Economist John Taylor writes in “Getting off Track” that our current financial crisis was due to missteps in governmental monetary policy.
He faulted excessively low interest rates for fueling the housing bubble. Had the Fed followed the Taylor Rule for setting interest rates that had guided the relatively moderate period since the recession of 1982 Taylor believes that the bust would have been sooner and much less severe.
He also believed that the response to higher interbank rates in 2007 was mistaken. The Fed assumed that the problem was liquidity and thus injected liquidity. While it appeared to have some short term positive affect the rates spiked again.
The problem was not liquidity but counter party risk. Banks questioned the balance sheets of banks they were lending to. It was analogous to misdiagnosing a cancer patient with a gastro problem, leading to a weaker patient and a more advanced disease.
Taylor also was not surprised to see the first stimulus payment fail. Others have noted that single distributions have less stimulative effect than recurring payments (also known as tax cuts.)
In a Wall Street Journal article Alan Greenspan takes exception to the idea that the Fed caused the housing bubble with interest rates that were too low. Greenspan noted that there was a noted decoupling of mortgage rates from short term Fed rates. While there had been some relation it is not unusual that large capital purchases would be more tied to long term rates.
The growth in the global market economy, a healthy development, led to increased global savings in China and other developing countries. The increase in the global savings pool drove interest rates down and the Fed had no control over global savings rate, nor should they.
Greenspan and Taylor are leading economist and friends; yet they disagree on the precise causes of our current crisis. Yet they both warn that government micromanagement is counter productive. Greenspan suggests higher capital requirements and better enforcement of regulations.
Unfortunately debates on monetary policy is less satisfying for partisan ideologues who want to trash Bush and tax cuts rather than take the time to understand the problem. Like Taylor’s medical analogy they want to react quickly without a proper diagnosis. Doctors understand that a careful diagnosis is critical to proper treatment. The proper treatment for the wrong disease can kill a patient.
The first dictum for the doctor and our politicians should be the same. First, do your patient no harm.
Thursday, April 30, 2009
Wednesday, April 29, 2009
Incentive to Disaster
“The bonuses bankers have handed themselves in recent years aren’t just excessive- they may have hastened Wall Street’s collapse. Although cash incentives tend to make people work harder, expending too much effort can actually hinder tasks that require creativity, problem solving and concentration. Anticipating large bonuses can lead to excessive self –consciousness and a focus so narrow that it warps perspective by blocking important outside information-like say common sense.”
- from “Large Stakes and Big Mistakes” Review of Economic Studies as excerpted in the May 2009 Atlantic
HKO Comments- Wall Street needs a deep look and its short term and destructive compensation systems.
- from “Large Stakes and Big Mistakes” Review of Economic Studies as excerpted in the May 2009 Atlantic
HKO Comments- Wall Street needs a deep look and its short term and destructive compensation systems.
Tuesday, April 28, 2009
A Postal Proposal
I recommend that the Post Office deliver to your home only three times a week. Some will be on Monday, Wednesday and Friday and others on Tuesday, Thursday and Saturday.
There is little postage that is so time sensitive that a day's delay will make any difference. The internet and e-mail has monopolized that instant communication. Postal delivery will never be able to compete with that.
For those that must have next day delivery there is Fedex and next day services. If you require daily delivery you get a box at a postal station. Many businesses already do that.
This would cut the fleet in half, one of the largest expenses of the Post Office.
Currently you pay to have a box at a postal station, yet they deliver to your house for free. When you think about it, this makes no sense.
Daily delivery should go the way of the pony express.
There is little postage that is so time sensitive that a day's delay will make any difference. The internet and e-mail has monopolized that instant communication. Postal delivery will never be able to compete with that.
For those that must have next day delivery there is Fedex and next day services. If you require daily delivery you get a box at a postal station. Many businesses already do that.
This would cut the fleet in half, one of the largest expenses of the Post Office.
Currently you pay to have a box at a postal station, yet they deliver to your house for free. When you think about it, this makes no sense.
Daily delivery should go the way of the pony express.
Monday, April 27, 2009
Sunday, April 26, 2009
Unions in One Lesson
from the WSJ Online
Henry Hazlitt writing in his book "Economics in One Lesson":
The belief that labor unions can substantially raise real wages over the long run and for the whole working population is one the great delusions of the present age. This delusion is mainly the result of failure to recognize that wages are basically determined by labor productivity. It is for this reason, for example, that wages in the United States were incomparably higher than wages in England and Germany all during the decades when the "labor movement" in the latter two countries was far more advanced.
In spite of the overwhelming evidence that labor productivity is the fundamental determinant of wages, the conclusion is usually forgotten or derided by labor union leaders and by that large group of economic writers who seek a reputation as "liberals" by parroting them. But this conclusion does not rest on the assumption, as they suppose, that employers are uniformly kind and generous men eager to do what is right. It rests on the very different assumption that the individual employer is eager to increase his own profits to the maximum. If people are willing to work for less that than are really worth to him, why should he not take fullest advantage of this? Why should he not prefer, for example, to make $1 a week out of a workman rather than see some other employer make $2 a week out of him? And as long as this situation exists, there will be a tendency for employers to bid workers up to their full economic worth.
Henry Hazlitt writing in his book "Economics in One Lesson":
The belief that labor unions can substantially raise real wages over the long run and for the whole working population is one the great delusions of the present age. This delusion is mainly the result of failure to recognize that wages are basically determined by labor productivity. It is for this reason, for example, that wages in the United States were incomparably higher than wages in England and Germany all during the decades when the "labor movement" in the latter two countries was far more advanced.
In spite of the overwhelming evidence that labor productivity is the fundamental determinant of wages, the conclusion is usually forgotten or derided by labor union leaders and by that large group of economic writers who seek a reputation as "liberals" by parroting them. But this conclusion does not rest on the assumption, as they suppose, that employers are uniformly kind and generous men eager to do what is right. It rests on the very different assumption that the individual employer is eager to increase his own profits to the maximum. If people are willing to work for less that than are really worth to him, why should he not take fullest advantage of this? Why should he not prefer, for example, to make $1 a week out of a workman rather than see some other employer make $2 a week out of him? And as long as this situation exists, there will be a tendency for employers to bid workers up to their full economic worth.
Friday, April 24, 2009
Too Dumb to Fail
“To invest successfully over a lifetime does not require a stratospheric IQ..... “ Warren Buffett
“I have given this matter some thought. Not only does a sky-high IQ not guarantee success, but it also could pose a danger, not only to the genius’ own net worth but to the safety and wealth of others. I therefore urge the relevant regulatory bodies of the United States and Canada to incorporate an IQ test into their securities licensing exams. There would be no passing grade. But nobody would be allowed to work in the financial markets in any capacity with a score of 115 or higher. Finance is too important to be left to smart people.”- James Grant from Mr. Market Miscalculates.
“I have given this matter some thought. Not only does a sky-high IQ not guarantee success, but it also could pose a danger, not only to the genius’ own net worth but to the safety and wealth of others. I therefore urge the relevant regulatory bodies of the United States and Canada to incorporate an IQ test into their securities licensing exams. There would be no passing grade. But nobody would be allowed to work in the financial markets in any capacity with a score of 115 or higher. Finance is too important to be left to smart people.”- James Grant from Mr. Market Miscalculates.
Thursday, April 23, 2009
Convincing Others to Believe
Randall Hoven offers insight in American Thinker on April5
Stop Making Sense
Excerpt
But when the adversary is not nature, but fellow men, rationality as normally considered is out the window. We live in a world where Nancy Pelosi and Barney Frank are taken seriously. Where Libya is given the chair on the Human Rights commission at the UN. Where heads of state genuinely believe sheep farts are dangerously heating up the planet.
As Vladimir Lenin was commenting on "all those starving people who are starting to eat each other, who are dying by the millions," Walter Duranty was the New York Times Moscow bureau chief saying things were just wonderful there. He won a Pulitzer Prize for that.
Here is the awful truth: it's not what is true, it's what you can convince others to believe.
Stop Making Sense
Excerpt
But when the adversary is not nature, but fellow men, rationality as normally considered is out the window. We live in a world where Nancy Pelosi and Barney Frank are taken seriously. Where Libya is given the chair on the Human Rights commission at the UN. Where heads of state genuinely believe sheep farts are dangerously heating up the planet.
As Vladimir Lenin was commenting on "all those starving people who are starting to eat each other, who are dying by the millions," Walter Duranty was the New York Times Moscow bureau chief saying things were just wonderful there. He won a Pulitzer Prize for that.
Here is the awful truth: it's not what is true, it's what you can convince others to believe.
Wednesday, April 22, 2009
Ironies of Modern War
When the Soviet Union lost the Cold War and the Berlin Wall came down, it was a momentous time. We expected peace in our time. Without two superpowers deterred by mutually assured destruction (MAD) the threat of a nuclear holocaust became distant.
The United States was the sole modern army and no army could dare challenge us, but the first irony of modern war is that technological superiority begat a primitive counter offense that technology could not address. Instead of politics and power wars became about “blood and faith” to borrow from Ralph Peters’ book of that name. As Peters also noted, “suicide bombers trump microchips.” This we learned on 9/11.
Commitment without power will trump power without commitment. Americans are an impatient people and we want our wars quick and cheap; yet we fight an enemy committed to win without a timeline. We learned in Viet Nam that the one thing the North Vietnamese could control in spite of inferior firepower was the duration of the war. The second irony is that in order for a war not to last forever we must be committed as though it will. Our impatience is our Achilles heel; and our enemies know how to exploit it.
With on the ground technology our soldiers have become adept at minimizing civilian casualties. The third irony is that the concept of a humane war increases the duration of the conflict. Wars used to be fought to exhaustion, and that included the civilian population. Now we take out the combatants with relatively minimal civilian collateral damage, but the wars never end. Hamas and Palestinian radicals rise up from the very population that was spared by their humane opponents. Wars may now be measured in centuries.
The fourth irony is that broader media coverage may also increase the ferocity of battle. Facing media outcry, a warring force may need to sacrifice humanity for speed to avoid the backlash from the media. No military leader wants to see his victory on the battlefield undermined by a global media that values headlines more than understanding. Yet short term ferocity may be the more humane strategy.
