Child Labor

I cringe whenever I read about child labor laws. Western, prosperous countries have a real aversion to the thought of child laborers and anew quick to denounce and to combat it. Every time another concession is reached to limit child labor the success is trumpeted and progress is seen to have been made. Funnily enough, I have never seen any of those organizations track the outcomes of the children themselves to see if they are being helped.

Like everything else in life, the issue of child labor is about options. I can guarantee that whenever you find child laborers, you will find crushing poverty as well. I believe the best way to think about child labor is to imagine what they will do if they are not allowed to work legally. Clearly, if they needed to work before, the passing of a law will not change that circumstance. We have an analog of what happens right here in this country with illegal aliens. When you are not permitted to work legally, you are driven underground. You might find regular work, but at a much lower rate of pay. The ones that aren't lucky enough to find work as gardeners, carpenters, cooks, etc. or aren't willing to accept the low wages end up in the black markets. Drugs, prostitution, and other types of illegal activities are careers open to people that can't find legal jobs.

I don't have any evidence, but there are plenty of anecdotal accounts of sheet children being forced out of jobs by the new laws and into much less savory occupations. The stories from Yemen alone are heartbreaking, I can't imagine what its like in more urban places like SE Asia.

I wish that people that pursue these laws would spend as much time worrying about what the kids will do once they lose their job. I also wish that people in the US and Europe would understand that they don't really have a good idea of what real poverty is like and what choices people living in it face. Child labor is a terrible thing, no doubt, but if we're going to take that away from kids, we need to provide them with something other than the thing they are avoiding by working...

The problem with democrats and republicans

Ludwig von Mises summed up the entirety of political "solutions when he penned:

 

Scarcely anyone interests himself in social problems without being led to do so by the desire to see reforms enacted. In almost all cases, before anyone begins to study the science, he has already decided on definite reforms that he wants to put through. Only a few have the strength to accept the knowledge that these reforms are impracticable and to draw all the inferences from it. Most men endure the sacrifice of the intellect more easily than the sacrifice of their daydreams. They cannot bear that their utopias should run aground on the unalterable necessities of human existence. What they yearn for is another reality different from the one given in this world. They long for the “leap of humanity out of the realm of necessity and into the realm of freedom.” They wish to be free of a universe of whose order they do not approve.

 

I got that from the Mises Institute blog talking about how the OWS crowd is attempting to shut down west coast ports. So many people have definite ideas of what should be accomplished and how to accomplish it, they don't take any time to try to understand what might happen if they actually do what they intend. Their daydreams of sticking it to the 1% are going to cost a lot of regular folks paychecks. If they had their way, they would punish the 1% by making it much more difficult for everyone else to get stuff from Japan, Thailand, Vietnam, and yes, China. Even a basic understanding of economics would allow them to understand that it is impossible to "hurt" one group in isolation without affecting everyone else.

Mises.org also quotes Rothbard in that same post:

 

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

 

You can do what you want with yourself. Because it is impossible to know but the largest first order effects of any overall economic activity, acting on everyone else's behalf should be the first warning sign that you're out of your depth.

Investment grade debt

Most actual investment (as opposed to places to park your money) involves buying debt. Or to put it another way, you loan money with the hope of making more later on. Bonds are the most common way to do direct investment, you have a time frame and a specific rate of interest. Stock IPO's are another way of investing in a company. 

When you buy a bond from a company, you look at how likely it is that you'll be repaid based on the business involved. If its a good company with good products, they will create profits and be able to pay you your interest. But what about municipal and sovereign debt? There are no profits to be had, just ongoing tax collection. On the face of it, that seems pretty safe, that's what governments do after all. But all isn't well in tax land. Europe continues to crumble, their very currency may go away. When that happens, there is an excellent chance that the folks that loaned them those Euros will be left holding the bag. We're also hearing about more and more municipalities declaring bankruptcy. A casual glance at states like California make you wonder how safe those bonds are as well. 

My (perhaps not so humble) suggestion is to invest in productive, profitable businesses instead relying on tax collection for your investment. It's common sense really, invest in things that have upside! Or think of it this way, how much do you trust politicians? How much do you trust that they'll do the smart thing with your money? More and more we're seeing what that trust will get you, a lot less money.

Thinking in aggregates (corporations aren't people)

Mit Romney has been getting some press for his "Corporations are people" blurb. Lots of people are mocking him, pointing out the obvious, that corporations are not people. The irony is that the people mocking him are missing the point. Not only that, they are assuming that corporations are people after a fashion. Let me explain...

