As we know, most of the stimulus spending does not take place until next year and beyond, so the short-run gains are puny. On the other hand, the big increase in the projected deficit creates the expectation of higher interest rates, which raises interest rates now. These higher interest rates serve to weaken the economy.
According to this standard analysis, the stimulus is going to hurt GDP now, when we could use the most help. Much of the spending will kick in a year or more from now, with multiplier effects following afterward, when the economy will need little, if any, stimulus.
This is the flaw with using spending rather than tax cuts as a stimulus. The lags are longer when you use spending.
Of course, if the real goal is to promote government at the expense of civil society and to create a one-party state in which business success is based on political favoritism, then the stimulus is working exactly as intended.
Saturday, May 30, 2009
I was wrong. Much to my delight, Jeffrey Sachs has responded to Dambisa Moyo (while attempting to avoid re-referencing Easterly and avoiding ad hominem attacks). I suppose you try to fight the battles you can win but Easterly responds anyway, taking a sniper shot at the premise that Sachs makes of why Africa is different. Argues Sachs (HuffingtonPost):
Africa's differences with other regions lie not in aid, but in circumstances and history [...] Africa's tropical disease burden, heavy concentration of landlocked countries, decline of aid for infrastructure during the 1980s and 1990s, and misguided attempts by Africa's creditors to collect debt servicing under "structural adjustment programs" during the 1980s and 1990s all played their part.Easterly makes the point that there isn't evidence to support the idea that what makes Africa different is geography (from his own blog at AidWatch): "but Sachs unveils such a bizarre geographic theory of Africa’s poverty, with such misguided implications for aid policy, that I am forced to respond:"
Summary in brief of Sachs’ geography theory: a region will be poor IF they are tropical, IF rainfed, IF landlocked, and IF they have the wrong mosquitoes – which, yes, fits many African countries. With enough IFs, you can fit ANY theory to any set of facts. If I am a short, balding, grey-bearded, bespectacled, white male economic development professor residing in Greenwich Village, I will be writing this post right now – it fits the facts.And from Huffington Post, Easterly notes:
Sachs also has a rather convoluted “aid works” narrative in this column. He says aid was high enough and went to the right things enough to achieve great things in Africa on health and education. So why didn’t it create economic growth? Because aid wasn’t high enough and didn’t go to the right things enough. [...]
I don't have enough evidence to test any one theory of Sachs, but I know it makes for bad aid policy. Make sure that aid reaches poor people, which usually means it should not go to poor governments.Jeffrey Sachs makes a number of other points referencing Moyo's rebuttal and while I look forward to her response, the debate has widened. Arguing perhaps for a middle ground at FT, Mo Ibrahim, founder of MSI/Celtel [if FT asks you to register, just replace "false.html" with "true.html" and delete everything after it] - a mobile phone giant in Africa comments:
In her book, Ms Moyo suggests that government bonds can take the place of development assistance. This is unrealistic. First, debt markets are not open to the African countries that most need capital. Second, the cost of government bonds is materially higher than that of World Bank or other institutional aid. Why should African governments pursue a detrimental line of financing to satisfy an ideologically-led approach to development?While I have enormous respect for Mr. Ibrahim and his promotion of good governance in Africa (Mo Ibrahim Foundation), I'd make the following correction. He asks why "Why should African governments pursue a detrimental line of financing to satisfy an ideologically-led approach to development?" and not pursue cheap forms of subsidized funds from the World Bank. But that's Moyo's point: once you accept such funds you become less responsible to your citizens than you are to foreign governments and aid agencies.
Furthermore, even before the economic downturn, most financial institutions were not interested in investing in sub-Saharan Africa in a sustained manner, despite the fact that for the past 10 years the rate of growth has exceeded that of Europe. It is implausible that they will be interested now. [...]
The critical argument should not be about aid or no aid – no one can question the necessity of pure humanitarian aid as long as it satisfies basic good governance criteria. The argument should be about where to focus aid to achieve the best returns for donor taxpayers and aid recipients. I propose two areas to focus aid: the hardware of Africa, infrastructure and regional integration; and human software, in the form of education and health.
People respond to incentives, so do governments - it is a point that Mr. Ibrahim should be most aware of given the prizes he offers for good governance and for heads of state to retire.
The Wall Street Journal considers Chinese Government's growth statistics: "China's economic data are a bit like sausages: If you're a fan, it's best not to scrutinize how they're made." The question of course is whether or not China is really growing nearly as fast as it is because electrical consumption numbers are down. China's solution, amusing as it is, has been to stop publishing the electrical consumption numbers.
SRI Blog riffs off this pointing to how numbers are manipulated by companies and how you as buyer or even factory owner can get conned - let's count the ways:
- Exaggerated Costs
- Supplemental Costs
- Double Billing
- Unnecessary Taxes, Licenses and Fees
- Testing Fees (that never happen)
- Hostage Payments
- Cost Increases
- Unnecessary Fees
- Flat out Lies
I would also echo McArdle's sentiment that if there were any political funny-business in the Chrysler closings (and that's a big "if" at this point), it's far more likely that someone in the Administration intervened to protect an important Democratic contributor here or there than that the entire process was used to slam Republican dealers across-the-board. In any event, it seems to me there is far less to this story than meets the eye.But, as Reynolds notes, "Given the bullying that went on with the secured creditors — and the way the whole Chrysler restructuring deal was set up to favor Obama constituencies — these charges were certainly plausible. But the evidence doesn’t seem to be there."
Friday, May 29, 2009
Obviously, this "stimulus" spending isn't about "stimulus" at all. The question however, is whether it's just a massive waste of US taxpayer funds or if it's about a radical realignment of what government is and does.
From USA Today: "Bottom line: The [US] government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion." The increase of $55,000 per household raises US federal government obligations to a record $546,668 per household in 2008. I figure you've got to be absolutely screwed if you live in California. And then add the measly (by comparison) average personal share of household debt of $121,593.