While the UN seemed unmoved by the 9,700 rockets launched intentionally by Hamas at Israeli civilians, they can not condemn Israel quickly enough for finally responding after three years. The UN never seemed to mind that Hamas violated almost every code of the Geneva Convention by intentionally placing their civilians in harm’s way, by intentionally targeting civilians, or by training children to become suicide bombers.
There is only one Jewish state surrounded by 22 Muslim states, yet it is Israel that is charged with using disproportionate force. Terrorist sycophants like Jimmy Carter seem to find no terrorist act that is unforgivable or unjustifiable and no Israeli response that is not disproportionate.
It is ironic that the Jews, a learned people, can be so victorious on the field of battle and do so badly in the field of public opinion. There is a reason they have to have victory quickly; the world will not tolerate a sustained Israeli offensive even if it is to remove an existential threat.
Israel is an open society, with equal rights for women, religious tolerance, a free press and even tolerance for gays. Israel is an educated society with more museums per capita than any country and is second only to the United States in patents.
Their enemy is misogynous, brutal to their own as well as the Jewish devils and intolerant of basic human rights. Yet our most misguided liberals at our universities and the streets and press of Europe protest too often, siding with the very people who would be most intolerant of their rights and views.
This final irony is one of the most difficult to understand but it is one of the oldest and most persistent, especially in Europe.
The United States was the sole modern army and no army could dare challenge us, but the first irony of modern war is that technological superiority begat a primitive counter offense that technology could not address. Instead of politics and power wars became about “blood and faith” to borrow from Ralph Peters’ book of that name. As Peters also noted, “suicide bombers trump microchips.” This we learned on 9/11.
Commitment without power will trump power without commitment. Americans are an impatient people and we want our wars quick and cheap; yet we fight an enemy committed to win without a timeline. We learned in Viet Nam that the one thing the North Vietnamese could control in spite of inferior firepower was the duration of the war. The second irony is that in order for a war not to last forever we must be committed as though it will. Our impatience is our Achilles heel; and our enemies know how to exploit it.
With on the ground technology our soldiers have become adept at minimizing civilian casualties. The third irony is that the concept of a humane war increases the duration of the conflict. Wars used to be fought to exhaustion, and that included the civilian population. Now we take out the combatants with relatively minimal civilian collateral damage, but the wars never end. Hamas and Palestinian radicals rise up from the very population that was spared by their humane opponents. Wars may now be measured in centuries.
The fourth irony is that broader media coverage may also increase the ferocity of battle. Facing media outcry, a warring force may need to sacrifice humanity for speed to avoid the backlash from the media. No military leader wants to see his victory on the battlefield undermined by a global media that values headlines more than understanding. Yet short term ferocity may be the more humane strategy.
While the UN seemed unmoved by the 9,700 rockets launched intentionally by Hamas at Israeli civilians, they can not condemn Israel quickly enough for finally responding after three years. The UN never seemed to mind that Hamas violated almost every code of the Geneva Convention by intentionally placing their civilians in harm’s way, by intentionally targeting civilians, or by training children to become suicide bombers.
There is only one Jewish state surrounded by 22 Muslim states, yet it is Israel that is charged with using disproportionate force. Terrorist sycophants like Jimmy Carter seem to find no terrorist act that is unforgivable or unjustifiable and no Israeli response that is not disproportionate.
It is ironic that the Jews, a learned people, can be so victorious on the field of battle and do so badly in the field of public opinion. There is a reason they have to have victory quickly; the world will not tolerate a sustained Israeli offensive even if it is to remove an existential threat.
Israel is an open society, with equal rights for women, religious tolerance, a free press and even tolerance for gays. Israel is an educated society with more museums per capita than any country and is second only to the United States in patents.
Their enemy is misogynous, brutal to their own as well as the Jewish devils and intolerant of basic human rights. Yet our most misguided liberals at our universities and the streets and press of Europe protest too often, siding with the very people who would be most intolerant of their rights and views.
This final irony is one of the most difficult to understand but it is one of the oldest and most persistent, especially in Europe.
Tuesday, April 21, 2009
Tax the Poor
excellent point form Ari Fleischer in the WSJ
Everyone Should Pay Income Taxes
It's bad for our democracy to exempt half the country.
By ARI FLEISCHER
excerpts
A very small number of taxpayers -- the 10% of the country that makes more than $92,400 a year -- pay 72.4% of the nation's income taxes. They're the tip of the triangle that's supporting virtually everyone and everything. Their burden keeps getting heavier.
As a result of the 2001 tax cuts enacted by a bipartisan Congress and signed by President George W. Bush, the share of taxes paid by the top 10% increased to 72.8% in 2005 from 67.8% in 2001, according to the latest data from the Congressional Budget Office (CBO).
Contrary to the myth that Mr. Bush cut taxes only for the wealthy, the 2001 tax cut reduced taxes for every income-tax payer in the country. He reduced the bottom tax rate to 10% from 15% and increased the refundable child tax credit to $1,000 from $500 per child, both cuts that President Barack Obama says we should keep. In so doing, millions of lower income taxpayers were removed from the tax rolls, shifting the remaining burden to those at the top, even after their taxes were cut.
According to the CBO, those who made less than $44,300 in 2001 -- 60% of the country -- paid a paltry 3.3% of all income taxes. By 2005, almost all of them were excused from paying any income tax. They paid less than 1% of the income tax burden. Their share shrank even when taking into account the payroll tax. In 2001, the bottom 60% paid 16.3% of all taxes; by 2005 their share was down to 14.3%. All the while, this large group of voters made 25.8% of the nation's income.
When you make almost 26% of the income and you pay only 0.6% of the income tax, that's a good deal, courtesy of those who do pay income taxes. For the bottom 40%, the redistribution deal is even better. In 2001, these 43 million Americans, who earn less than $30,500, made 13.5% of the nation's income but paid no income tax. Instead, they received checks from their taxpaying neighbors worth $16.3 billion. By 2005, those checks totaled $33.3 billion.
Everyone Should Pay Income Taxes
It's bad for our democracy to exempt half the country.
By ARI FLEISCHER
excerpts
A very small number of taxpayers -- the 10% of the country that makes more than $92,400 a year -- pay 72.4% of the nation's income taxes. They're the tip of the triangle that's supporting virtually everyone and everything. Their burden keeps getting heavier.
As a result of the 2001 tax cuts enacted by a bipartisan Congress and signed by President George W. Bush, the share of taxes paid by the top 10% increased to 72.8% in 2005 from 67.8% in 2001, according to the latest data from the Congressional Budget Office (CBO).
Contrary to the myth that Mr. Bush cut taxes only for the wealthy, the 2001 tax cut reduced taxes for every income-tax payer in the country. He reduced the bottom tax rate to 10% from 15% and increased the refundable child tax credit to $1,000 from $500 per child, both cuts that President Barack Obama says we should keep. In so doing, millions of lower income taxpayers were removed from the tax rolls, shifting the remaining burden to those at the top, even after their taxes were cut.
According to the CBO, those who made less than $44,300 in 2001 -- 60% of the country -- paid a paltry 3.3% of all income taxes. By 2005, almost all of them were excused from paying any income tax. They paid less than 1% of the income tax burden. Their share shrank even when taking into account the payroll tax. In 2001, the bottom 60% paid 16.3% of all taxes; by 2005 their share was down to 14.3%. All the while, this large group of voters made 25.8% of the nation's income.
When you make almost 26% of the income and you pay only 0.6% of the income tax, that's a good deal, courtesy of those who do pay income taxes. For the bottom 40%, the redistribution deal is even better. In 2001, these 43 million Americans, who earn less than $30,500, made 13.5% of the nation's income but paid no income tax. Instead, they received checks from their taxpaying neighbors worth $16.3 billion. By 2005, those checks totaled $33.3 billion.
Monday, April 20, 2009
Drive by Facebook
I have to confess that I am impressed by this Facebook phenomenon. It has opened up a whole new aspect of networking. I can keep up with so many interesting people I have met so easily.
Like any technology it has to be consciously managed. I have certain rules. While I observe exchanges between my daughter and her social networks I avoid participating in it, out of fear of intruding into her circle of friends.
I avoid exchanges that require work like “25 things about you.” One of my wife’s friends refers to being a “drive by Facebook” participant. Facebook is a great way to keep up with a lot of people QUICKLY.
Lastly, while avoiding overtly political and religious proselytizing, I will share articles that I think offer some depth into a subject, though others may simply disagree. On Facebook it is easy to move on and not bogged down in different opinions.
Friends can disagree and still be friends.
Like any technology it has to be consciously managed. I have certain rules. While I observe exchanges between my daughter and her social networks I avoid participating in it, out of fear of intruding into her circle of friends.
I avoid exchanges that require work like “25 things about you.” One of my wife’s friends refers to being a “drive by Facebook” participant. Facebook is a great way to keep up with a lot of people QUICKLY.
Lastly, while avoiding overtly political and religious proselytizing, I will share articles that I think offer some depth into a subject, though others may simply disagree. On Facebook it is easy to move on and not bogged down in different opinions.
Friends can disagree and still be friends.
