Category: Stupidity

Capitalism improves. Social engineering punishes.

In yesterday’s Washington Post, E.J. Dionne wrote a column around this idea:

The central issue in American politics now is whether the country should reverse a three-decade-long trend of rising inequality in incomes and wealth.

Politicians will say lots of things in the coming weeks, but they should be pushed relentlessly to address the bottom-line question: Do they believe that a fairer distribution of capitalism’s bounty is essential to repairing a sick economy? Everything else is a subsidiary issue.

Apparently we can’t ask whether or not our current and prior attempts to achieve a “fairer” distribution of capitalism’s bounty contributed to our sick economy. Not that we have capitalism in the way that Dionne wishes to imply. The failings of a mixed economy do not prove that it’s time to toss the capitalism from the mix. Making that case requires a bit more than tossing around the undefined, subjective word fair and pretending that the argument is won.

As Dionne continues:

“Over the past two or three decades, the top 1 percent of Americans have experienced a dramatic increase from 10 percent to more than 20 percent in the share of national income that’s accruing to them,” said Peter Orszag, Obama’s budget director. Now, he said, was their time “to pitch in a bit more.”

Is there more direct proof that liberals view the rich as the nation’s piggy bank than claiming it’s time for the top 1 percent “to pitch in a bit more”? Does Orszag mean the top 1 percent who paid 39.89% of all federal income taxes in 2006? Dionne is saying that it’s okay to increase the existing unfairness in the tax code because the disparity in income at the extremes is unacceptable to his sense of fairness. He must ignore the question of whether or not the alleged victims of the unfairness of capitalism’s bounty are better off than they were in the past. He concludes:

Do we want to be a moderately more equal country or not? This is the question Obama has put before the nation. Let’s debate it without the distracting rhetorical sideshows designed to obscure the stakes in the coming battle.

I would ask something different: Do we want to be a more productive country or not? Does everybody gain, even if the distribution is “unfair”, or do we harm some to improve others in the short-term? Dionne has the wrong preference.

Fiscal Irresponsibility (D-US) replaced Fiscal Irresponsibility (R-US)

And the government-as-parent continues:

President Obama warned the nation’s mayors yesterday that he will hold officials at all levels of government accountable for how they spend federal stimulus money, pledging to “call them out” if the funding is wasted on projects that do not generate jobs for the struggling economy.

Politicians are incapable of being shamed, so this is pointless. There’s also real money involved, so I’m not comforted knowing that waste will be dealt with through stern words. More to the point, this:

“If you’re seeking to simply fund a personal agenda at the expense of creating jobs and using taxpayer money to do it, the president will call that out and stop it,” press secretary Robert Gibbs said yesterday. “That’s true for agencies and members of this administration. That’s true for governors. That’s true for mayors. That’s true for anybody that might take part in any amount of this funding.”

How is this an option? The government will spend $800 billion. If we’re to believe that it’s money well spent, then there should already be a plan for every penny. I don’t believe that, of course, but we’re still supposed to trust what is clearly a plan based on the belief that money spent is money well spent. That’s the Keynesianism we’re stupidly embracing. And the Obama administration is saying that we have to spend the money without extended consideration, but if it’s not spent well, he’ll call out those responsible. The one person out of his line of ire is himself. An accident, I’m sure.

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This popped up today, tying uncomfortably to the previous story:

Less than a week after signing the largest economic stimulus package in U.S. history, President Obama is turning his attention to the nation’s long-term financial condition with an unprecedented effort to rein in government spending.

To kick off the effort, the new president has invited about 130 people to the White House State Dining Room on Monday for a “fiscal responsibility” summit, a marathon session on long-term budget-busters such as Social Security, Medicare, federal purchasing and tax policy.

Perhaps the time to do that was before shoving $800 billion out of the Treasury as quickly as possible. But it’s okay, a room full of partisans should be able to hammer out their differences in a marathon session. We’ll be saved!

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On a less comforting note, I’m starting to sense that press secretary Robert Gibbs, at least, views President Obama as an economic dictator. I am not reassured.

The Bully With the Guns Always Wins

CNBC reporter Rick Santelli gave an inspired rant in response to the Obama housing plan I criticized here. It was a masterpiece, as you can see in the video at the end of this entry. The Obama administration disagrees:

Apparently someone in the White House was. In response, Gibbs attacked Santelli by name repeatedly at a news briefing, accusing him of not reading the president’s housing plan and mocking the former derivatives trader as an ineffective spokesman for the little guy.

“I’m not entirely sure where Mr. Santelli lives or in what house he lives,” Gibbs told reporters in a derisive tone. “Mr. Santelli has argued — I think quite wrongly — that this plan won’t help everyone. This plan will help . . . drive down mortgage rates for millions of Americans.”

Later, Gibbs added: “I would encourage him to read the president’s plan and understand that it will help millions of people, many of whom he knows. I’d be more than happy to have him come here and read it. I’d be happy to buy him a cup of coffee, decaf.”

I have two responses. First, Gibbs should not be engaging in this type of rhetoric. Obama is President of the United States, not just President of the United States’ Economically Illiterate. He – and his representatives – should refrain from behaving in this manner. It’s possible to disagree without mockery.

Second, if the President’s plan insists on the 1.05 mortgage-to-market-value ratio requirement, he’s right that it will not help most speculators. However, as I wrote earlier this week, it won’t help anyone other than those not in distress. I don’t concede that we should help those in distress, but if we should, the people who qualify for the President’s plan offer the least bang for the national buck. Forget politics, that’s bad policy.

