My Two Cents

America's True Form of Government

2009-08-15T10:27:00.000-07:00

July Unemployment Update

2009-08-07T11:41:00.000-07:00

The official figure for July's unemployment rate was 9.4%. This is good news of sorts because it is down from the previous month of 9.5%. My forecast over shot the current figures and to be honest I'm surprised that the unemployment rate dropped; however, gladly surprised.

Though surprising, the fall in the numbers can be explained. First, the auto sector added 28,200 to the industry payrolls and secondly the federal government hired 12,000 workers in July (after laying-off close to 60,000 in May and June). In short, when looking at the top line figures, they encompassed approximately 100,000 intermittent payroll jobs.

And looking at the employment situation more broadly, the labor force again declined,

and the employment-population ratio continues to fall.

In short, I wouldn’t suggest using today's numbers as a baseline trend to extrapolate from as I think we will soon see an uptick, once again, in the unemployment rate.

On another note, it is obvious that the administration will now run with the idea that it was their intervention and enactment of stimulus funds that has brought the economy back from the brink of disaster. In turn, I would ask them how is that possible given that only 9% of the $787 billion in stimulus has actually been spent in the name of stimulating the economy. That in and of itself may be the answer...had they been able to spend more up to this point we would more than likely be in a lot worse shape than we are, though you won't hear that from them. Hopefully Congress and the administration will reverse the rest of the earmarked and obligated stimulus monies and return it to the tax payers, although I wouldn't hold your breath.

July Unemployment Rate?

2009-08-06T16:44:00.001-07:00

My call for tomorrow's unemployment rate is 9.76% (9.7%-9.8%).

Anyone else have a forecast?

Crazy Conservative Mobs: Let the Pictures do the Talking

2009-08-05T21:30:00.000-07:00

So with all of this talk lately about crazy, conservative mobs, I just thought I'd post some pictures so that we can all see how fanatical the conservatives are compared to those patriotic liberals who exercise their right to free speech.

So here are those conservative wack-jobs:

Now that we've taken a good look at the loons on the right, let's take a gander at the always classy, bastions of free speech,at least that's how they are described by the media:

Need I say more?

Single Payer Health Care: In His Own Words

2009-08-04T11:09:00.000-07:00

Cash for Clunkers...Can Someone Help Me Understand?

2009-08-03T14:50:00.000-07:00

Cash for clunkers…how about cash for a good idea?

So with this “successful” (tongue in cheek) government sponsored program, those who turn in their clunkers can get up to $4,500 in a government rebate for trading in their “clunker” and purchasing a newer, more efficient car. Now some of these clunkers are quite nice. Given how the program language is written, this could be considered a clunker:

The kicker of the program is that the clunkers can not be resold. Some of the parts may be recycled and reused, but the drive train and engines must be destroyed. Destroyed? That makes no sense. What is good about the voluntary destruction of productive, physical capital? If it were good, why not give a 100 percent rebate to everyone in the country for each qualifying auto owned thereby destroying and replacing most of the stock of cars currently in the U.S.? Demand for autos would surely rise resulting in factories being reopened and all those folks in Detroit would be put back to work in order to build the cars needed to fulfill demand. Happy days! --insert sarcasm here--

Proponents of the program are pointing to the fact that the program ran out of cash in less than a week as an indicator of how successful the program is. It is said to be helping the environment, the auto makers and auto dealers as well as the consumers. To me it suggests that the government is still incapable of planning and budgeting for anything, but I won’t get into that.

Well, if cash for clunkers is in fact a success, why not, in the name of efficiency and economic stimulus, burn down all of the housing stock in the U.S. while at the same time providing subsidies to homeowners to buy a new houses. This would be good, right? We could call it “Cash for Crap Shacks.” Just like the auto industry, home builders would see demand ramp up as previous home owners, whose homes were burned down, shop around for new houses. The housing market would be fixed, the environmentalists would happy, GDP would soar and unemployment would come down as the construction and housing industry come back to life. And to boot, everyone would be living in a new home; it’s a win, win.

Any rational human being would see how ridiculous the “Cash for Crap Shacks” program sounds, but it is no different than the “Cash for Clunkers” program. All of this is reminiscent of FDR’s New Deal where he actually provided subsidies to farmers to burn and destroy their crops and livestock. The rationale behind this brain buster was that the reduction in supply would prop up sagging agricultural prices. I’m sure all those starving during the Depression thought destroying “food” was a great idea.

Well, I’m sure those who can’t afford new cars think it’s a great idea to destroy perfectly good used cars. But even better, I’m sure they are excited at the fact that the prices for existing used cars and used car parts, in the aggregate, has to go up given the destruction of the existing capital stock of used cars and parts.

I’ve got an idea, if excessive leverage got us into this economic mess, why don’t we provide incentives to those who own their cars to destroy them in order to take on a car payment they can’t afford. I smell a Nobel Prize for somebody in the administration.

Let me briefly note that the Cash for Clunkers program is not real stimulus. It is simply changing individuals rate of time preference and accelerating future consumption into the present. Not only that, it is taking money out of the right pocket and putting into the left in order to pay for the "clunker" rebates. This is crackpot economics at its best!

Obama Care Would Outlaw Private Insurance

2009-07-19T22:26:00.000-07:00

Here is an article in Investor's Business Daily where they point out a provision on page 16 of the House's "Health Care for all Americans" bill that would effectively make private health insurance illegal. See link below:

Investor's Business Daily Article: It's Not an Option

Oh, Now it Makes Sense

2009-07-15T14:02:00.000-07:00

If you're wondering how universal health care would work, just check out the flow-chart below. I'm glad they cleared it up.

Political Press Conferences

2009-06-23T13:55:00.000-07:00

Every time I hear Robert Gibbs speak (the White House Press Secretary), I can't help but think of this clip from Spies Like Us:

I love it!

What a Cow

2009-06-19T13:20:00.000-07:00

Last time I checked, it was military protocol to refer to females as ma'am and males as sir when addressing one's superior. When addressing a subordinate, the military protocol is to address that person using their rank/title. Not only is this women incompetent, she's an embarrassment to boot.

Obama, You Scare Me!

2009-06-18T13:20:00.000-07:00

Here is a letter written by Louis Pritchett, former VP at Procter & Gamble. Prichett said he originally sent the letter to the New York Times, which didn’t publish it. You can verify it's authenticity at snopes.com

AN OPEN LETTER TO PRESIDENT OBAMA

Dear President Obama:

You are the thirteenth President under whom I have lived and unlike any of the others, you truly scare me.

You scare me because after months of exposure, I know nothing about you.

You scare me because I do not know how you paid for your expensive Ivy League education and your upscale lifestyle and housing with no visible signs of support.

You scare me because you did not spend the formative years of youth growing up in America and culturally you are not an American.

You scare me because you have never run a company or met a payroll.

You scare me because you have never had military experience, thus don’t understand it at its core.

You scare me because you lack humility and class, always blaming others.

You scare me because for over half your life you have aligned yourself with radical extremists who hate America and you refuse to publicly denounce these radicals who wish to see America fail.

You scare me because you are a cheerleader for the blame America crowd.

You scare me because you want to change America to a European style country where the government sector dominates instead of the private sector.