What Romney was trying to say was that corporations are made up of people and anything that is done to a corporation eventually ends up affecting the people that make up that corporation. The people mocking him are essentially assuming that a corporation is a stand alone entity. They think they can tax it and regulate its speech without affecting actual people. To my mind it is yet another example of being sucked into the fallacy of aggregates being tangible things. And like all of the other examples of that fallacy, acting against that fiction causes problems for actual people.

Paul Krugman is another great example. Whenever he claims that an alien invasion, or 9/11 would be good for us, he is thinking of GDP. GDP is an aggregate of production in a country. It is a loose proxy for economic activity. What he overlooks, and we should never forget, is that GDP is an aggregate measure that doesn't tell us the first thing about prosperity. Trying to boost GDP can in fact have effects, and it might even make that measurement go up, but what does it really mean for all of us? If GDP gets a boost from rebuilding from a disaster, will anyone care?

I myself am guilty of talking about aggregates. How often do I rail against "the government" as if it were a single, monolithic thing? I should be more precise and bemoan the laws passed by congress, the unilateral action of the executive team in the White House, or the actions of the board of the Federal Reserve. It's important to remember just how few people are actually moving things around for the rest of us. All of those groups try to co-opt us by saying that they are doing what they do for "the American people." As if there were a simple group mind that is happy with the same things. They do what they do for the benefit of what they think the American people are, but how often do you or I agree with them?

And of course the most common aggregate fallacy of them all is all of the talk about "the economy." There is no such thing. We are the economy. Each one of us, each action we take, every transaction we do, every act of cooperation with someone else, that's what the economy is. There is no way we can sum all of that up with a single concept let alone a word. When you look at it like that, phrases like "The economy is depressed," or, "The economy needs to be boosted" stop making sense. We need to respect the enormity of what we are summing up in that aggregate. The idea that a single action can improve all of the things that make up the economy is pure hubris.

Things are complicated. We like to sum things up for the sake of being concise, but we quickly lose what is actually being discussed. Language has a funny way of shaping our thoughts, we need to be careful about lumping too much into neat, orderly concepts because that rarely exists in the real world.

Competing currencies (Good news from Zimbabwe)

Zimbabwe has been the poster child of central bank excess but this article from the Globe and Mail talks about how they have gotten out of their inflation hole and has given them a chance to get back to normal. They still have lots of trouble, but at least their currency isn't hamstringing them any longer. How did they rebound from 89.7 sextillion percent inflation? They abandoned their currency. They allowed people to use whatever they wanted as money.

The effect has been dramatic. Folks use The Rand, the dollar, the pound, the euro, and the kwacha and things are functioning again. It has removed the Zimbabwean central bank from the equation and has forced the government to spend only what it has on hand. The government has abetted this by first announcing that the Zimbabwean currency was no longer valid and then allowing people to use whatever they want.

Backing a currency with gold or silver has a lot of logistical issues regardless of the wisdom of it. Competing currencies are a valid alternative to enforce discipline on central banks. If we can't control them, we should at least have the ability to leave them when we want to.

Krugman Stimulus (updated, not Krugman)

UPDATED!!! This wasn't Krugman, but see below...

 

“People on twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage.”

-Paul Krugman

 

Paul Krugman is an ass. Yes, he is the Nobel Laureate columnist for the New York Times. Yes, he has forgotten more economics than I'll ever know. But yes, he is an ass.

A prime tenet of Keynesian economics is that spending is what makes an economy go. Recessions are caused by a drop in spending. The theory then says that to get out of a recession, you need to increase spending. If the private sector won't do it, by God the government will. It doesn't matter who is doing the spending, what is being bought, or even why people spend, as long as they spend everything is good.

Hence, big ticket items like wars and cleanup after disasters are seen as opportunities in the Keynesian model. Rational people understand that wealth doesn't come from things being destroyed. Nor does it come from making things that blow up and blow people up. Normally, a reductio ad absudum critique of this theory goes something like this, well, why don't we destroy vast swaths of property and rebuild, that will surely do wonders for the economy!