Sunday, April 19, 2009
Random Musings from the Notebook
"The west won the world not by the superiority of its ideas or values or religion, but by its superiority in applying organized violence."- Samuel Harrington
“What truly breeds discontent is the illusion that Government can solve all of our problems.” Robert Samuelson
“The governing class of today focuses more on merchandising differences. Your virtues are defined by your adversary’s vices.” Robert Samuelson
"The central banks believe they can control future events. We say the events control the central banks." James Grant
“The welfare state enables those on top to stay there by making life at the bottom a little more tolerable.” Robert Samuelson
"Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes"` Goodhart’s Law
“Most things worth forecasting are never accurately forecasted.” Mark Buchanan
“Finance is too important to be left to smart people.” James Grant
You need a few bad habits. Otherwise your virtues will annoy the hell out of everyone.- HKO
Hell hath no fury like an unappreciated moral supremacist.- HKO
A teleprompter is just a karaoke machine without the music.- HKO
A diamond is a piece of coal that stuck to its job. – a sign in a mall
“What truly breeds discontent is the illusion that Government can solve all of our problems.” Robert Samuelson
“The governing class of today focuses more on merchandising differences. Your virtues are defined by your adversary’s vices.” Robert Samuelson
"The central banks believe they can control future events. We say the events control the central banks." James Grant
“The welfare state enables those on top to stay there by making life at the bottom a little more tolerable.” Robert Samuelson
"Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes"` Goodhart’s Law
“Most things worth forecasting are never accurately forecasted.” Mark Buchanan
“Finance is too important to be left to smart people.” James Grant
You need a few bad habits. Otherwise your virtues will annoy the hell out of everyone.- HKO
Hell hath no fury like an unappreciated moral supremacist.- HKO
A teleprompter is just a karaoke machine without the music.- HKO
A diamond is a piece of coal that stuck to its job. – a sign in a mall
Saturday, April 18, 2009
Political and Economic Self Interest
In the early 1860’s there were few advocates for states rights influencing federal policy since they had all withdrawn from the union. During that period Congress got into the railroad business, handing over very large tracts of land to the transcontinental railroad project.
The railroads solicited settlers for these vast tracts to be served by their new transportation. The railroads became de facto real estate and mortgage companies offering loans at 90% of value. They even made the loans interest only (can you imagine) for the first few years, so certain were they that the farmers could earn the price of their new fertile property with a single crop. The population of Kansas tripled.
Low interest rates back east had the investors eager to finance the Kansas boom with their higher interest rates. (Similar to the recent attraction of subprime loans.) Money poured into the boom at a reckless rate. Due diligence suffered.
“Bonds of Capitola township, Spink county, Dakota were sold in this period and changed hands many times in eastern markets before it was discovered that no such township existed.”
Clerks and barbers were making fast money in real estate. Just the licensing fees from the growing population of real estate brokers were an important source of revenue for the new towns.
Before the bubble burst land prices ran higher than they have ever been since in inflation adjusted terms. A drought killed farm output, real estate prices and the mortgage related securities collapsed, and an exodus of eager settlers returned east.*
We were on the gold standard and there was no Federal Reserve or SEC to keep the market prudent. All that was needed was an investing population willing to divest reason and common sense from their investment decision. But booms and busts are unclear when you are in the middle of them. There is always a new ‘plateau’, or a ‘paradigm shift’ to explain away the harsh reality lurking around the corner.
The US dealt with recessions and depressions (often called Panics) in 1893, 1907 and in 1921 with relatively quick adjustment and recovery. The American people and their leaders decided that they did not want to trust the stability of the financial system to the market so the Federal Reserve was formed for that purpose. Its creators truly expected to tame the financial cycles and to usher in a new era of prosperity.
It may have been the false sense of a new stability that led to the boom of the Roaring 1920 and the ensuing crash. Yet the new stabilizing Federal Bank failed to avoid the Great Depression which lasted longer than any previous recession in American history.
During the reign of the Fed our money has depreciated in value, and we painfully see today that booms and busts are still with us.
The idea of a national bank was hotly debated since our founding. It was at the center of the contested debates on the character of our country between Jefferson and Hamilton and was strongly opposed by Andrew Jackson.
As much as we insist on the independence of the Fed it has clearly, if reluctantly, become a servant of political self interest. It became a tool to finance Truman’s war and it may be serving larger political interests today. In a global economy with other countries generating capital seeking the safety and opportunities of the United States, the Fed may have less control over capital flows than it used to.
While America tired of the cycles that seemed to be a given in a system of economic self interest, we must question whether an economy directed by political self interest is not considerably worse. There are clear gaps in our regulatory agencies that must be corrected, but those gaps are often by political choice.
Fannie Mae and Freddie Mac were given special status and exempt from the oversight of the SEC by the Congress. Warnings of excess and calls for further controls were ignored vehemently often along straight party lines. As long as these agencies served the political desires of political constituents (low income home owners), prudence was shunned.
I f we want to better understand the economic convulsions and appropriate solutions we would be better served by paying less attention the mass media and perhaps picking up a history book. We should also learn that political self interest serves our national needs no better than economic self interest.
* This story of the Kansas land boom is summarized from James Grant’s Mr. Market Miscalculates- The Bubble Years and Beyond.
The railroads solicited settlers for these vast tracts to be served by their new transportation. The railroads became de facto real estate and mortgage companies offering loans at 90% of value. They even made the loans interest only (can you imagine) for the first few years, so certain were they that the farmers could earn the price of their new fertile property with a single crop. The population of Kansas tripled.
Low interest rates back east had the investors eager to finance the Kansas boom with their higher interest rates. (Similar to the recent attraction of subprime loans.) Money poured into the boom at a reckless rate. Due diligence suffered.
“Bonds of Capitola township, Spink county, Dakota were sold in this period and changed hands many times in eastern markets before it was discovered that no such township existed.”
Clerks and barbers were making fast money in real estate. Just the licensing fees from the growing population of real estate brokers were an important source of revenue for the new towns.
Before the bubble burst land prices ran higher than they have ever been since in inflation adjusted terms. A drought killed farm output, real estate prices and the mortgage related securities collapsed, and an exodus of eager settlers returned east.*
We were on the gold standard and there was no Federal Reserve or SEC to keep the market prudent. All that was needed was an investing population willing to divest reason and common sense from their investment decision. But booms and busts are unclear when you are in the middle of them. There is always a new ‘plateau’, or a ‘paradigm shift’ to explain away the harsh reality lurking around the corner.
The US dealt with recessions and depressions (often called Panics) in 1893, 1907 and in 1921 with relatively quick adjustment and recovery. The American people and their leaders decided that they did not want to trust the stability of the financial system to the market so the Federal Reserve was formed for that purpose. Its creators truly expected to tame the financial cycles and to usher in a new era of prosperity.
It may have been the false sense of a new stability that led to the boom of the Roaring 1920 and the ensuing crash. Yet the new stabilizing Federal Bank failed to avoid the Great Depression which lasted longer than any previous recession in American history.
During the reign of the Fed our money has depreciated in value, and we painfully see today that booms and busts are still with us.
The idea of a national bank was hotly debated since our founding. It was at the center of the contested debates on the character of our country between Jefferson and Hamilton and was strongly opposed by Andrew Jackson.
As much as we insist on the independence of the Fed it has clearly, if reluctantly, become a servant of political self interest. It became a tool to finance Truman’s war and it may be serving larger political interests today. In a global economy with other countries generating capital seeking the safety and opportunities of the United States, the Fed may have less control over capital flows than it used to.
While America tired of the cycles that seemed to be a given in a system of economic self interest, we must question whether an economy directed by political self interest is not considerably worse. There are clear gaps in our regulatory agencies that must be corrected, but those gaps are often by political choice.
Fannie Mae and Freddie Mac were given special status and exempt from the oversight of the SEC by the Congress. Warnings of excess and calls for further controls were ignored vehemently often along straight party lines. As long as these agencies served the political desires of political constituents (low income home owners), prudence was shunned.
I f we want to better understand the economic convulsions and appropriate solutions we would be better served by paying less attention the mass media and perhaps picking up a history book. We should also learn that political self interest serves our national needs no better than economic self interest.
* This story of the Kansas land boom is summarized from James Grant’s Mr. Market Miscalculates- The Bubble Years and Beyond.
Friday, April 17, 2009
The Politics of Tea
In listening to some of the talking heads discuss the tea parties, there seems to be a disconnect in understanding the motivation behind the protest. The White House Press Secretary stated that the protesters did not “get it” because they would be the beneficiaries of the middle class tax cut.
Beside the arrogance of the statement, what the White House does not “get” is that the protesters seem to be more far sighted than the politicians. Like the short sighted corporations who only see the next quarter the elected officials only see the next election.
What they also do not get is that the rhetoric is more moral in tone than material. It is much more than about the tax cuts. I recalled an explanation of the difference between conservatives and liberals in Barry Goldwater’s “The Conscience of a Conservative””
“The root difference between the Conservatives and the Liberals of today (1960’s) is that Conservatives take account of the whole man, while the Liberals tend to look only at the material side of man’s nature. The Conservative believes that man is, in part, an economic, an animal creature; but that he is also a spiritual creature with spiritual needs and spiritual desires. What is more, these needs and desires reflect the superior side of man’s nature, and thus take precedence over his economic wants. Conservatism therefore looks upon the enhancement of man’s spiritual nature as the primary concern of political philosophy. Liberals, on the other hand- in the name of a concern for “human beings”- regard the satisfaction of economic wants as the dominant mission of society.”
I try to avoid the use of the ‘L’ and ‘C’ labels because it tends to close minds, but it is hard to avoid in this passage and I believe it may explain the disconnect in understanding the tea parties. I also question whether the demonstrators understand their personal sacrifice that will be needed to restore a fiscally sane government, especially during a recession.
I do believe the parties are grass roots. I follow hundreds on Twitter and the subject absolutely dominates the conservative Twitter sphere. To dismiss them as part of a right wing conspiracy or the ignorant masses would be a mistake.
But it would also be a mistake to expect any sympathy or positive response from the party in power. Hell hath no fury like an unappreciated ‘moral supremacist’.
Beside the arrogance of the statement, what the White House does not “get” is that the protesters seem to be more far sighted than the politicians. Like the short sighted corporations who only see the next quarter the elected officials only see the next election.
What they also do not get is that the rhetoric is more moral in tone than material. It is much more than about the tax cuts. I recalled an explanation of the difference between conservatives and liberals in Barry Goldwater’s “The Conscience of a Conservative””
“The root difference between the Conservatives and the Liberals of today (1960’s) is that Conservatives take account of the whole man, while the Liberals tend to look only at the material side of man’s nature. The Conservative believes that man is, in part, an economic, an animal creature; but that he is also a spiritual creature with spiritual needs and spiritual desires. What is more, these needs and desires reflect the superior side of man’s nature, and thus take precedence over his economic wants. Conservatism therefore looks upon the enhancement of man’s spiritual nature as the primary concern of political philosophy. Liberals, on the other hand- in the name of a concern for “human beings”- regard the satisfaction of economic wants as the dominant mission of society.”