You scare me because you want to replace our health care system with a government controlled one.

You scare me because you prefer wind mills to responsibly capitalizing on our own vast oil, coal and shale reserves.

You scare me because you want to kill the American capitalist goose that lays the golden egg which provides the highest standard of living in the world.

You scare me because you have begun to use "extortion" tactics against certain banks and corporations.

You scare me because your own political party shrinks from challenging you on your wild and irresponsible spending proposals.

You scare me because you will not openly listen to or even consider opposing points of view from intelligent people.

You scare me because you falsely believe that you are both omnipotent and omniscient.

You scare me because the media gives you a free pass on everything you do.

You scare me because you demonize and want to silence the Limbaughs, Hannitys, O’Relllys and Becks who offer opposing, conservative points of view.

You scare me because you prefer controlling over governing.

Finally, you scare me because if you serve a second term I will probably not feel safe in writing a similar letter in 8 years.

Lou Pritchett

There is No Keynesian Multiplier

2009-06-17T00:19:00.000-07:00

I know. The movement based in the religion of Keynes will defend to their deaths the honor of their oracle Sir John Maynard Keynes. Let me first say that when it comes to stimulus spending and the multiplier, I’m not saying that they’re completely wrong. Rather, I’m saying they don’t tell the whole story and in fact they only tell half of the story. Now let’s go through the entire story.

First, as explained by Larry Summers and the other Keynesians in the White House, if you give someone $100 dollars in the name of stimulus, they will go out and spend $100 more than they would have a priori the stimulus. For the most part, that’s true (though we can debate about the permanent income hypothesis); they will venture out and buy things. As a result of going out and purchasing stuff that they otherwise wouldn’t have, jobs will be created in the areas that are supplying them with goods/services that wouldn’t have been consumed without the stimulus. Those people providing the goods/services in turn end up having higher incomes, spend more and create employment opportunities in other areas of the economy. You can see how and why this is termed a “multiplier”. Keynes argued that these impacts cascade throughout the economy hence lifting it out of downturns.

Up to this point, I would mostly agree with Summers and the rest of his crew. But as mentioned earlier, the problem I have is that this is the end of the story as told by the Obama camp. That being said, let’s complete the story.

As Arthur Laffer often says when it comes to government spending, “the government doesn’t have a tooth fairy,” meaning that the government doesn’t just pull the resources needed for the stimulus spending out of thin air. When the government gives resources to a group of individuals on the basis of something other than work effort, then they have to take those resources away from someone else. So in effect, by taking those resources away from a subset of taxpayers in order to give them to another subset, then the government sets in motion a diametrically opposed multiplier of the same magnitude that works in exact opposition to the spending multiplier that the government is depending on to grow the economy out of recession. In effect, this multiplier will de-stimulate and dis-employ individuals who usually provide goods and services to the individuals who had resources taken away from them. These folks will then have less income and hence less to spend as they usually would have. You can see how this is the same story as told by the Keynesians advising Obama, just in reverse order and sign. For every dollar received, there is a dollar lost. In effect, the income effects net to zero. If you don’t think this is true, then simply sum up the Slutsky Equations of an economy and you’ll see that the income effects are zeroed out.

Now that the story is mostly told, there is just one piece left to tell. Although the income effects cancel each other out, substitution effects have accumulated over the entire spectrum of the stimulus spending. In short, incentives are destroyed and a wedge is created between wages paid by producers and wages received by employees. As such, incentives are diminished to workers and producers leading them to withdraw their productive capital from the market place leading to a further decline in GDP. In short, fiscal stimulus spending simply doesn’t stimulate, it actually causes the economy to contract even further. As common sense would connote, this isn’t helpful to any of us, especially to those struggling as a consequence of the economic downturn.

Hillarious! Young Con Athem

2009-06-13T21:13:00.000-07:00

A Couple of Interesting Charts

2009-06-12T14:27:00.000-07:00

The first chart I put together shows the decoupling of incentives from the sensible use of health care services. It’s obvious that out-of-pocket payments as a share of total national health care expenditures have been declining while the government and private insurance entities have been picking up more and more of the bill. Why be prudent with health care if you’re not responsible for the tab? It is for this reason that I have always been bullish on Health Savings Accounts (HSA’s).

The second chart simply demonstrates how the public sector has been GROWING while the private sector has been getting hammered. It’s never a good thing when government is growing while the private sector is concomitantly shrinking.

Barney Frank is a Dangerous Tool

2009-06-11T13:45:00.000-07:00

I'd love to hear Barney Frank try to say, "Six silent snakes suddenly slithered slowly southward." Just watch and you'll see what I mean.

Government Motors Did What???

2009-06-09T15:27:00.000-07:00

So, as of last Monday, June 1st, General Motors went into bankruptcy (well, sort of like bankruptcy), right? Not only did they finally go bankrupt, they did so after receiving an estimated $50 billion in tax payer funds. Well get this…as of three days ago GM gave the private equity firm Platinum Equity $2 billion to aid in the buyout of its bankrupt former parts unit, Delphi Corp. GM and Platinum also have decided to establish a secured term loan for the new company, with GM providing $500 million and Platinum $250 million.

This is crazy! It’s bad enough that the GM and Chrysler bondholder’s were kicked in the shorts with a blatant disregard for private contract law, and now this. Who gave the thumbs up for tax payer dollars to be used in a private equity buyout? Was it the President? Was it the Car Czar? Somebody had to O.K. this transaction given that we the taxpayers own 60% of GM. The problem is, I don’t remember casting a vote one way or the other as a shareholder nor do I remember this allocation of money being debated about in Congress. This is an unashamed usurpation of power and I'm sure our Founding Fathers are turning over in their graves.

In the words of Clark W. Griswold, "This is crazy, this is crazy, this is crazy! "

You can read the full article HERE.

Why Taxing the Rich Doesn’t Help the Poor

2009-06-08T00:14:00.000-07:00

In a recent Bloomberg article, the author outlines how President Obama and the rest of the Democrats want to tax the wealthy in order to subsidize a national health care program by capping deductions for high-income Americans. Brilliant! (insert cynicism here)

Let me explain why taxing the rich to help the poor will never work. Again, as I’ve repeated over and over, incentives matter. Nobody likes being taxed and whether one is Keynesian, a Monetarist, an Austrian, a Supply-Sider or some other variant of economic thought, they will all tell you that taxes create inefficiencies by creating a wedge in the market place. However, what most economists won’t tell you, especially Nobel Price winning Keynesians because they insist on analyzing a stochastic world using a static framework, is that the amount of revenue generated by taxing the wealthy depends on the elasticity of supply for taxable funds. All this simply means is that the wealthy have more options to get around the higher taxes as opposed to middle and lower income earners. If taxes are raised on the lower echelon of income earners, they simply have to suck it up and pay the higher tax leading to higher revenues flowing into the Treasury. This isn’t necessarily true for the wealthy.

Rich people have a lot to lose, on the margin, when their taxes are increased. They also have a lot more resources to work with in order to get around the new taxes. The wealthy, being rational, will expend monetary resources up to the point where those expenditures are less than or equal to the amount of money that would be lost given the tax increases. What do the wealthy do with the additional monetary expenditures? Well, they hire the best and brightest tax lawyers, accountants and other professionals to legally, and/or illegally, offset the new tax burden. As a consequence, many times the revenue accruing to the Treasury declines under a scheme of raising taxes on the wealthy leading to an under funding of projects intended to help the poor. This is not positive for anyone, especially the impoverished.

