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Economics & the Economy Archive

Wednesday

14

April 2010

0

COMMENTS

Regulatory Contradiction

Written by , Posted in Economics & the Economy, Government Meddling, The Nanny State & A Regulated Society

Obama steps up campaign for financial overhaul, putting pressure on GOP:

Just before a meeting with Democrats and Republicans to discuss the legislation, President Barack Obama said it needs to be passed in order to prevent another financial “meltdown.”

He warned that not passing the bill could put the economy in peril.

“All of us recognize that we cannot have a circumstance in which a meltdown in the financial sector once again puts the entire economy in peril,” Obama said. “And that if there’s one lesson that we’ve learned it’s that an unfettered market where people are taking huge risks and expecting taxpayers to bail them out when things to sour is simply not acceptable.’’

First of all, Obama contradicted himself.  A “market where people are taking huge risks and expecting taxpayers to bail them out when things turn sour” is not unfettered.  Nevermind that the one we have is obviously not unfettered, but even his simplistic description of it makes that a logical impossibility.  Implied and explicit guarantees by government are a market distortion.  Government interference already exists under such circumstances.

If we remove the President’s gratuitous use of “unfettered” here, then he’s actually saying something semi-intelligent.  We clearly do not want a system where government is encouraging people to take greater risk than they otherwise would by guaranteeing their loses with taxpayer dollars.  But that’s exactly what government did, and is one of the primary causes of the financial crisis.  The correct response to this situation is not to say that “we need to stop people from taking risks!”  The correct response is to end all government bailouts and make clear that there is no such guarantee.

Tuesday

13

April 2010

0

COMMENTS

White House To Open New Front In Assault On The Economy

Written by , Posted in Economics & the Economy, Energy and the Environment, Free Markets

Not satisfied with the destruction that Obamacare has wrought, or will when it finally goes into effect, the White House is shifting focus and looking for another industry to destroy.

With the bruising health care debate over, President Obama’s top economic adviser left little doubt last week that energy and climate has taken its place atop the administration’s agenda.

During a 30-minute speech (pdf) at a Washington energy conference, Larry Summers, the head of the White House’s National Economic Council, used lofty rhetoric to warn of the long-term consequences if Congress fails to follow through this year on a sweeping overhaul of how the nation generates and uses energy.

“Read the history of great nations,” Summers said. “Read how they succeed and read how they fail. Their ability to mobilize to solve problems before they are absolutely imminent crises is what determines their longevity. That’s why this task of economic renewal is so important broadly. And that’s why I believe it is so important that we move for economic reasons to pass comprehensive energy legislation.”

The ability to mobilize to solve problems is indeed important. What Mr. Summers neglects is any consideration for how societies mobilize. What methods are best? He blows right by that question and just assumes that mobilization requires government direction.

The opposite is true. Free markets are much more capable of marshaling resources to deal with problems than governments. It requires a lot of information in order to centrally plan the use of capital and other resources. No one person or group of people are capable of taking into consideration all the data which is carried routinely and without significant notice through the free market price system. Yet history is full of failed attempts to do so.

Economic renewal of the kind which Larry Summers desires does not depend upon “comprehensive” legislation of any sort. It needs only for government to get out of the way.

Monday

12

April 2010

0

COMMENTS

Tuesday

30

March 2010

0

COMMENTS

Wednesday

10

March 2010

0

COMMENTS

Blame The Speculators!

Written by , Posted in Economics & the Economy

Speculators are a frequent target of big government, because speculators help bring about the consequences of bad government policy.  Greece, aided by the ever economically brilliant Barack Obama, is taking just this approach:

President Barack Obama has “responded positively” to calls to clamp down on market speculators, the Greek PM said after talks in Washington.

…Greece has blamed market speculators for worsening its current economic troubles.

European politicians have already expressed their concern over the issue.

“We ourselves were in the last few months the victims of speculators,” Mr Papandreou said, after meeting Mr Obama.

They are victims!  And how, exactly, have they been victimized?

They say speculators, such as hedge funds, are unfairly betting that Greece will default on its loans.

Such moves are making it more expensive for Greece to borrow funds.

The speculators are typically betting against Greece defaulting on its government bond payments – or having its credit rating lowered – by buying large quantities of a complex financial insurance instrument called a Credit Default Swap (CDS).

It unfortunately does not occur to them that speculators are “betting against Greeze defaulting on its government bond payments” because the policies of the Greek government have made it more likely that they will default on their bond payments.

This is what is supposed to happen.  Good policies get rewarded; bad policies get punished.

Speculators gain nothing by being wrong.  So often it is insinuated that they deliberately drive this or that down, that it’s bad to “bet against” some thing, and that the only reason it happens is because speculators are greedy.  Unless it’s oil, then they greedily bet it up.

There’s the rub.  It makes no difference to speculators which way anything moves, only that they guess right.  And because they have strong financial incentive to do so, they usually do.  This means their bets are a useful signal to the market.

Imagine if more evil, greedy speculators had bet against the U.S. financial markets in the mid 2000’s like Warren Buffet did.  Maybe there would have been a strong enough signal to correct the course before it was too late.

Obama’s siding with Greece against speculators is not surprising.  Not only does he harbor a fundamental antipathy to all things free market, but he understands that when the U.S. faces higher interest rates for borrowing in response to his irresponsible policies, he’ll be in a similar position of needing a scape goat.

