Congressman Emanuel’s ‘New Deal for the New Economy’

rahm emanuel This post title alone scares me. The last time we heard "New Deal" we saw the size of the government increase greatly and it moved us too close to central planning.

This is from Congressman Emanuel’s web site, so let’s take a look a an important part of his plan and analysis it. The reason why I choose him is because I heard this idea mentioned at a Congressional Debate put on by the DLC, which more on this can be found here.

Here is one of the big problems I found with his idea:

"…I believe you have to make a one-year post high school education universal, and required, just like the high school education was required.  I don’t care if you go become an apprentice at the IBEW.  I don’t care if you go to the community college and do computer science.  And I don’t care whether you go to a four-year institute.  But you have to have a workforce that has the skills and capacity to compete and win."

Spend, Spend, Spend….

This seems to be the great idea that Democrats have, now that they are in control. So let’s look at the ramifications that this would have, besides the fact that it will put us in debt and be another social welfare program that will grow forever.

What does it mean to be against this proposal? Is it that you are now against education? No, what I am against is government planned education.

Anytime the government does something it is mandatory. This was seen clearly with Social Security, Income taxes, and many other regulations and taxes. They are trying to do this with healthcare too. This would be no different.

This is wrong because you are allocating resources to the wrong areas. If it is more profitable for a student from high school to continue his education then he will. If it is more profitable for them to go in the workforce then they will do that. To shift people into the field of education will then create too many educated people with not enough supply of jobs.

Let’s assume you force someone to go to a educational system they do not what to go to. Where would you go? Many kids may decide to go and party in college for a year flunk out and call it a day. This is at no monetary cost to them.

The only cost is the forgone income they could have been making in the workforce. Democrats are also the same people who believe that hang guns shouldn’t be in people hands under the age of 21. So they are assuming that the student will know where he wants to go or where he want to further his education.

If he chooses to go to a four year institution to party, because other than the booze and sex costs, it is free. It will lower the value of everyone else’s education. If they go to class they will be a disruption. If anyone went to public school and then college they understand what I am saying. They can also convince those who are going for all four years to party also.

Universities will probably just go to 5 year programs. In create a one year universal education payment, you could possibly make the college system less efficient, you would draw kids who could be working in businesses that need them and will pay them well away from them, and you may impose negative externalities on the "good" students.

Did I mention who was footing the bill?


Published in: on February 29, 2008 at 8:24 pm  Leave a Comment  

My Last Word about the Peak Oil Debate

Many people interests have increased on this blog due to the debate between me and “step back” in the comments section and my following poll. My colleague Not Albert Speer also gave his two sense twice about the debate. This is to clear up my position and the misrepresentation on The Oil Drum.

First, the misrepresentation: It was stated that the PC Capitalist is a pro-market science major. This is wrong. Not Albert Speer is a pro-market science major, if am inferring the right information from his two posts. The PC Capitalist, who is writing right now, is a Economist. Please pay close attention to who posts the posts.

Second, my colleague cleared up his position for you and now I will do mine:

When people use natural resources they are often worried about when are we going to run out and when production is going to decrease. As I understand these are two different issues the production reduction does not matter if you believe that we will not run out.

I believe along with many Economists that we will be able to innovate to the point where we will no longer need oil before we run out. This is to say that when whale oil was in high demand and the cost of catching whales went up, people innovated kerosene to be install in lamps. Even in the oil debate itself. We have seen fuel injection engines and hybrid cars spur up when oil was very costly.

We have yet to fully innovate our way away from oil, but it can be done. The entrepreneur acts in errors in markets. The fact that the price of oil is rising quickly isn’t always a supply problem but assuming it is as the price goes up so does the rewards from an innovation. If oil stayed cheap during the middle part of the last century, we would have not need the investment in fuel injection motors. If oil wouldn’t have spiked in the 2000s, we would have no need for a hybrid car.

Things like the tar sands and shale oil were looked at in the ’70s and deemed to expensive to use but now the cost has gone up there is a market for that stuff. This will keep the supply up.

The reasons why people freak out and I have gotten a lot of hits from this debate is because a life without oil would be a gloomy one. In reality, it is an largely but not perfectly inelastic demand curve. That means, for non-economist, that price has little effect on the demand of the good. A good example is cigarette smokers. If I told cigarette smokers that we are running out of tobacco, they would flip out like you all are.

