Senator Jim DeMint on Bailouts and Inflation

Via NetRightNation Jim Demint at CPAC mentions the upcoming inflation around 2:30:


Published in: on February 28, 2009 at 3:20 pm  Leave a Comment  
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Talking the talk, and walking to the left…



Published in: on February 27, 2009 at 9:56 am  Leave a Comment  
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Top Economic Dog, Romer and her Economic Views

Christina Romer was appointed to be the head of Obama’s team of economic advisors. She is a proclaimed Keynesian while most of her work has undermined the Keynesian theories. David Henderson from the Hoover Institute via asks “Will the real Christina Romer please stand up?” and rightfully so. I will attempt to summarize what Henderson had to say.

Keynesian believed that in order to keep full unemployment during times of downturn the government had to increase spending or cut taxes. This would cause the government to run a budget deficit. What to do after that was unclear. This is what she found when she did the research on tax cuts:

“In their article, they find that “tax increases are highly contractionary” and that tax cuts are highly expansionary. Otherwise-careful economists Greg Mankiw of Harvard and Lawrence Lindsey of the American Enterprise Institute have run with this result, as they should, but in doing so they have seriously misstated their findings.

Therefore, it’s worth looking at what the Romers did and didn’t find. Their bottom line is that “exogenous” tax cuts–that is, tax cuts not intended to offset the business cycle–have a large positive effect on gross domestic product. Specifically, a tax cut of 1% of GDP will raise GDP by about 3%.”

This may be good news for the Republicans out there, but this was with times of recessions removed. Tax cuts, like spending increases, do not work in recessions. Part of this has to do with the fact that fiscal legislation takes way to long to have any effect. Part of this has to do with the slowness of the legislature. Gerald Ford himself tried tax rebates as a boost:

“…although the 1975 tax rebate was passed within three months of being proposed, they note that it was not proposed until 14 months into the 1973-75 recession. They could have noted that the recession ended in March 1975, the same month the rebate was proposed and three months before it was passed.”

So it is very possible that we could be passing these stimulus bills too late. In fact, we could be just creating more debt while having no real effect. Now, of course, the Obama administration when the economy does come back will take credit for the recovery. With that there will be a rebirth of the welfare state as the savior of the economy, since the New Deal. Textbooks across the land will praise Obama as a savior.

The rest of Henderson’s great article is here.


Published in: on February 26, 2009 at 1:00 pm  Leave a Comment  
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The Obama Arbitrary CEO Pay

Let me first give an introduction to this piece I am going to talk about. This was written for Slate Magazine by Eliot Spitzer. Yes, the former Governor of New York that was involved in the prostitution scandal. He writes a column once and a while for Slate and they are usually pretty good. This article is on the Obama CEO salary-cap of $500,000. This has been something I wanted to discuss. First, let’s start out with a quote:

“What should really be done about executive pay? First, let us acknowledge that the $500,000 bar is arbitrary. It will be way too low in some circumstances and way too high in others; it affects too few executives; it can be easily avoided through alternative pay techniques; and it injects the government into a sphere where it is uniquely inept—setting private-sector wages.”

This is an important point the reader should take away. That is this is a arbitrary number that has been imposed upon people with absolutely no calculation. This is a key problem to socialism. As in because we can only ballpark the wage, which was solely decided upon by looking at other markets, we have no clue if $499,999 is the right amount or $500,000. The main reason for a CEO’s wage is to attract the best and brightest, while not putting all your eggs in one basket. When the government takes over a business the incentive for them to take off and run away with the money is huge. This is not a small detail to be missed. This is a huge problem when creating policy, when you talk about social justice it is all arbitrary. For example the progressive income tax, the rich should be taxed 33%, 45%, 56%? Pick one and tell me why. Now this is where Governor Spitzer goes wrong:

“If we are to stop outrageous pay, the objective should not be to match the foolishness of the Bush ideological embrace of wild-eyed libertarianism masquerading as capitalism with an equally foolish “government knows best” approach that ignores the market. We must create a genuine market for CEO services, generating meaningful competition and socially acceptable results.”

He then goes on to describe how he would set up a corporation with checks on CEO’s pay. First, Bush was no where near libertarianism and he definately did not ignore the market. He has made some of the larges moves towards socialism by messing with the markets we have ever seen since FDR. Then there is the major fallacy, he makes. He decides to come up with is own corporate system and acting like it is a policy prescription.

If you do this then you are making the best possible case for central planned socialism. So sure, maybe he does have some points and you can read those in the link below, but he needs to pitch these to corporations not to the American people. If they adopted his plan and it was superior then all investment would flood this business and CEO would be begging for a job.

