Saturday, March 28, 2009

Two good things

I saw two good things this week.

One was an op ed in the New York Times that was a reprint of a resignation letter from someone at AIG. This letter really points out that the AIG bonus fiasco isn't what the media has made it out to be, or what the politicians want it to be.

The other thing that I really liked this week was from a British politician speaking in the EU parliament. He lays into British Prime Minister Gordon Brown on his mishandling of the British economy. I just wish we had someone in the US congress with the ability and courage to voice the same concerns here.

Friday, March 20, 2009


Back on President Obama's inauguration day I had posted about the proclamation on service, and about the tone it set and danger that it leads to calls for mandatory service.

Today I came across a story about House Bill HR 1444 - the "Congressional Commission on Civic Service Act".

It is currently referred to subcommittee and I hope it dies there.

Of particular interest are sections 4(b)(5) and 4(b)(6) that lists a couple duties of the commission.

Among other things, they are to study:

"(5) The effect on the Nation, on those who serve, and on the families of those who serve, if all individuals in the United States were expected to perform national service or were required to perform a certain amount of national service."


"(6) Whether a workable, fair, and reasonable mandatory service requirement for all able young people could be developed, and how such a requirement could be implemented in a manner that would strengthen the social fabric of the Nation and overcome civic challenges by bringing together people from diverse economic, ethnic, and educational backgrounds."

Italics and bold mine of course.

So why is this the government's job? Oh yeah, they are the only ones that require and can enforce mandatory.

So who would define what should qualify as "service"?
What would the penalties of "required" and "mandatory" be?
And what would "reasonably mandatory" mean?

Here's the problem with 4(b)(5) - it seeks to find out "the effect" without regards to whether it is even proper as a governmental role.

Here's the problem with 4(b)(6) - it includes "workable", "fair", and "reasonable" in the same sentence as "mandatory" with no trace of irony.

And why doesn't the commission ask the basic question as to whether the government should even be in this role?

I must say would come at a convenient time of increasing federalization of our "public" (i.e. "government run") (and failing) school system. Yes, the commission will also look into how service could be made a requirement in primary and secondary education.

Here's the thing. A just society is one where people help each other voluntarily. Not because it is required with the threat of force (government == force). What kind of morality is that?

I will engender in my daughter the desire to help those who need it. I will encourage her to think of ways that she can help people, out of a sense of empathy, and within the bounds of what she judges reasonable for her to do. I will also encourage her to resist any forced service, because whatever the intention behind it - the forced service is itself immoral.

The whole "Congressional Commission on Civic Service Act" can be found here:

Again, it's only in subcommitte, and it will hopefully languish and die there (like other past proposals like reinstituting the draft).

As they say - "time will tell".

Tuesday, February 10, 2009

Accountability Farce

I just drew some logical connections about what the fallout is going to be when the American Recovery and Reinvestment Act doesn't work and it turns out the money was spent wastefully... And it's not good.

Here's the problem.

The Federal government is leaving up to the states and local governments how most of the money is to be spent.

The claim is that there will be transparency into how the money is spent. Which is good.

The claim is also that this transparency will lead to accountability.

But here's why it won't. Those to whom the state and local governments are accountable to will not have a problem with it (speaking marjority-wise).

What everyone will be upset about is the wastefulness "of those other guys". The recipients of largesse at the local level will be happy about it. Those in NYC will be flabbergasted at the waste in LA - but their own? Probably not so much.

In fact, that's what I believe too many people have come to think of their local representatives as - their lobbyists to the Federal government to make sure they get "their share" of any spending (or more than their share if they can get it). Those are the representatives that get re-elected.

Congress will of course gasp at what happened, just like any other time they abrogate their responsibilities and rush into something. Voting that Bush could invade Iraq and then he does it? *Gasp* Who could have guessed that? Voting that Treasury Secretary could spend TARP how he sees fit, and then he does just that? *Gasp* Who could have known?

Throwing money at state and local governments, more than they know what to do with? *Gasp* And they spend it wastefully? Well, who could have seen that coming?

So here's the way it seems destined to me to shake out:

* Congress ends up shocked (shocked we say!) at what the states have done (but they, Congress, are not to blame of course)

* Citizens will be shocked at what *other* places have done, but the local spending won't be seen as very wasteful.

