Tagged: Economics

Should I Talk About Trickle Down Economics? Or Maybe The Laffer Curve?

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It's as close to an established truth as you'll find in economics that there is a "sweet spot" for taxation, at which government revenues are maximized.  That point is the apex of the Laffer Curve.  Tax above the apex, and government revenues decline as earners hide their money, channel it into unproductive tax shelters, or flee overseas.  Tax below the apex, and you're just not taxing efficiently.  The rich spend their money on solar powered dog polishers, or breeding new Kennedys, while government starves.

Then there's Brunei, where one family owns everything and pays no taxes.  The ruling Sultan provides a generous welfare state from his own pocket, and his family, well…

What do they do with all that money, and no jobs?

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Senator: Free Trade Is All Well And Good, But Who Will Protect Americans From The Yellow Peril?

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Former Agriculture Secretary and current Senator Mike Johanns (R-Nebraska) wants you to know that he supports free trade as much as anyone in the Senate, but he's worried that them Japanese are taking advantage of it:

I'm as free-trade as anybody here, but I can tell you the American consumer is getting tired of this thing if we are getting substandard products.

So he'd like to ban future imports of Japanse cars.

Asserting that the Japanese government has a role in insuring products shipped from its nation are safe, Johanns asked rhetorically, what if: "Until the Japanese government can assure us that all of the defects are out of these vehicles, we're just not going to accept any vehicles from Japan." Referring to restrictions on U.S. beef, he said, "That's what they did with one of our industries."

Yellow Peril Japanese Octopus!

The Senator was referring to a ban, lifted in 2006, on US beef imports to Japan. Considering that beef is a relatively tiny part of the US economy, while cars are a relatively massive part of the economy, I'm not at all sure that the Senator from Nebraska, where beef is a top industry, was posing his question rhetorically.

And so in that spirit, I'd like to ask the Senator a few questions:

  1. Why should the government of Japan be responsible for defects in Toyota vehicles when the United States government isn't responsible for the shoddy output of General Motors and Chrysler?
  2. Does your proposed ban cover vehicles manufactured in Toyota's massive United States plant and operations?
  3. If it does, what do you say to the company's American employees?
  4. If not, why not, considering that many if not most of the allegedly defective accelerators were made in the USA?
  5. What did Honda, Nissan, Suzuki, Mazda, Mitsubishi, Subaru, Isuzu, Kawasaki, and Yamaha ever do to the Nebraska beef industry?
  6. Speaking of Mazda, what do you have against the Ford Motor Company?
  7. Speaking of the Ford Motor Company, considering that you opposed the government's rescue of General Motors and Chrysler, if your proposal goes forward, can I buy anything other than a Ford in the future?  Or will I have to settle for a Model-T in any color, so long as it's black?
  8. And speaking of wasteful government bailouts, what is it with you and the ethanol subsidy? Why is it that corn farmers deserve to receive involuntary transfers from taxpayers when auto workers don't?
  9. You've denounced the Obama administration's proposal for a Consumer Finance Protection Agency as a "power grab over the nation's economy".  I happen to own a Toyota and like it.  Isn't telling me that I can't buy a new one a similar power grab?
  10. Off topic, but what the hell was that whole Power Panther thing about anyway?

usda power pantherI don't actually expect the Senator to answer my questions, but I assure you that they are not rhetorical.

Economics Is A Dismal Science, But That Doesn't Mean We Shouldn't Study It

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Even oceanographers.

Florida State University fires 21 tenured faculty members, in the departments of oceanography, geology, and meteorology:

"There's something wrong here," the 63-year-old [Philip] Froelich, [one of the fired professors] said. "To fire junior faculty like this is immoral — and that word is now around the country."

Eric Walker, an English professor and president of the Faculty Senate, isn't sure how layoffs in geological sciences and oceanography are playing around the country.

"I do know how this fact plays: We terminated 21 tenured faculty members," Walker said. "This is a fact that will get the attention of faculty members across the country.

