Workers of the World Relax

Movie Review : Ides of March

2012-01-20T15:23:00.002-05:00

Politics is a Loser's Game

Workers saw the movie Ides of March, funded in part I believe by Titanic money (it was co-produced by Leo DiCaprio), based on a play called "Farragut North" by Beau Williman.

For readers not familiar with the ways of Wash DC our nation's capital, Farragut North is the metro stop for Gucci Gulch, the heart of beltway bandicy, so thus the movie is about the politics of politics. About lobbyists, political consultants, playing to the primacy of the polls and whatever manipulation and sell-out it takes to get the delegates or to get the interns or for the interns to get to those in political power (no more about that here, but fundamental to the plot).

George Clooney plays a congressman gunning for the Democrat presidential nomination, and gets kudos for not stereo-typically making (American) liberals seem the answer to all that ails us. The movie is interesting for more than this. There is not a single redeemable character or action or idea in the movie, yet the movie comes-off as good entertainment (something about tragedy or watching people be mean to each-other that appeals I guess. Just watch any TV show, reality TV or not. And Americans do watch an average of 5 hours a day).

In fact for those of us against government coercion, the film is quite good. There is a scene where Clooney's character says in a brain-storming session full of his campaign staff that he would like to introduce "public service" to his campaign, where college grads could get their (no doubt government-subsidized) school loans clean-slated if they did "public service", which of course would then be the cure to the nation's unemployment ills (of course the nation's out-of-control-debt and the dollar down-grade is not mentioned: it is a Hollywood film after-all.)

One of the paid political consultants then says why don't we take it abit further and require government service. After-all, it would only apply to those less than 18 years-old today, and they can't vote anyway. All agreed, a brilliant idea.

So you get the cynical tone of the movie and of, well, mainstream American politics.

The Philip Seymour Hoffman character, who - spoiler alert - gets booted from the campaign due to a rival's blackmailing of the candidate - moves on to a million-dollar-a-year job in the Gucci Gulch. Experience with cynical manipulation pays the 1% in our nation's capital. Sad, but true.

Review of "Brighton Rock" Film

2011-09-07T12:26:00.002-05:00

Laws and Rules

Workers saw the new (2010) Brighton Rock, based on the Grahame Greene 1938 novel updated for 1964, with the context being the youth gang fights between the Mods and Rockers (long an interest). I read the book a long time ago but don't remember it much, just the ambience of the ever cloudy and slightly cold Brighton, and the film did capture this well.

In short the film is a serious crime drama with a love story subtext. Gritty and super-real, I enjoyed the film very much. Whats appropriate then for this blog space is the English gangster story. There are two gangs doing gambling and protection in Brighton. One is sordid and dirty the other clean and wealthy. The "rich" gang frowns-upon the (sadistic) violence of the "poor" gang. There are rules that need to be abided by, so that things don't get out of hand and suppressed by the man. The gangs had a relatively peaceful duopoly until the young modish thug anti-hero (who steals a Vespa and rides it around Brighton with all the Mods in town without getting beat up or even recognized as an outsider..which is kind of stretch) decides he wants to be the boss, and gets in over his head.

The community's informal rules (Bob Dylan's "to live outside the law you must be honest") were violated and the offender ex-communicated while the community comes together after the drama. Sometimes informal rules and norms for behavior do evolve and change for the better, however attempted "shocks" at change usually are counter-productive towards anything lasting.

The love story is wonderful, and the metaphysical ending relatedly was perfect as a counter-point to the subtext of violence during the rest of the film.

How is President Obama Like FDR, Let Us Count the Ways

2011-08-30T21:40:00.004-05:00

The Great Recession

The period we are living in now is unfortunately not too dissimilar from the Great Depression, when FDR got elected 4x to office. Government policy interventions are preventing the market from working, unemployment is high and prolonged, and we face an uncertain business climate, or, what Robert Higgs calls "regime uncertainty".

So what exactly makes FDR and President Obama ("O") similar, let us count the ways:

1) O keeps-up the rheotoric of "tax the rich" just like FDR kept raising taxes in the 1930's. Many if not most economists know that you tax the things you want to decrease the existence of. Taxing the rich (in the USA) means less rich (in the USA), and it is the "rich" who have the capital to invest in job-creating technologies and innovations. Therefore O's rheotoric has scared off those who have capital to invest in the USA, just like FDR's rheotoric and policies did the same.

2) O like FDR enjoys labor union support. FDR did the Wagner Act giving monopoly bargaining power to the unions, which increased unionization and therefore labor immobility by 200% in the 1930's, while O has a new National Labor Relations Board which creates fear in one of America's largest exporters (Boeing). The new activist NLRB makes potential USA manufactoring people think twice about investing in the USA and so go with China or Korea, Taiwan, India, Brazil, etc.

3) FDR created the SEC, while O has created the Financial Stability Oversight Council, neither of which address the problem of debt-creation (and write-off of interest on debt payments while equity, ownership interests, are taxed 2x) under the US taxcode, which started with the introduction of the Income Taxe in 1914. At least the SEC was created as a watchdog (albiet one which has shown agency capture theory has a non-disprovable hypothesis) while the latest under O is a pro-active rendition, one which makes the Administration and not the court system the arbiter of bancruptcy for privately-owned businesses if the goverment deems someone "too big too fail". This destroys decades of common-law bancruptcy practice in the USA and creates again more regime uncertainty. That giant sucking sound you hear is people running away from investing in the US economy due to a now ambiguous rule of law.

4) While FDR had his Works Progress Administration (WPA) which gave jobs to people building unneccesary public works in politically advantageous locales (those who gave FDR votes or those whose votes FDR needed), O has his "fiscal stimulus" doing the same, "creating jobs" for political reasons. Of course in both cases then these people are not available for real sustainable work in private sector profitable activities.

So then. The Great Recession (prolonged high levels of unemployment) which began with the housing market crash in the Bush II era in 2007 (the bubble and crash itself a product of bad policy) continues under the President Obama era.

Just like the stock market crash of 1929 under President Hoover ushered in FDR (and 10 years of an average 15% unemployment), unfortunately we find the same today. The housing-finance crash under Bush II, ushered in O, and so far we have had 3 years of higher than 9% unemployment (depending on how you measure it, some say as high as 18%). Prior to the 2007 financial crisis average unemployment in the US economy had been a satisfactory 5% for the previous 20 years.

Marx might call the similarities between O and FDR "history repeating itself as farce". Too bad.... no wonder US Government debt has garnered a down-grade.

If Not Now, When, Ben?

2011-06-17T18:27:00.003-05:00

Pretense of Knowledge Continues

Workers was pretty happy that the Fed chair went on the record saying that central bank monetary policy is not a "panacea" and that the US government too played a role in improving the economic outlook, specifically regarding the out-of-control spending of the welfare state.

These welfare state programs were set-up decades ago and just aren't sustainable given demographic shifts. People are living longer, there are less young taxpayers to support the not so young who are paid - way too early given new length-of-life expectations - to stop working, and concomitantly based on a decreasing rate of population growth. It would be nice, yes, to have a cogent immigration policy.

Well it turns out our optimism was premature. It's the same old thing. Yes balanced budgets and a fiscal policy which doesn't mean deficits, inflation, higher borrowing costs and debt build-up into the indefinite future is a good thing for business optimism and "job-creating investment", but well, just not yet, because we need fiscal stimulus (government deficit spending) to keep the recovery on track in the short-term.

So the question is when, then. Government spending crowds-out (replaces) private wealth-creating entrepreneurial profit-seeking because a dollar or a worker can't be two places at the same time, they are either working for the government or for someone privately investing their own money and taking risks from which we all gain.

As long as we hold on to the false notion that "stimulus" actually helps instead of harms there is no end in sight. More fake government "jobs creation" and government "investment". Until that kind of mass-hysteria populism type of thinking and discourse stops emanating from the technocrats (and well too the US President and Chairman of the Federal Reserve), we will forever be in a precarious situation.

There is no dichotomy between the long-run and the short-run. We are always in the long-run, so anything that can be done to make investors less nervous about the future should be done immediately. Increasing government debt and spending means wasted dollars means a devaluing dollar and a devaluing dollar expectation means no private sector dollar investments and no sustainable growth for those that live in the dollar economy.

It is always NOW in terms of doing the right thing to lay the foundation for a decent investment outlook. Workers thought maybe Bernanke finally realized that, especially as his Quantitative Easing has helped to create the largest price spikes in food, energy and other commodities ever. But alas, Helicopter Ben is ready for salvation (balanced budgets) but just not yet.

Central planners (government officials and the Fed, who seem to have a crystal ball, or maybe it is tea-leaves or tarot cards or the i-ching, in front of them) have been saying this for a few years now, we need to have a sustainable government expenditure outlook, but just not yet. It is getting old. Address the structural deficits now, stop saying 'stimulus' is helpful on the one hand, but harmful on the other. How lame.

A friend of Workers said he maybe hoped Ben would fall out of his helicopter. That is kind of mean, let's start with hoping he has enough gumption to be consistent and use his influence to help create a sound monetary policy, fiscal policy and rule of law (not least putting an end to overly complex and uncertain financial regulations that are chasing stock market listings to Asia) so that people actually want to invest in the US economy.

The IMF and Irresponsibility, Qu'elle Surprise !

2011-05-24T16:06:00.003-05:00

Why the surprise?

The IMF should have been liquidated with the end of the gold exchange period after Nixon pulled out in 1971 in order inflate to fight the vietnam "war" (are we calling it a war yet or is it still a "police action"?). The IMF's purpose was to facilitate the gold exchange, so when that ended so should have the IMF's existence. But no (and the whole fixed exchange rates thing of the Bretton Woods was unsustainable, as all fixed prices are in the long run, with, usually, someone, someone wealthy with lots of patient capital, making a fortune when the dam does break).

Now the International Monetary Fund is in business to bail out nation-states that are irresponsible in their fiscal and monetary policies. And as a fun highlight, keeping people in power in irresponsible countries longer than they should be, suppressing dynamic change and economic and social liberty.

It shouldn't be too surprising then that the person in charge (and who elected him Workers wants to know?) of rewarding this irresponsible behaviour of promising to the populace more than the populace is willing to pay in taxes, and then not being able to make the interest payments on the debt unless getting a bailout from the IMF? Why should the person in charge of bailing-out the international monopoly-capital power structure (those staying in $3,000 per night hotelrooms on the taxpayers' dollars and yen and pound etc.) not act in a corrupt manner in his private life (if indeed he did, innocent until proven guilty, but the point here is that it should not come as surprise)? He is above the law is he not, because, well is international law really enforceable? No.

Two Steps Forward and One Step Back

2011-05-17T18:52:00.003-05:00

And so it goes...

The fun and encouraging new is that:

1) The new Atlas Shrugged movie is out (Part One anyway), and it is truly inspiring in the scope of the narrative (albiet if sometimes with B-movie hokieness, which of course can just add to the charm) and the cinematography. The broad sweeping shots of technology and entrepreneurial charisma over-coming the limits (mostly fear of the unknown) that man puts upon himself are spot-on, and as well are the scenes of the social and economic vampires (rent-seekers in economic parlance) who prey on the boldy innovative to redistribute, as opposed to create, wealth.

The film does not hit you over the head with these ideas (which some would call dogmatic), rather, the film allows the Ayn Rand story and themes to evolve over the length of the film.

2) The sequel to the economic rap video "Fear the Boom and Bust" is out, it's called "Fight of the Century". Not to give away the "plot" so to speak but the story actually has a surprise ending (the whole production is wonderfully O'Henry-esque).

Keynesian economics was proved historically as a failure in the late 1970s due to stagflation, yet Keynes wins his "fight" with Hayek, who today is seen as the avatar of a freely-associating sociey (Hayek as the anti-Marx, for those that had to live under the Marxist regimes of the USSR-era).

Establishment (Keynesian) thought is that, yes, we want to cut unsustainable welfare-state government spending, but not quite yet. (So when then?) This is the mainstream unquestioning, logically incoherent, remedy for a weak recovery called for by, not least of all, the Economist magazine, with a more than a one million readership (even more, but not by much, than people people who buy Ayn Rand books yearly).

The new video outlines this "fight" between the opposing central-planning "experts decide" Keynesianism versus the individual choice "bottom-up" Hayekians in crystal-clear terms, and too has great production sensibilities.

The bad news is not really news as its just the same ol' same ol'. The Obama administration won't allow trade agreements to go through as wants to "protect jobs" in the USA. Of course, the "jobs" (isn't it really better to work for yourself than to have a "job" so the whole "saving, creating, growing jobs" is a false argument to begin with !) that the administration wants to save are the overly-priced labor union jobs, a vestige of the 1935 Wagner Act when unions were given monopoly bargaining power under the "New Deal" (new deal for some that is) to gain votes for FDR. Of course these same labor unions are big contributors to the Democrat party through to today.

Free-trade benefits the consumers in a country by giving lower-cost improved standards of living, and too the producers in a country because they get access to cheaper inputs to producton (intermediate goods). This then "creates" jobs because the costs of inputs are cheaper so firms can hire more labor to work the cheaper inputs.

Trade barriers are a welfare transfer from everyone (we are all consumers are we not?) to a select few (those whose wages are higher than they should be due to historically-contingent political economy).

In addition over history we are finding that societies move from manufactoring to service and information-based economies. Isn't it better to do creative work than to work at some 9 to 5 job on a assembly-line? Why should we not give our manufacturing jobs to others just starting to earn wages while we keep more intelligent work for ourselves?

Why should the unorganized masses (consumers) pay for a transfer of wealth to the rent-seeking organized few (the over-priced labor unions)?

Is this special-interest group political economy really the end result of democracy? Workers has been called an idealist many times, but we call injustice when we see it and cannot, nor would we want to, live any other way.

Politics Does Not Have to Be "Us v. Them"

2010-11-26T18:25:00.004-05:00

A new more human way of thinking

David Nolan just died at age 66. What he did in 1970 was create a whole new way of thinking in politics. The world does not have to be Us versus Them, right versus left (or left versus right) as has been the tradition in political choice in modern politics since the beginning of constitutional democracy. Nolan had the idea that both the left and right wanted statism when it suited them (big government on the right for national defense and imperialism and big government on the left for welfare and social programs) and both sides decried statism when it wasn't in their interest though supported it when it was.

Nolan cut to the chase on this thinking and created what is today known as libertarianism, where we know that BOTH sides want the state to intervene when it suits their own special interests. And that the key to human freedom is to minimize the coercion of the state, no matter left or right.

This idea was made manifest in the "Nolan Chart", the world's smallest political quiz, where one could see where they stand on interventionism. This quiz has been taken by many millions of people to help clarify their thoughts on political philosophy. Where do YOU stand ? :-)

The welfare state is bancrupt (and here Workers means fiscally not morally, though that is another story) witness the huge budget deficits and near bancruptcies in the EU, and the USA with our devaluing dollar.

Thanks to Nolan (RIP) we can see a way forward. Nolan's ideas hark back to the ideas of classical liberalism and the Enlightenment, though these ideas have been distorted as played out in the modern state, Nolan helps us to understand why.

History Repeating as Farce

2010-10-03T00:16:00.003-05:00

Marx is funny (sometimes, when prescient)

Ok so now, well China owns $1 Trillion or so in US government bonds or US government-backed bonds. And so, what does the US government (Congress most recently) propose to do, but well of course ! It's time to raise tariffs against the Chinese. Just like when Hoover raised tairffs under the Smoot-Hawley Tariff Act of 1930, it's time of course to do so the same again under today's Great Recession when US uenemployment has been sustained at high levels just like during the Great Depression.

It would be funny if it wasn't so sick. Just like Marx said (a great writer, a horrible economist) history repeats itself as farce. What we need of course is more trade and more low-cost input-goods not higher tariffs. The Chinese keeping their currency undervalued hurts only their own in-country consumers, their own poor. It would be nice to think that the reason the US Congress and our not-so-new anymore President are upset about China's currency policy is because it hurts the China poor who haven't been able to see the benefits of world trade since the 1980s because the China currency policy has prioritized their exporters over the general populace.

But of course that is not the case, the reason the powers-that-be in the US government are upset about China's currency policy is not that it makes things cheaper for the average American, both consumer and producer, it is because it hurts those inefficient American businesses that have high labor union costs, and therefore aren't competitive in the world export markets.

Ah again it would be funny if it wasn't so obvious. Just another reason, like expanded unemployment insurance discouraging job-seeking, stimulus programs creating investment uncertainty, and low-cost money discouraging productive investment, that unemployment stays high and the dollar goes down.

Yes history repeats as farce, thank you Karl for that nice catch-phrase. There won't be a workers revolution but maybe someday, yes, people will lose their consciousness-fetters and vote free-market liberals into office and the farce can then therefore end.

What does Government Cost YOU

2010-09-25T19:38:00.003-05:00

We are all unique

The Indepdendent Institute out of Oakland CA has come up with a calculator that shows how much government programs cost each of us based on our status in life. Instead of assuming like government programs do that we are static people defined indefinetely, their calculator lets you input where you are in life, what you pay the government and what you get out of it throughout your life, versus if you were free to keep that money on your own and then do with it what you see fit as you move on in your different life aspirations, whatever they might be. Needless to say many people might be as Jack Nicholson said in that movie with I think Tom Cruise and Nicole Kidman (though Workers could be wrong about the reference here not that it matters), "you can't handle the truth". Maybe you can.

Power Corrupts: Christina Romer is Free Again

2010-09-02T22:42:00.003-05:00

Toe the line

Today was Christina Romer's last day as Chairperson of President Obama's Council of Economic Advisors. And Workers wishes her happy trails and providence with good works now that she is free to pursue her own vision, and to continue her life in California with her family free from public scrutiny.

Prior to joining the 'administration' Prof. Romer published an article or two that said tax decreases gave a greater "multiplier" than did government spending ("multiplier" is Keynesian-speak for government spending or tax cuts being a way to stimulate a moribund economy, e.g. policy changes can 'stimulate' the econony through ripple effects). And any establishment economist must speak in terms of the Keynesian rheotoric as that has been the language of the discipline for longer than Christina Romer has been alive.

However when the Obama administration was pushing for its almost $800 million 'stimulus' program (mostly special-interest government spending, though tax cuts did play a small part) Ms. Romer's scholarly findings seemed to have been lost. The administration in its budget proposals said that government spending created larger 'multipliers' than did tax decreases.

This public record must have been shameful for her, but understandable because one does not gain political power without sacrificing ideals. Unless those ideals are to diminuate your own poltical power and control over others, and that is not how mainstream politics is played in a world of discretionary government spending with campaign donors expecting payback. You don't become a political appointee by recommending that your potential employer give up his or her authorities.

After-all tax decreases, as opposed to more government spending, mean more money in the hands of people who can then actually pursue creating products that people want to buy on their own voluntarily, with more money for producers seeking a profit (e.g., sustainable investment) and more money for consumers to buy those products, versus government spending increases which just skew society's scarce resources towards what the government sees fit per political payback without the profit motive (or, once the government funding is gone the production is gone, e.g., unsustainable investment).

There is a quote from Ms. Romer's swan-song speech that "to this day economists don't fully understand why firms cut production as much as they did, and why they cut labor so much more than they normally would". She must know of course, being a scholar of the Great Depression, that the reason for this cut-back in future-oriented business action is that when government creates an unstable investment climate (of course at first blush one example is stepping on the rights of bond-holders in the GM 'restructoring' and at second blush an administration that is 'progressive' in their willingness to increase taxes on those who invest in business, i.e., promoting capital gains and dividend tax increases) this means that people are unwilling to hire employees for the long-term because their business acumen is not appreciated, or to be more blunt, is overtly penalized. Capital formation, the engine of economic growth, is thwarted by expectations of adverse government policy.

Ms. Romer also in the same speech said that the Obama stimulus prevented a depression. This is a question of semantics. Isn't more than 9% unemployment for two years already a depression? There has been positive econonic growth, yes, small business below the radar of progressive politics has been the engine of economic growth in the USA since even before the time that the concept of 'progressive' politics was established.

Workers attended an economic conference in the USA around the time that President Obama was elected (it doesn' t really matter who was elected for the purpose of this story), and attended a session where Ms. Romer and her equally esteemed husband, also an economist (if memory serves, this was of course a couple years ago) were to give talks about economic history. It was announced that the Romers couldn't make it because they were busy "running the country".

This is kind of weird because the whole idea of the USA is that everyday people are supposed to run the country and the government is supposed to work for the people. Oh well, times change. Ms. Romer will be no doubt much happier (and less prone to distortions in her research, her life's work) in Berkeley than in DC.

The Drug War and Policeman of the World

2010-08-22T11:28:00.004-05:00

More unintended consequences of bad policy

The Thais have ruled that Russian Viktor Bout can be extradicted to the USA for arms-dealing in Columbia.

Let us examine what is wrong with this picture...is Thailand part of the United States, no. Is Russia part of the United States, no. Is Columbia part of the United States, no. So, why is the US Government telling another country what they can and cannot do with a citizen of another country who is accused of selling weapons in a yet a third country which is not part of the United States?

It goes to the Drug War. The US is highly-involved in telling Columbian peasants (through influencing the Columbia government's domestic policy as part of our 'aid' to Columbia) what they can and cannot grow on their own land.

This in turn of course creates counter-movements (FARC) against this violation of individual rights. The Drug War creates monopoly-rents (super profits) for those selling drugs because it reduces competition. This then creates an incentive to use force (violence begats violence) to maintain these super-profits. So it is not surprising that this in turn creates a demand for weapons to ensure the maintaining of 'market share'. Human behavior is such that when there are profits to be made a market will develop.