And that's just in 2008. If you're American, this is what you have to look forward to in federal deficits - and this is already understated as it doesn't include unfunded Social Security obligations (via Instapundit):
As US Treasury Secretary Timothy Geithner heads off to "urge China to shop not save" (WSJ), Michael Pettis from China Financial Markets has an interesting look at why the Chinese save, and concludes with a warning:
I am not sure if there is any over-arching reason for high savings in China, but generally I would argue that policies aimed at generating high levels of investment and at running trade surpluses must also, by definition, cause high levels of savings. In that sense the policies associated with the so-called Asian development model are policies that implicitly or explicitly cause high savings rate. if this is true, as I have written elsewhere, high Asian savings rates my be threatened in the future by rising savings rates in the US, since in the aggregate consumption and production must balance. The US trade deficits required for the success of high-savings policies in China may no longer exist.He breaks it down into demographic, structural and policy causes. While I think a number of them seem reasonable, in particular the lack of a social safety net rings particularly true. With the questionable practices of hospitals, the innumerable unforeseen events, and the lack of a strong healthcare insurance alternatives, it isn't surprising that people here would save more than average.
I'm somewhat uncomfortable with the idea that savings is a cultural trait as I seem to recall a study of the behaviour of second generation immigrants and savings but can't find it at the moment. Looking for other incentives for savings seems, at least to me, to be more reasonable. The expectation however, no matter the reason, that the Chinese people, would all of a sudden start spending (or investing in dollar denominated assets) in one of the worst global recessions in recent memory, based on the exhortations the US seems to be a foolish one at best.
Costs of borrowing are set to rise dramatically for the US government and consequently for everyone and every business in the US if market predictions hold true - from Paul Kedrosky: "In short (no bond pun intended), rates are going up in spiffy fashion as investors decide that Treasuries aren't really that much fun for holidaying any more. Next crisis they want to vacation elsewhere."
The announcements (yesterday) of Microsoft Bing and Google Wave (TechCrunch), got me thinking about innovation and a recent article I read at the NYT which makes the argument that innovation belongs to the big:
“These days, more than ever, size matters in the innovation game,” said John Kao, a former professor at the Harvard business school and an innovation consultant to governments and corporations. In its economic recovery package, the Obama administration is financing programs to generate innovation with technology in health care and energy. The government will spend billions to accelerate the adoption of electronic patient records to help improve care and curb costs, and billions more to spur the installation of so-called smart grids that use sensors and computerized meters to reduce electricity consumption.[...]That seems a bit of a stretch given that in many cases technology has reduced the transactional/frictional advantages of scale (though given the source of the NYT, I wonder if it's another case of ideological bias creeping in). While my personal view would still be that "innovation comes most naturally from small-scale outsiders," watching the behemoths Microsoft and Google is interesting with views spanning the spectrum on both announcements.
The pendulum of thinking on innovation does seem to be swinging toward the big guys. In health care, institutions that have done best in improving the health of patients with chronic conditions like heart disease and diabetes have been larger, integrated systems like Kaiser Permanente in California, Intermountain Healthcare in Utah and the Geisinger Health System in Pennsylvania. They have the scale and incentives to invest in things like wellness programs and electronic health records.
While Google seeks to change the entire way we communicate online, Microsoft seems to be attempting to play catch up to Google by creating another search engine. Gigaom views Google's announcement has hype given the lack of obvious new opportunities for monetization and they also point out that "Google has a long history of launching or buying projects, only to get bored and abandon them months or years later." I'm not smart enough to know whether Bing or Wave will succeed but given that profitability follows innovation, I know which company I'd bet on.
Thursday, May 28, 2009
More from Instapundit:
Evidence appears to be mounting that the Obama administration has systematically targeted for closing Chrysler dealers who contributed to Repubicans. What started earlier this week as mainly a rumbling on the Right side of the Blogosphere has gathered some steam today with revelations that among the dealers being shut down are a GOP congressman and closing of competitors to a dealership chain partly owned by former Clinton White House chief of staff Mack McLarty.
The basic issue raised here is this: How do we account for the fact millions of dollars were contributed to GOP candidates by Chrysler who are being closed by the government, but only one has been found so far that is being closed that contributed to the Obama campaign in 2008?
A reader notes something about “car czar” Steven Rattner: “Rattner is married to Maureen White, the former National Finance Chair for the Democratic Party.” The comment: “So one of the guys advising SecTreas on this thing is married to someone who used to be one of the people in charge of fundraising for the Democratic Party. This explains so much it’s scary.” Well, it bears a close look.It's troubling because this is how banana republics act - using power to indiscriminately play favorites and mete out vendettas. And unfortunately, while the favored elites/political class gets richer, economic growth plummets because governments favor stability and certain political constituencies over innovation and value creation.
This profile of China's Communist Party from the Guardian seems pretty accurate to me. While I'm not sure that it had ever quite not been about getting a solid job in government (or attain power), I think people are more willing to talk about it now. Out of pure foolishness (though I resist, honest mom, I do), I find myself drawn into conversations that I shouldn't be having in China and I find that of the Communist Party members I know, they do find the mandatory meetings boring and they have a healthy disdain for the leadership. I do however also find it somewhat comforting that they're increasingly willing to talk about it.
A sub note and observation is that I find it more comforting that in the China of today, the most ambitious do not direct their passions towards the pursuit of power but instead to the attainment of wealth. This is a particularly good thing for the world and will hopefully moderate some in the Party who seek to expand their influence through armed conflict. What perhaps this article doesn't discuss is the distinction between the military and political wings of the Party. From what I've heard, people reserve the greatest disdain not for the political leaders but those of the military who some say hold the real power in China.
