Samstag, Februar 27, 2010

Quote of the Day...

From Ludwig von Mises, Human Action, A Treatise on Economics, page 66/67: my emphasis.

There are no such things as a historical method of economics or a discipline of institutional economics. There is economics and there is economic history. The two must never be confused. All theorems of economics are necessarily valid in every instance in which all the assumptions presupposed are given. Of course, they have no practical significant in situations where these conditions are not present. The theorems referring to indirect exchange are applicable to conditions where there is no indirect exchange. But this does not impair their validity.

The issue has been obfuscated by the endeavors of governments and powerful pressure groups to disparage economics and to defame the economists. Despots and democratic majorities are drunk with power. They must reluctantly admit that they are subject to the laws of nature. But they reject the very notion of economic law. Are they not the supreme legislators? Don't they have the power to crush every opponent? No war lord is prone to acknowledge any limits other than those imposed on him by a superior armed force. Servile scribblers are always ready to foster such complacency by expounding the appropriate doctrines. They call their garbled presumptions "historical economics." In fact, economic history is a long record of government policies that failed because they were designed with a bold disregard for the laws of economics.

It is impossible to understand the history of economic thought if one does not pay attention to the fact that economics as such is a challenge to the conceit of those in power. An economist can never be a favorite of autocrats and demagogues. With them he is always the mischief-maker, and the more they are inwardly convinced that his objections are well-founded, the more they hate him.

By this definition, sycophants like Krugman et al aren't economists any more.

While this was written in 1949, it is valid today.

Governments which ignore the laws of economics, which at the end of the day are the laws of the market and of human action in those markets, are doomed to see their policies fail, and indeed fail miserably.

The war on poverty is one example: poverty won. You can't throw money at people and expect them to knuckle down and learn a trade or educate themselves out of poverty: they will, instead, behave as people did under the war on poverty.

Look, economists aren't heartless bastards, as much as the left thinks they are. We're the folks who can show you how to meet your political goals by working with markets. Ignore that at your peril.

Of course, we now see the "radical" critique, such as that of the post-autistic economics movement, about the failures of economics and how economists didn't see the bubbles building and didn't know when they would burst. I put "radical" in square quotes because it really isn't very radical, but rather reactionary (but that's for another day).

The thing is, there were those who saw the problems: no one listened. Economist have become so accustomed to being dismissed out of hand by the lawyers and accountants in charge - whose profound ignorance of economics is legendary - that we don't say anything any more, except, perhaps with each other.

Getting back to the point: the Obama Administration, for all its hope and glory, is no different from any other and is subject to the same laws of reality. Ignore the laws of economics and their policies will land on the trash heap of history with all the other policies that ignore economics.

Up to now, they don't even appear to understand that there are laws of economics. They don't care about economics, and yet do not realize that because of this, they will fail.

As they will.

Freitag, Februar 26, 2010

Best Phrase of the Day...

From Jascha Kessler, Professor of English and Modern Literature, UCLA, in today's FT in a letter to the editor:

"Good Intentions Paving Company"

They are the employers of all those who have so thoroughly messed things up...

My vote for phrase of the day. :-)

Oh, and after googling: this. Joanna Newsom uses the name as well. Guess it's not that original, but still it's my phrase of the day.

Digging A Deeper Hole...

The State of Illinois is digging itself a California-style hole.

See this.

What must Illinois - and by analogy, any other state with massively underfunded pension schemes - do?

Not should, but must?

If you are in a financial hole, the first thing you have to do is stop spending. If you keep on spending, you are digging a deeper hole. You can hope for an inheritance, you can hope for a pay raise to help you out, but you can't count on them: you can count on cutting spending, because it is in your control.

Instead, you get thousands of people - activists and unionists all - demonstrating for increasing taxes.

After all, the government can simply decide to raise taxes: it has the power to do so, after all!

The problem is that increasing taxes induces overall behavior changes: tax cigarettes, and fewer will smoke. Tax sin and sin becomes more expensive (at least for the dedicated sinner: it will change the behavior of those merely ... tempted).

But it will not generate you an increase in revenue that you can count on: people will find ways of avoiding taxes that they see as onerous, that they see as helping corruption and waste, that they see as the easy choice, rather than taking the hard choice of cutting spending.

The Illinois state budget deficit will probably be at least 50% of total Illinois state revenues. That means that the state deficit is no less than 1/3rd of the state budget.

That's an awfully deep hole that the Illinois state government has dug.

And they want to dig it deeper: health care and pensions are proving to be such heavy obligations that they are bankrupting the system.

Perhaps, and I know that this is heretical, but just perhaps the government shouldn't be doing everything? That maybe those well-paid and corrupt Illinoisians that also have lush pensions and cushy health-care provisions should maybe pay for themselves?

Instead, the state government is digging itself deeper and deeper: perhaps Illinois will become the new California.

Then again, that is no longer something to strive for.

The Next Bubble...

The next bubble that pops will be government debt.

World-wide, given extremely low interest rates, governments have taken on enormous amounts of debt.

Wonderful, right? Do all that good stuff and pay scarcely any opportunity costs. Best of all worlds for the statists.

But that debt, at some point, even if it is never paid off, has to be refinanced. If interest rates head up significantly - say the yield on government bonds goes from zilch, where they are right now, to rates that are consistent with historical trends - say 7% or even 10% - then servicing the debt will destroy government ability to finance the debt and continue all those lovely programs that they are spending the money on.

See this for what I mean.

Five to seven years. Sounds about right.

Of course, the Obama Administration isn't going to help when they do things like this.