A cynic too might add that perhaps Nation-States do not like competition in arms, prefering to dominate this sector themselves. However, workers does not like to resort to cynicism and perfers to look at the economic-incentives involved.

US foreign policy is just loaded with unintended political economy consequences.

Other countries free-load on the US military, who is seen as the policeman of the world. This creates the US taxpayer footing the bill for the military defence of other countries (i.e., NATO a verstige of the Cold War and now 60 years old, whereas the Cold War has been over for 20 years) removing other countries from being responsible for their own self-defence. In addition interventions create animosity from the citizens of other countries who no doubt wonder why US soldiers are wandering around their land. Some react against this presence violently. This makes US citizens less safe, another, major, unintended consequence of interventionism.

The thing to do today of course is to get back to first principles, which is this case, "first do no harm".

This should start by winding down the drug war, pulling back US troops from the more than 100 countries in which we have a presence, pulling-back interventionist 'foreign aid' and in general a new policy of stopping the futile attempt at trying to police, and nation-build, the world.

In short, we need to stop our 'entangling alliances' which would vastly increase both our economic well-being and our civil liberties. Our conduct abroad, is well, embarrasing, and so easily remediated, if not for the special interest groups involved in all of these interventions. None of these groups perhaps wish to cause any of their unintended consequences, and perhaps each group in themsleves cannot see the larger picture of the harm and corruption caused by each. But those that live in a democracy have the right to protest these policies.

The Fed Gets it Wrong, Yet Again

2010-08-11T19:31:00.002-05:00

But the Fed Doesn't Operate in a Vacuum

The Fed has recently announced that it is explicitly (as opposed to doing this anyway without a policy pronouncement) going to buy US government debt to keep interest rates low and prevent a double-dip recession. Not that we recovered from the first one, known as the Great Recession of 2007-2009, what with unemployment still above 9%, 5% unemployment being the historical average in the latter part of the 20th century and the first part of the 21st century, e.g. we are at still almost double the historical average unemployment rate, but with positive economic growth. This, just fyi, is the exact same situation as the Great Depression, albiet with a somewhat lower unemployment rate. Thank you China and India for the trade, something lacking of course in the 1930's.

The New York Times (which is of course the paper of record) had a front page article on this today and this article was very nice in capturing the fallacy of the Fed's (and, well, others who are into the business of 'demand management') thinking.

The idea of the Fed buying government bonds is to keep interest rates, and thus borrowing costs, low. The fallacy here of course is that interest rates have been near zero for banks for the last 2 if not 3 years, e.g., banks can go to the Fed for this cheap money with less than stellar collateral. The problem, and more on this later, is that the banks have no incentive to lend.

The borrowing costs for government debt are a risk-free benchmark (now is it really "risk-free" given the historically high US - almost Greek-like - debt and deficit levels ?) for more risky private sector lending, and was pushed below 4% for the 30-year government bond with this pronouncement. Of course the pronouncement was to assure the markets that the Fed would continue a low interest rate policy onward, something, it should be noted, that Japan has done for almost 20 years now, resulting in low economic growth and a devaluing Yen for Japan since this policy began.

Low interest rates mean "easy money". With easy money no one has an incentive to economize. Just ask the Holy Roman Empire (Spain and Portugual) who got all the gold coming from the Americas in the 1500's. They didn't invest this money, just spent it, those lower on the food chain of the gold coming in were the first to industrialize (England, the USA, Belgiam, France, Germany) because they had the incentive to do something useful with their scarce monetary resources. Spain and Portugual just squandered-away their easy money because it wasn't scarce.

Yet, banks aren't lending except for high collateral positions...and why is this? The answer is simple, as Robert Higgs said, "regime uncertainty".

We are having alot of investment climate uncertainty under the Obama administration, the health-care reform (e.g., central planning of same, e.g., a mega-page piece of legislation effecting between 15 and 20% of the US economy - Workers would put the link to this more than 1,600 page bill here, but it would freeze your computer to download it - that the politicians didn't even bother to read, how could they, it would take months! before passing it, well, let's say they read the parts that made sure their own speical interest groups were included and/or exempted), new financial sector rules which don't address the causes of the financial crisis in the first place - meaning Fan and Fred, the CRA, the systemic risk caused by the Basel II standards encouraging banks to load up on the government-backed mortgage bonds, and in fact the whole overt national policy of encouraging people to buy houses they can't afford - and then of course impending tax increases, not just with the expiration of the Bush II tax-cuts but the business-as-usual tax-the-rich Democrat modus operandi, and lastly an Administration which overtly states they will put their "boot on the neck" of private citizens.

[On the latter, and as an aside to this blog posting, frustration and anger over the BP "Deepwater Horizon" oil spill in the Gulf of Mexico may be undertandable, if, well, the government hadn't limited the liability of those doing business off-shore in the first place, skewing the risk-return calculations of BP, e.g., government policy underpriced the risk so BP took more risks than they would have had not the government limits been in place. BP cut safety corners because they didn't have the incentive to face-up to the full liability that their corner-cutting would have cost them given an accident. The accident occured, not surprisingly really, given the incentives BP faced due to government policy. Still, "boot on the neck" is not really a rheotoric that those with money to invest like to hear.]

Ok, back to the Fed policy....The Times states that the Fed's low interest rate policy is "to encourage consumer and corporate spending". This is fallacy number one, numero uno supremo, of "demand management", e.g. of Keynesian economics, be it on the fiscal side ("stimulus spending") or the monetary side ("low interest rates"). Economic growth comes from investment and capital accumulation, not spending. To encourage spending with easy money is a short-term fix with long-term consequences. The road to long-term prosperity is low taxes, low inflation and a solid rule of law, all of which are being ignored today. The world is small, when the USA creates regime uncertainty, capital goes elswhere.

But the bigger picture here is that the US has too much of a debt culture as it is. The last thing we need is Fed and other government policy encouraging more debt. Debt creation is prioritized in the tax code (mentioning the tax code is usually when people's eyes glaze over, but it is the crux of the problem with the US economy today), with interest on corporate debt and mortgage debt being a write-off on taxes. What we need is more equity ownership and less debt creation.

The problem is that equity is taxed twice on the tax code, first, dividends on shares are paid after a corporation pays its income taxes. Then dividends are taxed again on the personal income taxes of those that receive them. This results in what the great American social scientist Thorstein Veblen called "abstentee ownership".

Corporations are not run by those that own them, but by the managers of these corporations who make fees everytime debt is created. This is how they can pay themselves such high salaries without the owners of the companies saying "enough is enough". The tax code as is, and the Fed policy of encouraging debt creation through easy money, means that no one is watching the store. This will be even worse under the expiration of the Bush II reduction of capital gains and dividend taxes.

An increase in taxes on capital gains and share (ownership) dividends means less capital accumulation and a more leveraged (debt over equity) position for American businesses. This just enlarges the power of the managerial class over the ownership class (and more than 50% of Americans own stocks). This just inflames the rheotoric of an aritificial class divide (the managerial class who creates debt, earns fees and profits and thus bonuses from creating this debt) against those not in this class (e.g. those that work for themselves or those that work for others on an hourly wage or salary only, or, perhaps, too with some relatively small stock plan) on behalf of politicians, whose policies, in fact, have created the problem in the first place.

This populist political rheotoric, Main Street versus Wall Street or whatever, is an easy kill for the mainstream politicians, and we need to take this fear- and hate-mongering away.

The Fed indeed does not operate in a vacuum. The economy, and society, is an organic whole. Marx called those economists who did not question the underlying power relations in society "vulgar economists". This blog entry is meant to tackle the larger, institutional issues, causing the malaise in the American economy. The solutions, as gleaned from the above narrative, are plain. Allow private money (non-inflationary) competition against the Fed, reform the tax code to equalize debt and equity, and, stop the ill-conceived and long-lasting government policy of 'demand management'. Only then can we recapture an open-ended America where capital accumulation and economic growth (prosperity creation) can be our future.

Kudos to DC Schools Chief

2010-08-05T18:13:00.004-05:00

Be Wise, Decentralize

Workers, who seems to spend alot of summertimes in our Nation's capital, is very happy to see that the the DC Public Schools Chancellor, Michelle Rhee, is taking on the public schools union (a huge donor to Democrats, and DC, if nothing else, is hugely Democrat). Ms. Rhee has had the fortitude to fire more than 150 union-member school teachers based on lousy local test results and assigning responsbility for these tests to specific teachers.

"Teaching to the test" isn't such a great a idea, but oftentimes you have to play the game from the inside to make change from the inside. Once you are a member of a union usually you can't be fired no matter how lousy a teacher you are, and if you can't be fired, then, well, what is the incentive to perform besides a love for your craft. But, if love of your craft is taken away by the non-creativity and strict rules that union-based education and government standards bring, well then it is a Catch-22 that needs reform.

For those of us that support public funding of schools (if not necessarily of course public provision of schooling), as some type of public good for our "republican democracy" (whatever that means besides, it seems, in the modern context of a state which just grows larger and larger while independent choice and concumbent responsibility grows smaller and smaller) with the end-result being an educated voter-age populace, then anything that curtails the consistent decline of American public (e.g., labor-union supplied) education is positive.

Washington, DC is not a state, so it is highly-dependent on federal funds, and the vagaries of the purse are especially strong for DC's local efforts in improving educational quality through market-based, parental-choice, alternatives to the mainstream public schools, especially given that the recent Congress and recent President of course are Democrats and get, again, huge amounts of money for the election campaigns from the teacher's unions.

So therefore it is doubly admirable that Ms. Rhee is biting the hand that feeds both locally and 'federally'.

Lastly what she is doing is in reality just reacting to supply and demand. The DC public schools have lost 1/3 of their students to charter schools. At the same time private philanthropy is filling the gap for funding charter school education while the Democrats have hemmed-and-hawed at funding the reform that students and their parents obviously support. So, while less students attend union-staffed public schools, and more attend innovative and demand-driven alternatives, the right thing to do is indeed to lay-off the union teachers, and good for her. Give the people what they want.

Trade Doublespeak

2010-05-20T07:40:00.003-05:00

Talking from both sides of the mouth

President Obama has recently made two announcements of interest regarding trade policy. These announcement again confirm "Sowell's Rule" which states that the first law of economics is that resources are scarce and that the first law of politics is to ignore the first law of economics.

President Obama's first illogical statement is that the best trade policy is one of "free and fair trade". Free trade and fair trade are polar opposites and are not compatible policies. Free trade means laissez-faire and let the market decide with the consumer (everyone) winning through cheaper goods available in the market. Fair trade is protectionism where the government decides what special interest groups should get preferential treatment in trade policy. In a Democrat administration this means distorting the market towards industries which hire labor-union members, labor of course being big donors to the Democratic Party and to the individual campaigns of Democrats running for office.

In fact the Oxford Dictionary of Economics states under "fair trade",

International differences in labour protection laws or in the regulation of the environmental externalities are sometimes cited as unfair advantages, which call for intervention on 'fair trade' lines. 'Fair trade' is basically an emotive term for protectionism.

The point is is that free trade is not fair trade and fair trade is not free trade, thus the President's pronouncement is thus by definition Orwell's doublespeak, pretty scary stuff coming from the erstwhile leader of the free world...

Illogical trade policy number two is that the President would like to see exports double within five years in order to create jobs. This one is really filled with doublespeak. Of course the government can create exports by distorting the market, just as China does by holding down the value of the yuan, reducing the purchasing power of the nation's 800 billion peasants in order to gain monopoly rents for exporters and more hard currency for the People's Bank. It's easy, just devalue the dollar by printing more money or give money directly to manufacturers to subsidize (make cheaper) their exports.

In fact this is exactly what is happening, witness the $20 million in stimulus spent in Ohio to upgrade an obsolete manufacturing cluster, which of course then creates over-priced labor-union jobs, crowding-out real job creation that doesn't need a handout to be productive. The government can only take money from productive business people and then give it to less productive business people. This doesn't create jobs, it takes resources from where they would be more effective and actually create real jobs which are sustainable without a handout and gives resources to areas where they are less effective (less effective economically let's say, but more effective politically) creating phony unsustainable jobs.

Command-and-control economies are a joke. The Soviet Union did this, stating for the record that the nation's income was increasing at something like 10% a year. In fact, yes it was. It was creating stuff that nobody wanted to buy absent force and had to buy because imports were limited. And the ruble devalued at roughly the same rate as the economy grew, eventually becoming virtually worthless. Is this what we want for the USA?

The New Robin Hood Movie

2010-05-19T20:06:00.003-05:00

Rise and rise again until lambs become lions

Workers saw the latest Sir Ridley Scott film with an old friend in DC for a short visit last weekend, like Blade Runner nice and dark and keeping it real. The movie is not really a tea-party thing but more like a libertarian thing. Meaning, its not a temporal reaction to current political events but is grounded in more lasting and meaninful principles of human dignity.

The movie takes place in the late 12th century at the height of the medieval economy, prior to the reformation of the church, but shows why indeed the reformation was necessary. Not to give away the film, but Robin's dad was an early libertarian, fighting the faulty notion that man is subservient to his government and that it is individual rights which lead to prosperity and justice.

The film is a fun mix of action film, buddy movie, love story, good versus evil, clever Hollywood one-liners, and the decrepitudes of the ruling class and of how excess taxation destroys capital accumulation and economic growth. There is also the necessary example of the incessent fighting between France and England during the pre-modern era and this plays well into the story of how the rulers need the ruled more than vice-versa.

Alot of the film is anachronistic in terms of political thought viz the enlightenment but the depictions of the serfdom mentality and social relations is spot-on. Highly-recommended.

Post-script: Iron Man 2 is also pretty good and shows why competition necessarily prevents duopolies or cartels from lasting, but the film is over the top, and it's weird to hear Robert Downey Jr. mouth the words of Ozzy Osbourne but this yes might bode well for the summer. And Mickey Rourke has a wonderful role, with a nice grasp of the Russian language (well, kind of like Brando's french in Last Tango, which wasn't bad!) and technological prowess. And Scarlett Johanssen as an action hero is worth the price of (matinee) admission.

No Bailout for Greece

2010-05-05T00:42:00.003-05:00

The "liquidationist" approach

The problem with the Euro is that it removes fiscal accountability from the member states. Member countries can "fee-ride" on each other, and, there is/was no mechanism to ensure that Euro-zone members remained responsible once they got into the 'zone' so to speak. Irresponsible governments can borrow cheap and spend large by mooching off the better spending habits of more responsible nations.

The Greek crisis thus is no surprise and is the inevitable outcome of a political- economic union that is too big for its own good (as are most nation-states). And as always it is the political (redistributionalist) class who gains over those who would rather spend their time doing useful or creative things.

Prolonging the Greek's paying their own way just costs the Euro-members a devalued currency in the long-run because only Greece can solve its own internal fiscal (government spending) problems. Sure, other people in the Euro Union have lent Greece monies, but, they have done so voluntarily, and would not have done so if they didn't think it would have made a good investment.

So the investments went bad? Isn't that what entrepreneurship is all about? You take a risk, sometimes you win, sometimes you lose. Bailouts just socialize risk on the downside while privatizing return on the upside, meanwhile it's those who can't afford to gamble who pay for those that can.

This pattern has repeated itself over and over throughout history in every bailout situation, while the bailouts just prolong the inevitable. Let Greece declare bancruptcy, and we can then have an ordered work-out of restructuring according to rule-of-law. By denying this we deny investor responsibility for their own actions, this is a slippery slope to more bailouts elsewhere and the fallacy of 'sysemic risk'. Systemic risk is caused by, and not the result of, bailouts to irresponsible parties.

There is no 'system'. It is individuals (or corporate entities responsible to their equity-holders) who take the risk and contract voluntarily for what they do. If these decisions go bad, well then, take the loss, and learn from past mistakes. Bailouts prevent 'progress' and direct resources towards waste, hurting the poor most of all, who need the growth of decent investment, not prolonged investment towards irresponsibility.

A Greek bailout just prolongs Greece's necessary restructuring, which is not too different from the necessities faced by most nations. The government sectors, and those who receive monies from the government, need to downsize and reduce their expectation of entitlement.

This is the fallacy of 'stability'. There is little stability in the human condition, least of all when it is expected from the state, who inevitably, promises more than it can provide without harming most people when the inevitable day of reckoning arrives.

Victimless Crimes and State Budgets

2010-03-05T17:02:00.002-05:00

Free the innocent

The paper of record, yes, the New York Times (not the Daily News), had an article today on how states are putting in place early-release programs to reduce their budget expenditures, and, how citizens are becoming concerned over the early release of violent criminals. Well, the solution to that is quite easy. States should just free non-violent criminals, or, easier-said, should free those who are incarcerated for victimless crimes, or, in other words, people who are in jail for what philosopher Robert Nozick called "capitalist acts between consenting adults".

The most obvious examples of victimless crimes are the drug laws and laws against prostitution. Needless to say, making these things illegal just drives these markets underground while the business goes on. It is stupid public policy, and the budget crunches are a good opportumnity to correct this historical foolishness.

In fact, Kristin Davis, who recently declared her candidacy for governor of New York has proposed exactly this. She is running on a platform to legalize and tax these victimless crimes. While taxing is never a good idea, it might be if taxes (and spending) are reduced elsewhere. Of course, if the police didn't have to enforce these bad laws they could focus on crimes where people are actually harmed. Go Kristin, you have Workers' vote.

President Obama, Jobs, Retirement and the Budget

2010-01-30T17:14:00.006-05:00

A modest proposal

President Obama has recently stated that 'jobs creation' is now his number one priority. The President has also stated that he would like to see Americans save more for their retirement and that he would like to close the gaps in the Federal budget. (The US Government is currently running a deficit close to 12% which is the same as Greece's, who many are putting on the "bancrupcy-watch", albiet Greece's debt is much higher as a percentage of their economy than the USA's and this only because Greece has been running the large deficit longer).

So Workers of the World has a modest proposal to accomplish all of the President's goals for the economy.

First-off, there is no incentive, really, for people to save for their retirement as long as the government is pretending to do it for them ('pretending' because there is no social security trust fund and the program will soon too be running a deficit as more people retire relative to those still working). Goverment "social security" entitlement spending crowds-out private incentives for personal savings for retirement.

The President acknowleges that a reduction in payroll taxes is one way to create incentives for people to hire more workers (a reduction in payroll costs means that it costs less to hire workers so therefore more workers can be hired with a reduction in payroll taxes).

Finally, We know that currently Federal entitlement programs in the USA are around 10% of national income, projected (according to the Economist magazine) to be around 20% in just 5 years.

When you combine the above facts with the fact that payroll taxes for entitlement programs are the largest taxes in paychecks, and that it is entitlement programs which can't be cut from the Federal budget without reform, we see that reform (in fact, elimination) of entitlement programs can achieve all of President Obama's goals: create more private savings for retirement, reduce payroll taxes which would increase employment, and, reduce the Federal budget deficit.

Of course, these entitlements (and this includes health entitlements, also part of the payroll tax) need to be eliminated over-time so that those who have been promised, and who have had started to pay for, these unsustainable entitlements receive what they have been promised. The reform must clear and open, for example increasing the retirement age every year until it reaches 100 years of age, and, decreasing the medicaire/medicaid payments $100 per month every year for those that today start paying into the system. It is doable, and needs to be done.

NYC Budget Crisis 2010

2010-01-29T11:50:00.004-05:00

Kudos to the Times

The New York Times has an excellent article today on the current municipal budget problems in New York City. It covers all the bases, how everyone (e.g. those that get money from the city) wants to see spending cuts, but not their own, how budget formulators put the most critical things on the chopping block (teachers, policeman, fire stations, soup kitchens, garbage removal and cleaning of roads) instead of things like 'back-office' and 'front-office' support, how the high salaries of government workers, including the Mayor's ex-campaign manager, are off-the-block for cuts, and how the unions immediately so No! to any 'sacrifice' (even one that includes a raise).

The writer, Clyde Haberman, also states how we have been here before, in the 1970s, so to sum-up, it takes a crisis to wake-up to reality sometimes, but again, it's just politics as usual and the only solution is to reduce the things that we believe the government should be doing (drug war, menu-labelling, salt and fat bans? More charter schools to increase competition and thus reduce public education costs?), that is the only way to get the deficit under control. At least the Mayor (as far as I know) is not resorting to "tax the rich" populism, which is indeed what gutted the City in the 1970s.

Cities Now Seek the "Blank Check"

2010-01-22T22:46:00.003-05:00

Fiscal policy begins at home (or does it?)

Ok, so far we are in a jobless recovery.

The recovery is jobless due to Federal bailouts and other programs which have prevented the market to correct itself (e.g. prices to go down through bancrupcy) against over-priced housing and the encumbent debt created in the economy by over-priced housing derivatives backed, again, by the Federal government and through expansionary monetary policy by the Federal Reserve Bank. Or, in other words, government policy is not allowing the bubble to "pop" to free up money to invest in better things.

So now the Conference of Mayors are asking for another "stimulus" package at the Federal level to come their way.

Of course this is besides predictable just another example of the unintended consequences of government intevervention. Instead of the cities cutting their own budgets and being responsible to their own cititzenry they (the Mayors of these cities) want to pawn-off this responsbility to the Federal government who has of course a money "blank check" because the central bank will buy all the Treasury debt that the Federal government wants to create.