What should also get Professor Walker's attention is that the state of Florida, hit as hard as any by the recession and an economy based on tourism and real estate, has a budget that can charitably be described as in the toilet. Faculty members in departments such as oceanography, who produce little of present economic value, depend on taxes paid by tourist attractions and realtors and orange growers and the like, who aren't doing too well.  The only solutions for such a problem in a state like Florida are to raise taxes (which will push the economy deeper into the toilet as any economics professor could tell you), to borrow until the state's economy resembles Argentina's, or to fire people whose jobs are less than essential.

That's fine, according to Florida State's faculty senate, as long as it's other people being fired.

FSU invested considerable resources in fall 2008 when it hired Wetz, Brian Arbic and Amy Baco-Taylor in oceanography and Davis Farris in geological sciences. Approximately $1 million in "start-up" fees were earmarked for the four new faculty members, who have all received layoff notices.

Gosh.  $1 million in "start-up" fees for three oceanographers and a geologist.   Who I'm sure produce more of value than their equivalent in primary school teachers, road maintenance workers, law enforcement officers, or state legislators.  (Heh.)   But though I don't know much about the Ekman spiral effect, it boggles my mind that the upper echelons of FSU's faculty, such as geography department chair Leroy Odom, didn't see this coming when they asked for a faculty expansion in 2008:

"I'm not expecting any reversal, but I do expect we'll be treated better in the future," Odom said. "Somehow we went from a department that was good enough to deserve new faculty positions to one that didn't deserve to exist."I didn't see it coming.

I knew there was a budget problem and they were considering faculty cuts and this and that. I didn't know they would all be coming from our departments."

Sounds as though Chairman Odom was reading too many geology papers and not enough newspapers in Fall 2008, if he couldn't see this coming.

In the Soviet Union they had ladies whose job was to polish subway stair railings.  That's all they did, all day.  And while polished stair railings are nice enough, make-work jobs and other non-productive uses of actual productive labor, resources, and energy drove the Soviet Union into bankruptcy more surely than its tyranny and ethnic strife.  And all of the rail-polishing ladies were fired.  It's tragic when anyone loses his job due to economic circumstances he couldn't forsee, whether it's a rail polishing lady or an oceanographics professor.

But it isn't immoral.  And for the academy to claim that it should be above the resources of the people who pay its bills indicates we may need fewer tenured oceanographics professors, and more grad student T.A.s in the economics department.

Via.

Your Friday Afternoon Would Probably Make A Better Treasury Secretary Than Tim Geithner, But It Doesn't Have Connections To Goldman Sachs

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Welcome to the return of the son of our friday afternoon time-waster series.  Once we attempted, every friday, to present those of you who were sitting, waiting, watching the clock, with things to do each friday, until you could start scooting to the door at 4:55.  We made the mistake of thinking we had a duty to give you this information, so it became like work, which is the antithesis of a friday afternoon time-waster.  While we're bringing the feature back, it will now be an irregular feature, with no obligation or loss of Slack on our part.

The Chart Game is a stock prediction simulation, which provides you historical data about one large, publicly traded company, but you're not told which company, or which phase in history.  Your job is to predict future performance based on the past performance you're provided.  Buy or sell.  You "win" the chart game by outperforming the S & P 500 over the course of a year, based on your decisions with this stock, and your trust, or lack thereof, of patterns in stock performance.

Having played the chart game many times, I can tell you that it quickly diminishes faith in the ability of analysts to beat the market as a whole over the long term, whether the analysts use Sun-Spot patterns, Astrology, Hedging, or any "system" other than Insider Trading.  Play for yourself and see that economics is truly the "dark science."

For a different time waster by the same author, see the fascinating Eyeballing Game, which we featured previously and described as "a test of skill, precision, and spatial geometry."  It too is diverting, and much more a test of skill than it is of luck.

If Ben Bernanke Had Spent More Time Searching For The Real Killer, The Dow Would Be At 20,000

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Proving that dead tree journalism still has life, the Seattle Times has a terrific two-parter on the downfall of Washington Mutual.