Not to mention (ok, actually I'm mentioning it) we'll be further in debt, have weakened the dollar, and added high inflation to the recipe of high unemployment and low (or negative) growth.

What then? A *bigger* "stimulus" I suppose?


Monday, February 9, 2009


"A lot of truth is said in jest"
      - Eminem

Saturday, February 7, 2009

Rationality on the House floor

There may have been some rational economics in Congress this week after all.

Statement of Congressman Ron Paul
United States House of Representatives
Statement on Federal Reserve Board Abolition Act
February 3, 2009

Madame Speaker, I rise to introduce legislation to restore financial stability to America's economy by abolishing the Federal Reserve. Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.

From the Great Depression, to the stagflation of the seventies, to the current economic crisis caused by the housing bubble, every economic downturn suffered by this country over the past century can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts.

With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America's exports or the low rate of savings should be enthusiastic supporters of this legislation.

Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of special interests and their own appetite for big government.

Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.

In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true freemarket economy.

In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.

Thursday, February 5, 2009

Connecting Dots

Somtimes it's interesting to back up with a wider view and connect some dots.

Here's an interesting couple dots to connect in reverse chronological order:

* February, 2009 - Wells Fargo cancels trip due to congressional (and resulting media and public) outrage on its cost and the fact that they took $25B in TARP money.

* October, 2008 - Wells Fargo forced to take $25B in TARP money

Interesting dynamic if you read that back in chronological order.

The first article, about their cancelled Vegas junket, also points this out:

Wells Fargo has bolstered lending as its top competitors scaled back. The company added $9.7 billion in loans in the fourth quarter, compared with a combined $86.4 billion decline at JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. Wells Fargo said last week that it doesn’t need additional government capital after Citigroup and Bank of America required a second round of bailout funds.

It was interesting, back in October 2008 - if Wells Fargo was forced by Paulson to take the money when they didn't really want to, was it cover for the government not wanting to appear to be picking out specific companies as problems?

Apparently when they did the auto company bailout in December 2008 they felt they didn't need such political cover anymore to hide favoritism to specific companies (even though a job saved in Detroit is probably a job lost in Appalachia working for Toyota).

In my opinion the rational economic analysis of what to do about the "big 3" car companies seemed to be to do a structured bankruptcy - whereby the survivable parts of the businesses go on.

I've wondered why such a structured bankruptcy shouldn't apply to the big banks that got themselves into trouble with loose lending.

Just like Toyota (who run their business better than GM) shouldn't have to take a hit because GM is propped up by the US government - the regional banks, who ran their businesses better than the big guys during the bubble, shouldn't have to take a hit because the big banks are propped up by the US government.

Wouldn't it make sense for the well-run regional banks to be allowed to grow and take over parts of the poorly-run big guys as part of a structured bankruptcy? This should make even more sense now that there is talk of the Fed creating a "bad bank" anyway.

Sunday, February 1, 2009

Forclosures good or bad?

This issue has been in the back of mind with all of this economic stuff lately. I came across a good article in the Wall Street Journal that I think sets up the case well for forclosure not necessarily being something that should be fought at all costs.

I think this is really important to think about. The politicians mostly argue that "the homeowner must be helped" and that forclosures must be stopped. There are good arguments for this having to do with the knock-on effects of foreclosures (such as neighborhood crime rates), though I don't know if they are substantiated. But that doesn't mean there aren't good arguments for letting them happen. At least in what I've read the mainstream media mostly parrots the politicians line about stopping forclosures - but I hope alternate perspectives are voiced and given serious consideration as well.

Sloppiness, statistics, and lies

I was watching this week's weekly Presidential address on YouTube and came across this quote, which I feel compelled to comment on. President Obama has talked about accountability, and accountability in how he frames the current situation and his reaction to it is therefore extremely important. From the address (heard and copied directly from official transcript:

"Yesterday we learned that our economy shrank by nearly 4 percent from October through December."
- President Obama, Jan 31, 2009

At best this is sloppy wording. Unlikely in prepared remarks. I could maybe believe it if it was off-the-cuff in an interview. I think it falls best under the heading of "lies and statistics". That is, trying to make statistics say what you want them to.

