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Economics & the Economy Archive

Thursday

7

July 2011

0

COMMENTS

We're All Gonna Die! Pt. 36

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

We’re all gonna die…unless we pay a 3% mini-tithe at the alter of “climate change”:

Governments must invest three per cent of world GDP – about £1.2 trillion in 2010 – annually for 40 years to stop climate change and famine, according to the UN’s department of economic and social affairs.

Just to put this in perspective, the world spent 2.6% of GDP on military expenditures in 2009.

Oh, and since this is a WAGD post, obviously we’re all gonna die:

Rob Vos, the lead author of the report, said that “business as usual is not an option” if the world were to “reverse the ongoing ecological destruction”.

His report said that to feed a rapidly growing number of mouths, farmers around the world will have to essentially double total international food production between now and 2050.

…”It is rapidly expanding energy use, mainly driven by fossil fuels, that explains why humanity is on the verge of breaching planetary sustainability boundaries,” the report said.

“A comprehensive global energy transition is urgently needed in order to avert a major planetary catastrophe.”

This kind of nonsense is not new. What the doommongers always seem to ignore is that innovation and productivity gains make their models irrelevant. The techniques we will be using to produce food in 2050 are likely unimaginable to anyone alive today.

Tuesday

5

July 2011

0

COMMENTS

Where are the Jobs and Wages?

Written by , Posted in Economics & the Economy

You probably don’t need to be told that the economic recovery is proceeding at a glacial pace, as you feel and see it around you. But here’s one more explanation (Hat-tip: Marginal Revolution) for why many simply aren’t feeling good about the state of the economy despite Obama’s rhetoric of recovery:

Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.

…The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.

According to the study, between the second quarter of 2009, when the recovery began, and the fourth quarter of 2010, national income rose by $528 billion, with $464 billion of that growth going to pretax corporate profits, while just $7 billion went to aggregate wages and salaries, after accounting for inflation.

The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.

There are two responses I expect to be common to this news:

  1. Ask why businesses are not using revenue to grow their businesses through new hires. Consider whether there are particular policies that are contributing to this hesitation to expand, and explore remedies.
  2. Attack corporate profits as if they are inherently bad or otherwise take away from labor, and call for higher taxes on businesses.

Judging by the commenters at the New York Times, the left is likely to choose option 2. This is certainly obvious fuel for their labor vs. capital demogaguery, which presumes that one side can only succeed at the expense of the other. Nevermind that many (most?) workers are also investors, I think this understanding of the relationship is fundamentally flawed. Capital is the fuel of the economy and makes workers productive. Higher productivity, in turn, leads to higher paid workers.

So what’s wrong with this recovery that makes it exceptional? I can only speculate, but two possible explanations occur to me.

  1. A High level of uncertainty about both the regulatory regime (Dodd-Frank as an example) and the future of the economy and  is leaving businesses hesitant to expand. Given the already high number of unemployed, this leaves little to no competition for labor, thus leaving no mechanism for wage growth.
  2. Labor is expected to get more expensive in the near future thanks to Obamacare, and exactly how much so is unclear. Business may be waiting for implementation to see just how much they can afford to expand, if at all.

Or maybe it’s something else entirely. But whatever the explanation, attacking profits and reducing capital through increased corporate or capital gains taxes would serve only to make a bad situation worse.

Thursday

30

June 2011

1

COMMENTS

Leave it to Government to Find a Way to Make Money that No One Wants

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

This is the kind of story where the jokes write themselves (from NPR via Greg Mankiw):

The money — bags and bags of dollar coins — is the result of a 2005 law that requires the U.S. Mint to print a series of coins bearing the likeness of each U.S. president.

The problem is, people don’t really like dollar coins. And there aren’t enough people who are fired up about, say, Rutherford B. Hayes, to make much of a difference.

So more than 1 billion dollar coins are now sitting, unwanted, in Federal Reserve vaults around the country. By the time the program wraps up in 2016, the Fed will be sitting on 2 billion unwanted coins, according to the Fed’s own estimates.

The total cost to manufacture those unwanted coins: $600 million.

$600 millions dollars worth of resources extracted from the economy to produce 2 billion coins that no one wants. Let’s just call this the anti-stimulus.

Saturday

25

June 2011

0

COMMENTS

We Don’t Need an Investor-in-Chief

Written by , Posted in Economics & the Economy, Taxes

How was anything ever invented before government started “investing” in new technologies? One wonders these things, given the seriousness with which Keynesians seem to believe that if they don’t choose the economic winners and then throw large sums of money at them – other people’s money, of course – then there will be no innovation or growth. The latest example of this faulty attitude involves a plan by the President to spend $500 million “investing” in manufacturing, or something:

President Obama on Friday will announce the launch of the Advanced Manufacturing Partnership (AMP), an initiative that would provide more than $500 million to encourage investments in promising technologies.