This won't lead to fewer foreclosures: it will lead to more. The reason? If banks know that the government will intervene - invariably with a heavy hand to prolong the agony of homeowners in over their heads and banks facing catastrophic collapse of revenue streams - then they will start foreclosure proceedings earlier in order to ensure that foreclosure does happen by a certain date.

It also means that the major sanction of the banks - foreclosure and disposal of property, with resulting equity loss for the homeowner if they fail to make their payments - will be weakened, rather than strengthened: if the banks know that they cannot foreclose without going through some long, drawn-out reconciliation process that fails to recognize that the economics of the situation simply doesn't work, then they will increase up-front costs to cover the losses.

Only someone with no understanding of economics and finance could come up with such an idea.

But it's to protect the borrowers, the Administration says: the only thing this does is to prolong the agony and distorts the market, as houses do not come on the market when they should.

About par for the Obama Administration's track record. Prolong the agony and continue to meddle in markets...

Donnerstag, Februar 25, 2010

What Happens When The Government Owns GM... that the UAW owns the politicians.

Don't think so?

Read this and see if you can disagree: 59 House Democrats are among those set to question Toyota in the House hearings next week.

No less than 31 of these receive contributions from the UAW.

More than half.

Special interests do indeed corrupt government. This is taking it to a new high.

How likely is that Toyota sales are down and those of GM are up?

This is the most corrupt administration since Teapot Dome.

But then again, it is also the first Democratic administration to bring Chicago mores and practices to DC and view them as their god-given rights and privileges.

Ye gods.

Mittwoch, Februar 24, 2010

Lovely, Just Lovely...

I like London. As a native New Yorker, it's the next best place to be. I've been there, oh, 30 times or so since I started living in Germany, mostly on business, but have spent all told several months there over the years.

Like any major city, there are good place to go and there are places that are a tad seedier. Some even less attractive than others.

Like any major city, London has its undercultures and hidden places, where people go to consume goods and services that are outside of the "normal" track.

One of these is the gay culture, where homosexual men meet. I got no problems with that: just not my thing. They tend to be discreet, but there is, of course, a number of gay men whose political attitude is one of flaunting their sexuality and demanding acceptance. These folks have their own clubs.


In London, gay clubs center around the former industrial area around the converted Battersea Power Plant. Don't know why, probably because the rents are fairly inexpensive. These clubs are, shall we say, not the most reputable establishments? Dark rooms, a flamboyant clientele, strange and bizarre subcultures of the gay subculture in England.

Now, this isn't exactly a secret. If anything, it's well known.

So why is the US spending around $1bn to build its new embassy there? Yes, $1bn: the cost of building in London is extraordinarily expensive. At a time when President Obama talks the talk of fiscal responsibility, the State Department is certainly not walking the walk. I can well imagine how well this will go down in fly-over country.

Seriously: who is in charge of doing due diligence at the State Department?

I know that the current embassy at Grosvenor Square has its share of problems, largely unhappy neighbors.

But this? Put simply: embarrassing. Seriously. The embassy is going up in a neighborhood well known for its gay clubs. Lovely.

One consolation: the statues of Eisenhower (been up for ages) and Reagan (to be put up shortly) will NOT be moved to the new location. I guess we should be happy for small graces...

Now, the Grosvenor Square building has been sold for $850mn, so the additional costs are fairly modest. But was it so hard to find a site not near some of the ... less reputable night spots in London? I mean, even Soho would have been a tad less disreputable.

Montag, Februar 22, 2010

Understanding The Hole Being Dug...

The health care initiatives are grounded on a number of concerns. There is an excellent overview here. Go read the whole thing: it is more illuminating than anything the Obama Administration has put out, and does so without putting you to sleep.

The core of the problem, as far as I am concerned, is the abrogation of market rules (i.e. the market does not set prices, but rather these are determined by committee) such that for consumers of health care, there are no price incentives on choosing health care options. As a result, demand for the most expensive - which may or may not be the most efficient - health care faces no obstacles, because a third party - the insurer - is paying for the services.

To put it as simple as possible: if you're not paying, who cares what it costs? You choose the most expensive care, obviously, as your doctor likes it and everyone involved (except, of course, for the insurance company) prefers it because even if profit margins are equal, it earns them the most money.

Hence: if you are really serious about lowering costs, then you need to remove market limits on pricing. Plain and simple.

Of course, this means that there will be, automatically, rationing: the most expensive, cutting-edge health care will be something that only the rich can afford. If you then say that is unfair, that the poor deserve the same kind of care: you are part of the problem.

Right now, if a clinic delivers high-quality care at low cost, they will be punished, financially, because there is no incentive to use them. There is, if anything, a positive incentive to increase costs but to hide them from everyone but the insurance company, since this is how you can maximize your profits. Private practices and clinics therefore have a perverse incentive to make sure their care is high-cost, because that is how you can make a profit best and stay in business.

Change that if you are sincerely interested in lowering health care costs: however, this doesn't mean removing the profit factor from health care, since that is exactly part of the problem.

Economics is about the proper allocation of scarce resources. Create incentives to distort the market and you end up with improper allocation of capital, i.e. waste. Change the rules so that there is more competition amongst health-care providers and you'll be amazed who survives and appalled at the waste in the current system.

If you say that competition would reward those who make the choices for consumers, rather than letting the consumers decide, then you are part of the problem.

Health care, right now, in the US, is firmly under the jurisdiction of the states. While this will be heavily defended on the basis of state's rights -  correctly so, but that is a political problem that will be hard to unravel - it does lead to a heavily fragmented market, one that is made vastly worse by state oversight for required coverage. While basically a sound idea, it is an idea that has become perverted by the willingness of state oversight to include mandated coverage for what is fundamentally frivolous, such as cosmetic plastic surgery and sex operations (on the basis of successful lobbying by those who benefit from such regulation), meaning that even if you never contemplate these things, you have to pay for it.