Given that Obama is pushing for the stimulus package, it is in his interest to paint the situation as darkly as possible. Just as it was in his interest to call it the "worst economic crisis since Great Depression" when he was on the campaign trail.

This number was discussed in an earlier post on this blog, and the number is a manufactured number that desribes an "annualized rate" for economic growth (contraction in this case as it's negative).

Saying "our economy shrank by nearly 4 percent" is simply not true. It's as if I lost 5 lbs between October and December, which would be 20 lbs at an annualized rate. I can't then say "I lost 20 lbs from October to December." It's as simple as that.

To quote the true economic statistic you either have to say:
1. "our economy shrank by less than 1% from October through December"
2. "our economy shrank at a yearly rate of nearly 4% from October through December"

It is still the largest since 1982 if quoted that way, but it does make a difference. Imagine being told your bank account went down "less than 1%" versus being told "almost 4%". It definitely frames perception about the size of the problem differently.

Now - how to hold President Obama accountable for this mis-statement? I suppose the best way is to write an email to the office of the president. I'm off to do that now - URL:

[Update - I sent the following to the President's office through the link above. You're allowed 500 characters - I was economic and spared 11]

I hope that President Obama's commitment to accountability starts with his own words. I was disappointed to hear it said in the Jan 31 weekly address that "our economy shrank by nearly 4 percent from October through December". The fact that 4% (really 3.8%) was an "annualized" number makes that statement false. The truth would be "our economy shrank by less than 1%...". Whether or not it is, this smells like exaggeration to further an agenda. I would hope for a public correction.

Saturday, January 31, 2009

What he said

I was back-checking some economic facts based on some things that I wanted to blog about. In the process, I came across the following blog post from the Heritage Foundation. I don't monitor this blog, I just came across it in a Google search. But it says almost all of the things that I had wanted to say, so I thought it would be worthwhile to just link to it in this case. Having read it, it didn't make sense to end up restating it.

I think this is really worth a read for understanding the basics of why stimulus fails. Neither the economists that are "newly converted" to spending stimulus or those that were always die-hard fans are, that I have seen, explaining why they claim it will work in the face of contrary historical evidence. It has been tried before and has never worked. I don't think that can be overstated.

What do they call it again when you do the same thing over and over expecting a different result?

As I mentioned in an earlier post's comments, I don't think WWII can be used as a successful case study of fiscal stimulus since there are special factors surrounding a war economy that can't be applied to today's situation.

I should also note that I don't think this means that a discussion as to whether infrastructure projects make sense or not isn't worth having. But I think it should be considered on its own merits and not as part of a stimulus discussion.

The spending portions of the stimulus package will not only be wasteful spending that will increase our national debt (ie. put us further in debt to other nations), but also expands the power of government - which I think we should always be wary of, no matter who's administration it is.

Thursday, January 29, 2009

The Great

I read a really good quote last fall: "It took the government to put the 'Great' in 'Great Depression'".

We are being pounded by the steady drumbeat of the need "to do something". Last year I remember reading a quote from a congressman when the TARP bill was being passed that "we need to act fast - there's no time to figure out if we're doing the right thing, we just have to do something". Ugh.

Obviously the Obama administration is pushing the stimulus package heavily. Just today it passed the House easily. The media for the most part just repeats the tired old lines.

Here's what people should pay more attention to: Keynesian-style stimulus doesn't work. It didn't work in the 1930's, or the 1970's, or in Japan in the 1990's. And we want to do it now why?

I think a big reason is because on the surface it sounds right. There is a real problem here of intuition leading people astray. But intution often doesn't work well in analyzing complex systems. I've seen no actual explanation about why the proposed stimulus is going to work and why it won't be a long-term problem. In fact, the supposed argument for why it will work completely ignores the long term problem.

Why aren't people more disturbed that they do not point to a case where government spending expansion has worked in the past to get an economy out of recession?

I was happy to see a report of an ad taken out in Newspapers by several leading economists, Nobel Laureates among them, coming out against any kind of stimulus. See it here.

