Great Letter by Don Boudreaux exposing some inconsistencies in the health insurance reform debate.
Tuesday, January 12, 2010
Good reality show?
Who do you think is more intelligent, the clowns in Congress of the cast of Jersey Shore?
Well at least the morons on Jersey Shore are relatively harmless.
Well at least the morons on Jersey Shore are relatively harmless.
Venezuela's future?
Quasi-Libertarian approves of Chavez's new monetary policy.--As skeptical as I am about the ability to effectively deal with monetary policy centrally, there is a legitimate case that Chavez is making the right call. Will it have consequences and costs? You bet'cha. But it may be necessary and the best move in Venezuela's economic climate.
But what about this?
When Chavez says, “There is no reason for anybody to be raising prices,” he said, calling on citizens to “publicly denounce the speculator” and promising to “take over any business, of any size, that plays the bourgeoisie speculation game.” He is destroying the essence of capitalism, entrepreneurs, risk-takers, and profits. He will destroy the country's economy; the only question will be 'how long will it take him to do so?"
His 21st Century Socialism, is no different than the older versions. He is a tyrant, an enemy of profits, and therefore an enemy of prosperity. It is actually a compliment to President Obama, that Chavez called him the devil, like he did to Bush.
But what about this?
When Chavez says, “There is no reason for anybody to be raising prices,” he said, calling on citizens to “publicly denounce the speculator” and promising to “take over any business, of any size, that plays the bourgeoisie speculation game.” He is destroying the essence of capitalism, entrepreneurs, risk-takers, and profits. He will destroy the country's economy; the only question will be 'how long will it take him to do so?"
His 21st Century Socialism, is no different than the older versions. He is a tyrant, an enemy of profits, and therefore an enemy of prosperity. It is actually a compliment to President Obama, that Chavez called him the devil, like he did to Bush.
Saturday, December 26, 2009
Man of the Year!
Ben Bernanke has been received praise and awards like Monopoly money. Time Magazine's Person of the Year, Foreign Policy's Intellectual of the Year, etc. Even though there are some lunatic fanatics among us who are pointing to a double-digit unemployment rate, and a continuing slide in non-Governmental--productive--components of GDP as evidence that the "recession" is not over and that a "depression" may still be possible, it is clear to the mainstream media and to many economic thinkers that Ben Bernanke, chairman of the Federal Reserve Bank, staved off the next Great Depression. This was done, supposedly, through his strategic implementation of the corporatist TARP bailouts and through his wise lowering of interest rates. The first question I ask is how do we know this? There really is no evidence that, had Bernanke done nothing, things would not have been better today.
But lets forget about today. Lets consider tomorrow. How will each of his actions eventually impact us? While I do not claim to know specifics, I know that there is no free lunch. "Inflation is always and everywhere a monetary phenomenon." Bernanke believes that the economic recovery we have seen so far remains fragile. Due to this fear he has decided to keep interest rates at essentially zero and keep the printing presses running. There will be inflation at some point in the future. While Chairman Bernanke claims that the Fed has the tools to raise interest rates and control inflation without affecting economic activity when needs be, I am extremely skeptical of this promise of the ultimate free lunch. It is clear that if our bills had another country's name on it, a currency collapse would be a definite possibility. Nobody knows if a currency collapse is realistic, and I have seen data that shows that it is unlikely, but it is not impossible. It would be an ultimate Black Swan, a high-impact, improbable event.
What about the bank bailouts? He may have saved the banking system, but is a system that almost drives us into a Global Depression, as the experts willing to congratulate Bernanke assume, worth saving? Capitalism is about profit and loss. Without the threat of loss, we have fascism of the worst variety. Investment bankers know they are playing with other people's money. These are the same incentives that helped cause the mess. This cannot work and are illustrative of an unsound system. These incentives, more likely than not will lead to further financial "crises."