Understanding the elasticity of supply for taxable funds is necessary when examining tax policy designed to increase funds for government programs. This fact is always used as ammo against the Laffer Curve as it’s often cited that tax cuts don’t always increase tax revenues. Duh! When this fact is used as proof that the Laffer Curve is flawed, I just smile because I realize for some economists understanding the world is often so simple it’s hard.

No Mikey, Boy Penguins Can’t Lay Eggs

2009-06-06T21:06:00.000-07:00

I want to apologize up front for the rant you’re about to read. If you don’t like brutal honesty, you may want to leave.

Let me first say that I rarely care about social issues (I know that sounds bad, but it’s true). Freedom, liberty and economics are my passions and I believe that people have the right to do what ever the they want in their own lives as long as it doesn’t infringe on my life and my liberties. With that being said, I’ve had enough of California massacring the sanctity of the family.

In Alameda, a city conveniently located near San Francisco, the public school district is implementing a new curriculum that will require first and second graders to participate in an LGBT (lesbian, gay, bisexual, and transformer) curriculum where they will read literature that equates same-sex marriage with a family made up of a mom, dad and child. Here’s the kicker though, parents will not be allowed to opt their kids out of the curriculum. For example, second graders will be REQUIRED to read a book titled, “And Tango Makes Three”, which is about two male penguins who hatch an egg and raise a chick together in New York’s Central Park Zoo. Not only am I going to have to explain how two dads is NOT the same as a mom and dad, I’m going to have to set the record straight that boy penguins (or any bird for that matter) CAN’T lay eggs.

Another aspect of the program will include a discussion plan for yet another book entitled “Who’s In a Family?” and will instruct students to identify various types of familes they see in the book. Teachers are instructed and I quote,

“If a student responds that one family in the book is made up of a mother, a father, and two children and a cat, you may acknowledge that some families look like this, but ask students for other examples of what a family can look like.”

Just so it’s clear, I’m not advocating that they should get rid of the curriculum altogether (although I personally would); I just want parents to have the say as to whether or not they want their kids to participate in it. And, just to disarm the obvious ammo from the gay community when you disagree with them, I don’t dislike gay people, I’m not a bigot and I don’t kill puppies. The gay community has every right to enjoy the freedoms that this country holds dear. However, they don’t have a right to push their agenda on my family just like I don’t have the right to push mine on them. Like I said earlier, I don’t care what people do in their private lives. If Willy Wonka and Charlie want to do their business in the candy factory, fine! Just leave my kids out of it (though I don’t have kids yet, I do have a four year old brother and plenty of nephews and nieces). These types of issues should be settled in the home, not by agenda driven curriculum.

Again, I apologize for the outburst.

How BiCzar

2009-06-05T14:14:00.000-07:00

So, it’s official. President Obama has created more czars than the Romanov Dynasty whom ruled Russia from 1613 with the rise to power of Michael I through the resignation of Czar Nicholas II in 1917. All in all, there were a total of 18 czars created in a span of 300 years. In terms of the number of czars created by this administration, that number is at least 20 (that’s what I can officially count anyways; I'm sure there are more to come), and in only a span of a little over four months. Here are the various czars, in no particular order:

Technology Czar, Copyright Czar, Climate Czar, Energy Czar, Health Care Czar, Terrorism Czar, Education Czar, Economic Czar, Housing Czar, Mortgage Czar, Stimulus Czar, Intelligence Czar , Urban Affairs Czar, Car Czar, Cyber Czar, Border Czar, Drug Czar, Faith-Based Czar, Guantanamo Closure Czar and a Great Lakes Czar (I have no idea what this czar does) . In a cynical way I guess you could argue that there are at least 21 czars with King Obama being the Czar Czar.

While on the topic of specific czars, I have some suggestions: Governor Arnold Schwarzenegger as the Turn-Coat Czar, Octomom as the Pregnancy Czar, Snoop Dog as the Firshizzel Berdizzle Czar, Perez Hilton as the Gaydar Czar, ACORN as the We're all Nuts Czar, Sean Penn as the Bizzare Czar, Al Franken as the Daily Affirmation Czar, Paul Krugman as the Pseudo-Economist Czar, Dick Cheney as the Hunting Czar, Al Gore as the Hot Air Czar, Hillary Clinton as the Pant Suit Czar, Bill Clinton as the Intern Relations Czar, Henry Waxman as the Cheese Czar...I could go on for days humoring myself.

So back to reality, by definition a czar is an autocratic ruler who is unaccountable to the people, and in fact takes control of the people. As well, a czar only has to answer to one person; the person who appointed them. In this case they only have to answer to President Obama. Since when did this become a good thing? And I do realize that Presidents have always appointed czars, but just like the deficit spending, not at a rate that we are witnessing today. And to boot, these 20 people, who only have to answer to Obama, are in charge of managing $1.75 trillion. I don’t know what’s scarier, the fact that only 20 people are in charge of this amount of cash or the fact that $1.75 trillion doesn’t seem like a lot of money any more given the relative amount of money being spent. Talk about desensitization!

In any event, let’s give Obama the benefit of the doubt and surmise that he’s not shooting for complete socialism, but rather a social-capitalism hybrid like France. Well, here are some key metrics when comparing the U.S. to France over the last 30 years:

Average Economic Growth
U.S. – 2.9%
France – 1.9%

Average Per Capita Income
U.S. – $45,000
France – $33,000

Average Disposable Income
U.S. – $27,000
France – $18,000
*Data gathered from FRED and the OECD

It should be clear which economic model works best, but some folks don’t like to accept reality at the expense of losing popularity. It’s an old saying, but those who don’t understand history are condemned to repeat it, sort of like appointing czars.

Form vs. Substance

2009-06-05T00:32:00.000-07:00

I was just thinking about some of the conversations that I’ve had lately and want to make it clear that I’m not an Obama basher. He is my President and I have the utmost respect for the office. I guess what it comes down to for me is form vs. substance.

In terms of form, if I went to central casting and said, “I need a President that comes across more presidential than any other President in history,” I’d be willing to bet that you couldn’t fine a person more presidential than President Obama. He’s exceptionally well educated and his speeches (man they’re good), his ability to sell an idea and even more, his ability to close on that idea are superb! I know some may disagree with me, but I can’t help wanting to really like the guy, yet alone really respect him. I guess what it comes down to is that my dislike of his substance outweighs my love of his form.

In short, his collective economic policies and his foreign policies of bashing America and cow-towing to terrorists are so destructive, and will inevitably translate into real negative impacts on our economy, the global economy and our security as a nation. It doesn’t matter how much you like or respect a person, if they have a real hand in putting the economy and/or national security in the toilet you're not going to like them.

And just as a side note, even though he did inherit a world of crap and continued bad policies in terms of “stimulus” that President Bush started, he will have to take ownership of what he’s doing now. Bush started a bad thing by bailing out failing entities, but Obama has accelerated that activity at a rate never seen previously in this country, and he’s not even close to being done!