It'd almost be worthy of a conspiracy theory concocted by Karl Rove. Did the US Government know that it would handicap companies where unions played a dominant role in their workforce? What if Obama isn't a friend of unions at all? From TheAtlantic (via Instapundit):
Schultze is quoted about lessons learned by bondholders though the automaker bankruptcies: "The obvious one is: Don't lend to a company with big legacy liabilities or demand a much higher rate of interest because you may be leapfrogged in a bankruptcy."Of course the simpler explanation is that for all the brilliance ascribed to the Obama Administration, this is simply a costly oversight - costly for all - unions, American taxpayers (& Canadian ones as well), and most costly for society overall, the innovators who would have fed off the carcass of a failed behemoth.
This strikes me as an extremely important conclusion, which is difficult to deny. Bond investors literally can't afford to lend to unionized companies because it's clear that current power in Washington will take the unions' side, despite past bankruptcy law precedents that favor senior creditors. That means Washington's actions in pushing for these bankruptcy verdicts to come out in favor of the unions will probably hurt unionized companies in the long run. As a result, it might be wise for Washington to reconsider the precedents it's setting for unionized companies undergoing bankruptcy.
Update: On the other hand... another unintended casualty? Dead tree news (Newsosaur via Smalldeadanimals).
Wednesday, May 27, 2009
As alluded to previously, I'm glad it's a debate that's taking taking place in a very public way (versus the sometimes insular world of aid, as has been taking place in the debate over the commercialization of microfinance). She takes the high road in her response to Jeffrey Sachs who makes it personal (Huffington Post):
And though I am responding here in order to refute his arguments, as a fellow economist, I intend to rely on logic and evidence to make my argument and show Mr. Sachs the professional courtesy that he has failed to show to me.Read on here.
Development is not that hard. We now have over 300 years of evidence of what works (and what doesn't) in increasing growth, alleviating poverty and suffering. For example, we know that countries that finance development and create jobs through trade and encouraging foreign (and domestic) investment thrive.
We also know that there is no country -- anywhere in the world -- that has meaningfully reduced poverty and spurred significant and sustainable levels of economic growth by relying on aid. If anything, history has shown us that by encouraging corruption, creating dependency, fueling inflation, creating debt burdens and disenfranchising Africans (to name a few), an aid-based strategy hurts more that it helps.
Tuesday, May 26, 2009
From Freakonomics blog:
In The Bottom Billion, the economist Paul Collier cites three reasons why resource wealth results in low levels of economic growth. First, the discovery and extraction of natural resources can lead to the crowding out of other sectors, otherwise known as “Dutch Disease.” The booming natural resource sector draws labor and capital away from other areas, and the natural-resource revenues result in a stronger exchange rate, reducing the competitiveness of non-resource exports.But as Freakonomics notes, there's an alternative:
Second, commodity price volatility enables boom and bust spending cycles characterized by poor investments and irresponsible spending. Collier writes that during an asset-price bubble in Kenya, “one ministry raised its proposed budget thirteenfold and refused to prioritize.
Finally, Collier argues that resource revenues can cause deterioration in governance and public institutions through a variety of channels. Bribery becomes a more efficient means of obtaining votes than the delivery of public services. Citizens paying low taxes thanks to resource revenues are less likely to scrutinize their leaders.
The charter is “a set of economic principles for governments and societies on how to use the opportunities created by natural resources effectively for development.” Essentially, the charter tells countries how to avoid the resource trap.Read the whole thing.
Would you believe that it's the United States? While China is generally thought of as the manufacturer to the world, according to the UN, the US manufactures almost double that of China increasing by 800 billion since 1990 (Time via Thomas Barnett). While Time laments that the rise in productivity has meant this hasn't resulted in more jobs (in fact, quite the opposite), the reality is that during this same period, the US experienced some of the lowest levels of unemployment in the past several decades.
Monday, May 25, 2009
Point and Counterpoint (Huffington Post), by Jeffrey Sachs, author of Common Wealth and William Easterly, author of White Man's Burden, respectively. What I find heartening is the vicious and personal nature of the attack by Jeffrey Sachs - heartening because it means that the message of accountability preached by those like William Easterly is taking root.
This shouldn't be a shocker to anyone. The Communist Party's grip on power is potentially one bad recession away from slipping away (WSJ):
The China model, although a definite threat to democratic values, is no juggernaut. Its appeal abroad will depend in large part on how the Chinese economy weathers the global downturn, and how any stumbles it might encounter are perceived in the developing world. Back at home, the Party is more frightened of its own citizenry than most outside observers realize. Chinese citizens are increasingly aware of their constitutional rights; a phenomenon that does not fit well with authoritarianism. The Party may win the affection of foreign elites, but still faces dissent at home from local nongovernmental organizations, civil society and elements of the media.What I don't get is how my colleagues suggest that they would rather have "order" than "chaos" (roughly translated) and while they may not like the current state of politics they prefer it to the alternative. The oddity is that nearly all seem to value country/patriotism as well over appeasement/order which gives rise to a frightening scenario that the government could manufacture a conflict to maintain power. There are many who forget that China didn't liberalize its economy because of the benevolence of its leaders, but instead because it had to. Those like Thomas Barnett recognize that China fears its people more than anything else:
Since the Tiananmen Square massacre in 1989, China's leadership has modernized the country's economy but also its authoritarianism. And because the system's flaws are as glaring as its resilience, its challenge to democracy is a crisis in the original sense of the word -- the course of events could turn either way.
The bad news: China's government is very adept at this approach. It fears social anger most of all, so it takes it very seriously.It's above my pay grade to make any serious guesses as to whether or not China will ultimately attack Taiwan and "give it all up" to paraphrase Barnett, but if China's Communist government truly believes there is a serious threat to its own power anyway (e.g. one of the reasons why erecting significant trade barriers to China by Western governments could be highly foolish to global stability), what would it have to lose?
The good news: As these situations multiply, the people get more adept and self-confident in pressing their demands.