As with all truly great journalism, it's the weaving of little details that makes the story:

Someone in Florida had made a second-mortgage loan to O.J. Simpson, and I just about blew my top, because there was this huge judgment against him from his wife's parents," she recalled. Simpson had been acquitted of killing his wife Nicole and her friend but was later found liable for their deaths in a civil lawsuit; that judgment took precedence over other debts, such as if Simpson defaulted on his WaMu loan.

When I asked how we could possibly foreclose on it, they said there was a letter in the file from O.J. Simpson saying "the judgment is no good, because I didn't do it."

picard facepalm

Via Overlawyered.

The Party Of Jefferson And Jackson Has Strayed A Long Way From Jackson

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If I didn't already believe that the Illuminati control the world through banks, this might have me puzzled:

The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance, three people familiar with the matter said. …

“It is not obvious at all why that is a Treasury responsibility or even appropriate why the Treasury would undertake that kind of study,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey, and a former Atlanta Fed research director. “The Fed was created by Congress and it is not part of the executive branch.”

I'll tell you why it is appropriate for the Treasury Department to look into the Federal Reserve bank's governance and structure, Mr. Eisenbeis.  Because the Treasury Department is a part of the executive branch, which is charged under Article 2, Section 3, of the United States Constitution, to "take care that the Laws be faithfully executed."  Among those laws is the law creating the Federal Reserve system, which I'll submit has been rather badly executed in recent years.

Oldthinkers believe that the Constitution creates only three branches of government: Congress, the Presidency, and the Federal Courts.  It does not create, nor does it explicitly authorize, a bank.  Didn't we hash this out in the 19th century?

In another, more serious era, in which people took the Constitution seriously, this sort of thing, in which a bank created under the laws of the United States, and which has the power under those laws to set interest rates for all private banks and in fact to create money which is legal tender in the United States, refused a request for review and simple information by the President of the United States, might be called a "constitutional crisis."

Meanwhile, Congress itself has a bill pending, sponsored by one of our bêtes noire along with over 200 others, to audit the Federal Reserve.  While of course that bill will never become law, because the Illuminati control the world through banks, if it happened, would the Federal Reserve deny the audit because the Fed is not part of the legislative branch?

I didn't vote for Obama, or his flunky Geithner, but I had the opportunity to do so, and a lot of other people took that opportunity up.  I sure don't remember being offered the opportunity to vote for or against Ben Bernanke.

Academics: Not Just Better Than You, But "World Class" Better Than You

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Read this open letter from the faculty of the University of California at San Diego, and weep.  Not for the University, or the faculty, but for the taxpayers and citizens of the state of California.

A few thoughts:

  • The tenured faculty also weep, WEEP!, at the thought of taking a five percent pay cut at their tenured, guaranteed-for-life jobs. Not for themselves, but for the people of the State, which risks losing a "world class" university system.  A system whose world-classness includes the University of California at San Diego (which I've barely heard of, but what do I know?), but excludes all universities lower on the system totem pole.
  • Meanwhile, the state which pays them is issuing kited checks to pay its obligations.  The taxpayers of California are losing their jobs in droves.  But they'll have a "world class" department of sociology at UCSD, which is also known to billions for its oceanography department.
  • In the spirit of oceanography, the faculty propose savage cuts for "scrub" schools such as UC-Riverside, which serve the poor and modest who can't get into UCSD.  Throw those kids, and their schools, to Shamu the killer whale, so long as we don't have to eat five percent less food on the lifeboat.
  • The chair of the economics department, who also signed, evidently fails to consider that if a pay cut for the economics faculty at "world class" UCSD is bad, but a pay cut for faculty at smaller schools is good, perhaps eliminating UCSD and funneling the money to genuinely world class Berkeley and UCLA might be even better.
  • The faculty protest their undying loyalty to the University, which they've struggled so hard to build, and then admit that if their pay is cut they'll cut and run to better paying schools as soon as the economy improves.  The lone historian who signed the letter, if candid, might describe himself and his compatriots as "mercenaries."
  • It's ok to be a mercenary.  It's an ancient and honest profession with roots going back to ancient Greece.  But there's another Greek-derived term for a mercenary who refuses to admit he's a mercenary: hypocrite.
  • Another historian, classically trained, might describe the lament as fiddling while Rome burns.  It's not as though much of California's financial crisis can't be laid at the feet of sociologists and the like, who in better times urged their government to spend like a coke fiend on whatever crisis commanded the attention of sociologists that day.
  • And speaking of economics, if the faculty believe that generous salaries from private universities, or other state systems, are just around the corner, well perhaps they should consult a member of the oceanographic zoology department on how long it takes a starved killer whale to rebuild its reserves of fat.