I know that such opinions are going to get lost in the noise. There is a tendency toward *wanting* the government to be big brother - to take care of us. Someone to just come and *do something*, *anything* to just make this go away. Arguments about reality be damned.

These are the types of opinions that were lost in the noise when *last year's* tax stimulus was passed. Or when the TARP bill was passed. Or when the "Big Three" car company bailout bill didn't pass - but Bush did it anyway (with Obama's urging right along with it).

Another big factor here is a sort of self-selection issue. That is, those who are most likely to pursue government positions are those that believes government is the answer to any problem. Plato recognized this dynamic thousands of years ago and said that the best rulers would be those that don't want to rule. Which is quite a paradox indeed.

Saturday, January 24, 2009


I don't think there is anything more impressive about Obama's presidency as his apparent commitment to openness and accountability.

This is more than just a great catharsis after the extremely-closed and obviously-deceitful Bush presidency. I think that it sets an incredible precedent going forward for what we will expect from our government. Fingers crossed that it sticks.

And hopefully it doesn't just stick in the Executive branch, but needs to spread to the Legislative branch.

I hope I can look back at this post someday and agree that it really did mark the start of a lasting change in what we expect from our government.

It's really incredible to be able to sit at a computer and watch a weekly address from the president at your convenience. Whether or not you agree with what is said, it just feels completely proper that it be done that way.

It'll be interesting to see how it goes once the "honeymoon period" for the presidency is over.

I'd love to see weekly addresses made available from both the majority and minority leaders of both the House and Senate as well. Maybe in time.

Hm - is this hope I'm feeling? ;-)

Although I don't agree with the economics behind the stimulus plan, pledging to make it transparent is very positive. To promote that openness, here's this week's address discussing the stimulus plan - for posterity, and in case you didn't see it yet.

Tuesday, January 20, 2009

National Day of Renewal and Reconciliation

I want to start out this post by saying that today has been quite an historic day. Inauguration of the first black President of the United States is a good thing, a good milestone. It isn't said much, but there's even a further step than that - since Barack Obama is mixed-race. We've come far and fast as far as historical timeframes are concerned.

I've always been impressed with how Barack Obama has addressed race - which has been largely by not bringing it up. Through his actions he is basically saying - I'm not black, I'm not white, I'm American. I wouldn't be surprised if he actually has said essentially those words before.

I find that as a person I think Obama is admirable. Being a smoker is even a fine flaw, and makes him perhaps more human than the media and his image-handlers want to make him out to be.

Although Obama wants to put more emphasis on being pragmatic than ideological, there is no questioning that he has an ideology. And well he should. But that's where we part ways, as - from what I can tell - we come from different philosophical camps.

This being inauguration day and change-over of I figured I'd check it out and see what the makeover looked like (not that I spent much time checking out the old

I saw they had a blog, so I figured I would check it out.

I can't fully explain why, but I found Obama's first Official Proclamation kind of creepy.

The meat of it is this:

NOW, THEREFORE, I, BARACK OBAMA, President of the United States of America, by the authority vested in me by the Constitution and laws of the United States, do hereby proclaim January 20, 2009, a National Day of Renewal and Reconciliation, and call upon all of our citizens to serve one another and the common purpose of remaking this Nation for our new century.

I have a real problem with the "serve one another" concept. I am very willing to help other people, but calling it "serving" other people I think is really problematic. Serving implies that their priorities come first. Everyone putting everyone else's priorities first doesn't make sense - and it leads to those "in power" setting the priorities for you. I think your personal priorities *should* in fact come before those of others.

I also am uncomfortable with the "remaking the nation" concept. This seems like a way overly-broad statement. Maybe that just means it ends up meaning nothing - but it really makes it sound like there is an agenda for radical change *away* from the founding philosophical principles of the country, not *toward* them. As far as I'm concerned, we've already been moving away from them - and toward is where we should be headed.

I think also that it comes across to me as an act of great hubris to declare your own inauguration day as a "National Day of" something. Maybe other presidents have done this too, and I just haven't paid attention before.

All in all, a good day. Bush was in fact a disaster, and in many ways Obama will bring positive change. But I'm definitely looking out for the types of change that I don't think we need.