What the part that you are accounting for is that a private business, in this case cigarette manufactures, have huge incentives to not be out of jobs later. They will innovate and roll the cigarette with less tobacco or a substitute.

If that example doesn’t make sense just focus on the fact that businesses want to reduce costs, so no matter why the price goes up they will come up with a way to lower cost and most of time they use substitutes.

This is not a natural resource problem but I hope you see the parallels. Grab a Coke and take a look at the fact that it does not have any sugar in it, but go to Europe and you will see sugar in that. This is because the United States government has a large tariff on imported sugar. Coke then decided to innovate and substitute high fructose corn syrup for sugar.

The reason why we can have a debate like this on the Internet through computers is because of innovation. The reason why you cannot wrap your head around this is because no one can predict an innovation. No one knew they wanted the Internet until it was invented.

As long as someone owns something, it will never go extinct. Cow and Chickens will never go extinct, but the tiger will. Unless policy changes and we are allowed to own tigers and other endangered species. If you do not believe me, try to go to Sea World with a harpoon and you will see that Shamoo is the most protected whale in the world.

There will be at least one barrel of oil that will not be consumed because that one barrel will be worth so much that people will not be able to use it.

Since I have used mostly possible renewable resources in my examples, think about copper. This was one of the first natural resources used by man. It was once predicted that we would run out of copper int he early 1990s. This did not account for innovation. The penny itself had to change it composition because copper because the supply of copper went down and the price went up.

Private industry has innovated where there are profits to be made. The very fact that you are so interested and scared shows the future entrepreneur that there is a huge market for a new invention that could reduce use or even come up with a new way to power cars.

The market will allocate resources to more efficient means…

Published in: on February 29, 2008 at 5:31 am  Comments (11)  

Are We Running Out of Oil?-Another Perspective Pt. 2

After reviewing the recent comments (which are greatly appreciated) and further consideration, I feel that there are a few crucial details I failed to mention. Let me begin by assuming these postulates:

  • The current rise of price of oil is not simply a direct reflection of supply and demand, but also other factors such as government-economic regulation (this complicates the price of oil beyond a second order of variation).
  • If not for technological advancements, the efficiency of oil would be less than current, and markets would reflect this.
  • As long as competition is allowed, there exists the incentive to increase the productivity of a product, in the interest of capturing new or more business.
  • The efficiency of extracting energy from oil is done through applications of scientific knowledge, and the advancement of that knowledge as well.

I have taken these as axioms of the “peak oil” debate, and I hope they clarify my stance thus far (If you disagree with these in a significant way, than our disagreement is more fundamental indeed, and should perhaps be saved for another debate).

As a science undergrad, it is also my knowledge that the advancement of physics and its applications ( in this case oil production and consumption) does not occur at a continuous rate. That is to say, these advancements come at different intervals of time, in groups or “breakthroughs” if you will (think of the graph of the rate of improvement of efficiency as a function of time approximated by a sinusoidal function). If we assume that our improvements are essentially driven by the desire for increased profit, than the times of increased advancement are due to this demand (even with different systems this is still very true).

Now we arrive at our “peak oil” discussion with more clarity (hopefully). I propose that “peak oil” is simply a state at which the world’s oil production has maximized over a period of time. The natural market forces of the world will create countless local maximums and minimums, but by “peak” I refer to all-time. It is obvious that this is not the case for current oil production. This is due to the fact that while demand for oil is rising, supply is still plentiful (as mentioned earlier, current highs in prices are more likely due to poor regulation of the economies than a major lack of supply). However, the form of crude oil we currently utilize is a finite quantity. As the supply runs low, demand will fuel higher prices and motivate the improvement of consumption (or alternatives if they are cheaper/more profitable). To answer the explicit question “are we running out of oil”, the answer is yes, but not at a “peak” point right now.

Let me repose the initial inquiry: what will happen when the crude oil we love runs low, and prices rise? To an economist, the answer is trivial; the market will stimulate the appropriate research, advancement in technology will improve consumption (or replace it with another resource altogether), and the markets will re-stabilize. One way or another, this will be the scenario. We may not be utilizing the thermodynamics of petroleum-combustion, but the human race will survive.