Instead of refuting this argument, Krugman has doubled down and said that yes, that is the idea. He seems to regret that the earthquake didn't cause more damage, probably because he's a patriot and is only looking out for the good of the country. It has certainly worked for Haiti and Japan. Aren't we jealous of the opportunities those countries have gotten? Krugman is currently being savaged on Twitter, here are some of my favorite riffs on the destruction breeds prosperity theme:

 

From the #Krugmanstimulus feed:

The Iranians don't hate Jews, they're just trying to stimulate the Israeli economy.

Army Air FOrce General Curtis LeMay given lifetime achievement award for #Krugmanstimulus.

When God unleased the 10 plagues, He was actually trying to boost the Egyptian economy.

They should let students play grand theft auto in economics classes so they'll understand the application of #krugmanstimulus.

The US should invade Europe, that way it can stimulate both the American economy and the Eurozone.

#politicalmath has some amazing ones:

"And I looked, and behold a pale horse: and his name that sat on him was Krugman, and Stimulus followed with him.

"It's a liquidity trap! Commence attack on our own main reactor! Admiral Krugman Ackbar

The Unibomber was just trying to create some job openings.

 

This stuff just writes itself. Krugman had also just recently said the the world's economic problems could be solved if the nations of the earth thought they were going to be invaded by aliens. No really, he thinks that the militarization of the world would be great. Take all of our resources and turn them into armaments. We'd be rich! This is what passes for economics, this is the kind of though that went into our stimulus efforts. Is it any wonder they don't work? I'm hoping that Krugman (the world's most popular advocate of Keynesianism) has done enough damage to discredit that line of economic thought. If this doesn't do it, what will? The Onion understands Keynesian economics, why doesn't everyone?

 

 

UPDATE:

 

OK, so the comment has been shown to be a fake. Krugman did not actually say that things would have been better if there was more damage. He did say that an alien invasion would help, and he did say that 9/11 would be good for economy too so I think this critique still stands.

 

 

 

 

 

Reading again (political/economic stuff first)

After a protracted bout of not reading, I'm back to it. A friend gave me an iTunes card and instead of blowing it on music and TV shows (or show as it usually turns out) I bought some books. I feel very grown up… I got one new to me and an old favorite. I'm enjoying using iBooks on the iPad. I have been using an app called Stanza for most of my reading but I think I like the way iBooks looks better. There will be more purchases in the future. I am also finally getting around to a book I got for Christmas, one of the old fashioned kind.

So what am I reading? The recent ridiculousness in DC has me fuming and I have turned to a couple of books talking about politics, government and the decisions that come out of the process. First up is the old fashioned one, Hayek's The Fatal Conceit. It is one of those books that I have always felt that I should read, but it is intimidating. Hayek wasn't exactly the most scintillating of writers, but he was a very serious thinker. I'm only a few chapters into it, but he hasn't disappointed so far. There are some really big ideas in there. A very short summary is that the book attempts to answer the question I've always had. Namely, why is socialism so attractive to so many people despite the obvious awful results that it brings about? So far, he has said that it comes down to the tension between small group dynamics, like the family, and large scale interactions that build societies. There is an inbuilt distrust of strangers and of more powerful tribes. That puts the worry about the tribe or the family in direct opposition to the things that lead to rising living standards. Hence, socialist ideas tend to sound attractive whereas allowing things to evolve without anyone's control scares people. That's his premise and it's as good an explanation as I've ever heard. I'll update as I go along.

 

I bought Murray Rothbard's For a New Liberty because I had always heard that it was "the libertarian Bible" or some such like that. It was another book that I thought I should read. I have only read a couple of his essays, this is my first book by him. Everything I've read by him so far leaves me scratching my head about his "libertarian" label, he seems like a straight up anarchist. Anyway, he has some interesting things to say, especially when he puts things in a historical perspective. Libertarianism was the original "liberal." The liberals back then were railing against the divine right of kings and the manipulations of people's lives by him and his privileged merchants and guilds. Sometime in the 19th century the liberals joined with the powers that they had been fighting and we got the modern definition of liberal. Modern liberals invest rulers with lots of power and depend on politically connected merchants and guilds (corporations and unions) to help shape society the way they want it to be. Some things never change, and libertarianism is still as radical now as ever.

Rothbard uses some hand waving and conspiracy theories to explain why people have been following socialism in all it's manifestations. I think Hayek has a much more nuanced and believable theory. To be fair, Rothbard glosses over that in a handful of paragraphs whereas Hayek dedicates an entire book to it. Anyway, I'm a little ways into it, I'll see if there are any great revelations in it, his supporters would have you believe that it is the most amazing thing ever. We'll see.