Congress does have the power to regulate inter-state commerce and in this case could regulate to prohibit closed insurance markets, much as it prohibits, say, Delaware, from raising import duties on goods from, say, Ohio. Let the states continue to require sets of minimum coverages, but on with an annual review and a path to correct stupid decisions that increase costs for everyone in exchange for benefits for a fringe few. Allow competition nation-wide and prices will fall, as they always fall when competition increases.

Always. If you refuse to allow nationwide competition, you are part of the problem.

To sum up, consider this:

In short, neither the patient, the doctor, the insurance company, nor any government program has much incentive to spend health care dollars efficiently. A system that determines prices through administrative procedures rather than market processes disconnects the prices paid for health care services and products from both the costs incurred to provide them and their value to patients. A tax code that rewards employees who purchase insurance through their jobs and punishes individuals who purchase health insurance in the outside market further distorts these incentives. A litigious tort system that encourages doctors to order unnecessary tests and procedures at no cost to themselves in order to forestall lawsuits exacerbates the problem. However, the main problem is a system that insulates both patients and producers from normal market incentives to reduce prices and spending.

So change the incentives. See above.

Without tort reform, nothing will change: without cost reform, nothing will change.

But what the Obama Administration plans to do?

Nothing but change for the worse. Costs will increase. Incentives will be worsened to keep costs down. It is a classic, classic case of a truly muddled understanding of how the world really works.

I'll repeat this: I know I sound like a broken record, but we simply need to demand a higher quality of work from our government.

We certainly aren't getting it now.

Not Industry Friendly...

Well, as the phrase goes, no shit, Sherlock. This underscores it.

Of course the Obama Administration isn't industry-friendly: virtually no one in the Administration has every actually run a company and they have absolutely no idea what the effects of their heavy-handed, Chicago-style political methods will be. They think they're so smart: what they are is clueless when it comes to the real world.

Of course, they think their world actually is the real world, and for them it is: nothing else matters beyond their ability to wield political power to get things done.

Of course, they are leaving a path of destruction behind them, one that will cost dearly.

The first story points to how the NHTSA - National Highway Transport Safety Administration, the folks who worry about car and road safety -  is now run by folks who don't really care about industry engineering issues and care instead about legal issues. Well, duh: working with the industry to work out what can be done about car safety and efficiency is a lot harder than telling car makers that they have to make tiny green cars that get great mileage and are ultra-safe. Choose two of three: only lawyers think that you can do all three.

You see, that's the problem: you can't change the laws of physics by passing a law.

You can't stop health costs from increasing at the rate they have without reforming tort law so that liability insurance isn't so completely over-the-top because any fool can sue. But, sure, hey, let's pass a law against price increases, take that Mr. Nasty Insurance Company.

This means that health care providers will see their profit margins shrink. Those on the left say "Good, you shouldn't be making money off of sick people," but don't realize that after a while, no one will be left in the business.

The next health care crisis is coming: it will be one of unavailability of services, of rationing.

I'll repeat this: I know I sound like a broken record, but we simply need to demand a higher quality of work from our government.

Sonntag, Februar 21, 2010

Ah, Others Are Starting To Notice...

It would take a foreign newspaper to notice the Chicago connection. Most US newspapers are too cowed and intimidated to do so (those, of course, who aren't direct part of the game plan...hence a very small minority).

Read this and understand: President Obama is a product of the Chicago party machine, and as such is the product of the most corrupt political machine in all of North America.

You see, it's never about principle and making things better for those in need: it's always about using the office for personal gain and to promote the extension and continuation of political control over the purse strings.

Government has gotten so large, handles so much money, that of course it attracts those who want "what is theirs" for having helped getting politicians elected.

The dismantling of NASA is an example: deemed largely unnecessary in the greater scheme of things Obama-oriented, it is being reduced to offering joy rides to make third-world government look good, but only for the next several years before the funding is axed because, according to that liberal axiom that we've all heard for decades "why should we spend all that money on space when we have so many problems at home".

President Obama's "Chicago Team" are barely even one step removed from their home town behavior, of political thuggery. Sending a dead fish to a pollster because the polls weren't good? Duh.

Here are the Chicago Team:

Rahm Emanuel - Chief of Staff

David Axelrod - Political Adviser

Valerie Jarrett - Political Adviser

Michelle Obama - wife

The fifth person Obama listens to is Robert Gibbs, his press secretary, who is from Alabama (and it shows in the worst possible way).

Now, let's remember that Rahm Emanuel made, literally, millions when he was at Fannie Mae and helped the subprime crisis become a full-blown crisis by ... making things worse.

David Axelrod is one of the people behind the continued success of the Chicago political machine, an expert on "urban politics", which is basically playing off one ethnic and political group against each other, with the Chicago machine riding herd on them all. In other words, he's a political plotter and hack.

Valerie Jarrett is a perfect example of Chicago connections. She knows the Obamas because she gave Michelle Robinson - later Obama - a job "on the spot" when Ms. Jarrett was the Deputy Chief of Staff in the Mayor's office, i.e. gave out the political largesse.

Before joining the Obama campaign, she was in Chicago real estate and, tellingly, earned "more than $346,000 for service on boards of directors that reflect her political ties, and work in Chicago real estate and community development", see here.

Robert Gibbs, of course, was the campaign adviser who was extremely aggressive in attacking Howard Dean in 2004 when he advised the Kerry campaign, and was known as "The Enforcer" for aggressive rapid-response methods in dealing with opponents. It is telling that he is the press secretary: he wasn't called The Enforcer for nothing, demanding that reporters stick to the story that his candidate was telling.