Saturday

6

March 2010

1

COMMENTS

Federal Worker Pay Outpaces Private Sector

Written by , Posted in Economics & the Economy, Waste & Government Reform

The productive sector of the economy is having to shoulder quite the burden when it comes to paying the salaries for their “public sector” cohorts, who USA Today finds are excessively compensated:

Federal employees earn higher average salaries than private-sector workers in more than eight out of 10 occupations, a USA TODAY analysis of federal data finds.

…Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.

…These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.

Federal workers earn considerably more pay for performing the same job as those in the private sector.  Unless they are equally more productive, the difference is pure waste.  Keep in mind that it’s the private sector workers who pay the salary of their public sector counterparts.

Similar studies at the state and local level, such as this one by Chris Edwards of the Cato Institute, have found the same results.

The job on USA Today’s list with the biggest pay gap is that of public relations manager, where government employees earn over $44k more than equivalent private sector workers.  In this case it might actually be deserved, as making big government look good is an impossible task.

Wednesday

24

February 2010

1

COMMENTS

Merchants Take A Swipe At Freedom

Written by , Posted in Economics & the Economy, Free Markets

Stories like this always get me mad:

…It’s called a swipe fee or interchange fee, and businesses are forced to add it to the purchase price. “This all adds up. … This is a lot of money that we are having to pay,” Lipert said.

…Some merchants’ groups and businesses have found allies on Capitol Hill to fight the fees. The National Association of Convenience Stores and 7-Eleven each sponsored a petition drive among customers, urging Congress to take action to give them some relief.

“The merchants are getting ripped off, it’s that simple. There’s monopoly power with Visa, MasterCard. They have over 70 percent of the transactions,” said Rep. Peter Welch, D-Vermont, who is pushing for congressional action on the issue.

Bull.  Businesses are not ‘forced’ to do anything.  They choose to accept the cards because the benefits (attracting customers) outweigh the costs.  Period.

I often consider prices at these shoddy ‘mom and pop’ stores to be excessively high, but you don’t see me running to Congress to grab the gun of law to hold to their head and force price controls on them.  I can choose to shop at other stores, and they can choose not to accept credit cards.  That’s called freedom.

Monday

22

February 2010

0

COMMENTS

Memo To Obama: Economists Do Not Agree

Written by , Posted in Economics & the Economy, Taxes

President Obama likes to assert that economists across the political spectrum agree that big government spending is necessary to fight off recession.  “Economists on the left and right,” he insisted early in 2009, “agree that the last thing the government should do during a recession is cut back on spending.”  Essentially, he’s saying that all economists are Keynesians.  This is simply false, as Harvard Professor Jeffrey Miron tells us today at the Daily Caller.

..That brings us to the second argument for higher spending: the Keynesian claim that spending stimulates the economy. If this is accurate, it might seem the U.S. should continue its high-spending ways until the recession is over.

But the Keynesian argument for spending is also problematic. To begin with, the Keynesian view implies that any spending—whether for vital infrastructure or bridges to nowhere—is equally good at stimulating the economy. This might be true in the short term (emphasis on might), but it cannot be true over the long haul, and many “temporary” programs last for decades. So stimulus spending should be for good projects, not “digging ditches,” yet the number of good projects is small given how much is already being spent.

More broadly, the Keynesian model of the economy relies on strong assumptions, so we should not embrace it without empirical confirmation. In fact, economists find weak or contradictory evidence that higher government spending spurs the economy.

Substantial research, however, does find that tax cuts stimulate the economy and that fiscal adjustments—attempts to reduce deficits by raising taxes or lowering expenditure—work better when they focus on tax cuts. This does not fit the Keynesian view, but it makes perfect sense given that high taxes and ill-justified spending make the economy less productive…

Recently, Obama again cited the entire spectrum of economists as supporters of his agenda: “Now, if you hear some of the critics, they’ll say, well, the Recovery Act, I don’t know if that’s really worked, because we still have high unemployment. But what they fail to understand is that every economist, from the left and the right, has said, because of the Recovery Act, what we’ve started to see is at least a couple of  million jobs that have either been created or would have been lost.”

Economist Robert Barro explains in the Wall Street Journal what a load that is.

Monday

15

February 2010

0

COMMENTS

Confused In Vancouver

Written by , Posted in Economics & the Economy

Moonbattery points out that the usual suspects are taking advantage of the attention generated by the Winter Olympics to do their typical song and dance.

Calling themselves the “Anti Poverty Committee,” moonbats dressed in black “assaulted police officers, spray-painted cars and buses, smashed windows, and terrorized passers-by.”

They seem quite confused.  How is it they think that destroying wealth will help fight poverty?

Friday

12

February 2010

0

COMMENTS

Some Things Should Be Stigmatized

Written by , Posted in Economics & the Economy, The Nanny State & A Regulated Society

The New York Times reports on the loss of stigma associated with food stamp programs. The paper sees this as a positive development. Certainly the political left sees it that way. But social stigmas serve an important function by discouraging particular behaviors. In this case, they help discourage people from being a drain on others.

Social safety nets always involve balancing compassionate relief with the risk of encouraging people not to work or earn for themselves. The stigma from receiving food stamps served to discourage (some) people from being free loaders any longer than they absolutely needed to.

America has long stigmatized free loading because we value the work ethic. If that social dynamic is changing, and the loss of any stigma associated with food stamps may suggest that it is, then it does not bode well for America’s economic future.

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About Me

profileI serve as Vice President of the Center for Freedom and Prosperity, a non-profit think tank dedicated to preserving tax competition and free markets. This site features my personal views, which are not reflective of CF&P.

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