There is no free lunch, everything has an opportunity cost. More Ferderal Government money flowing to the cities means that more Federal money is needed. This means that, as more Federal government money (e.g., the central bank - Ben Bernanke - printing money) is created, the value of existing money (dollars) goes down. So you and I, the Workers of the World have to pay for the political opportunism of local politicians.

The only status quo solution, and Workers is sorry to say this for those that think government can help improve our lives, is to decrease the value of our money to help politicians locally at the expense of hurting everyone globally. Needless to say this this is why coffee, for example, has gone from $9 a pound to $11 in the last year. Or dishwashing soap from $.99 to $1.29. Or the subway from $2. to $2.25, and we could go on. It is the poor who, ironically enough, get hurt by populist politics.

Is this anyway to live? Politics really suck (J.J. Rousseau in the 1750s said that politics ruined people's innate good and said this in an idealistic reductio ad absuridum way, if only he could have lived to see the modern welfare state today !), and the only way to stop the blank check is to end central banking and let real money trade competitively in the market and to see what money-forms develop in healthy competition. This may sound radical, but in fact, as we have seen with the bailouts, it is the real populism. The Federal Reserve Bank dollar needs competition, the free-banking alternative, now, to keep it honest and to allow politicians at all levels to be accountable to their electorate.

Stopping the blank check of the Federal government will of course then create less bailouts, less war and a better economy, as government spending will become more costly without the blank check. And less government spending means more real spending by people who want to create things that people want to actually buy voluntarily and as well does not destroy living standards, most incidiously of the poor, through creeping, or hopefully not, rapid inflation and devaluation.

But this in not what politicians want. Today the Federal grants to cities go to the Blue (Democrat) states, tommorrow they will go to the Red (Republican) states. This is devisive, dividing, and not-at-all condusive to a unified sense of well-being. Marx said that politics is used as power by the minority to control the majority, the power just trades-off between the Blues and the Reds, whereas to end the vicious cycle and enforce real accountability on the political class, an end to the "blank check" is needed.

More Fuzzy-Headed Logic in Joseph Stiglitz's New Book

2010-01-19T21:13:00.004-05:00

Or, more beating of the dead Keynesian horse

Stiglitz has a new book, "Freefall", where he says that the fiscal policy of the Obama administration is unsustainable. Of course it is ! It is the exact same Keynesianism that Stiglitz has been arguing for at least 5 times as long as Workers has blogged.

Stiglitz is self-admitted Keynesianist, yet he says that the Obama administration policies are "win-win-lose", e.g. the banks win, investors win and the taxpayers lose. That is the very definition of Keynesian economic management. Prof. Stiglitz, please, you can't have it both ways.

When you believe that the government has a role in stabilizing the economy, through fiscal and monetary interventionism, it is the very definition of the "socialized risk and private gain" you proclaim to detest so much. I mean, through who else but the banks, through discounted money offered by the Fed, is monetary policy conducted? And fiscal stimulus is nothing but the government spending money on things they deem as priorities, correct? How is this not 'socialized risk'? Giving grants and contracts to people, by taking money from the taxpayer, is the same thing, "socialized risk" ! What is so hard about understanding this ?

You call for a larger redistribution of money from the rich to the poor (is there not social mobility? Are not yesterday's poor tommorrow's rich, and, well, vice-versa?), is not this as well socialized risk? Those that take risks, by saving and investing and making entrepreneurial decisions, that, with luck and foresight, pay-off, aren't they private risks? You want to create counter-incentives towards doing this with a 'soak the rich' tax policy. That giant sucking sound you hear is American money going to Singapore and Brazil, no doubt you will complain about the lack of quality jobs in the USA, once investment flies off-shore with an overly-progressive tax structure. Local investment is needed to created local jobs; a high-tax rate does not accomplish this needed positive investment climate. It is the taxpayer, e.g., everyone, who loses when investment is not made due to a bad investment climate. Again, why do you argue the opposite?

You want a new International Financial Architecture, e.g., a global central bank. Is that not just creating socialized risk and private gain at a worldwide level? Has it not been shown, the unsustainable Bretton Woods and interwar gold-standards, the Latin American and Asian and Russian currency crisis?, that fixed currencies don't work?

You say that the recent crisis was due to "unrelenting pursuit of profits" in an unregulated economy? Ever hear of (of course you have, you have a Nobel and teach at Columbia) the FDIC, Fannie Mae, Freddie Mac, the FHA, the SEC, the Community Reinvestment Act, the Basel Standards? These aren't regulations?

Wow. It's so hard to understand how and why you can actually believe these things you tie to the problems we face versus the solutions you offer. Time to give it up, and face the logic. Central-planning of the economy is by-definition the very thing you proclaim to detest.

The Fallacy of "Stabilization"

2010-01-07T11:40:00.003-05:00

Prices need to adjust

The Times today has an article about "some at Fed" who believe that we need to "do more for housing". This is of course a fallacy. There was a housing boom and bust, and prices need to adjust to supply and demand and not have more government-created distortions propping-up bloated housing prices as a gimme to the mortgage and real-estate industries not to mention the financial industry who trades the government-backed mortgage bonds. Even Barney Frank, he of endless support to Fannie Mae and Freddie Mac, believes that not everyone is ready to or should own a house (a politician speaking out of both sides of his mouth, no! say it ain't true!).

The point is is that government just cannot predict or control what people demand (well they can, but not in a free society). Prices adjust to allocate resources in society to those that are willing to pay for them and supply them based on this demand. When government, be it the Fed or through stimulus spending, tries to control this supply and demand it just creates waste.

The same thing happened in the bubble leading up to the Great Depression, when 'price stability' first gained its mantra. It was thought that the newly-created Fed, through manipulation of interest rates and the money supply, could control prices and thusly stabilize the economy. This is too a fallacy; prices are relative, some go up (when demand goes up) and some go down (when technological improvements are made in production). Monetary policy is just too broad a brush and stabilization does nothing but create wasteful investment and unemployment, most specifically pumping too much money (or too little) into the economy, creating bubbles or contractions where already-existing policy distortions exist.

During the 1920s there were great breakthroughs in innovation and manufactoring techniques, prices should have been going down, but the Fed kept kicking-up the money supply to keep prices higher than they should have been, all in the name of early 20th Century economist Irving Fisher's 'stabilization'. This lead to the stock market bubble, and later, crash when the Fed started tightening the money supply, again in the name of 'stabilization'.

The Times had it right yesterday when they said that the Fed missed the housing bubble this time around so why should they be given more oversight authority? What is to prevent the Fed from missing a bubble next time around? And perhaps most importantly, and which remains unasked, even if the Fed does see the next asset bubble what can they indeed do about it?

Reducing the money supply or raising interest rates effects the whole economy, distorts prices in the whole economy, and does not just effect the asset it is targeting. This of course lets alone the consideration as to whether or not the economy can be planned ahead of time and whether or not some central planner can determine ahead of time what prices for a class of assets should actually be (this of course cannot be planned or estimated to such a degree that 'fine-tuning' can take place). To loosen the broad brush of monetary policy and allow targeted discretionary bailouts which of course has been done of late, is a violation of the rule of law and gives too much power to the central planners, who of course target the bailouts to politically-connected groups at the expense of the productive class. What we are learning, then, is that it is best perhaps to end the era of central banking.

Sadly the pundits, and thusly the populace, are missing the big picture on this. Perhaps the one thing we learn from history is that we don't learn anything from history. Or perhaps to paraphrase Marx, the first time its tragedy, the second time its farce. It is time not to depend on the Fed or the profligates in Washington DC for 'stabilization'. It is time to learn from history and not repeat it.

Social Democracy

2009-12-17T22:39:00.003-05:00

Freedom or coercion, who to choose?

New York Review of Books

December 17, 2009

To the editors,

This letter is in response to Tony Judt’s “What is Living and What is Dead in Social Democracy?” in the December 17, 2009 edition of your fine publication. Yes, Judt does a fair work of opposing of Hayek with Keynes and their differing views of a “good society”. However, Judt does miss the fact that Hayek too saw the concept of ‘uncertainty’ (of the limits to human knowledge) as inherent to the human condition. Whereas Keynes saw an increased role for the state to reduce the fear of the unknown, Hayek saw that people learn from our mistakes and therefore learn to adjust and improve ourselves given the opportunity and therefore Hayek was against the paternalistic state as a fetter on experientially-based human intellectual, spiritual and material growth. Keynes of course was of the opposite bent, he thought the state could ‘engineer’ society through economic interventionism. In fact in the introduction to the 1936 German language edition of the General Theory Keynes wrote that his policy recommendations “can be much easier adapted to the conditions of a totalitarian state”.

Judt states that Americans would “appreciate full medical coverage at lower cost, longer life expectancy, better public services, and less crime”. Of course, who would not? However, Judt misses the costs of these outcomes. Economic resources are by definition scarce. By calling on government to provide these goods, he is missing the costs of positive-rights. You cannot give everything to everyone, rationing must take place, and this is indeed socialism, where government planning decides who gets what and when. This is implicitly what Judt is calling for in his vision of Social Democracy when he asks that social-provisioning under the welfare state be a right rather than a hand-out. You simply cannot fight interventionalist wars, bailout financial institutions, insurance companies and automobile companies while at the same time expand the welfare state. There is a cost, and as we are seeing in real time, that cost is increasing debt to be passed to future generations, and a declining dollar and therefore a lower standard of living. In a Rawlsian “veil of ignorance” starting from Year One with no debt this may be possible (Hayek might differ) but to call for positive-rights now is simply irresponsible.

A better starting point might be the right to work, from which then a person would have the capacity to purchase those goods Judt states Americans would appreciate. In fact in 1945 the US Senate passed the Full Employment Act (passed by both House and Senate in a watered-down version in 1946) which states, “All Americans able to work and seeking work have the right to useful, regular and full-time employment….” The only well known economist who commented during these hearings was J.A. Schumpeter (also mentioned by Judt in his lecture), who said, yes, government-guaranteed employment was possible, but only with “coercion”.

Judt ends his piece with a quote from Orwell’s Homage to Catalonia,

There was much in it that I did not understand, in some ways I did not even like it, but I recognized it immediately as a state of affairs worth fighting for.

A world of plenty is a world worth dreaming of, and for Judt worth fighting for, but we should at least understand and be upfront about its costs, and realistic non-coercive alternatives, because we have been there before.

The Healthcare Problem in the USA

2009-12-17T19:54:00.003-05:00

Let the providers and the users of healthcare work together

This post is just to keep it simple and lay-out the way to reform healthcare in the USA.

First off, there is a disconnect between doctors and people that need doctors, which is of course, everyone. Because 'insurance' is subsidized in the tax code (companies can write-off on taxes the health insurance they give their employees), we have too much insurance and therefore too much subsidized demand for those with insurance. Same thing with federal government medicare and medicaid. This means that third parties instead of the actual users of health services from doctors pay. This means that supply and demand doesn'twork to price health services. This means that health costs are 17% of the US economy and grow at 10% per year. The market doesn't work for health services because there is no market, there are government distortions preventing the market from working.

The solutions:

1) Remove tax breaks for company-sponsored health plans, this will create individual incentives for individuals, with their own unique health needs, to shop around for better and cheaper health services and for doctors to compete.

2) Remove regulatory policies which prevent insurance companies from offering plans nation-wide. State regulation prevents nation-wide competition, like always regulation gives monopoly profits to the regulated and increased costs to everyone else. If people want insurance let them buy insurance, but don't require it as this just puts a third-party barrier to individual incentives.

3) Reform the tort system so that 'loser pays' when frivolous lawsuits are brought against doctors, this will reduce malpractice insurance costs and allow doctors to reduce costs.

4) Phase-out medicaire and medicaid so that the government isn't in the way of individual incentives and doctor-patient relations. And too, this will reduce the ever-present fraud in government-provided goods, people do fraud when government is involved because it seems like it harms no one, when in fact it harms us all. Less government means a more ethical society because there are less incentives for fraud.

Simple as that. If the politicians reform health care it'll just mean, as always, more special interests taking their cut through coercion. Coercion is not reform, it is coercion. There are lots of special interests at play in 'reform', real reform would remove anything that gets in the way of the doctor-patient relationship, and this would reduce costs, create more innovation and as a kicker create a more ethical and responsible society.

Congrats Iggy and the Stooges

2009-12-17T19:14:00.002-05:00

Finally recognized by their 'peers'

Well after 2 or 3 years of being denied one of the best rock bands ever in the USA are inducted into the Rock n Roll Hall of Fame, The Stooges.

These people, as Iggy once said on the Dinah Shore program, ended the hippy-dippy-trippy 1960s with their super-real and relentless yet beautiful while raw first ablum in 1969. The Stooges, which was basically Iggy Pop (Iggy Stooge at the time) and the Ashton brothers, Ron on guitar and Rock on drums were the self-acknowledged influentional group on the Ramones, the Ramones of course being the founders (or rediscoverers actually) of simple, fun and fast music, which was all but lost. The Stooges were so artful, they deconstructed the rock artform and reconstructed it into something immediate and visceral. Alot of people I guess don't like the Stooges, because, well probably their name, and well they are kinda 'punk', e.g. badass and don't suffer fools lightly, and shall we say delightfully over-the-top soulful and cool.

They were the kind of group friends told you about (Workers included, thank you Woody in New Orleans) because they certainly weren't played on the radio, except college radio, and even then, late at night.

Ron Ashton died just last year so true to the stereotype you have to be a dead artist before you can become an appreciated artist. The Stooges were iconclasts and a blast and as fresh as the morning sunrise.

Go Green (Voluntarily)

2009-11-13T12:43:00.003-05:00

Coercion and bureaucracy need not apply

If something is a good idea the politicians want to go along for the ride. Already people are voluntarily going green, stores are selling trendy shopping bags, plastic water bottles are everywhere. For those of us living in NYC we can check a box on our ConEdison bill which states we want alternative energy as our source. If this is what people want this is what the market will provide.

Too, corporations can play along with the Voluntary Carbon Standard which is a way for business to offset carbon emissions and get consumer kudos (read larger social demand for their products) for doing so.

There is no point really for some government-created regulatory scheme that will just create a decline in the US manufactoring base relative to the already more quickly growing India and China. We might was well just take the around $2,000 per year per family the cap-and-trade scheme would cost and give it to the governments of China and India, who control the currencies of their populations and thus decrease the standards of living of their people by subsidizing exports. Its a scam to say that cap-and-trade is needed when it is already being done, voluntarily. To put this brake on US productivity as some do-gooder political expediency will just mean the dollar's further decline, we have enough unsustainable government programs and debt, enough is enough.

IMF: Just Say No

2009-11-08T12:32:00.003-05:00

Bureaucracy and Crisis

It's well known that bureaucracies step-in in times of crisis in order to offer solutions, or to change or enlarge their own mandate, which don't necessarily address the underlying problems causing the crisis. And, in fact, the fake solution just hides the underlying problem and makes the situaton worse. Like putting a bandaid on an infectious wound without cleaning the wound first.

This is happening now with the IMF, just as the IMF outlived its usefullness when Nixon pulled-out of the Gold Standard in 1971. The IMF was founded under Bretton Woods in 1944 to faciliate gold and currency movements to ensure a smoothly functioning Gold Standard, then when the Gold Standard ended the IMF re-invented itself as a guarantor (to the internationally politically-connected) of those lending money to governments in the 'developing world'.

International banks got the nice high returns for lending to poor countries with high risk ratings, the countries (the leadership of those countries be they elected fairly or not) didn't have to reform their fiscal and monetary policies to meet the demands of free international currency and debt markets, and the lendors got "bailed-out" went it all went awry. Needless to say as well that subsidizing the cash flow of poor countries doesn't help them become more accountable to their citizenry, nor does cheap money help economization of scarce resources as distorts the price signals necessary to make sound fiscal decisions.

So with the rapid economic growth after recovery from the 2001-2002 recession, the demand for IMF 'services' declined. Which brings us to today. We have seen the institutionalization of 'too big to fail' monetary policy in the developed world, where 'bailouts' and the anti-competitive measures this policy creates, raising the cost of banking services to everyone while the banks make monopoly rents, have become the norm.

So now the IMF is getting into the 'too big to fail' - systemic risk - bailout act and wants to create an international insurance fund (funded by taxes on international finance transactions of course) to bailout private international banks. Of course it goes without saying that an increase in taxes during a jobless economic recovery is the last thing the world needs. Whereas the most rational solution is to remove the lendor of last resort mindset which hasn't addressed the goverment-created asset bubble in the first place.

The solution is to let banks that make bad investments fail, not to enlarge a bad domestic policy agenda to the international. Just say no to (more) socialization of risk and private return, which has been the IMF's business model since 1971. If banks really wanted or needed an insurance fund they would create one themselves, privately, funded by their own contributions.

The Fallacy of the "Do-Nothing" Nobel

2009-10-11T10:41:00.004-05:00

Politics and economics

It's great that our new President won the Nobel Peace Prize, but perhaps yes like Lech Walesa said it's perhaps too early and like others who have said it doesn't do Prez Obama any favors as who likes to be given something for nothing? It hurts both the giver and the receiver.

But the Prez has not done nothing. Here is just a short list of things that Workers throws out as not being so 'peace-oriented':

* Built-up troops in Afghanistan instead of unwinding there as he said he would.
* Re-appointed bailout Ben Bernanke which means the institutionalization of unjust bailouts and their attendent redistribution upwards to the wealthy financial sector oligopolists.
* Violated the rights of GM bondholders in favor of the special interest labor unions. It should be noted that Walesa's Solidarity union was against the State-suppression in Poland, not aided by same.
* Put trade barriers on importation on Chinese tires into the US, which hurts our biggest trading partner and who also holds our debt and who is starting to retaliate. This economic nationalism is not at all "peace"-ful.
* Tried to sell "stimulus" spending (e.g., more unsustainable debt creation) to the Europeans, e.g., if the US is getting in more debt, let's export that idea so it hurst us less badly. Luckily, sanely, the Europeans didn't fall for it, just a little bit on their own before-hand.

Let's be honest and admit it is not a "do-nothing" Nobel. It is just politics trumping economics, which is what happens because people naturally like famous, popular people. Of course, after 8 years of overt war-mongering the world is happy to see someone who talks of working together. But still the facts listed above might speak for themselves.

Green Hypocrisy

2009-10-04T21:30:00.004-05:00

Is it green or is it mean?

We have seen recent trade barriers against Chinese solar panels imported into the US. The question is this. The global change thing (itself controversal as some studies show that the planet hasn't gotten any warmer during the last ten years) is a global phenomenom, so requires a global solution. So what is the logic in preventing those who wish to buy the cheapest source of alternative energy from doing so? Is it only green if it is made by people who vote domestically and who get government subsidies ("stimulus" spending and protection from competition) for their work? Hmmm, must be. I don't know about you but this smacks of hyprocrisy.

Encouraging foreign producers of alternative sources would seem like the right thing to do (export markets spillover to foreign local domestic consumption as costs are reduced). Hume was a 'sceptic' (albiet in a different sense) so is Workers. It seems like 'global warming' and going green is just politics as usual. Protectionism is just bad economic policy, be it against lower cost tires or lower cost energy sources. The people pay and pay and pay for political follies.

FDIC Bailout

2009-09-30T10:29:00.002-05:00

Why not make it communist?

The FDIC is requiring the banks whose deposits it guarantees to replenish the deposit insurance fund to the tune of $45 billion (bank profits are estimated to be about only $5 billion for the year).

Let's deconstruct this. First off, the banks like the FDIC because it means they get cheaper funds than the market would allow if they didn't have the government guarantee. Secondly, the FDIC guarantee is a package deal with cheap access to discounted funds and bailouts from the Federal Reserve bank. Who pays? The people pay for this system because the bailouts mean that the value of the dollar goes down, while the banking sector gets government-sponsored monopoly above-normal profits (and thusly nice fat salaries for creating more debt).

No the answer is not to put salary caps on market activity. The answer is to remove barriers to market activity. The reason the banks have to pay so much to replenish the FDIC deposit guarantee fund is because many of their fellow banks went bancrupt or were forced into bancruptcy (who makes these enforced-bancruptcy decisions and what their motivations are, eg the public choice aspects, are left alone here for now).

So then the answer should be obvious. The banks should self-insure each other's deposits. This way they have the incentive to monitor each other's performances and risk management. The FDIC doesnt really have this incentive because their own money is not at risk. At the same time this would remove the counter-incentives to prudent money management, and thusly reduce unsustainable asset bubbles and the harm that these do to people, by getting the government (central bank) out of the bailout business.

A Note on Financial Regulation "Reform"

2009-09-20T18:43:00.006-05:00

Too big to do well

Many say that deregulation was the cause of the current financial "crisis" (this in quotes because most probaby we have positive economic growth now). So, well, we are still stuck with politicans needing to be seen to do something to 'correct' the most recent financial "mess" (again in quotes as interest rates are pretty low!) and to prevent it from happening again. And of course there is nothing worse than a 'do nothing' politician, yes?

The well-respected Critical Review's most recent double issue is on the crisis. Yes, perhaps, some financial deregulation took place (not that market players weren't already doing the things that the deregulation then made legal: transactions drive policy, policy doesn't drive transactions, and who is to say, what objective metric can be used, to determinine if any deregulation was greater or lesser than any other market distortions placed on market actors during any given period of 'deregulation'). Any deregulation of the last, say, 10 years, just peeled back some layers of ad hoc, counter-and adverse-policy incentives, however well-intentioned, that have been added-on to the US financial system over the last 75 years (including said years of deregulation). It wasn't 'deregulation' that took place, merely adjustments to existing regulation. Certain layers of the onion were peeled back but the regulatory onion was rotten from the core out.