Hence we have a "made man" of the Democratic Party, two political hacks, his wife and yet another political hack.

These are his advisers, people: these are fiercely partisan, no-holds-barred, zero-sum believers.

Rarely has a President been so poorly advised.

And it shows.

I'll repeat this: I know I sound like a broken record, but we simply need to demand a higher quality of work from our government.

Perhaps the President can begin by getting someone as an adviser that will tell him not what he wants to hear, but what can be done.

A train wreck in slow motion may be fascinating to watch, but it is still a train wreck.

Samstag, Februar 20, 2010

Utter Absurdity...

I had to go check this. And it is as it appears.

This borders on the criminal, the abandonment of American commitment to space.

NASA Administrator Charlie Bolden said Tuesday that President Barack Obama has asked him to "find ways to reach out to dominantly Muslim countries" as the White House pushes the space agency to become a tool of international diplomacy.

Ye gods.

Now, what they really mean is that they want to use space flight as a way of getting those countries to do things that the US wants them to do: "do what we want, and we'll pull a wonderful publicity stunt to make your people happy."

Does this surprise, giving the fundamental corruption of the Chicago crowd? You see, everything gets reduced to "what's in it for me", everything is reduced to a tool for political purposes, something to be used and exploited for crass political purposes.

This is so utterly degrading for the space program - to be reduced to a novelty item that the State Department gives away for being a good vassal - that it's an utter absurdity.

We deserve better. We won't be getting it from this Administration.

I know I've used this quote before, but this needs to become a mainstream mantra:

I know I sound like a broken record, but we simply need to demand a higher quality of work from our government.

Because we certainly aren't getting it now.

Freitag, Februar 19, 2010

A Pattern Is Emerging...

Read this, and think of what I quoted here yesterday.

Let me repeat it:

I know I sound like a broken record, but we simply need to demand a higher quality of work from our government.

Put simply, those in charge of oversight, along with those who are actually doing the oversight, have failed, failed miserably.

It does not appear that there is anyone involved who actually understands how a modern economy works, can think the problems through and can prevent people from gaming the system.

As they always will. Don't think for a moment that won't happen: it's human nature to do so. Further, it's helpful, since it exposes problems and ways of exploiting the system that even the best will have overseen.

But it appears right now that the "best" are not nearly good enough. Or, more, exactly, they aren't the best.

I've talked about this here before: the prevalence of lawyers and accountants - and even lawyers who are also accountants, and accountants who are also lawyers - in management is dangerous. Not because these folks are somehow deficient or evil, but rather because they don't understand how the economy works.

They just think they do. We've seen the results.

Donnerstag, Februar 18, 2010

Ouch...Once Again


Once again: ouch.

Key Quote:

I know I sound like a broken record, but we simply need to demand a higher quality of work from our government.


The problem that so many government programs have - and this is not the fault of the workers - is that so many of them are simply not thought through, or, more exactly, were enacted based on lobbying work that presented only one side of the story to the congresscritters that approved the pork.

We need government economists that congresscritters would actually listen to - ye gods, what a concept - before those congresscritters go on to make mistakes that the taxpayer pays for.

Too much money being allocated for things that don't work: misallocation of capital is the original sin of economics. Once this happens, you always screw things up. Always.

But back to the subject of the link: how the Obama Administration's idea to impose a "Financial Crisis Responsibility Fee" is an appallingly bad idea.

If the goal is to reduce "casino activity", of highly risky trading, this fee doesn't work. It simply doesn't raise risk costs to those who take on lots of risk. Go read the whole thing, to coin a phrase...

Montag, Februar 15, 2010

Nice Use of the Subjunctive...

This has a nice use of the subjunctive, highlighted below: is obvious that Obama grossly underestimated the political risks of holding civilian trials (or of delegating the decision to Holder, who is far more an ideologue than a politician).

But just in terms of what it says about each administration's competence, Obama's error seems far worse than Clinton's. Clinton's was very much a rookie mistake, whereas Obama has been in office for a year. Gays in the military has become a perennial subject for debate, but at the time it was quite obscure. By contrast, Americans have been arguing for eight years about what to do with terrorists, and one would have expected Obama and Holder to come to office with more deeply considered views on the subject than they evidently have.

Well, the only way that Obama and Holder to have come to office with more deeply considered views on the subject would have been if they had also come to office with a bit more ... experience.

Instead, America elected someone with very, very little experience.

It shows. Good lord, it shows.

Greece, PIGS and Moodys...

Consider this:

The last rating agency to classify Greece as "A", i.e. barely still investment grade, is Moodys. If Moodys were to downgrade Greek state bonds to less than the simple "A", then Greece state bonds are no longer investment grade.

If Greek state bonds are no longer investment grade bonds, then no bank within the ECB can use them as reserves for the ECB minimum capital requirements. Greek banks bought around 30% of the last auction.

Hence: the classic rating agencies are at it again. In this case, if Moodys downgrades the rating - which is rightfully deserved - then the Greek banking system is defacto broke: they will have to sell or otherwise dispose of their Greek government bonds in order to acquire alternative assets to meet their reserve requirements. This would drive those bond prices heavily downwards and only the first sellers could come close to meeting their reserve requirements.

The classic rating agencies, as usual, remain backwards-looking and fail to consider the future: it's how they operate.

I fear that no matter how much lipstick you apply, we're still looking at PIGS.

The PIGS - Portugal, Italy/Ireland, Greece and Spain - are going to remain what they are: countries that are broke, but haven't realized it yet. Collectively, they're looking in confusion at their just-rejected credit cards and are wondering what could have possibly gone wrong.

The financial crisis of the last two years was solved by governments bailing out the financial system. The problem now is that these governments have to finance that spending.

