance, you can finance this expense for your children.

All in all, if you're a very successful entrepreneur... if you're one of the rare, lucky, and hard-working people who can create a new company, employ lots of people, and satisfy the public... you'll end up paying me more than 75% of your income over your life. Thanks so much.

I'm sure you'll think my offer is reasonable and happily partner with me... but it doesn't really matter how you feel about it because if you ever try to stiff me – or cheat me on any of my fees or rules – I'll break down your door in the middle of the night, threaten you and your family with heavy, automatic weapons, and throw you in jail.

That's how civil society is supposed to work, right? This is America, isn't it?
That's the offer America gives its entrepreneurs. And the idiots in Washington wonder why there are no new jobs.

By Porter Stansberry

Recession Ended!

According to the WSJ and the NBER,

News Alert

from The Wall Street Journal

The organization responsible for dating changes in the U.S. business cycle said the U.S. recession that started in December 2007 ended in June of last year.

In a statement on its website, the National Bureau of Economic Research said that in determining an end to the downturn, "the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity." As worries persist about the struggling U.S. economy and its future path, the NBER warned "any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007." 

I'm really, really glad that the NBER cleared this up for us, aren't you?

Your Taxes Are Going Up in January 2011

Read about it here.

Economic Equality

Read here about how yesterday Obama snapped his fingers, and just like that, everyone had equal income and wealth, while poverty was eliminated.

Okay, so I lied.  So did BHO.

If someone could explain how income and wealth could ever be equal among people who are not themselves equal in most ways, maybe we could make sense of BHO's pronouncements about spreading the wealth around. The lessons of history make it utterly clear that  programs of redistribution don't make income and wealth equal, but they do restrain growth in the size of the economic pie.

Each year I ask students in my Foundations of Economics class to write a short essay that addresses the following questions: (1) is economic equality possible, (2) if it is possible, is economic equality desirable, and (3) if it is possible and desirable, would economic equality be socially just.

Each year, about 95% of the students respond in a similar fashion.  They write (1) no, economic equality is not possible because people have different capabilities and values, (2) no, economic equality is not desirable because to achieve even a poor approximation of it, government must compel those who produce to give what they produce to those who do not produce, which destroys incentives for both those who produce and those who do not, and (3) no, economic equality would not be fair, because robbing Peter to pay Paul just isn't fair.

About half of the college students who write these essays are freshmen; the other half are sophomores with a smattering of juniors.  About 95% of the students voted for Obama.  Given the students' understanding of the impossibility, undesirability, and injustice of economic equality, how could we explain the students' political preferences?

Could it be that a huge majority of young people simply don't know what Obama stands for?  I must admit, I am stupefied by this conundrum. 

A Really Good Article from Robert Barro

Here, Robert J. Barro explains why it's important to cut tax rates, not raise them right now.  One could pray that BHO's economists will read it, but one wouldn't want to hold one's breath.

TANSTAAFL, As Always

More health care for all at lower cost?  That's what BHO and crew said.  Of course, that's impossible, and the chickens are already coming home to roost.  Check it out here.

I'm thinking that all the folks who read this blog knew what was coming when BHO and crew passed ObamaCare.  Maybe enough of us will figure it out in time and join the New Blood Party for the November elections.

What of Jobs?

Here, Gerald F. Seib writes about jobs --- or more to the point, about the lack of  "enough" jobs in America.  His article is interesting, and it offers useful data about America's current and recently past unemployment rates.

Seib offers pseudo explanations of high unemployment rates now and recently from the mouths of several economists.  Of course, as usual, none of the "experts" seem to be singing from the same hymnal.  Once again the Dismal Science disappoints.

What none of the economists cited in Seib's article mention or speak of is that the natural state of humans is not to have a job. Notice that I did not say that the natural state of humans is not to work.

A job is working for someone else, following the directions of someone else, instead of working for one's self according to one's own direction to create valuable goods and services to exchange with others, which is the true source of income.

A job requires that individuals sacrifice autonomy, liberty, and self direction.  But to hear politicians of all stripes talk about it, jobs are just what we need, and we need more of them.  Of course we do; politicians like an obedient herd.

Here's a question.  What would each of us do if we found ourselves inhabiting the proverbial tropical island by ourselves?  We would work.  We would produce goods and services for ourselves.  We would not expect a job to appear for our taking.

Seib notes in his article,

"The American economy hasn't been a very robust jobs-producer for quite a while. That's the broader question that needs to be discussed, even as we work on the immediate problem." 

Indeed.  The immediate problem is a high and rising unemployment rate. The longer we keep looking to Washington to do something about the immediate problem, the longer the problem will continue.

Government does not and cannot create or even stimulate production of valuable goods and services.  Individual people do that.  But government can and does create moral hazard by its incessant claim that it is somehow responsible for creating jobs for the economy.  What utter nonsense.

If you would really like to know more about why the unemployment rate is so high just now and in the recent past, read Robert Barro's explanation here. On the other hand, if you are one of the unemployed, your time would be better spent by doing something about your joblessness yourself.  Take charge.  Produce valuable goods or services yourself, and exchange them for the goods and services of someone else.

That statement will doubtless sound cold and unsympathetic to lots of folks.  But blaming someone else for one's own lack of production of valuable goods or services really won't help. Worse still is looking to BHO and crew, or any other set of politicians to help the "economy" produce more jobs.

The Will to Civil Obedience

Thanks to the Ludwig Von Mises Institute, I offer here an analysis of the amazing civil obedience we offer to whoever is in authority, whether they be tyrant or benevolent benefactor.

I have remarked in this space on more than one occasion that there seems to be something in humans that likes a king.  The Milgram Experiment described here offers some hypotheses about how and why.

The Milgram Experiment provides stunning evidence that the lot of humans seems not to be liberty and moral behavior.  Instead, we are evidently all too willing to behave immorally at the behest of authority.  How very sad.

What Is Moral Hazard?

Just in case you have been wondering what "moral hazard" is, since the term has been in the financial news in abundance lately, here's a great explanation of the concept from Thomas Sowell.

And just in case you don't know who Thomas Sowell is, you can and should read just about everything he has ever written, and everything he will write in the future.  Dr. Sowell is an economist, and his perspectives are always enriching, and I might add, quite correct.  I have never met Dr. Sowell, which is my loss.