Economics–It Isn’t Called the Dismal Science for No Reason

Forbes has a good article on why America doesn’t need monetary policy, or  economists. More damage has probably been done to our economy and our markets by attempts to centrally plan our economy than could ever be done by leaving markets to their own devices. From the article:

Let’s be blunt. Whatever economics is, it is not a science. Unlike physicists, who can predict an asteroid’s closest approach to earth within a few miles when it is still 100 million miles out in space, economists can’t accurately predict this quarter’s GDP. Indeed, they are still arguing among themselves about what “really” happened 83 years ago.

In light of the economics profession’s track record, it is hilarious to hear pundits and politicians say things like, “Most economists agree…” as if this mattered.

Read the whole thing.

Detroit. An Economics Lesson on How Not to Do It.

Over at The Market Ticker, Karl Denninger has a primer on how not to run a government.

If you increase tax rates then you decrease economic surplus.  This inevitably slows economic expansion; it mathematically must.

If you make political promises that can only be met through increased tax rates, now or in the future, you begin the process of slitting your own throat.  That outcome is inevitable when you agree to political promises that have escalating expenses over time as pensions, medical benefits, salary "step" increases, bond issues that have a payment schedule longer than the useful life of the asset bought and similar.

This is a must read article.

Megan McArdle Is Back (Again), Now at Bloomberg

If you aren’t reading Megan McArdle every day, you are really missing out on some very thought-provoking writing in the areas of business and economics. I have been following her writing since she was blogging from a trailer at the bottom of Ground Zero where she was working for a disaster recovery firm. She progressed from there to The Economist, The Atlantic, The Daily Beast and now here.

For just one example of her insightful writing, look at this post on minimum wage jobs, “McDonalds Jobs are Drive-Thru, Not Dead End.” An excerpt:

Even if it were possible to mandate that everyone in the country make almost the median income, this would come with a cost; I’d guess that most economists would agree that such a hike in the minimum wage would cause fairly significant job losses. The direct cost of labor at an average McDonald's is about 25 percent of payroll, according to Burgerbusiness.com, and of course, everything else they buy also has a substantial labor component. If everything at McDonald's cost, say, 30 percent more, they would sell fewer burgers and need fewer staff.

The real question no one has actually answered is whether every job should pay you enough to live on your own, or whether it’s OK for there to be jobs that are mostly a temporary arrangement, a waypoint en route to somewhere else. It doesn’t strike me as obviously wrong for those jobs to exist -- especially when the alternative may be no jobs at all. Even if I did think it was wrong, I’m not sure what I’d do about it. You can make McDonald's pay people more per hour. You cannot keep McDonald's from cutting those hours.

Read the whole thing.

Nobody Knows How to Make a Pencil or Why Government Locks In Failure

Kevin Williamson has a great article over at National Review Online talking about how in the private sector everything gets better and cheaper all the time, e.g. mobile phones, and how

“We treat technological progress as though it were a natural process, and we speak of Moore’s law — computers’ processing power doubles every two years — as though it were one of the laws of thermodynamics. But it is not an inevitable, natural process. It is the outcome of a particular social order.”

He goes on to show how competitive markets allow for competitors to come and go, rise and fall, and how important it is for failure to be possible as contrasted with institutionalized failure when politics takes over and government tries to pick winners and losers:

“Politics creates the immortal corporation. Amtrak and the U.S. Postal Service are two institutions that would have failed long ago if not for government support — subsidies for Amtrak, the government-chartered monopoly on letter delivery for the postal service. The cost of their corporate immortality is not only the waste associated with maintaining them, but also the fact that their existence prevents the emergence of superior alternatives.”

It comes back to “the knowledge problem” or as Hayek put it, the fatal conceit that a small group of people or an individual can have all the knowledge necessary to direct an entire industry (think healthcare, e.g.) or an economy. This article is one of the best discussions of this I have seen.

Read the whole thing.

Milton Freedman on the Most Persistent Economic Fallacy of All Time

This is Milton Freedman on the fallacy that Economics is about money. Economics is about production and when the government takes money from the productive sector of the economy and spends it, it is not growing the economy.

Thomas Sowell on Intellectuals and Society

This half hour or so video is well worth the time to watch.

Daniel Henninger: A middle class is the result of growth, not its cause.

That is an important point made by Daniel Henninger in yesterday's Wonderland column in the Wall Street Journal in which he asserts that the coming election boils down to one issue: economic growth. Voters need to choose between two economic growth models, Barack Obama's class based growth model or one that actually works; a low-tax, regulatory certainty and no more than absolutely necessary. In other words, as close to a free market as possible.

Go read the whole thing.