I try to avoid the use of the ‘L’ and ‘C’ labels because it tends to close minds, but it is hard to avoid in this passage and I believe it may explain the disconnect in understanding the tea parties. I also question whether the demonstrators understand their personal sacrifice that will be needed to restore a fiscally sane government, especially during a recession.
I do believe the parties are grass roots. I follow hundreds on Twitter and the subject absolutely dominates the conservative Twitter sphere. To dismiss them as part of a right wing conspiracy or the ignorant masses would be a mistake.
But it would also be a mistake to expect any sympathy or positive response from the party in power. Hell hath no fury like an unappreciated ‘moral supremacist’.
Thursday, April 16, 2009
Twittering RebelYid
You can follow me at Twitter at http://twitter.com/rebelyid.
Twitter is a live update and supplement ot the postings on the blog. I have posted over 500 supplements in the last month. While I try keep my blogs very concise, Twitter restricts me to a mere 140 spaces and includes many more current articles and references.
And thanks for reading Rebel Yid.
Twitter is a live update and supplement ot the postings on the blog. I have posted over 500 supplements in the last month. While I try keep my blogs very concise, Twitter restricts me to a mere 140 spaces and includes many more current articles and references.
And thanks for reading Rebel Yid.
The Road to Fiscal Sanity Starts with You
While I support the citizen uprising of the tea parties I wonder how many of the participants have thought beyond their dissatisfaction to realize the outcome of a smaller deficit and the real costs of a transition to a frugal government.
How many of them are willing to sacrifice their social security income or at least have it means tested to be relative to their assets and income?
How many are really ready to lose their agricultural subsidies, corporate subsidies, funding for their symphonies, museums, halls of fame, rapid transits, parks, ball fields and other subsidized venues?
How may are ready to give up Medicare subsidies and pay a bigger share of their medical expenses out of their own pocket? How many are willing to have their prescription drug benefit reduced?
How many are willing to restrict foreign adventurism to what current taxpayers are willing to pay for? That means no more Iraqs without a vote to raise taxes to pay for it.
How many are ready to fully accept the consequences of a credit crunch without the liquidity supported from the government? How many of your customers will have trouble paying you as a result?
How may are willing to pay higher local taxes to support the schools when the government funds are relinquished?
How many are ready to make up for the lost federal subsidies and reimbursement for local hospitals and health care? How many are willing to lose their mortgage deductions? How many are ready to pay more taxes to restore fiscal repsonsibility or see a drastic cut in government spending?
Winding down our addiction to credit and big government solutions is painful and messy. Our unwillingness to face this ugliness is why we forestall and perpetuate the problem. We all think that the solution lies in changing other people’s behavior, but not our own.
Furthermore the middle of a serious recession is the worst time to get fiscal discipline. But even in more stable economic times the road to fiscal sanity starts with you.
What are you ready to give up?
How many of them are willing to sacrifice their social security income or at least have it means tested to be relative to their assets and income?
How many are really ready to lose their agricultural subsidies, corporate subsidies, funding for their symphonies, museums, halls of fame, rapid transits, parks, ball fields and other subsidized venues?
How may are ready to give up Medicare subsidies and pay a bigger share of their medical expenses out of their own pocket? How many are willing to have their prescription drug benefit reduced?
How many are willing to restrict foreign adventurism to what current taxpayers are willing to pay for? That means no more Iraqs without a vote to raise taxes to pay for it.
How many are ready to fully accept the consequences of a credit crunch without the liquidity supported from the government? How many of your customers will have trouble paying you as a result?
How may are willing to pay higher local taxes to support the schools when the government funds are relinquished?
How many are ready to make up for the lost federal subsidies and reimbursement for local hospitals and health care? How many are willing to lose their mortgage deductions? How many are ready to pay more taxes to restore fiscal repsonsibility or see a drastic cut in government spending?
Winding down our addiction to credit and big government solutions is painful and messy. Our unwillingness to face this ugliness is why we forestall and perpetuate the problem. We all think that the solution lies in changing other people’s behavior, but not our own.
Furthermore the middle of a serious recession is the worst time to get fiscal discipline. But even in more stable economic times the road to fiscal sanity starts with you.
What are you ready to give up?
Wednesday, April 15, 2009
When Does Criticsim of Israel Become Anti-Semitic?
From the Jerusalem Post by ANDREW SILOW-CARROLL
A. What term does the writer use to refer to the Jewish state?
1. Israel
2. Palestine
3.Isratine
4. The Upper West Side
B. To whom does the commentator compare Israel's military?
1. The Rebel Alliance in Star Wars
2. The United States in Vietnam
3. The French in Algeria
4. The Gestapo in hell
C. How soon does the word Holocaust appear in the comment or essay?
1. Not at all - the preferred term is "Shoah."
2. In the first sentence, right before "Once the Jews were oppressed, now they have become..."
3. In the first paragraph, contained in quotation marks.
4. In the paragraph about Palestinian casualties, but with a lower-case "h."
D.On which network is the commentator most likely to appear?
1. Fox News
2. CNN
3. NPR
4. Al-Jazeera
E. To which of the following does the commentator compare the pro-Israel lobby?
1. The National Rifle Association
2. Skull and Bones
3. The Trilateral Commission
4. The Elders of Zion
F. How does the writer refer to Hamas?
1. "An Islamofascist terror gang"
2. "Gaza's democratically elected government"
3. "An unfairly maligned social service agency"
4."My good friends Khaled and Ismail"
G. Who is cited in the footnotes?
1. Alan Dershowitz and Ed Koch
2. Jeffrey Goldberg and Thomas Friedman
3. Stephen Walt and John Mearsheimer
4. Noam Chomsky and Jimmy Carter
H. Where did the writer stay while doing his research?
1. At the King David Hotel
2. At the Intercontinental Hotel Jerusalem
3. At an undisclosed location in southern Lebanon
4. At the Harvard Square Hotel
I. What is the writer's preferred solution to theIsraeli-Palestinian conflict?
1. One state, Jewish, with autonomy for Palestinian Arabs
2. Two states, Israeli and Arab, living side by side in peace
3. One state, with joint Israeli and Palestinian citizenship
4. Two states, one for Arabs in Palestine, one for Jews in Eastern Europe - or Brooklyn, maybe
J. What does the commentator see as the biggest obstacle to peace in the Middle East?
1. Palestinian intransigence
2. Israeli intransigence
3. The "cycle of violence"
4. A Star of David-shaped shark unicycle
A. What term does the writer use to refer to the Jewish state?
1. Israel
2. Palestine
3.Isratine
4. The Upper West Side
B. To whom does the commentator compare Israel's military?
1. The Rebel Alliance in Star Wars
2. The United States in Vietnam
3. The French in Algeria
4. The Gestapo in hell
C. How soon does the word Holocaust appear in the comment or essay?
1. Not at all - the preferred term is "Shoah."
2. In the first sentence, right before "Once the Jews were oppressed, now they have become..."
3. In the first paragraph, contained in quotation marks.
4. In the paragraph about Palestinian casualties, but with a lower-case "h."
D.On which network is the commentator most likely to appear?
1. Fox News
2. CNN
3. NPR
4. Al-Jazeera
E. To which of the following does the commentator compare the pro-Israel lobby?
1. The National Rifle Association
2. Skull and Bones
3. The Trilateral Commission
4. The Elders of Zion
F. How does the writer refer to Hamas?
1. "An Islamofascist terror gang"
2. "Gaza's democratically elected government"
3. "An unfairly maligned social service agency"
4."My good friends Khaled and Ismail"
G. Who is cited in the footnotes?
1. Alan Dershowitz and Ed Koch
2. Jeffrey Goldberg and Thomas Friedman
3. Stephen Walt and John Mearsheimer
4. Noam Chomsky and Jimmy Carter
H. Where did the writer stay while doing his research?
1. At the King David Hotel
2. At the Intercontinental Hotel Jerusalem
3. At an undisclosed location in southern Lebanon
4. At the Harvard Square Hotel
I. What is the writer's preferred solution to theIsraeli-Palestinian conflict?
1. One state, Jewish, with autonomy for Palestinian Arabs
2. Two states, Israeli and Arab, living side by side in peace
3. One state, with joint Israeli and Palestinian citizenship
4. Two states, one for Arabs in Palestine, one for Jews in Eastern Europe - or Brooklyn, maybe
J. What does the commentator see as the biggest obstacle to peace in the Middle East?
1. Palestinian intransigence
2. Israeli intransigence
3. The "cycle of violence"
4. A Star of David-shaped shark unicycle
Tuesday, April 14, 2009
The Fed as a Partner
from WSJ.com's Political Diary -
"To my knowledge, every hyperinflation in history has had two key ingredients: (1) budget deficits that could not be resolved politically, and (2) a central bank that assumed the obligations that the fiscal authority could not. In the U.S. today, there is little question in my mind that repaying the projected deficits with tax increases or spending cuts will be extremely difficult politically. Each additional trillion dollars would roughly require doubling the personal income tax rate on all Americans for one year, something I cannot see the political process delivering. There is enormous pressure in the current situation to defer solutions and look for temporary fixes with off-balance-sheet measures. The reason that the Fed is sought as a partner for the Treasury in all these new actions is because the Fed is perceived to have deeper pockets than the Treasury. This is not a situation that a self-respecting central bank should let itself get into" -- economics blogger and UCSD economist James Hamilton.
"To my knowledge, every hyperinflation in history has had two key ingredients: (1) budget deficits that could not be resolved politically, and (2) a central bank that assumed the obligations that the fiscal authority could not. In the U.S. today, there is little question in my mind that repaying the projected deficits with tax increases or spending cuts will be extremely difficult politically. Each additional trillion dollars would roughly require doubling the personal income tax rate on all Americans for one year, something I cannot see the political process delivering. There is enormous pressure in the current situation to defer solutions and look for temporary fixes with off-balance-sheet measures. The reason that the Fed is sought as a partner for the Treasury in all these new actions is because the Fed is perceived to have deeper pockets than the Treasury. This is not a situation that a self-respecting central bank should let itself get into" -- economics blogger and UCSD economist James Hamilton.
Explaining Socialism
An economics professor at Texas Tech said he had never failed a single student before but had, once, failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said ok, we will have an experiment in this class on socialism.