Why the Federal Stimulus Won't Stimulate

2009-06-04T01:06:00.000-07:00

Recently I co-authored a report for the Texas Public Policy Foundation where we outlined the negative impacts of the rampant “stimulus” spending that the current administration is engaging in. If you're interested in the details or simply need a good cure for insomnia, I would recommend reading the full report.

Click Here for Full Report

Chavez to Castro: Obama More of a Socialist Than We Are

2009-06-03T13:54:00.000-07:00

This is too rich. I dare say that if there is one person who can spot a fellow socialist it's Hugo Chavez. Check out this article as seen at Reuters:

CARACAS (Reuters) - Venezuela's President Hugo Chavez said on Tuesday that he and Cuban ally Fidel Castro risk being more conservative than U.S. President Barack Obama as Washington prepares to take control of General Motors Corp.

During one of Chavez's customary lectures on the "curse" of capitalism and the bonanzas of socialism, the Venezuelan leader made reference to GM's bankruptcy filing, which is expected to give the U.S. government a 60 percent stake in the 100-year-old former symbol of American might.

"Hey, Obama has just nationalized nothing more and nothing less than General Motors. Comrade Obama! Fidel, careful or we are going to end up to his right," Chavez joked on a live television broadcast.

During a decade in government, Chavez has nationalized most of Venezuela's key economic sectors, including multibillion dollar oil projects, often via joint ventures with the private sector that give the state a 60 percent controlling stake.

Obama has vowed to quickly sell off General Motors once the auto giant is back on its feet, but the government will initially control the company after a $30 billion injection of taxpayer funds.

Chavez, a vehement critic of the U.S. "empire," has toned down his rhetoric since Obama took office in January and the two men shook hands during a summit in Trinidad and Tobago in April.

You can't make this stuff up!

Solving Health Care by Taxing Health Care?

2009-06-02T16:56:00.000-07:00

So back in January I was doing some consulting for a hedge fund where the folks in the office frequently engaged in political and economics based conversations. I tried to distance myself from the conversations strictly surrounding politics, as they were often irrational in nature, but was often pulled into the conversations when they involved economic policy. During one of these conversations one of the folks asked, “Do you think Obama will really push for a national health care program during his first year?” My reply went something like, “Are you really asking that question…of course he will; he has to.” I then noted that he’ll probably even try to justify paying for it with a new tax on current health care benefits by including the value of health care provided by employers as taxable compensation of the employee. I was accused of throwing out such “silly” ideas simply because I didn’t like Obama. Well, guess who was right (not that I’m tooting my own horn…toot toot)?

It has recently come out that the administration won’t rule out (code speak for it’s a viable idea even though we opposed it during the election cycle) the possibility of taxing employee health care compensation, as well as eliminating the tax deductibility of contributions to health savings accounts in order to finance a national health care scheme. This, I assure you, would lead to the devastation of health care in this country. Please correct me if I’m way off base, but what makes sense about taxing the part of health care that is working to pay for a program that is doomed to fail? What is right about the federal government balancing their budgets by unbalancing mine? Why am I so certain that government run health care will fail? Let me answer that.

Government health care will fail for two reasons: 1. Incentives matter and 2. Even health care has to succumb to the law of scarcity. When rational folks and businesses make decisions they make them on the margin, i.e. should I work that extra hour or should I hire one more employee. When you put a tax on productive activities, you reduce output on the margin given the disincentives created, i.e. I’d rather go home to be with my family instead of working that extra hour. It is these types of decisions, on the margin, that trickle through to economic output; less input factors to the production process leads to a shrinking economy (unless there are overwhelming productivity gains which is unlikely in the short run). It’s that simple.

With the concept of scarcity, given the misallocation of resources by the government sector, a shortage of medical services is inevitable. As Milton Friedman once said, “If you put the government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.” And, what is fair about private physicians, who’ve invested heavily in the development of their human capital, having to keep their fingers crossed in hopes that the federal government will find their billing fees “acceptable” and reimburse them in full for services rendered. Since when are we so easily tolerant of bureaucrats dictating the level of success that one can achieve. With the feds in control of health care they will dictate the rules of the game and more than likely will limit the level of success that one can obtain in the medical profession. And, just like anything else, you as a consumer of health care get what you pay for.

It should be noted that I understand that parts of the health care system are broken. And, I’m well aware of what it feels like to traverse the road of medical tribulations. Employee based health care is not what’s wrong with the system. In fact, it’s one of very few aspects of the system that is working. One of my favorite quotes is from President Kennedy where he says, “…a rising tide lifts all boats.” What makes America great is we’ve always strived to provide opportunities to make the less fortunate rich (in money and health). This administration has adopted the policy that instead of making poor people rich, they’d rather make rich people poor.

The Words of A Prophet

2009-05-31T17:20:00.000-07:00

With today being Sunday I some how wanted to relate the environment in which we currently live with religion. Well, you must take 8 minutes out of your day to listen to these talks by Ezra Taft Benson and make those you know listen as well.

Whether or not you're L.D.S., these spoken words are prophetic. The obvious and egregious break down in moral and economic values is leading to the demise of our great nation. All great empires can fall if allowed to, so now is the time to unsheathe your swords and stand ready to fight!

How I See It...

2009-05-30T11:59:00.001-07:00

The most frequent question I've been asked as of late is, "How does this end?" The real answer is of course that I don't know; the best I can do is observe the policies being adopted by our federal government and simply draw conclusions. The matrix below is how I see it.

Click Image to Enlarge

My descriptions may be somewhat off, but given the current environment, COLUMN B happening is a pipe dream, so either way you look at it economic growth is screwed. Unfortunately, ROW B seems less and less likely meaning that outcome A-A is a real possibility. It won't be long (very near future) before this country is over nationalized, over regulated and over taxed. I'm excited, especially with the prospect of inflation!

Economic History via a Cartoon

2009-04-10T23:18:00.000-07:00

A good buddy of mine sent me this and supposedly it's an authentic political cartoon published in 1934. Good thing we're not doing the same thing...oh wait.

Monday Humor

2009-04-06T11:06:00.001-07:00

Lies, Damned Lies and Statistics

2009-04-04T15:59:00.000-07:00

We've all heard the recently cited statistic by Secretary Clinton and others in the Obama administration that 90% of the guns in Mexico come from the U.S. Well, that's totally false. It's more like 17%. There’s nothing like agenda driven "facts".

Such twisting of the data reminds me of what Mark Twain said, "there are three kinds of lies: lies, damned lies and statistics."

Economics Explained via South Park

2009-03-30T12:15:00.000-07:00

Totally relevant, irreverent and right on.

A Debased Prime Minister

2009-03-25T18:05:00.000-07:00

We need this guy in Washington, D.C.

Here, here.

Obamanomics and Charitable Donations

2009-03-25T17:32:00.000-07:00

I’ve been desperately trying not to reach the level of name calling and putting down ones intelligence, but I need to say it. Obama is a mental midget when it comes to economics (to be politically correct, insert mental little-person where appropriate)! What was the final straw that pushed me to the point of questioning the man’s economic acumen? Well, there are many but for the sake of time I will only address one.

