EXCERPTS:
"With unemployment compensation ...you are in fact giving someone something. "Extending unemployment benefits" always sounds good politically-- especially if you do not ask the basic question: "For how long should they be extended?" A year? Two years? No limit?
Studies have shown what common sense should have told us without studies: The longer the unemployment benefits are available, the longer people stay unemployed.
If I were fired tomorrow, should I be able to live off the government until such time as I find another job that is exactly the same, making the same or higher pay? What if I am offered another job that uses some of the same skills but doesn't pay quite as much? Should I be allowed to keep on living off the government?
With the government making it more expensive for employers to hire workers, and at the same time subsidizing unemployed workers longer and longer, you can have as much unemployment as you are willing to pay for, for as long as you are willing to pay for it.
Thursday, December 30, 2010
Promises and Riots
EXCERPTS:
"Economists are the real "party of No." They keep saying that there is no such thing as a free lunch-- and politicians keep on getting elected by promising free lunches.
Such promises may seem to be kept, for a while. There are ways the government can juggle money around to make everything look OK, but it is only a matter of time before that money runs out and the ultimate reality hits, that there is no free lunch.
We are currently seeing what happens, in fierce riots raging in various countries in Europe, when the money runs out and the brutal truth is finally revealed, that there is no free lunch.....
"Economists are the real "party of No." They keep saying that there is no such thing as a free lunch-- and politicians keep on getting elected by promising free lunches.
Such promises may seem to be kept, for a while. There are ways the government can juggle money around to make everything look OK, but it is only a matter of time before that money runs out and the ultimate reality hits, that there is no free lunch.
We are currently seeing what happens, in fierce riots raging in various countries in Europe, when the money runs out and the brutal truth is finally revealed, that there is no free lunch.....
Friday, December 17, 2010
Mass prosperity - an achievement of governments, or markets?
Russ Roberts, coming on the belief that prosperity for the masses is the result of the "progressive tradition" - government action - makes the following comments.
EXCERPTS:
"What is the evidence that progressivism made prosperity a mass-market phenomenon? A minimum standard of living? The social safety net in the US is modest. For most of the 20th century, there was a minimum standard for single women with children but not for men. Welfare programs didn’t create mass prosperity. The minimum wage, passed in 1938, has never been set very high and affects very few people. It also discourages employing the lowest skilled workers. That works against mass prosperity. Time off from work? Mostly a market phenomenon, I think. To the extent it has been imposed in opposition to market forces, it has worked against measured mass prosperity. Education? It would be useful to know the impact of mandatory schooling and child labor restrictions. How much impact did they have beyond what would have happened voluntarily? And any impact of mandatory education would have to be offset by the quality loss of public provision. I’d be curious to know what else Leonhardt has in mind. I do think his view is a staple of some folks in their world view. I’ve just never seen a serious attempt at making the case. It’s just asserted as a truth. It could be a truth. But my suspicion is that it’s a myth.
Mass-market prosperity has been driven by innovation combined with competition forcing producers to share productivity increases with consumers. This is the story I tell in The Price of Everything. Some innovation was created by the government, though perhaps not cost-effectively. but most innovations have been driven by the potential for profit combined with a love of creating. Happy to hear facts to the contrary or a book that makes the case for progressive policy as an important force in creating the middle class or mass prosperity.
EXCERPTS:
"What is the evidence that progressivism made prosperity a mass-market phenomenon? A minimum standard of living? The social safety net in the US is modest. For most of the 20th century, there was a minimum standard for single women with children but not for men. Welfare programs didn’t create mass prosperity. The minimum wage, passed in 1938, has never been set very high and affects very few people. It also discourages employing the lowest skilled workers. That works against mass prosperity. Time off from work? Mostly a market phenomenon, I think. To the extent it has been imposed in opposition to market forces, it has worked against measured mass prosperity. Education? It would be useful to know the impact of mandatory schooling and child labor restrictions. How much impact did they have beyond what would have happened voluntarily? And any impact of mandatory education would have to be offset by the quality loss of public provision. I’d be curious to know what else Leonhardt has in mind. I do think his view is a staple of some folks in their world view. I’ve just never seen a serious attempt at making the case. It’s just asserted as a truth. It could be a truth. But my suspicion is that it’s a myth.
Mass-market prosperity has been driven by innovation combined with competition forcing producers to share productivity increases with consumers. This is the story I tell in The Price of Everything. Some innovation was created by the government, though perhaps not cost-effectively. but most innovations have been driven by the potential for profit combined with a love of creating. Happy to hear facts to the contrary or a book that makes the case for progressive policy as an important force in creating the middle class or mass prosperity.
Saturday, December 11, 2010
Companies Keep Tight Grip on Cash - WSJ.com
EXCERPTS:
"Corporate America's cash pile has hit its highest level in half a century.
Rather than pouring their money into building plants or hiring workers, nonfinancial companies in the U.S. were sitting on $1.93 trillion in cash and other liquid assets at the end of September, up from $1.8 trillion at the end of June, the Federal Reserve said Thursday. Cash accounted for 7.4% of the companies' total assets—the largest share since 1959.
The cash buildup shows the deep caution many companies feel about investing in expansion while the economic recovery remains painfully slow and high unemployment and battered household finances continue to limit consumers' ability to spend.
***
In one bright sign, the Fed's data show that the net worth of U.S. households increased to $54.9 trillion in the third quarter, up from $53.7 trillion in the second quarter, as rising stock-market wealth more than offset declining home values.
That was still well below the second-quarter 2007 peak of $65.7 trillion. After-tax household income rose to an annualized $11.42 trillion from $11.37 trillion in the second quarter.
The cash pooling up at companies has the potential to help the economy grow more vigorously and bring unemployment lower—if they start spending it on new plants, equipment and employees.
But in the wake of the worst economic downturn since the 1930s, companies are hesitating to make that shift, said Brian Bethune, economist at IHS Global Insight.
"Corporate America's cash pile has hit its highest level in half a century.
Rather than pouring their money into building plants or hiring workers, nonfinancial companies in the U.S. were sitting on $1.93 trillion in cash and other liquid assets at the end of September, up from $1.8 trillion at the end of June, the Federal Reserve said Thursday. Cash accounted for 7.4% of the companies' total assets—the largest share since 1959.
The cash buildup shows the deep caution many companies feel about investing in expansion while the economic recovery remains painfully slow and high unemployment and battered household finances continue to limit consumers' ability to spend.
***
In one bright sign, the Fed's data show that the net worth of U.S. households increased to $54.9 trillion in the third quarter, up from $53.7 trillion in the second quarter, as rising stock-market wealth more than offset declining home values.
That was still well below the second-quarter 2007 peak of $65.7 trillion. After-tax household income rose to an annualized $11.42 trillion from $11.37 trillion in the second quarter.
The cash pooling up at companies has the potential to help the economy grow more vigorously and bring unemployment lower—if they start spending it on new plants, equipment and employees.
But in the wake of the worst economic downturn since the 1930s, companies are hesitating to make that shift, said Brian Bethune, economist at IHS Global Insight.
Saturday, December 4, 2010
Saturday, November 27, 2010
Should the government "protect" American exporters?
When we think of "protecting" someone from something in the abstract, we're likely to visualize an innocent party being threatened with some harm. Our natural inclination is to think such protection is probably a good thing, but this creates a problem. It means that any policy which is framed as providing "protection" for someone will seem like a good thing, if we don't think carefully about exactly what that policy does. The label "protection" serves to make the policy sound laudable and to make careful thought about the actual nature of the policy seem unnecessary. Whenever a policy is marketed as providing "protection" for someone, this is a signal that we should think carefully about what the policy will actually do - we should look for an alternative way of framing it which makes clear exactly what the policy will do.
George Mason University Don Boudreaux is a master of this. Consider his recent comment on a senator's statement about "protecting" American exporters.
EXCERPTS from Boudreaux's letter:
Dear Sen. Brown:
In today’s Washington Post you declare that “Demanding that trade agreements work for American exporters isn’t protectionism; it’s common sense.”
In other words, whenever other governments dole out favors to foreign corporations at the expense of foreign consumers, you want Uncle Sam to dole out favors to American corporations at the expense of American consumers.
This isn’t common sense, sir. It’s garbage-heap economics that serves as a convenient excuse for politicians to pick the pockets of hundreds of millions of Americans for the benefit of politically influential businesses.
George Mason University Don Boudreaux is a master of this. Consider his recent comment on a senator's statement about "protecting" American exporters.
EXCERPTS from Boudreaux's letter:
Dear Sen. Brown:
In today’s Washington Post you declare that “Demanding that trade agreements work for American exporters isn’t protectionism; it’s common sense.”
In other words, whenever other governments dole out favors to foreign corporations at the expense of foreign consumers, you want Uncle Sam to dole out favors to American corporations at the expense of American consumers.
This isn’t common sense, sir. It’s garbage-heap economics that serves as a convenient excuse for politicians to pick the pockets of hundreds of millions of Americans for the benefit of politically influential businesses.
Black Friday: Police called after customers rush door at Toys R Us near Appleton | postcrescent.com | Appleton Post Crescent
EXCERPTS:
"Black Friday started with a black mark this year. The line of several thousand waiting customers wrapped entirely around the Toys R Us building at 4411 W. Wisconsin Ave. Thursday night. Moments before the store opened at 10 p.m., the line of those who’d just arrived and line of those who’d waited many hours overlapped.
"Black Friday started with a black mark this year. The line of several thousand waiting customers wrapped entirely around the Toys R Us building at 4411 W. Wisconsin Ave. Thursday night. Moments before the store opened at 10 p.m., the line of those who’d just arrived and line of those who’d waited many hours overlapped.
Wednesday, November 24, 2010
Tennis in Grand Central Terminal - WSJ.com
EXCERPTS:
"Only in Manhattan, where indoor tennis courts are rarer than personal garages, would anyone sign up a year in advance for an hour of tennis. And only on this space-strapped island would they pay as much as $210 an hour for the privilege.
Tennis players with thick wallets and ample foresight have already begun reserving hours at the new tennis facility that's being built in Grand Central Terminal in a space that used to house a CBS recording studio where "What's My Line?" and Edward R. Murrow's "See It Now" were filmed.
The price—depending on the time of day, between $100 and $210 an hour—will likely be the highest in the city for an indoor court, according to Anthony Scolnick who is leasing it from Metro-North Railroad. He predicts hedge fund executives, real estate professionals and others will be willing to pay that price when the Vanderbilt Tennis Club opens in September.
***
Indoor tennis in space-crunched Manhattan has never been for the middle class.
Aside from a seasonal tennis bubble a Parks Department concessionaire erects under the Queensboro Bridge, there are no public indoor courts on the island and the private ones are pricey. The Millennium UN Plaza Hotel, for example charges $110 to $165 per hour for the court there. The same amount of time costs $115 an hour for non-members at the Manhattan Plaza Racquet Club.
***
The bidding was won by Mr. Scolnick, the owner of Yorkville Tennis Club and Sutton East Tennis, both on the Upper East Side. He is a former athletic director at Hunter College. He will pay a starting rent of $225,000 a year to Metro-North.
1.
"Only in Manhattan, where indoor tennis courts are rarer than personal garages, would anyone sign up a year in advance for an hour of tennis. And only on this space-strapped island would they pay as much as $210 an hour for the privilege.
Tennis players with thick wallets and ample foresight have already begun reserving hours at the new tennis facility that's being built in Grand Central Terminal in a space that used to house a CBS recording studio where "What's My Line?" and Edward R. Murrow's "See It Now" were filmed.
The price—depending on the time of day, between $100 and $210 an hour—will likely be the highest in the city for an indoor court, according to Anthony Scolnick who is leasing it from Metro-North Railroad. He predicts hedge fund executives, real estate professionals and others will be willing to pay that price when the Vanderbilt Tennis Club opens in September.
***
Indoor tennis in space-crunched Manhattan has never been for the middle class.
Aside from a seasonal tennis bubble a Parks Department concessionaire erects under the Queensboro Bridge, there are no public indoor courts on the island and the private ones are pricey. The Millennium UN Plaza Hotel, for example charges $110 to $165 per hour for the court there. The same amount of time costs $115 an hour for non-members at the Manhattan Plaza Racquet Club.
***
The bidding was won by Mr. Scolnick, the owner of Yorkville Tennis Club and Sutton East Tennis, both on the Upper East Side. He is a former athletic director at Hunter College. He will pay a starting rent of $225,000 a year to Metro-North.
QUESTIONS:
1.
Rules Eased for Some Health Plans - WSJ.com
EXCERPTS:
"WASHINGTON—Amid pressure from employers, the Obama administration on Monday loosened rules for bare-bones health-insurance policies. It marks one of the administration's biggest steps to peel back regulations that big business found onerous under the health- care overhaul.
McDonald's Corp. had warned regulators it might have to drop its health-insurance plans for 30,000 hourly workers unless it got an exemption for these policies, which have low premiums but also limit payments for medical costs.
The administration's move underscores how businesses, after complaining loudly about the overhaul in the run-up to passage, are now winning a handful of modifications.
The change was part of sweeping new rules rolled out by the government Monday that will force insurers to spend a high portion of their premium revenue on medical care.
Consumers will reap some benefits. Insurers that don't meet the new standards will be forced to issue rebate checks, which the administration estimated could affect nearly nine million Americans, for a total payout of up to $1.4 billion.
The rules, codifying language in the health law, say insurers will be required to spend between 80% for smaller carriers and 85% for larger carriers of their revenue on medical care, a calculation known as a medical-loss ratio. That limits how much they put toward salaries, profit and other nonmedical costs.
Providers of "mini-med" policies, like McDonalds, which caps benefits at a low level, had objected that they would have trouble meeting those levels, in part because they have high administrative costs.
About 1.4 million Americans are covered under mini-med plans. They're typically offered by low-wage employers, who have high employee turnover and end up paying out little money in medical claims....
Democrats said eliminating plans with such limited coverage was the reason they passed the law in the first place.
But Obama administration officials said they were determined not to prompt any employers to drop their plans because of the law. "No one's going to lose their coverage," said Jay Angoff, a director at the Department of Health and Human Services.