It's sort of funny and also quite sad that this makes it into "news". Basically China is saying this time its economic numbers are right (WSJ). There are a number of people who have suggested that that the growth numbers don't appear to be real given that aggregate electrical usage is down year to year (after all, if your economy, all things being equal, energy usage should rise).
Of course it would seem that in order to believe China's numbers, beyond their claims that this is so obviously true, it seems that either China's energy usage has gotten that much more efficient overall or that they have switched from electricity to some other form of energy.
Why did so many players place these large, risky bets? A simple yet significant part of the answer is that the potential gains and losses were asymmetric. If housing prices continued to climb, or at least not fall, the participants could achieve large profits. If housing prices failed to appreciate, or even fell, the losses would be largely borne by others, including taxpayers. "Heads" and the bettors would win -- "tails" and others would lose.
Sunday, May 24, 2009
This interview is chock full of interesting ideas but what really made particularly useful, at least for me, is how Jim Collins, author of Good to Great, looks for what he calls "the willingness to death-march" in those he hires (NYT):
For each book, he hires a research team of university students, up to a dozen at a time, to help him during long summers of work. He is picky about whom he hires, typically from Stanford and the University of Colorado. They’re not always business students; they might be studying law or engineering or biochemistry.
He prefers to learn as much as he can about them before he meets them. “Because if I meet them, I may like them, and then all the assessment of the person is going to be filtered by the fact that I like them, and what I really want to see is the quality of their work,” he says.
So he will look at their transcripts. “If they even have a small glitch in their academic record over the last year, they don’t really get considered,” he says. “I need people who have that just weird need to get everything right.”
He gives the candidates a list of different academic activities, including field work and lab work, and makes them rank the activities in order of preference, to give him a clear idea of their interests.
If they clear other hurdles, he will finally meet them in person. He’s looking for four intangibles: smart, curious, willing to death-march (“there has to be something in their background that indicates that they just will die before they would fail to complete something to perfection”) and some spark of irreverence (“because it’s in that fertile conversation of disagreement where the best ideas come, or at least the best ideas get tested”).
“So I look for somebody who on the one hand was an Eagle Scout, because that’s death-marching,” he explained. “And, on the other hand, somebody who took time off to travel to 14 third-world countries on no money.” One of his researchers, an M.B.A. student, had studied medieval literature at Princeton and served in the Marines.
Scott Carson, President and CEO of Boeing Commercial has an opinion piece in the WSJ that illustrates a number of interesting points:
Over the past 50 years, the efficiency of commercial jets has risen an astounding 70%. This means that carbon emissions per mile flown have dropped 70% -- all without a regulatory requirement for greenhouse gas emissions.Unfortunately, he doesn't stop there:
We're advocating for an efficiency standard for new airplane designs. An efficiency standard would be straightforward and easier to implement than a standard for aircraft operators.Regulations usually create barriers to entry. Whenever dominant competitors call for additional regulations, it's often because they seek to protect their advantage. In this example, it seems particularly brazen that he also makes the argument that the substantial efficiencies achieved to date have occurred without the regulations he now calls for. While I would hope that legislators should know better, I suspect the more probably outcome is that those like Obama will enact these regulations heralding a public-private partnership that is nothing more than a continuation of recent policies protecting political favorites from competition.
A fascinating article that explores the policies and choices that allowed the US to emerge as the World's only Superpower when Argentina had many of the same opportunities. The author emphasizes that this wasn't a question of fate but of choice(s) - and that the leadership that the US has achieved is by no means certain in the future (FT via Paul Kedrosky) :
All in all, it would be wise to keep betting on the US finding the right way out of the financial crisis and Argentina continuing to harm itself. Of the two great hopes of the western hemisphere in the late 19th century, one succeeded and the other stalled in the 20th. It was history and choice, not fate, that determined which became which. It is history and choice that will determine which is which in a century’s time.
Guess who wins? From the WSJ:
In 2006, after 25 years and 50 million preventable deaths, the World Health Organization reversed course and endorsed widespread use of the insecticide DDT to combat malaria. So much for that. Earlier this month, the U.N. agency quietly reverted to promoting less effective methods for attacking the disease. The result is a victory for politics over public health, and millions of the world's poor will suffer as a result.To this day, I can't figure out why advocates of the poor are often found allying themselves with environmentalists. What bothers me most about this issue is that relatively speaking, the impact of DDT to the environment is minimal while the lives lost as a result of minimally effective ways to combat malaria are massive. This idea that there aren't trade offs between poverty and the environment, at least in the short term, is a wishful thinking lie.
Saturday, May 23, 2009
I suppose my personal worldview is a rather optimistic one. So within this framework I find it somewhat sad that this talk by Alex Tabarrok from Marginal Revolution was rated by many as being "unconvincing, long-winded and obnoxious". I suppose that's true if you're of the world view of one commenter who said "thankfully I watched Wade Davis on endangered cultures speech [ed note: Davis worries about dying endangered cultures as if we should condemn the people who live in these cultures to poverty denying them the choice of modernity] straight after which is an eloquent rebuttal of the scary one voice one folk one market vision." Decide for yourself (Ted.com):
Sometimes I do wonder whether or not it's my worldview that is so dramatically out of whack or that of others who prefer economic stability/stagnation/bureaucracy over economic growth/dynamism. Sure things may be miserable now, and while it doesn't help in paying the bills, have a look at the long term trend (from the presentation via Businomics):
GDP growth per capita means that we're getting wealthier - living healthier and more fruitful lives than ever before. We've done so by liberalizing our markets and encouraging economic liberty. And in doing so, as Tabarrok says: 'we extend cooperation across world boundaries.' But as the UK ambassador to the US notes (Seattle Times), we have to be guarded - given the false appeal of turning inwards and re-erecting walls:
We all need to be active to battle the signs of creeping protectionism, here and around the world. Business leaders are in the best position to champion the virtues of open markets. We cannot let those who would restrict trade and investment be the loudest voices in this debate. We need to keep reminding leaders of the value of foreign investment and trade to jobs and prosperity — because protectionism doesn't actually protect economies at all.The irony is that as developed markets have regressed in their economic leadership growth has come instead primarily from developing countries. As Tabarrok notes: "China has been the world's best anti-poverty program over the last three decades."