Last night during the President’s, yet another, primetime press conference, he was asked if he thought reducing the eligible tax deduction for charitable giving on the wealthy would impact the amount of realized charitable donations. Obama said that "there's very little evidence that this [tax deduction] has a significant impact on charitable giving." He continued to defend his position with nonsensical rhetoric that can be seen below (the conversation starts at 3:40).

So let me get this straight, taxes have very little impact on the actual amount of charitable giving because people and businesses, alike, always give to charities for unadulterated, altruistic reasons? Well if taxes don’t matter, then I’ve got a solution as to how we can solve the poverty problem plus finance the wild spending we see coming out of Washington.

Under Obama's assertion that taxes don’t matter, the government should levy a gagillion percent surcharge tax on any donation made as opposed to letting the giver take a tax deduction. So if you donate a hundred dollars, then you’ll actually have to pay a hundred dollars plus a gagillion percent of that hundred dollars. In fact, why not just impose an infinite tax rate and raise an infinite amount of tax revenue? That should work seeing as how tax policy isn’t the “determining factor as to whether you’re giving that hundred dollars to the homeless shelter down the street.", right?

Way to go Mr. President! While you’re providing lip-service to the less fortunate among us, you’ve at the same time reduced the actual charitable resources flowing to the very same people you purport to help.

I Want to Work for the Government

2009-03-25T16:02:00.001-07:00

I've found a cure to heal one's worries about losing their job...just work for the government (the chart is easier to see if you click on it).

Need I say more?

Possibly a Good Sign from the White House

2009-03-22T16:10:00.000-07:00

I’ve had various interactions with Jared over the course of my short, professional life as an economist and rarely, if ever, agree with what he has to say, but here he gets it exactly right. The good news is that he has the ear of the President and Vice President, so let’s hope they listen to him on this issue.

The Tenth Commandment

2009-03-22T14:25:00.000-07:00

While sitting at my desk this afternoon, I found myself reflecting on the envious, populist mentality that is running rampant throughout our country, more specifically towards the financial community and the so called “Wall Street Fat Cats.” Probably because it’s Sunday, the tenth commandment popped into my head. As it appears in Exodus 20:17,

“Thou shalt not covet thy neighbour’s house, thou shalt not covet thy neighbour’s wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that is thy neighbour’s.”

I’m pretty sure that the above includes not coveting thy neighbor’s salary and bonuses too (though I don't want to be mistaken for putting words into God's mouth).

This sort of resentful thinking isn’t new though. It was the basis for the doctrine created by Karl Marx. Henry Hazlitt, a prominent Austrian economist, sums it up beautifully.

"The whole gospel of Karl Marx can be summed up in a single sentence: Hate the man who is better off than you are. Never under any circumstances admit that his success may be due to his own efforts, to the productive contribution he has made to the whole community. Always attribute his success to the exploitation, the cheating, the more or less open robbery of others. Never under any circumstances admit that your own failure may be owing to your own weakness, or that the failure of anyone else may be due to his own defects - his laziness, incompetence, improvidence, or stupidity."

Regrettably, today we are seeing this sort of extreme envy and coveting institutionalized by the suits in Congress and the White House.

What's a Trillion Dollars

2009-03-20T19:58:00.001-07:00

So with all this talk of a trillion dollars here and a trillion dollars there, I decided to do some number crunching to put this value into perspective.

Assuming the average U.S. citizen lives until the age of 78 (the current overall life expectancy in the United States) and assuming that the average person sleeps 6 hours a day, one would have to spend about $1.95 million every waking hour from the time of birth to exhaust a trillion dollars. When accounting for an average annual inflation rate of 2.5% over the 78 years, one would still have to spend roughly $876,000 every hour that one is awake and breathing.

As a side note, the CBO projected today that if Obama’s budget were approved, as unveiled last month, the federal government would incur a cumulative deficit of $9.3 trillion from 2010 to 2019.

Useless information, but I thought it was interesting nonetheless.

House Violates Constitution?

2009-03-20T07:38:00.000-07:00

A good case can be made that the 90% tax rate on bonuses received by AIG violates Article I, Section 9, paragraph 3 of the U.S. Constitution that declares: "No Bill of Attainder or ex post facto Law will be passed." Also, as noted by James Madison in Federalist Number 44,

"Bills of attainder, ex post facto laws, and laws impairing the obligations of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. ... The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less-informed part of the community."

Scary stuff, but again I'm not a lawyer. I'd love to get comments from those who are.

This About Sums it Up

2009-03-18T18:22:00.000-07:00

A good friend of mine sent this to me and I think it sums things up perfectly.

“The United States government today announced that it is changing its national symbol to a CONDOM because it more accurately reflects the government’s political stance.

A condom allows for inflation, halts production, destroys the next generation, protects a bunch of pricks and gives you a sense of security while you're actually being screwed.”

AIG and Bonuses

2009-03-16T19:14:00.000-07:00

Just a quick comment on this matter. Do the derivatives traders at AIG deserve bonuses? Obviously and emphatically NO! Do we as taxpayers have a right to be pissed? Absolutely. But the real question that one has to ask themselves is why didn’t the government conduct even a little due diligence before deciding to take $170 billion stake in AIG? Perhaps they rushed in to it. It reminds me of something that Dr. Laffer has always said, “decisions made while panicked, or drunk, rarely have desirable consequences.” I personally spent more time conducting research while shopping for a new toaster oven than Congress did when deciding to invest billions of taxpayer dollars. This sort of matter should have been resolved a priori the capital investment by making the renegotiations of these bonus contracts in question a mandatory requirement to the terms of the deal. These clawback, populist policies being bantered about by the administration, congress and the talking heads on TV would more than likely violate private contract law (though I’m not a lawyer) and whether the bonuses are fair, unfair and/or even moral has nothing to do with it. The irony is that if the feds had allowed AIG to enter into Chapter 11 bankruptcy proceedings, all of these bonus contracts could have been abrogated as part of the business trying to rehabilitate and reorganized its books.

If the President has his way and abrogates these private contracts, then a negative signal of further deterioration of private property rights will be sent to the capital markets further obstructing the flow of private capital; just my opinion though.

How I Feel...

2009-02-24T18:31:00.000-08:00

As I'm watching Obama speak tonight about the economy and how he plans to fix it -- which includes the disastrous $787 billion American Recovery and Reinvestment Act of course -- one movie scene comes to mind that explains perfectly how I feel.

GoodFellas and the Laffer Curve

2008-06-17T01:37:00.000-07:00

The Laffer Curve has been around for quite some time and graphically displays the interactions between tax rates and tax revenues. The renowned curve visually demonstrates the straight forward idea that between 0 and 100 percent there are two tax rates that will generate the same amount of tax revenue to the government – a low rate on a broad base or a high rate on a small base. Understanding that people respond to incentives is key to understanding the Laffer Curve. When tax rates are high people’s incentives to work, produce and otherwise generate taxable income is low. While government may collect a huge share of each dollar of income generated, the volume of income is low. And following the same logic, when tax rates are low, taxable income is high. Yet somehow these fundamental economic certainties have eluded and been misunderstood by many.