***
"Starting in 2014, many low wage workers will shift to getting coverage inside new insurance exchanges, because that's where they can tap tax credits to offset their costs. Stricter rules for the minimum benefits that employers can offer are expected to displace the plans altogether.
"WASHINGTON—Amid pressure from employers, the Obama administration on Monday loosened rules for bare-bones health-insurance policies. It marks one of the administration's biggest steps to peel back regulations that big business found onerous under the health- care overhaul.
McDonald's Corp. had warned regulators it might have to drop its health-insurance plans for 30,000 hourly workers unless it got an exemption for these policies, which have low premiums but also limit payments for medical costs.
The administration's move underscores how businesses, after complaining loudly about the overhaul in the run-up to passage, are now winning a handful of modifications.
The change was part of sweeping new rules rolled out by the government Monday that will force insurers to spend a high portion of their premium revenue on medical care.
Consumers will reap some benefits. Insurers that don't meet the new standards will be forced to issue rebate checks, which the administration estimated could affect nearly nine million Americans, for a total payout of up to $1.4 billion.
The rules, codifying language in the health law, say insurers will be required to spend between 80% for smaller carriers and 85% for larger carriers of their revenue on medical care, a calculation known as a medical-loss ratio. That limits how much they put toward salaries, profit and other nonmedical costs.
Providers of "mini-med" policies, like McDonalds, which caps benefits at a low level, had objected that they would have trouble meeting those levels, in part because they have high administrative costs.
About 1.4 million Americans are covered under mini-med plans. They're typically offered by low-wage employers, who have high employee turnover and end up paying out little money in medical claims....
Democrats said eliminating plans with such limited coverage was the reason they passed the law in the first place.
But Obama administration officials said they were determined not to prompt any employers to drop their plans because of the law. "No one's going to lose their coverage," said Jay Angoff, a director at the Department of Health and Human Services.
***
"Starting in 2014, many low wage workers will shift to getting coverage inside new insurance exchanges, because that's where they can tap tax credits to offset their costs. Stricter rules for the minimum benefits that employers can offer are expected to displace the plans altogether.
Friday, November 19, 2010
Burton G. Malkiel: 'Buy and Hold' Is Still a Winner - WSJ.com
EXCERPTS:
"Buy and hold investors in the U.S. stock market made an average annual return of 8% during the 15 years from 1995 through 2009. But if they had missed the 30 best days in the market over that period, their return would have been negative.
"Buy and hold investors in the U.S. stock market made an average annual return of 8% during the 15 years from 1995 through 2009. But if they had missed the 30 best days in the market over that period, their return would have been negative.
A Keynesian Defense of QE2
This article by Alan Blinder, a highly-respected Keynesian economist and former vice-chair of the Fed, gives a good explanation of what Bernanke hopes to do with the "quantitative-easing" policy which was put into effect last week.
Tuesday, November 16, 2010
YouTube - Quantitative Easing Explained
This video is very amusing, and, unfortunately, largely [but not entirely] true.
Friday, November 12, 2010
Do Americans Really Hate Each Other?
In an New York Times article David Brooks asked "How can you love your country if you hate the other half of it?” (“National Greatness Agenda,” Nov. 12). In response, Don Boudreaux (one of my favorite bloggers) writes:
"One half of America doesn’t hate the other half. Americans cooperate in countless polite ways with each other every day. I just bought gasoline from an American-owned station near my home; I have no knowledge of the owner’s politics and he none of mine. And neither of us cares, for our interest in a successful commercial transaction is mutual. Ditto for everyone else who buys or sells gasoline – and groceries and clothing and restaurant meals and nights at B&Bs and copies of the New York Times and on and on and on. Americans get along peacefully and productively with each other every moment of the day in ways too many to list.
"The only place the hatred mentioned by Mr. Brooks consistently arises is in the political arena, for it’s there that Jones takes from Smith and Smith tries to protect himself from Jones. In that setting, both persons naturally oppose, curse, and hate the other. This hatred will only intensify the more our lives are politicized, whether by ‘Progressives’ or by ‘national-greatness’ conservatives.
"One half of America doesn’t hate the other half. Americans cooperate in countless polite ways with each other every day. I just bought gasoline from an American-owned station near my home; I have no knowledge of the owner’s politics and he none of mine. And neither of us cares, for our interest in a successful commercial transaction is mutual. Ditto for everyone else who buys or sells gasoline – and groceries and clothing and restaurant meals and nights at B&Bs and copies of the New York Times and on and on and on. Americans get along peacefully and productively with each other every moment of the day in ways too many to list.
"The only place the hatred mentioned by Mr. Brooks consistently arises is in the political arena, for it’s there that Jones takes from Smith and Smith tries to protect himself from Jones. In that setting, both persons naturally oppose, curse, and hate the other. This hatred will only intensify the more our lives are politicized, whether by ‘Progressives’ or by ‘national-greatness’ conservatives.
Sticky Wages Hold Back Job Growth - Real Time Economics - WSJ
EXCERPTS:
"It’s something workers don’t want to hear, but one reason the economic recovery isn’t generating more jobs is that wages are too high, said Robert Shimer, an economist at the University of Chicago.
Speaking on the sidelines of a conference at the Federal Reserve Bank of Atlanta focusing on problems with the U.S. job market, Shimer said a relatively small decline in wage levels of 3% to 5% would result in “significant growth in employment and consumption.” Shimer presented a paper on the topic at the two-day conference on Friday.
One reason this is a particular problem today is the U.S.’s very low inflation rate, said Shirmer. When inflation is high, employers can cut their labor costs simply by stopping or constraining pay increases. When that happens in the face of higher inflation, the cost of employing a worker falls as inflation erodes the value of that worker’s paycheck. One alternative is to offer lower wages to new workers, but that also creates problems, said Shimer. “Companies are reluctant to do that because it creates equity issues.”
“Wages will fall eventually,” which will help revive hiring, he said, but it will take a long time. That’s one reason he predicts the economy won’t return to more normal levels of unemployment, say 5.5%, for “many years.”
“But I really don’t have an answer for the question of how long it will take for wages to adjust,” he said. “It depends on things I can’t foresee — like how much inflation [the Fed’s bond-buying program known as] QE2 will generate.”
COMMENT:
Does this sound familiar? It should. If it doesn't, reread chapter 8 on what happens when the economy experiences a recessionary gap.
"It’s something workers don’t want to hear, but one reason the economic recovery isn’t generating more jobs is that wages are too high, said Robert Shimer, an economist at the University of Chicago.
Speaking on the sidelines of a conference at the Federal Reserve Bank of Atlanta focusing on problems with the U.S. job market, Shimer said a relatively small decline in wage levels of 3% to 5% would result in “significant growth in employment and consumption.” Shimer presented a paper on the topic at the two-day conference on Friday.
One reason this is a particular problem today is the U.S.’s very low inflation rate, said Shirmer. When inflation is high, employers can cut their labor costs simply by stopping or constraining pay increases. When that happens in the face of higher inflation, the cost of employing a worker falls as inflation erodes the value of that worker’s paycheck. One alternative is to offer lower wages to new workers, but that also creates problems, said Shimer. “Companies are reluctant to do that because it creates equity issues.”
“Wages will fall eventually,” which will help revive hiring, he said, but it will take a long time. That’s one reason he predicts the economy won’t return to more normal levels of unemployment, say 5.5%, for “many years.”
“But I really don’t have an answer for the question of how long it will take for wages to adjust,” he said. “It depends on things I can’t foresee — like how much inflation [the Fed’s bond-buying program known as] QE2 will generate.”
COMMENT:
Does this sound familiar? It should. If it doesn't, reread chapter 8 on what happens when the economy experiences a recessionary gap.
Wednesday, November 10, 2010
"We have tried spending money ... and it did not work." - Who said it?
EXCERPTS:
"Guess who said the following: "We have tried spending money. We are spending more than we have ever spent before and it does not work." Was it Sarah Palin? Rush Limbaugh? Karl Rove?
Not even close. It was Henry Morgenthau, Secretary of the Treasury under Franklin D. Roosevelt and one of FDR's closest advisers. He added, "after eight years of this Administration we have just as much unemployment as when we started. . . And an enormous debt to boot!
"This is just one of the remarkable and eye-opening facts in a must-read book titled "New Deal or Raw Deal?" by Professor Burton W. Folsom, Jr., of Hillsdale College. Ordinarily, what happened in the 1930s might be something to be left for historians to be concerned about. But the very same kinds of policies that were tried-- and failed-- during the 1930s are being carried out in Washington today, with the advocates of such policies often invoking FDR's New Deal as a model.
"Guess who said the following: "We have tried spending money. We are spending more than we have ever spent before and it does not work." Was it Sarah Palin? Rush Limbaugh? Karl Rove?
Not even close. It was Henry Morgenthau, Secretary of the Treasury under Franklin D. Roosevelt and one of FDR's closest advisers. He added, "after eight years of this Administration we have just as much unemployment as when we started. . . And an enormous debt to boot!
"This is just one of the remarkable and eye-opening facts in a must-read book titled "New Deal or Raw Deal?" by Professor Burton W. Folsom, Jr., of Hillsdale College. Ordinarily, what happened in the 1930s might be something to be left for historians to be concerned about. But the very same kinds of policies that were tried-- and failed-- during the 1930s are being carried out in Washington today, with the advocates of such policies often invoking FDR's New Deal as a model.
YouTube - Joe Biden's Weak Case for Government Meddling
YouTube - Joe Biden's Weak Case for Government Meddling: "- Sent using Google Toolbar"
Saturday, November 6, 2010
Fed Treads Into Once-Taboo Realm - WSJ.com
EXCERPTS:
"The Federal Reserve will print money to buy nearly as much U.S. Treasury debt in the next eight months as the U.S. government will issue.
The Fed's decision this week to buy $600 billion more of U.S. Treasury debt is setting off a debate about the risks of a central bank entwining its policies so tightly with the government's fiscal fortunes. The Fed is essentially lending enough money to the government to fund its operations for several months, something called "monetizing the debt."
In normal times, this is one of the great taboos of central banking because it is seen as a step toward spiraling inflation and because it risks encouraging reckless government spending.
The central bank is betting these aren't normal times. Financial markets Thursday responded warmly to the Fed move, but outspoken critics of the policy issued full-throated critiques.
"The Federal Reserve will print money to buy nearly as much U.S. Treasury debt in the next eight months as the U.S. government will issue.
The Fed's decision this week to buy $600 billion more of U.S. Treasury debt is setting off a debate about the risks of a central bank entwining its policies so tightly with the government's fiscal fortunes. The Fed is essentially lending enough money to the government to fund its operations for several months, something called "monetizing the debt."
In normal times, this is one of the great taboos of central banking because it is seen as a step toward spiraling inflation and because it risks encouraging reckless government spending.
The central bank is betting these aren't normal times. Financial markets Thursday responded warmly to the Fed move, but outspoken critics of the policy issued full-throated critiques.
Hey, What’s the Big Idea?! - Don Boudreaux
EXCERPTS:
Speaking of modern "liberals," Boudreaux writes that they
"overflow with ideas.... But these ideas are almost exclusively about how other people should live their lives. These are ideas about how one group of people (the politically successful) should engineer everyone else’s contracts, social relations, diets, habits, and even moral sentiments.
"Put differently, modern “liberalism’s” ideas are about replacing an unimaginably large multitude of diverse and competing ideas – each one individually chosen, practiced, assessed, and modified in light of what F.A. Hayek called “the particular circumstances of time and place” – with a relatively paltry set of ‘Big Ideas’ that are politically selected, centrally imposed, and enforced not by the natural give, take, and compromise of the everyday interactions of millions of people but, rather, by guns wielded by those whose overriding ‘idea’ is among the most simple-minded and antediluvian notions in history, namely, that those with the power of the sword are anointed to lord it over the rest of us.
Speaking of modern "liberals," Boudreaux writes that they
"overflow with ideas.... But these ideas are almost exclusively about how other people should live their lives. These are ideas about how one group of people (the politically successful) should engineer everyone else’s contracts, social relations, diets, habits, and even moral sentiments.
"Put differently, modern “liberalism’s” ideas are about replacing an unimaginably large multitude of diverse and competing ideas – each one individually chosen, practiced, assessed, and modified in light of what F.A. Hayek called “the particular circumstances of time and place” – with a relatively paltry set of ‘Big Ideas’ that are politically selected, centrally imposed, and enforced not by the natural give, take, and compromise of the everyday interactions of millions of people but, rather, by guns wielded by those whose overriding ‘idea’ is among the most simple-minded and antediluvian notions in history, namely, that those with the power of the sword are anointed to lord it over the rest of us.
Friday, November 5, 2010
The Lessons of the Great Depression - Robert Barro
Robert Barro | FiveBooks: "- Sent using Google Toolbar"
YouTube - Quantitative Easin'
If you'd like a non-technical explanation of the Fed's new policy, try this.
Monday, November 1, 2010
60 Minutes: "Fallen Flat" Recovery Has Brought "Anger In The Land"
Lots of interesting interesting examples which demonstrate that in a dynamic, ever-changing economy, businesses and workers often have to make big adjustments, and those adjustments are sometimes very painful for the people involved.
Saturday, October 30, 2010
Tuesday, October 26, 2010
TIPS: Understanding Negative Yields - MarketBeat - WSJ
EXCERPTS:
"We all know interest rates are low, but this is ridiculous.
The Treasury Department had no problem whatsoever selling $10 billion in five-year Treasury Inflation-Protected Securities today at a yield of -0.55%. That’s not a typo: the TIPS bonds sold with a negative yield. First time that’s ever happened.
This suggests investors are so terrified of inflation that they’re willing to pay the government money every year to buy insurance against it.
As with everything in the Treasury market, it’s a little more complicated than that. The negative yield owes partly to the fact that plain-vanilla five-year Treasurys yield just 1.16%, which is barely higher than consumer price inflation for the past year.
The spread between the regular Treasury yield and the negative TIPS yield gets you what investors expect inflation to be in the next five years, and that’s a not-horrifying 1.68%.
Still, yields in both TIPS and Treasurys are low partly because the Federal Reserve is expected to buy a truckload of both as part of its drive to fend of deflation. Investors have front-run the Fed, driving bond prices higher and yields lower, some through the looking glass into negative territory.