For example the FHA and Fannie Mae and Freddie Mac incentives to creating lending for people that can't afford their own homes wasn't changed. (Initially put in place 75 years ago to encourage home-ownership and prevent organized communism, something that still is government policy today, despite the death of communism as a viable political option). The mortgage interest write-offs which encourages debt creation by individuals weren't changed. And most importantly the Federal Reserve too big to fail "systemic risk" bailout policies haven't changed one iota, and in fact have gotten worse because have now expanded way beyond just banks themselves. And the fact that "too big to fail" was so universally and widely applied has just meant that "bailout" has become an accepted policy option, thus creating more adverse incentives against prudent funds-management on behalf of the the regulated.

So as we debate "super-regulators" versus the Fed as the regulator of the financial sector, Workers votes for "anyone but the Fed" (kind of like "none of the above" but more pragmatic). The Fed is supposed to control inflation through the money supply and interest rates (whether they can actually do this or if this does more harm than good is beyond this posting). The Fed regulating the financial sector as well as controlling monetary policy is kind of like the fox guarding the hen house.

The Fed as regulator then has incentives to target, support and direct resources towards those that do what they say, while those that don't do what they say lose their favor (and, well, shall we say, are forced into bancruptcy). This just creates anti-competitive, Fed-created, financial monopolies and the user of financial services (all of us) lose due to anti-competition as there becomes less and less, and bigger and bigger, financial institutions to work with. Fees charged by the 'regulated' increase as monopoly power created by the 'regulator' increases.

The answer is to decouple Fed oversight of banks from the Fed's authorization of inflation control. The answer is certainly not to give the Fed more regulatory oversight. Too much power in any one institution is bad for a free society. The market can, and does, compete away private monopolies over time, but a government-created monopoly can have no competition.

Sowell's Rule and Economic Nationalism

2009-09-12T16:02:00.004-05:00

Politics as usual

There are some reports that economic growth is positive now in the United States, this is great, it means that business people are over the 'shock' of the financial crisis, have internalized the devaluation of the dollar due to the bailouts and fiscal stimulus, and are starting to invest and thusly later, with a lag, this will mean job creation. However not all is rosy on the economic front. President Obama is now going to put in place tariffs of 35% on tires imported from China, something of course, his labor union supporters (the United Steelworkers, a large donor, like all unions, to Obama's campaign, represents tire workers in the USA) have been asking for.

This is fully consistent with Thomas Sowell's "Law" which states the first rule of economics is that resources are scarce and the first rule of politics is to ignore the first rule of economics. Logic dictates that this is bad for everyone in the economy, meaning those that drive cars or consume goods which are transported by the vehicles who use the tires (meaning, yes, everyone), because delivery costs are now going to go up. Yet of course it is good for tire companies because they are now protected from competition. This just means an increasing upward spiral of tire costs because the US tire companies now have less incentive to innovate and reduce costs.

It also shows, unfortunately, that the Obama administration's economic policy is really short-sighted. It is well-known that politicians have more immediate time preferences compared to people who actually produce value in an economy, leading not least to the growth of the state, but this is ridiculous. China is growing twice if not three or four times the rate of the United States and is a major buyer of the very debt that the US government creates to, yes, give fiscal stimulus money to more special interest groups. We should be cooperating economically with China - US innovation and Chinese manufactoring prowess working together brings prosperity to both countries - but now this policy of economic nationalism (protectionism) is poisoning the goose that lays the golden egg.

The Fair Tax Movement

2009-09-02T08:35:00.003-05:00

Distortions be gone

There is a group out there pushing to put some sanity in our (the USA's) tax system. Right now withholding of taxes every paycheck means that people don't really know how much they are actually paying of their income to the government, special interest tax rules (like mortgage interest write-offs and companies writing-off debt interest) creates an economy that has too much debt so people that actually own the companies (50% or more of Americans own stock) don't control them and managers get big fees for just creating more debt (which of course then gets bailed out if they overdo it) and income is taxed, when it should be spending that is taxed, as income creates growth and investment.

Lastly of course government spending is out of control (with a deficit going from 3% of the economy to 12% of the economy in just the last three years - we would not be allowed in the Euro zone with these debt levels) so we need a balanced budget. Keynesian economics (deficit spending in hard times with a reduction of spending in good times) may be a good idea (to some) but it just doesn't work in political reality. It is time to let the sunshine in on America's tax system for more fairness and accountability. "Fairness", "accountability", "change" and "transparency" are all nice words which can be used as masks for political gain, but in this case they make sense.

Amartya Sens and "The Idea of Justice"

2009-08-23T01:08:00.002-05:00

What is "the good"?

Economic Nobel Laureate Sen has a new book, "The Idea of Justice", which, according to the Economist, ties in all his thought into a comprehensible whole in language that we all can understand. Sen states that the most referenced (and thus respected?) philosopher of the 20th Century John Rawls has lead us astray with his concept of the veil of ignorance: we cannot pretend that we do not know the role we play in society, nor the way society is actually, therefore we cannot act "as if" we don't know and therefore using the veil as an ideal construct to develop a constitution order is nonsence. This has lead politcal economy down the wrong path, a path, or course, Sen means to improve upon.

The Economist review (August 8th, 2009 print edition) states that Sen uses Adam Snith's idea that we are social beings who act with social constraints and with 'others' in our mind while we make decisions on how to act. We are not uber-rational 'utility maximizers' who act in a bubble. This rational actor axiom is of course one of the most hotly disputed concepts in economic theory and is fact a red-herring. Hume before Smith said we act rationally except when human sentiment is involved. Because everytime we negotiate a contract or make even a simple market exchange we work with others. To say that most economists don't understand this just sets-up a straw-man by which then Sen can then justify his use of a collective good or common good edifice.

Sen's idea of justice is that humans have rights to certain things. Who will decide this "postive right"? This right to eat? The only guarantor of a right is government coercion. Yes, per Sen then, we all have a right to 2,000 calories a day. My calories aren't your calories. I may enjoy Brooklyn Pizza where you might like sushi or MacDonalds. The central planner may like prime-cut steak. It's all 2,000 calories, but these calories are not made equal. The right to something always means coercion. By definiton not everyone can eat the central-planners steak, it requires coercion to get this sreak.

Does not Sen believe this coercion is wrong, despite his oft-quoted need to combine economics with moral philosophy? Coercion perhaps is the biggest evil of all.

Beside the right to be free from starvation (however defined and by whom) Sen misses the main point that human flourishing isn't ends-orientation, but process-orientation. We need to be free to choose our paths, not have some endgame predetermined for us. Human beings learn and grow from choosing their paths, their investments if you will, and having the right to fail, or to earn big money, from their subjective risk. We are not the same, to pretend that we all want the same thing, "equality", is, really, insulting to a person, not to say logically unsound.

Equality of outcome, per Sen, is justice, not, it should be noted, equality of opportunity. It is freedom of choice, of movement, the freedom to fail, which is the biggest right of all. We grow from making mistakes, not from having a guaranteed 2,000 calories of pig's feet at our table, day-in, day-out. Well that is unless we game the central decision-maker to move up on the 'food' rights' scale. I'll split my salmon with the central planner if he gives me 2,000 calories of salmon instead of 2,00 calories of beans.

Justice, like the market, is process-oriented, not a results-oriented, predictable, controlable, system. If policy is something more than equality of opportunity, it immediatly begets coercion and visions of the annoited. This destroys justice and does not create nor enhance it. Economics is just one subset of a moral society, the guaranteeing of some type of economic 'equality' destroys the very fabric of a free-society. We become dependent on the state not upon ourselves and those we care about.

This edifice boils down to what philosopher Isaiah Berlin calles "positive rights" versus "negative rights". Sen says we have right to be free from hunger. This is of course the slippery slope. The Economist in its review of the book calls those that are against Sen's "social choice" construct, especially fellow Nobels James Buchanan and Friedrich Hayek as 'right wing". This too is a straw man. Because someone believes that people taking their own risks with their own money, money they have a right to, either be it through Rawlsian luck or hard work and entrepreneurial action and ideas through bringing to market things that people want (the ultimate "social choice" - free choice in the market to negotiate for what we want) they are right wing? This is absurd. Right wing implies a strong, interventionalist, state, Hayek and Buchanan spent their lives battling a strong coercive state.

Hayek and Buchanan were (and are) methodological individualists who know that only an individual acts. No "system" or sets of guaranteed rights describe an action at all. Just a "collective" decision process where those at the top live in penthouses with ocean views, while those at the bottom share a cold-water flat with three other families. We all have the right to an apartment. Its just that under collective choice, some apartments are more equal than others.

Sen, like Martha Nussbaum, Aristotle, and John Rawls, is a "capabilities" theorist. Equality of opportunity means little if you don't have the capabilities (money) to act as you see fit for your best interest. Equality of rights does not enhance your capabiltites, it is a sympton not a cause. The ability to trade your ideas, ingenuinty and work with others freely in a voluntary and cooperative society, not one in which collective decisions are made by the few, might be the best way to achieve Aristotle's flourishing. Aristotle lived in a time when the world had known nothing but slavery (with a select few as polis to decide what is right), we are lucky that we have evolved since then in our recognition of the rights of others.

The "right" to collective action as determining a common good is an unhealthy de-emphasis on the rights of individuals to determine their own value and to determine what is best for them and those they love and interact with on a daily basis and for their own aspirations in the longterm.

Ted Burczak wrote a book Socialism after Hayek which tried to address the collective good emphasis on capabilties, stating that perhaps what society owes each other is a lump-sum payment at coming-of-age so that an individual has the material means to exercise her or his capabilties.

This is perhaps a "second best" solution (e.g. remove all market distortions like special interest regulation, taxes and trade barriers and just tax enough for the wealth transfer, an idea which is, by the way, completely consistent with the second theorem of welfare economics). This idea is certainly better than the continual erosion of human liberty, and an increasingly inefficient and distorted distribution of society's resources, under an ever increasing notion of the public good under the welfare state. The best solution of course is to allow human beings to take care of each other, through free choice in the market and through volunteerism, without statist coercion.

Lastly, and these are conservative estimates, let's say that a politician wins with an average of 51% of the vote in the USA and that 50% of the eligible population votes (these numbers are of course less elsewhere, except in totalitarian states). This means that those who decide on collective action have a mandate of 26%. That is not a viable social contract. Thus limited government is called for to correct for this failure of democracy to provide for a common good under collective action, and shows that, economic inefficiency aside, individual opportunity, Isaiah Berlin's negative rights, the right to be free from harm and not the right to 2,000 calories per day, is the best path towards human self-actualization.

Audit the Fed

2009-08-14T13:10:00.002-05:00

New website

Alot of people who read Workers know and understand the problem with the government's monopoly over money. Not least of these being of course a blank check for government spending and thusly a devaluing dollar, lower US standards of living and ever more bailouts, transfering wealth from the average person to the special interest financial industry.

Ron Paul has been the only member of the US Congress who has been consistently speaking out against the Fed's power and he has been calling for an audit of the Fed. His followers (and there is a danger of the cult of personality here maybe but that is another story for another day) have created a website to follow the audit legislation.

Again the audit call is just an awareness movement to bring the public's attention to the ever-increasing power the Fed has in today's bailout culture. But it is indeed a start to what is really needed which is a denationalization of the money.

Paid to Fail

2009-08-07T16:15:00.003-05:00

Incentives matter

It shouldn't have to be that way but it is. When the government steps in to cover those that are in default on their mortgage payments to help pay for a rescheduling of the debt, well what does that do? It provides an incentive for people to miss payments on their mortgage so that they can qualify for the program ! And of course it is the taxpayer, or if you will, those that aren't paid to fail, who have to pay for those that do ! Needless to say that is just plain unfair, and is no way to bring sanity to the market.

The second most glaring incidious set-up for failure is the bailouts of finance houses. Those that are healthy pay back the money the government gave them at a fair price. Those that continue to fail get to pay back their IOUs at a discounted price. What does this do? Well it sets-up incentives for companies to either hide their profits and else not make profits at all. Again, this just makes the USA financial markets, at one time the best in the world in terms of rule-of-law, less sound, less rational and less profitable.

One policy (too big to fail and macroeconomic 'control') leads to another (bailouts) which leads to another (less sound markets and therefore diminished investment and decreased standards of living).

Corporatism was supposed to have been deemed unworkable, both ethically and economically, with the failure of national-socialism, but it appears that this lesson of history has been misplaced or, perhaps, purposefully forgotten in the rush by politicians to be seen as "doing something".

Business should be conducted by business people putting their own money at risk and reaping returns for taking those risks. Paying people to fail is not the way the world has created such wealth. The only way for the world's poor to get out of poverty is through economic growth, which comes through trade and investment. Paying people to fail is not the way to prevent failure.

Monetary Reform

2009-07-23T10:14:00.003-05:00

Problemo numero uno

We are talking about money. Daivd Hume the great Scottish enlightenment thinker wrote of its importance, Goethe used Hume's ideas in Faust part II, Marx (I believe, it's hard to pin down Marx) denied its role in creating value in society, John Maynard Keynes said there was the "real" economy and then there was the "money" economy, Milton Friedman even called himself a Monetarist economist.

By 1875 there were central banks in all 'western' countries except the USA, ours was formed in 1913. Today Ben Bernanke is chair of the Federal Reserve Bank, and as we know he has been instrumental in the government's costly, and some would say futile and counterproductive, efforts to overcome the financial crisis which kicked-in in late 2008. The One (President Obama) is behind creating a new super-agency to oversee (regulate through prior constraint) the financial sector. Bernanke has now said that this is unnecessary because the Fed has the knowledge base and institutional structure to handle this super-regulator role.

Which brings us to Workers take on the situation. First off, as has been said by others, there is a moral hazard of the Fed both regulating banks and being in charge of monetary policy. In other words, the central bank should do one or the other. By doing both, it creates a conflict of interest. If policy goes wrong, the Fed can always go in and coerce banks to do its will to correct for the Fed's own mistakes.

So Workers is suggesting a phased-in approach to a reform which will be long-lasting and solve the institutional problems that exist today, outlined as follows.

First, Nobel Prize winning economist James Buchanan says that a 'constitution' should be set-up to guide the central bank's policy. It should be a policy with set rules, eg, the Fed should be responsible lets say for price stability, and that is all. If its interest rate setting and quantitative easing (money printing and buying and selling of government bonds) fails to keep prices stable (we shall ignore the fallacy of there being "one price" to target at this point), then the Fed would be penalized through rules set-out in the monetary constitution.

This is an ok idea in the short-run. Assuming first, of course, that the Fed gets out of the regulatory business first. Currently the FDIC guarantees the deposits of banks, so therefore the FDIC is on the hook if banks fail. Thus, it should be the FDIC who regulates banks, not the Fed. The FDIC guarantees deposits. If a bank fails the depositor gets the guaranteed amount. This is all that the social contract requires, no bailouts are needed.

Second, as Nobel Prize winning economist Gary Becker has said, the Fed should get out of the 'too big to fail' business. This follows along with the regulatory mandate. Banks that are too big to fail are just plain too big. They should be allowed to fail as they have simply mismanaged their funds. It is counterproductive to put on life-support a financial institution which has failed. The resources should be freed-up through bancrupcy to go where they will be useful, not to where they are just kept in an institution which has failed to manage itself correctly. Capital needs to go where it can used afresh, not misused again.

Thirdly and most importantly, once the above has been done, it is time to get the Fed out of the monopoly business. A monopoly is something which by definition is not competitive. It is given an unfair advantage in society because it is freed from healthy competition. Competition is what creates innovation and progress, and, well, value, in society. People demand things in the market which give value to their lives. If something has a monopoly (in this case the Fed's monopoly over the money supply) it is society (people) writ-large who lose out while the monopolist gains unfairly at society's expense.

By the Fed having monopoly control over money they are removed from competitive pressures to keep the value of their asset. Demanders have no choice but to use the monopolist's product whether it wants to or not. This Fed central bank monopoly thusly has created a dollar which is slowly and steadily becoming worth less and less as more and more dollars are being printed to cover a larger and larger bailout and larger and larger budget deficit and therefore larger and larger debt. There is no market, competitive constraint, against devaluation of the dollar and an ever-increasing government debt.

Of course international macroeconomics ensures that the dollar will devalue over-time as other countries who manage their deficits and money supply better than the USA will see the value of their currency rise against the dollar. But this competition is just an illusion because other central banks (and remember all countries the USA trades with have central banks) too also have monopolies.

The USA was formed as the first constitutional democracy, and was envisioned to be the shining light on the hill of an enlightened political body, or if you will an enlightened form of collectivism, one which puts the people ahead of its leaders, which prioritizes the rule of law over the rule of man. With today's anti-competitive monetary policy we have lost this way, this enlightened political economy. The Fed (and now the Treasury and other politicians and government technocrats) have way too much discretionary power, way too much rule of man and not enough rule of law.

So then the final step in the needed reform to a more just, fair and sustainable political economy is to, as Nobel Prize winning economist Frederich Hayek said, "denationalize" the money. The idea is to allow competition against the dollar domestically. By allowing competition against the dollar domestically (currently illegal) the Fed and our political leaders will lose their blank check underwritten by the taxpayers (the people living in the USA and their children both born and as-of-yet born).

The way to denationalize the money is to decriminalize competition against the dollar. Right now anyone that issues currency with an intent to have that money circulate as a means of facilitating trade of one good for another (in economic jargon, as a "means of exchange") is prosecuted as a counterfitter. This is what reinforces the Fed's monopoly power and the continual (despite occassional countervaling appreciations) debasement of the dollar.

Allowing competition will not be an untoward "shock" to the economy with unforseen downside risks. It took many many years for the Fed to build up its monopoly and it will take many many years for a viable competitive domestic currency market to develop. The alternative is more of the same descretionary redistribution upward through bailouts and 'shotgun' mergers which erode shareholder and bondholder value based on unilateral, and some say totalitarian, government decisions. Most importantly mere tinkering around the edges and not adressing the monopoly problem will just bring an expected future of a continual erosion of the almost limitless good that the American entrepreneur can bring, and has brought over history, to the world.

Not Your Grandfather's Dollar

2009-07-13T15:29:00.004-05:00

Fiscal and monetary policy disasters

When the Soviet Union did its mass-industrialization in the 1930s through central-planning, it of course forcibly took the nation's resources and put them in sectors that the leadership thought relevant. In order to pay for this, the ruble took a dive. It wasn't wealth that was created, sure there were factories built and cars made and electrifikatzia electrified the countryside, but all this was paid for by a ruble that steadily lost its value in the international currency market. In other words, the 'workers' were paid in a currency that bought less and less, and bought things that were of a lousy quality because the supply wasn't demand-driven but centrally-planned.

This is, unfortunately, not too different from what is happening back in the USA. When we have, due to the finance, banking, insurance and automobile bailouts (not much different really than the Soviet situation, both being centrally-planned), our dollar money supply doubling in a year, and our national debt going from $1 to $3 trillion in about the same amount of time, the dollar can just be expected to lose value. This is common sense borne-out by history.

So it is no surprise that the countries that hold our debt are seeking alternatives to the dollar as a reserve currency (the China central bank is already holding Euros in addition to dollars as 'hard' currency reserves).

So we get calls from the BRIC countries (Brazil, Russia, India and China) to the IMF for the creation of a "more diversified monetary system". Of course the governments of these countries are missing the boat so to speak because it is not governments which create tractable policy, it is the market. Just like gold-backed money was invented to facilitate trade, traders will trade in whatever medium is most tractable, governments can just try to catch-up and pretend to "regulate" (really grant special favors to those that provide the 'regulators' information). When traders trade oil, wheat, gold and other commodities they make the deals in the reserve currency, currently the US dollar. The deals are made in dollars and dollars exchange hands when the deal is cleared. Until this changes, no matter what the IMF says or does, it will be the dollar that is golden.

However, as can be expected, this is indeed changing. The Shanghai Cooperation Association has agreed to Russia's proposal that member countries (Russia, China and the 'stans: Kazakhstan, Kyrgystan, Uzbekistan and Tajikistan) clear international trades in their own currencies, not in the international reserve currency. Of course it remains to be seen if this is actually done. Has the dollar really reached that depth ?!

One item further of note is the U.S. government's debt rating. There has been talk that the rating might be reduced from investment grade. Workers believes that this won't happen by US rating agencies, because these rating agencies are given a monopoly by the self-same government they are rating (and this too accounts for the rating agencies missing the boat on the Fannie Mae and Freddie Mac guaranteed CDOs which turned to junk quickly due to the moral hazards of non-trading, again due to the expected central bank bailouts).

However, non-US rating agencies will no doubt reduce the risk-rating (one has already, perhaps a Latin American rating agency but Workers misplaced the info) of the US government-issued bonds. There is not a default risk (the Fed can just print more and more dollars and make them available to the Treasury so the Treasury can pay its debts) but there is the risk of devaluation relative to other issuers and to international commodities themselves. The solution of course is to stop the bailouts and reduce government spending (same thing really), but this has been the solution since the beginning of the rise and fall of great powers, but this lesson is rarely if ever learned.

Kudos to the NY Times on Government Debt

2009-06-04T18:23:00.006-05:00

"Rising Interest on Nations' Debt May Sap Growth"

Yes Workers was very happy to see this headline on the front page of the New York Times this morning. Not because, as was so nicely illustrated in a graph accompanying the article, government debt in the US will increase from $1 trillion in 2008 to $3 trillion in in 2009 but because that this is preceived as a problem by the mainstream press, specially the Times, the paper of record.