At the end of the day, regardless of how you want to spin this, it always boils down to the payer of final recourse, the one who always, always pays the bills for errors, gregarious and otherwise, who always pays the bills for political bribery of voters to get elected, who always pays for failed policies and the pipe-dreams of political ideologues.

The taxpayer pays.

As Margaret Thatcher once put it: The problem with socialism is that at some point you run out of other people's money.

I'd update that to this: The problem with government spending is that at some point they run out of taxpayer's money.

Donnerstag, Februar 11, 2010

Well, Is This A Surprise?

First we had billions thrown at the banks and insurers to avoid a melt-down.

Then we had billions thrown at GM and Chrysler to save the unions (not the companies).

Now this.

The critics are right: no one is going to hire someone, put them on the permanent payroll, just to get a tax credit. If the economy was on a major upswing - which it most definitely is not - and jobs were lagging severely, it might work for those companies raking in profits left and right, perhaps, but only at the margin.

The bipartisan Senate plan would exempt businesses from paying a 6.2 percent Social Security tax on the wages of new employees, as long as the workers have been unemployed at least 60 days. The tax break would run through the end of the year.

A company could save a maximum of $6,621 if it hired an unemployed worker after the bill is enacted and paid that worker at least $106,800 — the maximum amount of wages subject to Social Security taxes — by the end of the year. The company could get an additional $1,000 on its 2011 tax return if it kept the new worker for at least a full year.

The nonpartisan Congressional Budget Office recently concluded that reducing Social Security taxes for companies that add workers would be among the most efficient ways for the government to create jobs. However, in showing how difficult it is to create jobs through tax policy, CBO estimates that such a tax break would generate only eight to 18 full-time jobs per $1 million in tax breaks.

Saving $6k when hiring someone for $106k? GMAFB.

That's not an incentive to hire anyone: if anything, it's a boost to profits. But never is this a real job-incentive program.

And why are the Republicans supporting this? Ahhh, there is a reason:

In addition to a tax break for hiring workers, the Senate package would extend unemployment payments for people without jobs for more than six months as well as subsidies to help the jobless continue paying premiums for health insurance they had been getting through their former employers.

It also would extend through 2010 about $33 billion in popular tax breaks that expired at the end of 2009, including an income tax deduction for sales and property taxes and a business tax credit for research and development.

Those tax cuts make Republicans willing participants in the bill, despite skepticism in both parties that it will produce an abundance of jobs.

So the program isn't so much about generating jobs as to extend unemployment, subsidize their health insurance and extend some tax breaks that the Democrats would normally love to kill.

This isn't a plan, this is desperation.

Hint to those in Washington: workers get hired for three reasons, and all three have to be there:

1) Demand is so strong that there aren't enough workers to go around;

2) Companies can expand their sales and profits by hiring new workers, despite the costs;

3) When the next downturn comes, companies can shed workers as demand and therefore sales decline.

If any one of these three conditions isn't met, then companies won't be hiring. Meet all three, and employment increases.

Oh, and to make things clear: this is an asymmetric equation. Downturns have different coefficients than upswings. As long as companies are driven by the profit motive, this will always be the case. Don't use the same coefficients for both, as the fit is poor in both cases. Estimating asymmetric equations is an exercise left to the reader.

Mittwoch, Februar 10, 2010

Now This Is Just ... Silly


Thomas Frank at it again, in the WSJ:

One reason conservatives own the antigovernment narrative is because liberals don't really offer a competing one. Maybe liberals think it wouldn't be sporting to come up with one, since doing so would necessarily mean criticizing previous administrations; maybe they feel it would be some kind of psychic concession to the cynicism they want to transcend as they lead us into the land of nicey niceness.

And yet the toxic truth is staring us right in the face: The reason government has failed so spectacularly in our time is because it's been run into the ground by antigovernment politicians. Government agencies failed because they were often turned over to industry lobbyists. Government regulators didn't regulate because they were starved for resources. The government work force had no esprit de corps because it was constantly being insulted by its bureaucrat-denouncing bosses. According to a story that ran in the Washington Post last week, government workers earn 26% less than private-sector workers in comparable jobs.

Goodness. This is "the toxic truth"?

Whatever does Frank mean by this?

He is apparently honestly, truly convinced that there can be some sort of virtuous government, one far removed from politics and far removed from human nature, implementing policies with speed and grace, filled with happy employees striving for the greater good.

How disappointed he must be.

No politician born would run government into the ground: they live off government, they count their successes by the number of programs they have initiated, passed into law, manage and continue to fund. It makes no difference which party: this is a given. Or does Frank really believe that politicians kill the goose that lays the golden eggs? No, it's because Republicans have different priorities when it comes to government than Democrats do. If anything, they want to actually get things done: Democrats want government to simply be bigger because it gives them more power.

Frank lives in a fantasy world, one where governments are the selfless servers of society, the great enablers. This is a fantasy world because politicians run government, turning it into what it has become, and people, normal folks, work for the government, with all their foibles, failings and mistakes.

So the Bush administration screws up emergency operations in the aftermath of Hurricane Katrina, and conservatives use the episode to call for the privatization of federal emergency operations. Government didn't work because government never works.

This is extraordinarily self-serving: the Bush Administration was blamed for the incompetency of the New Orleans Mayor and the Governor of Louisiana, at that point both Democrats, both of whom failed miserably in their jobs. President Bush waited for the call to set FEMA into action: that's the way the system worked. It's still the way the system works today.

And I know of no conservative who used Hurricane Katrina to call for the privatization of federal emergency operations. Again, a figment of Mr, Frank's imagination.