Thursday, May 21, 2009
The Obama Administration bullied lenders into accepting deals where unions are given priority in the Chrysler bankruptcy. From Todd Zywicki:
Chrysler -- or more accurately, its unionized workers -- may be helped in the short run. But we need to ask how eager lenders will be to offer new credit to General Motors knowing that the value of their investment could be diminished or destroyed by government to enrich a politically favored union. We also need to ask how eager hedge funds will be to participate in the government's Public-Private Investment Program to purchase banks' troubled assets.The effect?
Hedge fund manager George Schultze says he may avoid lending to any more unionized companies after being burned by President Barack Obama in Chrysler LLC’s bankruptcy.Update: How could things possibly end badly? (Kausfiles)
Obama put Chrysler under court protection on April 30 after lenders balked at a proposal giving them about 29 cents on the dollar for their $6.9 billion in debt. The investors said the president’s plan favored a union retiree medical fund whose claims ranked behind them for repayment. It was offered a 55 percent equity stake in the automaker. [...]
“Lenders will have to figure out how to price this risk,” Schultze, 39, said in a telephone interview from his office in Purchase, New York. “The obvious one is: Don’t lend to a company with big legacy liabilities or demand a much higher rate of interest because you may be leapfrogged in a bankruptcy.”
Both remarkable and humorous, an excerpt from a review by Katherine Mangu-Ward at Reason.com of The Invisible Hook: The Hidden Economics of Pirates:
Pirates, by contrast, were outlaws, with no recognized authorities to settle disputes. So they invented their own ways of doing business. Decades before the American Founders got their act together, pirates were drafting documents full of voting rights, juries, checks and balances, rules for property allocation, even methods for impeachment. The buccaneers may have been less concerned with natural rights than with survival and claiming their fair share of booty, but the end result feels surprisingly like the kind of self-governance we expect from enlightened modern republics. Perhaps even better, since the deal was truly voluntary (for the pirates if not their prey). No one is born a pirate, and everyone has to swear into the contract on each venture.The punchline -
[...]men lived under a kind of constitution, a contract for behavior with rules for the political and the personal all spelled out (albeit with pretty poor spelling). The guidelines were surprisingly tame: Lights out by 8 p.m. No drinking below decks after bedtime. No gambling. No smoking. No brawling. Many a modern American high school student lives a wilder life than pirates did in their heyday.
Leeson convincingly argues that “without economics, pirates...are a veritable ball of contradictions. They’re sadistic pacifists; womanizing homosexuals; treasure-lusting socialists...and lawless anarchists who lived by a strict code of rules.” With economics, they’re a bunch of gossipy racists who go to bed early, ban women from the premises, and bluster to avoid fighting. These fastidious, calculating pirates may have been a far cry from the romantic, mad buccaneers of legend. But Peter Leeson’s economical actors have an appeal all their own.
Wednesday, May 20, 2009
You'd think these people would know better. First Obama "jokes" about auditing his political opponents (WSJ) and then Russia's military choir "jokes" about cutting off gas to Europe (TransatlanticPolitics via Instapundit). Hilarious. Hey if it works for Obama, why not Russia? It's little wonder that Europe is so aggressive about the adoption of alternative energy.
Tuesday, May 19, 2009
From the WSJ China Blog: "it was still unexpected for a branch of the country’s top anticorruption agency to put down its name as a shareholder of three listed firms." Surprise, surprise, they even beat the market: "it turns out that as investments go this was one wasn’t bad: From Jan. 23 to May 19, Dongfang Yinxing’s shares soared by 81%, with Mingfufa up by 42% and Zhongyuan Huanbao gaining 30%. In the same period, the benchmark Shanghai Composite Index rose by 34%."
I'll echo the comment from CrunchGear: "Yay for Science!" -
Researchers at the Children’s Hospital of Philadelphia, who have been researching AIDS for almost a decade, have come up with a novel new way to fight the immunovirus. Traditional vaccines didn’t seem to be working, so Dr. Philip Johnson, chief scientific officer at Children’s Hospital, shifted gears, and used muscles to deliver a gene in order to create a protein that interferes with the virus.
Given the success of the flat tax in places like Hong Kong and Europe (BusinessWeek), I figure it's only a matter of time before it's actually more seriously considered in the US - particularly following its flirtations with disastrous fiscal policies. On the other hand, given the entrenched special interest groups in having separate deductions for pet projects, any form of tax simplifaction always has an uphill battle. Here's a pretty good primer on both the Flat Tax (imagine being able to do income taxes on the size of a post card) and the Fair Tax (taxing consumption versus income).
Monday, May 18, 2009
US states provide excellent data for comparing economic policies given their free mobility of labor and its broadly federal system that allows individual states to set a wide swath of varying fiscal policies. This data shows conclusively why thinking that taxing rich people will solve a country's fiscal problems - quite simply, they'll just leave (WSJ). Via Rich Kilgaard @ Forbes:
The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.
“Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.”
With a road map to decline in hand, institutions heading downhill might be able to apply the brakes early and reverse course. We've found companies that recovered—in some cases, coming back even stronger—after having crashed down into the depths of Stage 4. Our research indicates that organizational decline is largely self-inflicted, and recovery largely within our own control. So long as you never fall all the way to Stage 5, you can rebuild.
According to L Gordon Crovitz - good regulation results in better and more useful information disclosure:
This public disclosure could bring the wisdom of crowds -- many investors processing information -- to a new area of the market. Information about equities makes stock markets highly efficient, with prices quickly reflecting accumulated knowledge among investors. Disclosure of derivatives positions could likewise help make forecasting more accurate for more esoteric topics like interest rates, foreign-exchange movements and corporate credit risk.