Some economists have argued that when the government borrows more it means that there is less money for the private sector to invest in productive assets. Increased government borrowing increases the interest rate, "crowding out" (making more expensive) real investment into real things that real people want to buy. Real private investment then creates real growth which helps real people gain income to grow out of real poverty. Government, yes, does buy things with the money it borrows, nonetheless it should be noted that how this money is spent is not determined through voluntary exchange, but rather through politics, alot (most? all? ) of which is special interest group lobbying.

Other economists say that government debt doesn't matter. Yet hopefully perhaps now the debt has gotten so large that the logic of "crowding out" can no longer be papered-over throught the use of fancy econometric models by those already predisposed to government intervention into our lives.

To paraphrase the photographer in Antononi's Blow-Up, sometimes it takes tragedy to resolve a bad situation. Life is not always like the movies though and we (and our children and our children's children and...) are still stuck with this debt. At least the problem is now out in the open and knowledge is the first step towards wisdom.

Econometrics can be fun by the way, just like can be the use of math in economics, however neither should take the place of logical reasoning, nor should the economics of government spending on public goods "crowd-out" the ethical considerations of passing along public debt to those too young to vote.

Freedom of Speech and the End of the Age of Irony

2009-05-30T08:45:00.002-05:00

The King is Dead, Long Live the King

Workers has reported before about how the new commander-in-chief of the USA (President Obama) is so a revered and above reproach (except of course by political opponents) that he seems untouchable by those who use irony to help us take our commodified and objectified (facebook anyone?) lives a little less seriously. The Economist has something on how comedians are having a hard time finding material to include the new Prez, the satirical Onion (which has now been upgraded to ironic from obnoxious and sophomoric) excepted. It seems that now too this reverence has made its way down to those that control goods flowing in and out of the country, otherwise known, ironically enough, as the "customs" department, who have held-up the importation of Obama bobblehead dolls to be used as give-aways at a minor league baseball game.

Happily the dolls are now freed from their tyrannical control. Even the new number one film in the USA, Night at the Smithsonian, (highly recommended, Ben Stiller is great, his usual nice mix of manic and sincere, specially his take on the flashlight as weapon and being good at whatever it is you love to do no matter what it it) uses Albert Einstein bobbleheads as a plot devise. Even Einstein didn't take himself too too seriously.

Totalitariansim in Finance

2009-05-25T15:28:00.006-05:00

Rule of law goes out the window

Communism is when everyone owns everything. Socialism is when the government owns everything. Fascism is when private people own the means of production but then the government tells these people what they can and cannot do with their assets. What we are getting now in the USA is some weird mix of all these systems.

The Obama Administration (which is really not all that different from the Bush II administration in many ways) now decides in some cases who can be the head of companies and what the companies can invest in and how much the managers of the companies can be paid. And now too the government is deciding who can own the companies and how much of the companies they can own. (This of course all relates to the bailouts, no one gets money without strings attached....it is the human condition. But too so is the human condition the ability to say "no" to money if you don't like the strings attached.)

To be more precise, and the purpose for this blog entry, is specifically on the General Motors bailout and restructoring.

What we are seeing is the government running rough-shod over creditors' rights. The labor unions (unions are big Democrat Party supporters - President Obama is a Democrat) are getting a government-mandated sweetheart deal whereas the people who actually have paid money to keep GM going (those who have lent the company money by buying its bonds) have to take the loss. A real bancruptcy of GM, one which followed the contractually-agreed upon rights to the assets of GM as it became restructured under a bancruptcy work-out, would be a more enlightened, less political (e.g. less power-grabbing and less special interest-oriented) way to approach the situtation because it would mean people would know what to expect throught the rule of law.

Adherence to the rule of law would then would create a more solid ground for future investment in productive assets in the USA. It is only through investment and increased productivity that wealth is created, and wealth creation is needed by the poor most of all.

By the government mandating, with its money bailouts, the terms of the restructuring it just adds fuel to the fire of economic uncertainty. Which of course is not at all helpful during a recession and during a time when the Fed is increasing the money supply at unprecedented rates.

Why should people want to invest in a country where their rights are violated, where the local currency is treated under such short-termism, and where the government budget deficit (now more than 3 times greater than that allowed for countries if they want to the join the European Monetary Union) has more than tripled in 4 years ? Without overstating the obvious this is just another case of Mises' Law, where one government intervention must necessarily therefore then lead to another.

The labor union monopoly-bargaining rights created by the 1935 Wagner Act then lead to much higher than average wages in the unionized American automobile industry (thus making it less and less competitive compared to its overseas competitors, too because unionization and structured job categories can be less flexible in the face of improved manufactoring techniques).

Monopolized union bargaining rights, in addition to (much) higher than average wages, created extraordinary pension and health benefits for union members. It is this GM union health trust fund (the retirement trust fund is already guaranteed by the government, e.g. by everyone in the economy) who will now, under the current government plan at least, then have a large ownership stake in a new GM. Politics as usual, though, perhaps, worse than usual. Worker ownership is a wonderful method for gaining economic efficiency and equality, however not when it is done by bypassing an expected, adhered to, heretofore rule of law.

Ironically enough, those people who lent the states and the confederation money to fight the Revolutionary War against England in 1775 through 1883 were also labelled as "speculators" (albiet their downside risk was death for treason against the King, a little worse than the government just taking their money), just as President Obama is labelling the GM bondholders as speculators. (Workers does not mean to denigrate President Obama, he needs to garner votes however low he must stoop to do so.) Luckily the US Constitution required that these creditors be paid back according to the the rule of law, e.g. according to the loan agreements. This is of course one of the reasons the USA became the most productive nation on earth by 1900.

Things are a little different now due to the great expansion of the size of the government as a percentage of the economy since the creation of the welfare state in the 1930s, and, a corresponding increase in special interest politics skewing the rules of the game. Still, one can wish for politics a little less cynical, or, even, perhaps, a more enlightened leadership, one that doesn't take advantage of hard times to press their own self-interest.

Finally, a Regulatory Change that Makes Sense

2009-04-10T09:07:00.004-05:00

Self-responsibility is a good thing

Part of the reason for the crisis of today is that finance houses were not able to manage their own risks because the Basel II accords (harmonized international banking standards for risk management) and other accounting rules meant that people couldn't account for their own assets in a reasonable self-determined way. All of the many $$ trillions of mortgage-backed assets held by all the banks and insurance companies and merchant banks had to be all priced together, uniformally, as set by regulation. Local knowledge and firm-specific risk management was usurped by these international standards.

This 'standards harmonization' meant that it was the regulation itself which caused the systemic risk that regulation is supposed to alleviate (this is one of the main points missed when people say that 'the market' caused the crisis - it wasn't the market that made the crisis, it was regulation. There are many other regulations which caused the crisis, not least of which was the increasing pressure put on banks to lend to more risky borrowers in order to get their deposits guaranteed by the FDIC and the over-investment in mortgage-backed bonds due to 100% government guarantees of many of these bonds. We won't even get into the tax code which encourages people to take on debt, because, that as they say, is another story.)

When you factor in the moral hazard to not take losses because of the bailout authority given to the FDIC and Fed, and now, it seems, the Treasury, there was no incentive for the market to work for the financial sector to unload the bad assets piecemeal in order to honor their agreements with each other, one contract at a time. So as the housing market started its downward adjustment the value of the mortgage-backed assets declined due to the non-sales (why should the banks take the profit losses of selling assets at declined prices if they know the government will bail them out?). Thus the assets turned 'toxic' and taxpayers and dollar-holders are stuck footing the bill.

The good news is that the Financial Accounting Standards Board has now removed one of the systemic risks which worsened the crisis. The mark-to-market pricing rigidity is being removed so it is now the underlying contracts which will determine the price of the assets. This creates a more coherent pricing and planning structure for the finance sector, and we should add, creates a more solid rule-of-law because regulation now does not get in the way of people honoring their contracts with each other. As they say, an agreement is an agreement, now people have perhaps more incentive to live up to their agreements.

All of course would be hunky-dory if we could get rid of institutionalized moral hazard (not least of which is the central bank's "too big to fail" doctrine and the 100% government guarantees of the mortgage-backed bonds). However Workers is not holding its breath as there are too many entrenched interests for that vestige of the long-standing welfare state to be abandoned and for something more logical, local, rational and responsible to take the place of central-planning (however well-intentioned) gone awry.

The Bailout Unintended Consequences Commence

2009-03-04T14:00:00.003-05:00

And so it goes.....

The first unintended consequence of the bailouts are of course the "wait and see" reaction people in the financial markets have, which has put the cabash on liquidity. Commercial finance, e.g. those without big collateral to pledge for big deals, is just on-hold until the government decides how to unravel everything. The same 'wait and see' unintended consequence of expectations uncertainty applies to the stimulus, people who would otherwise be doing investment and production in a sector are waiting to see what kind of special grants and subsidies they are to get from the 'stimulus' as it makes its death march from policy to implementation. Instead of allowing the interbank trades to just clear (at an orderly loss-making process), the bailouts and expectations of future bailouts mean that the banks and other financial firms don't have to take the losses like they should have to under rational markets where people are rewarded for their risk and suffer their losses.

So what happens then, the government buys the bad paper, then turns around and sells them at a loss. So it is the taxpayer who takes the loss, and the financial markets freeze while the government policies wind their way through the system and this affects production and jobs. It's all so painfully obvious yet the bailouts and stimulus packages continue. (So much for 'change'). There are banks buying the 'junk' from the government now and making big money. This is what should have happened in the market months ago without the Fed, Treasury, and FDIC acting as loss-leading middlemen.

Mayor Bloomberg to Feds: "No Thank You"

2009-02-18T10:58:00.003-05:00

A little good news at last

In these times of increasing government control over our lives and our finances, it is good to see that our handsome mayor has told the Feds that we (New Yorkers) can say no to the Federal Government 'fiscal stimulus'. In this case its not much but its something, sound reasoning that increased food stamps for the unemployed would mean less incentives to find work and thus a less vibrant local labor market and a thus less vibrant local economy. Of course in the larger picture the whole idea of the feds giving 'stimulus' money or 'bailout' money to the states and cities just means that the states and cities become less accountable (and fiscally responsible) to local citizens. It is good to say 'no' sometimes to free money, and hearing this made Workers day.

However the mayor still has a million strikes against him, not least the wish to raise taxes in a recession and the desire to control our personal choices in consumption through a bunch of 'behavioral economics' nanny-state interventions like menu-labelling requirements and no decent tasting french fries through the ban of fatty oils. Its the little things that oftentimes mean the most.

End of the Age of Irony ?

2009-01-27T09:19:00.002-05:00

Humor-free zone

The New York Review of Books had an article more or less lamenting the fact that with Barak Obama's ground-breaking election (the first person of color to become the President of the United States) it is such a sacred moment that we can't be ironic about it or perhaps anything else political. That irony as an artform may be dead.

Luckily, subsequent events have shown this not to be true. The Czech Republic commissioned an artist to do some public art about Europe to celebrate the repbublic's turn as president of the European Union. David Cerny the artist then said that he worked with an artist from each of the EU countries to have them represent their country symbolically for the sculpture. When it was unveiled, Italy appeared as a giant soccer (football) field, England was missing altogether, Romania is pictured as a Vampire theme park, Luxemburg is shown as for sale, Poland with priests raising the colored gay flag, etc. It's come out of course that it is a hoax, an ironic one at that.

And closer to home and perhaps more relevant to the concerns of Workers, the New York Times said that President Obama's new spending programs will be "raining money" down on special interests. That is of course ironic but not funny.

The Hole in the TARP

2008-12-09T10:50:00.002-05:00

No accountability

The GAO, the auditor for the US Congress, shows that the Treasury Department is not conducting mandated oversight of the recently bailed-out (rescued? nationalized? too big to fail?) banks and other financial institutions under the Troubled Asset Recovery Program (TARP). This really shouldn't be a surprise, just as the US military is not auditable, and just as Fannie Mae and Freddie Mae were not auditable. In the private sector in order to get funds you have to show were they are going (and of course make a profit). Not so in the government.

But of course the bigger question to ask is if the assets are failed, why aren't they allowed to fail ? Why should bad investment be recovered? It is this type of irrationality that Baudrillard says creates post-modern absurdity and an un-free people.

The Problem With A Massive Government Jobs Program

2008-12-07T13:38:00.004-05:00

"History repeats itself as farce" - Karl Marx

President -elect Obama is asking Congress to draft a massive government jobs program bill so he can sign it immediately after taking office in January 2009. Yes, unemployment is creeping up in the US so as usual in a welfare state the government feels the need to do something to save us. Please see below letter to a group of economists who are supprting this central planning.

"You have invited comments on the 'jobs program' paper.

I just wanted to say that I think it isa horrible idea. In this I take after the work of FA Hayek and other austrian school capital theorists who believe that the government should just not be in the business of planning the economy. Absent price signals of the market and competition, the capital investment and monies spent by government will just create bad investment into unsustainable sectors and 'crowd out' private sector innovation.

We have $10 trillion in government debt in this country and unsustainable government retirement and health care programs, we do not need a massive government jobs programs on top of this unsound fiscal policy. It is a recipe for long term unemployment, just like in the 1930s, and long term declines in US standards of living.

I will not even get into the obvious public choice aspects of which actors will be the recipients of this government largesse you propose.

The private sector is not creating jobs because the financial sector is frozen due to the government take-over of banks and the uncertainty that this causes, not least the banks' unwllingness (and through moral hazard no need to) sell their bad investments at a loss. It is the same situation as in 1932 only instead of a contractionary Fed policy, we have contractionary loanable funds due to government take-over of the banking sector. Prices in the housing market and the other collateralized assets need to adjust (go down) in order for the economy to get on a sound footing again.

Central planning is short-sightedness and does not address the problem. The economic problems in the early 1930s were misdiagnosed and blamed on the 'free market' when this was not at all the case (it was due to bad monetary policy, just like today). This brought us central planning then (and a $10 trillion debt 70 years later), and it is misdiagnosed now.

Do you really want the same result of an average 17% unemployment rate for 10 years?

Thank you."

The Difference Between Now and the Early 1930s

2008-11-22T17:57:00.004-05:00

Bad Monetary Policy is Not Being Made Worse

A few people have been asking Workers about the economy now compared to the 1930s and the Great Depression and what to expect in the moments ahead. So here is the short answer.

First off, both the Great Contraction of 1929 - 1933 and today's start of a recessionary period were both at least partly (mostly) caused by bad monetary policy. The Fed inflated money in the late 1920s and popped the bubble in 1928 by stopping the monetary expansion and raising interest rates. The Fed inflated the money and kept rates too low from 2002-2005 this time around. So this is what is similar between now and then.

The stock market bubble in the 1920s USA was in part caused by a new retail class of investors, made possible by the introduction of war bonds for US participation in WWI. So another similarity is that the bubble in the housing market today, like that of the 1920s, was cause by government distortions in the demand for financial instruments. (Today's bubble of course was supported by the Fan and Fred 100% guarantees of housing mortgages and the ability to write the interest payments on these mortgages off on taxes).

Between the distortionary public policy skewing investment and the bad price signals sent by the Fed inflating resources into these skewed sectors, in both periods too capital investment was made in places which were unsustainable.

But at least today, unlike in the early 1930s, the Fed is not keeping interest rates above what might be a natural rate of interest and we do not have fixed exchange rates based on the Gold Standard like we did in the 1930s. The Fed not making a bad situation worse now means that hopefully recovery can be quicker in the US, and international growth can recover more quickly absent fixed exchange rates.

Another similarity between now and then is that bad assets aren't being allowed to be cleansed from the system and government is directing in part the flow of (or preventing the flow) of financial resources. Today we have the big bailouts and the Fed negotiating marriages of failed banks. In the 1920s we had Hoover's Reconstruction Finance Corporation (RFC) mucking around in the market preventing solid sustainable entrepreneurial investment. FDR then used the RFC for all kinds of central planning and unsustainable (unemployment causing) investment when he took office after Hoover.

Another unfortunate similarity between now and then is that our new new President to be feels the need to make government jobs with a ' vast stimulus package ' and do other types of central planning like FDR did when he took office. And as we all know, those that study history anyway, FDR's New Deal expanded a monetary-created contraction into a government-created Depression with long-term high unemployment that only a ramp-up in military spending was able to curtail. To paraphrase Karl Marx, 'history repeats itself as farce'.

Wanna Buy a Hurricane Katrina FEMA Trailer ?

2008-11-14T18:11:00.007-05:00

FEMA trash

Katrina devasted New Orleans more than 4 years ago. At the time, the federal government stopped people from providing voluntary aid or stopped the local governments from doing their job, the feds trying to control the situation itself. This lead to some people being holed up in the Superdome (a super ugly thing the 'Dome, but a permanent and prominent part of the downtown landscape so one can come to love it its ugliness over time) and later a bunch of people being housed in depressing Federal Emergency Management Agency trailor parks. Whole trailor parks of government-encouraged poverty and dependence where some lived for years.

Later it turned out some of these trailors were toxic. You can buy one of these trailors now direct from Uncle as your own momento of the fatal conceit of government incompetence. But ridding us of these trailors won't help rebuild the Big Easy, as alot of the old housing plots wiped-out by Katrina are still owned by the government, meaning of course, they are just sitting there.

Bailout Bonds - Take it to the People

2008-10-16T08:24:00.003-05:00

Direct Democracy

Our indirect American system of democracy is supposed to, from what I understand, prevent the tyranny of the majority from harming the rights of the minority and to allow a rational deliberative process removed from the 'heat of the moment'. Instead unfortunately what we have gotten is an ever-enlargening scope of government power where special interests 'rent-seek' their way into redistribution or policy favor.

The $5 trillion (so far!) bailout of finance (depending on how you measure it) is just another example. When the US joined World War One the government went out and raised money directly from the people for the effort, the debt they issued was called War Bonds (the same was done for World War Two, but by then the government wasn't that concerned about running deficits for the 'public good'). People bought and held war bonds to show their support of the country's effort in war. Workers wonders if people would be willing to the same for Bailout Bonds?

Funding Infrastructure

2008-10-08T12:50:00.003-05:00

Right way/wrong way

It is estimated that America's infrastructure (mostly transportation systems) needs care and feeding of around $1.5 trillion to prevent further decay and disaster. The New York Review of Books magazine has an article recommending a new GSE (government sponsored enterprise) bank t0 help reduce the financing costs of doing so and also to help remove the special interest politics (more than 1,000 earmarks in the Tranportation Appropriation for example) from funding decisions.

Workers respectfully disagrees. The LAST thing we need is another GSE (like Fannie and Freddie) which just leads to moral hazard disaster and trillion dollar bailouts in the long-run. The current budget deficit is teetering at above 3% of national income (the US would not be allowed into the Euro-area monetary union with a deficit this high) with each American owing the federal government approximately $175,000 based on the government's current commitments. The bailouts of the current financial crisis is currenlty pegged at around $2 trillion dollars with no end in sight. Why on earth would we want to commit to another large-scale government funding scheme, in whatever shade of red it comes ?!

There are alternative to mass centralized infrastructure investment decisions, and local communties are already taking action. For example, Chicago's Midway airport is leasing itself for 99 years, this will net the community $2.5 billion, and create private incentives to improve the operation of the airport, bringing growth and development. However there are too setbacks, for example, Pennsylvania, has many great private toll roads (why should those not using roads have to pay for those that do use the roads? Tolls roads are the solution to the this collective action problem). However further fiscal rationalization was vetoed by the state legislature (not of course that the protection of state jobs and public labor union contributions to political campaigns had anything to do with the decision). In sum, the more decentralized a public funding is the more its costs and benefits can be weighed and judged by the people affected. A GSE infrastructure bank just does not meet this requirement.

Kudos to Calderon

2008-10-05T10:13:00.004-05:00

A beginning to the end of Mexico drug violence?

Anyone that reads the papers knows that illegal drug-related violence is increasing in Mexico. Prohibition (the "drug war") just reduces the supply of drugs as puts some competitors in jail. This creates mononopoly profits for something which should be a commodity (eg no super-normal profits in a free-market) because there is no secret patent or technology or special entrepreneurial talent involved in the production and distribution. Those who are left in the business after their competitors are picked-off by the drug warriors, make more profit than they should. Even worse, the most violent and corrupt rise to the top in such a situation. Plus, it makes people overseas dislike the USA for our interdiction efforts into their agriculture-based livelihood.

It is good to see that President Calderon in Mexico realizes the 'dead-end' of the drug war and is taking steps to de-criminalize some of the activity.

Whither the Financial Markets?

2008-09-25T10:01:00.005-05:00

Why more or different regulation is superficial and harmful

From what Workers can tell the current financial crisis was caused by:

1) Ingrained culture of socialized risk and private gain due to the FDIC deposit guarantees and fannnie/ginnie mortgage-backed bond guarantees (and the too big to fail Fed credo). This then lead to,

2) Financialization of the economy as investment banks et al packaged the guaranteed bonds, selling them to ea other in various risk traunches as the housing market boomed (not least to due to Fed money expansion and the interest tax deduction on mortgages). This encouraged more and more financialization and then the creation of mortgage-backed bonds that even fannie/ginnie wouldn't touch (eg the 'subprimes'). This of course was accompanied by fraud.

3) As the inevitable burst of the bubble happened first the subprimes were downgraded risk-wise. This then lead to the down-grading of the other traunches.

