Paul Hsieh (M.D.) has some thoughts on the inevitable issues with “universal health care.”
Category Archives: Economics
A New New Deal?
Tyler Cowen has some history:
The good New Deal policies, like constructing a basic social safety net, made sense on their own terms and would have been desirable in the boom years of the 1920s as well. The bad policies made things worse. Today, that means we should restrict extraordinary measures to the financial sector as much as possible and resist the temptation to “do something” for its own sake.
In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives.
There was also this little item that caught my eye:
A study of the 1930s by Christina D. Romer, a professor at the University of California, Berkeley (“What Ended the Great Depression?,” Journal of Economic History, 1992), confirmed that expansionary monetary policy was the key to the partial recovery of the 1930s. The worst years of the New Deal were 1937 and 1938, right after the Fed increased reserve requirements for banks, thereby curbing lending and moving the economy back to dangerous deflationary pressures.
Why?
Because of this news:
ABC News has learned that President-elect Obama had tapped University of California -Berkeley economics professor Christina Romer to be the chair of the Council of Economic Advisers, an office within the Executive Office of the President.
It seems like a much better pick than those of us concerned about an FDRophilic president could have expected. Maybe we won’t replay the thirties.
The Worst And The Dumbest
Remember that civics test? Well, this should inspire confidence in our political “leadership”:
US elected officials scored abysmally on a test measuring their civic knowledge, with an average grade of just 44 percent, the group that organized the exam said Thursday.
Ordinary citizens did not fare much better, scoring just 49 percent correct on the 33 exam questions compiled by the Intercollegiate Studies Institute (ISI).
But they did fare better. What does this say about our so-called “elites”? Forget about a literacy test for voters. How about one for candidates?
I Only Missed One
I scored 32 out of 33 on this test (I missed the last one–Doh!). Unfortunately, most people don’t do that well.
I really think that we should bring back literacy tests for voting. They shouldn’t have gotten rid of them because they were being used to racially discriminate–they should have just ended the racial discrimination.
[Friday evening update]
I have to say that readers of my blog, even the non-USians (or at least the ones commenting), are way ahead of the curve. Nice to know.
“Bold Experimentation”
Jonah Goldberg explains why we should fear that Barack Obama will emulate Franklin Roosevelt:
there can be a chasm between being right and merely appearing to be right. Why anyone stakes greater value on the appearance than reality is a mystery to me.
But as Obama clearly recognizes, that was a big part of the FDR magic. FDR came into office promising “bold, persistent experimentation” — and delivered. Raymond Moley, an early member of FDR’s “brain trust,” saw the New Deal for what it was. “To look upon these programs as the result of a unified plan was to believe that the accumulation of stuffed snakes, baseball pictures, school flags, old tennis shoes, carpenter’s tools, geometry books and chemistry sets in a boy’s bedroom could have been put there by an interior decorator,” Moley wrote later.
Yet Americans thought it was all part of a plan, even though experimentation and planning are in fact near opposites. Why? Because FDR always projected such confidence, even as he made things worse. But this isn’t another column about how FDR prolonged the Depression. Been there, done that. I’d rather be forward-looking.
In fact, I want to be experimental, too. So here’s my idea: Just stop.
Stop talking about bailouts and stimuli. Stop pondering ever more drastic action. Give it a rest. Let it be.
One of the main reasons there’s all of this “money on the sidelines” out there among private investors is that Wall Street doesn’t know what the government will do next. Will it bail out the auto industry? The insurance companies? Which taxes will go up? How far will interest rates go down? How long will the federal government own stakes in the banks? Will more stimulus checks go out? If so, how big will the deficit get?
Don’t just do something–stand there!
One of his readers says that this also explains the current market volatility:
Free market economics involves the application of immutable laws, and it’s those laws that allow us to forecast the effect of current events on various companies and the stocks and bonds they’ve issued. But investors will only play the game if they believe the rules aren’t going to change in the middle. When government begins ‘experimenting’, it makes it harder for investors to generate a long term forecast. This drives long term investors away from the market, or converts them into short term traders. The result is a massive increase in volatility as investors shorten their investment outlook because they can’t predict what’s going to happen far enough into the future.
Volatility is an indication of instability. It’s not a sign of a healthy economy but of an economy which has lost its way. High volatility isn’t what you expect from the worlds largest market, but from the emerging economy of a third world country. As you can see from the attached chart, when Roosevelt began his ‘bold persistent experimentation’ it drove away long term investors and that caused volatility to dramatically increase. It will almost certainly have the same effect when Obama does it.
Since he’s so determined not to learn from the mistakes of the past, I would expect him to repeat them. I’m betting that his poking and prodding will add to unemployment, reduce economic growth, and wreak havoc with the federal deficit. There is little doubt that he’s the wrong man at the wrong time. I’m just hoping that he is as devoid of principles as the Clintons, and that he finds a way to break his campaign promises or we’re in for a long painful recession, and maybe worse.
We can only hope, since we lost an opportunity to do any more than that a couple weeks ago.
A Corrective
…to the charlatans like Jim Hansen. Here are two useful books. First, Cool It
Yup. As many reviewers note, “climate change” isn’t really about science–it’s just the latest ideology to come along for the collectivists to use in their latest attempt to bend us to their will.