However, physics makes it clear that the mechanics of petroleum consumption is limited in affordable means (crude oil that is). Another words, we are approaching a point at which crude oil can no longer become more efficient. The physics that establish this condition are complicated, and therefore not well known by many individuals. The question(s) is, will a natural limit to increasing efficiency surface before or during a shortage of the crude oil in question? When such a limit is reached and supply of this resource does become low, what will occur in this particular case? Will the demand for less energy-efficient but more populous forms of petroleum spur subsequent production/consumption? Will an alternate source of energy become economically viable in time to obtain a real demand? If a transition to more than one source of energy occurs, what will the dominant source be?

I feel that the likely outcome of modern oil consumption will yield a decline in oil production, only because there is a shift in demand as prices rise. I feel there will be a decline in production of oil, because the negatives of oil consumption combined with advancements in other energy sources will shift demand to alternatives (while it may be difficult to advance the efficiency of crude oil, alternatives are becoming cheaper at near-exponential rates). If you consider the notion that a “peak” in crude oil production is near, than the debate becomes more interesting. If you really want to get crazy, consider the fact that oil produces far more than just a source of portable energy. But this is the stance that I have reached, and I would love to hear yours…

Published in: on February 28, 2008 at 5:59 pm  Comments (3)  

Monetary Policy: is it here to stay?

2004-02-05 Reserve Bank monetary policy dog 2002226There is an interesting article in The Economist that asks the question of "Is monetary policy still a potent weapon against recession?"

It is an interesting argument that is seen around the fact of what should we do during a recession. This stems back to the Great Depression and how we could prevent another one.

This brought upon the idea of John Keynes. He thought that increasing government spending would create economic growth. He believes that deficits were good for recession time. He continued to say that governments should try to fix things in the short-run because in the long-run we are all dead.

This brought on the idea that it really does not do this at all, which is too complicated to explain here. Milton Friedman and the Monetarist believe that we should instead focus on the monetary area and not fiscal stimulus. That pretty much took over after Keynes, as I am sure most of you have heard of Milton Friedman.

Now The Economist is questioning this motive. It is for sure that Politicians are thinking so because they have passed the fiscal stimulus plan. The article explains that the Fed Chair giving blessing to that plan makes it look like the Fed is loosing its grip for sure.

This is making me doubt the competence of the Fed Chair, who I had high hopes for. This from The Economist on the lost faith in monetary policy:

"One cause is the feeling that overly loose monetary policy got the economy into this mess. Repeated cuts in the interest rates during the last downturn, in 2001-03, fuelled the housing and credit bubbles that are now bursting to such damaging effects."

If this is true then this could derail monetary policy for a long time. The Economist continues and explains how the Fed effects me and you with their policies:

"Monetary policy affects the choice between spending now or spending later… Interest rates are the cost of using tomorrow’s income to pay for today’s spending. Lower rates life spending by more when there is access to borrowing."

As you can see both of the fiscal and monetary policies are moving towards the same ends. They want to increase spending. By doing this they are hoping to push out demand. The problem is these are all short-term policies that may hurt us in the long-term.

F.A. Hayek has an interesting argument against the fiscal part. He says that not only is central planning a bad idea but when you increase government spending you allow these bureaucracy to grow hurting private industries.

So I guess the million dollar question is monetary the same thing? Is there a short-term fix with a long-term problem? Are we seeing the longer term problem that fixed the ’01 recession?

I feel like the more I am educated in economics the more I will be able to answer this question but I am under the impression that we should do nothing.

Leave the money alone… I have a feeling this wouldn’t be a problem if we had the gold standard…

Published in: on February 28, 2008 at 6:34 am  Leave a Comment  

Why is it that Republicans love the FairTax and not the Democrats?

Economist Laurence Kotlikoff ask this question and raises a some good points.

For those of you who do not know what the FairTax is, it is an around thirty percent sales tax on everything you buy and it eliminates all income taxes. It also gives out rebates to cover food for everyone.

Laurence Kotlikoff says that it would tax the rich more and give enough rebates to the poor to cover the taxes paid by the poor, so why do Republicans love it and Democrats hate it?

"Take Mr. Megabucks, who is sitting on $65 million and want to buy a jet like Oprah Winfrey’s – a 10-passenger, $50 million Global Express XRS. Under the FairTax it would cost him an extra $15 million because of the 30 percent sales tax. Mr Megabucks gets the jet, but the extra $15 million, which he had budgeted for Beluga caviar, Dom Perignon, and other flight snacks, goes to Uncle Sam."