If negative TIPS yields represent tremors of inflation anxiety, then the Fed is probably thrilled: Inflation expectations make deflation less likely. But those on deflation watch, including some Fed policy makers, say inflation-adjusted yields on longer-dated bonds are still fairly high given the weakness in the economy. QE2 is still coming, possibly meaning more negative TIPS yields.
"We all know interest rates are low, but this is ridiculous.
The Treasury Department had no problem whatsoever selling $10 billion in five-year Treasury Inflation-Protected Securities today at a yield of -0.55%. That’s not a typo: the TIPS bonds sold with a negative yield. First time that’s ever happened.
This suggests investors are so terrified of inflation that they’re willing to pay the government money every year to buy insurance against it.
As with everything in the Treasury market, it’s a little more complicated than that. The negative yield owes partly to the fact that plain-vanilla five-year Treasurys yield just 1.16%, which is barely higher than consumer price inflation for the past year.
The spread between the regular Treasury yield and the negative TIPS yield gets you what investors expect inflation to be in the next five years, and that’s a not-horrifying 1.68%.
Still, yields in both TIPS and Treasurys are low partly because the Federal Reserve is expected to buy a truckload of both as part of its drive to fend of deflation. Investors have front-run the Fed, driving bond prices higher and yields lower, some through the looking glass into negative territory.
If negative TIPS yields represent tremors of inflation anxiety, then the Fed is probably thrilled: Inflation expectations make deflation less likely. But those on deflation watch, including some Fed policy makers, say inflation-adjusted yields on longer-dated bonds are still fairly high given the weakness in the economy. QE2 is still coming, possibly meaning more negative TIPS yields.
Bernanke Asset Purchases Risk Unleashing 1970s Inflation Genie - Bloomberg
EXCERPTS:
"For the second time since he became chairman in 2006, Ben S. Bernanke is leading the Federal Reserve into uncharted monetary territory.
Bernanke next week is likely to preside over a decision to launch another round of large-scale asset purchases after deploying $1.7 trillion to pull the economy out of the financial crisis, comments from policy makers over the past week indicate. This time, with interest rates already near zero, the Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms. The goal is to unlock consumer spending and jump-start an economy that’s growing too slowly to push unemployment lower.
Estimates for the ultimate size of the asset-purchase program range from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely start by announcing $500 billion after the Nov. 2-3 meeting. The danger is that once the Fed kindles price increases, inflation will be difficult to control.
“By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “The risk is a late 1970s type of scenario where the inflation genie gets out of the bottle.”
The U.S. Treasury Department yesterday sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Fed will be successful in sparking inflation. The securities drew a yield of negative 0.55 percent.
QUESTIONS:
1. How can the yield on a security be negative?
2. What is it about the current economic environment that is causing this yield to be negative right now?
"For the second time since he became chairman in 2006, Ben S. Bernanke is leading the Federal Reserve into uncharted monetary territory.
Bernanke next week is likely to preside over a decision to launch another round of large-scale asset purchases after deploying $1.7 trillion to pull the economy out of the financial crisis, comments from policy makers over the past week indicate. This time, with interest rates already near zero, the Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms. The goal is to unlock consumer spending and jump-start an economy that’s growing too slowly to push unemployment lower.
Estimates for the ultimate size of the asset-purchase program range from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely start by announcing $500 billion after the Nov. 2-3 meeting. The danger is that once the Fed kindles price increases, inflation will be difficult to control.
“By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “The risk is a late 1970s type of scenario where the inflation genie gets out of the bottle.”
The U.S. Treasury Department yesterday sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Fed will be successful in sparking inflation. The securities drew a yield of negative 0.55 percent.
QUESTIONS:
1. How can the yield on a security be negative?
2. What is it about the current economic environment that is causing this yield to be negative right now?
Sunday, October 24, 2010
Saturday, October 23, 2010
Explaining Income Inequality
EXCERPTS:
"The highest-income quintile has four times more people working per household than the lowest quintile (2.08 earners vs. 0.48), and individuals in those households are far more likely to be well-educated, married and working full-time in their prime earning years. In contrast, those individuals with low incomes are far more likely to be less-educated and working part-time, and either very young or very old living in single-parent households. Given these significant differences in household characteristics, it's not too surprising that there are huge differences in incomes among American households. It's also very likely that those individuals in the highest quintile were once in the lower quintiles before they acquired job experience and education, and they'll likely be in a lower quintile again when they retire.
Understanding the factors explaining income inequality would also help explain why income inequality changes over time. For example, compared to previous years, in 2009 there were both: a) more single-parent households, and b) more married, dual-earner households, following trends going back to the 1960s, and both of those trends would explain rising income inequality over time.
"The highest-income quintile has four times more people working per household than the lowest quintile (2.08 earners vs. 0.48), and individuals in those households are far more likely to be well-educated, married and working full-time in their prime earning years. In contrast, those individuals with low incomes are far more likely to be less-educated and working part-time, and either very young or very old living in single-parent households. Given these significant differences in household characteristics, it's not too surprising that there are huge differences in incomes among American households. It's also very likely that those individuals in the highest quintile were once in the lower quintiles before they acquired job experience and education, and they'll likely be in a lower quintile again when they retire.
Understanding the factors explaining income inequality would also help explain why income inequality changes over time. For example, compared to previous years, in 2009 there were both: a) more single-parent households, and b) more married, dual-earner households, following trends going back to the 1960s, and both of those trends would explain rising income inequality over time.
China Bashing is for Losers - Shikha Dalmia - Uncommon Sense - Forbes
EXCERPTS:
"The idea that selling abroad creates jobs at home and buying abroad destroys jobs at home is an old mercantilist fallacy that Adam Smith handily refuted more than 200 years ago. Back then it at least had intuitive plausibility, but today it is obviously false given that the manufacturing chain spans the whole globe. Indeed, under the intricate global division of labor that currently exists, the whole idea of “Made in China” is largely a bureaucratic fiction.
Think about the IPod, for instance. It is designed in America and its 451 parts are made in dozens of different countries. But just because it is finally assembled in China, it officially counts as a Chinese import and therefore a contributor to America’s trade deficit — never mind that the Chinese add only $4 to the IPod’s $150 final value. Imposing duties on IPods to slash the deficit, then, won’t just cost Chinese jobs in Beijing assembly plants, but American jobs in Cupertino (Apple’s headquarters) computer labs.
"The idea that selling abroad creates jobs at home and buying abroad destroys jobs at home is an old mercantilist fallacy that Adam Smith handily refuted more than 200 years ago. Back then it at least had intuitive plausibility, but today it is obviously false given that the manufacturing chain spans the whole globe. Indeed, under the intricate global division of labor that currently exists, the whole idea of “Made in China” is largely a bureaucratic fiction.
Think about the IPod, for instance. It is designed in America and its 451 parts are made in dozens of different countries. But just because it is finally assembled in China, it officially counts as a Chinese import and therefore a contributor to America’s trade deficit — never mind that the Chinese add only $4 to the IPod’s $150 final value. Imposing duties on IPods to slash the deficit, then, won’t just cost Chinese jobs in Beijing assembly plants, but American jobs in Cupertino (Apple’s headquarters) computer labs.
Fools Rush In Where Europe Rushes Out - Jonah Goldberg
EXCERPTS:
"As of this writing, France is paralyzed. By the time you read this, it might be in flames.
In Britain, where politics is more polite but the problems are perhaps just as dire, the government is proposing budget cuts on a scale not seen for nearly a century.
In Greece, well, the less said about Greece the better.
All of these countries--and many more--are going through painful retrenchments because they spent too much money, made too many promises, and expected too little from their citizens. The era of European austerity is upon us, because the Europeans--or at least those in charge--understand the mess they've made of their economies.
This should present a real problem for Barack Obama and the vast (though shrinking) chorus of experts, editorialists, and activists who support his agenda. In broad terms, all of the policies Obama and the Democrats have pushed are the sorts of policies the British, the French, and other Europeans had for years, even decades.
As far as I am aware, no one has asked President Obama a simple question: If your philosophy is so great, how come the countries that have embraced it for generations are so much poorer than we are?
Nor have they asked: If guaranteed health care for everyone will make us so much more "competitive," how come we've been doing so much better than our "competitors" who already have socialized medicine, high tax rates, and lavish pensions?
Nor has the president been queried about the incongruity of saying his policies have laid a "new foundation" for economic growth and job creation when the countries he's trying to emulate are trying to dismantle the very same foundations in order to survive.
***
What's irrational about saying that we shouldn't be rushing into a condemned building everyone else in the developed world is rushing out of?
"As of this writing, France is paralyzed. By the time you read this, it might be in flames.
In Britain, where politics is more polite but the problems are perhaps just as dire, the government is proposing budget cuts on a scale not seen for nearly a century.
In Greece, well, the less said about Greece the better.
All of these countries--and many more--are going through painful retrenchments because they spent too much money, made too many promises, and expected too little from their citizens. The era of European austerity is upon us, because the Europeans--or at least those in charge--understand the mess they've made of their economies.
This should present a real problem for Barack Obama and the vast (though shrinking) chorus of experts, editorialists, and activists who support his agenda. In broad terms, all of the policies Obama and the Democrats have pushed are the sorts of policies the British, the French, and other Europeans had for years, even decades.
As far as I am aware, no one has asked President Obama a simple question: If your philosophy is so great, how come the countries that have embraced it for generations are so much poorer than we are?
Nor have they asked: If guaranteed health care for everyone will make us so much more "competitive," how come we've been doing so much better than our "competitors" who already have socialized medicine, high tax rates, and lavish pensions?
Nor has the president been queried about the incongruity of saying his policies have laid a "new foundation" for economic growth and job creation when the countries he's trying to emulate are trying to dismantle the very same foundations in order to survive.
***
What's irrational about saying that we shouldn't be rushing into a condemned building everyone else in the developed world is rushing out of?
Saturday, October 16, 2010
Unemployment, Marriage, and the 2010 Economics Nobel | Acton Institute
EXCERPTS:
"In some markets -- where information is low-cost and individual buyers and sellers are not particularly unique -- parties can quickly find each other and engage in mutually-beneficial exchanges. Any buyer is happy to trade with any seller as long as the price seems reasonable to each.
But in other markets the fit matters more. And, as Diamond’s early work in the 1970s suggested, sometimes fit matters a lot. An extreme example is the “market” for spouses. Because marriage is a lifelong joint endeavor, men and women search extensively for partners with whom their eventual marital union may fully flourish as God intends.
And because searching for just the right person takes time, effort, and perhaps many first dates, plenty of eligible men and women remain single at any given moment. Web sites like match.com and eHarmony are popular with singles because those sites help reduce search costs by improving the amount of information available to singles about potential mates.
Diamond, Mortensen, and Pissarides [the recipients of this year's Nobel Prize for Economics] have studied extensively markets with such search costs. When both buyers and sellers are unique, it requires considerable searching for each to find just the right fit. Even in a well-functioning housing market with plenty of available homes, buyers may struggle to find homes they like. So the buyers keep looking.
All three recipients of this year’s prize have carefully extended Diamond’s work to better understand why we may observe persistent unemployment in the labor market even when there are plenty of job openings available, and with interesting policy implications -- especially for unemployment insurance programs. Their work shows that more generous unemployment insurance programs will unambiguously lead to longer average unemployment spells: a result with very strong empirical support.
There are two ways to interpret this policy conclusion, and neither is incorrect. On one hand, quite generous welfare benefits may -- at the margin -- backfire in the sense that they make finding employment less urgent than it would be otherwise, resulting in less search effort by job seekers. This interpretation provided part of the motivation behind the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (the “welfare reform” bill), which shortened the amount of time individuals may receive welfare payments without working. The bill made unemployment look less attractive.
But on the other hand, meaningful work is a gift. God desires that men and women -- the only creatures that He made in his image -- imitate him through their creative work. Work is our collaboration with God’s creative purposes. Reformers such as John Calvin and Martin Luther stressed the idea, gleaned from Scripture, that every believer is called by God to certain work -- a vocation -- and has a duty to respond to that call. And John Paul II, in his letter on human labor, observed that work is “one of the fundamental dimensions of [a person’s] earthly existence and of his vocation.”
Thus while low unemployment is an important goal, we should not be too quick to put policies in place that force unemployed persons to settle too quickly for jobs that are not a good match. Doing so would deny people the opportunity to pursue their unique callings -- ones in which each person can exercise stewardship to the glory of the Creator.
"In some markets -- where information is low-cost and individual buyers and sellers are not particularly unique -- parties can quickly find each other and engage in mutually-beneficial exchanges. Any buyer is happy to trade with any seller as long as the price seems reasonable to each.
But in other markets the fit matters more. And, as Diamond’s early work in the 1970s suggested, sometimes fit matters a lot. An extreme example is the “market” for spouses. Because marriage is a lifelong joint endeavor, men and women search extensively for partners with whom their eventual marital union may fully flourish as God intends.
And because searching for just the right person takes time, effort, and perhaps many first dates, plenty of eligible men and women remain single at any given moment. Web sites like match.com and eHarmony are popular with singles because those sites help reduce search costs by improving the amount of information available to singles about potential mates.
Diamond, Mortensen, and Pissarides [the recipients of this year's Nobel Prize for Economics] have studied extensively markets with such search costs. When both buyers and sellers are unique, it requires considerable searching for each to find just the right fit. Even in a well-functioning housing market with plenty of available homes, buyers may struggle to find homes they like. So the buyers keep looking.
All three recipients of this year’s prize have carefully extended Diamond’s work to better understand why we may observe persistent unemployment in the labor market even when there are plenty of job openings available, and with interesting policy implications -- especially for unemployment insurance programs. Their work shows that more generous unemployment insurance programs will unambiguously lead to longer average unemployment spells: a result with very strong empirical support.
There are two ways to interpret this policy conclusion, and neither is incorrect. On one hand, quite generous welfare benefits may -- at the margin -- backfire in the sense that they make finding employment less urgent than it would be otherwise, resulting in less search effort by job seekers. This interpretation provided part of the motivation behind the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (the “welfare reform” bill), which shortened the amount of time individuals may receive welfare payments without working. The bill made unemployment look less attractive.