No Bail Out
Here’s a fellow Flintite (Flintian) explaining why her former employer shouldn’t be bailed out:
The strength of the union and the weakness of management made it impossible to conduct business properly at any level. For instance, I had an employee who punched in his time card and then disappeared. The rules were such that I had to spend hours documenting that this man was not in his three foot by three foot work area. I needed witnesses, timed reports, calls over the intercom and a plant wide search all documented in detail. After this absurdity I decided to go my own route; I called the corner bar and paged him and he came to the phone. I gave him a 30 day unpaid disciplinary lay off because he was a “repeat offender”. When he returned he thanked me for the PAID vacation. I scoffed, until he explained: (1) He had tried to get the lay off because it was fishing season; (2) The UAW negotiated with GM Labor Relations Department to give him the time WITH PAY.
I supervised a loading dock and 21 UAW workers who worked approximately five hours per day for eight hours pay. They could easily load one third more rail cars and still maintain their union negotiated break times, but when I tried to make them increase production ever so slightly they sabotaged my ability to make even the current production levels by hiding stock, calling in sick, feigning equipment problems, and even once, as a show of force, used a fork lift truck and pallets and racks to create a car part prison where they trapped me while I was conducting inventory. The reaction of upper management to my request to boost production was that I should “not be naïve”.
Another employee in the plant urinated on the feet of his supervisor as a protest to discipline. He was, of course, fired…that is until the union negotiated and got his job back.
Eventually I was promoted to a management position where I supervised salaried employees at HQ. As I left the plant I gave management a blunt message. I told them that I expected the union to act like the union, but I was disappointed that management didn’t act like management.
I saw a lot of this in the 1970s when I worked summer jobs in the shop, and my relatives who are still there tell me it goes on to this day. Of course, it’s hard to put all the blame on management, when the Wagner Act made it impossible for them to do much about it, because it allowed the UAW to credibly threaten their company with bankruptcy if they didn’t knuckle under. This crisis was caused by government, and bailing out the UAW will not solve it.
Also, Jim Manzi explains why we (the taxpayers) can’t just buy the three auto companies for their current market value (only seven billion) and save ourselves the many more billions that a bailout would cost. It’s kind of amazing that the stock has any value at all (GM’s in fact doesn’t). Equity in these companies currently has negative value because running them requires putting more cash into them, with no certainty, or even likelihood of return, at least with their current union contracts and cost structure. They are the proverbial white elephants.
This, by the way, is the reason that the notion of selling the Shuttle or the ISS to anyone else is a non-starter. No one could afford them, even if you gave them away.
Fishing for the Future
…Soylent green. The miracle food of high-energy plankton gathered from the oceans of the world.
Soylent Green, 1973
The New York Times predicts that “if current fishing practices continue, the world’s major commercial stocks will collapse by 2048.” Their solution: lower energy content by eating sardines instead of feeding them to farm-raised salmon.
Mistaking energy content for price is a common mistake. Chew on this: organic lettuce is more expensive than a hamburger.
Wild fish will be eclipsed by farm-raised fish just as farm-raised beef has eclipsed free-range beef. Get used to it, perhaps by preparing to pay an extreme premium for free-range fish. Don’t expect the Chinese middle class to prefer wild cod once a year to farm-raised salmon once a month. Expect the coastal waters to be fenced into fish farms just as the Great Plains was fenced in during the 19th century.
It’s time to manage the pollution and reserve the wild fish parks upcurrent. This tide isn’t going to be turned back by pondering how the old days were until we’re eaten up.
Who Are The Real Conservatives?
I have thoughts on “Change!” and free markets this morning, over at PJM.
The Wrong Lessons From History
Exploding the myths of Clintonomics:
The bull market took off precisely when then-Fed Chairman Alan Greenspan took his foot off the brakes and hit the gas in 1995. It was also then that Republicans took control of Congress — further blunting the effects of the Clinton tax torpedo that had taken effect the previous year.
Clinton also benefitted from innovations long in the making, including the Pentium chip released in March 1993 and Microsoft’s Windows program released in August 1995. These together made the Internet boom possible.
As for the budget surpluses, they came as a complete surprise to Clinton economic forecasters, whose static models only predicted their tax hikes on the rich would narrow the budget gap, not get it into the black.
Their “deficit-reduction plan” didn’t create the surpluses at all. They were a direct result of a tidal wave of capital-gains revenues generated by the GOP-led stock boom.
Relieved that Washington would no longer threaten to take over 14% of the economy by socializing medicine or raise taxes even higher, the market took off like a shot at that point. And capital gains tax receipts exploded, flooding federal coffers.
Clinton’s own long-term budgets predicted no surpluses of any kind during his administration and beyond.
Bill Clinton never had a plan to end deficits. The Republicans and economic circumstances did it for him. But I’m sure that this myth that Bill Clinton balanced the budget will prevail in the minds of the media and Democrats, just as the false myth that Roosevelt, and not the war, got us out of the Depression continues to prevail many decades later. They have to rewrite history to justify their continued plunder. And of course, the near-term danger is that President-Elect Obama and the Congressional majority will use this mistaken history as a justification for tax hikes in a recession, which could be economically ruinous.