Maybe I am wrong; maybe Chairman Bernanke with the help of President Obama will be able to engineer an economic recovery without damaging inflation. Maybe they will pull away the punch bowl away just in time as the party gets going. Or maybe, like all central planners dealing with imperfect knowledge and incorrect incentives, they will fail miserably in their "goals" of effectively engineering a $14 economy. Whether I am right or whether they are the point remains: it is too early to congratulate Ben Bernanke on his work until the final result of his work is seen. Many of the now-villified investment bankers were congratulated and rewarded with million dollar bonuses. The point was that they were accumulating all types of hidden long term risks. Bernanke is receiving the same treatment: short term accolades while he is potentially taking on massive amounts of long-term risks. It was a mistake for investment bankers to be compensated in this short-term manner and it is a mistake to praise Bernanke before the costs of his actions are seen. What if his policies create massive inflation or even stagflation in the long-run? Will he even be blamed, or will Obama, or Milton Friedman, or Congress, or the Republicans, or even Keynes? We now know what Paul Krugman knew--and advocated for--in 2001: that the Federal Reserve's response to the Tech Boom and Bust helped cause the Recession of 2008. Imagine if Greenspan and Bernanke, the engineers of that monetary stimulus, were congratulated in 2001 for their work in avoiding a prolonged recession! We are doing the same thing now! The Federal Reserve can cause recessions by keeping interest rates too low and creating malinvestment. They are doing it now. The chickens will come home to roost. And just as 2008 was a larger recession than 2001, the Depression of 2012 may very well be larger than 2008...assuming we do not face a currency crisis before then.
The financial system is more fragile and more prone to negative black swans than it has ever been before.
But lets forget about today. Lets consider tomorrow. How will each of his actions eventually impact us? While I do not claim to know specifics, I know that there is no free lunch. "Inflation is always and everywhere a monetary phenomenon." Bernanke believes that the economic recovery we have seen so far remains fragile. Due to this fear he has decided to keep interest rates at essentially zero and keep the printing presses running. There will be inflation at some point in the future. While Chairman Bernanke claims that the Fed has the tools to raise interest rates and control inflation without affecting economic activity when needs be, I am extremely skeptical of this promise of the ultimate free lunch. It is clear that if our bills had another country's name on it, a currency collapse would be a definite possibility. Nobody knows if a currency collapse is realistic, and I have seen data that shows that it is unlikely, but it is not impossible. It would be an ultimate Black Swan, a high-impact, improbable event.
What about the bank bailouts? He may have saved the banking system, but is a system that almost drives us into a Global Depression, as the experts willing to congratulate Bernanke assume, worth saving? Capitalism is about profit and loss. Without the threat of loss, we have fascism of the worst variety. Investment bankers know they are playing with other people's money. These are the same incentives that helped cause the mess. This cannot work and are illustrative of an unsound system. These incentives, more likely than not will lead to further financial "crises."
Maybe I am wrong; maybe Chairman Bernanke with the help of President Obama will be able to engineer an economic recovery without damaging inflation. Maybe they will pull away the punch bowl away just in time as the party gets going. Or maybe, like all central planners dealing with imperfect knowledge and incorrect incentives, they will fail miserably in their "goals" of effectively engineering a $14 economy. Whether I am right or whether they are the point remains: it is too early to congratulate Ben Bernanke on his work until the final result of his work is seen. Many of the now-villified investment bankers were congratulated and rewarded with million dollar bonuses. The point was that they were accumulating all types of hidden long term risks. Bernanke is receiving the same treatment: short term accolades while he is potentially taking on massive amounts of long-term risks. It was a mistake for investment bankers to be compensated in this short-term manner and it is a mistake to praise Bernanke before the costs of his actions are seen. What if his policies create massive inflation or even stagflation in the long-run? Will he even be blamed, or will Obama, or Milton Friedman, or Congress, or the Republicans, or even Keynes? We now know what Paul Krugman knew--and advocated for--in 2001: that the Federal Reserve's response to the Tech Boom and Bust helped cause the Recession of 2008. Imagine if Greenspan and Bernanke, the engineers of that monetary stimulus, were congratulated in 2001 for their work in avoiding a prolonged recession! We are doing the same thing now! The Federal Reserve can cause recessions by keeping interest rates too low and creating malinvestment. They are doing it now. The chickens will come home to roost. And just as 2008 was a larger recession than 2001, the Depression of 2012 may very well be larger than 2008...assuming we do not face a currency crisis before then.
The financial system is more fragile and more prone to negative black swans than it has ever been before.