4) The investment banks et al had to / have to sell these assets off in order to keep their leverage ratios within reason. This market-wide selling then lead to a freeze in some markets as all these assets couldn't be / can't be priced. And the liquidity crisis means that insurers can't make their claim payments and others their debt payments. The other thing to keep in mind is that,

5) All the banks are regulated by the same policies, this created systemic risk, e.g. they all downgraded their assets at the same time which then lead to more selling (or trying to sell) and unable to sell creates a liquidity crisis and rapidly decreasing asset prices. The crisis then is exacerbated by uncertainty in the markets. Lastly,

6) The call for more regulation just is a bandaid due to what is known as the 'knowledge problem', how can regulators know more than the people actually in the business and won't regulation just increase or change nature of systemic risk? Same thing with,

7) Government buying all the bad assets just puts fetter on market process as they hold the assets and decide what to do with them instead of just letting the market reprice over time. Plus, there are ethical dimensions involved, as how does the government decide who gets bailed-out at taxpayer cost and who doesn't get bailed-out? Plus will not the very people in government who are supposed to monitor the markets profit from this government bail-out as they will be the first to know how and when the assets will be resold?

8) It all started back at 1) which is an accepted culture of socialized risk and private gain. Corporate welfare must be dismantled. More regulation / intervention now just means more bailout later.

Unintended Consequences of SEC Intervention

2008-09-01T08:13:00.002-05:00

Bailout Economics 101

A new study by Arturo Bris shows (again) the futility of the government trying to fix its past mistakes, and how (again) trying to fix them just makes it worse. The SEC forbade "naked short selling" of certain stocks in order to keep the stock prices from going down. Of course this is the worst type of bailout (how special does one need be in order for the government to step-in and prevent people from selling your stock, its (again) the unfortunately always predictable socialized risk and privatized return of government financial market intervention !).

The SEC forbade the downward bidding of the implicitly government-backed (and now over time we are learning more and more explicitly-backed, just like those who follow these kind of things could have predicted. Not much in the economy is predictable, but government policy towards favored clients is pretty much predictable) mortgage-guarantee companies Fannie Mae and Freddie Mac and investment bank Lehman Brothers, among others.

Bris shows that this trade-forbidance did exactly what it was not intended to do which was to increase the value of the protected stocks. In fact the protected stocks performed worse than the un-protected stocks. This of course is counter to the laws of finance which says that risker stocks should perform better than less risky stock during a bounce-back period. The whole point of the short-selling (and all trading) is to let the market value the companies listed on an exchange. There is no way that government experts, due to the ' knowledge problem ' (ie the reason for the economic fall of the Soviet Union) can out-guess or outprice hundreds if not tens of thousands of experts in the finance field.

But more than that, government picking and choosing winners is just plain unethical. Why should government coercion be applied to favor certain people over others? Especially, as we have seen, the very very wealthy who have perhaps become that way knowing that they were to be bailed-out from any negative repercussions for excessive risky behaviour and would be able to keep personally any positive returns from this behaviour? This SEC case highlights two of the UCLA-school of economics operating principles; that of moral hazard and unintended consequences.

I.O.U.S.A. The Movie

2008-08-30T10:53:00.003-05:00

An honest tear is better than a fake smile

David Walker, who used to head-up the Government Accountability Office, has been part of a recent documentary film called I.O.U.S.A. which talks about the fiscal bancruptcy of the US welfare state. No doubt it is not as exciting as the recent Indiana Jones or Tropic Thunder or Batman films but still kudos to him for bringing the truth to the people.

The welfare state has been a phenomenon of the latter half of the 2oth century throughout the 'developed' world, and was no doubt created with the best of intentions but has no gone awry in over-promising and underfunding. Walker has been speaking about this for many years and this movie is a good step in educating people about where our society is headed.

The federal government, in its health care and social security programs, has indebted unborn generations to trillions of dollars. Aristotle (and John Rawls and others) spoke of the ethical life as being the good life and the need to have the material means to exercise your capacities. The US welfare state has been unethical in stacking up this debt and limiting the capacities of future generations, people who will be born into supporting this government burden. This does not seem welfare-enhancing at all.

Finally ! A Fiscal Plan for the USA

2008-08-22T15:08:00.003-05:00

A good way to get out of debt

In typical fashion for pragmatic midwesterners, Congressman Paul Ryan from the great state of Wisconsin has introduced a House Resolution for dealing with the dead-end fiscal morass we face, and that, of course, those that want to become President are not dealing with because the issues are just too complicated for the voters, who, rationally, know that their vote won't make a difference and therefore don't have the incentive to study the issues.

To wit:
Health Care. Instead of tax-deductions given to big business to provide health insurance for their employees (only half of Americans work for big business, thus the other half are penalized for the big business-slanted health care subsidies), Ryan's proposal allows families to receive directly the money employers pay for insurance. The recipients can then use their own money as they see fit for their own needs. The competition created by people choosing their own plans (including plans available from other states, currently prohibited by Federal law, essentially creating insurance monopolies in each state) will created innovation and lower prices. (Competition by definition is what creates innovation). Plus they can keep the money if they change (or lose) jobs.

Medicaire. The US government medicaire program has $30 trillion in unfunded liabilities, monies that future generations owe due to promises made under the program. Ryan's plan will let seniors (of which there are increasingly more as a percentage of the population) chose under competition their own health needs by purchasing health plans, again creating competition, innovation and falling prices. Now, of course, the government sets the prices and the service delivery requirements. Under the current program their is no incentive for anything except the most mediocre of doctors to provide government-set service

Social Security. After medicaire this is the big IOU taking monies from future generations to give to those living now ($5 trillion IOU accrued by 2030). Ryan again wants to create competition, and reduce the government IOU, by giving the right to those under 55 to invest their social security monies (a little known fact is that 15% of a person's paycheck goes to social security taxes, which the government just uses to fund current expenditures) as they see fit. A nice unwinding of the dependency-building, and oftentimes purposefully hidden, Welfare-State if you ask Workers !

Taxes. There is nothing worse than our complicated tax system which gives many hidden breaks to those who need them the least. Even the least pecuniary-oriented taxpayer has to spend hours doing their taxes just to make sure they take advantage of all the breaks out there. Ryan wants to simplify the tax code, a flat 10% tax on the first $50,000 for individuals ($100,000 for families) and 25% tax on more than that. A flat tax has worked to created economic dynamics in alot of places, it's about time the USA joined the modern world.

The Dance of Aggression

2008-08-14T12:07:00.002-05:00

Us v. Them

Yes Russian troops are in Georgia, and now so are US troops in Georgia. This is the dance of the imperialist nation-state, with NATO as our tool. The US is the world's policeman - though to be sure it is not just rule of law that we are enforcing, we are also trying to CREATE rule of law or our version of it anyway. This of course, these entangling alliances, is exactly what the founders of the USA wanted to not happen and did what they could to prevent through balance of powers. And once we go somewhere, very rarely, if at all, do we leave.

There is really no reason why we have to continue to think of Russia as an enemy viz NATO. This is just self-perpetuating dogmatism. Let Russia (Europe) and their own neighbors work it out on their own. The US has nothing to lose or gain except the creation of more antagonism by intervening in the affairs of others.

NYC is NOT Going Broke !

2008-08-10T13:05:00.004-05:00

Predictable

The Economist magazine, of which there are at least one million subscribers (good for them! Workers wishes it was 100 million), has a piece on how the fiscal situation of the city is going downhill because the bank and finance house profits are way down and thus so are taxes. This situation is predictable.

In the Austrian School theory of the business cycle certain booms are unsustainable due to bad policy, this then causes a bust which is worse than had the bad policy not been in place. Although the most common bad policy the Austrian School people use is central bank manipulation of the interest rate, in this case, we have both the interest rate manipulation AND other policies which caused the financial bubble and now the inevitable downswing.

The Fed has been opening its discount window to finance houses in addition to banks, and as we all know, along with the Treasury Department the Fed brokered a deal to keep Bear Stearns from its inevitable end. Also, it is well known that Fannie Mae and Freddie Mac (government institutions both) support lending in the housing market, with increased home ownership (and thus implicit subsidies, including interest rate tax write-offs to those that finance housing) being official government policy. The combination of all these things has meant that more money was being invested in housing than would have been had government policies not distorted the economy.

These distortions then lead to a bubble, which was unsustainable. Because bad investment needs to work itself out (investments are 'sticky', you can't just move most money from one place to another like switching television channels or songs on your MP3 player) the economy underperforms during this workout period. That is what is going on now.

Yes, this is going to hurt the City of New York in the short term. But change is part of the human condition, we have and will continue to survive and prosper and will find more productive, useful, and sustainable things to do with our time and money after the shake-out. This is of course assuming that government policy doesn't prevent the shakeout (like it did in the 1930s prolonging the Great Depression).

Trade and History

2008-08-02T12:06:00.008-05:00

And so it goes

The Doha round bombed because of the agriculture subsidies that everyone gives to their farmers. It used to be that agriculture made money for peoples, now it cost monies. Free trade helps those that buy stuff (everyone) and hurts those that make stuff (not everyone). The problem is that the makers of stuff, in this case the farmers, are well-organized and therefore have the upperhand in lobbying and information control (eg the masses are ignorant on the economics of trade).

Workers had a converstation the other day with a genius engineer with at least one patent to his name. This engineer wanted the USA to be self-sufficient in agriculture, as thought that 'dependency' on another country might cause mass starvation in the US. Leaving aside the fact that our foreign policy is aggressive and if it wasnt so then my friends concerns wouldnt even be an issue, why would producers not want to sell if there was free trade? In other words, producers of goods want to sell and are not interested in hording (not selling) just to hurt others. In fact the more economically interdependent the world is the more peaceful it is.

If you peel back the onion so to speak, you can either be cynical and say that our government does not want peace, or, if not cynical just say that we elect the econonically ignorant cause we don't know any better, and it doesnt really effect us day-to-day. The lack of trade due to government thwarting of liberty is not really unique to today nor to democracies. In fact government control of the economy is called mercantilism and is what Adam Smith wrote against in the Wealth of Nations in 1776. Plus ca change.

What Price Liberty?

2008-07-25T11:29:00.006-05:00

Click click click

The American Civil Liberties Union (ACLU) keeps a running counter of the number of people considered to be potential terrorists, it is up to one million people now ! This is really depressing. If we all wanted lives completely free of harm we would never leave the house. Or maybe this is what the Nanny-state wants for us, to be docile, infantile, unquestionining tax-serfs. Fear is not a play thing.

Plus the Department of Homeland Security also offers immigration possibility rewards for people to inform on others, as well as does our Department of State offer monetary rewards to informants. What really is the difference between this and the East German secret police, besides in the level of pervasiveness?

The European Union as a Good Study in Bureaucracy and Politics

2008-07-04T07:45:00.006-05:00

A mind of its own

The European Union started out 50 years ago as a way for the European countries to harmonize (make more efficient) their coal and steel policies. With its steady growth in scope since then the EU has turned into an excellent example of bureaucracy as a self-serving machine. Now the people in this machine are not necessarily evil, they are driven by what they see as right and proper and by the human instinct for power and progress. But when this is power unchecked in an international bureaucracy, it does not necessarily represent a march towards freedom.

Several years back the Netherlands and France voted "No !" to the expanded EU constitution. You might wonder what happened to those votes and what the recent Irish "No !" vote means.

After the failure of the earlier referendums the 'Eurocrats' decided to bring back an-enlarged EU constitution without needing referendums, by having the national legislatures approve an expanded EU directly (An EU with more power means less power for the nation-states which make up the EU). This was a self-serving bureaucratic power-grab, an end-around the problem of referendums. After-all why should the EU bureaucracy be happy in just a status-quo situation, the idea is to grow and accumulate power. So thats what they've done, despite the "No !" votes in the Netherlands and France.

Now the designing and implementing of constitutions is interesting. How does one political body give up power to another, and how do the people decide under which laws they want to live? Ireland decided that an expanded EU required a referendum of its people directly, that it went beyond the powers delegated to the national legislature to decide the people of Ireland's relationship to the EU. The other EU countries did not believe (or rather those in power did not believe) that the the EU constitution decision was beyond those powers already delegated to them.

Constitutions can be changed for liberal purposes, to give more equal rights to those without these rights (althought to be honest, does this ever come without violence?). It is only when law goes beyond rights and gets into redistribution of wealth that special interests come in. Thats what was so cool about the original Polish parliment is that it required unaniminity so that everyone had to be in agreement. This reduced the slowy creeping insidious growth of the coercive power of the unelected (the coercive power of the elected is bad enough !). Everyone had to be bribed or no one at all !

Unaniminity reduces unaccountable backroom special interests from gaming the system. There is no log-rolling, you scratch my back I'll scratch yours. Only those programs which help everyone, not the few, are approved and these before the eyes of everyone.

Anyway back to the EU. Good for Ireland not to be steamrolled. The larger a political body is the less by definition is known about what it does by the people it is supposed to govern, and who, of course, pay for it. The want is for political bodies to grow, abetted by the bureaucrats working for the political bodies, who naturally seek more power and money for their good works. The EU is an excellent case study in this.

However politics really only effects most people when their money is taken to pay for it and when the rules intrude in their lives or some kind of utopian dream or idealism or competitive state of mind. Otherwise it is just kind of entertainment or folly or what have you.

You Win Some You Lose Some

2008-06-27T11:34:00.004-05:00

There they go mucking it up again

History repeats itself in various ways as human foibles. When control of something is centralized by definition it does not represent the will of the people as only if all people choose together freely do outcomes represent intent.

The Fed controlling the money supply and government officials talking up and down the dollar, and even worse, taking concrete steps toward some centralized decision as to what the dollar 'should' be compared to other currencies or what the interest rate 'should' be to, what, control inflation or increase growth, is just one of many examples of centralized decision-making that helps some and hurts other.

When the dollar is talked up it hurts US exporters, when it is talked down it hurts US consumers. When it is left alone to find its value, there is no government picking of winners and losers. Same thing with the Fed. Increasing the interest rate hurts those that have bought fixed interest rate securities (lots of whom are old people living on those same securities) and helps the higher income people who are less effected. It also decreases the amount of investment in the economy, which hurts everyone.

Likewise if the Fed cuts interest rates it helps the investor class, but also hurts the economy as a whole because investments come too cheap and are made in places where they should not be. This later then causes unemployment and wasted resources.

The best thing to do then is just for the centralized 'experts' to leave well enough alone, and to stop hurting some and helping others. Or better yet, just get government out of the money business altogether.

Tom Wolfe Visits Wall Street Again

2008-06-25T22:04:00.002-05:00

From 'the paper'

The NY Times, or 'the paper' in the everyday vernacular, had a good article today about Tom Wolfe, the wonderful and spot-on social satirist and author of the anthemic 1980s Bonfire of the Vanities, who visited Wall Street one year ago when the biggest Initial Public Offering of all time was traded, e.g. when the private equity fund Blackstone went public for $30 billion.

At the time Wolfe said it was the end of capitalism as we know it, or words to that effect. Sorkin in his Time's column sums up the changes in the last year; 83,00o financial sector job losses, billions of dollars in losses by finance houses, the subprime mess, the growth of sovereign funds, the malaise of the Dow. Wolfe: "Stocks and bonds are what Schumpeter called evaporated property. People completely lose touch of the underlying assets. It's all paper - these esoteric devices. So it has become evaporated property squared."

Over the past year too economists have been talking alot about financialization, the taking over of the economy by finance. All this is ok, it is what happens in the market. The market is for gamblers better use your sense, to paraphrase Bob Dylan. So the last thing we need is the regulators or the Fed stepping in to correct something which isn't broken, to reward those that are guilty of creating the paper mess without judging their own risk or by knowing that they would eventually be bailed out by the taxpayer or by some kind of superficial regulatory bandaid to just innovate around while providing a false sense of security to the common man.

We just were a little misdirected in the near-term. Such is life. It'll happen again too, so hopefully we won't in the interim build-up some kind of New Deal government which will prolong and enlarge unemployment and prevent people from being engaged in worthwhile non- illusionary activities.

The Common Sense Economics of Global Warming

2008-06-17T07:57:00.006-05:00

Short-term v. Long-Term

The review (by Freeman Dyson, a physicist) of A Question of Balance by leading economist Bill Nordhaus in the New York Revew of Books is quite good for those wanting to know about the economics of global warming. Nordhaus creates a model to show the various costs of the various proposals to mitigate any negative effects global warming might have on future generations.

The proposals under consideration are the 1) do nothing proposal, 2) the optimal proposal based on the Kyoto Protocol - eg a worldwide tax on carbon emmissions to give the greatest net present value economic return, 3) the Stern proposal - based on the economic methodology used in the Stern Report and 4) the Gore proposal which calls for drastic phased-in cuts in emmissions with a 90% cut by 2050. Number 5) is what Nordhaus calls the 'low cost technology backstop' which is what some economists might call the Schumpeterian model, eg that human innovation and profit-seeking will create technologies which will reduce the cost of producing things with a lower carbon footprint.

The winner, of course, is number 2) - that is why it is called 'optimal'. Nordhuas shows that by adjusting policy as time goes on the net gain is $3 trillion current dollars. But this proposal means US participation in the Kyoto Protocol. This of course is tbd, to be determined. And this alternative, like most long-term predictions, leaves much to be desired as the future is by defintion unpredictable. Additionally, and this might be pedantic, it is tautological. Of course it is optimal, it is adjusted to be optimal.

This brings us to the 'second best' solution, oftentimes the one used most in economics, number 5). This in economic lingo is the Schumpeterian approach, where economic incentives create human innovation to reduce costs. Pollution is costly in production, it spews energy instead of capturing it for use. Dyson is somewhat sceptical of this proposal, but as we learn from the new Japanese fuel cell cars, the Schumpeterian dynamics continue without sceptics.

These new cars don't use fossil fuels and don't pollute carbon, the cause of much of our global warming. (Workers' take is a little more radical than the mainstream, and asks, why is global warming bad? Is not change part of who we are as living evolving organisms living on an evolving, changing planet? Has this not been our condition since the beginning of time? And if so - yes it is so - why is change something to be feared and to be mitigated against?) And Kudos to Honda for making these cars available at below cost, they want to encourage the creation of an infrastructure for hydrogen distribution. Some might call this dumping, others doing well by doing good.

The point is is that policy does not drive human behaviour, it is behaviour that drives policy, and policy merely tries to keep up with behaviour, oftentimes with negative unintended consequences. Note that the new Hondas (and if fuel cells are used in cars today why can they not be used in ALL energy creation tommorrow?) are not at all ethanol-based, the policy that governments are driving towards, with the unintended consequences of escalating food prices for some of the world's poor.

For My Theoretical Economist Friends

2008-06-03T16:52:00.005-05:00

Equilibrium?

Today's NY Times had a great article on the current state of physics and conceptions of the universe. It's been known since 1998 that the universe is expanding. Yet, for those of us that have read Mirowski's More Heat than Light on the history of economics and physics we know that mainstream economics (and even some non-mainstream economists) continue to base our 'science' on the conservation of energy equations from the pre-quantum physics of the 1860s.

It's now pretty clear that, for those that seek an economic science based on natural science, that a 'conservation principle' just does not hold. Of course some of us are more down-to-earth in our goals for economics, and enjoy sticking to such things as supply and demand, incentives created by, and unintended consequences of, public policy, comparative advantage and gains through trade, and the the ethical and moral dimensions of political economy and taxation. Today's article is another example of the deadendedness of overcomplicated, yet oversimplified, equilbrium-based economics. Equilibrium is part of our discipline but should not be its whole.

There is still a role for economic modeling, such as agent-based modeling to study spacially- and temporally-based economic decision-making using the incentives and behaviours we wish to study, but intertemporal dynamic optimization with a representative agent based on 19th century physics is not the model of the future. Not if we want our models to be taken seriously by the physical scientists.

We Are Not in a Recession

2008-06-01T18:16:00.004-05:00

Don't let them get you down

Alot of press over the last few months has talked about the US economic 'slowdown' due to the meltdown of the housing market. It should be noted first-off that bad news helps sells newspapers and gets people glued to the tube.

However, yes, the economy is slowed somewhat, but not, repeat not, to the point where we are in a recession. A recession is where growth is negative, but we still have positive economic growth. This fact should be made clear.

Another thing to note is that we have seen unemployment rise slightly. It is still way below 6% (and in fact is less than 5% in New York City). Workers thinks that when unemployment reaches 6% thats when we should worry about the economy, and not before. Places like France accept 10% unemployment because that is their historical path, their social culture and thus France accepts the factor rigidities built into their economy (well this may be changing too witness Sarkzoy's win). In the US we may have to accept the Welfare State and higher unemployment or learn to fight the encroachment of government stiffling economic activity in our lives.

Prior to the Hoover Administration of the 1920s the natural rate of unemployment in the US was around 2%. Then, with the growth of government and the Welfare State after World War II the natural rate of unemployment (note some people don't like the word 'natural' used in economics, so let's just call it the 'average') rose to around 6% due to the increased factor rigidities, eg the inability of jobs and monies to move from one economic opportunity to another because of government's increased percentage of the economy, both with government programs and government regulation. Despite thse rigidities economic growth and well-being grew at unprecedented rates in the latter half of the 20th Century. We went from a manufactoring economy to a service economy to our now mixed service-and-information economy. (However we still manufactor alot of materiel, this isn't 'outsourced' much.)