Sicily is known for being the citadel of organized crime dating back hundreds of years where incentives are dictated by the Mafia to generate revenues for the Mafia. Incentives such as baseball bats applied to kneecaps were the methods of choice to encourage customers to pay. Now the weapon of choice appear to be lower “protection fees.” As a result the Mafia has created a pro-growth environment where they have expanded their “client” base, convinced existing “clients” to work more and increased revenues stemming from extortion based activities. First it’s the collapse of Communist Russia turning into a flat-tax phoenix and now the Mafia itself. When will the neo-conservative trend end?

Modern day mobsters have realized that offering carrots will get the carriage moving a lot faster than pulling out the whip. They have decided to use supply-side economics as their newest method of persuasion. The results have been positive in a perverse sense and have brought a tear to the eye of the Capo de tutti Capi.

Laffer Curve Fundamentals

The basic idea behind the Laffer Curve is that there is a relationship between tax rates and government revenues and that a change in tax rates can affect the level of revenues accruing to the government. When tax rates are cut, or raised for that matter, there are two effects that a tax rate change will have on total revenues. The first effect is the arithmetic effect and is simply the change in tax revenues per dollar of tax base given a change in tax rates. If tax rates are lowered, tax revenues per dollar of tax base will be lowered by the amount of the decrease in the rate.

The second effect is called the economic effect, which demonstrates that individuals respond to incentives. The higher the tax rates are, the less will be the incentive for people to engage in the taxed activity. Therefore, when tax rates are cut people will be more inclined to engage in the taxed activity triggering a pro-growth environment where workers are more inclined to work, employers to employ and producers to produce. Thus, a tax rate cut will result in a broader tax base which in and of itself would lead to more tax revenue.

Now the arithmetic and economic effects always work in opposite directions and, a priori, it is not quite clear whether total revenues will increase or decrease in conjunction with a tax cut. But in an environment with excessively high tax rates it is more likely that a reduction in tax rates will cause the economic effect to dominate the arithmetic effect, leading to an absolute rise in total revenues. The arithmetic effect is more likely to dominate when tax rates are low.

The same underlying concept can be applied to other aspects of the economy, or even organized crime in this case. Instead of viewing the concept of the Laffer Curve within the construct of tax rates and government revenues, it can be used to understand how lower extortion rates can lead to an increase in the Sicilian Mafia’s “client” base and in turn an increase in revenues from illegal activities.

The diagram below is a graphic illustration of the concept of the Laffer Curve - Mafia style. At an extortion rate of 0% the Mafia will obviously collect nothing in terms of extortion-based revenues. Likewise, at an extortion rate of 100%, the Mafia would also collect zero in revenues because no one would be willing to work for an after-extortion paid wage of zero – there would be no “client” base. Between these two extremes there are two extortion rates that will generate the same amount of revenue: A high extortion rate on a small “client” base and a low extortion rate on a large “client” base.

Everybody Pays, Everybody Pays Less

“Pagare tutti, pagare meno” seems to be the motto of modern day organized crime and loosely translated it means, “everybody pays, everybody pays less.” This is supply-side inventiveness. Apparently the Mafia has been setting rates in the prohibitive, or “Nice Guy”, range of the Laffer Curve because they have in fact widened their client base and increased their revenues by reducing their extortion fees, or “pizzo” as the Sicilians call it.

The Mafia can be thought of as a miniature government, and the extortion fees charged can be thought of as a tax. The only real difference between the federal government and the Mafia is that the federal government doesn’t send Vito after you with a tire iron if you avoid paying your taxes. Rather, the government sends lawyers, prosecutors and bureaucrats. Which is worse, I am not sure. The fundamentals of the Laffer Curve can be applied directly to the confined economy that exists within organized crime and, not to our surprise, the effects of lowering extortion rates on neighborhood “clients” are exactly the same as when tax rates are reduced on the citizens of a nation.

In the past the Sicilian Mafia ran a tight ship, as in if you don’t pay you will end up becoming best friends with a cinder block and a large body of water. As of late it seems that the Mafia has had either a change of heart or mass doses of sensitivity training. When Mafia bosses catch wind that a “client” is not happy and is considering flipping state’s evidence, they no longer have that person and/or his gene pool eliminated but rather send “diplomats” to listen to the disgruntled individual in order to keep them within the customer base. The Mafia’s “customer service representative” will assuage the unhappy individual by lowering the extortion rates that the person has to pay. At the lower rate the individual no longer feels asphyxiated by the excessive extortion fees and finds it more opportune to work more and deal with the Mafia as oppose to avoiding them. Hmm…does this sound familiar?

But have the “tough guys” really become soft around the edges? The answer is probably not. In fact the Mafia is not lowering the rates charged to be philanthropic or to all of a sudden be nice, but rather to generate more income. The leaders of organized crime have obviously been brushing up on their economics because they figured out the basics of the Laffer Curve – if extortion rates are lowered then “clients” will work harder, there will be a broader base to extort and in turn there will be equal if not increased extortion based income. The new strategy is simply to lower rates and cast the net of protection across a wider area, even to include the smallest of shopkeepers.

Surprisingly a lot can be learned from the Mafia’s example. Incentives are a very powerful tool and people definitely do respond differently to positive versus negative incentives. When negative incentives are created because of poor policy, individuals avoid the situations that are creating those incentives. The exact and extreme opposite is true when positive incentives are the result of pro-growth policy.

It seems as though the contemporary “tough guy” has smartened up and become a practitioner of the supply-side doctrine. As such, it appears that the Mafia truly is comprised of nothing but “wise guys.” Unfortunately Washington is not.

Recycling Bacon and Hunting for Polar Bears

2008-06-15T19:23:00.000-07:00

I’ve recently decided that though I love planet Earth, I will never become an environmentalist. The reason is simple…it is no longer a way of doing things, rather it has become a theological bureaucracy. There is no such thing as two way dialogue with an environmentalist because if you somewhat disagree with the movement, especially with the global warming alarmist, then you must hate the planet, not care for future generations and want to kill puppies. I’m being sarcastic (somewhat), so let me keep it going to illustrate a simple concept: incentives matter.

As humans were are innately programmed to do things that are in our own self-interest. For individuals we are driven to maximize our consumption at the lowest cost, and for businesses it’s to maximize profits given certain constraints. By doing such, as individuals and businesses, we maximize the greater good. Not a new concept, just read the “Wealth of Nations” by Adam Smith. The reason is simple; no two parties will engage in a transaction unless both parties benefit. There are certain situations where this is not the case, when there is an asymmetry of information for example, but for most of the time it is. Let’s apply this to the environment, more specifically, recycling paper and protecting polar bears.

There are numerous facilities and individuals who are huge advocates of recycling paper. Why? Duh, it’s obvious isn’t it? To reduce the number of trees harvested in order to make paper based products, hence saving the planet's forests. On the surface this logic seems correct, but let’s drill down a bit further. Paper companies have an incentive to make sure that there are always an abundance of trees because trees are the primary input in the production function for paper products. Given a specific quantity demanded, paper companies will harvest trees and convert those trees to the various paper products to sell for a profit. They will then replant knowing that they will need trees in the future to keep up with demand. If demand falls, due to all of us recycling, then the incentive to replant is somewhat diminished given the fall in demand for their products, hence, a fall in the total number of trees on the planet.