Hubris I
With the help of President Obama, a deal was cut in Copenhagen. The proposal aims to guarantee that the average Earth temperature does not increase by 2 degrees over the next century. Paint me as an anti-scientific libertarian if you choose, but I remain agnostic on the existence of anthropogenic global warming. I believe that the issue of weather and climate remains a field that is insufficiently understood--actually, virtually impossible to understand and predict. It is not dissimilar to attempts to predict economic forecasts with certainty or explain economic outcomes and historical occurrences with crystal clear ex-post-facto stories; there are simply too many variables to capture in the models. Even though a decrease in supply, when all else remains constant, leads to an increase in price, all else never remains constant. The same is true for understanding and predicting changes in the climate. Though not a physicist or a climatologist, I understand that emissions of CO2, methane, and water vapor can have a greenhouse effect and, all else remaining constant, lead to an increase in air and surface temperature. The problem is that all else does not remain constant. There are literally trillions of other climatic phenomena occurring that have an impact on global climate. Does this mean that we know nothing about these climatic phenomena? No, but it does mean that before we institute, in one form or another, an extreme global carbon tax, we should understand that the climate scientists who speak with certainty are dealing with a subject that is incomprehensibly complex.
I am not denying that anthropogenic global warming is possible; I am merely saying that it is essentially impossible, at least with modern scientific methods, to determine whether anthropogenic warming is occurring today, and anybody who gives me a specific number that they are sure the Earth will warm over the next x-amount of years is demonstrating hubris in the extreme. If we want to cut greenhouse gas emissions as a precautionary measure for the possibility that AGW is real and devastating as we are told to believe, then lets have this debate. This is not how this subject is portrayed, nor was this the tenor of the Copenhagen Climate Summit. Skepticism in science is a good thing, and before we surrender to a world government that has the power to monitor energy consumption on an individual level, I think we should have an honest debate.
I am not denying that anthropogenic global warming is possible; I am merely saying that it is essentially impossible, at least with modern scientific methods, to determine whether anthropogenic warming is occurring today, and anybody who gives me a specific number that they are sure the Earth will warm over the next x-amount of years is demonstrating hubris in the extreme. If we want to cut greenhouse gas emissions as a precautionary measure for the possibility that AGW is real and devastating as we are told to believe, then lets have this debate. This is not how this subject is portrayed, nor was this the tenor of the Copenhagen Climate Summit. Skepticism in science is a good thing, and before we surrender to a world government that has the power to monitor energy consumption on an individual level, I think we should have an honest debate.
Thursday, December 10, 2009
Climate Change
World "leaders" are meeting in Copenhagen to discuss the future of the world. The goal of these climate summits is to sign an agreement that will bind every nation to cutting carbon dioxide emissions. There are so many aspects to this issue and it is portrayed incredibly simplistically. The argument for cutting emissions is incredibly flawed. The Obama Administration's goal for emission cuts is 83% below 2005 levels by 2050. This is equal to America's CO2 emissions of 1910! However, there were 92 million people in 1910; by 2050 there will be around 420 million Americans. This means that per capita emissions will be at 1875 levels! This is virtually impossible. What costs would this drastic cut impose? How could we get to this level in 40 years?
By the way, this all assumes that global warming is a problem to begin with.
Whatever comes out of Copenhagen will do anything to stop global warming because China and India will not sign on. THIS WON'T HAPPEN!! Nothing good can come out of these Copenhagen conferences.
- Devoting almost all of America's resources to uneconomical alternative energy sources? As of now, we do not have the technology to meet our goal, and I doubt that a centrally controlled federal plan would allow for sufficient innovation of alternative energy sources. How expensive would this cut be? It would literally kill the American economy. No doubt about it. I think it is impossible to reach Obama's lofty goal through the development and implementation of alternative energy sources alone--at least without devastating economic consequences.
- Eugenics? Some groups already propose and advocate forced abortions because newborns will have a large, future carbon footprint. The problem with making the emission cuts is that they would hurt economically per capita. If the population were a 5th of today's population, we would have little problem getting to a 5th of carbon dioxide emissions. But this solution is evil! It is the same Malthusian tendencies that got Malthus worried about population growth on food supply and Paul Ehrlich worried about the same and about natural resources. It is proven time and time again that these worries are unfounded; the human species is remarkably adaptive, and will continue to adapt to a changing world. This is not an immediate danger but I would continue to watch out for this. What will be the next suggestion once the centrally planned alternative energy schemes are ineffective? This is a dangerous tendency that seems to be resurrected from time to time.