No one denies that federal bank regulators dropped the ball during the housing boom of the last decade. Conservatives, for their part, will fit that failure neatly into their usual story line, asserting that those regulators need to take the blame for the deeds of the nation's mortgage lenders, bond-rating agencies, and financial innovators. The answer, conservatives will say, is not more regulation but less. They will wave their rattlesnake flags. They will holler for freedom. They will pocket contributions from Wall Street.

And unless the president and the Democrats in Congress are prepared to steel their nerves and speak forthrightly for once about the causes of government failure, the Democrats will lose again. Nothing will be done. And failure this time around won't just look bad at the polls, it may well set the stage for another financial disaster.

Oh, I see: Democratic politicians and Democratic policies had nothing to do with the housing boom. Never mind Barney Frank and Chris Dodd forcing their policies on bank regulators who wanted to close the boom down: it's the regulator's fault that the markets didn't act the way Dodd and Frank expected them to act. Let's remember that it was Barney Frank who wanted to roll the dice one more time and kept the boom going.

And who pockets more from Wall Street than the Democrats? Take a closer look at Democratic fund-raising, Mr. Frank: you'll be surprised where the money goes. Not because they believe in the Democrats, but rather because they know that the bribe works.

Think About It...

Contemplate this: if George Soros, the man who brought the Bank of England down to its knees on 16 Sep 1992, warns against speculating against the Dollar, this can only mean one thing.

That Soros is moving against the Euro. He can't afford to have a speculative movement against the Dollar because he is shorting the Euro: if the Dollar were to weaken, then Soros loses, and loses big.

This helps to explain some of the speculation against the Euro, with the difficulties in the PIGS countries (Portugal, Ireland, Greece, Spain) providing an excuse.

Jim Rogers, a former partner, sees it differently: the Dollar is on its best way to becoming a permanently weak currency, based on US debt and debt burden (as well as the need to improve the international competitiveness of US products).

So, who is right?

No one, of course: the markets will tell us over the next several months. I fear that Soros, who is supremely confident in his own abilities, will find that even he cannot move markets in a direction that they are not ready to move in for any length of time.

And this is something else to understand: speculation against the Euro is being executed by derivatives, via futures markets. Such markets exist because there are expectations about future movements and current values. Any sort of exploitation of differing values is simply called arbitrage: it is the mechanism by which discrepancies between, say, interest rates between countries are equaled out. Arbitrage is extraordinarily useful for the world economy, not because you can make lots of money (you can), but more importantly, it removes those discrepancies over time before they can become large discrepancies.

Think of it this way: you can go get your car tuned up whenever it is running a little ragged. This might happen every six months, maybe every couple of years, but when it does, it's not always a simple resetting of the timing belt, but rather the motor was running poorly because there was a problem that had been ignored and had developed to the point where it made the motor run poorly.

Now, with a modern engine, you don't have tune-ups. Why? Because the motor is being constantly tuned. Modern, fuel-efficient motors with low emissions can't be tuned by hand: they are computer-controlled and problems are found before they develop into larger problems. If the computer - which monitors the motor more or less continuously - can't reconcile the problem, then the computer tells you this: it also tells you exactly what the problem is and what has to be done. Back in the good old days of mechanically controlled motors, diagnostic work was an art form, with master mechanics able to feel what was wrong with the motor simply by putting their hands on the motor while it was running (I've seen this myself). Today it is a science, with the computer controls providing mechanics with detailed analysis of literally dozens of parameters, in some cases developed as expert systems from those master mechanics after they retired.

Arbitrage in all its sundry forms is the constant tuning of the world economy, removing inefficiencies and smoothing things out. The differences can be very small, but with large enough sums, as the Germans say, even small animals make shit (i.e. for the humor-impaired, even a few basis points difference can give you substantial returns if your capital is large enough). This ensures the smooth running of the world economy: small differentials are quickly corrected before they can develop into even minor problems, let alone major ones. Going back to a world where arbitrage didn't do this means going back to the world of Bretton Woods and the ludicrous idea that politicians and their lackeys know better where exchange rates and interest rates should be than markets.

Now, those who desperately want money to spend on pet projects (i.e. NGOs, Quangos, governments and sundry other parasites) continue to talk about imposing a tax on financial transactions. The talk doesn't die because it sounds simply fabulous: impose a trifling small tax on non-retail transactions and collect, literally, billions, all for a good purpose like fighting poverty (although we all should know that it really goes to finance the careers of those involved).

Instituting such a tax appears to be painless, appears to be trifling. But it does affect arbitrage: it reduces the attractiveness of such small differential deals, reducing the gains thereof. As a result, arbitrage doesn't function as smoothly, since the differentials between markets have now to become greater in order to reap the same rewards.

And this is a good idea? It might be brilliant for the NGOs and those reaping the rewards of a Tobin Tax, but it is, in terms of market efficiency and stability, thoroughly and completely negative. If such a Tobin Tax were to be instituted world-wide, financial discrepancies will take longer to be adjusted, making the corrections more costly and less effective.

It is as if you were to introduce a rounding-up error into the correction mechanisms. Do this for an engine and you will see very small positive feedback loops as adjustments appear first when the errors are large, instead of being caught immediately. The positive portion of the feedback loop comes from the system adjust in smaller steps than the resolution of the error detection.

You can never achieve system stability with positive feedback: it always tends to expand or promote the feedback effect, and is always, ultimately, destabilizing.

The NGOs need a positive feedback introduced into the system of international finance in order to tap it for funds: by doing so, they sow the seeds of destabilization. Think about it...

Democrats and Bipartisanship...