Raise the Debt Ceiling!

I don't know what it is about rap and economics, but here's another one that works really well. No, it doesn't talk about what might happen if the debt ceiling isn't raised, but it does a good job putting what raising it actually means.

 

Nobody wants a default, but we should really take a look at what we've been doing for the past... 30 years?

Greece and the metals

There has been more and more chatter about Greece and its debt. Greece now has to pay 25% interest on 2 year bonds. That means that investors think there is an excellent chance of Greece defaulting on the loan. Why this comes as a surprise baffles me. When Greece initially had issues, they were given a load of money, talk about perverse incintives...

 

So why care? If Greece defaults, it will shaft its creditors and give them nothing at all. That means all of the institutional investors that were stupid enough to invest in Greece will have essentially thrown that money away. It looks like Spain, and Portugal have significant exposure to Greek debt, and they were already on shaky ground. When Greece defaults, it is going to be very bad news for the Euro. In a worst case scenario, it could spell the end of the Eurozone, if not the EU in general.

Greece has become the poster child of a place where people think that wealth originates, and flows from the government. All of the protestors don't seem to get that the money has to come from somewhere, and that somewhere is people's labor. There isn't enough to go around, at least there isn't enough to cover the debt that has been wracked up on their behalf. Even if there is another bailout, it will only prolong the troubles. Greece is going to walk away from its debt, and there is every chance that Spain, Portugal, Italy, and Ireland will too once the Greek default overburdens their banks. That's what might kill the Euro, at least in the short term.

Over the past I don't know how many years, the US dollar and the Euro have been the go-to currencies for investors and savers. The US dollar is not worth a heck of a lot these days. The political climate in Washington only points to more devaluation to come. If the Euro devalues, what is left? The Yen is a mess and there aren't a lot of Swiss Franks to go around. The Ruble? The Yuan? The Won? Are you kidding me? All that will be left is the Pound, and we'll have to see how their economic changes play out to see if that will continue to be a good refuge. It looks like the fiat chickens are coming home to roost, it would be best not to have any currencies as your savings as this plays out.

I'll say it again, the metals are worthwhile savings instrument at this point in time.  Both the Russian and the Chinese central banks are loading up on gold. All of my meager cash savings is in physical silver. Yes, silver recently took a tumble, but it is on the way back up again. It is still over twice as valuable as it was late last year. If you do a little reading, the various gold and silver ETFs are looking rather suspect. At least the ones that don't claim to have physical gold. There is a lot of "paper" gold floating around, but it isn't clear that those certificates could actually be redeemed. They may be making claims on deposits that others have made claims on too. If you buy metals, buy the physical item. Gold and silver do fluctuate in value, but at least that value isn't at the whim of central banks and government largess. That means quite a bit to me.

 

 

If you love America, you throw money in its hole.

Why is it that the Onion is what we rely on to uncover what's really going on? This piece is amazing. They manage to skewer  most of the political spectrum with this bit. Even when you have someone on a discussion show try to argue in favor of personal choice, they are still as insane as everyone else on the show. The rest of them really are how I see Keynesian talking heads, they have never made any sense to me. Some of my favorite quotes include the title of this post and "... if I did (receive money) I would throw it in the hole, because I am a patriot!" And there's the priceless "It's like they say, you have to throw money in a hole and set it on fire if you want to make money."

 

 

Government funding

A friend on facebook was recently complaining that because of the looming government shutdown, he was facing no trash pickup, and the closure of the pool he practices in. He rightly criticizes the folks in DC over their political grandstanding and arguing over petty things, but I think he missed the real issue. I can't help but point out that if things are funded by the government, they are subject to the whims of the political process. And that includes everything from park access to social security checks. Reasonable people can disagree over what the government needs to fund, but we should always keep in mind just how tenuous that funding actually is. Things that seem like a good idea to fund when your team is in power suddenly don't seem like such a good idea or are in danger when the other team takes over. You can't really depend on stability in the political sphere, so why would you count on stability of services from it?

When the government shuts down, there will be plenty of places where pools are open and trash is collected because they aren't operated by the government. Sure, those can be interrupted too, but there are consequences for them if that happens. In the private sector, the pursuit of profits, fear of competition, and possible legal implications over broken contracts keep things going. Things tend to get done more often than not in the private sector. I keep hoping that at some point the discourse will shift over to the idea that perhaps we depend too much on the political process. I'm not holding my breath, especially around here.