- Nationalize or "Internationalize" carbon dioxide emitting energy sources. What if the U.S. nationalized the nations' fossil fuels supply? Or the U.N. doing the same for the world's supply? It could be effective. All the fuel would be used by the government in the form of a police state that would make sure that nobody was going over their incredibly stringent quota. It is a scary thought experiment. Fear of a global government is not irrational.
By the way, this all assumes that global warming is a problem to begin with.
Whatever comes out of Copenhagen will do anything to stop global warming because China and India will not sign on. THIS WON'T HAPPEN!! Nothing good can come out of these Copenhagen conferences.
Wednesday, September 30, 2009
Purpose of Trade
For some reason, international trade is incredibly misunderstood, even by many academics and policy "experts." At the recent G-20 conference in Pittsburgh, "leaders" from 20 economically influential nations discussed ways to plan and run the global economy. One topic that was dicussed was global trade "imbalances." The big focus was on China's net exports and the United States' trade "deficit." Policy experts at the conference noted how U.S. net exports have increased during this recession, and claimed that this was good. For some reason, many people think "exports good, imports bad." This could not be further from the truth; in fact, it is the opposite of reality. Imports, the goods we will consume are benefits and exports, what we send away, are costs. Costs are only necessary to pay for beneficial imports. The fact that we get get more goods from other countries than we send away does not imply that we are in debt, nor does it imply that there is a problem.
Here is an example: I am Mr. Sony from Japan. I sold Joe the Plumber--an American--a Play Station 3 for $300. This would increase America's current account deficit by $300. However, nobody is in debt, at all. Nothing is different than if Mr. Sony was from Oregon and Joe was from Kansas. Why do we not calculate inter-state trade deficits and surpluses? Because it is a silly metric. Borders are a red-herring and trade is trade no matter what borders it crosses.
A common caveat people put into this concept is the one of Chinese currency manipulation. First of all, Chinese currency inflation is bad economic policy, but not because it hurts Americans. It hurts the Chinese people. By inflating the Chinese currency to increase net exports, the Chinese government is lowering the Chinese people's purchasing power and subsidizing American's purchasing power. Americans should be thrilled, we are getting more goods with fewer costs, exports. The Chinese people are forced into making much more than they are able to purchase. This goes back to one of Adam Smith's most basic point about economics. "Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer." This is so intuitive, so why do people make the mistake of valuing exports over imports? In each household we seek to maximize wealth by importing more than we export. It is the same concept between states and between countries.
The most lucid mind that I have found on trade is Don Boudreaux over at Cafe Hayek. Cafe Hayek is a great economics blog,(my personal favorite) and I suggest that everyone check it out, though continue to read My Two Sense!!!
Here is an example: I am Mr. Sony from Japan. I sold Joe the Plumber--an American--a Play Station 3 for $300. This would increase America's current account deficit by $300. However, nobody is in debt, at all. Nothing is different than if Mr. Sony was from Oregon and Joe was from Kansas. Why do we not calculate inter-state trade deficits and surpluses? Because it is a silly metric. Borders are a red-herring and trade is trade no matter what borders it crosses.
A common caveat people put into this concept is the one of Chinese currency manipulation. First of all, Chinese currency inflation is bad economic policy, but not because it hurts Americans. It hurts the Chinese people. By inflating the Chinese currency to increase net exports, the Chinese government is lowering the Chinese people's purchasing power and subsidizing American's purchasing power. Americans should be thrilled, we are getting more goods with fewer costs, exports. The Chinese people are forced into making much more than they are able to purchase. This goes back to one of Adam Smith's most basic point about economics. "Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer." This is so intuitive, so why do people make the mistake of valuing exports over imports? In each household we seek to maximize wealth by importing more than we export. It is the same concept between states and between countries.
The most lucid mind that I have found on trade is Don Boudreaux over at Cafe Hayek. Cafe Hayek is a great economics blog,(my personal favorite) and I suggest that everyone check it out, though continue to read My Two Sense!!!
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