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Disturbing Thoughts on the Possible Consequences of a US Debt Downgrade

Glenn Reynolds excerpted and linked to a post by Kevin D. Williamson over at National Review Online talking about the repercussions of a rating agency downgrade of US Treasury debt. It isn't a pretty picture but another Instapundit reader has some even more disturbing thoughts to share in an update to Glenn's orignal post. Here is part of it:

Here’s the position I think we may be in. We’ve been negotiating with the President and The Democrats in Congress on the assumption that they’re sane. It’s okay to play hardball with these guys because eventually, whether they like it or not, reality insists upon itself and they have to cave. It’s a painful process so you expect some tantrum throwing and caterwauling, but eventually they HAVE to accept reality. Except if they’re not sane. If they want five apples and there’s only two plus two but they CAN’T ACCEPT that two plus two equals four. Orwell wasn’t just writing a parable about the eventual end point of IngSoc. He was describing what human psychology can drive Ministers to inflict upon the populace for the sake of “justice”. I’m worried they’ll pull the trigger on default as just one more “political” step in the march towards freedom from want or whatever other principle they’re operating under. They’re playing this game as if they could win, as if taxes in a downturn are a good idea with benign consequences. As if debt equivalent to GDP is survivable for the world’s anchor economy/currency, let alone sustainable.

And so maybe, just maybe, Republican strategy (what little there is of it) has badly misread the opposition. Obama tried to add 400 billion in taxes to a deal he had already agreed with Boehner at the last minute. Boehner walks out cause Obama is negotiating in bad faith and has been all along, but what if Obama is actually incapable of good faith negotiation? I think right now that it’s actually possible we won’t see a deal at all. Because the Republicans are looking at the math and at reality and saying “Okay, Democrat demands can’t be serious because they can’t possibly work” and Democrats are looking at politics and how it works and saying “We don’t have to give in cause that’s not how you win these things. You pin it on the other guy politically and then reap the political dividends.”

Read the whole thing.

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"A Pyromaniac In a Field of Strawmen" - Paul Ryan on Obama's Speech

Congressman Paul Ryan sat down with The Weekly Standard's Fred Barnes on Thursday for a wide ranging interview in which he talks about Obama's Wednesday speech but also goes into depth about his budget plans and the whys and wherefores. Watch it here.

World Currency Markets Ruled by a Kabal of Kitties

Author Claire Berlinski, whose excellent book, "There Is No Alternative: Why Margaret Thatcher Matters" I am in the midst of reading, is guest-blogging over at Power Line where she makes this rather stunning admission:

"I'm that journalist who lives in Istanbul with seven cats and secretly manipulates the world's currency markets from her basement, also known as the Alexander Haig of Ricochet."

Does anyone else realize what this means? As anyone who has ever owned a cat knows, you don't own the cat, you are its staff and it owns and manipulates you.  This can only mean one thing. The world's currency markets are not being manipulated by Claire, as she thinks (they just allow her to think that), but by a cabal of tabbys. Claire merely carries out their wishes.  The world makes a lot more sense once you understand this fact.

I wonder if I sent them some catnip or kitty treats would they do something about my 401(k).

Just asking.

The Big Guy Talks About the Big Things - Chris Christie at AEI

Chris Cnristie gave an hour-long talk at the American Enterprise Institute last week, talking about the Big Things in politics. The full hour-long video of the speech is here but here is a brief excerpt:



 
 
Do watch the whole speech, if you have the time.

Downsizing the Federal Government - It Can Be Done.

The Cato Institute has a blog called Downsizing the Federal Government which I just found via John Hood at National Review Online's The Corner blog. It has a department by department guide of federal agencies, what they spend and how they can be cut.

I think a lot of us look at the scale of federal spending and think, how can we ever get this under control? The answer is that you solve it the way you do any other problem. Break the task down into manageable pieces, as Cato has done here. The individual pieces may not look significant when you are comparing them to the overall problem, but they add up.

Also at the site, a comprehensive plan to balance the federal budget by 2020 without raising tax rates by reducing federal spending from its current (abnormally high) level of 25% of GDP to 18.5% of GDP, which is in much closer alignment with the historical average of tax revenues as a percent of GDP, as shown by economist Kurt Hauser.

Go and check the site out. I think you will see the task of getting the deficit under control a lot less daunting if you do.

The Story of Business: Competing for a Future

In this short video from Bankrupting America, the owner of a small business talks about what higher taxes will do to his ability to compete.




(via Instapundit)

The Feds Are Cooking the Economic Statistics Books

That is the premise underlying this article by Terrence Aym at Helium.com and I'm not a bit surprised. Aym relates how John Williams of American Business Analytics & Research, LLC, publisher of Shadowstats, has analyzed the numbers on inflation, unemployment, money supply and several other key indicators of economic health, employing the same methods in use by the government up until 1994. His conclusion; we are in as bad shape as we were in the Great Depression. Real inflation is near 10%, not zero, and unemployment is actually closer to 23%, not the official 9.6%. And the dollar? It is worth about 50% of what it was in 1985 in terms of purchasing power. Finally, GDP growth is not the positive 2% to 3% being reported. In real terms it collapsed by 6% in 2009 and is running at negative 1% to 2% now.