Under Greenspan's central bank and stimulated by the Reagan-era deregulation and a constant larger but not growing relative size of government, the average rate of unemployment crept down to 5%. Therefore, given the US's increasing Welfare-Warfare State we are again seeing (Homeland Security anyone?), it is safe to say that we may see an increase in the average rate of unemployment without a concumbent slowdown.

The new increase in factor rigidities may also mean that the average economic growth of the economy may be less over time as well. Especially as we are now seeing an over-reaction in regulation due to the government-caused housing meltdown and such counterproductive measures as bailouts of over-extended finance houses and mortgage payment amnesties and increased government-backed housing bond guarantees. These are the types of things which caused the recent problems in our financial markets in the first place and thus to the real economy and they should be discontinued not expanded. The US is still unique in our entrepreneurial culture, so a little (or alot) more government still won't cause a recession, it will just mean lower increases in standards-of-living (which hurts the poor most of all, as they need growth the most) and more unemployment.

Lastly it would be remise to talk about macroeconomics without mentioning the "aggregations problem." Government statistics are very arcane, and the methodology changes without warning, so perhaps no-one truly knows what is true. What is a crisis in one part of the country may not at all effect another part of the country. The old dumb saw that a recession is when your nieghbor loses her job and a depression is when you lose your job is probably a more sure way to measure what's going on.

Each American Family Owes Uncle Sam Half-a-Million Dollars

2008-05-26T20:05:00.002-05:00

Out of control

It's true, the USA Today newspaper of middle America has shown that with Social Security, Medicare, interest on the debt, federal pensions, and loan guarantees the US Government has promised that each family will pay $531,472 in today's dollars for future promises made by the government. Compare this with private debt per household of only $119,173. And this is Democracy? What will happen when universal health insurance gets tacked on? Just say no.

The Problem with Jeffrey Sachs' New Book

2008-05-18T07:46:00.002-05:00

People are good

Sachs in Common Wealth joins a long list of people who think that there are too many people in world and that something should be done about it. Aid programs have long done 'family planning', which is the ultimate insult to those who for some reason or another keep wanting aid - what could be more insulting than the rich telling the poor not to have children ! Malthus was the original doomsayer, then we had the Club of Rome. All of these prophets of doom and overpopulation have been proved wrong. We have not run out of resources and the Earth has not suffered mass starvation. Unfettered from constraints from above people will survive and prosper. Julian Simon called people the 'Ultimate Resource'. Workers would much rather live in a world of people, despite how annoying we can all be sometime, than in a world without people, and has a hard time understanding those who think that planning from above is a better world outlook than one of people having the freedom to live and prosper on their own.

Food Shortages and the World's Poor

2008-05-16T18:01:00.003-05:00

It's the institutions, stupid

Bob Zoellick of the World Bank has said that 30 countries face civil unrest, and 100 million people face malnutrition due to the recent increase in food costs. As Workers has stated before, following the old African proverb, "when the Elephants fight (or dance) its the ants who get squashed."

No different with the current crisis. The institutions of aid (including the World Bank) have set-up some international nanny-state to tinker around the edges and create a saftey-net for nation-state created disasters. This tinkering around the edges just prolongs the inevitable days of reckoning when nation-state policies need to change for the good of all.

What we have is 1) rich world subsidies for alternative fuels which crowd-out the growing and distrbution of food stuffs, but this is nothing compared with 2) both rich and poor world state policies which prevent free trade in agriculture goods. If goods were free to go where needed, as signalled through the market price mechanism, there would not be any starvation. This is obvious when we have seen that over the last 20 years of the information economy and conseqent growth in world trade there are now more obese people in the world than malnurished.

Poor countries have no incentive to lease out the building of roads and other transportation systems to get their indigenous agriculture products to market because they know that when push comes to shove the rich world and other development institutions will step up and provide aid (of course much of this in-kind foodstuff aid is taken off the top by the very self some national governments who don't have the incentives to open markets, because, well the rich nations don't either, why should they?) There is no incentive to develop local agriculture markets. Development institutions have made untrue the axiom, "all politics are local."

Reform of the world's food bodies to make them more efficient won't help, it's just making a counter-productive system run better. Reform of rich nation agriculture policies won't help either, again it's just tinkering without addressing the real issues. Central planning of economic goods just doesn't work because the world's people are just too decentralized and local for any world institution to solve anything. If people were able to grow and trade their own products, the profit incentive would make sure things go where they should. Market-distorting subsidies and central planning are anachronistic utopianism.

Granted it is hard for those who have made their careers under the international institutions created under a different time (the cold war) to give up their power and their inculturated and institutionalized mindsets of annoited world-saving, and for the poor countries to give up their reform-preventing aid monies, but hopefully Hegel is right and we are on the historical march to human dignity and freedom despite the occassional set-back. But then again maybe not. Hegel too was from a different time and place. Political bodies have grown much much larger than in Hegel's time, and the absolute size of things is a fetter on change. World bodies can provide information, sure, but a coordinated response is a fool's game creating nothing but dashed hopes, dependency and the putting off of much needed institutional change. Which I hope this blog has made clear, means the removal of central planning on a world-scale.

Who Will Watch the Watchers?

2008-05-07T14:30:00.003-05:00

Smaller government = smaller corruption

Now the Office of the Special Counsel of the Federal Government has been raided for suppressing whistle blowers. It should be noted that the OSC was created to ensure that whistle blowers in the government are treated fairly, to call out corruptuion when they see it and hopefully be able to do something about. Workers wishes this were ironic.

There are some 2 million government employees. Using a rule of thumb that they teach you in leadership studies, figure 4% are dishonest. This means there are some 80,000 scufflaws working in the 12 Departments, or about 6,000 per Department. This means there's lots of people to look for ways to take for themselves (or give to their friends, say using sole source or competitively-rigged contracting or loose monitoring of government contracts) the government's some $2 trillion dollars per year. Honest people in government who want to help their citizens have an uphill battle when they see and want to do something about corruption incentivitized bureaucrats.

Gasoline Tax Holidays

2008-05-06T08:13:00.002-05:00

Band-aids not reform

The holiday season is coming-up so the politicians have to do something about gas prices so that the people don't get mad at them when they drive around the country. Gas-tax holidays are being called for.

Of course, a temporary tax holiday does nothing to reform people's behaviours. People in the USA like their cars, they like driving and we built a huge highway system to support this culture. The tax break just encourages more driving in big cars. If the pols really want to help they would cut spending and then cut the gas tax for good. If pols want to discourage big cars and drving then, well, keep the tax in place. These tinkerings around the edges don't help at all.

Industry will have the incentive to come up with cost-saving innovations to keep people driving and buying cars. Again its the American way. But changing tax laws ad hoc doesn't encourage anything except short-term political gain, and people who think their 'leaders' are helping them.

State-Money

2008-04-12T13:24:00.002-05:00

And the historian's favorite curve

Here is something Workers wrote for the long-standing Fifth Estate 'anti-authoritarian' magazine's special upcoming issue on money.

State-Money

What we have in the United States, and therefore throughout the World as we know it due to US monetary hegemony, is as Marx predicted monopoly capital. (Although this monetary hegemony is waning and only one could say supported by US military hegemony. What we are living today is the historian’s “favorite curve,” which is the hundreds of years build-up and decline of empire through its internal and external instability.) Modern monopoly capital supported by the State we can mark to the founding of the Federal Reserve Bank in 1914. The Fed was created to cartelize the Morgan and Rothschild banking interests both in the United States and abroad, and this it has done ever more successfully ever since. It is not unrelated that State-money was created in 1914 and the Great Depression occurred in the 1930s.

The cartelization of money has destroyed this money. Money is a means of exchange, it is a simple and efficient way for us to exchange the products of our labor (or most accurately our creativity mixed with our time and our labor) with the labor products of others. Of course from a communitarian libertarian life we can, and many of us do, exchange through barter and through gifts and through our love and our time and the sharing of our selves. But non-money means of exchange has only a limited geographic scope and many of us are so far down the line of debt and modern alienation that the necessary, essential and scarce, commodity of time is lacking for non-money exchange. Thus necessitating the best and worst of our life’s essentials, money. This is not a reformist position, this is a real position.

When money is corrupted through the State, through the Fed, this money slowly, and sometimes not so slowly, becomes worthless. (When money becomes worthless it has laid historically the foundations for fascism.) This weakening of the value of money hurts of course those who have less of it. State-money is an overt policy of subsidizing the rich over the poor. It creates a class of State-money slaves who have to work in conventional lifestyles and conventional jobs which kill creativity and charisma and offers a future of nothing but more drudgery as the money continues to deteriorate. This creates as Marcuse says a society of “one-dimensional man” (and women, especially women as this half of our being is valued less in the conventional workplace). This one-dimensionality is only re-enforced, to add insult to injury, through the taxes that the State-money chattel class pays for the right to slave in the State-money machine formal sector. If you don’t believe this alienation exists and has taken its hold on person-kind, join the ‘commute’ for a day or two and witness the contented; the car horns blowing and the zombielike on the commuter train.

State-money is manifest in many ways. The most obvious example is the recent and on-going and foreseeable in to the indefinite future, bailouts of Wall Street investment firms. The cartel supports its own. These bailouts just add to the weakening of the money, to the inflation of the price of the essential commodities needed in our day-to-day lives. These commodities are money-commodities traded throughout the world. There is no alternative to money for foodstuffs for the urban poor, for mass-produced clothing, for housing, for electric and heat. The state-money keeps the average $11.3 million per year salaries of CEOs in places while increasing the chattelization of the working, of those chained to one-dimensionality.

State-money is realized through the printing of ever more money (the dollar money supply increased more than 10% in 2007). More money in circulation drives up the prices of essentials. This money increase is invisible and unknown to most people, and in fact the Fed stopped officially reporting this money increase several years ago. This cost to society has become invisible, out of sight, out of mind. It is removed from mainstream economics but its effect on the working lives on, creating an ever-enlargening (or ever-tightening) one-dimensional box we live in in this world of State-money. The State finds yet ever more ways to hide itself from us.

Every time the Fed clicks up and down the interest rate it causes redistribution. Every time the interest rate clicks, either up or down, it creates a flurry in the money market as money-holders adjust their money holdings (savings, which are usually invested by the banks in the government bonds themselves) to account for the interest rate changes. Every time it clicks the cartelized money houses gain a profit in fees as people buy and sell bonds. These fees are another source of hidden redistribution from the poor to the rich, from the earnings of chattelized labor to the profits of the state-money cartel. These money clicks and fees and government bonds are, again Marx, the ‘illusionary’ economy. All this activity adds nothing to our lives but uncertainty and fear and ever increasing dependence on the ‘experts’ themselves who control this money.

The State-money cartel and the State are Bukharin’s “coupon-cutting pond scum”. The cartel depends on the State and the State on the cartel. Government debt is the needed body on which the parasite feeds. Government debt is needed for these money clicks up and down. The cartel buys and sells the bonds the State uses to funds its deficit, government bonds are the illusionary commodity. This debt is passed along to the next generation and the parasite prolongs its existence; it is unquestioned, it is accepted, it is welcomed.

The chattelization of the working increases. In the global knowledge economy “human capital” is the commodity bought and sold in the market. The State inflates the cost of this capital through the guaranteeing of student loans. Student loan guarantees do nothing but thrust the young into the State-money chattelization of labor. Distorting monies to universities does nothing but increase the money costs of the essentialized education. The universities themselves become part of the State-money cartel. Tuition prices have increased more than 300% the rate of inflation (the measure of inflation itself is an illusionary concept adjusted and maintained to suit the interests of State-money). People leave school with huge quantities of debt and are faced with nothing but the work-a-day to get out of this debt. The graduates are added to the one-dimensional production line of State-money support. The best way out of the chattel is to join the military-industrial complex, the growth industry in the post-civil society of the welfare state and Pure War. The corruption caused by State-money runs invisibly deep and whole-clothe, it is the historian’s curve.

The most insidious State-money policy is the guaranteeing of home mortgages 100% by Government Sponsored Enterprises, the cause of our current money crisis. The money cartel lends for mortgages, packages groups of theses mortgages as bonds, and then sells these bonds to others in the cartel. These bonds are guaranteed by the government. There is no reason to enforce rationality in mortgage lending because the bonds are supported and, now, bailouts of the mortgage loans themselves are imminent State policy. The host of the parasite grows and grows as the crisis deepens. The illusionary economy becomes the real economy as the State-money loses its value during bailout and the money volume increases. Chattelized labor pays the price for the existence and growth of State-money. What is to be done?

Cigarette Bust in Brooklyn as Metaphor

2008-04-10T08:26:00.004-05:00

No surprises here but will we learn anything?

Officials are crowing about a 'big' arrest in Brooklyn from some guy that was selling counterfeit cigs, non-taxed cigs and even made and sold his own tax stamps to put on the cartons of cigarettes.

The government can regulate and put on price controls but people will just ignore it and arbitrge the public policy for their own gain. In fact Workers believes that any inordinate long-term gain can ONLY be made by arbitraging bad policy. Worse people are lulled into thinking that they are protected by the government but of course that is stupid and creates a society of unthinking people, who alas can then get preyed upon by those taking advantage of bad policy (e.g. the mafia in drugs and gambling and prostitution, or well, monopoly capital and central bank bailouts in the investment biz).

Bad laws even can make you kill your own family members (American Gangster tells that story). As you travel around the world the cost of a pack of cigs is a good measure of how big is the nanny-state.

India Opens Up

2008-04-10T08:20:00.002-05:00

Specialization of labor

India says that it is opening its borders to goods from the world's 50 poorest nations (of which India was one not too long ago). Unilateral free trade is a good idea as it allows the people of the country (India) to get access to cheaper goods both for consumption and for inputs to production. India until the 1990s was moslty a closed centrally-planned economy allied more with the Soviets than the West now they are leading the way to enlightened international dealings viz trade, specially to places (like Africa) that need it most. Thats pretty great.

India buys England

2008-03-30T08:13:00.002-05:00

Historical time

We had a discussion last semester in an economic theory seminar on how long is long in economic time. I proposed 30 years as 30 years ago India and China were seen as economic laggards and today are leading the world adding 2-3% to annual per person worldwide income growth, e.g India and China are bringing up the world averages with their phenomenal expansions.

Now there has been a recent announcement that Tata Motors in India, a colony of England until 1947, is closing on its purchase of what once where two of England's major brands, Jaguar and Land Rover. This shows that 60 years is a nice period in which to evaluate history....from colony to economic superpower in 60 years. The whole social relations of power have shifted showing that economic power trumps coercive empire.

Private Gains and Socialized Risk

2008-03-23T19:52:00.004-05:00

Monopoly Capital

It is amazing to Workers that people are upset or suprised at the Fed's bailout of Bear Sterns or its direct lending to non-banks. This is just the same thing that the Fed has always done - distribute wealth e.g. socialize the risk - to monopoly capital at the expense of the poor schmucks like all of us who aren't banker power elites and now investment bankers.

The Fed was created to subsidize and cartelize the banks (See Murray Rothbard's Wall Street, Banks and American Foreign Policy for the big picture on this), to prevent competition and to allow the bankers to receive private gains e.g. the big profits in the good years, while during the bad years they get cheaper money and now, well, direct bailouts. Financial institutions had 40% of the profits in 2007 while employing 5% of the workforce.

This shouldn't surprise people. But maybe now it will raise people's awareness and thus a call for change. The Fed should be de-chartered and its monopoly power over money ended. We deserve better than seeing our hard-earned money being given to those better off than us, and who have big sums to play the market (you shouldn't play the market unless you can afford to lose). If the money was allowed to compete it would holds its value instead of the downward spiral the dollar is having and will continue to have as the Fed bails-out and prints more money in ever more desperate attempts to control something that should be free.

More of the Same Trouble in Financial Markets Called by Government for the Future

2008-03-05T10:24:00.002-05:00

Oops, there they go again

Worker is back after a three-month vacation from blogging for two reasons, one is that a frnd said that he enjoys the blog and two is that am taking break from intensive math study filling up notebooks of equations so my hand is healed enough to where can punch the keys. I'll be doing the blog when mood hits which will be probably few times a month. For what its worth.

Ok so point is over the last three months the financial markets have had a meltdown with contagion throughout. The reason for the meltdown is that the GSEs (government sponsored enterprises) guarantee the mortgage loans of lenders. This means that the lenders have no reason to control the risk because the more they lend the more that is guaranteed. This pumps bad money into the system and raises home prices which hurts the poor most of all. (Same thing with government guarantees of student loans which hurts the brightest and youngest most of all, but that is another story, one with perhaps larger repercussions on the longterm).

So of course the government must do something about this....what? More of the same ! The Bush II administration (don't get me wrong the only presidential candidate, and in fact the only politician in 20 years who wants to do anything about it let alone who understands the problem is Ron Paul) has now removed all limits on Fannie Mae and Feddie Mac debt levels so now the market distortion is limitless, which means nothing has been done about the problem and in fact it has been made worse.

Now there is pending legislation to increase the amount per loan that the GSEs can guarantee to $735,000 from $400,000. These high levels of mortgages of course are aimed at the poor (that was cynical, I am sorry. Needless to say the poor do not need or want seven hundred thousand dollar homes. I know I don't).

It's almost as if the powers have given up all pretense of even trying to distribute wealth downward which obstensibly the purpose of government (whereas of course we know the whole purpose of government is to enrich the special interests at the expense of everyone else).

Ok then the last nail in the coffin of common sense and good policy is the proposed 'moritorium' on foreclosures. This is tantamount to nationalization of private assets, not to mention a violation of the private right to contract. This sure as anything else will dry-up financial markets. The right-to-contract and freedom from government takeover of private property (e.g. rule of law) has been what has made the USA a popular place to invest and what has sustained our government and private debt. Needless to say there is nowhere for the dollar to go but down. Thus those that have less dollars to spend can buy less, this is the everpresent "law of unintended consequences" of government policies.

As the late great Kurt Vonnegut said, "and so it goes".

Ta Ta for Now

2007-11-15T15:45:00.000-05:00

Technical difficulties: my hand hurts

Dear Workers readers: I must bid you adieau (sp) for awhile as my hand hurts, so hope will come back stonger than ever. Hope you have enjoyed the last three years or so of the blog. I have tried to be free-thinking, iconclastic, honest, thoughtful, timely, perceptive, analytical, spontaneous, creative with this. And of course have failed. But you may find some stuff you enjoy. Just do a google search of "workers world relax and any topic of interest" of the last three years and you'll probably get my 2 cents. When I started this google was at $90 and now its over $600 so am doing something wrong (right) anyway :-).

thank you until next time.

Environmentalism-ism

2007-11-15T12:28:00.000-05:00

We live in the best of all possible worlds (cause its the only one we have)

Thomas Szasz has a (good) theory that we all need something to worry about. This may or may not be true or true at different levels depending, or could be called creative tension or whatever else. Just like stereotypes and rumors. Isnt there alot of (but no absolute) truth to the things we say and believe?

Environmentalists of course worry about the environment. And of course some environmentalists are 'leftists' because they want to take money from some people and give it to causes they believe in, in of course this case, the environment. And to put this redristribution ahead of the rights of others to keep the fruits of their labor. This takes form in asking the government to do things against "polluters". (But dont we all pollute and is not repeting the obvious or exagerating the truth pollution as well?).

Ok then, well it seems like now the market is helping to solve the problem of regulation oftentimes keeping the prices of resources too cheap which then leads to an over depletion of these resources. Point is people are asking for factories that dont pollute or waste water and or energy. Companies are hearing the demand (and reacting to the high price of oil), witness Frito Frtito Lay's prototype Net-Zero factory. Don't worry about it and be sure to buy their potato chips if you like the idea, and well, like potato chips.

UN Programs are Uber-Government

2007-11-15T09:31:00.000-05:00

Pay this and pay that they're all a bunch of filthy brats (with apologies to the Sex Pistols)

Workers blogged about this way back when, but resultant is now Chevron just had to pay $30 million as a fine for kickback charges relating to the oil-for-food United Nations program occuring under sanctions when Saddam Hussien was in power in Iraq to keep him rich, oops, I mean to enable him to get money to feed his people.

Anyway anti-government screeds are just so much dogma as one should not be allergic to, nor addicted to, government. Government is useful in certain areas (well the only ones I can think of is when everyone who voted for some money to be spend on something can see the end result in person of the results of their, and their neighbors, voting). Anything government beyond the minimal just creates counter-incentives, waste, rent-seeking, and power- and war-mongering.

So to see stuff like kickbacks for government procurements or to bribe decisions should come as to no surprise. Keep it small.

Happy Veterans Day

2007-11-12T10:15:00.000-05:00

When Elephants Fight

Happy Veterans Day. It is sad because we all have (or in too many cases had) friends and relatives and big and little brothers and sisters etc who fought for their country overseas. Some people do it out of honor or a sense of belonging or patriotism or to get their act together, some because they were drafted (thank God that is over) and some because economic alternatives offer no other choice.

War is bad let's face it. To kill another has to be anyway you measure the worst thing you can do. Is anything worse?

Today we (the United States) have a government that is out of control. No country has attacked us, we have not declared war on anyone. We are out of some kind of holier-than-though blind idealogical alligence to some (if you ask me, failed) political system forcing our way upon others by killing those that disagree with us, or just wantonly killing to make a point. And to be forthright, this has been happening for decades.

And we are having our young children fight the battles for us and then come home and live the rest of their lives with the trauma of the stupidity caused by out-of-touch wealthy (crony state-capitalism redistributitive wealth, not productive creative life enhancing wealth) power hungry politicians. We have become a sick society of death. How would you like to know that you and others "shot them when they were unarmed and running away," which is what is happening.