It is the administration’s second initiative in less than a month intended to boost U.S. manufacturing.

…“Today, I’m calling for all of us to come together — private-sector industry, universities and the government — to spark a renaissance in American manufacturing and help our manufacturers develop the cutting-edge tools they need to compete with anyone in the world,” Obama will say, according to prepared remarks.

What do Obama and his bureaucrats know about manufacturing or what “cutting-edge tools they need to compete with anyone in the world”? He doesn’t seem to know, for instance, that we’re already in a manufacturing “renaissance”, in so far as manufacturing output continues to grow to new heights, breaking its own record, year after year.

Perhaps an even better question is: what makes Obama qualified to spend other people’s money better than they would themselves? Government “investments” are necessarily made according to political criteria, as the first priority of a politician is to get reelected, not turn a profit. And in order for these vote-seeking politicians to spend money on their schemes, it must first be removed from the productive sector of the economy, where individuals with actual skin in the game are much better suited to find investment opportunities that will pay off.

If President Obama really wants to promote investment, he should remove the existing disincentives to savings and investment, such as the capital gains, dividends and death taxes, among other destructive taxes on capital formation. Simply put, we don’t need an Investor-in-Chief to direct investment capital to promising sectors and businesses, we simply need government to get out of the way and to stop making it so difficult for private investors to do so in the first place.

Thursday

16

June 2011

0

COMMENTS

Obama’s Fatal Conceit

Written by , Posted in Big Government, Economics & the Economy

I, like many others, made light of the President’s recent shocking display of economic ignorance.  In an interview on NBC’s TODAY, the President claimed that productivity, the source of our prosperity, is really a “structural issue” holding back the job creating benefits of his policies. Hogwash, obviously. But what came later in the interview was perhaps even more disturbing (the transcript at the link wasn’t completely accurate so I cleaned it up):

[T]here are some structural issues with our economy, where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM; You don’t go to a bank teller. Or you go to the airport and you’re using a kiosk instead of checking in at the gate. So all these things have created changes in the economy and what we have to do now, and that’s what this job counsel is all about, is identifying where the jobs of the future are going to be, how do we make sure that there’s a match between what people are getting trained for and the jobs that exist, how do we make sure that capital is flowing into those places with the greatest opportunity.

Obama’s fundamental problem – his fatal conceit, if you will – is that he thinks we need him and his jobs counsel to figure out what the jobs of the future are going to be. We no more need this today than it was necessary for past leaders to identify the jobs of today. This is a task for the private sector, and one which only its vast network of dispersed information and decentralized decision-making is capable of determining.

What does Barack Obama know about the technologies of today, much less the future? Why does he imagine he can direct capital and resources to the right place better than investors? When has history ever shown politicians capable of doing so?

As F.A. Hayek wrote in The Fatal Conceit: The Errors of Socialism, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Barack Obama is clearly too enamored with his own intelligence to recognize how little he knows – or that any one individual or group of individuals could possibly know – about where the next economic breakthroughs will emerge, or where future resources will need to be deployed. Who even 20 years ago possibly could have imagined the range of technological innovation from which we benefit today, and the subsequent new jobs and roles it has created in the economy? There is no such person, which proves the impossibility of Obama’s desired model of central planning.

Tuesday

14

June 2011

10

COMMENTS

Ignorance on Display: Obama Blames Increases in Productivity for Bad Economy

Written by , Posted in Economics & the Economy

Why can’t people find work? It’s the ATMs, stupid!

President Obama explained to NBC News that the reason companies aren’t hiring is not because of his policies, it’s because the economy is so automated. … “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

This is really a special kind of ignorance. It is also the product of so much focus on jobs simply as an end. If the objective s just for everyone to have jobs, you think stupid things like that if you eliminate automation more people will have work. As the apparent leader of the new regressive movement, Obama has caught on to the fact that technology allows us to do more for less work. Clearly, eliminating the technological gains of the last decade, half-century, century, or more, would mean more people working for less output. A jobs utopia!

I’m sure my learned readers see the fault in this reasoning. If it takes more labor to produce less output, then everyone has less, because there is less to go around. Once upon a time, it took a lot more labor to produce the food needed to feed the populace. In the late 18th century, more than 90% of US workers were employed in agriculture. But thanks to technological innovation, the number of workers required to produce the amount of food the population needed soon plummeted. By Obama’s reasoning, that should have been a disaster for the economy! In reality it was quite the opposite. With all that labor freed up for other purposes – and the necessary food still being produced – the economy soared, ushering in the industrial revolution.