If this is all true, then what the government is doing is truly criminal. This just contributes even more to the general economic uncertainty that is paralyzing the economy now. It is hard to see how this can get turned around when we can't even accurately assess the extent of the problems because we can't get good information.


Read the whole thing.

(h/t Jeff Smith)

It's the Uncertainty, Stupid

Home Depot cofounder Ken Langone had an op-ed in yesterday's Wall Street Journal, really more of an open letter to President Obama taking him to task for his habit of saying that he is pro-business because business growth is what creates jobs, while continually vilfiying, bashing and threatening those very same job creators. He then professes to be mystified about why the economy is still stalled. Mr. Langone makes it simple to understand.

That short-sighted wavering—between condescending encouragement one day and hostile disparagement the next—creates uncertainty that, as any investor could tell you, causes economic paralysis. That's because no one can tell what to expect next.

Anyone with even a passing acquaintance with the business world knows this. Obama doesn't because his cabinet contains the smallest number of people with any business experience of any presidential administration in US history and that includes him.

Langone goes on to say that had he tried to start Home Depot in today's economic and regulatory environment it would never have gotten off the ground, let alone become as successful as it has.

We opened the front door in 1979, also a time of severe economic slowdown. Yet today, Home Depot is staffed by more than 325,000 dedicated, well-trained, and highly motivated people offering outstanding service and knowledge to millions of consumers.

If we tried to start Home Depot today, under the kind of onerous regulatory controls that you have advocated, it's a stone cold certainty that our business would never get off the ground, much less thrive. Rules against providing stock options would have prevented us from incentivizing worthy employees in the start-up phase—never mind the incredibly high cost of regulatory compliance overall and mandatory health insurance. Still worse are the ever-rapacious trial lawyers.

Read the whole thing.

Update: Related: Government Regulation of the Economy Is the ‘Silent Killer’ Good discussion in the comments.

I Want Your Money - The Movie

A friend pointed me to this movie trailer:



There's a website too.

(Thanks, Bob!)

The Tax Hit To Come - Ouch

Via Instapundit I found this tax calculator which allows you to estimate what your income tax burden is going to be if the Bush tax cuts are allowed to expire. Without getting into the specifics of my own income, my wife and I collectively earn well under the $250,000 a year under which President Obama promised nobody would see "a single dime" of increased taxes. That would be wrong and of course he knew all along that it is wrong. According to the calculator, I will see an increase of 20% in my annual tax burden amounting to around $270 a month in reduced take home pay. That's about a couple of weeks worth of groceries in this household, and with one child about to start college, its a hit to my take home pay I can ill afford.

If you are similarly situated, get on the phone to your congressman, Democrat or Republican and spell it out for them. I suspect you'll get a friendlier reception from the Republican but make sure they all know how much it's going to hurt.

How Ugly Are the Job Losses Since the Start of the Recession?

This ugly:

(Via Newsalert)

Business Roundtable Chairman Finds Out Why It's a Bad Idea to Play Let's Make a Deal With the Devil Government

Verizon CEO Ivan Seidenberg, who is also chairman of the Business Roundtable, is all surprised that the group's efforts to work with the current left-wing controlled government didn't have the results they had hoped.

It turns out that actively supporting a pro-tax, pro-regulation Democratic majority on issues like health care doesn't really get you anything save more taxes and more regulation.

Quelle surprise. With this guy in charge, maybe I should short Verizon stock.

Read the whole thing.

Sympathy Deformed - Theodore Dalrymple on How Misguided Compassion Hurts the Poor

We're constantly told how society must take care of "those less fortunate than we are" and to a point, that is right. But what happens when instead of giving someone temporarily down on his luck a leg up until he can become self-reliant, we cut off his legs completely and make him dependent on aid?  Theodore Dalrymple shows us how a society can be brought to ruin, armed only with the best intentions. Read the whole thing, but here is his introduction:

To sympathize with those who are less fortunate is honorable and decent. A man able to commiserate only with himself would surely be neither admirable nor attractive. But every virtue can become deformed by excess, insincerity, or loose thinking into an opposing vice. Sympathy, when excessive, moves toward sentimental condescension and eventually disdain; when insincere, it becomes unctuously hypocritical; and when associated with loose thinking, it is a bad guide to policy and frequently has disastrous results. It is possible, of course, to combine all three errors.

He goes on to give examples of how what seem to us like poor societies, as measured by GDP per capita, aren't really all that poor because people operate outside the "money economy". It is only when well-meaning wealthier nations start getting involved that they become truly impoverished.  This is where the welfare state could, actually will, take us all eventually.