I have a more radical proposal, which would be of equal benefit to the taxpayers of California, and allow San Diego to keep its world class university.  Approximately half of the signatories belong to departments which produce students who may in turn produce something of economic value to California.  Fire them, but keep and reorganize their departments.

As for the other half, from the departments of sociology, music, political science, international studies, philosophy, communication, and education studies, whatever those are, eliminate their departments entirely, and transfer the money to UCLA and Berkeley.  Because what California needs, more than a government able to pay its bills with dollars instead of scrip, is a world class university.

A Tall Tale Of Utilitarian Redistribution Theory

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You might think that a short academic paper, written in the customary turgid jargon, wouldn't be as funny as an article in, say, The Onion.  If so, you've never read "Transgressing the Boundaries: Toward A Transformative Hermeneutics of Quantum Gravity," published in 1995.

And you've certainly not read this paper, by Harvard economists Greg Mankiw and Matthew Weinzierl, published two weeks ago.

Should tall people pay higher taxes?  The answer might surprise you.

Save American Jobs: Ride Solar Powered Buses

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Michael Moore has written an open letter to President Barack Obama, with nine recommendations for saving the American economy and putting General Motors back to work.

[A]s GM is "reorganized" by the federal government and the bankruptcy court, here is the plan I am asking President Obama to implement for the good of the workers, the GM communities, and the nation as a whole. Twenty years ago when I made "Roger & Me," I tried to warn people about what was ahead for General Motors. Had the power structure and the punditocracy listened, maybe much of this could have been avoided.

As Angus at Kids Prefer Cheese points out, Moore doesn't seem to remember exactly what his recommendations to save General Motors were 20 years ago.  For those who haven't seen "Roger & Me," Moore's program for the American auto industry consisted of:

  1. Employing as many people as possible in Michigan, at higher-than-market wages with higher-than-market benefits;
  2. No employment of anyone outside the United States, where labor costs and factory overhead are cheaper than in Michigan;
  3. No use of computers, robotics, or other efficient, cost-saving technologies in the manufacture of cars; and
  4. That's pretty much it.

20 years later, it's clear that Moore was right.  What forced General Motors into bankruptcy was an excess of efficient technology, along with low labor costs.  The same problems bedeviled Chrysler.

In keeping with his status as a prophet, Moore has a number of recommendations for what can be done to save GM, and the American economy, today.  I particularly liked these:

Announce that we will have bullet trains criss-crossing this country in the next five years. Japan is celebrating the 45th anniversary of its first bullet train this year. Now they have dozens of them. Average speed: 165 mph. Average time a train is late: under 30 seconds. They have had these high speed trains for nearly five decades — and we don't even have one! The fact that the technology already exists for us to go from New York to L.A. in 17 hours by train, and that we haven't used it, is criminal.

While it might appear counterintuitive that a high-speed rail network would benefit an automobile company, we should keep Moore's track record in mind.  He was right about GM 20 years ago.  And of course business travelers will be happy to forgo air travel, in which one can reach New York from Los Angeles in 6 hours, for 17 hours aboard a non-stop bullet train, because in today's economy businessmen understand, like Moore, that efficiency is economically counterproductive.