All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied little.. The second test average was a D! No one was happy. When the 3rd test rolled around the average was an F.
The scores never increased as bickering, blame, name calling all resulted in hard feelings and no one would study for the benefit of anyone else. All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great; but when government takes all the reward away; no one will try or want to succeed.
tips to Evan Koplin for this parable
All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied little.. The second test average was a D! No one was happy. When the 3rd test rolled around the average was an F.
The scores never increased as bickering, blame, name calling all resulted in hard feelings and no one would study for the benefit of anyone else. All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great; but when government takes all the reward away; no one will try or want to succeed.
tips to Evan Koplin for this parable
Monday, April 13, 2009
Who's Your Daddy?
I posted in October, Crazy Coverge for Mental Health, about the new requirement for higher mental health coverage mandated in the Emergency Economic Stabilization Act. Apparently this requires equal treatment IF you offer mental health coverage. The result will be that we will probably have to eliminate mental health coverage altogether.
Aren't you happy the government is looking after your interests?
Aren't you happy the government is looking after your interests?
Sunday, April 12, 2009
The Ideal Hockey Player Birth Day
Malcolm Gladwell’s “Outliers” seeks to explain the causes of extreme success beyond mere talent and merit.
He notices that a largely disproportionate number of professional hockey players have birthdays in January, February, and March as opposed to disproportionately few with birthdays in the later calendar quarter.
The reason is that hockey development leagues start as young as 5 years old. With a January 1 age cutoff a young player born on January 2 will have a much higher level of physical maturity than a player born December 2. The younger player will be more likely to be stronger and faster.
He will stand out sooner and get better coaching and attention and will be called on to play more hours. This extra attention will follow him through his career to the pros.
With such an understanding the leagues may want to have age cutoffs every six months rather than every 12.
The point of this thinking is that success, while still dependent on merit and ability is also a function of opportunity and conditions.
He notices that a largely disproportionate number of professional hockey players have birthdays in January, February, and March as opposed to disproportionately few with birthdays in the later calendar quarter.
The reason is that hockey development leagues start as young as 5 years old. With a January 1 age cutoff a young player born on January 2 will have a much higher level of physical maturity than a player born December 2. The younger player will be more likely to be stronger and faster.
He will stand out sooner and get better coaching and attention and will be called on to play more hours. This extra attention will follow him through his career to the pros.
With such an understanding the leagues may want to have age cutoffs every six months rather than every 12.
The point of this thinking is that success, while still dependent on merit and ability is also a function of opportunity and conditions.
Saturday, April 11, 2009
Nuclear Deja Vu
From Reuters
"We don't know what to believe about the Iranian program. We've heard many different assessments and claims over a number of years," said Clinton of Iran's latest claims.
Clinton reiterated that Iran must abide by international obligations over its nuclear program, which the West suspects is cover for building an atomic bomb and Tehran argues is for peaceful purposes to generate electricity.
"It would benefit the Iranians in our view if they cooperated with the international community, if they abided by a set of obligations and expectations that affect them and by which we believe they are bound. We are going to continue to insist on that," said Clinton.
"We don't know what to believe about the Iranian program. We've heard many different assessments and claims over a number of years," said Clinton of Iran's latest claims.
Clinton reiterated that Iran must abide by international obligations over its nuclear program, which the West suspects is cover for building an atomic bomb and Tehran argues is for peaceful purposes to generate electricity.
"It would benefit the Iranians in our view if they cooperated with the international community, if they abided by a set of obligations and expectations that affect them and by which we believe they are bound. We are going to continue to insist on that," said Clinton.
HKO comments- "sound familiar?" welcome to the world of uncertainty. You can not afford to wait for perfect information- you must play the odds.
How the Fed Creates Crisis
From James Grant’s “Mr. Market Miscalculates- The Bubble Years and Beyond.”
“Under Greenspan, the Fed has evolved into a kind of national financial fire department. It is not merely the lender of last resort but also the damage-control coordinator of first resort. No act of Congress made it so. But so reliably has the Fed appeared at the scene of speculative accidents that it probably couldn’t stay away from the next one even if it wanted to. It must keep trying to fix what’s broken, even when almost nobody realized what was broken.”
“Repeated and predictable acts of intervention can’t help but change behavior. The more dependably the Fed fends off disaster, the bolder and more leveraged investors become. The bolder investors become, the higher the markets go. And the higher the prices and the greater the leverage, the more likely does a financial accident become. In response to which, of course, the Fed would intervene.”
“Under Greenspan, the Fed has evolved into a kind of national financial fire department. It is not merely the lender of last resort but also the damage-control coordinator of first resort. No act of Congress made it so. But so reliably has the Fed appeared at the scene of speculative accidents that it probably couldn’t stay away from the next one even if it wanted to. It must keep trying to fix what’s broken, even when almost nobody realized what was broken.”
“Repeated and predictable acts of intervention can’t help but change behavior. The more dependably the Fed fends off disaster, the bolder and more leveraged investors become. The bolder investors become, the higher the markets go. And the higher the prices and the greater the leverage, the more likely does a financial accident become. In response to which, of course, the Fed would intervene.”
Friday, April 10, 2009
Political Alchemy
In the Middle Ages wizard chemists called alchemists were rumored to be able to make gold in test tubes from common substances. Outfitted in pointed hats and robes with celestial stars and crescents they conjured precious metals from junk.
Used as a positive metaphor in business or finance, alchemy refers to the creation of value from ideas and strategy that lesser competitors could not comprehend or accomplish.
Used as a negative metaphor in business or finance it is a delusion that you can create something from nothing. We also call it “smoke and mirrors”.
Discussion of the so called Stimulus Bill and the budget sounds like political alchemy; the notion that we can create jobs, forestall bankruptcies, and support housing prices without any apparent cost or counter effect.
If the government can simply create jobs by spending money why would we ever tolerate any unemployment? Because the government can not create a single job, much less 3.5 million of them. Nor can the government save a single job.
After eight years of massive spending under the New Deal, the original mother of all stimulus packages, unemployment remained double our current rate. FDR’s Treasury Secretary, Henry Morgenthau, considered the New Deal a failure at creating jobs.
Every dollar the government spends must eventually come from the private sector. That dollar the government “spends” either directly or indirectly through contractors was extracted from the private sector and destroys at least a job of the same value, except that the private sector spends for the job in a sector that consumers wants rather than in a sector deemed worthy by a bureaucrat or a Congressman.
When the private sector decides they no longer want the services or product they very quickly stop paying and the worker is ultimately transferred to a sector producing something else desired by the consumer. In a government job the worker stays employed long after the need has passed.
Thus in reality the creation of a government job destroys more than an equivalent job in the private sector. Every political grandstanding speech about creating jobs is an outright lie- they are only transferring at least an equal number of jobs from the private sector to the government sector or to another private sector benefitting from the government largesse.
It is the same as cutting 18 inches off one end of a blanket and sewing on the other to make the blanket longer.
Our government is capable of providing any program you want and capable of solving any problem we have. The only choice the legislators really have is how to pay for it.
They can increase the burden on current taxpayers by whatever is necessary to fund the proposed programs. This rarely happens because our elected officials are not comfortable with clarity and the truth, and the voters do not want to hear the truth.
They can borrow the money, but then you must add interest to the cost. Borrowing, like inflation, may also devalue the currency and increase the cost of imported goods. You are still paying the bill; it is just hidden in the prices of the other goods you buy with your weaker dollars.
Or you can just inflate the currency to pay for the debt with cheaper dollars in the future. You also pay the cost with lost purchasing power.
One way or the other you are going to pay.
If government spending gets too high as a percent of GDP, it begins to crowd out private capital creation and the ability of the economy to grow and generate real job growth is impaired; income growth is restrained and the taxes generated off the income to pay for the government programs is limited or reduced. You enter a spiral of increased government expenditures with decreasing tax revenues to pay for it. The ultimate pain to resolve this increases the longer it continues.
The central problem of any elected government official is to be able to say no to worthwhile projects they can not afford. The government’s claim to create or save jobs is no different than the alchemist’s claim to make gold from base metals: it is a myth.
Used as a positive metaphor in business or finance, alchemy refers to the creation of value from ideas and strategy that lesser competitors could not comprehend or accomplish.
Used as a negative metaphor in business or finance it is a delusion that you can create something from nothing. We also call it “smoke and mirrors”.
Discussion of the so called Stimulus Bill and the budget sounds like political alchemy; the notion that we can create jobs, forestall bankruptcies, and support housing prices without any apparent cost or counter effect.
If the government can simply create jobs by spending money why would we ever tolerate any unemployment? Because the government can not create a single job, much less 3.5 million of them. Nor can the government save a single job.
After eight years of massive spending under the New Deal, the original mother of all stimulus packages, unemployment remained double our current rate. FDR’s Treasury Secretary, Henry Morgenthau, considered the New Deal a failure at creating jobs.
Every dollar the government spends must eventually come from the private sector. That dollar the government “spends” either directly or indirectly through contractors was extracted from the private sector and destroys at least a job of the same value, except that the private sector spends for the job in a sector that consumers wants rather than in a sector deemed worthy by a bureaucrat or a Congressman.
When the private sector decides they no longer want the services or product they very quickly stop paying and the worker is ultimately transferred to a sector producing something else desired by the consumer. In a government job the worker stays employed long after the need has passed.
Thus in reality the creation of a government job destroys more than an equivalent job in the private sector. Every political grandstanding speech about creating jobs is an outright lie- they are only transferring at least an equal number of jobs from the private sector to the government sector or to another private sector benefitting from the government largesse.
It is the same as cutting 18 inches off one end of a blanket and sewing on the other to make the blanket longer.
Our government is capable of providing any program you want and capable of solving any problem we have. The only choice the legislators really have is how to pay for it.
They can increase the burden on current taxpayers by whatever is necessary to fund the proposed programs. This rarely happens because our elected officials are not comfortable with clarity and the truth, and the voters do not want to hear the truth.
They can borrow the money, but then you must add interest to the cost. Borrowing, like inflation, may also devalue the currency and increase the cost of imported goods. You are still paying the bill; it is just hidden in the prices of the other goods you buy with your weaker dollars.