Who's being greedy?

AT&T recently announced that they are going to start implementing bandwidth caps on their DSL subscribers. You would be allowed 150 GB of data per month, and then for each 50 gigs you go over, it would be another 10 bucks. Predictably, there is general outrage over this. People are threatening a mass exodus over this etc. . Personally, I can't imagine going over 150 gigs a month on a personal internet connection, let alone 200.

The big thing that gets thrown around is that AT&T is just being greedy. After all, it doesn't cost them any more to push one byte across their network than it does to push 200 gigs. The "pipe" costs them the same in any case. What people forget is that the more space that is taken up by one person in the pipe means there is less for other people, and it could potentially limit the number of customers that they could service. AT&T claims that something like 2% of their users consume 20% of their bandwidth.

So, on the one hand, we have a company that can pinpoint users that are using terrific amounts of their service and wants to charge them to make up for decreased customer capacity and possible impact on other users, on the other we have people that use tremendous amounts of bandwidth and scream bloody murder because they think they shouldn't be charged any differently no matter what kind of impact they have on AT&T or other users. So who's the greedy party again?

NPR funding

My facebook feed is full of my friends gnashing their teeth over attempts to defund NPR. The general theme seems to be , "Those damn Republicans! How stupid are they? We need NPR, the government should keep funding it!" For the record, I have enjoyed some public radio from time to time. Having said that, I'm puzzled by the attitude that is implied. Surely, if NPR was super important, people would go ahead and support it directly. I'm not trying to be snarky, I'm really trying to understand why people feel that it is important that the US government has to be a middleman for this seemingly important thing. I am really looking for a reason other than "Everyone else should pay for things that I think are important." That's not it, is it?

 

Whether they realize it or not, the angst seems to boil down to being unhappy at not being able to force other people to pay for those things. I'm willing to give the benefit of the doubt to most people and say that they have bought into the "government funded" trap. There is a lot of confusion as to where the money comes from. The government doesn't fund anything, tax payers do. The dream of a free market guy is that people that value something would actually be the people that pay for it.

It doesn't matter that the percentage of our tax bill going to NPR is tiny isn't important. Shaking you down for fifty cents or fifty dollars is bullying all the same. Granted, I am paying a lot less for NPR than the various wars we've been fighting. I don't like those either and I'm under no illusion what is the more pressing concern. I wish both Democrats and Republicans would keep their eye on what's more important. Nevertheless, I can't help but think that "listener supported radio" would be best, you know, supported by listeners. If there aren't enough people willing to pay for it, that should tell you something.... I say that NPR should beat congress and cut ties to the taxpayers money. Rely on your listeners, it's the honest thing to do.

Uh Oh

Following on from my last post, investors now see Estonia and the Czech Republic as safer investments than Japan. The financial markets are in disarray over there. Like I said before, this disaster is awful but they were in a precarious financial situation before. Some people will be tempted to call the financial meltdown an unfortunate consequence of the earthquake. The smart money says that they had made themselves pretty bad off before the earthquake, they were simply pushed over the edge. We'll see how they handle this, we might need to take notes...

Cautionary tale from Japan

The videos and pictures from Japan are unbelievable. Buildings and cars being tossed around, who knows how many people have been killed. The recovery is just starting and it could take a while to go back up and running again.

Japan has been in the economic doldrums for a decade and a half. They have continually tried to "stimulate" their way out of the mess only to find themselves with no economic progress and mounds of debt. They have been going along, just keeping a stagnant economy for a decade, and now this happened.

How often do we make a budget and tell ourselves that "This looks fine, as long as nothing comes up..." The thing is, something always comes up. The car breaks down, you need a new bed, you have to leave the country suddenly because of an insurrection outside of the city, you get diagnosed with MS, etc. A budget that is actually good will take into account the unexpected expenses. If you are just getting by and then something comes up, you could be in trouble.

Japan hasn't been involved with any struggles against any "existential threat" that might endanger their country. They, like many states in the US, were simply going along doing what they thought was expedient to avoid certain short term pain. They had been up to their chins in debt, is the level going to rise over their nostrils now? This natural disaster has revealed just how shaky their economic situation has been.