But what of those who don't live in New York or Los Angeles?

For people in rural areas not served by the train lines, have the GM plants produce energy efficient clean buses.

Speaking as someone who lives outside the Boston-New York-DC corridor, I'll readily admit that the only thing that keeps me from taking a bus for my 17 mile commute, rather than driving to work, is that the buses in my area use too much energy.  Well, that and the fact that I selfishly enjoy arriving at home 25 minutes after I leave work, rather than 2 hours later.  But that will change under Moore's program:

To help pay for this, impose a two-dollar tax on every gallon of gasoline. This will get people to switch to more energy saving cars or to use the new rail lines and rail cars the former autoworkers have built for them.

Indeed it will.  And although city dwellers may have to wait a few years or decades for their high-speed bullet trains, I'll only have to wait a few months for my solar powered bus network.  A two-dollar a gallon gas tax, now, will also promote economic growth in the bargain.  Because, as Moore's past predictions showed, low costs, whether in the labor market or in energy, are bad for the economy.

The President — and the UAW — must seize this moment and create a big batch of lemonade from this very sour and sad lemon.

As a former auto worker himself, Moore understands that what current auto workers and the UAW need, right now, is a high gas tax and a job in clean-bus technology.  If that doesn't save them, perhaps they can work in stimulus-funded lemonade factories.

Yesterday, the last surviving person from the Titanic disaster passed away. She escaped certain death that night and went on to live another 97 years.

So can we survive our own Titanic in all the Flint Michigans of this country.

Next week: Michael Moore demonstrates that the jobs of out-of-work longshoremen in Long Beach and New York can be saved by reverting to wind-powered sailing technology.

Matthew 6:3

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On the heels of closing over 800 Chrysler dealerships, with untold numbers more to close once the GM bankruptcy hammer drops on Monday, the Obama administration has announced a brilliant new stimulus plan: Subsidies for auto dealers.

The Obama administration will offer U.S. auto dealerships loans of up to $2 million to help buy vehicles and maintain inventories, the top members of the Senate's Small Business Committee said on Thursday.

The U.S. Small Business Administration's pilot program will provide loans of $500,000 up to $2 million that are repayable over five years and backed by a 75 percent government guarantee, according to Senator Mary Landrieu, the Democrat who chairs the committee, and Senator Olympia Snowe, the top Republican on the panel.

"The SBA's plan to offer floor plan loans to America's dealerships will help small businesses stay open in this uncertain economy," the senators said in a joint statement. "These loans will enable dealerships to maintain their inventory and save jobs."

We've been informed time and again that a major problem facing the Big Three is an overabundance of auto dealers in the chain, auto dealers whose irrevocable (outside the bankruptcy system) contracts forced the auto makers to overproduce; auto dealers who prevented the manufacturers from economizing in supply and distribution chains.

So the administration handed the remaining Chrysler dealers (as it will soon give lucky or politically connected GM dealers) the greatest gift a government can offer: it killed their competition.

It's a truism that if you reward a behavior, you will have more of it.  As the administration now intends to reward the behavior of auto dealers, through subsidies, logically we will have more auto dealers.  Oh sure, they'll be Toyota and Honda and Ford dealers, once the government swings the axe on GM, but…

Wouldn't it have been less expensive, and more efficient, to have let the market kill non-competitive auto dealers in the first place?

Via the John Locke Foundation.

What's Good For General Motors Is Anybody's Guess

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Including General Motors.

Dave Capps, of Capps Van and Truck Rental in Dallas, is creditworthy and has a solvent business.  He wants to expand it by 1,000 new GM vans.

General Motors has an insolvent business, is receiving bailout money from taxpayers, and should desperately want to sell 1,000 new vans.

General Motors Acceptance Corporation, which has financed Capps's fleet purchases in the past and has an ongoing relationship with him, has an even more insolvent business and has received bailout money, which the government has demanded that it lend in order to stimulate the economy.