Or you can just inflate the currency to pay for the debt with cheaper dollars in the future. You also pay the cost with lost purchasing power.
One way or the other you are going to pay.
If government spending gets too high as a percent of GDP, it begins to crowd out private capital creation and the ability of the economy to grow and generate real job growth is impaired; income growth is restrained and the taxes generated off the income to pay for the government programs is limited or reduced. You enter a spiral of increased government expenditures with decreasing tax revenues to pay for it. The ultimate pain to resolve this increases the longer it continues.
The central problem of any elected government official is to be able to say no to worthwhile projects they can not afford. The government’s claim to create or save jobs is no different than the alchemist’s claim to make gold from base metals: it is a myth.
Thursday, April 9, 2009
How The Enemy Sees Us
Great observation from American Thinker. We would be foolish to think that only the Jews are at risk.
A Lesson from our Friends the Israelis
By Lauri B. Regan
Read the entire piece here.
excerpt:
Our Israeli tour guide was asked to speak at a conference in the United States several years ago at which he shared the floor with a Palestinian panelist. Before walking off the stage in the middle of the discussions, the Palestinian gentleman politely interrupted him and stated the following:
"Dear People, regardless of what you think, the world is divided in two......those who are Muslims and those who are not YET Muslims."
The statement did not surprise our guide for Israelis are fully aware of what drives the enemy in their midst. The rest of the world, however, should listen carefully. For, it is not just Israel that is facing this ideology. The war against infidels only begins with Israel.
A Lesson from our Friends the Israelis
By Lauri B. Regan
Read the entire piece here.
excerpt:
Our Israeli tour guide was asked to speak at a conference in the United States several years ago at which he shared the floor with a Palestinian panelist. Before walking off the stage in the middle of the discussions, the Palestinian gentleman politely interrupted him and stated the following:
"Dear People, regardless of what you think, the world is divided in two......those who are Muslims and those who are not YET Muslims."
The statement did not surprise our guide for Israelis are fully aware of what drives the enemy in their midst. The rest of the world, however, should listen carefully. For, it is not just Israel that is facing this ideology. The war against infidels only begins with Israel.
Wednesday, April 8, 2009
Foxbats Over Dimona
Forty years after the Six Day War of 1967, declassified documents from the Russian and American archives, and interviews with retired veterans from the Soviet armed forces shed new light on the pivotal conflict.
Russia was concerned about Israel development of a nuclear facility in Dimona and deliberately instigated that war to neutralize the new Israeli capability. We now also know that the Soviets committed Soviet personnel and weapons for a direct intervention.
Newly released data indicate that the Soviets were even planning to land ground forces in Haifa.
The title for “Foxbats Over Dimona” comes from the Mig-25s that flew over the Dimona nuclear facility. Unlike the Mig-21s that were flown by the Egyptians, the 25’s were too new and had to be flown by Russians.
Russian veterans indicated that the missiles that sank the Israeli destroyer Eilat were directed by Russian military in every aspect but the pressing of the launch button.
Clearly the effort failed. The Russians tried to maneuver the Egyptians into provoking the Israelis without striking the first blow. Meanwhile the United States tried to remain neutral, inadvertently giving the Russians a green light.
But the alliance of the Egyptians, Jordanians, and the Syrians was weak. They did not trust each other. Jordan entered the war believing the false broadcasts of Egypt’s success, when in fact the Israelis decimated the Egyptian ground and air forces.
Russia failed to provide direct support to the Arab Alliance, likely intimidated by the United States deployment of its Mediterranean fleet to the area. General Moshe Dayan was against the attack on the Golan Heights because he feared facing a direct Soviet intervention, knowing the Syrians were close with the Soviets. When Dayan saw the Soviets fail to support the Egyptians he agreed with the Israeli staff and seized the Golan Heights.
Many in the Soviet block were incensed that the Soviets did not support their Arab allies. The Soviets spent so heavily to rearm the Arab Alliance, leading to the Yom Kippur War in 1973, that it caused economic sacrifice in their homeland.
The Soviets played a dangerous game and lost. When they broke off diplomatic relations with Israel, they lost any voice in Mideast policy going forward. As the Russian Embassy was vacated Russian army vets from WWII that were now Israeli citizens threw their medals in a box and gave it to the Russian diplomats to take back to Russia.
Summarized from Foxbats Over Dimona by Isabella Ginor and Gideon Remez
Russia was concerned about Israel development of a nuclear facility in Dimona and deliberately instigated that war to neutralize the new Israeli capability. We now also know that the Soviets committed Soviet personnel and weapons for a direct intervention.
Newly released data indicate that the Soviets were even planning to land ground forces in Haifa.
The title for “Foxbats Over Dimona” comes from the Mig-25s that flew over the Dimona nuclear facility. Unlike the Mig-21s that were flown by the Egyptians, the 25’s were too new and had to be flown by Russians.
Russian veterans indicated that the missiles that sank the Israeli destroyer Eilat were directed by Russian military in every aspect but the pressing of the launch button.
Clearly the effort failed. The Russians tried to maneuver the Egyptians into provoking the Israelis without striking the first blow. Meanwhile the United States tried to remain neutral, inadvertently giving the Russians a green light.
But the alliance of the Egyptians, Jordanians, and the Syrians was weak. They did not trust each other. Jordan entered the war believing the false broadcasts of Egypt’s success, when in fact the Israelis decimated the Egyptian ground and air forces.
Russia failed to provide direct support to the Arab Alliance, likely intimidated by the United States deployment of its Mediterranean fleet to the area. General Moshe Dayan was against the attack on the Golan Heights because he feared facing a direct Soviet intervention, knowing the Syrians were close with the Soviets. When Dayan saw the Soviets fail to support the Egyptians he agreed with the Israeli staff and seized the Golan Heights.
Many in the Soviet block were incensed that the Soviets did not support their Arab allies. The Soviets spent so heavily to rearm the Arab Alliance, leading to the Yom Kippur War in 1973, that it caused economic sacrifice in their homeland.
The Soviets played a dangerous game and lost. When they broke off diplomatic relations with Israel, they lost any voice in Mideast policy going forward. As the Russian Embassy was vacated Russian army vets from WWII that were now Israeli citizens threw their medals in a box and gave it to the Russian diplomats to take back to Russia.
Summarized from Foxbats Over Dimona by Isabella Ginor and Gideon Remez
Tuesday, April 7, 2009
Should We Be Happy about the Financial Meltdown?
A critical position of the current administration is that the spread between the have and the have-nots has widened to a level that offends their sense of social justice.
To level the playing field as they see necessary, they would like to increase taxes on the wealthy, reduce home mortgage deductions at the higher brackets, reduce charitable deductions for the higher brackets, expand the upper brackets subject to the social security tax, and promote higher wages through a bill giving unions the power of protected intimidation with the assistance of a federal agency forcing binding arbitration on private businesses.
While I have written repeatedly about these misguided and destructive intrusions we need to remember that their motivation is to reduce the discrepancy between the wealthy and the rest.
There is some debate how bad the discrepancy is. The top 1% pay nearly 40% of the taxes. Our taxes are more progressive than most countries, even when taking into account the discrepancy in income. The progressiveness has actually increased during the eight years of George Bush. But such facts do not seem to sooth their sense of moral indignation.
The catastrophic meltdown in the financial sector must have clearly impacted the wealthy far more. Big salaries on Wall Street have become far less common in the last 9 months. Big bonuses have dropped so much that the local governments lament the loss in tax revenues on those immoral bonuses.
Certainly the lower income had very little money with the goniff, Bernie Madoff. So many of the wealthy lost so much from this single thief that it must be some sort of divine retribution against the wealthy who have consumed such a disproportionate share of the people’s pie.
Hasn’t the destruction of investment balances by the fools of Wall Street and the thieves like Madoff served the administration’s goal of leveling the playing field?
Has the cosmic sense of supreme justice or Karma done the work of the moral supremacists? Isn’t the world a more fair and just place as a result?
Why aren’t they happy?
To level the playing field as they see necessary, they would like to increase taxes on the wealthy, reduce home mortgage deductions at the higher brackets, reduce charitable deductions for the higher brackets, expand the upper brackets subject to the social security tax, and promote higher wages through a bill giving unions the power of protected intimidation with the assistance of a federal agency forcing binding arbitration on private businesses.
While I have written repeatedly about these misguided and destructive intrusions we need to remember that their motivation is to reduce the discrepancy between the wealthy and the rest.
There is some debate how bad the discrepancy is. The top 1% pay nearly 40% of the taxes. Our taxes are more progressive than most countries, even when taking into account the discrepancy in income. The progressiveness has actually increased during the eight years of George Bush. But such facts do not seem to sooth their sense of moral indignation.
The catastrophic meltdown in the financial sector must have clearly impacted the wealthy far more. Big salaries on Wall Street have become far less common in the last 9 months. Big bonuses have dropped so much that the local governments lament the loss in tax revenues on those immoral bonuses.
Certainly the lower income had very little money with the goniff, Bernie Madoff. So many of the wealthy lost so much from this single thief that it must be some sort of divine retribution against the wealthy who have consumed such a disproportionate share of the people’s pie.
Hasn’t the destruction of investment balances by the fools of Wall Street and the thieves like Madoff served the administration’s goal of leveling the playing field?
Has the cosmic sense of supreme justice or Karma done the work of the moral supremacists? Isn’t the world a more fair and just place as a result?
Why aren’t they happy?
Monday, April 6, 2009
The Fight is Beyond Borders
Rupert Murdock writes in the Jerusalem Post. Read the entire article here.
An excerpt:
Why, for example, do we hear no calls for human rights investigations into Hamas gunmen using Palestinian children as human shields? Why so few stories on the reports of Hamas assassins going to hospitals to hunt down their fellow Palestinians? And where are the international human rights groups demanding that Hamas stop blurring the most fundamental line in warfare: the distinction between civilian and combatant?
In this new century, the "West" is no longer a matter of geography. The West is defined by societies committed to freedom and democracy. That at least is how the terrorists see it. And if we are serious about meeting this challenge, we would expand the only military alliance committed to the defense of the West to include those on the front lines of this war. That means bringing countries such as Israel into NATO.
