Saturday, March 31, 2012

Funding Government Spending

Human Achievement Hour

On March 31, some people will be sitting in the dark to express their "vote" for action on global climate change. Instead, you can join CEI and the thousands of people around the world who will be celebrating Human Achievement Hour (HAH). Leave your lights on to express your appreciation for the inventions and innovations that make today the best time to be alive and the recognition that future solutions require individual freedom not government coercion.


Tuesday, March 27, 2012

Coming Inflation?

If the economy continues to improve and more money is sloshing through the system, it's easy to see how inflation could grab hold. Yet, if you understand Austrian economics, you'll look beyond how the mainstream views inflation and to its root cause: monetary debasement.

Tuesday, March 20, 2012

Energy Policy

"I prefer the "old" approach to emerging technology: We adopt new technology when it is better and cheaper than the old technology, not when it is worse and more expensive, forced to convert over by a government demanding we pay more for less -- so we can reap all these speculative benefits in a hypothetical future."

~ Ace of Spades HQ

Barofsky on TARP

"Essentially, TARP successfully stabilized markets and helped prevent another Great Depression, but it failed horrifically in meeting its equally important Main Street goals—including preserving home–ownership—and institutionalized Too Big to Fail and the moral hazard that accompanies it."

Neil Barofsky, the special inspector general for TARP from 2008 until early 2011 and now a New York University law professor.


Friday, March 16, 2012

Cartoon: Obama and the Economy

Cartoon: Gas Prices

Ben Bernanke

The two on the right are the correct views.

Upper right--short run

Lower right--long run

Ben Bernanke, Hero? No.

According to Roger Lowenstein:

The left hates him. The right hates him even more. But Ben Bernanke saved the economy—and has navigated masterfully through the most trying of times.

Thursday, March 15, 2012

The Federal Funds Rate

The Fed acknowledged an improving labor market and rising oil prices while also downplaying the threat of spillover effects from Europe, that is, now that the European Central Bank has finally seen fit to print up more than a trillion dollars for the greater good.


Monday, March 12, 2012

Government Stimulus

Sheldon Richman writes:

As George Mason University economist Russ Roberts says, government’s stimulus of an economy is equivalent to taking water from the deep end of a pool and pouring it into the shallow end. Thus, all talk of stimulus is nonsense. Both Democrats and Republicans have bought into this Keynesian nonsense, even if they wish to implement it in somewhat different ways...

So, then, how does an economy recover? It doesn’t recover through central-bank policies aimed at keeping interest rates low, discouraging saving, or fiscal policies aimed at boosting consumption, including the government’s own consumption of resources. It doesn’t recover through reinflation of burst bubbles. Recessions (low to negative growth, unemployment, idle resources) follow booms and bubbles, which are caused by central-banking polices that fill the economy with cheap credit and regulatory programs that channel the credit into particular areas, such as the constellation of easy home-purchase policies carried out by several government agencies for years. The booms set off by those policies are characterized by a misshapen capital structure; that is, resources and labor were arranged according to price signals distorted by the central bank and other government agencies. For example, labor and equipment went into the housing and housing-finance industries to a vaster extent than they would have gone absent those price-distorting policies.

When interest rates finally rise to reflect reality, the boom ends, revealing the unsustainable nature of the misshapen capital structure. Businesses close, workers are laid off, and capital is left idle. The effect ripples beyond the immediately affected industries. If government were to retrench at that point, entrepreneurs would set out on the task of re-arranging resources and labor in order to align them with entrepreneurial estimates of future consumer preferences.

This rearrangement is neither costless nor instantaneous. Equipment made for one purpose may be unsuitable for other purposes and may have only scrap value, or it may be in the wrong location. Likewise, people trained to build houses or to work with financial computer models may not be qualified for other jobs and will need retraining. The work of changing the structure of production from its politically distorted shape to one that will better serve consumers requires money. There’s only one place that money can come from if the economy is not to be further distorted: savings. But saving is consumption deferred. Thus all government efforts to stimulate spending and discourage saving accomplish the opposite of what is required for economic recovery.

Free people create economic growth when government backs off — slashes spending and taxes, ends regulations and privileges — and lets them correct the mistakes induced by earlier monetary and regulatory stimuli. Nothing less will work lastingly.


Friday, March 9, 2012

Sterilized’ Bond Buying

Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead.

Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed's previous efforts to aid the recovery.

Unemployment Population Ratio

The inverse correlation between the two series is obvious. We can also see the accelerating growth of women in the workforce and two-income households in the early 1980's. Following the end of the last recession, the employment population has three times bounced at 58.2% — a level that harkens back to the 58.1% ratio of March 1953, when Eisenhower was president of a country of one-income households, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans. The latest ratio is 0.4% off the interim low and remains in the center of the oscillating ratio of the late 1970s and early 1980s.

The employment-population ratio will be interesting to watch going forward. The first wave of Boomers will be a downward force on this ratio. The oldest of them were eligible for early retirement when the Great Recession began, and the Boomer transition to the retirement will accelerate over the next several years.