But on the other hand, meaningful work is a gift. God desires that men and women -- the only creatures that He made in his image -- imitate him through their creative work. Work is our collaboration with God’s creative purposes. Reformers such as John Calvin and Martin Luther stressed the idea, gleaned from Scripture, that every believer is called by God to certain work -- a vocation -- and has a duty to respond to that call. And John Paul II, in his letter on human labor, observed that work is “one of the fundamental dimensions of [a person’s] earthly existence and of his vocation.”
Thus while low unemployment is an important goal, we should not be too quick to put policies in place that force unemployed persons to settle too quickly for jobs that are not a good match. Doing so would deny people the opportunity to pursue their unique callings -- ones in which each person can exercise stewardship to the glory of the Creator.
Wednesday, October 13, 2010
The Education of President Obama - NYTimes.com
EXCERPTS:
"During our hour together, Obama told me he had no regrets about the broad direction of his presidency. But he did identify what he called “tactical lessons.” He let himself look too much like “the same old tax-and-spend liberal Democrat.” He realized too late that “there’s no such thing as shovel-ready projects” when it comes to public works.
Remember this when we talk about the transmission lag in chapter 10 on fiscal policy.
"During our hour together, Obama told me he had no regrets about the broad direction of his presidency. But he did identify what he called “tactical lessons.” He let himself look too much like “the same old tax-and-spend liberal Democrat.” He realized too late that “there’s no such thing as shovel-ready projects” when it comes to public works.
COMMENT:
Remember this when we talk about the transmission lag in chapter 10 on fiscal policy.
Friday, October 8, 2010
$1,300 Price of Gold - All-time High?
EXCERPTS:
"After adjusting for inflation, today’s price is nowhere near the all-time high of January 1980. Back then, gold hit $850, or well over $2,000 in today’s dollars. But January 1980 was arguably a “freak peak” during a period of heightened geo-political instability. At $1,300, today’s price is probably more than double very long-term, inflation-adjusted, average gold prices. So what could justify another huge increase in gold prices from here?
One answer, of course, is a complete collapse of the US dollar. With soaring deficits, and a rudderless fiscal policy, one does wonder whether a populist administration might recklessly turn to the printing press. And if you are really worried about that, gold might indeed be the most reliable hedge.
Sure, some might argue that inflation-indexed bonds offer a better and more direct inflation hedge than gold. But gold bugs are right to worry about whether the government will honor its commitments under more extreme circumstances. In fact, as Carmen Reinhart and I discuss in our recent book on the history of financial crises, This Time is Different, cash-strapped governments will often forcibly convert indexed debt to non-indexed debt, precisely so that its value might be inflated away. Even the United States abrogated indexation clauses in bond contracts during the Great Depression of the 1930’s. So it can happen anywhere.
"After adjusting for inflation, today’s price is nowhere near the all-time high of January 1980. Back then, gold hit $850, or well over $2,000 in today’s dollars. But January 1980 was arguably a “freak peak” during a period of heightened geo-political instability. At $1,300, today’s price is probably more than double very long-term, inflation-adjusted, average gold prices. So what could justify another huge increase in gold prices from here?
One answer, of course, is a complete collapse of the US dollar. With soaring deficits, and a rudderless fiscal policy, one does wonder whether a populist administration might recklessly turn to the printing press. And if you are really worried about that, gold might indeed be the most reliable hedge.
Sure, some might argue that inflation-indexed bonds offer a better and more direct inflation hedge than gold. But gold bugs are right to worry about whether the government will honor its commitments under more extreme circumstances. In fact, as Carmen Reinhart and I discuss in our recent book on the history of financial crises, This Time is Different, cash-strapped governments will often forcibly convert indexed debt to non-indexed debt, precisely so that its value might be inflated away. Even the United States abrogated indexation clauses in bond contracts during the Great Depression of the 1930’s. So it can happen anywhere.
Thursday, October 7, 2010
Fed Officials Mull Inflation as a Fix - WSJ.com
EXCERPTS:
"The Federal Reserve spent the past three decades getting inflation low and keeping it there. But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed's informal target.
The rationale is that getting inflation up even temporarily would push 'real' interest rates—nominal rates minus inflation—down, encouraging consumers and businesses to save less and to spend or invest more.
Both inside and outside the Fed, though, such an approach is controversial. It could undermine the anti-inflation credibility the Fed won three decades ago by raising interest rates to double-digits to beat back late-1970s price surges. "It's a big mistake," said Allan Meltzer of Carnegie Mellon University, a central bank historian. "Higher inflation is not going to solve our problem. Any gain from that experience would be temporary," adding that the economy would suffer later.
Others warn that pushing inflation higher than the target could create public confusion and risk fueling financial bubbles and market instability. They say Fed policy already is weakening the dollar and as a result prompting a gold and commodity boom. "The Fed is treading upon a mine-laden path that has never been tip-toed through in this country," said Andrew Busch, a currency strategist at BMO Capital Markets.
QUESTION:
If the Fed decides to pursue a policy that will cause more inflation, and people start to expect higher inflation, what effect is this likely to have on nominal interest rates?
"The Federal Reserve spent the past three decades getting inflation low and keeping it there. But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed's informal target.
The rationale is that getting inflation up even temporarily would push 'real' interest rates—nominal rates minus inflation—down, encouraging consumers and businesses to save less and to spend or invest more.
Both inside and outside the Fed, though, such an approach is controversial. It could undermine the anti-inflation credibility the Fed won three decades ago by raising interest rates to double-digits to beat back late-1970s price surges. "It's a big mistake," said Allan Meltzer of Carnegie Mellon University, a central bank historian. "Higher inflation is not going to solve our problem. Any gain from that experience would be temporary," adding that the economy would suffer later.
Others warn that pushing inflation higher than the target could create public confusion and risk fueling financial bubbles and market instability. They say Fed policy already is weakening the dollar and as a result prompting a gold and commodity boom. "The Fed is treading upon a mine-laden path that has never been tip-toed through in this country," said Andrew Busch, a currency strategist at BMO Capital Markets.
QUESTION:
If the Fed decides to pursue a policy that will cause more inflation, and people start to expect higher inflation, what effect is this likely to have on nominal interest rates?
McDonald's, 29 other firms get health care coverage waivers - USATODAY.com
EXCERPTS:
"Nearly a million workers won't get a consumer protection in the U.S. health reform law meant to cap insurance costs because the government exempted their employers.
Thirty companies and organizations, including McDonald's (MCD) and Jack in the Box (JACK), won't be required to raise the minimum annual benefit included in low-cost health plans, which are often used to cover part-time or low-wage employees.
The Department of Health and Human Services, which provided a list of exemptions, said it granted waivers in late September so workers with such plans wouldn't lose coverage from employers who might choose instead to drop health insurance altogether.
Without waivers, companies would have had to provide a minimum of $750,000 in coverage next year, increasing to $1.25 million in 2012, $2 million in 2013 and unlimited in 2014.
"The big political issue here is the president promised no one would lose the coverage they've got," says Robert Laszewski, chief executive officer of consulting company Health Policy and Strategy Associates. "Here we are a month before the election, and these companies represent 1 million people who would lose the coverage they've got."
COMMENT:
Note that the health reform law that almost caused these workers to lose their health insurance was not repealed. These 30 companies have been granted a waiver, but other employers are still required to comply. Someone who works for an employer in a similar situation, but who isn't able to persuade the government to grant them an waiver, has a problem.
"Nearly a million workers won't get a consumer protection in the U.S. health reform law meant to cap insurance costs because the government exempted their employers.
Thirty companies and organizations, including McDonald's (MCD) and Jack in the Box (JACK), won't be required to raise the minimum annual benefit included in low-cost health plans, which are often used to cover part-time or low-wage employees.
The Department of Health and Human Services, which provided a list of exemptions, said it granted waivers in late September so workers with such plans wouldn't lose coverage from employers who might choose instead to drop health insurance altogether.
Without waivers, companies would have had to provide a minimum of $750,000 in coverage next year, increasing to $1.25 million in 2012, $2 million in 2013 and unlimited in 2014.
"The big political issue here is the president promised no one would lose the coverage they've got," says Robert Laszewski, chief executive officer of consulting company Health Policy and Strategy Associates. "Here we are a month before the election, and these companies represent 1 million people who would lose the coverage they've got."
COMMENT:
Note that the health reform law that almost caused these workers to lose their health insurance was not repealed. These 30 companies have been granted a waiver, but other employers are still required to comply. Someone who works for an employer in a similar situation, but who isn't able to persuade the government to grant them an waiver, has a problem.
Wednesday, October 6, 2010
Interview with Laurence Meyer (former Fed Governor) on the causes of the financial crisis
Good overview of the financial crisis.
Congress Can't Repeal Economics by John Stossel on Creators.com - A Syndicate Of Talent
EXCERPTS:
"It's raining! I don't like it! Why hasn't Congress passed the Good Weather Act and the Everybody Happy Act?
Sound dumb?
Why is it any dumber than a law called the Patient Protection and Affordable Care Act, which promised to cover more for less money?
When Obamacare was debated, we free-market advocates insisted that no matter what the president promised, the laws of economics cannot be repealed. Our opponents in effect answered, "Yes, we can."
Well, Obamacare has barely started taking effect, and the evidence is already rolling in. I hate to say we told them so, but ... we told them so. The laws of economics have struck back.
Health insurers Wellpoint, Cigna, Aetna, Humana and CoventryOne will stop writing policies for all children. Why? Because Obamacare requires that they insure already sick children for the same price as well children.
That sounds compassionate, but — in case Obamacare fanatics haven't noticed — sick children need more medical care. Insurance is about risk, and already sick children are 100 percent certain to be sick when their coverage begins. So if the government mandates that insurance companies cover sick children at the lower well-children price, insurers will quit the market rather than sandbag their shareholders. This is not callousness — it's fiduciary responsibility. Insurance companies are not charities. So, thanks to the compassionate Congress and president, parents of sick children will be saved from expensive insurance — by being unable to obtain any insurance! That's how government compassion works.
In 2014, the same rule will kick in for adults. You now know what to expect.
"It's raining! I don't like it! Why hasn't Congress passed the Good Weather Act and the Everybody Happy Act?
Sound dumb?
Why is it any dumber than a law called the Patient Protection and Affordable Care Act, which promised to cover more for less money?
When Obamacare was debated, we free-market advocates insisted that no matter what the president promised, the laws of economics cannot be repealed. Our opponents in effect answered, "Yes, we can."
Well, Obamacare has barely started taking effect, and the evidence is already rolling in. I hate to say we told them so, but ... we told them so. The laws of economics have struck back.
Health insurers Wellpoint, Cigna, Aetna, Humana and CoventryOne will stop writing policies for all children. Why? Because Obamacare requires that they insure already sick children for the same price as well children.
That sounds compassionate, but — in case Obamacare fanatics haven't noticed — sick children need more medical care. Insurance is about risk, and already sick children are 100 percent certain to be sick when their coverage begins. So if the government mandates that insurance companies cover sick children at the lower well-children price, insurers will quit the market rather than sandbag their shareholders. This is not callousness — it's fiduciary responsibility. Insurance companies are not charities. So, thanks to the compassionate Congress and president, parents of sick children will be saved from expensive insurance — by being unable to obtain any insurance! That's how government compassion works.
In 2014, the same rule will kick in for adults. You now know what to expect.
Politics, Gold, and Inflation - Thomas Sowell
EXCERPTS:
"Inflation is a quiet but effective way for the government to transfer resources from the people to itself, without raising taxes. A hundred dollar bill would buy less in 1998 than a $20 bill would buy in the 1960s. This means that anyone who kept his money in a safe over those years would have lost 80 percent of its value, because no safe can keep your money safe from politicians who control the printing presses.
That is why some people buy gold when they lose confidence in the government's managing of its money. Usually that is when inflation is either under way or looming on the horizon. When many people start transferring their wealth from dollars into gold, that restricts the ability of politicians to steal from them through inflation.
Even though there is currently very little inflation, purchases of gold have nevertheless skyrocketed. Ordinarily, most gold is bought for producing jewelry or for various industrial purposes, more so than as an investment. But, at times within the past two years, most gold has been bought by investors.
What that suggests is that increasing numbers of people don't trust this administration's economic policies, especially their huge and growing deficits, which add up to a record-breaking national debt.
When a national debt reaches an unsustainable amount, there is always a temptation to pay it off with inflated dollars. There is the same temptation when the Social Security system starts paying out more money to baby boom retirees than it is taking in from current workers.
"Inflation is a quiet but effective way for the government to transfer resources from the people to itself, without raising taxes. A hundred dollar bill would buy less in 1998 than a $20 bill would buy in the 1960s. This means that anyone who kept his money in a safe over those years would have lost 80 percent of its value, because no safe can keep your money safe from politicians who control the printing presses.
That is why some people buy gold when they lose confidence in the government's managing of its money. Usually that is when inflation is either under way or looming on the horizon. When many people start transferring their wealth from dollars into gold, that restricts the ability of politicians to steal from them through inflation.
Even though there is currently very little inflation, purchases of gold have nevertheless skyrocketed. Ordinarily, most gold is bought for producing jewelry or for various industrial purposes, more so than as an investment. But, at times within the past two years, most gold has been bought by investors.
What that suggests is that increasing numbers of people don't trust this administration's economic policies, especially their huge and growing deficits, which add up to a record-breaking national debt.
When a national debt reaches an unsustainable amount, there is always a temptation to pay it off with inflated dollars. There is the same temptation when the Social Security system starts paying out more money to baby boom retirees than it is taking in from current workers.
Tuesday, October 5, 2010
Foreclosure? Not So Fast: Homeowners Cite Paperwork Problems to Fight Foreclosure - WSJ.com
EXCERPTS:
"LOXAHATCHEE, Fla.—Israel Machado's foreclosure started out as a routine affair. In the summer of 2008, as the economy began to soften, Mr. Machado's pool-cleaning business suffered and like millions of other Americans, he fell behind on his $400,000 mortgage.
But Mr. Machado's response was unlike most other Americans'. Instead of handing his home over to the lender, IndyMac Bank FSB, he hired Ice Legal LP in nearby Royal Palm Beach to fight the foreclosure. The law firm researched the history of Mr. Machado's loan and found two interesting facts.