My friends, I do not pretend to have all the answers to Gaza this evening. But I do know this: The free world makes a terrible mistake if we deceive ourselves into thinking this is not our fight.
In the end, the Israeli people are fighting the same enemy we are: cold-blooded killers who reject peace, who reject freedom and who rule by the suicide vest, the car bomb and the human shield.
Against such an enemy, I will not second-guess the decisions of a free Israel defending her citizens. And I would ask all those who support peace and freedom to do the same.
An excerpt:
Why, for example, do we hear no calls for human rights investigations into Hamas gunmen using Palestinian children as human shields? Why so few stories on the reports of Hamas assassins going to hospitals to hunt down their fellow Palestinians? And where are the international human rights groups demanding that Hamas stop blurring the most fundamental line in warfare: the distinction between civilian and combatant?
In this new century, the "West" is no longer a matter of geography. The West is defined by societies committed to freedom and democracy. That at least is how the terrorists see it. And if we are serious about meeting this challenge, we would expand the only military alliance committed to the defense of the West to include those on the front lines of this war. That means bringing countries such as Israel into NATO.
My friends, I do not pretend to have all the answers to Gaza this evening. But I do know this: The free world makes a terrible mistake if we deceive ourselves into thinking this is not our fight.
In the end, the Israeli people are fighting the same enemy we are: cold-blooded killers who reject peace, who reject freedom and who rule by the suicide vest, the car bomb and the human shield.
Against such an enemy, I will not second-guess the decisions of a free Israel defending her citizens. And I would ask all those who support peace and freedom to do the same.
Sunday, April 5, 2009
The Economist on Obama's First 100 Days
The Economist takes a second loook at Obama in 'Learning the Hard Way'
excerpts-
Despite his resounding electoral victory, his solid majorities in both chambers of Congress and the obvious goodwill of the bulk of the electorate, Mr Obama has seemed curiously feeble.
Empty posts, weak policies
There are two main reasons for this. The first is Mr Obama’s failure to grapple as fast and as single-mindedly with the economy as he should have done. His stimulus package, though huge, was subcontracted to Congress, which did a mediocre job: too much of the money will arrive too late to be of help in the current crisis. His budget, though in some ways more honest than his predecessor’s, is wildly optimistic. And he has taken too long to produce his plan for dealing with the trillions of dollars of toxic assets which fester on banks’ balance-sheets.
The failure to staff the Treasury is a shocking illustration of administrative drift. There are 23 slots at the department that need confirmation by the Senate, and only two have been filled. This is not the Senate’s fault. Mr Obama has made a series of bad picks of people who have chosen or been forced to withdraw; and it was only this week that he announced his candidates for two of the department’s four most senior posts. Filling such jobs is always a tortuous business in America, but Mr Obama has made it harder by insisting on a level of scrutiny far beyond anything previously attempted. Getting the Treasury team in place ought to have been his first priority.
excerpts-
Despite his resounding electoral victory, his solid majorities in both chambers of Congress and the obvious goodwill of the bulk of the electorate, Mr Obama has seemed curiously feeble.
Empty posts, weak policies
There are two main reasons for this. The first is Mr Obama’s failure to grapple as fast and as single-mindedly with the economy as he should have done. His stimulus package, though huge, was subcontracted to Congress, which did a mediocre job: too much of the money will arrive too late to be of help in the current crisis. His budget, though in some ways more honest than his predecessor’s, is wildly optimistic. And he has taken too long to produce his plan for dealing with the trillions of dollars of toxic assets which fester on banks’ balance-sheets.
The failure to staff the Treasury is a shocking illustration of administrative drift. There are 23 slots at the department that need confirmation by the Senate, and only two have been filled. This is not the Senate’s fault. Mr Obama has made a series of bad picks of people who have chosen or been forced to withdraw; and it was only this week that he announced his candidates for two of the department’s four most senior posts. Filling such jobs is always a tortuous business in America, but Mr Obama has made it harder by insisting on a level of scrutiny far beyond anything previously attempted. Getting the Treasury team in place ought to have been his first priority.
Saturday, April 4, 2009
Political Control Freaks
TARP is often FORCED onto banks and then used as a means of control. It is a disturbing act to say the least.
In "Obama Wants to Control the Banks" by Stuart Varney in the Wall Street Journal Online describes the process and I also heard the story from Nepolitano on Fox that he describes.
excerpt:
Here's a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.
Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He's been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with "adverse" consequences if its chairman persists. That's politics talking, not economics.
HKO comment- what investor in their right mind would want to invest in a bank subject to such political extortion.
In "Obama Wants to Control the Banks" by Stuart Varney in the Wall Street Journal Online describes the process and I also heard the story from Nepolitano on Fox that he describes.
excerpt:
Here's a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.
Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He's been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with "adverse" consequences if its chairman persists. That's politics talking, not economics.
HKO comment- what investor in their right mind would want to invest in a bank subject to such political extortion.
In the Budget that Nobody Read
For those who do not share the joy of running a company, COBRA stands for Consolidated Omnibus Budget Reconciliation Act (Passed in 1985) and it “gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan.” (US Dept of Labor Website.)
Here is an example of how it USED to work:
An employee has family coverage which costs a total of $800 a month. He pays 50%- $400 a month or $100 a week. The company pays the other $400. This varies among companies. Many just pay the single portion of the coverage and the family portion is born totally by the employee. In such a scenario the employee pays more than 50%.
The employee leaves, is fired, laid off or whatever. He has the opportunity to carry his company health insurance with no pre-existing conditions at the group rate plus no more than 2% (for administrative costs). If he elects to continue the coverage of his health insurance he pays us a check for the full $800 per month.
In reality few take the coverage because of the cost. Those who do elect to carry the coverage probably have a medical issue that is likely to need it so it adversely affects the company’s risk profile. But the process is simple: you want the coverage; you pay the cost. You get the benefit of a group rate and no pre-existing conditions but you bear the full cost.
Now this is how it now happens under the new administration:
You are separated from the company as before, but instead of paying 102% you pay only 35%. First, note that before you were only paying 50% so you actually get a 30% DISCOUNT on your end of the health insurance by getting fired or laid off. We may call that a bit of a perverse incentive.
Who pays the other 65%? Your employer pays the 65% INITIALLY, but then must apply for a credit against the social security deductions for the amount. So Social Security funds are ultimately being tapped.
But for me to know to pay the 65% I must know that the ex employee has paid the 35%. Otherwise I will be applying to the IRS for a tax credit for health insurance that was never bought. The IRS may not approve of such activity.
So the insurance company must advise me that the employee has elected to carry the COBRA coverage in order for me to pay the other 65%. But this is a possible violation of HIPPA. The Health Insurance Portability and Accountability Act (HIPAA) was enacted by the U.S. Congress in 1996. The Administration Simplification provisions also address the security and privacy of health data.
According to HIPPA, the Insurance company may be prohibited from advising us that he has coverage, but I am sure this detail will be worked out, eventually.
They have even discussed (get ready for this) getting the State Unemployment administrator to withhold the 35% from the ex employee’s unemployment check. But the state office has no staff or ability to carry out this formidable administrative task.
This plan is an administrative nightmare for the employers who are still in business but there is an even greater problem with the businesses that are shutting down. If a plant has closed (as many have and are about to) there are no social security deductions to get reimbursed from to pay for the remaining 65% of the health insurance premiums.
This is typical of government bureaucrats with no real world experience, and you can bet that no news show will enlighten the voters to the real costs of this very tiny portion of our new regulatory nightmare.
This is the current law. How many other prohibitive administrative costs are buried in the budget that nobody read?
Here is an example of how it USED to work:
An employee has family coverage which costs a total of $800 a month. He pays 50%- $400 a month or $100 a week. The company pays the other $400. This varies among companies. Many just pay the single portion of the coverage and the family portion is born totally by the employee. In such a scenario the employee pays more than 50%.
The employee leaves, is fired, laid off or whatever. He has the opportunity to carry his company health insurance with no pre-existing conditions at the group rate plus no more than 2% (for administrative costs). If he elects to continue the coverage of his health insurance he pays us a check for the full $800 per month.
In reality few take the coverage because of the cost. Those who do elect to carry the coverage probably have a medical issue that is likely to need it so it adversely affects the company’s risk profile. But the process is simple: you want the coverage; you pay the cost. You get the benefit of a group rate and no pre-existing conditions but you bear the full cost.
Now this is how it now happens under the new administration:
You are separated from the company as before, but instead of paying 102% you pay only 35%. First, note that before you were only paying 50% so you actually get a 30% DISCOUNT on your end of the health insurance by getting fired or laid off. We may call that a bit of a perverse incentive.
Who pays the other 65%? Your employer pays the 65% INITIALLY, but then must apply for a credit against the social security deductions for the amount. So Social Security funds are ultimately being tapped.
But for me to know to pay the 65% I must know that the ex employee has paid the 35%. Otherwise I will be applying to the IRS for a tax credit for health insurance that was never bought. The IRS may not approve of such activity.
So the insurance company must advise me that the employee has elected to carry the COBRA coverage in order for me to pay the other 65%. But this is a possible violation of HIPPA. The Health Insurance Portability and Accountability Act (HIPAA) was enacted by the U.S. Congress in 1996. The Administration Simplification provisions also address the security and privacy of health data.
According to HIPPA, the Insurance company may be prohibited from advising us that he has coverage, but I am sure this detail will be worked out, eventually.
They have even discussed (get ready for this) getting the State Unemployment administrator to withhold the 35% from the ex employee’s unemployment check. But the state office has no staff or ability to carry out this formidable administrative task.
This plan is an administrative nightmare for the employers who are still in business but there is an even greater problem with the businesses that are shutting down. If a plant has closed (as many have and are about to) there are no social security deductions to get reimbursed from to pay for the remaining 65% of the health insurance premiums.
This is typical of government bureaucrats with no real world experience, and you can bet that no news show will enlighten the voters to the real costs of this very tiny portion of our new regulatory nightmare.
This is the current law. How many other prohibitive administrative costs are buried in the budget that nobody read?