Let’s apply the same logic above to bacon. What if we could recycle bacon (I know it sounds gross, but bear with me)? Well, the demand for pigs would surely fall. The farmer, trying to keep costs in line with the new demand function for bacon, would reduce the number of pigs raised and maintained. The farmer’s incentive to raise pigs is diminished due to the fall in demand for bacon leading to an overall fall in the quantity of living, breathing swine. Why would the same not be true for trees when there is a fall in demand for paper?

A major, heart-tugging example of the consequences of global warming is the claim that polar bears are going extinct (I don’t know if this claim is true). The solution for this is simple. Privatize the existence of polar bears and sell hunting permits, with seasonal limits of course. The entity turning a profit by selling the hunting licenses will always make sure that polar bears exist. I know someone is thinking, what about the free rider problem i.e. poaching? First, the existence of polar bears would be privatized meaning they are no longer a public good and second, poaching would exist with or without a market for polar bears, so it’s a bad argument. Giving property rights over the world’s supply of polar bears would ensure that they thrive in numbers. If you don’t believe me, let me know when deer go extinct. Now I’m obviously being cynical with this example, but the point should be clear…incentives matter. Plus, I subscribe to the belief that anything cute and furry shouldn’t be hunted yet alone eaten.

Simply to conclude, I think we would all agree that a cleaner planet is better than a dirtier one. The question is how do we get there while minimizing the unintended consequences? And, by the way, it’s not via Crap, I mean Cap, and Trade. I’ll post on that later.

The Laffer Curve: Clearly Explained for Those Who Distort It

2008-06-13T13:51:00.000-07:00

I’ve never come across such a simple economic concept that is as distorted and misrepresented as the Laffer Curve. It truly is one of the most misconstrued ideologies in all of economics and both sides of the aisle are guilty of misrepresenting Laffer’s philosophy. So, let me explain.

Dr. Arthur Laffer has never postulated that ALL tax cuts ALWAYS increase tax revenues. What Laffer states is that the over taxation of a resource renders it less productive and that, in fact, there are cases where relieving the tax burden on that resource can increase its productive capacity, i.e. people don’t work to pay taxes and incentives matter. He will be the first one to admit that the Laffer Curve is not solely his idea and will gladly cite Ibn Khaldoun (1332-1406 A.D.) and John Maynard Keynes, both of whom postulated the same idea before he did. Now in regards to the belief in cutting taxes and increasing revenues, well, that depends on the elasticity of supply of taxable funds. The wealthy are much more sensitive to changes in tax rates because they have the resources to, legally and illegally, offset the new tax burden associated with higher tax rates. Normal folks in the middle don’t have that luxury and simply have to “eat” the new tax burden. The Robin Hood mentality of taxing the rich to give to the poor will never work because of this inescapable fact. Cutting some taxes increase revenues while cutting other taxes decrease revenues. Let me be clear, not all tax cuts increase revenues, especially with where the tax rates are currently. However, I've never heard of taxing a country into prosperity.

I’m sure there will always be plenty of folks who will continue to distort the Laffer Curve. But, I’m willing to bet that it will be by those who are married to a specific school of economic thought or political ideology and are afraid to play outside of their sandbox. The world is not a vacuum and the static analysis of the Laffer Hypothesis by those who disavow it is lacking at best.

The Role of Speculators: They’re not the Bad Guys

2008-06-12T19:44:00.000-07:00

Recently in the media there has been an over abundance of talking heads who want to run speculators out of the futures market in order to stem the rising price of oil. It is apparent that these folks skipped Econ 101, but took Econ Dumb-01 and truly don’t understand the role that speculators play. I’m not going to get too deep into how a futures market operates, so keep your eyes open and try not to fall a sleep.

A futures market is a highly regulated auction style market where market players buy and sell commodity, and soon to be service (click here for details), based futures contracts for the delivery of an underlying good on a specified future date. Futures contracts are not the same as forward contracts and differ in a few ways. While both futures and forward contracts are contracts that promise to deliver an underlying commodity at a future date, forward contracts are traded over-the-counter while futures contracts are always traded on an organized exchange. Futures contracts are highly standardized and are rebalanced mark-to-market while forward contracts are not. With futures contracts being marked-to-market daily, they are less suceptible to the credit risk associated with forward contracts as the spot price deviates from the contract price. Also, in terms of delivery, the short position on a forward contract makes delivery to an entity specified in the contract, while in a futures market there is a clearinghouse that facilitates the exchange (most futures contracts are settled with cash).

Inherent in any business environment there is risk associated with the supply and demand for goods and services. These businesses use the futures market to hedge against this risk. For example, a portfolio manager may hedge against future losses in the stock market by shorting stock index futures. Farmers, not knowing what the future prices will be for their crop at the time of planting, can sell off their inventory for a guaranteed price today and then deliver it at the time of harvesting. They are willing to potentially take losses, if there is a drastic fall in supply at the time of delivery, in order to remove the volatility in prices for their crop. On the other hand they are protecting themselves from a drop in prices if there happens to be an overabundance of crop supply at the time of delivery.

Now, an important fact about futures markets is that they are a zero sum game, i.e. the gains to the winners accrue from the losses from the losers. What this means is that a futures market wouldn’t function if the only market players involved wanted to simply unload risk. There has to be players that are willing to take on risk, i.e. provide liquidity. This is where speculators come in. Speculators are willing to put their capital at risk, for a price, hence providing liquidity to the market. To boot, the more competition among these speculators decreases the cost of hedging for those trying to protect themselves from downside risk. Also, the presence of many speculators allows events to be priced into the market for the underlying commodity virtually in real-time. The more transparency a market has, the more efficiently it will operate.

Rational speculators, those who don’t continually buy high and sell low, actually provide an equalizing force in the market place by providing liquidity and contributing to price discovery, and are critically essential for free markets. They are not a destabilizing force as argued by many, and running speculators out of the market is not the answer to sky rocketing oil prices. If we want to bring oil prices down, then we should explore for oil domestically and increase domestic refining capacity, thereby, increasing the supply while concomitantly removing the intrinsic political risk associated with doing business in the Middle East. If we want to transition to alternative energy sources, then nothing should be done about the price of oil. It should be allowed to climb as high as we are willing to pay. At some maximum substitution effects will dominate consumptive behavior and the evolution away from oil will take hold.

The Toyota Pious and Substitution Effects

2008-06-11T01:00:00.000-07:00

Living out here on the “left coast” I can’t but help notice all of the new and improved hybrid vehicles traversing the roadways. The technology is way cool and the underlying concept should be applauded. But are these new contraptions really helping solve the problems that they were designed to address…i.e. the transition from petroleum based energy sources to other, more eco-friendly renewable energy sources? I’m not so sure.

As humans we have a tendency to make changes only as a matter of dire necessity. It is probably one of mans greatest flaws, but it is hard wired into our being. Now don’t get me wrong. I don’t have a problem taking pre-emptive measures to perceived problems; however, often externalities exist that are diametrically opposed to the problems at hand. Let me explain with a well known example involving mandatory seat belt laws.