First, the affidavits IndyMac used to file the foreclosure were signed by a so-called robo-signer named Erica A. Johnson-Seck, who routinely signed 6,000 documents a week related to foreclosures and bankruptcy. That volume, the court decided, meant Ms. Johnson-Seck couldn't possibly have thoroughly reviewed the facts of Mr. Machado's case, as required by law.
Secondly, IndyMac (now called OneWest Bank) no longer owned the loan—a group of investors in a securitized trust managed by Deutsche Bank did. Determining that IndyMac didn't really have standing to foreclose, a judge threw out the case and ordered IndyMac to pay Mr. Machado's $30,000 legal bill.
***
In Florida, which leads the nation in foreclosure filings, loans remain delinquent for an average of 573 days before going to foreclosure, according to LPS Applied Analytics, a research firm. A year ago it took 423 days, an indication that the foreclosure process is lengthening. Nationwide, the average foreclosure takes 478 days, up from 361 days a year ago. At the height of the housing boom in early 2006, the foreclosure delinquency average stood at 292 days nationwide and 305 days in Florida.
"LOXAHATCHEE, Fla.—Israel Machado's foreclosure started out as a routine affair. In the summer of 2008, as the economy began to soften, Mr. Machado's pool-cleaning business suffered and like millions of other Americans, he fell behind on his $400,000 mortgage.
But Mr. Machado's response was unlike most other Americans'. Instead of handing his home over to the lender, IndyMac Bank FSB, he hired Ice Legal LP in nearby Royal Palm Beach to fight the foreclosure. The law firm researched the history of Mr. Machado's loan and found two interesting facts.
First, the affidavits IndyMac used to file the foreclosure were signed by a so-called robo-signer named Erica A. Johnson-Seck, who routinely signed 6,000 documents a week related to foreclosures and bankruptcy. That volume, the court decided, meant Ms. Johnson-Seck couldn't possibly have thoroughly reviewed the facts of Mr. Machado's case, as required by law.
Secondly, IndyMac (now called OneWest Bank) no longer owned the loan—a group of investors in a securitized trust managed by Deutsche Bank did. Determining that IndyMac didn't really have standing to foreclose, a judge threw out the case and ordered IndyMac to pay Mr. Machado's $30,000 legal bill.
***
In Florida, which leads the nation in foreclosure filings, loans remain delinquent for an average of 573 days before going to foreclosure, according to LPS Applied Analytics, a research firm. A year ago it took 423 days, an indication that the foreclosure process is lengthening. Nationwide, the average foreclosure takes 478 days, up from 361 days a year ago. At the height of the housing boom in early 2006, the foreclosure delinquency average stood at 292 days nationwide and 305 days in Florida.
Thursday, September 30, 2010
Under new federal guidelines all New York City street signs will have to be made lower-case - NYPOST.com
EXCERPTS:
Posted: 12:53 AM, September 30, 2010
Federal copy editors are demanding the city change its 250,900 street signs from the all-caps style used for more than a century to ones that capitalize only the first letters.
Changing BROADWAY to Broadway will save lives, the Federal Highway Administration contends in its updated Manual on Uniform Traffic Control Devices, citing improved readability.
At $110 per sign, it will also cost the state $27.6 million, city officials said.
Studies have shown that it is harder to read all-caps signs, and those extra milliseconds spent staring away from the road have been shown to increase the likelihood of accidents, particularly among older drivers, federal documents say.
The new regulations also require a change in font from the standard highway typeface to Clearview, which was specially developed for this purpose.
As a result, even numbered street signs will have to be replaced.
"Safety is this department's top priority," Transportation Secretary Ray LaHood said last year, in support of the new guidelines. "These new and updated standards will help make our nation's roads and bridges safer for drivers, construction workers and pedestrians alike."
The Highway Administration acknowledged that New York and other states "opposed the change, and suggested that the use of all upper-case letters remain an option," noting that "while the mixed-case words might be easier to read, the amount of improvement in legibility did not justify the cost."
COMMENT:
There are two questions here. The most obvious question is whether the benefits of making the changes justify the cost of making those changes. The less obvious, but ultimately more important question, is who should make the decision about whether the benefits justify the cost? Should the decision be made by the local government, who will bear the cost of changing the signs? Or should it be made by the Federal Highway Administration, who can impose this requirement without having to bear any of its costs? How much incentive does a federal agency have to take into account the costs that their regulations will impose on others?
Posted: 12:53 AM, September 30, 2010
Federal copy editors are demanding the city change its 250,900 street signs from the all-caps style used for more than a century to ones that capitalize only the first letters.
Changing BROADWAY to Broadway will save lives, the Federal Highway Administration contends in its updated Manual on Uniform Traffic Control Devices, citing improved readability.
At $110 per sign, it will also cost the state $27.6 million, city officials said.
Studies have shown that it is harder to read all-caps signs, and those extra milliseconds spent staring away from the road have been shown to increase the likelihood of accidents, particularly among older drivers, federal documents say.
The new regulations also require a change in font from the standard highway typeface to Clearview, which was specially developed for this purpose.
As a result, even numbered street signs will have to be replaced.
"Safety is this department's top priority," Transportation Secretary Ray LaHood said last year, in support of the new guidelines. "These new and updated standards will help make our nation's roads and bridges safer for drivers, construction workers and pedestrians alike."
The Highway Administration acknowledged that New York and other states "opposed the change, and suggested that the use of all upper-case letters remain an option," noting that "while the mixed-case words might be easier to read, the amount of improvement in legibility did not justify the cost."
COMMENT:
There are two questions here. The most obvious question is whether the benefits of making the changes justify the cost of making those changes. The less obvious, but ultimately more important question, is who should make the decision about whether the benefits justify the cost? Should the decision be made by the local government, who will bear the cost of changing the signs? Or should it be made by the Federal Highway Administration, who can impose this requirement without having to bear any of its costs? How much incentive does a federal agency have to take into account the costs that their regulations will impose on others?
Monday, September 27, 2010
Tax Cuts and Revenue: What We Learned in the 1980s - WSJ.com
EXCERPTS:
"The Reagan tax cuts reduced rates for all income classes, even though it was well understood that cutting the lower rates would result in substantial revenue losses. Low tax rates (below 20%) do not cause much of a disincentive for working, saving or investing, and hence there is little supply-side effect. We did argue, however, that reducing the high marginal rates (up to 70% on high-income earners) would cause little, if any, revenue loss, because of the large, positive supply-side effects. Were we right?
Since most of the Reagan tax cuts applied to lower- and middle-income earners, there was close to a dollar lost in tax revenue for each "dollar" of tax cut for these groups. Still, CBO figures show that total tax revenue only fell from 19.2% of gross domestic product (GDP) in 1982, before most of Reagan's tax-rate reductions were put in place, to 18.4% of GDP in 1989, the year he left office. This happened because the U.S. economy grew by more than one-third in real terms (34.3%), much faster than the 24.3% rate expected even by economists within the Reagan administration. Thus, by the time President Reagan left office, the economy was generating more tax revenue at a maximum 28% rate than many on the left forecast it to generate at a maximum 70% rate.
The Reagan tax-rate reductions did, in fact, pay for themselves—but it took about seven years.
The Obama administration wants to extend the Bush tax cuts only for those making less than $200,000 a year. This will significantly reduce federal revenues. But the rate cuts it does not want to extend would be more likely to increase tax revenues.
The reason is simple: Those who earn more than $200,000 annually are among the ones who create most of the new jobs and fund new investment—the engines of economic growth. Without these jobs and new investment, the economy will be smaller and throw off less tax revenue.
"The Reagan tax cuts reduced rates for all income classes, even though it was well understood that cutting the lower rates would result in substantial revenue losses. Low tax rates (below 20%) do not cause much of a disincentive for working, saving or investing, and hence there is little supply-side effect. We did argue, however, that reducing the high marginal rates (up to 70% on high-income earners) would cause little, if any, revenue loss, because of the large, positive supply-side effects. Were we right?
Since most of the Reagan tax cuts applied to lower- and middle-income earners, there was close to a dollar lost in tax revenue for each "dollar" of tax cut for these groups. Still, CBO figures show that total tax revenue only fell from 19.2% of gross domestic product (GDP) in 1982, before most of Reagan's tax-rate reductions were put in place, to 18.4% of GDP in 1989, the year he left office. This happened because the U.S. economy grew by more than one-third in real terms (34.3%), much faster than the 24.3% rate expected even by economists within the Reagan administration. Thus, by the time President Reagan left office, the economy was generating more tax revenue at a maximum 28% rate than many on the left forecast it to generate at a maximum 70% rate.
The Reagan tax-rate reductions did, in fact, pay for themselves—but it took about seven years.
The Obama administration wants to extend the Bush tax cuts only for those making less than $200,000 a year. This will significantly reduce federal revenues. But the rate cuts it does not want to extend would be more likely to increase tax revenues.
The reason is simple: Those who earn more than $200,000 annually are among the ones who create most of the new jobs and fund new investment—the engines of economic growth. Without these jobs and new investment, the economy will be smaller and throw off less tax revenue.
Sunday, September 26, 2010
Czech president tells UN to stay out of economics | Reuters
EXCERPTS:
"UNITED NATIONS, Sept 25 (Reuters) - Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased "global governance" of the world's economy, saying the world body should leave that role to national governments.
The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in "creating new governmental and supranational agencies, or in aiming at global governance of the world economy."
"On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states," he said....
Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was "moving in the wrong direction" in combating the economic crisis.
"The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets," he said.
Klaus said that was a "mistaken assumption" and it was impossible to prevent future crises through regulatory interventions and similar actions by governments.
That will only "destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries," he said.
"UNITED NATIONS, Sept 25 (Reuters) - Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased "global governance" of the world's economy, saying the world body should leave that role to national governments.
The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in "creating new governmental and supranational agencies, or in aiming at global governance of the world economy."
"On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states," he said....
Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was "moving in the wrong direction" in combating the economic crisis.
"The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets," he said.
Klaus said that was a "mistaken assumption" and it was impossible to prevent future crises through regulatory interventions and similar actions by governments.
That will only "destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries," he said.
Saturday, September 25, 2010
California Business Exodus: If You Tax Something...
EXCERPT:
" The cost for a one-way 26-foot truck rental from LA to Houston is $2,279, more than 2.5 times the cost for a truck going in the opposite direction ($892), suggesting that there are a lot more people moving out of California to Texas, than from Texas to California."
QUESTIONS:
1. We've emphasized that prices are signals - they communicate information about the value of resources and coordinate the actions of producers and consumers. In terms of supply and demand, what does the high price for a truck rental in Los Angeles relative to Texas tell you?
2. California is known for high tax rates and intense regulation of businesses in comparison to Texas. Do you think there is a connection between the high tax rates and intense regulation, and the high price for renting a truck in Los Angeles? Explain.
" The cost for a one-way 26-foot truck rental from LA to Houston is $2,279, more than 2.5 times the cost for a truck going in the opposite direction ($892), suggesting that there are a lot more people moving out of California to Texas, than from Texas to California."
QUESTIONS:
1. We've emphasized that prices are signals - they communicate information about the value of resources and coordinate the actions of producers and consumers. In terms of supply and demand, what does the high price for a truck rental in Los Angeles relative to Texas tell you?
2. California is known for high tax rates and intense regulation of businesses in comparison to Texas. Do you think there is a connection between the high tax rates and intense regulation, and the high price for renting a truck in Los Angeles? Explain.
Thursday, September 23, 2010
Wednesday, September 22, 2010
Confessions of an Exploited Teen - Thomas Sowell
Thomas Sowell talks about his experiences as a teenage worker and the effects of having a minimum wage law.
A Tale of Two Economic Recoveries
EXCERPTS:
"We now know the recession ended just as the stimulus money started to get spent. According to the White House's own 100-day stimulus report, issued at the end of May 2009, only $45.6 billion in spending and tax relief had gone out the door by then. In other words, less than 6 percent of the stimulus money was in the economy as the recession ended, making its role in stopping the downward spiral somewhat murky.
This news also makes it harder for Obama to blame President Bush for the nation's current economic troubles.
Obama rightly notes that he was handed a terrible economy. But now we learn that the recession he inherited was just five months away from being over when he took office. So while Obama doesn't own the recession in any way, shape or form, he certainly owns the recovery, which is now well into its 15th month.
 |
The chart shows unemployment and consumer confidence 14 months after the end of the 1981-82 and 2007-2009 recessions, and average GDP growth for the four quarters following the end of each recession. (Bureau of Labor Statistics, Bureau of Economic Analysis, Conference Board
"We now know the recession ended just as the stimulus money started to get spent. According to the White House's own 100-day stimulus report, issued at the end of May 2009, only $45.6 billion in spending and tax relief had gone out the door by then. In other words, less than 6 percent of the stimulus money was in the economy as the recession ended, making its role in stopping the downward spiral somewhat murky.
This news also makes it harder for Obama to blame President Bush for the nation's current economic troubles.
Obama rightly notes that he was handed a terrible economy. But now we learn that the recession he inherited was just five months away from being over when he took office. So while Obama doesn't own the recession in any way, shape or form, he certainly owns the recovery, which is now well into its 15th month.
"Recession Officially Over," Business Cycle Dating Committee, National Bureau of Economic Research
EXCERPTS:
"CAMBRIDGE September 20, 2010 - The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.
"CAMBRIDGE September 20, 2010 - The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.
Friday, September 17, 2010
Principles for Economic Revival - WSJ.com by Shultz, Boskin, Cogan, Meltzer and Taylor
Excerpts:
"Since the onset of the financial crisis, annual federal spending has increased by an extraordinary $800 billion—more than $10,000 for every American family. This has driven the budget deficit to 10% of GDP, far above the previous peacetime record."
"Since the onset of the financial crisis, annual federal spending has increased by an extraordinary $800 billion—more than $10,000 for every American family. This has driven the budget deficit to 10% of GDP, far above the previous peacetime record."
Tuesday, September 14, 2010
Monks Told They Can't Sell Caskets Retail - Stossel | FOXBusiness.com
Stossel | FOXBusiness.com: "- Sent using Google Toolbar"
Friday, September 10, 2010
What Should the Federal Reserve Do Next? - WSJ.com
A Symposium: What Should the Federal Reserve Do Next? - WSJ.com: "- Sent using Google Toolbar"
Prices Report Reality; Government Threatens to Shoot Messenger (Or At Least to Falsify the Message)
This is a short letter from one of my favorite bloggers, Don Boudreaux. It's worth reading.