Friday, April 3, 2009
Politically Correct Hatred
This cartoon by Pat Oliphant is as anti-semitic as any published during the Nazi rise to power. Yet this hatred is tolerated by international media when no other group would dare be subjected to such abuse.
Borrowing Rush
The best ads are those that deliver a direct benefit, that quickly and clearly deliver the compelling reason that you should choose that product or service from among its competitors.
“When it absolutely, positively has to be there overnight.” Fedex.
“We can save you 15% or more on your car insurance.” Geico.
Often creative orgies that win advertising awards only obscure the message and do not serve to sell the product.
Similarly an ad may try to borrow your interest in some sexually appealing, humorous, or emotionally triggering ad that really says nothing compelling as to why you should buy that product over others. It is a weak position and is an admission that there is really nothing unique or valuable about your business or product.
Even an attempt to “reposition” your competition (“We’re number 2 so we try harder”- Avis) which can be effective is weaker than having that singular position that distinguishes you from the crowd.
Rush Limbaugh is the “borrowed interest” that Democratic strategists have used to obscure their own message. Seeking to position their opponents by attaching them to an unpopular figure is another way of saying they do not have a compelling message and reason to maintain support.
Dealing with mass publicity and figures carries an uncontrollable risk that may easily backfire. Rush’s audience is growing from the attention and while he may be polarizing he is likely also gaining converts. Increasing the size of an audience to a show that constantly replays the unpopular actions of a president with declining poll numbers may not yield the results that such smug criticism of Rush anticipated.
Since it is still early in the game, Rush may be expanding the opposition in advance of another Republican leader who can galvanize the GOP well beyond the ditto heads.
The attacks on Rush may be easier than trying to explain why promoting broader unionization, creating huge deficits, increasing taxes, creating a new energy bureaucracy, a new health care bureaucracy, reducing charitable deductions, reducing home mortgage exemptions, allowing mortgage cramdowns, and bailing out irresponsible businesses and homeowners are good and responsible ideas.
After the litany of Bush blaming for the financial crisis has tired itself, one must explain why these approaches are a reasonable solution.
One also has to explain why the Treasury Department which should be the epicenter of the solution is still so understaffed while we address the questionable problems of global warming, the need for more unionization, and a need for universal college education.
Borrowing the voters’ interest by attacking Rush may give some sense of smug satisfaction but it is no substitute for generating rational support for your own policies.
Rush may be the General Patton who quickly punches through to the front, but there are many more that will cement his victory as they bring up the rear. There is much more to the opposition than your immediate target.
“When it absolutely, positively has to be there overnight.” Fedex.
“We can save you 15% or more on your car insurance.” Geico.
Often creative orgies that win advertising awards only obscure the message and do not serve to sell the product.
Similarly an ad may try to borrow your interest in some sexually appealing, humorous, or emotionally triggering ad that really says nothing compelling as to why you should buy that product over others. It is a weak position and is an admission that there is really nothing unique or valuable about your business or product.
Even an attempt to “reposition” your competition (“We’re number 2 so we try harder”- Avis) which can be effective is weaker than having that singular position that distinguishes you from the crowd.
Rush Limbaugh is the “borrowed interest” that Democratic strategists have used to obscure their own message. Seeking to position their opponents by attaching them to an unpopular figure is another way of saying they do not have a compelling message and reason to maintain support.
Dealing with mass publicity and figures carries an uncontrollable risk that may easily backfire. Rush’s audience is growing from the attention and while he may be polarizing he is likely also gaining converts. Increasing the size of an audience to a show that constantly replays the unpopular actions of a president with declining poll numbers may not yield the results that such smug criticism of Rush anticipated.
Since it is still early in the game, Rush may be expanding the opposition in advance of another Republican leader who can galvanize the GOP well beyond the ditto heads.
The attacks on Rush may be easier than trying to explain why promoting broader unionization, creating huge deficits, increasing taxes, creating a new energy bureaucracy, a new health care bureaucracy, reducing charitable deductions, reducing home mortgage exemptions, allowing mortgage cramdowns, and bailing out irresponsible businesses and homeowners are good and responsible ideas.
After the litany of Bush blaming for the financial crisis has tired itself, one must explain why these approaches are a reasonable solution.
One also has to explain why the Treasury Department which should be the epicenter of the solution is still so understaffed while we address the questionable problems of global warming, the need for more unionization, and a need for universal college education.
Borrowing the voters’ interest by attacking Rush may give some sense of smug satisfaction but it is no substitute for generating rational support for your own policies.
Rush may be the General Patton who quickly punches through to the front, but there are many more that will cement his victory as they bring up the rear. There is much more to the opposition than your immediate target.
Thursday, April 2, 2009
Intelligence Without Understanding
It is man’s nature to want to see patterns where none exist. We strive for certainty in an uncertain world. We value formulas and beliefs over randomness. We think there is always a solution to every problem.
It is our aversion to randomness that put our financial system on the edge of catastrophe. The difference between randomness and risk is that risk carries some degree of certainty if the history and sample size is large enough.
Our obsession with finding patterns may explain the Shroud of Turin, and it explains the deadly popularity of the Gaussian copula function. The academic sounding mathematical model attempted to explain correlations between unrelated financial factors. It became so widely accepted in the world financial circles that it gave comfort to institutions to take exceptional risks.
But the heart of the problem lies not with one who discovered the model, but with the industry leaders who replaced a philosophical understanding of risk with delusional mathematical certainty. They thought that you could create a sound financial product by packaging hundreds and thousands of unsound products together. The mathematical wiz kids did not understand the products and the actual risks behind the numbers.
One of the most outspoken voices over the last few years against the ludicrous mathematical models and the housing and banking bubble was Nassim Taleb, a successful trader and author of “Fooled by Randomness” and “The Black Swan.” Taleb spends more of his time explaining philosophy and its insight into risk than he does with extravagant mathematical models with names like “Gaussian copula”, though I do not doubt he understands the mathematical concepts far better than most of its practitioners.
Certainty comes at a high cost. With an extravagant enough formula we can believe that the fundamental laws of math change when the numbers get large enough. It is critical that we gain an understanding beyond mathematical illustrations. After the decade of greed in the 1980’s we demanded ethics courses in the business schools; we should have demanded philosophy courses.
Intelligence does not equal understanding. A farmer understands the philosophical concept of sewing and reaping far better than the commodity trader selling his products and the bureaucrat regulating his industry.
Mere intelligence does not overcome the human desire for certainty and patterns; it often descends into the arrogance of believing we can provide certainty and answers where none exist.
We did not arrive at our crisis from the lack of intelligence, but from blind faith in an intelligence that often runs counter to common sense and understanding. You have to be pretty smart to screw up this big.
Just as blind faith in a delusional intelligence got us into this mess we should equally eschew blind faith in the political solutions to restore stability. I remain skeptical about blind faith in any leader whose main qualification is a perceived intelligence, but who lacks the experience that promotes understanding.
Intelligence without understanding will only deepen the hole.
It is our aversion to randomness that put our financial system on the edge of catastrophe. The difference between randomness and risk is that risk carries some degree of certainty if the history and sample size is large enough.
Our obsession with finding patterns may explain the Shroud of Turin, and it explains the deadly popularity of the Gaussian copula function. The academic sounding mathematical model attempted to explain correlations between unrelated financial factors. It became so widely accepted in the world financial circles that it gave comfort to institutions to take exceptional risks.
But the heart of the problem lies not with one who discovered the model, but with the industry leaders who replaced a philosophical understanding of risk with delusional mathematical certainty. They thought that you could create a sound financial product by packaging hundreds and thousands of unsound products together. The mathematical wiz kids did not understand the products and the actual risks behind the numbers.
One of the most outspoken voices over the last few years against the ludicrous mathematical models and the housing and banking bubble was Nassim Taleb, a successful trader and author of “Fooled by Randomness” and “The Black Swan.” Taleb spends more of his time explaining philosophy and its insight into risk than he does with extravagant mathematical models with names like “Gaussian copula”, though I do not doubt he understands the mathematical concepts far better than most of its practitioners.
Certainty comes at a high cost. With an extravagant enough formula we can believe that the fundamental laws of math change when the numbers get large enough. It is critical that we gain an understanding beyond mathematical illustrations. After the decade of greed in the 1980’s we demanded ethics courses in the business schools; we should have demanded philosophy courses.
Intelligence does not equal understanding. A farmer understands the philosophical concept of sewing and reaping far better than the commodity trader selling his products and the bureaucrat regulating his industry.
Mere intelligence does not overcome the human desire for certainty and patterns; it often descends into the arrogance of believing we can provide certainty and answers where none exist.
We did not arrive at our crisis from the lack of intelligence, but from blind faith in an intelligence that often runs counter to common sense and understanding. You have to be pretty smart to screw up this big.
Just as blind faith in a delusional intelligence got us into this mess we should equally eschew blind faith in the political solutions to restore stability. I remain skeptical about blind faith in any leader whose main qualification is a perceived intelligence, but who lacks the experience that promotes understanding.
Intelligence without understanding will only deepen the hole.
Wednesday, April 1, 2009
Chuck Norris to Replace Michael Steele as Chairman of the Republican Party
Sensing the need for a more popular leader with broader appeal, party leaders are about to place Chuck Norris in the leadership role.
This was first suggested by Republican candidate Mike Huckabee, who Chuck Norris supported, after the party's loss last November.
Chuck Norris also has wide support among the youth as a result of a whimsical viral website called the Truth About Chuck Norris which has also been published. Some of the humorous entries:
Chuck Norris has counted to infinity. Twice.
There is no theory of evolution, just a list of creatures Chuck Norris allows to live.
Chuck Norris once ate a whole cake before his friends could tell him there was a stripper in it.
While urinating, Chuck Norris is easily capable of welding titanium
Chuck Norris does not own a stove, oven, or microwave , because revenge is a dish best served cold.
In an act of great philanthropy, Chuck made a generous donation to the American Cancer Society. He donated 6,000 dead bodies for scientific research.
Many believe that such humor can be an asset in defusing the concentrated efforts of Democratic operatives like Paul Begala and James Carvill to neutralize Republicans by focusing attention on partisan celebrities such as Rush Limbaugh.
It should make the next campaign interesting.
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