So why does Dave Capps, who was spurned in his attempts to finance his fleet expansion by GMAC, have to take out billboards to advertise for a willing lender?

If GM wants more bailout money, and it does, the government should set one precondition: that GM's top management and directors all resign before the company gets another penny.

Citibank's Gift To A Grieving Nation: Perspective

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January 27, 2009, Update: Despite his suicide letter, it appears that Arthur Nadel is alive and well, and in the custody of the Federal Bureau of Investigation.

Funny how times change.  A google news search for Arthur Nadel, who disappeared on Thursday amid allegations his Valhalla Investment Partners LP hedge fund blew $350 million of its investors' money, reveals only 55 stories.  A year ago, this would have been on the front page of the Times of London.  The Sarasota Herald Tribune, the paper of record in the locality where Nadel's funds were based, reports on the story in its sports section.

Fund principal Arthur G. Nadel, a prominent player in Sarasota social and philanthropic circles, disappeared this week. His wife, Peg, filed a missing person report with law enforcement after finding a suicide note.

Investors — from individuals to the Sarasota YMCA Foundation — in the funds branded Viking, Valhalla and Scoop were stunned this week to learn they may be victims in what could become the largest investment swindle in Southwest Florida history.

Despite the carnage on Wall Street last year, investors were told that their investments had earned more than 8 percent as of November.

Some are already calling the case a "mini-Madoff," after Bernard Madoff of New York, who has been accused of creating a $50 billion Ponzi scheme that promised similarly large percentage returns.

Some might call placement of this story, which a year ago would have been one of the biggest investment swindles in history, not just southwest Florida history, in the sports section a mistake.  I consider it clever irony.  Considering the rides given to the public by CitiGroup, Fannie and Freddie, Bear Stearns, Lehman Bros, GM, Bank of America, and Bernard Madoff, Arthur Nadel's alleged misdeeds seem about as significant as the outcome of a big basketball game between high school rivals in southwest Florida.

Even the "missing" angle isn't that interesting.  After all, Arthur Nadel isn't a young, pretty white girl.  So how can this be news?

On reflection, just to make this post interesting even to me, I'm going to have to insert an image of a pretty girl.  I give you: a pretty girl on a bicycle.

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Before You Run To The Bank

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Remember that your money is insured.  Your 401(k) is already tanked (and it will bounce back, unless like my poor neighbor the Wachovia vice president, you kept it all in one stock!) so there's no need to run anywhere.  If you're worried about your deposits above $100,000, well this is the world's smallest violin.  You should have been tracking Warren Buffet years ago.  It's not hard.  He writes cheap, easy to read books about his investment strategy (buy sound companies which earn unspectacular returns but profit consistently by delivering a good product) and Berkshire's investments can be found online.

Through Tyler Cowen, in the meantime, comes word of a more sensible plan that wouldn't involve breaking the taxpayer's back, would preserve the "moral hazard" (at least for Wall Street), and wouldn't have allowed asshats like (I count down in rough order of disgust) Henry Paulson, Nancy Pelosi, Roy Blunt, and Barney Frank to play politics when their constituents' money is riding on the line.

As things stand, some more medium and large banks are going to be absorbed by giant banks, and some more big companies are going to go bust (sympathies to their employees).  But it won't be the end of the world, or a second great depression.  I actually agree with those, left and right, who opposed the bill on principle, because it was a terrible idea all around. The idea of rewarding those who caused this mess, and giving the executive more unbridled power than it already enjoys, stuck in my throat.  A nasty recession might be better in the long run for America.  (We'll see whether I still think so when it's my house in foreclosure.)

See Stephen Bainbridge for a more doom-and-gloom, but probably more realistic perspective.  He thinks we're on the verge of Return to Waltons Mountain.

Good night John Boy!

Update: "If Congress were planning to pass a bill providing, say, a $100 per share subsidy to stockholders at the expense of taxpayers, no doubt stock values would rise in anticipation and then fall precipitously if the plan were unexpectedly voted down. That is essentially what happened here."