We must stop our support, our intervention, in the political affairs of others and the endless downward cycle of death and pain that this causes. Fighting back when attacked is one thing. Prolonged and systemic hate-creation and aggression is another.

God Bless America and God Bless Norman Mailer

2007-11-11T15:44:00.000-05:00

Norman Mailer (1923-2007)

Norman Mailer, from Brooklyn, like Milton Friedman and Truman Capote, was cool. His work was profound and timely and interesting and deep. A true blue American individual. He is in a better place now Inchallah.

I remember in Harlot's Ghost, the only book of his I bought new, and I bought lots of his books, he said how creative America is. As we moved West we kept inventing things (like airconditoning and aeroplanes and the railroad). And then when we got to the West Coast and ran out space we invented the movies, the ultimate invention. Anyway he was a good writer. And that movie with Ryan O'Neal was badass.

Restore Human Rights in the USA

2007-11-11T15:27:00.000-05:00

Ron Paul's bill

Workers tries not not too get too caught up in politics cause it seems kind of a waste of time.

There is no real choice:

1) Democrats and Republicans are the only national candidates that have a chance and they just keep abusing the system and growing the government through unsustainable populist pandering (e.g. out of control spending and growth of government into all spheres of our lives), and;

2) Democratic politics has failed us (and us I mean here the world) because the political bodies e.g. nation-states have grown so large that misinformation, incomplete information, creeping nanny-statism and rent-seeking have caused voter apathy and an ever-growing corrupt and selfish political class. But to cut some slack perhaps politicians just think they know better. It is not an evil it just results in being one when manifested through action.

Ok anyway the good news is that Ron Paul has put forth some legislation officially noting the increasing curtailment on human liberties we have in this what was once a 'great experiment on the hill'. It is our own personal relationships that matter more and more as Empire grows.

One Trillion Dollars

2007-11-06T14:50:00.000-05:00

SNP

China Petroleum, the People's Republic of China's state-owned gas company, has now reached a market capitalization of one trillion US dollars, making it the largest company in the world by far. Bigger than second and third place Exxon-Mobil and General Electric combined. Interestingly enough this stock seems to be priced right. Petroleum fuels everything (for the time being anyway); China's economy is $10 trillion per year, and thus at $1 trillion CNP is priced at 10% of revenues, a pretty middle-of-the road valuation.

Well what does this say? China is on the move obviously and the market thinks this will continue. And perhaps people are substituting out of 'western' assets due to the real estate bubble's foretold collapse. Too this means that the central bank of China's policy now of holding down the yuan is increasingly unsustainable. Buy low sell high.

The Nanny State Marches On

2007-11-05T10:24:00.000-05:00

Fun is illegal

The town of York in England is having to put limits on its Guy Fawkes days (the father of anarchists) and San Francisco ditto for Halloween in the Castro District. People are allowing the State to take on more and more responsibility which is limiting both the upside and the downside in people's lives. We are losing our charisma just like Max Weber said was bound to happen.

Expansionary Monetary Policy Hits Home

2007-11-01T13:03:00.000-05:00

Coffee and dish soap

I guess I knew that the Fed increased the money supply or lowered interest rates or whatever else it does, awhile back and then again eg putting in motion inflationary expectations, because prices are starting to go up. Whereas the neighborhood coffee in the area where I go to school in Manhattan was everywhere $1.25 for a large it is now up to $1.50. Same thing with dish soap, the local $.99 store in Brooklyn has broken the barrier and is now selling dish soap for $1.29. When the elephants dance/fight (central banks and monopoly capital) it is the ants (everyone else) who get squashed. I didn't need to read about the policy in the paper, I knew it happened because daily necessities cost me (and you) more.

Workers is not whining, just giving more examples of why central banks should not try to fine tune the economy. Just leave the money supply and interest rates alone and let people set the demand and supply based on their own needs. I sure didn't need my daily living to go up in price so that bankers - who are bailed out already with government deposit insurance and mortgage guarantees - can get bailed out when they were overly risky with their (actually our, due to all the support the government gives them) money in subprime mortages. Bailouts just beget more bailouts.

With Friends Like This

2007-11-01T12:41:00.000-05:00

Stop giving money to idiots

President-for-life Mubarak in Egypt ordered 80 lashes for a reporter who said that Mubarak was ill of health. Whether he was sick or not is beside the point. The point is that the country's 'chief religious official', appointed by Mubarak, ordered this beating.. Where is free is speech? And does not a politician leave themselves open to rumour? And does not a country's press prevent a totalitarian state?

This is purely sick. That we (you and me the US taxpayer) gives the government of Egypt billions of dollars every year in foreign aid is insane. And just one of many many examples of what happens in the entangling alliances of nation-states and unaccountable government power. Again, in case you missed the point; that you pay for, in many ways more than just the material.

Buy the World

2007-10-23T10:59:00.000-05:00

Mutual Cooperation

Slowly but surely all of our interests are becoming aligned. Anyone can buy now shares in every public company in the world (except the USA, why not? I dont know) with the click of a button.

That's what Workers calls a small world. If all of our interests were aligned and shared we wouldnt have petty squabbles and not-so-petty wars, e.g. power is becoming more horizontal and less vertical, which might explain why empire is becoming over-extended as a reaction.

So Goes Kyrgyzstan

2007-10-23T10:34:00.000-05:00

Democracy

What happens when 1) polities grow too large, or 2) polities are made from externally-mandated (usually imperialist) forces?

Answer: Democracy doesnt work. We can see this in the USA where a country that started with a few tens of millions of people has grown to hundreds of millions and where the government has grown from less than 10% of the economy to more than 30%. And in, obviously too, Iraq, where a fake country (grown from British empire) is having democracy forced down its throat upon people (tribes) who dont even like each other let alone want to live in and manage the same country together.

In the USA we have 40% at most of population show up to vote, and then the winner then gets, what? 40% of that. So with 16% of the population as mandate we have a war machine that is saddling our children with debt. Not too fair now is this?

Same thing in Kyrgystan. In the ex-USSR they have somewhat different bad stories with nation-states grown amuk. There one often hears the vote turnout is 80 - 95% but in reality it is the same around 40%, if that. President Akayeva is trying to pull some fast ones there to increase his power base. So what else is new. People just dont care about politics unless they are trying to control someone else's life (if they have the fatal conceit) or if they are tying to get something for nothing (be the recipient of redistributionalist policies).

So basically we could let bygones-be-bygones and let those that care about politics and gaming the system to their own advantage have at, it is just the problem is they drag the rest of us down with them.

Too Big Not to Fail

2007-10-18T19:35:00.000-05:00

Secessionism

Seems like maybe the secessionist movements are gaining ground. See Montesquieu had it right when he said that political bodies can become too large and when they do so they lose accountability.

Nature abhors a vacuum. When political bodies become too large one hand doesnt know what the other is doing so people come in to take advantage of the situation. In economic terms this is called 'rent-seeking'; when economic actors come in to game the system by taking advantage of incomplete information and government power. In the 'good old days' people knew what their neighbors were voting for and what their tax money was being used for as they could see it being used locally.

But now that the nation-state (and even, well obviously, the city and state of New York) has grown so big politicians just come in and take advantage. Monies spent through politics are unaccountable monies because the costs are diffuse and the benefits concise. Many people pay for the privelages of the few, this is special interest politics. And all politics is special interest politics, by definition. Because, who after all pays their taxes voluntarily?

You can see too that this is not just a problem in the USA. Since 1975 taxes have slowly increased over time in most major countries. This just shows that the tendency is for things to become less accountable, for government to grow, overtime as the polity grows overtime. Small local government is cool because it is people helping out their neighbors. But the huge powerful nation-state is where the big bucks are and where the big corrupt deals are made. Let alone the war machine run amok.

World Bank Mission Creep

2007-10-17T12:11:00.000-05:00

Power is as power does

Robert Zoellick the newish head of the World Bank is doing what the heads of all un-accountable public bureaucracies have the incentive to do; grow their power by taking on more duties than they were originally chartered to do.

Private banks (those that arent being bailed out that is through 'emergency credit' and 'monetary policy') have to show a profit through making a return on their capital. Otherwise their capital investment goes elsewhere, where it will return a profit. The World Bank doesnt have the discipline of the market, as it is funded, and has been for more than 50 years, by governments. So if you work for the World Bank, or especially, if you, like Zoellick, head it up, man are you in the pink.

"The Bank" has more than $200 billion in assets. That is alot of money which is not subject to any authoritative oversight nor market discipline. So of course with a power base like that, and with the poor countries - most of course but not all - getting richer through globalization (the internet and improved transportation technologies and trade and capital markets) what does an outdated institution do? Well, find something new to do !

So Zoellick wants the Bank to trade currencies and provide financial services just like a private bank. Of course the only thing is that "the Bank" doesnt have to pay taxes nor fight in the market for capital. Thats not really fair to those that do now is it?

More State-Capitalism in America

2007-10-16T09:51:00.000-05:00

And so on

The latest - did you see today's New York Times front page, Hank Paulson the head of US Treasury Dept, and the head of Citibank announcing the banks biggest loss-making quarter, in side-by-side photos eg the Times promoting crony capitalism (again) - is that the US Government is encouraging the largest private US financial groups to get together (collude would be the more appropriate word) to create a new "structured investment vehicle" to cover the bad long-term debts created by overly risky housing mortgages.

Why is this bad?

1) It sends a signal to people that the US government will step in to save the financial institutions. Why is that bad? If bad investments arent allowed to work themselves out we - the economy - are stuck with them. Business is risk, you win some you lose some, if you dont lose any, things fall apart as larger risks are taken at taxpayer expense and you end up with the Savings and Loans debacle and third world debt rescheduling (a recipe for forever staying third world if you will). And you end up like France ha ha. (Which is a cool place but its not the place where you want to be young and needing a job).

2) Cause the US government created the problem in the first place by guaranteeing the risky mortgages in the first place. So why would we want more of these bright ideas?

Ok point is, everytime Uncle tries to help business it screws the people. Sure it helps the financial houses in the short-term, but this help is paid for by everyone else. And really it is only the top 5% of the people at the finance house who make the big bucks with these government programs. Do we really want our government and our tax money used for this? (Answer, no. No we don't want government safety nets. Thats what we have already. It sucks.)

Clinton's Savings Plan Proposal

2007-10-10T14:51:00.000-05:00

We will help you

Ok just to make this short and sweet. President Clinton to-be (Hillary that is) is proposing that the government pitch-in $1,000 for the first $1,000 that people put into her proposed savings account (don't we already have tax-free retirement savings acounts? Its another scam, just lower taxes and you wouldnt need these types of complicated scams) to encourage people to save. Of course, as Workers has mentioned before with social security and medicare IOUs the government is already in debt to the tune of $400,000 per family (see the Government Accountability Office's David Walker who is getting the word out on this). So why should the government do more crazy IOU plans?

Of course too Clinton wants to increase estate taxes. See the point is that Clinton (and most politicians of most stripes) want you dependent on the government, on them. Instead of earning your own way and keeping what you earn and helping your fellow human voluntarily if you wish, she wants to take your money, give part of it back to you and part of it to someone else, and then wants you to thank her for it by voting for her. This is political pandering, and hopefully someday there will be some responsible politicians running for office who will not pander and will address the US Government's structural imbalances. Inchallah.

China's State Capitalism

2007-10-07T13:32:00.000-05:00

How does this help the people?

The People's Republic of China has recently announced its new sovereign investment fund of $300 billion. Because the government holds down the value of the local currency, the yuan, it accumulates hard currency reserves in the government-owned central bank. The government is now to invest some of these funds in the decidely un-communist international equity markets, their first investment being the high-flying and uber-capitalist Blackstone, a private equity group, eg one decidely not available to the people.

Of course if the government of China really wanted to help the people in this ostensibly people's republic, it would allow the market to set the price of the people's money so that the people's money would be worth more so that the people would be able to buy more. Instead, now, with the money buying less than the market value, only some of the people benefit (those who sell goods abroad and those who control the reserves at the central bank, and, now, those who control the state investment fund). At least under idealist communism the idea was to help the peasant. Now of course the reality is far, very very far, from this ideal.

Remarkably enough this huge China fund is only in the top five of state-owned funds, with the United Arab Emirates being the largest. There is indeed alot of money out there.

Alternative Finance

2007-09-27T19:22:00.000-05:00

I know better than you about what you want and need

Oceanside, California (which used to be pretty liberal I think) is now going to restrict the rights of people to get 'payday' loans. This is really bad. Just because one is a wealthy politician-councilman who has plenty of donors to their coffers, that doesnt mean other people don't need access to money. To limit this access is wrong, and went out with the debates over usary, what, 300 years ago?

What if someone has a great idea to make a bunch of money (or throw a great party) over the weekend, but doesnt have the money immediately in hand to do so? Without payday loans (and pawnshops and other people who give alternative access to people with unconventional lifestyles) where will people in need get cash?

It is just part of an increasing nanny (or politely, paternalistic) state which prevents us from smoking and eating fatty foods and buying goods we want and getting money, voluntarily, when and where we want.

And now too, it should be noted, that some states are requiring people to buy health insurance (like Marx predicted in capitalist societies perhaps we will all just end up selling insurance - eg financial products - to each other) whether we want to or not. This required insurance of course too is a special interest give-away to insurance companies and medical providers and part of Hillarycare Mach II.

Barack Obama's Tax Plan

2007-09-19T10:36:00.000-05:00

Tax cuts are good when coupled with spending cuts

Senator, Presidential Candidate, Barack Obama, its good to see, is calling for tax cuts and a simplified tax compliance and payment process. He is as some writers say- they say it negatively - Workers means it in a complimentary way - a "sincere young man."

But it would be even better if he would address the overall structural problems we have in the USA. The US Government is currently in debt (the amount promised over time minus the expected income over time) to the tune of $440,000 per household. Thats right, you and your children are more than $400 thousand in debt. So, unless you move or something is done about government spending this is the future we face.

So yes, tax cuts are a good idea. Because 1) they let you keep more of the fruits of your labor (and is that not one of the few things we have, the desire to see results for our work and effort and ideas ?) and 2) it allows less money to the government and therefore more for more productive things, not least of which is spending (investing) on things which will help the economy grow and thus reduce the burden of our $440,000 debt. Paying more than 2,000,000 government employees is not necessarily a productive use of money.

But of course as a Democrat (when will people stop acting so blindlingly obvious? For some reason people need to define themselves in terms of what they are not, even if they really are) the Senator wants to increase taxes on capital gains. When you tax something you get less of it. Capital is needed to grow the economy. Again, growth is needed to get us out of debt; God, or non-God depending on your beliefs, is not going to forgive our debt, at least not that we know of. So, no, do not tax capital, cut government spending.

But an even better idea, going along with the Senator's nice idea of making tax compliance less burdensome, is to just have a flat tax on consumption, like most other nations are doing, and which are helping them have more robust and dynamic economies than the good ol' USA. There are two things you can do with your money; save it or spend it. If you save it creates money for investment, investment creates a capital base, which will help up grow our economy and get us out of our individual $440,000 in debt.

Keep on going Senator, you are on the right track, just, you know, try to look at the bigger picture.

Sanctions Against Iran are a Bad Idea

2007-09-16T11:14:00.000-05:00

Hypocritical and counter-productive

The world's powers are discussing increasing sanctions against Iran because of Iran's budding nuclear arms program. This is a bad idea. First off, the larger issue is one which seems have been forgotten; mutually-assured destruction. This kept the cold war powers from destroying each other. Why should this not work in the post-cold war era? How could anyone be more crazy than Stalin? (Sorry Joe, nothing personal, but you had some crazy ideas that harmed alot of people).

Some countries have nuclear weapons and others don't. Of course it is those that have these weapons who want to prevent those that don't have them from getting them. This is, obviously, hypocritical.

Secondly, sanctions don't hurt governments. Sanctions only hurt the people living within the countries who have sanctions issued against them. Governments, through their unique use of legitimate (not moral legitimacy but legal legitimacy) power can get what they need. Just ask the cognac-swilling Mr. Kim.

It is the people without political power (in other words, most people) who are hurt when free-trade is curtailed. Like so much else, sanctions are just a show, trying to show people that we are doing something about a problem, when in fact what we are doing is just making the problem worse. If you want to change a corrupt regime, make the people more wealthy so they can fight power, don't make them impoverished with foolish and counter-productive grandiose schemes.

Absolute Power Corrupts

2007-09-12T13:53:00.000-05:00

Qu'elle surprise

It should come as no surprise that the previous New York state employees pension fund manager is under investigation for fraud. He and he alone was responsible for determining the investments for these public moneys. Of course why should he not give them to the highest "bidder"? When there is not even pretext of accountability in the incentive structure, why should anybody act any different? This is human nature.

And it is also an interesting cross-section between economics and philosophy. For some reason some people think that just because someone works for the government or is in public service that he or she will act benevolently, putting the public's interests above their own. This is counter to human nature, why should working in the public service turn someone into a saint or make someone act differently than they would usually?

In fact this is actually counter to logic because in one's day-to-day relations we know the people we deal with and therefore have the incentive to be honest, and if we sell something in the market it is the quality of the good, and the reputation of the merchant, which matters. In public service at the highest levels it is mostly impersonal relations or with those already part of the system. And even if a public servant goes in with the best of intentions, the incentives once in can change attitudes and behaviors.

This is what Public Choice Economics is, using the analysis of self-interested economic agents to predict behavior in the public sphere. Public choice can tell you for example why governments have a tendency to grow in size: because public managers get paid more when they control more public moneys and have larger staffs, thus have an incentive to ask for increasingly large budgets every year. And because they know more about their programs than overly busy politicians and oversight officials, they get this additional moneys through persuassive argument and asymmetrical information.

Public choice can also tell you why former Comptroller Hevesi may have not been completely thinking only of the public when he was in office, because he had no incentive to, and perhaps thought that he was not harming anyone (anyone in particular that is).

The Greek and Roman philsophers believed that it was a person's highest good to serve the state in that the state served the people. Perhaps they had it wrong, the state does not serve the people but only serves those people who make up the state.

But to cut the ancients some slack, states were much different then, the political class was much smaller and people knew, mostly, who was doing what in the public sphere. States have grown much larger now and are involved in so many more activities that the public is kept in the dark (perhaps rationally so, as who really cares about the state unless they come knocking on your door, or when it comes tax-time). Mr. Hevesy is under prosecution, just how many more are not?

Stop Them Before They Kill Again !

2007-09-11T10:24:00.000-05:00

The endless cycle of unintended consequences

Workers has written often about how well-intentioned government policy often creates incentives counter to the intention of the policy. For example, the guaranteeing of student loans just drives up tuition prices because subsidized capital gets thrown at schools, who then raise their prices and create loan industries to help the kids afford the new higher tuitions. In the end the students are those actually made worse by the program as they leave school with debt they should not have had and thus get jobs for money instead of for love.

Same thing with guaranteed mortgages. This just makes money for the mortgage lenders and drives up housing prices. Now as of late, the financial markets are rocky because these loans (for overly priced homes) have been made to those who can least afford it, causing defaults and thus financial sector writ-large repercussions. So of course, the politicians want to increase (instead of usually when something doesnt work you want to stop doing it not increase the amount you do it !) the mortgage guarantee programs. Stop them before they kill again. When the politicians sneeze with good intentions we all get a cold.

It's the Monetary Policy, Stupid

2007-09-08T16:16:00.000-05:00

Up and down, up and down

Ok then so the US Presidential campaign is heating-up (Noam Chomsky is right, both parties are opposite sides of the same coin), and thus the candidates are looking for reasons to attack each other. Due to the financial problems caused by government-backed mortage bonds, leading to risky mortgage-lending and thus defaults, people are worried about the economy. And this has become a wedge for the Democrat presidential candidates.

But see really what happens too: The central bank lowers the interest rate and/or increases the money supply (the latter which they are always doing), and this makes the interest rate less than it should be naturally, eg if it was just savers and borrowers interacting with each other without a central bank mucking around with the value of money. The savers and borrowers interacting with each other freely would set the price of loanable and investment funds based upon the needs of society (savers and borrowers - any member of society is either one or the other, usually both !) at any given moment in time. This does not occur now due to central bank intervention.

So the cheaper interest rate means that people invest in longer-term projects than they would had the interest rate been left alone. These longer term invesments are not as profitable, not as fundamentally sound, as they should be, and would not have been made if the interest rate was left alone. Thus when the economy turns (and the economy has natural ups and downs just like any natural complex system) these bad investments are the first to get worse in the downturn.

The problem then is when the central bank then tries to step in and do something about the problem they worsened in the first place ! Bad investments caused by cheap money lose their value like they should, this then means people invest elsewhere and the economy shifts its resources into more fundamentally valuable activities. When these bad investment lose their value it, of course, makes the economly look bad.

When in fact the economy is just doing what it should which is to shake out bad investment. It looks bad and politicians think they should control everything so of course we must do something about it. But its just like the economy has a cold, and no one has a cure for the common cold.

So when the central bank lowers the rate (like the Republicans are asking the bank to do now, e.g., before election time so that the people - voters - have cheap money) this just means the bad investments created before don't shake-out like they should. So the bank just does its thing, prolonging recessions and misdirecting the economy's resources.

But the truth too is that the big financial houses make money selling money (bonds) on the up and down movements of the central bank. This, is known as monopoly capital. And a monopoly sponsored by the government is very hard to break indeed.