‘Clunkers,’ a classic government folly - The Boston Globe
EXCERPTS:
"Why are used-car prices rocketing? Part of the answer is that demand is up: With unemployment high and the economy uncertain, some car buyers who might otherwise be looking for a new truck or SUV are instead shopping for a used vehicle as a way to save money.
But an even bigger part of the answer is that the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car’s engine, and send the car to be crushed or shredded.
Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it “successful beyond anybody’s imagination.’’ Which it was, if you define success as getting people to take “free’’ money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly.
No great insight was needed to realize that Cash for Clunkers would work a hardship on people unable to afford a new car. “All this program did for them,’’ I wrote last August, “was guarantee that used cars will become more expensive. Poorer drivers will be penalized to subsidize new cars for wealthier drivers.’’ Alec Gutierrez, a senior analyst for Kelley Blue Book, predicted that used-car prices would surge by up to 10 percent. “It’s going to drive prices up on some of the most affordable vehicles we have on the road,’’ he told USA Today. In short, Washington spent nearly $3 billion to raise the price of mobility for drivers on a budget.
To be sure, Cash for Clunkers gave a powerful jolt to car sales in July and August of 2009. But it did so mostly by delaying sales that would otherwise have occurred in April, May, and June, or by accelerating those that would have taken place in September, October, or later. “Influencing the timing of consumers’ durable purchases is easy,’’ Edmunds CEO Jeremy Anwyl wrote a few days ago in a blog post looking back at the program. “Creating new purchases is not.’’ Of the 700,000 cars purchased during the clunkers frenzy, the estimated net increase in sales was only 125,000. Each incremental sale thus ended up costing the taxpayers a profligate $24,000.
"Why are used-car prices rocketing? Part of the answer is that demand is up: With unemployment high and the economy uncertain, some car buyers who might otherwise be looking for a new truck or SUV are instead shopping for a used vehicle as a way to save money.
But an even bigger part of the answer is that the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car’s engine, and send the car to be crushed or shredded.
Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it “successful beyond anybody’s imagination.’’ Which it was, if you define success as getting people to take “free’’ money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly.
No great insight was needed to realize that Cash for Clunkers would work a hardship on people unable to afford a new car. “All this program did for them,’’ I wrote last August, “was guarantee that used cars will become more expensive. Poorer drivers will be penalized to subsidize new cars for wealthier drivers.’’ Alec Gutierrez, a senior analyst for Kelley Blue Book, predicted that used-car prices would surge by up to 10 percent. “It’s going to drive prices up on some of the most affordable vehicles we have on the road,’’ he told USA Today. In short, Washington spent nearly $3 billion to raise the price of mobility for drivers on a budget.
To be sure, Cash for Clunkers gave a powerful jolt to car sales in July and August of 2009. But it did so mostly by delaying sales that would otherwise have occurred in April, May, and June, or by accelerating those that would have taken place in September, October, or later. “Influencing the timing of consumers’ durable purchases is easy,’’ Edmunds CEO Jeremy Anwyl wrote a few days ago in a blog post looking back at the program. “Creating new purchases is not.’’ Of the 700,000 cars purchased during the clunkers frenzy, the estimated net increase in sales was only 125,000. Each incremental sale thus ended up costing the taxpayers a profligate $24,000.
Thursday, September 9, 2010
Fidel: 'Cuban Model Doesn't Even Work For Us Anymore' - International - The Atlantic
EXCERPTS:
"During the generally lighthearted conversation (we had just spent three hours talking about Iran and the Middle East), I asked him [Fidel Castro] if he believed the Cuban model was still something worth exporting.
"The Cuban model doesn't even work for us anymore," he said.
This struck me as the mother of all Emily Litella moments. Did the leader of the Revolution just say, in essence, "Never mind"?
I asked Julia to interpret this stunning statement for me. She said, "He wasn't rejecting the ideas of the Revolution. I took it to be an acknowledgment that under 'the Cuban model' the state has much too big a role in the economic life of the country."
"During the generally lighthearted conversation (we had just spent three hours talking about Iran and the Middle East), I asked him [Fidel Castro] if he believed the Cuban model was still something worth exporting.
"The Cuban model doesn't even work for us anymore," he said.
This struck me as the mother of all Emily Litella moments. Did the leader of the Revolution just say, in essence, "Never mind"?
I asked Julia to interpret this stunning statement for me. She said, "He wasn't rejecting the ideas of the Revolution. I took it to be an acknowledgment that under 'the Cuban model' the state has much too big a role in the economic life of the country."
Tuesday, September 7, 2010
What Happened During the Depression? - Thomas Sowell
EXCERPTS:
"There are always calls for the government to "do something" when things are going bad. Those who make such calls have almost never bothered to check out what actually happens when the government does something, as compared to what happens when the government does nothing....
There are two conflicting assumptions about what happened during the Great Depression. The most popular assumption, especially among politicians, is that the market failed and the government had to intervene to save the economy.
Another assumption is that the market went down and was on its way back up when federal intervention sent it down again and led to massive unemployment. If you don't let facts get in the way, you can just pick whichever assumption you like-- and the first assumption wins that popularity contest, hands down.
But, if you look at the facts, they go like this: Unemployment never hit double digits in any of the 12 months following the big stock market crash of 1929 that is often blamed for the massive unemployment of the 1930s. Unemployment peaked at 9 percent, two months after the October 1929 crash, and then began drifting downward.
Unemployment was down to 6.3 percent by June 1930, when the first big federal intervention occurred. Within six months, the downward trend in unemployment reversed and hit double digits for the first time in December 1930.
What were politicians to do? Say 'We messed up'? Or keep trying one huge intervention after another? The record shows what they did: President Hoover's interventions were followed by President Roosevelt's bigger interventions-- and unemployment remained in double digits in every month for the entire remainder of the decade.
"There are always calls for the government to "do something" when things are going bad. Those who make such calls have almost never bothered to check out what actually happens when the government does something, as compared to what happens when the government does nothing....
There are two conflicting assumptions about what happened during the Great Depression. The most popular assumption, especially among politicians, is that the market failed and the government had to intervene to save the economy.
Another assumption is that the market went down and was on its way back up when federal intervention sent it down again and led to massive unemployment. If you don't let facts get in the way, you can just pick whichever assumption you like-- and the first assumption wins that popularity contest, hands down.
But, if you look at the facts, they go like this: Unemployment never hit double digits in any of the 12 months following the big stock market crash of 1929 that is often blamed for the massive unemployment of the 1930s. Unemployment peaked at 9 percent, two months after the October 1929 crash, and then began drifting downward.
Unemployment was down to 6.3 percent by June 1930, when the first big federal intervention occurred. Within six months, the downward trend in unemployment reversed and hit double digits for the first time in December 1930.
What were politicians to do? Say 'We messed up'? Or keep trying one huge intervention after another? The record shows what they did: President Hoover's interventions were followed by President Roosevelt's bigger interventions-- and unemployment remained in double digits in every month for the entire remainder of the decade.
Friday, September 3, 2010
Paul Krugman Weighs In on Jobs Report - ABC News
Today's employment report showed that the unemployment rate is up a little, to 9.6 percent, and that payroll employment over the past three months dropped by 285,000. How should the government respond? In this video Paul Krugman, Nobel Prize-winning KEYNESIAN economist, says what the government needs to do is clear: spend more money.
We'll see in chapters 9 and 10 the theoretical basis for this Keynesian view.
We'll see in chapters 9 and 10 the theoretical basis for this Keynesian view.
Saturday, August 28, 2010
FDR and the Lessons of the Depression - WSJ.com
EXCERPTS:
"In 1937, after several years of partial recovery from the Great Depression, the U.S. economy fell into a sharp recession. The episode has become a lightning rod in the ongoing debate about whether the economy needs further increases in government spending to keep employment from declining even more.
Real government spending, measured in 1937 dollars, declined by less than 0.7% of GDP between 1936 and 1937, and then rebounded in 1938. It is implausible that such a small and temporary decline reduced real GDP by nearly 3.5% in 1938 or reduced industrial production by about one-third.
But in 1936, the Roosevelt administration pushed through a tax on corporate profits that were not distributed to shareholders. The sliding scale tax began at 7% if a company retained 1% of its net income, and went to 27% if a company retained 70% of net income. This tax significantly raised the cost of investment, as most investment is financed with a corporation's own retained earnings.
The tax rate on dividends also rose to 15.98% in 1932 from 10.14% in 1929, and then doubled again by 1936. Research conducted last year by Ellen McGratten of the Federal Reserve Bank of Minneapolis suggests that these increases in capital income taxation can account for much of the 26% decline in business fixed investment that occurred in 1937-1938.
Meanwhile, after the 1935 National Labor Relations Act, union membership rose to about 25% in 1938 from about 12% in 1934. The increase in unionization was fostered by the sit-down strike.
In late 1936 and early 1937, for example, members of the United Auto Workers (UAW) occupied a General Motors auto body plant in Flint, Mich. Without auto bodies, production plummeted, and the company was forced to settle the strike and recognize the union.
The GM strike effectively unionized the auto industry, as UAW membership rose more than 15-fold the following year to about 500,000 members. Just the threat of a sit-down strike by steelworkers led to a unionized U.S. Steel in 1937. An unprecedented increase in union power increased manufacturing wages by nearly 10% between 1936 and 1938, which increased costs and reduced employment.
There are important parallels between the tax and labor policies of FDR and those of President Obama. As in the 1930s, tax rates on capital income will be rising sharply with the expiration of the 2001 and 2003 tax cuts. Beginning in 2011, dividends will be taxed as ordinary income with rates increasing up to 39.6% for many taxpayers, more than double the current 15% rate. The capital gains tax rate will rise to 20% from 15%....
"In 1937, after several years of partial recovery from the Great Depression, the U.S. economy fell into a sharp recession. The episode has become a lightning rod in the ongoing debate about whether the economy needs further increases in government spending to keep employment from declining even more.
Real government spending, measured in 1937 dollars, declined by less than 0.7% of GDP between 1936 and 1937, and then rebounded in 1938. It is implausible that such a small and temporary decline reduced real GDP by nearly 3.5% in 1938 or reduced industrial production by about one-third.
But in 1936, the Roosevelt administration pushed through a tax on corporate profits that were not distributed to shareholders. The sliding scale tax began at 7% if a company retained 1% of its net income, and went to 27% if a company retained 70% of net income. This tax significantly raised the cost of investment, as most investment is financed with a corporation's own retained earnings.
The tax rate on dividends also rose to 15.98% in 1932 from 10.14% in 1929, and then doubled again by 1936. Research conducted last year by Ellen McGratten of the Federal Reserve Bank of Minneapolis suggests that these increases in capital income taxation can account for much of the 26% decline in business fixed investment that occurred in 1937-1938.
Meanwhile, after the 1935 National Labor Relations Act, union membership rose to about 25% in 1938 from about 12% in 1934. The increase in unionization was fostered by the sit-down strike.
In late 1936 and early 1937, for example, members of the United Auto Workers (UAW) occupied a General Motors auto body plant in Flint, Mich. Without auto bodies, production plummeted, and the company was forced to settle the strike and recognize the union.
The GM strike effectively unionized the auto industry, as UAW membership rose more than 15-fold the following year to about 500,000 members. Just the threat of a sit-down strike by steelworkers led to a unionized U.S. Steel in 1937. An unprecedented increase in union power increased manufacturing wages by nearly 10% between 1936 and 1938, which increased costs and reduced employment.
There are important parallels between the tax and labor policies of FDR and those of President Obama. As in the 1930s, tax rates on capital income will be rising sharply with the expiration of the 2001 and 2003 tax cuts. Beginning in 2011, dividends will be taxed as ordinary income with rates increasing up to 39.6% for many taxpayers, more than double the current 15% rate. The capital gains tax rate will rise to 20% from 15%....
Spill Damage Claims Absent the Spill - WSJ.com
EXCERPTS:
"Not a drop of oil from the Gulf spill washed ashore at Tradewinds Island Resorts on Florida's St. Pete Beach, yet the company is seeking as much as $1 million in compensation for lost profits from the $20 billion fund set up by BP PLC.
The sprawling resort's proprietors say fear of soiled beaches scared away vacationers.
A fierce debate over the value of bad publicity is now roiling political and legal circles in Florida. Hoteliers and state officials say jitters over the spill have cost them billions of dollars in tourism revenue, even though the bulk of the state's Gulf Coast beaches haven't suffered direct hits from the Gulf oil spill.
"Not a drop of oil from the Gulf spill washed ashore at Tradewinds Island Resorts on Florida's St. Pete Beach, yet the company is seeking as much as $1 million in compensation for lost profits from the $20 billion fund set up by BP PLC.
The sprawling resort's proprietors say fear of soiled beaches scared away vacationers.
A fierce debate over the value of bad publicity is now roiling political and legal circles in Florida. Hoteliers and state officials say jitters over the spill have cost them billions of dollars in tourism revenue, even though the bulk of the state's Gulf Coast beaches haven't suffered direct hits from the Gulf oil spill.
Vietnam Moves Ahead With Price Measures - WSJ.com
EXCERPTS:
"HANOI—Vietnam is enacting measures allowing it to slap price controls on foreign and private companies starting Oct. 1 in a move designed to contain inflation but that risks stifling business sentiment.
An official at Vietnam's Finance Ministry confirmed Thursday that the measures will go into effect Oct. 1. The orders will let the Vietnamese government intervene and impose controls if it believes that prices on a variety of items—ranging from cement and steel to sugar and rice—are moving unusually or out of step with the cost of other component goods.
So far, there is no indication Vietnam will move to control prices in the immediate future. But its frequent bouts with inflation suggest the measures might be imposed on at least some goods at some point.
***
The move is likely to produce a fresh outcry among investors about state intervention. It also comes after a series of problems at state-sector companies have damaged Vietnam's reputation as one of the standout success stories in a new wave of frontier emerging markets.
***
The new power to impose price controls seems designed to limit any social tensions from any further rising prices. But the downside is that Vietnam risks becoming a less attractive place to do business, strangling foreign investment, encouraging locals to invest overseas and worsening its balance of payments.