Does this mean that luxury goods will be bought a lot less then if their is an income tax?

The advantage he states is that:

"The beauty of the FairTax is that taxing wealth at a 23 percent rate generates enough revenue to reduce workers marginal tax bracket to 23 percent. This is dramatically lower than the 30 percent to 45 percent marginal tax bracket confronting most workers under our combined income and payroll taxes."

Is this though going to cause the rich to spend less and move towards more black markets?

Or how about this will cause the government to then cause to raise tariffs in order to stop billionaires from buying their boats and planes from Europe or somewhere else?

This could possibly kill all luxury good markets in the U.S.

I have went back and forth with the FairTax and new ideas came to me, when I saw this, that are discouraging my earlier support for this.

Published in: on February 27, 2008 at 7:58 pm  Leave a Comment  

Quote, Poll Results, and New Poll

Usually I post a great quote that is intelligent and good, not this one.

…attempts to repeal the trade deal [NAFTA] "would probably result in more job losses than job gains in the United States."

~Barrack Obama

I would like to know his economic reasoning for this…

Poll Results:

Do you plan on voting for John McCain, if not why?

  1. Yes 47%
  2. No, because he is too left wing 23%
  3. No, because he is too right wing 0%
  4. No, because other people are running 9%
  5. No, other 4%
  6. Not going to vote at all 14%

I was quite surprised to see many of my readers voting for McCain. I wonder why… Discuss here if you would like.

New Poll:

After reading the debate between whether we have reached peak oil or not, do you think we will run out of oil?

  • Yes, we have reached peak oil and we will run out
  • Yes, we have reached peak oil but we will innovate
  • No, we have not reached peak oil
  • No, we will never reach peak oil because we will constantly innovate

This should be an interesting poll…

Published in: on February 27, 2008 at 4:37 am  Comments (2)  

The Doomsday Crop

Here’s an interesting article I found on CNN just recently:

Today marks the inauguration of the Doomsday Vault. The vault is a storage facility in the northernmost region of Norway. The vault was constructed in the foundation of an arctic mountain, located only degrees from the north pole.

So what does the several-million dollar vault hold? Seeds. Currently millions from around the world. The idea here, is that as natural or man-made catastrophes occur, we will have all the crops we could ever want. All you have to do, is drive/fly/sail/snowmobile your way to the arctic circle, find a way into this humongous, high security vault, grab about a trillion seeds……and your good to go.

I thought this was so stupid, I found it funny. Actually it was funny until I wondered if my taxes were somehow going to pay for this. The CNN news reporter was actually suggesting that after a doomsday-like event, a small group of people from anywhere could actually get to this vault, and then simply replant the Earth. Wow. Second of all, statistics says that anyone surviving such a fantastic event has an incredibly small likely-hood of remembering the vault and its location (if they even once knew about it anyway). Also, if the agriculture of the world is so devastated that massive replanting must occur, using the same crops that failed to survive is probably not a good idea (if global climate change has killed off much of our current food sources, simply replanting the same ones wont do much).

I do see some good ideas in this. The gradual global warming we are experiencing has officially eradicated many of the crops humans have been using for some time. Preserving crops that are robust in many parts of the world is good, as long as the crop can succeed in places were climate change is not maximized.

However, I do feel that our resources should be spent more in the effort of adapting to climate change, rather than some sort of unlikely “Noah’s Ark” scenario.

Published in: on February 26, 2008 at 5:45 pm  Leave a Comment  

Are We Running Out of Oil?-Another Perspective

I have decided to revisit this topic, as initially published by ” The Public Choice Capitalist” a few days ago.

It’s pretty much my single favorite topic; liquid energy… long will it last? The oil debate, and a possible peak in production, has been argued over for decades. So far, I am not actually convinced by any single argument; though this is not surprising given the complication of the question. I am a math and physics undergrad, and I feel that my education and view point in this debate is rare (I will discuss this topic with more of a science back-round).

First I will briefly outline the two prominent arguments over peak oil:

1- Many scientists (Geophysicists and others) are arguing that oil productivity is peaking, due to things like: a finite supply of usable oil, inability to process existing oil at soon-to-be required levels, and an essential limit in productivity in reaping usable energy from the thermodynamic exchange that occurs in burning.
2- Many Economists argue that peak production has not occurred because: we do not know how much unknown oil may exist, and because demand has successfully driven improvements in oil productivity and consumption, this process will continue infinitely.