Since the days of Reagan (if not Nixon before him), the Democrats have always understood bipartisan to be what's mine is mine, what's yours is negotiable. Bipartisanship for Republicans was discussion, discourse, even agreement on common grounds. Look at the legislative record: bipartisanship is what the Republicans live, but what the Democrats use as a bludgeon to get a whitewash on what they say and do. Republican Congresses get along with Democratic Presidents quite well, but Republican Presidents have their budgets declared "Dead On Arrival" by Democratic Congresses (that's a quote, by the way, from House Speaker "Tip" O'Neill to Reagan's first budget.

That is why this should really come as no surprise.

In this 13th month of his presidency, he's anxious to pass a jobs bill and be seen addressing an unemployment rate that only last week declined from double digits. And his efforts to enact bills on energy, financial regulatory reform and especially health care are stuck in Congress despite the solid majority his party holds in both chambers.

The problem here isn't that the Republicans are being obstructionist - they aren't, as there are quite a number of things they could be doing that they aren't (like blocking meetings, refusing to participate in the logistics of lawmaking) and they have brought alternatives to the table that have been ignored completely - but rather that President Obama, after having ceded so much initiative to Congress, is finding that he is caught in a trap purely of his own making: Congress won't listen to him because, at the end of the day, he is a weak leader.

Charismatic as hell, yes. Able to inspire the Democratic Party Faithful, hell yes.

But he is a weak President. More than a few world-wide have noticed this and have changed their behavior appropriately: Iran, China, Libya, all those countries that pray daily for the US to disappear.

What these presidential appeals for bipartisanship always mean is: do it my way.
Mr. Obama said he "won't hesitate to embrace a good idea from my friends in the minority party." But he wants his way. He wants his energy policy enacted along with his jobs bill, his financial regulatory reform and his health care plan.

And if the opposition continues to block his objectives, he said he "won't hesitate to condemn what I consider to be obstinacy that's rooted not in substantive disagreement but in political expedience."

When a sitting president calls for bipartisanship by the opposition – he really means surrender. And if they block his proposals, its "obstinacy" and not political views they hold as strongly as he holds his.

Mr. Obama again said the American people are frustrated by the political stalemate in Congress. And he can be counted among the frustrated as well.

He wants to be seen calmly pursuing his legislative goals – and he told reporters today that his meeting with congressional leaders from both sides of the aisle went well. So well, in fact, he joked that the Senate leaders, Democrat Harry Reid and Republican Mitch McConnell had gone out to the South Lawn to make snow angels – together."

Sorry, Mr. President: that's pathetic.

Odd that the MSM - the link is to CBS News, for goodness' sake! - has picked up on this for the first time. Perhaps there is hope for a change...

Dienstag, Februar 09, 2010

What Chinese Hegemony Looks Like...

This is instructive.

First of all, the author presumes that the only reason that the US sells arms to Taiwan is to annoy China (i.e. there can be no legitimate reason for the Taiwanese to want to defend themselves).

But this is the telling paragraph, one that exemplifies the China that is emerging:

It is time for the U.S. to change its hegemonic way of thinking. Since China dares to challenge the U.S. while it is still in its stage of nation-building, others should be able to comprehend what the U.S. is doing based on how China deals with the U.S.'s provocation and persistently hypocritical ways. Now, perhaps people will change their favorable opinions of Obama overnight. If you think your country's national interests are important and you choose to continually challenge China, treading on China's core interests, then you have to pay the price for doing so!

In other words, your national interests are subordinate to those of China: that is the core of hegemony, when nation-states place their own interests below the interests of the state claiming hegemony.

Welcome to the brave new world of Chinese hegemony: you will have to pay a price for placing your own national interests before those of China.

Basis For The Coming Green Boom?

This peaked my curiosity.

A family reduced their electricity bill to zero and "reaped" a carbon credit as a result, selling it then on an exchange and pocketing the money.

Sounds wonderful, doesn't it?

Until you do the math.

The family involved spent at least $58 000 to reduce their electricity bill to zero: further, they changed their energy usage so that their footprint was minimized.

The sale? $21.50.

Of which the exchange took 20% as a fee. That's $4.30.

Hence they were able to sell their carbon credit for $17.20.

The exchange is owned by an energy broker (no conflict of interests there, eh?), The joke: the exchange doesn't merely run the transactions, it also verifies the "personal carbon credits" (nooo conflict of interest there, either, move along, move along).

Apparently the credit can be issued monthly, but that's not clear: further, it's measured as a reduction from the previous year's month, hence after 1 year of no usage of the external electricity, the income dries up (since you can't reduce zero any further...).

So, let's calculate the return: for any individual month, assuming the price remains, it's a return of 0.03%; if the return were to be constant for one year, that's a return on investment of ...  0.36%.

For the credit to bring any sort of more realistic return, it would have be an order of magnitude larger: for a 5% return, for instance, before fees, the credit would have to be valued at $240/month. At that rate, the investment pays for itself over a 20-year period, ignoring opportunity costs and maintenance.

We don't know from the story, however, what the family was saving, nor do we know the details of the energy system installed. But choosing to install solar power on the basis of being able to sell their carbon credits would be a terrible way to finance it: if the rate continues at this pace, they'll pay off their investment in ... well, suffice to say that at this rate, their great-great-great-grandchildren will start turning a profit.

The problem here is that solar electricity is a bad investment: in many cases it may make eminent sense to do so over a long period of time. Rather, the problem is that this exchange cannot provide any meaningful impetus for home owners to invest in solar power unless it is required by law: the market here is virtually non-existent, as transaction costs are vastly too high (20%?!) and the return is irrelevant.

This is not the basis for a coming Green boom, or even an uptick in interest in solar power: rather, it shows the fundamental lack of understanding that there is no real market for carbon credits. Period.

Montag, Februar 08, 2010

Why We Should Be Happy To Be A Republic...