An argument made by George Will at the Washington Post:
Greed is worse than a moral defect; it is a cause of foolish pricing. That is why markets know it when they see it. And when markets are allowed to operate, greed generates its own punishment.The argument George Will makes is considering what happens in auction environments for tickets / scalping - ie a good that has a fixed life. Priced above what consumers are willing to pay for too long, scalpers are often left with no value - or dramatically lower returns.
Personally, I'm of the view that greed isn't an especially bad attribute in entrepreneurs. Ideally, motivations extend beyond simple thirst for profits but I don't think that this is necessary for society's needs to be met and value to be created. This being said, I'm not sure this is a case of being greedy as it is of simple mispricing. While overpricing may be in part the result of greed, it's also obviously the result of stupidity given that the rational greed person will ensure that they don't price too high in the future and maximize returns.
Friday, May 15, 2009
Thursday, May 14, 2009
A bit frightening when you consider the numbers (Youtube - co-production with Reason.org):
Here's the effect - the US has jeopardized its AAA rating (via Instapundit):
That warning from Moody’s focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding. Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. It even, briefly, cost more to buy protection on US government debt than on debt issued by McDonald’s. Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People’s Bank of China have expressed concern about America’s longer-term credit worthiness and the value of the dollar.The upshot: Was it even necessary? Or were funds used to prop up favored political constituencies? From Les Jones:
Especially considering that the stimulus is creating few jobs and not where they're needed - and that's according to the AP. Americans are going to be paying for this idiocy for decades. What's worse is that this is going to make the cost of borrowing rise for everyone killing if not greatly slowing down any type of recovery and burdening business well into the future.
The blue lines are Obama’s projected unemployment numbers with and without his $775 billion stimulus. The red triangles are actual employment numbers.
The actual numbers aren’t just worse than the rosy picture Obama painted for a world after his magical stimulus took effect. They’re worse even than the doomsday scenario he outlined if Congress didn’t pass his stimulus plan.
Wednesday, May 13, 2009
A story my tree pollen-allergy
insufferable suffering sister might appreciate (from Instapundit):
This sounds like something from Dilbert: Rotten office fridge cleanup sends 7 to hospital. “An office worker cleaning a fridge full of rotten food created a smell so noxious that it sent seven co-workers to the hospital and made many others ill. Firefighters had to evacuate the AT&T building in downtown San Jose on Tuesday, after the flagrant fumes prompted someone to call 911. A hazmat team was called in.”
Plus, a bright side: “Authorities said the worker who cleaned the fridge didn’t need treatment - she can’t smell because of allergies.”
The motherboard on my Dell laptop died Sunday night. Pre-GTD, this would have sent me into a catatonic state, but I started consistently backing up and using a file synchronization program more effectively about 2 months ago (having a Blackberry also helped immensely). I figured with the mileage I get out of my laptop it would have almost certainly required a replacement but I found I have 6 months left in my extended/accidental warranty. I bought the laptop in Canada but they came and replaced the motherboard in Guangzhou (I also previously had my screen replaced on another trip over). They were quick professional and earlier than expected to boot!
So just in case you're in the market for a high end laptop, or even if you travel a lot, definitely get the extended and accidental warranty/insurance.
Sunday, May 10, 2009
Some might say "special" but I like how they bring out the honesty in people. I figured my last post wasn't quite sufficient by way of real Happy Mother's Day greetings. Here are a few alternatives for your perusal:
While I'd like to think that this applies (except imagine a boy there in the picture where there's currently a girl) -
This one might be more appropriate (though ditto on that last comment about imagining a boy not a girl in the image) -
These ones would work for everyone else including my siblings:
If you're a mom, then Happy Mother's Day!
Before I forget - Happy Mother's Day Mom (I found out she apparently reads this blog from time to time wondering where I came from)! Here's the least disturbing image:
Read all about "the 5 most horrific parasitic worms" from EnvironmentalGraffiti (just preferably not immediately prior to or after any meals - and this link comes courtesy of Instapundit). And may your travels to places like southern China and other tropical areas not include these "friends".
In a follow up to a post made last year, robots made by Kiva Systems have taken over warehouses run by the Gap, Staples and Zappos (SingularityHub). Wired reports that the robots have been successful at fooling their humans into believing that they're the masters in their system:
More from a corporate propaganda video:
... remain our underlings — fetching our underwear, delivering our jeans — not our overlords. At many sites, workers have begun to name their robots, complete with "Hello, My Name Is" name tags. From there, it’s only a short step to playing fetch with your robot.
"One of our customers calls those name tags tattoos, and the robots are adopted by employees," said Mitch Rosenberg, Kiva Systems’ VP of Marketing. "Your robot sends you a card on your birthday — this is a corporate sponsored thing, so I asked the management why they let them do it. They said, ‘We do it because the employees get a lot of joy, a lot of happiness out of anthropomorphizing the robots and turning them into pets.’"
Saturday, May 09, 2009
At least according to a working paper by David Lee and Alexandre Mas (Freakonomics):
a policy-induced doubling of unionization would lead to a 4.3 percent decrease in the equity value of all firms at risk of unionization.Walmart is, of course, famous for shutting down any store that has a successful unionization vote - which, as Freakonomics Blog notes, seems to support this aggressive approach. It also calls into question the wisdom of the "Employee Free Choice Act". While I should first state that I think unions used to have a role, I question why government policy now effectively allows the creation of a monopoly on labor. Another question: given that there are so many pensions run by unions, would they therefore have a fiduciary duty not to invest in firms where unions play a significant role?
Wednesday, May 06, 2009
From William Easterly:
A tragic law of global poverty is that the efforts of many well-meaning and accomplished people somehow get sucked down into meaningless activities and empty rhetoric.
via Greg Mankiw:
Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing.That fund managers are fearful (BusinessInsider) at all in the first place of speaking out is rather problematic to what is considered one of the most mature democracies in the world. On the other hand, as Glenn Reynolds notes: "Why be afraid? You can tie this bailout up in legal knots if you’re willing to go to court. Obama needs it to succeed more than you do."