"HANOI—Vietnam is enacting measures allowing it to slap price controls on foreign and private companies starting Oct. 1 in a move designed to contain inflation but that risks stifling business sentiment.
An official at Vietnam's Finance Ministry confirmed Thursday that the measures will go into effect Oct. 1. The orders will let the Vietnamese government intervene and impose controls if it believes that prices on a variety of items—ranging from cement and steel to sugar and rice—are moving unusually or out of step with the cost of other component goods.
So far, there is no indication Vietnam will move to control prices in the immediate future. But its frequent bouts with inflation suggest the measures might be imposed on at least some goods at some point.
***
The move is likely to produce a fresh outcry among investors about state intervention. It also comes after a series of problems at state-sector companies have damaged Vietnam's reputation as one of the standout success stories in a new wave of frontier emerging markets.
***
The new power to impose price controls seems designed to limit any social tensions from any further rising prices. But the downside is that Vietnam risks becoming a less attractive place to do business, strangling foreign investment, encouraging locals to invest overseas and worsening its balance of payments.
Friday, August 27, 2010
Not everyone agrees with Adam Smith
Donald Berwick, current head of the administrative agency which oversees Medicare and Medicaid, is an example.
Thursday, August 26, 2010
Crafting Coffins for Sale, Monks Go Up Against Louisiana's 'Casket Cartel' - WSJ.com
EXCERPTS:
"COVINGTON, La.—Five years ago, Hurricane Katrina gave the Benedictine monks at St. Joseph Abbey a new calling.
After the storm pummeled much of a pine forest they had long relied on for timber and income, the monks hatched a fresh plan: They would hand-craft and sell caskets.
But now, local funeral directors are trying to put a lid on the monks' activities. The state funeral regulatory board, dominated by industry members, is enforcing a Louisiana law that makes it a crime for anyone but a licensed parlor to sell "funeral merchandise." The morticians are serious. Violators such as the monks can land in jail for up to 180 days.
***
If found guilty of illegal casket sales, each official would face fines of between $500 and $2,500 per violation, the board warned. The hearing, scheduled for mid-August, was cancelled due to a tropical storm.
By then, the monks had already prepared their own federal lawsuit, citing Louisiana's "casket cartel."
The state funeral board has nine members, eight of whom are funeral industry professionals. The board "really has it in for the abbey," complains Jeff Rowes, senior attorney at The Institute for Justice, an Arlington, Va., libertarian public-interest law firm representing the monks. The law, he says, "is an unconstitutional invasion of the right to earn an honest living."
***
Boyd Mothe Jr., a member of the fifth generation of his family to run Mothe Funeral Homes outside New Orleans, says Louisiana's law should remain on the books because licensed directors have the training to sell caskets—transactions he calls "complicated." For instance, he says, "a quarter of America is oversized. I don't even know if the monks know how to make an oversized casket."
"COVINGTON, La.—Five years ago, Hurricane Katrina gave the Benedictine monks at St. Joseph Abbey a new calling.
After the storm pummeled much of a pine forest they had long relied on for timber and income, the monks hatched a fresh plan: They would hand-craft and sell caskets.
But now, local funeral directors are trying to put a lid on the monks' activities. The state funeral regulatory board, dominated by industry members, is enforcing a Louisiana law that makes it a crime for anyone but a licensed parlor to sell "funeral merchandise." The morticians are serious. Violators such as the monks can land in jail for up to 180 days.
***
If found guilty of illegal casket sales, each official would face fines of between $500 and $2,500 per violation, the board warned. The hearing, scheduled for mid-August, was cancelled due to a tropical storm.
By then, the monks had already prepared their own federal lawsuit, citing Louisiana's "casket cartel."
The state funeral board has nine members, eight of whom are funeral industry professionals. The board "really has it in for the abbey," complains Jeff Rowes, senior attorney at The Institute for Justice, an Arlington, Va., libertarian public-interest law firm representing the monks. The law, he says, "is an unconstitutional invasion of the right to earn an honest living."
***
Boyd Mothe Jr., a member of the fifth generation of his family to run Mothe Funeral Homes outside New Orleans, says Louisiana's law should remain on the books because licensed directors have the training to sell caskets—transactions he calls "complicated." For instance, he says, "a quarter of America is oversized. I don't even know if the monks know how to make an oversized casket."
Wednesday, August 25, 2010
Bean-Counters and Baloney - Thomas Sowell
EXCERPTS:
"In countries around the world, all sorts of groups differ from each other in all sorts of ways, from rates of alcoholism to infant mortality, education and virtually everything that can be measured, as well as in some things that cannot be quantified....
The bean-counters are everywhere, pushing the idea that differences show injustices committed by society. As long as we keep buying it, they will keep selling it-- and the polarization they create will sell this country down the river.
"In countries around the world, all sorts of groups differ from each other in all sorts of ways, from rates of alcoholism to infant mortality, education and virtually everything that can be measured, as well as in some things that cannot be quantified....
The bean-counters are everywhere, pushing the idea that differences show injustices committed by society. As long as we keep buying it, they will keep selling it-- and the polarization they create will sell this country down the river.
Monday, August 23, 2010
Credit Cards Are Exception to Lower Consumer Rates - WSJ.com
EXCERPTS:
"Interest rates continue to tumble for the U.S. Treasury, companies and home buyers alike. But for a large portion of 381 million U.S. credit-card accounts, borrowing rates have been moving only one way: up. And average rates are likely to climb further in the near future. New credit-card rules that took effect Sunday limit banks' ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers' ability to adjust rates on the fly. Issuers responded by pushing card rates to their highest level in nine years.
***
The moves are driven by a combination of forces. The Credit Card Accountability Responsibility and Disclosure Act of 2009 has given card issuers less flexibility to raise interest rates as they wish. At the same time, issuers are still dealing with credit-card delinquencies that remain above historical levels.
The rules have changed and the goalposts of risk have changed," says Paul Galant, chief executive of Citigroup Inc.'s Citi Cards unit.
Banks used to boost rates in a hurry on borrowers who fell behind on payments or otherwise turned out to be surprisingly risky. However, under the Card Act, financial institutions must warn customers at least 45 days before making substantial changes to rates or fees. People can avoid future rate increases and pay off existing balances over time.
***
The sponsor of the Card Act, Rep. Carolyn Maloney (D-NY), said that despite the rising rates, the law benefits consumers because it eliminates unwelcome surprises and provides them with a clear picture of the costs they will face. "Better that consumers should know up-front what the interest rate is, even if it's higher, than to be soaked on the back-end by tricks and hidden fees."
At Discover Financial Services, a diminished ability to boost rates is causing the Riverwoods, Ill., company to offer fewer interest-free balance transfers for new customers, says Discover President Roger Hochschild.
"Interest rates continue to tumble for the U.S. Treasury, companies and home buyers alike. But for a large portion of 381 million U.S. credit-card accounts, borrowing rates have been moving only one way: up. And average rates are likely to climb further in the near future. New credit-card rules that took effect Sunday limit banks' ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers' ability to adjust rates on the fly. Issuers responded by pushing card rates to their highest level in nine years.
***
The moves are driven by a combination of forces. The Credit Card Accountability Responsibility and Disclosure Act of 2009 has given card issuers less flexibility to raise interest rates as they wish. At the same time, issuers are still dealing with credit-card delinquencies that remain above historical levels.
The rules have changed and the goalposts of risk have changed," says Paul Galant, chief executive of Citigroup Inc.'s Citi Cards unit.
Banks used to boost rates in a hurry on borrowers who fell behind on payments or otherwise turned out to be surprisingly risky. However, under the Card Act, financial institutions must warn customers at least 45 days before making substantial changes to rates or fees. People can avoid future rate increases and pay off existing balances over time.
***
The sponsor of the Card Act, Rep. Carolyn Maloney (D-NY), said that despite the rising rates, the law benefits consumers because it eliminates unwelcome surprises and provides them with a clear picture of the costs they will face. "Better that consumers should know up-front what the interest rate is, even if it's higher, than to be soaked on the back-end by tricks and hidden fees."
At Discover Financial Services, a diminished ability to boost rates is causing the Riverwoods, Ill., company to offer fewer interest-free balance transfers for new customers, says Discover President Roger Hochschild.
Saturday, August 21, 2010
Gates and Buffett Take the Pledge - WSJ.com
EXCERPTS:
"Bill Gates and Warren Buffett announced this month that 40 of America's richest people have agreed to sign a "Giving Pledge" to donate at least half of their wealth to charity. With a collective net worth said to total $230 billion, that promise translates to at least $115 billion.
It's an impressive number. Yet some—including Messrs. Gates and Buffett—say it isn't enough. Perhaps it's actually too much: the wealthy may help humanity more as businessmen and women than as philanthropists.
What are the chances, after all, that the two forces behind the Giving Pledge will contribute anywhere near as much to the betterment of society through their charity as they have through their business pursuits? In building Microsoft, Bill Gates changed the way the world creates and shares knowledge. Warren Buffett's investments have birthed and grown innumerable profitable enterprises, making capital markets work more efficiently and enriching many in the process.
Other signers of the pledge, like Oracle's Larry Ellison and eBay's Pierre Omidyar, have similarly transformed the way people all over the world exchange information and products. They have democratized the transmission of ideas and goods, creating opportunities for people who never would have had them otherwise.
Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable.
Even if Mr. Gates makes progress in achieving his ambitious philanthropic objectives—eradicating disease, reducing global poverty, and improving educational quality—these accomplishments are unlikely to match what he achieved by giving us the amazing capability we literally have at our fingertips to access and spread information. The very doctors and scientists who may develop cures for diseases like malaria will rely on the tools Microsoft supplies to conduct their research. Had Mr. Gates decided to step down from his company and turn to philanthropy sooner than he did, they might have fewer such tools.
While businesses may do more for the public good than they're given credit for, philanthropies may do less. Think about it for a moment: Can you point to a single charitable accomplishment that has been as transformative as, say, the cell phone or the birth-control pill? To the contrary, the literature on philanthropy is riddled with examples of failure, including examples where philanthropic efforts have actually left intended beneficiaries worse off. The Gates Foundation has itself acknowledged that one of its premier initiatives—a 10-year, $2 billion project to reorganize high schools around the country into schools with fewer than 400 students—was a complete bust. Good for them for admitting it. In that, they are unusual. In the failure, they are not.
I do not mean to belittle philanthropy. I represent a foundation and believe it can accomplish a great deal of good if it achieves its donor's objective, which is to free individuals to pursue their ambitions without the burden of intrusive government. My point is simply that there is nothing inherently better or nobler about using one's resources for charitable purposes than for any number of other ones. If anything, the marketplace does a better job of channeling resources toward where they are most valued, and of punishing failure. Companies shut down all the time. How many philanthropies close because of poor performance?
***
Individuals who plow their parent's money back into the economy—whether by investing it or starting a company—may well feel more rewarded and create more public benefit. Even buying a yacht creates jobs for yacht-builders. Charity may ameliorate problems, but as Carlos Slim, the world's richest man (and a nonsigner of the Giving Pledge), has said: "Poverty is not fought with donations."
Let's hope the philanthropy of those who do sign the Giving Pledge achieves great things. But let's not fool ourselves into thinking that businessmen are likely to achieve more by giving their money away than they have by making it in the first place.
"Bill Gates and Warren Buffett announced this month that 40 of America's richest people have agreed to sign a "Giving Pledge" to donate at least half of their wealth to charity. With a collective net worth said to total $230 billion, that promise translates to at least $115 billion.
It's an impressive number. Yet some—including Messrs. Gates and Buffett—say it isn't enough. Perhaps it's actually too much: the wealthy may help humanity more as businessmen and women than as philanthropists.
What are the chances, after all, that the two forces behind the Giving Pledge will contribute anywhere near as much to the betterment of society through their charity as they have through their business pursuits? In building Microsoft, Bill Gates changed the way the world creates and shares knowledge. Warren Buffett's investments have birthed and grown innumerable profitable enterprises, making capital markets work more efficiently and enriching many in the process.
Other signers of the pledge, like Oracle's Larry Ellison and eBay's Pierre Omidyar, have similarly transformed the way people all over the world exchange information and products. They have democratized the transmission of ideas and goods, creating opportunities for people who never would have had them otherwise.
Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable.
Even if Mr. Gates makes progress in achieving his ambitious philanthropic objectives—eradicating disease, reducing global poverty, and improving educational quality—these accomplishments are unlikely to match what he achieved by giving us the amazing capability we literally have at our fingertips to access and spread information. The very doctors and scientists who may develop cures for diseases like malaria will rely on the tools Microsoft supplies to conduct their research. Had Mr. Gates decided to step down from his company and turn to philanthropy sooner than he did, they might have fewer such tools.
While businesses may do more for the public good than they're given credit for, philanthropies may do less. Think about it for a moment: Can you point to a single charitable accomplishment that has been as transformative as, say, the cell phone or the birth-control pill? To the contrary, the literature on philanthropy is riddled with examples of failure, including examples where philanthropic efforts have actually left intended beneficiaries worse off. The Gates Foundation has itself acknowledged that one of its premier initiatives—a 10-year, $2 billion project to reorganize high schools around the country into schools with fewer than 400 students—was a complete bust. Good for them for admitting it. In that, they are unusual. In the failure, they are not.
I do not mean to belittle philanthropy. I represent a foundation and believe it can accomplish a great deal of good if it achieves its donor's objective, which is to free individuals to pursue their ambitions without the burden of intrusive government. My point is simply that there is nothing inherently better or nobler about using one's resources for charitable purposes than for any number of other ones. If anything, the marketplace does a better job of channeling resources toward where they are most valued, and of punishing failure. Companies shut down all the time. How many philanthropies close because of poor performance?
***
Individuals who plow their parent's money back into the economy—whether by investing it or starting a company—may well feel more rewarded and create more public benefit. Even buying a yacht creates jobs for yacht-builders. Charity may ameliorate problems, but as Carlos Slim, the world's richest man (and a nonsigner of the Giving Pledge), has said: "Poverty is not fought with donations."
Let's hope the philanthropy of those who do sign the Giving Pledge achieves great things. But let's not fool ourselves into thinking that businessmen are likely to achieve more by giving their money away than they have by making it in the first place.