The rest is here.


Published in: on February 25, 2009 at 1:15 pm  Leave a Comment  
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Is this the top ten most influential economists of all time?

Opposing Views put this out. I thought I would see what everyone thought:

10) John Locke – A pioneer in discussing the accumulation of private property (within God’s laws) in the mid 1600’s.

9) David Ricardo – Major writer in the early 1800’s on free trade (specialization and comparative advantage) and the rise of capitalism.

8) Irving Fisher – An American monetarist in the first half of the twentieth century, wrote ‘The Debt-Deflation Theory of Great Depressions’ in 1933, also wrote ‘The Theory of Interest’.

7) Joseph Schumpeter – Austrian economist specializing in business cycle theory, wrote ‘Business Cycles’ in 1939.

6) Friedrich A. Hayek – Member of the modern Austrian school, along with Ludwig von Mises, defenders of democracy and free-markets against socialist thought in the mid-twentieth century. Best books: The Road to Serfdom (Hayek, 1944) and Human Action (Mises, 1949).

5) Alan Greenspan – A pioneer in macro-economic modeling and forecasting, also a pretty good FED Chairman for almost two decades.

4) Milton Friedman – Recently deceased, modern day monetarist. A staunch defender of free markets and limited government intervention, he will be missed.

3) Karl Marx – Father of socialist economics. Very influential from mid-1800’s to mid-1900’s, but losing steam today.

2) John M. Keynes – Father of Keynesian economics. He introduced modern macro-economics in both theory and policy to the world. Keynes died in 1946, but is still intensely debated today.

1) Adam Smith – Revolutionized economics by writing ‘The Wealth of Nations’ in 1776. He is still revered today as father of economics, political economist and moral philosopher. Smith taught that pursuit of individual self-interest acts as an invisible hand to contribute to the common good. My hero!”

Now, of course, talking influential this is probably a very good list. I would imagine that if this is ranked by most compared to least. If this is true, I would imagine Smith would be much lower. Keynes would probably be number one next to Marx. If it was true that Adam Smith was more influential and Milton Friedman was number four, you would imagine our world would be more classically liberal than it is now. I wish it was the case that the most influential was Smith, Hayek, Mises, and Friedman.

This is a good thought in mind, when we think about who to read. Everyone should probably read at least 5 of the above, whether they agree or disagree and explore those thoughts. Of course, beware Greenspan is very different then the stuff he wrote with Ayn Rand.


The Keynesian-Krugman Problem of War

As most of us has heard, there is an ongoing debate about Keynesian economics and whether it is in fact a good idea for the government to run deficits pursuing fiscal stimuli. In a previous article, I wrote what the economic reasoning is behind all of this. Upon further research, I have discovered an important untold part of the Keynesian viewpoint. That is which is illustrated best by Dr. Paul Krugman in his recent article discussing “What will stop the pain?”:

“What, then, will actually end the slump?

Well, the Great Depression did eventually come to an end, but that was thanks to an enormous war, something we’d rather not emulate.”

If you ask even some normal people, you will receive the answer that World War II caused us to get out of the Great Depression. This is inherently false. In fact Cullen and Fishback at NBER made this observation, ” [They] find that in the longer term counties receiving more war spending per capita during the war experienced extensive growth due to increases in population but not intensive growth, as the war spending had very small impacts on per capita measures of economic activity.”

How could this be? Most people when they think of productivity they think of labor and employment. If this was the case then World War II would be a great success. In fact, war times in general would bring a large boost to any economy, as they are a fiscal dream. Why is this not true? The fact is that the goods that they are producing are purely military and are being sent off to be destroyed. This is called the broken window fallacy, which Krugman violated after 9/11 when he said:

“…the attack opens the door to some sensible recession-fighting measures. For the last few weeks there has been a heated debate among liberals over whether to advocate the classic Keynesian response to economic slowdown, a temporary burst of public spending. There were plausible economic arguments in favor of such a move, but it was questionable whether Congress could agree on how to spend the money in time to be of any use — and there was also the certainty that conservatives would refuse to accept any such move unless it were tied to another round of irresponsible long-term tax cuts. Now it seems that we will indeed get a quick burst of public spending, however tragic the reasons.”

It is obvious here that Krugman along with other Keynesians secretly (or not so secretly) find war and destruction to be a good thing for our economy. This begs the question, why doesn’t Dr. Krugman’s plan involve increasing production of anything and blowing it up in the desert? This would be no more productive than World War II. It would just avoid all the pain and suffering.