I think some of these points can be defeated quite easily while others are noteworthy. Firstly, while we cannot know what “un-found” oil remains, the idea of unlimited oil is impossible anyway (it’s like saying that unlimited gold). Second, it is also an assumption to presume that our ability to improve oil productivity and consumption will do so continuously, as though it were a natural law. Of course, demand for oil will increase in at least the near future, so the demand for innovation will continue. The question is, will the necessary amount of innovation occur? Will the innovation be enough to process other forms of oil at marketable prices (thus adding to the fixed supply?)

So far, it appears as though physicists and economists have drawn a line in the sand. While both parties are making assumptions, it is apparent to me that those of the economists are weaker. But this does not imply that they are wrong. Believe me, I would love to know that supply and demand will simply fix everything.

And so, like all good debates, we arrive at the beginning; will the demand for innovation simply save us in the coming decades? I urge you to consider the notion, and give your opinion (I will post again after some comments and discussion have elapsed).

Published in: on February 26, 2008 at 4:50 am  Comments (8)  

So What is a Purely Capitalistic Society? Part I

capitalismrocks Most people voted that they wouldn’t think we would ever see a capitalistic society and they wouldn’t want one.

So what is a Capitalistic society? Everyone is going to have a different definition.

Conservatives might think a world in which the markets can do everything but a few economic functions and the government would control most social functions.

Libertarians might think it is a world that the government is used for three things and the market would take care of the rest. The three are National Defense, Police, and Courts.

Anarcho-Capitalists would think that as long as we had property rights everything could be taken by the market.

So what is truly free market and capitalistic? I personally still fall under the libertarian view, even though my professor says he will convince me the other way towards Anarcho-Capitalism.

I believe that Communists, Socialists, and Fascists all do not what a capitalistic society at all. They believe property rights oppress people and workers.

Conservatives and possibly Democrats (liberals) want some form of hybrid version. Democrats obviously want it to sway more towards socialism.

Conservatives are an interesting case, as I used to be one. They seem to want the government to control society in a social context. They believe government can enforce morality, which I find ironic because the governments monopoly power is violence.

There are certain other things that conservatives do that do not seem to be very capitalist oriented. This may be a recent thing but hopefully on the side of economics they will fall with the libertarians.

So far a Capitalistic society is one where the government does not interfere with people in the market place and let them have freedoms in the human rights aspect too. This is called a market economy.

In part two, which maybe a while from now we will discuss: can a government raise revenue if it is not in the market place? If so, does allowing them to do the big three make it a purely Capitalistic society? Are we better off with or without a government? a.k.a. Is government a necessary evil to protect peoples rights?

Or has government been the main tool of infringement on people rights?

Published in: on February 25, 2008 at 8:18 pm  Leave a Comment  

Mo Money

It’s funny how after 200 years of representation, our nation still has yet to instill a complete system regarding campaign finance. Republican Presidential candidate John McCain is dealing with this very problem.

Back in the fall, the Arizona Senator was having more than a little trouble with his early campaign. After some major financial problems, the November hopeful accepted public funds for campaign purposes. Public campaign financing comes with a strict dollar-limit. Once a candidate has accepted public money, or the promise of it, for any reason, he cannot lawfully reverse the process. This is to ensure that a candidate can’t take federal money, than “change his mind”, and return borrowed funds and deny promised money. If this were allowed, candidates could withdraw our taxes, spend freely, then as success brought more contribution, they could return the funds and go on without a spending limit.

McCain accepted public money on a matching basis, therefore sealing his financing to a regulated limit. The Senator has now motioned to withdraw from the public funding, a move that FEC Chairman David Mason is questioning as illegal.

While I feel that most politicians are individuals with little morals of any kind, I am disappointed with McCain’s actions. McCain has been a huge proponent of campaign finance reform, and his recent maneuver is rather ironic. At the same time, Democrats are taking advantage of the situation for political reasons.

In my opinion, the use of public money in campaign finance is not a great idea, because it offers tax money to finance countless individuals (and a million other reasons). Perhaps the conclusion of this election will demonstrate some reasons to alter campaign finance in a big way (like eliminating public funding altogether).

Published in: on February 25, 2008 at 3:07 am  Comments (1)