The President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along."
The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.
Tuesday, May 05, 2009
via the Economist's Free Exchange Blog: "[there's] evidence that 80% of the top-ten Fortune 500 companies were started during a recession."
But also a cautionary note:
While starting a new firm during a recession may be more attractive, succeeding at that venture could be more challenging. Also, in some ways, the nature of this recession could make starting a business harder. A major constraint to starting a new business is adequate capital. Most new firms get their initial capital from the founder's personal savings or angel investors (friends of family of the entrepreneur who provide their savings). Falling housing and share prices mean personal balance sheets have taken a big hit. This will probably mean less capital for new businesses.Update: From WSJ - just don't forget freedom has a price, and budget for it. That said, with the uncertainty and lack of loyalty many employers display, the idea of job security may be a false one.
It also suggests that fixing the financial sector will be vital for making the most of this downturn.
Maybe, but apparently according to a clinical psychologist (peHUB) "not only are blonde hair and blue eyes classically beautiful but that Westerners associate the combination with wholesomeness and truth." And the obligatory tie into why this is even remotely relevant to a finance blog: "The association with blonde hair goes back to childhood. We associate these characteristics with forces of good, honesty and trust. We’ve recently been deceived by bankers and politicians, so the need to trust is even greater." Thin gruel? Definitely.
Currently, it can take anything up to 48 hours to determine whether a patient has Malaria and even then, doctors are unable to tell whether the parasite is drug resistant. In certain cases, a malaria diagnosis has to be confirmed by DNA amplification which can take another one to two days. The only current way to test for drug resistance is to give patients certain drugs and wait to see if they work.
Our Malaria chip should be able to do the whole process in less than 60 minutes, and we hope that by the end of our development project we will have reduced this time further.
Mr. Pozar explains, “You are capacitively coupling the fob to your head. With all the fluids in your head it ends up being a nice conductor. Not a great one, but it works.” Using your head can extend the key’s wireless range by a few car lengths.
Monday, May 04, 2009
Under an Obama administration, where
(1) President Obama himself received a scholarship to attend a better school
(2) Sends his own kids to an elite private school instead of a public one, and
(3) made a commitment to focusing on educational alternatives with the best outcomes,
Why do you suppose he'd want to kill a highly successful DC voucher program?
I just got back from HK a few hours ago crossing the border at Lo Wu (Shenzhen) - and they're in full defense mode. If you're from North America (regardless if you've been there recently) they have a separate line for you about 5-6 rows separated by people barriers left of everyone else. You end up having to fill out two separate forms about your current health history. Everyone's already wearing masks. On a related topic, I thought this was pretty cool - researchers have been using virtual worlds like World of Warcraft to (inadvertantly) model pandemics. Hopefully we'll behave a bit differently than our virtual brethren (Canada.com via peHUB):
In 2005, the game's designers at Blizzard Entertainment decided that some players' characters had become too powerful, so they created a virus — called "Corrupted Blood" — that would make the game more challenging for the most powerful players. [...]One way to avoid their fate, may be to learn from porn stars (Paul Wilmott via Paul Kedrosky):
The programmers imposed a mass quarantine, and expected players to take it seriously because "death" can cause their characters to lose items, strength, weapons and armour they had accumulated over many hours of play.
Yet many players ignored the quarantine, spreading the virus. Eventually, more than four million of the game's six million players worldwide were infected, and millions "died."
Apparently, and I emphasise that I only have [Ron Jeremy] word for this, that when two porn stars meet on set instead of shaking hands, for who knows where those hands have been, they touch right elbow to right elbow.As a side note, maybe it's just me but reading finance blogs can get somewhat odd at times...
Sunday, May 03, 2009
When did it become the government’s job to intervene in the bankruptcy process to move junior creditors who belong to favored political constituencies to the front of the line? Leave aside the moral point that these people lent money under a given set of rules, and now the government wants to intervene in our extremely well-functioning (and generous) bankruptcy regime solely in order to save a favored Democratic interest group. No, leave that aside for the nonce, and let’s pretend that the most important thing in the world, far more interesting than stupid concepts like the rule of law, is saving unions. What do you think this is going to do to the supply of credit for industries with powerful unions?It's a somewhat alarming modus operandi. The Obama Administration seems to have an affinity for heavy handed tactics to get its way (Jake Tapper @ABC via Instapundit):
As Glenn Reynolds notes: "read the whole thing, and decide who you believe for yourself." Meanwhile, most of legacy media has been complicit (theAtlantic).
A leading bankruptcy attorney representing hedge funds and money managers told ABC News Saturday that Steve Rattner, the leader of the Obama administration’s Auto Industry Task Force, threatened one of the firms, an investment bank, that if it continued to oppose the administration’s Chrysler bankruptcy plan, the White House would use the White House press corps to destroy its reputation.
The White House said the story was false.
Saturday, May 02, 2009
David Dayton at Silk Road makes a few observations about China:
This isn’t a slam on China—this is just what really happens here. Rules are considered to be for people that are being watched. Rules are for people that don’t have the ability to get around them.His observations very much mirror my experience. While often comical, this lackadaisical enforcement and attitude towards the law will be one of the key impediments to China's development. Selective enforcement quite easily fuels corruption. Further, without the rule of law, there is uncertainty for business making it a more hostile environment for investment and expansion by businesses. People start spending more resources currying political favor than they do creating value. This isn't only a threat however to China.