To simplify things a bit, imagine an economy where they go to war and the factories switch from cars and tractors to tanks. While these tanks are going off to Europe to be destroyed, the prices of cars are going through the roof as supply has stopped. Sure, the inflationary wartime spending has caused people to go to work but they cannot buy anything as prices skyrocket. We have to remember the three ways that you can raise money for this. They are higher taxes, borrowing money, or inflation. Let’s not forget FDR’s ban on gold thus setting up inflation, which Truman inherited. This just acts as a tax and causes a very unstable currency. The other possible method was borrowing, which is just future tax increases. This will not create productive growth.

Many uneducated people on the right cling to this explanation because they feel it’s the only argument they have against the liberals saying it was the New Deal. Both of these groups should wake up and smell the free-market roses. It is ridiculous to think that a centrally planned economy (war-time economy) where massive amounts of people (human capital) along with materials (physical capital) is being destroy and very little non-military goods were being produced (not to mention there was rationing), somehow “stimulated” us out of a recession.


Published in: on February 23, 2009 at 2:32 pm  Leave a Comment  
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GM has to change in order for it to work…



Published in: on February 21, 2009 at 2:28 pm  Leave a Comment  
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Rick Santelli starts a Revolt!


Smithian Market: Hong Kong License Plates

An interesting market and an expected result due to the recession. This from The International Herald Tribune:

“The clearest sign yet was Saturday, when a monthly auction of personalized license plates raised a mere 8.7 million Hong Kong dollars, or $1.1 million, for a government charity fund. That may sound like a lot of money, but remember, Hong Kong is a city so obsessed with cars that many owners have domestic helpers who wash them every day. During the same month last year, when times were better, the auction fetched 33.7 million dollars.

At Saturday’s auction, amid the somber, cavernous gloom of Room 601 in Hong Kong’s convention center, the highest price paid for a single plate was 1.7 million dollars for the lucky number “2318.” Just a year ago, an electronics entrepreneur paid a record, 16.5 million dollars for “18,” a distant memory of the boom days before the recession.

At an auction in January, plates like BACK OFF and THANK YOU went for less than 20,000 dollars each. MY CAR, which had been expected to be the star of that show, went under the hammer for a bargain-basement 40,000.”

I have always thought that license plates were a waste of money but I was merely talking about my local state fee to get it made. This too me seems like a smart idea on the government side to raise revenue. My question, how long do you have that right to that plate and can you pass it on? This would, of course, raise the price but also only be a one shot revenue raiser until other words like “lol” became more popular. Due to the recession, people are not spending as much as they use to. This makes sense economically, but it would be interesting to map if this is actual income growth slowing or pessimism/expectations.

The rest is here.


Published in: on February 19, 2009 at 12:53 pm  Leave a Comment  
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Where is today’s Richard Cobden?

Richard Cobden lived in Britain and was considered a leading figure against imperialism in his time. As Edward Stringham points out in a Freeman Magazine article “Commerce, Markets, and Peace: Richard Cobden’s Enduring Lessons,” we have a lot to learn from Mr. Cobden.

Cobden believed that military and markets were substitutes, as in the more military you have the less markets you have. He believed that a person who was pro-market should also be pro-peace. He saw that every dollar the government spent (more like billion or trillion today) was a dollar (billion or trillion) that is not spent in the private sector. This is a classic example of an Economic term called opportunity costs. Some would argue that its all money and it is coming out some way or other. This is where Public Choice theory comes about. There is a large difference between the government’s interest and private interests.

That is where his anti-imperialism beliefs came in. He stated that no productive citizen benefits from the British government’s activities around the world. He began to educate the business class that they were paying for all of the governments projects. This may look good for the government, but the average person receives very little benefit, if any at all. He used America as the comparison. At this time, he saw that America had a small military and little influence abroad, yet, it was booming economically.

He even took down the argument that the British needed a strong Navy in order to prevent those from stealing from trade. The world is too big to police and the ones that they left to guard their ports were the worst of the worst. When you did the cost-benefit analysis, you would find that most of the money was not being spent on guarding the trade routes. Cobden believed free trade would benefit commerce a lot more than military supremacy. He believed that these battles for land ended up increasing the chance of being attacked in the future thus raising every British citizens cost. Military action cannot spread liberty, it is using coersion to free people from coersion. Liberty requires enlightenment, which can come about only by means of education and persuasion, not military force.

So my question is, where is our Richard Cobden? We have a party of anti-markets and anti-war. We have a second party of supposed pro-markets and pro-war. This is where the massive spending has been derived. It has not been a debate of more spending versus less spending. It has been a battle between military spending versus welfare spending. As long as political parties stay where they are on these issues, will we ever get spending cuts?


Published in: on February 18, 2009 at 2:48 pm  Leave a Comment  
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