Around 1985 the government felt that too many people were unnecessarily dying in automobile accidents. As such, the birth of mandatory seat belt laws became widespread in this country. The idea sounds great. The results, not so great. Because more people were now wearing seatbelts, incentives were created that enticed people to drive more recklessly (this is sometimes referred to as risk compensation). As a result there have been more automobile related deaths, not less. The interesting thing, however, is that the group that felt the impact the most were those not even in a vehicle. It was pedestrians getting clipped in crosswalks that bore most of the brunt. On a side note, one economist said that if you really want to decrease the number of car related deaths then we should mount daggers on the steering wheels of all cars pointed directly at the driver’s heart. There is no doubt that drivers will then drive carefully. This example is extreme, but the point clear. Unless the incentives are strong enough, most behavioral modifying solutions don’t work. In fact, they often make things worse.

Well, having said all that, the question that I have is whether or not these new vehicles are speeding up or slowing down the transition to alternative energy sources. I dare say these cars may be “slow bleeding” the evolutionary process. If we are really going to make an adjustment away from oil, then we are going to have to run out of it, plain and simple. As supplies become even more scarce, prices will further rise (unless we drill, drill, drill) and that is when real substitution effects will take place. Then, and only then, will the incentives be strong enough to guide us towards the use of alternative energy sources.

As such, in the name of energy independence and environmental protectionism, I am going to continue driving my truck with the pedal to the metal, using the A/C to cool the neighborhood and may even leave a couple lights on to boot.

So True...

2008-05-04T16:38:00.000-07:00

The IV Stumbling Blocks to Truth

2008-04-15T12:57:00.000-07:00

I. The influence of fragile or unworthy authority
II. Custom
III. The imperfection of undisciplined senses
IV. Concealment of ignorance by ostentation of seeming wisdom

Obama Gets Another Endorsement

2008-02-19T19:02:00.000-08:00

Yes, it's true that Barack Obama has picked up yet another endorsement. Unlike Oprah, this one actually means something. His newest endorsement comes from Nicaraguan dictator Daniel Ortega, who referred to Obama's presidential bid as a "revolutionary" phenomenon in the United States. On another note, now that Fidel Castro has instituted a self-imposed term limit ending his reign as Cuba’s tyrant, maybe we could get an Obama/Castro ticket this November. It would be like an Obama/Clinton ticket, minus the cackle.

Click here to read full story

Questions for Barack Obama

2008-02-12T19:50:00.000-08:00

In conversations with friends, I've made the assertion, sometime last year, that Barack Obama will be our next President. This is not what I consider to be optimal by any means, but Obama has a messianic following while at the same time having very little substance or any real accomplishments associated with his candidacy. It is quite amazing and frightening at the same time. As I was sitting listening to one of his campaign speeches tonight, I compiled a list of questions that I would honestly want to address him if given a chance. Here they are:

1. Are you aware that Exxon Mobil’s tax liability for 2007 is $30 billion (a tax rate of roughly 41%)? Given that Exxon Mobil pays as much in taxes annually as the entire bottom 50% of all individual taxpayers and that the tax rate for the bottom 50% is only 3% of adjusted gross income, can you really take more money from these guys on the basis of “fairness?”

2. Can you run through the logic on how you are going to keep jobs here in the U.S., while concomitantly raising the corporate income tax rate on domestic businesses and campaigning against free trade? And, do you really think it is wise to raise taxes on capital gains and dividends?

3. Are you worried about how small business owners will be impacted if you rollback the tax cuts for the wealthiest 1% given that some small business owner's revenues are passed through and taxed on the personal income level? In your view, is a small business owner who earns $250,000 a year the same as an individual who earns $250,000 a year?

4. Since you are so ethusiastic about raising taxes on the wealthy, have you ever paid more to the IRS than required by law? There is an option to pay more to the IRS if an individual feels the need to do so.

5. How do you plan on paying for all of the entitlement programs that you’ve outlined given that the only source of revenues you’ve mentioned would come from letting the Bush tax cuts expire on the wealthy? And, are you aware that the supply of taxable funds supplied by the upper 1% echelon of income earners is extremely elastic, meaning you can’t raise taxes on this group and expect to raise revenues. The opposite is true for middle income tax payers. If you cut taxes for the middle class you will lose revenues. So, raising taxes on the wealthy while at the same time cutting taxes on the middle class will surely lead to a fall in revenues accruing to the federal government.

6. How can you be certain that the creation of an industry focusing on green technologies will lead to the creation of millions of jobs? How would you address the real phenomenon of creative destruction? Meaning, it may be true that the creation of a new, green based industry will lead to job creation, but what about the jobs in the “old’ industries that are rendered non-existent. For example, what is the net effect on jobs if oil refinery workers lose their jobs while others are hired to harness the green energy from jelly bean fields? Have you conducted any dynamic analysis?

7. Do you agree with the following quote, “from each, according to his ability; to each, according to his need?” If so, do you know who said it? (Karl Marx)

If anyone can provide an answer to the above as a proxy for Obama, I'm all ears. I may just be ignorant to the issues and am always looking to be enlightened.

Tax Rebates Are Dumb

2008-01-31T18:11:00.000-08:00

I know, the title is immature, but it was the first thing that came to my mind. The economic stimulus bill that made its way through the House and is currently in the Senate will be ineffective in stimulating anything, except for popularity polls. The plan as passed via the House is a $146 billion package that will give a “rebate” check to millions of Americans. If you are an individual or married filing jointly making less than $3,000 and didn’t pay any income tax, you will get a “rebate” of $300 if single or $600 if married. Additionally, if you have children you will get an additional amount roughly around $300 for each child. Now, if you are single but making less than $75,000 or married but making less than $150,000, you will get a check for the amount of $600 and $1200 respectively. Again, you will also get an additional injection of $300 for each child that you have. Now for the people who make over $75,000 and the married households who make over $150,000, you get zilch (btw, $75,000 in Butte, MT is not equal to $75,000 in San Diego, CA).

So this sounds like a great way to inject some liquidity into a sluggish economy, right? Wrong. To put it simply, it doesn’t work. We’ve played this game before and inevitably the results are the same; people don’t change their consumptive behavior when incomes are transient. On average, using historical figures, only about 33% of folks who get their rebate checks actually go out and spend it, i.e. buy TVs, DVD players, car accessories, etc. The remaining 66% of households either pay down debt or put it in savings. But for the sake of arguing the other side, let’s assume that the inverse is true and that 66% of people go out to their local shopping centers and spend it while only 33% pay down debt or increase savings.

Fourth quarter GDP, as reported by the BEA, is roughly $14 trillion dollars. The amount of cash pumped into the economy if 66% of people actually spend their money will equal $96 billion dollars. So what this equals is a 0.69% increase in GDP (ignoring the velocity of money). If you really want to stimulate capital formation and the economy as a whole, then cut the capital gains tax, the corporate income tax, the personal income tax and/or accelerate capital depreciation for businesses. These policies would be much more effective as opposed to these archaic demand-side policies.

Finally, let me quibble with the definition of a “rebate.” A rebate is defined as, “a return of part of the original payment for some service or merchandise; partial refund.” So calling these "refund" checks “rebates” is a farce. It reminds me of a question posed to President Bush and I quote, "How can somebody get a "rebate" if they didn't put any "bate" in?" Good question. All in all the proposed stimulus plan is nothing more then taking money out of one pocket and putting it in the other. Not a winning policy for anyone.