Feburary Unemployment: 8.3%

Nonfarm payroll employment rose by 227,000 in February, and the unemployment rate was unchanged at 8.3 percent, the U.S. Bureau of Labor Statistics reported today.

This shows the depth of the recent employment recession - much worst than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

James Grant on Capitalism

“Capitalism is an alternative for what we have now – I highly recommend it”
James Grant


Thursday, March 8, 2012

Debt and GDP


Is College Necessary?

Interesting educational facts:
1. In the U.S., the high school graduation rate is only 72%, and about 2/3 of those high school graduates go on to college. Of those students who start college, only about 60% will actually graduate within six years and the other 40% will likely never earn a college degree.

2. In Germany, about 97% of students graduate from high school, but only about 1/3 of those graduates go to college.

The obsessive focus on a college degree has served neither taxpayers nor students well. Only 35 percent of students starting a four-year degree program will graduate within four years, and less than 60 percent will graduate within six years. Students who haven't graduated within six years probably never will. The U.S. college dropout rate is about 40 percent, the highest college dropout rate in the industrialized world. That's a lot of wasted resources. Students with two years of college education may get something for those two years, but it's less than half of the wage gains from completing a four-year degree. No degree, few skills, and a lot of debt is not an ideal way to begin a career.

College dropouts are telling us that college is not for everyone. Neither is high school. In the 21st century, an astounding 25 percent of American men do not graduate from high school. A big part of the problem is that the United States has paved a single road to knowledge, the road through the classroom. "Sit down, stay quiet, and absorb. Do this for 12 to 16 years," we tell the students, "and all will be well." Lots of students, however, crash before they reach the end of the road. Who can blame them? Sit-down learning is not for everyone, perhaps not even for most people. There are many roads to an education.

Our obsessive focus on college schooling has blinded us to basic truths. College is a place, not a magic formula. It matters what subjects students study, and subsidies should focus on the subjects that matter the most—not to the students but to everyone else. The high-school and college dropouts are also telling us something important: We need to provide opportunities for all types of learners, not just classroom learners. Going to college is neither necessary nor sufficient to be well educated. Apprentices in Europe are well educated but not college schooled. We need to open more roads to education so that more students can reach their desired destination.


European Debt Problems


Monday, March 5, 2012

Collge Costs


Green Companies

$5 Trillion in Interest Payments

Interest rates on U.S. bonds may be ridiculously low, but that doesn't mean the country's future interest payments on the national debt will be.

Uncle Sam will shell out more than $5 trillion in interest payments over the next decade, according to the latest projections from the Congressional Budget Office.

Friday, March 2, 2012

Cartoon: Running Gov't Like a Business

Can't be done.

Business operates based on the profit motive.

Government operates based on coercion.

Thursday, March 1, 2012

Private v Public Barbershops

"While the Senate barbershop is federally subsidized, the House barbershop is a private business. Its three employees, one of whom is part time, are independent contractors. The House barbershop was privatized in 1994, a decision that House Republicans made after they took control of the lower chamber for the first time in decades.

The dueling business models of the congressional barbershops have produced different financial results. While the Senate barbershop required a $300,000 federal bailout last year, the House barbershop turned a profit. And while Senate Hair Care Services, the formal name for the Senate barbershop, is not charged a dime for its work space, House Cuts pays the government $2,000 to $3,000 in rent each year."


Laws, Regulations, and Codes of Conduct in Society

Barry Ritholtz writes:

This will be a short but simple post, to clarify some fundamental misunderstandings about the purposes of laws, regulations, and codes of conduct in society.

Laws do not prevent crimes. We can legislate all the criminal laws we want, but there will still be bank robberies and drunk driving and murders. We pass laws not to prevent these acts from taking place, but rather, to make sure their is a very high cost to committing them.

In fact, we legislate criminal laws for three broad reasons:
1. Let people know exactly what is acceptable and unacceptable behavior.
2. Punish people who violate these norms.
3. Remove the dangerous people from society for the protection of everyone else.

We create corporate regulations in order to effect similar broad policy purposes:
1. Inform companies what is unacceptable economic behavior.
2. Punish corporate management who violate these norms.
3. Remove dangerous economic behaviors from society.

By economic behaviors, I refer to any impact a company has in the broader economy. This ranges from externalities such as pollution or financial risk to pushing the entire global economy to the abyss.

When it comes to laws, there is always a trade off: My freedom ends where your nose begins. Anything I do that threatens your health, safety or general well being is fair game for criminal laws; Anything a corporation does that threatens these same things is fair game for regulation.

There is a nefarious group of corporate cronies who abuse the word “Freedom.” They employ the word to mean curtailing everyone else’s freedom. They seem to believe Freedom is a license to behave recklessly, to endanger third parties, to risk the economy.

It is not.

The sooner we recognize these simple truths, the faster this society will be heading in the right direction. I suspect that the longer we delay recognizing these truths, the slower our economic recovery will be.