We can learn a lot from Japan. The US economy is doing OK, not great, and there's a lot of rot and underhandedness just under the surface. There will also be a lot of debts coming due in the near future that we are not prepared for. We're skating by, but it wouldn't take much to push us under. I doubt any, even large, natural disaster would do it, but maybe a big spike in oil prices could. The way things are going over in the middle east, it isn't out of the realm of possibilities. The Saudi military is now in Bahrain, the US administration has had to go out of its way to claim that it isn't really an invasion.... There could be any number of other things that happen, we're in no shape to deal with them. This is why keeping debt down is so important on both a personal and national level. Having some surplus for just in case is just good sense. Spending everything you take in and then some leaves you vulnerable to any number of problems. We'll see how Japan deals with this added burden, and I hope we never will be in their economic shoes.

Japan and the broken window fallacy

If I hear one more "At least this disaster will spur japan's economy" quip I'm going to scream. If massive destruction is so good for economies, why wait for natural disasters? We should go around blowing up houses and destroying infrastructure on a regular basis in order to keep the economy going...

 

Bastiat spelled out why this is silly way back in the 18th century. If a window is broken, the owner has to replace it. While the window guy benefits, the owner is only where he was before, but is now less well off after having paid for the window. Spending money just to get back where you were before will never be the way to prosperity. It is part of the "not seen" aspect of economics that is too easily overlooked and usually is.

The limits of Logic and world views

I know that I think differently than a lot of people do when it comes to things like economics, politics, and religion. What strikes me is the reactions I get from people. There is a common belief that if someone has deduced things logically, they must be right, and therefore I must be wrong. They confuse making sense for reality.

Imagine if told someone that parallel* lines can intersect and in some cases must intersect. If that person were in an argumentative mood, they might point out that the very definition of parallel lines forbids them from crossing. If this were a political, economic, or a religious point, more times than not I would be dismissed as an idiot. I've gotten that reaction fairly frequently. What I almost never get asked is why I might think that way. It turns out there's a whole bunch of other types of geometries out there, as soon as you put lines on curved surfaces, basic rules of geometry get changed.

The point is that both I and my mysterious debater can logically defend why my view is right or wrong. The efficacy of logic is limited by the initial conditions or beliefs you start with. If you think you live in a Euclidian world and I think I live in an elliptic world, we are never going to come to any agreement or understanding if we rely on logic to stake out our claims.The same thing goes for any other world view you can think of. Once you believe you know the basic underpinning of your world, everything else follows logically.

Most people do what "males sense" to them based on their beliefs. If you try to point out that any given view they have is incorrect or, too often these days, tell them that they are stupid, you won't get anywhere because they are a long ways down the causality chain. If you want to convince them to change their mind about something, you need to go to much deeper. When I talk to people about religion, economics, and even politics, I am usually pointing out that we don't live in a Euclidian world despite appearances and how much sense it seems to make. It takes time, but ultimately you have to convince people you live in a better world than they do if you want them to come around to your way of thinking. It may not be a great way of scoring quick points, but it does give them some things to think about. That can lead to real conversations as opposed to slogans and name calling.

Of course, it's a lot easier to not do any of this. Gotta keep telling myself that it's worth doing. I think it pays off long term, if only for my mental health...

 

* I am using Euclid's definition of parallel. Loosely, that is that if there is a line and a point off that line, there is only one line that can be drawn through that point that does not intersect that line. That's Euclid's 5th postulate, we call it parallelism. In elliptic space, there can be no parallel lines as Euclid postulated.

Budget gnashing of teeth

I've started seeing posts about how one team wants to "slash" the budget, leading to the impoverishment of millions because of cuts to to head start, planned parenthood, housing vouchers, NPR, etc. Of course the other team is yelling that the other side isn't cutting enough. I'm going to split the difference and say that one side isn't cutting much of anything, and the other side is making totally inconsequential (to the deficit) cuts. What needs to be addressed is Medicare, the Military, and Social Security. Everything else is window dressing. Predictably, neither side want to go near those things so what we are left with is political theatre.

Budgets at all levels are in pretty bad shape. What I'm hearing from the left is that tax cuts are what's causing the deficits, and of course the right is blaming spending. Spending is, of course, the root of deficits. While both tax revenue and spending go into making a deficit, only one side of that equation is done to people, backed up with the threat of jail time. So I think there is a moral argument to cut spending as much as possible vs. raising taxes. Why folks seem to think it's OK to take money from someone just because they have it has never made much sense to me. And that isn't even taking into consideration the consequences of having too high an income tax...