Monday, January 12, 2009

Economic Statism

This is completely opposite of the predominant meme these days, but I am firmly in the camp that government should not be meddling in the affairs of the economy - neither in bad times, nor in good.

In the last 100 years, the government has so slowly inserted itself into economic affairs that at my age (36) it almost seems hard to imagine it could be different. And there is no end in sight. And it is getting worse.

But I firmly believe that the government is to blame for the magnitude of the problems we are currently seeing in the economy. Not just the magnitude, but even the ultimate causes.

What I believe, and I don't think others understand or take into consideration, is that this isn't even so much an issue of good intentions or bad intentions. Several things done with good intentions have disasterous affects. It's not enough to have good intentions.

So not only do I think that government is to blame for where we are, but that is compounded by the fact that now more and more people lean in the direction that it is goverment that will get us through it. More good intentions. More bad results.

Our President-elect, in fact, has said that it is only Government that can get us out of the mess we are in. Some of the things that will be proposed, will no doubt make some sense. But on the whole I think the government has us on a slippery slope aimed at the ground.

It is important to realize that economics exists independent of government. The laws of economics are based on the actions of a complex system of millions of entities (people and businesses) that even if you try to control cannot be. That is why "black markets" for goods and services are created in places where control is attempted. Economic principles exist independent of government mandate - which is why trying to manipulate outcomes leads to problems. You could say it this way - government can control economies, but not economics. Reality always comes back to bite you in the ass when you turn your back on it.

Case in point - the "Great Depression" was precipitated by a disasterous managing of interest rates by the Fed. This was done politically, to prop up the British Pound, which was attempting to maintain a level pre-WWI strength peg to gold, which its post-war economy couldn't maintain. But economics can't be controlled. This led to overly-loose credit, which fuelled massive overconsumption, which was unsustainable and led to the crash and depression.

Sounds familiar. In 2004 or so I clearly remember a cover of The Economist magazine dedicated to the fact that the Fed was afraid of deflation and would be slashing rates. This led to already-overly-loose credit markets becoming even more so, which fuelled massive overconsumption, and well you see where this is going.

Not satisfied with having caused the problems back in 1929, the government then became part of the problem in making the depression last as long as it did. In fact, when "The Fed" was created in 19-something-teen, it was to try and make recessions shallower. And yet the recessions after the Feds creation were deeper, culminating of course, in 1929 and the miserable 1930's.

I say all of that even though I'm getting sick of the media and politicians invoking the depression in comparison to current conditions. The reality is that the conditions are nowhere near the depression.

This has been called by many, including President-elect Obama, the "worst economic crisis since the depression."But this is an outright lie. The recessions in the 1970's and 1980's were worse than this, on objective measures. Could it become worse? Of course - and it will be a self-fulfilling prophesy - because it will be the government's actions that will get us there.

But most will believe what government tells them. That the "free market" has failed and it is now time for government to take more control.

And there's the issue. This wasn't a country founded on the principle of control. It was founded on the philosophy of liberty. And especially in the last 100 years we've moved farther and farther away from that. Many times the side-effect of things done with good intentions.

The worst thing about the current thinking is that it is failing to draw the right lessons from what we've seen unfold over the last year. Many people are probably learning the right lessons actually, but it makes the government flail.

The lesson to draw is that debt has to be managed rationally. There are levels at which consumption is not sustainable - and, on average, we blew through those levels up until 2008. If anything, Government should be preaching *that* message.

The economy can grow again, and sooner, if government gets out of the way. Don't prop up failing companies and claim that it is saving an industry. Don't make future generations bail us out of the mess we're in now (by massive deficit spending). The bottom line is that government doesn't create jobs, businessmen do.

We're definitely headed toward more pain, courtesy of the government.

The worst signs are this:

* Even though the majority of Americans were against the TARP bailout bill, congress passed it anyway. The House temporarily had some balls, but they sold out fairly quickly.

* Even though the majority of Americans were against an "auto bailout", and even though congress didn't pass an "auto bailout", the executive branch still performed an "auto bailout".

The positive signs in this were that a majority of Americans were against both of these things. But that didn't stop the government of course. And it won't stop them going forward.

Worse still, a charismatic leader will be better able to convince a majority that increased economic statism is in their best interest.

And on it goes.