There is no end to the productive purpose for which labor can be employed. Making current endeavors more efficient does not, as Obama claims, reduce unemployment – it merely shifts labor to new sectors, where new waysare found to make our lives better. And that, ultimately, is what work is all about.

So no, improved efficiency is not a “structural issue” in the economy; it’s a structural benefit. Structural issues are the things created by big government proponents – such as Barack Obama and his predecessors – that punish productive people for being productive (capital gains taxes, excessive regulations, highly progressive tax rates, etc. etc) and reward unproductive people (often those with particularly strong political connections).

Not that we needed any further evidence against the futility of central planning, but is there any case at all remaining when the would-be planners are this ignorant?

Saturday

11

June 2011

0

COMMENTS

The World is as Empty as Tom Friedman’s Head

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

Pop pseudo-intellectual and China fetishist Tom Friedman apparently went somewhere and had a thought, as he is wont to do. This time, in a column titled, “The Earth is Full,” he has determined that there’s too many plebes and they’re fouling up his precious Gaia (Hat-tip: NewsBusters).

You really do have to wonder whether a few years from now we’ll look back at the first decade of the 21st century — when food prices spiked, energy prices soared, world population surged, tornados plowed through cities, floods and droughts set records, populations were displaced and governments were threatened by the confluence of it all — and ask ourselves: What were we thinking? How did we not panic when the evidence was so obvious that we’d crossed some growth/climate/natural resource/population redlines all at once?

…We’re currently caught in two loops: One is that more population growth and more global warming together are pushing up food prices; rising food prices cause political instability in the Middle East, which leads to higher oil prices, which leads to higher food prices, which leads to more instability. At the same time, improved productivity means fewer people are needed in every factory to produce more stuff. So if we want to have more jobs, we need more factories. More factories making more stuff make more global warming, and that is where the two loops meet.

As if Tom Friedman wasn’t insufferable enough already, now he’s dabbling in the Malthusian claptrap, too? No Tom, the Earth is not full, and the world’s population is not a problem. In most developed countries, birth rates are below replacement level, and elsewhere in the world they are declining as well. Estimates suggest the world population will peak around 2050 at 9 billion or so, then begin to decline. Meanwhile, the entire population of the world today could fit in the state of Texas and it would about as dense as New York City today.

As for resources, there’s considerable capacity currently not being used (see American government paying people not to farm), or being used stupidly (see ethanol). Moreover, technological development will continue to allow us to provide more for less, as it has done throughout history. Simply put, this is Paul Erlich level nonsense.

The economics is also head-smackingly stupid. We do not build factories to create jobs, we build factories to meet demand. Moreover, as productivity has increased (he managed to get one thing right), workers have moved into the service sector and work in other industries, such as health care. On the other hand, technological development, while increasing productivity, also reduced pollution.  There’s a reason why the developing nations have much worse environments than developed nations, and that reason is prosperity. Wealth is cleaner than poverty.

“And why do you people want so much crap, anyway?” wonders the man with the multi-million dollar mansion. Hey Tom, Al Gore’s calling, and he wants his hypocrisy back.

Sunday

5

June 2011

0

COMMENTS

Stuck on Stimulating Stupid

Written by , Posted in Big Government, Economics & the Economy

For modern day Keynesians, there’s really only one possible solution to fit every set of economic facts – spend more of other people’s money on politically favored projects. It hasn’t worked too well so far.

Image courtesy of Dan Mitchell

Despite the obvious failures of government spending to boost the economy, Keynesian politicians are banging the drums for yet more of the same:

House Democrats this week have amplified their calls for new spending on infrastructure and other federal projects in the face of May’s discouraging job-creation figures.

…”The American people, while concerned about the deficit, place much more emphasis on job creation, and they see a role for the government,” Rep. Raul Grijalva (D-Ariz.) told The Hill. “A fast injection of job stimulus on the public side would help tremendously. … It [the job report] helps our argument about investment.”

I’m an optimist at heart, but sometimes even I wonder if fighting this kind of stupidity is a pointless battle. It really doesn’t matter what the reality is or what the facts show, these people will always call for more government as the solution. “We have a massive spending problem? Who cares, just spend more!”

Cue Joe Biden explaining that we have to spend money to stop from going bankrupt.

Friday

3

June 2011

0

COMMENTS

Obama Administration Has Easy Solution to Avoid Individual Mandate

Written by , Posted in Economics & the Economy, Health Care, Welfare & Entitlements, The Courts, Criminal Justice & Tort

Don’t want to be forced to purchase government-approved health insurance? Worry not, the Obama administration has an easy opt-out (Hat-tip: Committee for Justice):

During the Sixth Circuit arguments, Judge Jeffrey Sutton, who was nominated by President George W. Bush, asked Kaytal if he could name one Supreme Court case which considered the same question as the one posed by the mandate, in which Congress used the Commerce Clause of the U.S. Constitution as a tool to compel action.