This all reminds me of  the contortions people go through to lose weight. They will try various pills, diets, etc. when we all know what will lead to weight reduction, less food and more exercise. We're going to need more taxes and less spending. Taxes are going to have to go up across the board, not just on the wealthy. Similarly, spending cuts are going to have to be across the board of the big three programs, at least on the national level. It's the perfect solution, no one will be happy. What people want is more stuff as long as someone else is paying for it,  and so that's what politicians promise.  That, in a nutshell, is how we end up where we are now.

I'm not sure what will be more effective, getting the political will up to stop eating so much and exercising more, or letting things go until we need bypass surgery/gastric bypass surgery. If the monetary system collapses, there will be enormous pain and suffering, but hopefully some sort of lesson would be learned. Plus, it would get our debt off the backs of subsequent generations... I'm sure that over time, the same mistakes will be made as long as fiat currency/fractional reserve banking is the norm. I worry that if the current lawmakers buckle down and do something sensible (not that I'm holding my breath) it won't last long, probably only until the economy goes on another Fed induced boom. SIGH.

Do you remember what I was blogging about in September? Silver was $17 an ounce. It's over $37 an ounce now. The longer the lawmakers quibble and nibble around the edges of the problem, silver and gold will continue to go up in price. Or is that the currency losing value? Just saying....

Letterman pisses me off

Dave had Senator Rand Paul on tonight and talked to him about various things. They got onto the subject of the stuff going on in Wisconsin and Paul threw out a few stats. Letterman essentially said that they can't be right, and he got quite a reaction from the audience. Never mind that the senator was right. When Paul pointed out that the average compensation level of Wisconsin teachers is north of 80 grand (which is also correct), Dave just tosses out to general applause that the figure should be doubled.

 

Snap, just like that, go ahead and double it. Whatever you may think of teacher compensation, it should be obvious that can't happen. There is a budget crisis,etc etc... I'm sure that Dave wasn't being serious, but I'm also sure it was the first thing that popped into his head. And the audience agreed with him. The real problem underlying most of our deficits is that people's first assumption has been that funds coming from the government can just keep coming. Federal and state budgets are enormous after all, a couple billion here and there wouldn't matter much surely?

I don't know what it will take to get people to stop thinking that the government is magically paying for things and start thinking about the taxpayers. It's easy for special interests to protest against spending cuts, but it's a lot harder for taxpayers in general to rally for tax cuts. I once had an idea that there should be laws on the books that required all mentions of "the government" paying for something to be replaced by "the taxpayers." Maybe that would help people, including Dave, to keep their eyes on the ball. Things are a mess at seemingly every level of government, are they going to have to come to a screeching halt before people regain their senses? What will it take for folks to say that as much as they'd like to double everyone's salary, there just isn't enough to go around? Even more important, what will it take for people to stop thinking that the money will simply come from somewhere/someone else...

The best way to think about macroeconomics

Russ Roberts, the host of the Econtalk podcast, just put up a really good post about the limits of knowledge. Here's an excerpt:

 

Suppose the economy does well this year–growth is robust and unemployment falls. What is the reason for the improvement? Will it be because of the natural rebound of an economy after a downturn that has lasted longer than people thought? The impact of the stimulus finally kicking in? The psychological or real impact of extending the Bush tax cuts? The psychological or real impact of the November election results? The steady hand of Obama at the tiller? All of the above? Can any model of the economy pass the test and answer these questions?

The reason macroeconomics is not a science and not even scientific is that the question I pose above is not answerable. If the economy improves, there will be much talk about the reason. Data and evidence will be trotted out in support of the speaker’s viewpoint. But that is not science. We don’t have a way of distinguishing between those different theories or of giving them weights to measure their independent contribution.

 

The macro economy is just too complex for us to be able to suss out the reasons that things happen with any sort of exactness. When we look at an end result like employment, GDP, or the stock market we naturally try to figure out "the reason" for that thing to be the way it is. There is no single reason, there is no single vector that can explain an aggregate result. It's like seeing shapes in clouds. A pattern emerges, but there isn't any one thing controlling it.

Macroeconomics is inevitably apologetics for a particular policy track. Anyone spouting it inevitably feels as though the government can in fact steer the economy. They never seem to ask themselves the question that if the government can control stuff like that, why didn't they stop the bad stuff from happening? The fact that government officials can't see things coming and then promise to fix things later should make people wonder.

 

 

 

You can read The Test: "" from Russ at that link.