Wednesday, September 21, 2011

Thursday, September 15, 2011

Is Social Security A Ponzi Scheme

Is the Pope Catholic? 

Read here an interesting article that explains just why Texas Governor Rick Perry is correct.

Read here why Social Security is immoral.

Saturday, September 10, 2011

Tell Us What You Would Do

Suppose, either by fabulous good luck or your own hard work and merit, you were the proud owner of $100 million in cold, hard cash; suppose you have that cash in a bank account at Bank of America, just to be concrete.

What would you do with that $100 million?  Would you start a new business to create new jobs?  Would you expand the business that you already own to create new jobs?  Would you hire back folks you laid off during the Great Recession?  What would you do; I mean, really?

Did BHO say anything last night in his address to a joint session of Congress that would give you confidence to start a new business and hire employees?  Did BHO say anything last night that would overcome the morass and tangle of regulations and taxes that you would face if you did start a new business?  Did BHO say anything at all last night that would lead you to want to expand your business?

I didn't think so either.

Just to be clear, it is the creation of new businesses or the expansion of existing ones that could increase employment and reduce unemployment.  New government jobs don't count, by the way.  Government jobs have to paid for by sucking more resources out of the private sector by force.

It seems quite unlikely that Congress will pass legislation called for in high rhetoric by BHO last night.  Next year, when the economy is still languishing with high unemployment, BHO will claim that the reason for our economic malaise is that Congress didn't do what he asked for in is "Jobs" speech.  Sadly enough, lots of people will buy that miserable claim and vote for BHO again.  Simply amazing.

Thursday, September 8, 2011

Why Is the Economy Languishing Still?

Here, Robert P. Murphy, my favorite Austrian economist, explains why the economy continues to languish. I will add to Murphy's wonderful thought experiment of the gnomes with just a couple of additional ideas that I think Mr. Murphy might agree with.  But first, a little foundation.

A recession is a contraction of the rate of production of real goods and services.  To be called a recession, the contraction must go on long enough for the National Bureau of Economic Research to believe it is a sustained contraction.  By tradition, the NBER declares when recessions begin and end.

We measure production of real goods and services as the total dollar value of all final goods and services produced each year, otherwise known as GDP (Gross Domestic Product). These days, GDP for the United States is somewhere in the neighborhood of $15 trillion per year.

That's a lot of stuff.   That's enough stuff produced each year for every one of the 82 million families in the United States to have nearly $183,000 worth of stuff, if it were all distributed evenly.  Now that's a really, really large economy.  Contrary to what you may have heard, the United States still has the world's largest economy in total dollars by a substantial margin.  You can see the data on that here.   

GDP in the United States usually grows each year.  In fact, over the past 100 years or so, it has grown about 2% per year.  Even though media pundits and politicians might poo poo 2% growth per year, it's not chump change. Two percent of $15 trillion is $300 billion!  That's enough for each of the 82 million families in America to enjoy $3,600 more income per year.  That's why a growing economy is good and a shrinking economy is bad.

The Great Recession ended.  Our economy is growing again, just not very fast.  But even more important for several million people who are out of a paid job, lots of businesses are not hiring back people they laid of during the recession of 2008 and 2009.  Businesses are also not creating new jobs fast enough to keep up with normal population growth.

In earlier posts to EconoBlast, I offered up reasons for the continuing high unemployment rate and lack of new job creation.  You can read one of those earlier posts here.  The hard truth is that most of the people who have not been rehired to do jobs they were doing before the Great Recession will never be rehired to do those jobs. 

That message is not a comforting message, and certainly not a message politicians can deliver.  But comforting or not, politically expedient or not, the message is true.  America has developed a profound mismatch between skills and abilities businesses are willing and able to pay for, compared to the skills and abilities several million unemployed people have to offer.

How that mismatch came about is debatable.  My own perspective is that government intervention in markets of all kinds are the fundamental cause of the mismatch.  The housing debacle/bubble/crisis/etc. provides an excellent example.

Without the intervention of the federal government in mortgage markets, the proximate cause of the Great Recession would not have happened.  EconoBlast and many others have chronicled well the roles of Congress, the Fed, and financial regulators that brought about the housing bubble and its attendant mis-allocation of capital in the economy.

An important effect of misallocating capital is the attendant misallocation of labor skills and ability, which ends up in a long-run mismatch for part of the labor force.

For example, people who became skilled and able in building houses, financing houses, selling houses, insuring houses, inspecting houses, and so on, are now the proud owners of skills and abilities that businesses are unwilling and unable to hire.

It's as if the gnomes in Robert Murphy's thought experiment scattered a substantial part of the capital and labor in our economy in disparate places.  But it's actually more profound.  No one can simply move the capital and labor around to get things right again.

If you're expecting BHO to reveal this evening, when he addresses a joint session of Congress, compelling, useful, and novel ideas for getting new job creation underway in America your expectations will not be met.

Nothing the President will propose can overcome the mismatched skills and abilities of the labor force that have been induced by decades of laws, regulations, and tax incentives that got us where we are today.  It isn't about stimulating the economy.  It isn't about fiscal policy.  It isn't about monetary policy.  It's about the willingness and ability of businesses to hire labor they can't use.

Is there then no hope?  We can hope that those who would tell us what to do, when to do it, how to do it and what report to file about it will cease and desist.  We can hope that those who would take our income to give to someone else will stop.  We can hope that American citizens will return to a deep belief in being responsible for their own lives, abandoning the nanny state.

We can hope. 

Tuesday, September 6, 2011

Waffle House, Free Markes, and Government

Here, Doug French offers up a fascinating contrast between government solutions and free market solutions.

It's really all about human nature and incentives.  Voluntary exchange leads people to serve each other out of self interest.  Adam Smith writing in Wealth of Nations,  and   Bernard Mandeville wrting in Fable of the Bees even earlier explained it long ago.

It's simple, really.  I can't get what I want unless I figure out a way to give you what you want in return --- that is, unless I am able and willing to coerce you.  Government is more than happy to coerce us.  Sadly enough, government is also ever more empowered to coerce us day by day.

Raising the federal debt ceiling a few days further empowered the federal government to coerce you.  It did so by ensuring that the 545 could continue paying for the ability to coerce you, whether you agreed to give them additional taxes or not.

I know, that last paragraph was something of a non sequitur, but I mentioned the debt ceiling to demonstrate how it is that government is able to compel us. 

If  Waffle House doesn't offer people what they want, people can walk away.  If government doesn't offer us what we want, we are told to vote for someone else in the next election.  What a deal!  How has that voting thing been working out for you?

I like the opportunity to vote for or against Waffle House with my dollars day by day.  How about you?