The Democrats keep on forgetting that the United States is not a democracy: it is a democratic republic.

Read what Thomas Frank writes in the WSJ:

What is populism? To judge by this coverage, populism is a trick that politicians perform—a clumsy disguise they adopt or a fake-folksy rhetorical line they try to put over. Populism is a species of demagogy, a backwoods form of class war, a sinister cross of Lenin with Li'l Abner.

Populism also seems to mean liberalism, only expressed in more fiery language than the pallid, technocratic drone that makes Washington happy. But whatever they mean by it, journalists and opinionators seem to agree that populism is dangerous. It scares the markets. And it is the duty of every right-thinking citizen to resist it.

Now, Frank begs the question here: he doesn't talk about what the real danger of populism: instead, he goes off on a historical tangent that has little or nothing to do with the subject at hand.

You see, populism is really nothing less than the demands of the mob, of the emotionally distraught who want vengeance on whichever devil brought them into the state of affairs that they find themselves in, and above all is a tool for the cynical politician and party which manipulates the mob into torching whatever that politician and party finds undesirable, then justifying it "in the name of the people".

But more fundamentally, Frank seems to truly believe that an elected official is beholden to the interests that elected him, rather than being elected to act as their representative. What is the difference?

Huge: representing someone is not the same as doing as one is told by those who elected him. In one elects someone with character and resolve; in the other, one elects someone who grovels and will appease. World of difference there.

It's not so much that individual Democrats don't believe that we are a republic: it's much more that the ideal Democrat is simply a cog in the machine, a cynical participant in the manipulation of the masses for the goals of the party.

Which does describe the perfect Democrat.

Frank's further legerdemain is weak: by claiming that it is the right that practices populism, he fails to understand what drove his examples. Joe The Plumber wasn't railing against policies that prevented the rich from getting even richer, but rather against policies that make it hard for the middle class to keep up with the Joneses. He makes the mistake of mixing tax protests with pro-life protests, as if the two had anything to do with either populism or the Republican party.

He fails to understand that populism is the rule of the mob: he'd love to see the designated victims of his party - the bankers (except when they donate to the Democrats, of course, and hence receive enlightenment and dispensation) and the financiers - be taken down.

Little does he understand that the founding fathers didn't want a democracy exactly for that reason.

They might also begin searching for a different term to describe the situation when elected representatives start doing what their constituents want them to do. My suggestion: Call it "democracy."

That's democracy: that is the rule of the mob, as political philosophers have rightly pointed out over the ages.

That's why we should be happy to be a republic. One whose actors are determined by a democratic process, but not one that panders to the mob.

Unless their name be "Democrat".

Freitag, Februar 05, 2010

Progressive, Regressive, What's The Difference?

The basic idea about progressive taxes is that the more income you earn, the more you can "afford" taxes, at least in terms of actually dollars being paid. The less you earn, the more painful each and every tax dollar becomes.

Fair enough: indeed, the fundamental idea behind progressive taxes is that it is fair for those who are earning significantly more should bear more of the burden.

So what's this all about?

Here's the chart:

That's not a progressive tax curve: that is a regressive tax curve.

In other words, the taxes paid by those less well off are, proportionately, higher than those better off.

The exact opposite of what a progressive tax should be.

In other words, as can be seen here, the tax policy of the Obama Administration, the most liberal administration since the Carter years, is clearly and unmistakeably regressive, not progressive.

To be fair, the chart shows that the current situation is also regressive: but the cumulative effects of what the Obama Administration plans makes the situation worse, not better.

Oh, and by worse I mean this: look how the overall tax burden is set to increase massively. We're not talking a small change, a couple of points here and there: someone earning $30k/year will see their income tax increase from 20% of income to 30% of income: that's a change from $6k to $9k, meaning 10% less income. The proportional increases are particularly strong in the lower-income to middle-income brackets.

The mind boggles.

Hat tip to TaxProf.

Donnerstag, Februar 04, 2010

A Lovely Turn of Phrase...

"The Hysterical Subjunctive:" I love the phrase.

Read this here.

This term was coined by P H Borcherdsm in: 1999 Eur. J. Phys. 20 357-364, for an article called "Science or Anti-Science?", which reviewed the hysteria generated by the anti-fluoridation advocates.

In grammar, the subjunctive is used as a verb mood in a dependent clause to express wishes, commands, emotion, possibility, judgment, opinion, necessity, or statements that are contrary to fact at present.

The hysterical subjunctive takes that one step further, demanding, insisting upon a course of action taken with no basis, with no clear goals, but taken on the basis of unmanageable fear, of emotional excess.

The drama queens of the left loved the chiliastic mood of the doom-and-destruction greens and when the two merged we got the Watermelon People, green on the outside, red on the inside.

A perfect marriage for an ideology disgraced by the murder, literally, of hundreds of millions world-wide, disgraced by the utter failure of its economic tenets to feed and clothe its subjects, let alone bury their competitors. A perfect marriage for those who despised industry, who were romanticists and believers of Rousseau and his belief in the uncorrupted morals of man in his natural state, that man in his wild state was innately good and it was civilization that corrupted.

But a fatally flawed one, dependent on deliberate lies: the story is simply too good for it not to be the case. The useful idiots - Lenin never said this, but rather "utter buffoon", "чрезвычайный простак" - were more than happy to trust the experts, the noble scientists who were beyond reproach and the closest thing to the savior of the world that you can find outside of established religions, showing the way to a brighter, nobler, cleaner and greener future, to be built on the destruction of modern capitalism.

Fundamentally, at the end of the day, we could reduce the difference to this: as Philip Stott put it, it's the choice between Turnip Wine and Single Malt Scotch.

The hysterical subjunctive indeed.