Back in the US, Greg Mankiw quotes a WSJ article:
"Like many others I made the mistake of buying what I believed was 'value,'" Mr. Gwin says, adding that investors who bought at the time believed the loans were worth more than their market price. "We did not contemplate having our first liens invalidated by a sitting president," he adds.It should be of extreme to all that, as Mankiw notes, "politics may start to trump rule of law." Yesterday, we even saw US President Obama state that he would choose a replacement for Supreme Court Justice Souter that would be more "empathy and understanding" (AP). Times are a changing, but I'm afraid that they may not be for the better.
Friday, May 01, 2009
You may be relieved to know that the last time a great swine flu epidemic was predicted it didn’t materialize. In 1976, the U.S. government predicted that 1 million Americans would die from a swine flu epidemic — but only one did.What I figure is that it never hurts to have that emergency kit at home. Then again I was a Boy Scout - Always be prepared! (That might have been cub scouts - I forget, and it's too late to go look it up on the net).
PS Something I didn't know... from Instapundit: "Hand sanitizers work but they need to be at least 60% alcohol, and you need to use a substantial amount. “If your hands are dry within 10 or 15 seconds, according to the C.D.C. guidelines for health care workers, you haven’t used enough.” And washing (thoroughly) is still better if you can; sanitizers are for when you can’t."
Even the words "financial crisis" ignore the structural issues (created by regulations) prior to the financial markets collapsing. Politics and power being what they are, it should be no surprise that governments around the world are seeking to reclaim economic power they relinquished over the past several decades. In these circumstances, [government-backed Fannie Mae and Freddie Mac] hoped to curry favor with their supporters in Congress by showing that they could boost homeownership rates, especially in low income communities. The strategy worked; there was no new regulation of Fannie and Freddie until September 2008. But by then it was too late. Accordingly, this is a story about how a well-intended government policy caused a substantial decline in the quality of US mortgages and ultimately the financial crisis we are living with today.
To characterize it as a "war" doesn't seem historically accurate. Governments have ceded economic power not willingly, but because of their sheer incompetence. In this, the "war" of ideas has been won. Free markets and economic liberty are the proven paths to greater wealth for everyone - rich and poor. While opponents of economic liberty might not be as candid, democratic societies choose between (1) free(er) markets - with greater inequality but wealth for all - rich and poor, or (2) building a society that's poor(er) - in some cases significantly more so, but more equal.
While their institutional memories may be short and conveniently so (not to mention the fact this crisis is affecting more regulated markets in many cases worse than the US in places like Europe), the rest of us should be asking whether or not it's a crisis of capitalism or a crisis of regulation (AEI):
Demagogues have created a strawman in "Wall Street" - helped in no small part by the excesses of Wall Street and Republican administrations that followed Reagan who greatly expanded government. Proponents for bigger government are claiming that it needs to get even bigger. Thankfully, the response of the American public has not been acquiescence. Nearly half a million people turned out (people who don't normally protest) for almost impromptu, disorganized but apparently massive "tea party" protests on April 15th. Arthur Brooks, from AEI, also sees hope (WSJ):
In these circumstances, [government-backed Fannie Mae and Freddie Mac] hoped to curry favor with their supporters in Congress by showing that they could boost homeownership rates, especially in low income communities. The strategy worked; there was no new regulation of Fannie and Freddie until September 2008. But by then it was too late.
Accordingly, this is a story about how a well-intended government policy caused a substantial decline in the quality of US mortgages and ultimately the financial crisis we are living with today.
For now, the opponents of free markets may have won a few battles so what is old is apparently new again. A delightful little subnote as some in the world celebrate "May 1" (WSJ):
This is an exhilarating time for proponents of freedom and individual opportunity. The last several years have brought malaise, in which the "conservative" politicians in power paid little more than lip service to free enterprise. Today, as in the late 1970s, we have an administration, Congress and media-academic complex openly working to change American culture in ways that most mainstream Americans will not like. Like the Carter era, this adversity offers the first opportunity in years for true cultural renewal.
It may shock these self-declared antifascists to learn that it was Hitler who introduced the first of May as a public holiday in Germany. What started as a movement to advance workers' rights was quickly usurped by both the Nazis and the Soviet Union.Of course, what I've never figured out is why those like Hitler are considered right wing at all. They weren't. They were socialists.
via Dambisa Moyo's Twitter and William Easterly's Aid Watch - mosquito nets distributed free are being used to make wedding gowns and fishing nets (Kenya's Daily Nation):
Mosquito net manufactures are teaming up with the provincial administration and village elders in several parts of Kenya in an effort to apprehend and prosecute people who use the products for purposes other than covering beds.While Easterly makes the argument that education would solve the issue of misuse - unfortunately amongst charities and aid organizations the "lack of education" issue often translates into "we need more money to teach people". I think the more fundamental issue is that people do not recognize that they have any real value (which also suggests that this form of distribution is also anything but sustainable). This is further reinforced by the fact that these nets are underpriced or given away for free.
According to Dr Elizabeth Juma, who is the head of malaria control under the Ministry of Public Health and Sanitation, there has been evidence of people turning the nets into fishing gear especially in Nyanza Province. Now a different group has discovered another lucrative business venture, and are using the nets to make wedding dresses.
The alternative? Sell the nets give distributors an incentive to educate their customers. The poor will and do pay for goods that they see as having real value.
Oh to have the problems of (some) others (peHUB):
Author and investor coach Richard Peterson meanwhile tells the AP, “I have a client whose net worth was about $400 million and now it’s about $200 million and you would think he’s about to be put out on the street by the way he reacts.”
Adds Peterson: “So you have to fly first class, what’s the big deal? [But this person] is really is going through devastation.”
Heh. While I'm fairly agnostic on the subject of whether or not it's happening, I am of the view that it would be better for us to deal with it rather than attempt to prevent it which seems an extraordinarily costly fool's errand, this is James Taranto's comment on a German polar expedition that found ice over the North Pole is thicker than anticipated (WSJ's BestoftheWeb):
Is it possible that global warming is neither a catastrophe waiting to happen nor a fraud but merely the result of confusion induced by the metric system?