Kaytal conceded that the Supreme Court had “never been confronted directly” with the question, but cited the Heart of Atlanta Motel case as a relevant example. In that landmark 1964 civil rights case, the Court ruled that Congress could use its Commerce Clause power to bar discrimination by private businesses such as hotels and restaurants.

“They’re in the business,” Sutton pushed back. “They’re told if you’re going to be in the business, this is what you have to do. In response to that law, they could have said, ‘We now exit the business.’ Individuals don’t have that option.”

Kaytal responded by noting that the there’s a provision in the health care law that allows people to avoid the mandate.

“If we’re going to play that game, I think that game can be played here as well, because after all, the minimum coverage provision only kicks in after people have earned a minimum amount of income,” Kaytal said. “So it’s a penalty on earning a certain amount of income and self insuring. It’s not just on self insuring on its own. So I guess one could say, just as the restaurant owner could depart the market in Heart of Atlanta Motel, someone doesn’t need to earn that much income. I think both are kind of fanciful and I think get at…”

First of all, I think the court got Heart wrong. Private businesses and individuals (unlike government) do have the right to discriminate for whatever reason they please, disgusting as some of those reasons may be – and we recognize a similar right to disgusting political speech. I also disagree with the typical leftist refrain which holds that, without such judicial findings, discrimination would still run rampant. I don’t think the courts were the real catalysts at all, but rather reflected already changing social mores. Courts rarely, if ever, jump out in front of political attitudes. This is not to say that they serve no purpose, but they tend to reflect popular opinion, or emerging popular opinion, more than they create it.

But let’s get back on topic.

This is a rather remarkable admission that the administration will no doubt be forced to start walking back. Obamacare is “a penalty on earning a certain amount of income and self insuring.” Maybe I’m just crazy, but aren’t these things we ought to be rewarding? Why are we penalizing people for being productive members of society, or being responsible enough to prepare for their own health needs? This kind of attitude toward productivity certainly goes a long way toward explaining the current economy.

Friday

20

May 2011

2

COMMENTS

Should We Weight Votes Toward the Least Productive in Society?

Written by , Posted in Economics & the Economy, Taxes

This is what a terrible idea looks like:

America should implement weighted voting to make voting more objective and fair, and give the young more power, because the consequences of political decisions will affect them the longest. Weighted voting would restore power to twenty and thirty year olds, where it resided before the advent of medical science. With the aid of computers, it would be easy to give everyone a Voting Score, just like we all have a credit score.

Yes, let’s give the most ignorant, inexperienced and disengaged voting bloc extra political power. That sounds like an excellent idea.

Ezra Klein also highlighted the idea, though was careful to note that he did not endorse it, instead pointing out that we weight by other factors such as geography. We do this for a reason, as states are recognized as constituents with independent interests. Unlike voters, they have issues of sovereignty and their own rightful political authority to protect from federal encroachment. And we’ve seen what has happened with the erosion of their political input at the federal level by moving to direct elections for Senators, as the federal government has all but assimilated the states into administrative bodies which exist for no other purpose than to do its bidding.

The young, on the other hand, do not have an independent interest that is different from any other individual voter, they just have a longer time horizon. But does that necessarily mean they are more impacted by political decisions, as implied by the “decisions will affect them the longest” reasoning? I don’t think so.

As the government has become more and more an instrument of redistribution, I’d say it is taxpayers who are most impacted by political decisions, regardless of how much longer they have to live. As such, if we insist on mucking with voting weights, I agree with the suggestion of John Hawkins to weight by total taxes paid.

This would have the benefit of solving what is perhaps the biggest political problem of the day: the ability of non-tax payers to vote themselves benefits at the expense of an ever narrowing tax base. Voters are more likely to vote themselves benefits if they are not contributing to the costs.The burdens then fall on fewer and fewer productive members of society, which both reduces their productivity (and thus the funds available for such redistributions) but it also means a growing population of moochers. It’s a vicious, teat-suckling cycle. This is why James Madison warned of a need for “protecting the minority of the opulent.” His answer was the Senate.

Madison was not talking merely of the super-wealthy routinely attacked by leftists and redistributionists today, but of the productive sector in general, which we can largely equate to today as those who pay income tax. The point of his argument was to protect the minority interests against the majority that would abuse them. And when those who pay for and sustain government are the minority, while those who mooch off their largess are a majority, the end result can be only fiscal calamity. As younger people are less productive and carry less than the average burden of government, weighting in their favor would exacerbate this problem and hasten our headlong rush into national insolvency.