Summer of Greece's Discontent - WSJ.com
EXCERPTS:
"ATHENS—Greece's deepening recession is driving joblessness steadily higher, feeding discontent with the government's austerity program and dragging on the broader economy.
Greece's gross domestic product contracted by 3.5% in the second quarter from a year earlier, hitting retailers hard and sending unemployment rates to above 12% of the work force, according to data released last week.
***
"We expect real unemployment to top one million workers by the year's end, which is a rate of 20%....
"ATHENS—Greece's deepening recession is driving joblessness steadily higher, feeding discontent with the government's austerity program and dragging on the broader economy.
Greece's gross domestic product contracted by 3.5% in the second quarter from a year earlier, hitting retailers hard and sending unemployment rates to above 12% of the work force, according to data released last week.
***
"We expect real unemployment to top one million workers by the year's end, which is a rate of 20%....
Monday, August 16, 2010
Crowds Chase Scarce Housing Vouchers - WSJ.com
EXCERPTS:
"EAST POINT, Ga.—The weak economy has expanded the ranks of people chasing the limited number of federal housing vouchers, leading to a surge in applications nationwide and chaotic scenes here this week.
Sixty people were taken to hospitals Wednesday in this Atlanta suburb after a lengthy wait and an angry mob scene in a sweltering shopping-center parking lot. Those treated for heat exposure and injuries from scuffles were among 30,000 people who had lined up for a waiting list for just 455 vouchers to cover part of their rent.
Some camped out for nearly three days in temperatures that neared 100 degrees, including pregnant women, elderly in wheelchairs and people who drove down from New York City and Philadelphia, hoping to get on the waiting list in East Point for Housing Choice, or Section 8, vouchers.
***
Those who make it onto the lists often have to wait for eight to 10 years to receive a voucher, which is a guarantee that a local housing authority will pay a portion of the tenant's rent directly to the landlord. High unemployment and rising rents have made these vouchers even more of a precious commodity.
The vouchers are meant to give poor families more choices over where to live.....
"EAST POINT, Ga.—The weak economy has expanded the ranks of people chasing the limited number of federal housing vouchers, leading to a surge in applications nationwide and chaotic scenes here this week.
Sixty people were taken to hospitals Wednesday in this Atlanta suburb after a lengthy wait and an angry mob scene in a sweltering shopping-center parking lot. Those treated for heat exposure and injuries from scuffles were among 30,000 people who had lined up for a waiting list for just 455 vouchers to cover part of their rent.
Some camped out for nearly three days in temperatures that neared 100 degrees, including pregnant women, elderly in wheelchairs and people who drove down from New York City and Philadelphia, hoping to get on the waiting list in East Point for Housing Choice, or Section 8, vouchers.
***
Those who make it onto the lists often have to wait for eight to 10 years to receive a voucher, which is a guarantee that a local housing authority will pay a portion of the tenant's rent directly to the landlord. High unemployment and rising rents have made these vouchers even more of a precious commodity.
The vouchers are meant to give poor families more choices over where to live.....
Wednesday, August 11, 2010
Boom Makers Say BP Left Them Adrift - WSJ.com
EXCERPTS:
"Containment-boom makers and their vendors that ramped up supply for BP PLC after the Gulf of Mexico oil spill say the company suddenly stopped accepting deliveries weeks ago, leaving them with millions of dollars in unused product.
Several makers of the vinyl protective sheaths known as boom and their suppliers say they are deeply in debt and have been forced to lay off workers and delay payment to vendors.
During the height of the oil spill this summer, more than four million feet of containment boom was laid on the water's surface to shield the Gulf Coast. But BP began putting boom orders on hold or rejecting them about the second week in July, as efforts to stop the flow of oil gained ground. On Tuesday, BP said concerns about storms in the Gulf would delay by several days work on a relief well expected to help permanently seal the well.
To be sure, some of the suppliers and manufacturers were speculating on demand, ordering boom and increasing production before they had contracts in place. But The Wall Street Journal interviewed 11 manufacturers and suppliers who said they had contracts with BP or were delivering to those who did. Ten of those manufacturers said they now were out money.
***
About a dozen manufacturers make all the boom used by oil companies, emergency-response companies and marinas in the U.S. The supply on hand dissipated quickly after the Deepwater Horizon oil rig, leased by BP, exploded in April, sending millions of barrels of crude oil into the Gulf. BP suddenly needed boom and lots of it.
But recently the Industrial Fabric Association International, which represents companies including boom makers and their suppliers, says it has received dozens of calls from members who say they are suddenly saddled with containers of inventory, canceled orders and no way to pay their mounting bills.
"Containment-boom makers and their vendors that ramped up supply for BP PLC after the Gulf of Mexico oil spill say the company suddenly stopped accepting deliveries weeks ago, leaving them with millions of dollars in unused product.
Several makers of the vinyl protective sheaths known as boom and their suppliers say they are deeply in debt and have been forced to lay off workers and delay payment to vendors.
During the height of the oil spill this summer, more than four million feet of containment boom was laid on the water's surface to shield the Gulf Coast. But BP began putting boom orders on hold or rejecting them about the second week in July, as efforts to stop the flow of oil gained ground. On Tuesday, BP said concerns about storms in the Gulf would delay by several days work on a relief well expected to help permanently seal the well.
To be sure, some of the suppliers and manufacturers were speculating on demand, ordering boom and increasing production before they had contracts in place. But The Wall Street Journal interviewed 11 manufacturers and suppliers who said they had contracts with BP or were delivering to those who did. Ten of those manufacturers said they now were out money.
***
About a dozen manufacturers make all the boom used by oil companies, emergency-response companies and marinas in the U.S. The supply on hand dissipated quickly after the Deepwater Horizon oil rig, leased by BP, exploded in April, sending millions of barrels of crude oil into the Gulf. BP suddenly needed boom and lots of it.
But recently the Industrial Fabric Association International, which represents companies including boom makers and their suppliers, says it has received dozens of calls from members who say they are suddenly saddled with containers of inventory, canceled orders and no way to pay their mounting bills.
Yields Dive as Fed Sets More Buying - WSJ.com
EXCERPTS:
"The Treasury market welcomed the Federal Reserve's plan to shower it with more cash, instantly driving 10-year yields to new 16-month lows. But the response was muted as investors realized that, with rates already so low, the Fed's plan to buy U.S. government debt may have relatively little impact. The key determinant of interest rates for now is likely to be the health, or lack thereof, of the U.S. economy.
The 10-year Treasury note's price jumped nearly a full point in the moments after the Federal Reserve announced its plan to reinvest money that rolls out of its mortgage portfolio into longer-dated Treasury debt. The yield, which moves in the opposite direction of price, fell to 2.779%, the lowest since April 2009, from 2.818% just before the Fed's announcement.
That is good news for many in the economy—the 10-year Treasury yield is a benchmark that affects other rates, including mortgage rates, which also are at historic lows—but investors are beginning to wonder just how much more juice the Fed has to drive rates any lower.
The 10-year yield already has tumbled from about 4% in April as investors flocked to U.S. government debt amid worries about Europe and the durability of the U.S. economic recovery.
"The Treasury market welcomed the Federal Reserve's plan to shower it with more cash, instantly driving 10-year yields to new 16-month lows. But the response was muted as investors realized that, with rates already so low, the Fed's plan to buy U.S. government debt may have relatively little impact. The key determinant of interest rates for now is likely to be the health, or lack thereof, of the U.S. economy.
The 10-year Treasury note's price jumped nearly a full point in the moments after the Federal Reserve announced its plan to reinvest money that rolls out of its mortgage portfolio into longer-dated Treasury debt. The yield, which moves in the opposite direction of price, fell to 2.779%, the lowest since April 2009, from 2.818% just before the Fed's announcement.
That is good news for many in the economy—the 10-year Treasury yield is a benchmark that affects other rates, including mortgage rates, which also are at historic lows—but investors are beginning to wonder just how much more juice the Fed has to drive rates any lower.
The 10-year yield already has tumbled from about 4% in April as investors flocked to U.S. government debt amid worries about Europe and the durability of the U.S. economic recovery.
Fed Sees Recovery Slowing - WSJ.com
EXCERPTS:
"The Federal Reserve, facing an economic recovery that it termed "more modest" than anticipated, said Tuesday it will stop shrinking its huge portfolio of securities by reinvesting the proceeds of maturing mortgages in U.S. Treasury debt.
The Fed move is largely symbolic and is unlikely to stimulate the economy significantly. But the shift in the management of its portfolio—and an accompanying statement—underscored Fed officials' concern about the vigor of the economic recovery. It also opens the door for bigger purchases of Treasurys or other securities should the economy falter or the risk of deflation grow, though the hurdle for such action remains high.
Downgrading its assessment of the economy, the policy-making Federal Open Market Committee said the recovery "has slowed in recent months," and that the "pace of economic recovery is likely to be more modest in the near term than had been anticipated." The committee repeated its commitment to keep its target for the federal funds rate, at which banks lend to each other overnight, at "exceptionally low levels" for an "extended period."
The Fed noted that high unemployment, modest income growth, lower housing wealth and tight credit were holding back household spending. Meanwhile, lending by banks "has continued to contract," the Fed said, while construction remains weak and employers remain reluctant to increase payrolls.
After cutting short-term interest rates nearly to zero in December 2008, the Fed essentially printed money to expand its portfolio of securities and loans to above $2 trillion, from $800 billion before the global financial crisis. Its purchases of mortgage-backed securities and U.S. Treasury debt, aimed at keeping long-term interest rates down, were discontinued in March. The Fed began talking about an "exit strategy" from the unprecedented steps it took to prevent an even deeper recession.
But on Tuesday, the Fed shifted its stance. It said it would act to keep its securities holdings constant at around $2.054 trillion, the level on Aug. 4. Had the Fed not acted, its mortgage portfolio was set to shrink by $10 billion to $20 billion a month, as mortgages matured or were paid off early. Now, the Fed will reinvest those proceeds in U.S. Treasury securities of between two- and 10-year maturities.
***
The Fed statement noted that "measures of underlying inflation," already low, "have trended lower" lately and are "likely to be subdued for some time." Some Fed officials, as well as private economists, have been warning that the risk of deflation—broadly falling prices and wages across the economy—is rising. A Wall Street Journal survey of economists, mostly from Wall Street, found this week that, by a two-to-one margin, they see deflation as a greater risk over the next three years than inflation.
With interest rates as low as they can go, the Fed has few attractive options to resist deflation. The main one is to print money—electronically—to resume large-scale purchases of securities.
"The Federal Reserve, facing an economic recovery that it termed "more modest" than anticipated, said Tuesday it will stop shrinking its huge portfolio of securities by reinvesting the proceeds of maturing mortgages in U.S. Treasury debt.
The Fed move is largely symbolic and is unlikely to stimulate the economy significantly. But the shift in the management of its portfolio—and an accompanying statement—underscored Fed officials' concern about the vigor of the economic recovery. It also opens the door for bigger purchases of Treasurys or other securities should the economy falter or the risk of deflation grow, though the hurdle for such action remains high.
Downgrading its assessment of the economy, the policy-making Federal Open Market Committee said the recovery "has slowed in recent months," and that the "pace of economic recovery is likely to be more modest in the near term than had been anticipated." The committee repeated its commitment to keep its target for the federal funds rate, at which banks lend to each other overnight, at "exceptionally low levels" for an "extended period."
The Fed noted that high unemployment, modest income growth, lower housing wealth and tight credit were holding back household spending. Meanwhile, lending by banks "has continued to contract," the Fed said, while construction remains weak and employers remain reluctant to increase payrolls.
After cutting short-term interest rates nearly to zero in December 2008, the Fed essentially printed money to expand its portfolio of securities and loans to above $2 trillion, from $800 billion before the global financial crisis. Its purchases of mortgage-backed securities and U.S. Treasury debt, aimed at keeping long-term interest rates down, were discontinued in March. The Fed began talking about an "exit strategy" from the unprecedented steps it took to prevent an even deeper recession.
But on Tuesday, the Fed shifted its stance. It said it would act to keep its securities holdings constant at around $2.054 trillion, the level on Aug. 4. Had the Fed not acted, its mortgage portfolio was set to shrink by $10 billion to $20 billion a month, as mortgages matured or were paid off early. Now, the Fed will reinvest those proceeds in U.S. Treasury securities of between two- and 10-year maturities.
***
The Fed statement noted that "measures of underlying inflation," already low, "have trended lower" lately and are "likely to be subdued for some time." Some Fed officials, as well as private economists, have been warning that the risk of deflation—broadly falling prices and wages across the economy—is rising. A Wall Street Journal survey of economists, mostly from Wall Street, found this week that, by a two-to-one margin, they see deflation as a greater risk over the next three years than inflation.
With interest rates as low as they can go, the Fed has few attractive options to resist deflation. The main one is to print money—electronically—to resume large-scale purchases of securities.
U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff - Bloomberg
EXCERPTS:
"Uncle Sam’s Ponzi scheme will stop. But it will stop too late. And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.
"Uncle Sam’s Ponzi scheme will stop. But it will stop too late. And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.
Tuesday, August 3, 2010
Rent Control and Its Damage Isn't Limited To New York City - WSJ.com
EXCERPTS:
"A 2001 San Francisco study showed that 49% of that city's rent-controlled apartments had only a single occupant. Three quarters of the controlled housing was more than half a century old, and 44% was greater than 70 years old. The resulting severe housing shortage forced thousands of people to make long commutes to their jobs in San Francisco. More than one-fourth of rent-controlled households had incomes greater than $100,000 per year. This 1979-2001 assessment gauged the actual (rather than the intended) economic impact on occupancy, housing supply and the beneficiaries of the politically popular rent-control program.
"A 2001 San Francisco study showed that 49% of that city's rent-controlled apartments had only a single occupant. Three quarters of the controlled housing was more than half a century old, and 44% was greater than 70 years old. The resulting severe housing shortage forced thousands of people to make long commutes to their jobs in San Francisco. More than one-fourth of rent-controlled households had incomes greater than $100,000 per year. This 1979-2001 assessment gauged the actual (rather than the intended) economic impact on occupancy, housing supply and the beneficiaries of the politically popular rent-control program.
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