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Video link via Kip’s tweet.

Laissez-Faire Capitalism can’t fail before we try it.

I’ve never felt inferior because I earned my MBA from a school ranked lower than 13th. This Forbes essay by Nouriel Roubini, a professor of economics at NYU’s Stern Business School, reminds me to continue that confidence. After a rundown of recent economic facts, Professor Roubini states:

This severe economic and financial crisis is now also leading to a severe backlash against financial globalization, free trade and the free-market economic model.

I’ll interrupt here to say that I agree with this statement, although those lashing out are ignorant of what they rebuke. That includes Professor Roubini, who next states:

To paraphrase Churchill, capitalist market economies open to trade and financial flows may be the worst economic regime–apart from the alternatives. However, while this crisis does not imply the end of market-economy capitalism, it has shown the failure of a particular model of capitalism. Namely, the laissez-faire, unregulated (or aggressively deregulated), Wild West model of free market capitalism with lack of prudential regulation, supervision of financial markets and proper provision of public goods by governments.

I have two words for Professor Roubini: Sarbanes-Oxley.

Having Enron and WorldCom go bankrupt, with the accompanying loss of shareholder investment, is the free market. Having executives go to jail is regulation. As a libertarian I am not reflexively against regulations that make the market more transparent. Regulations have unintended, often negative consequences, as Professor Roubini quickly glosses over, yet I don’t consider the idea of the SEC an abomination. But to pretend that we are in some Wild West model of capitalism suggests two conclusions: Either Professor Roubini is incompetent, or he’s engaging in hyperbolic nonsense bordering on propaganda.

I’m betting on the latter:

It is clear that the Anglo-Saxon model of supervision and regulation of the financial system has failed. It relied on several factors: self-regulation that, in effect, meant no regulation; market discipline that does not exist when there is euphoria and irrational exuberance; and internal risk-management models that fail because, as a former chief executive of Citigroup put it, when the music is playing, you’ve got to stand up and dance.

The “Anglo-Saxon” model of supervision and regulation is hardly self-regulation. If the free market has failed, how can we explain the massive unwinding of the complex, poorly designed mortgage securitization market? People who invested unwisely and often ignorantly are being punished through the loss of their wealth. Does Professor Roubini believe the mortgage securitization will reappear anytime soon without new regulations to control it? Pain is a powerful motivator. The market is working exactly as it should be, except Congress and the President are determined to reduce the pain of those who made mistakes, intentional and unintentional. Incentives matter. Regulation skews incentives. We ignore that at our own peril.

Going back to Sarbanes-Oxley (SOX), I deal with it as a financial software consultant. It drives me insane with the ridiculousness it requires. It is a burden with very little obvious benefit. Every decision we make must run through the SOX team. Every mistake must be documented in detail to verify that it was an honest mistake rather than an attempt at deception. Something as trivial as having extra, unintended access to the financial system must be documented in detail beyond the logs clearly showing the user ID never accessed the system. It’s a Chicken Little response that makes politicians feel proud for Doing Something, but the regulation actively diminishes productivity. And it assumes every accountant is a criminal.

Our modern day Wild West exists only in the halls of Congress.

Why I Am Not A Liberaltarian

From James Poulos:

How many hipsters are too poor to party? The liberaltarian bargain, with the state as cool parent, does have a first principle: we should help create a popular ‘private sphere’ that can, should, and does expand as costs are socialized and power is centralized.

It is the allure of this promise, already planted within the popular culture, which is making lots of young people more liberal and more libertarian — this principle, and nothing else.

Spontaneous order, centrally planned? If that oxymoron is the offer, count me out.

Okay, count me out anyway, because “liberaltarianism” is little more than progressives attempting to sell economic errors to libertarians because we allegedly agree on social issues. We don’t agree because liberty is about more than opposition to the current American Right. Libertarianism concerns itself with liberty for each individual. Much like today’s conservatism, liberalism seeks its preferred collective outcomes, to be imposed on the unwilling minority. All partisanship is the mistaken belief that everyone should play for your team. It assumes the defeated would like this, if only they weren’t so <insert negative personal attribute>. That’s not liberty.

But I reject the idea more vehemently and vocally if a government-created private sphere is what I should expect. I think it is.

Link via Andrew Sullivan.

Homes are undervalued by $6,000?

Rather than try an idea that might work and has the added benefit of extending liberty, President Obama unveiled his $75,000,000,000 plan to rescue us from the foreclosure crisis. Presumably Obama’s plan is precise and complicated, but Doug Mataconis has a succinct explanation at The Liberty Papers for why this plan will fail. His entire post is worth reviewing because he gives a concise summary of the various incentive problems involved, but his basic, widely-applicable conclusion is this:

Most of all, this part of the plan seems to be aimed at the idea that the government must reinflate the housing bubble so that housing prices return to the “correct” level.

Here’s a clue, though. The only “correct” price for your house is the price that someone is willing to pay for it. Today.

Exactly. As much as I’d love to be able to sell my house for what I paid for it in 2005, that’s not where the market is at in 2009. That is unfortunate, but the only way the government can help me is to get out of the way and allow the market to stabilize itself. They’re self-correcting that way. It’s a little lot painful, yes, and, although I bought what I could afford rather than what the bank was willing to lend me, I still made my choice despite the warnings. Lesson learned. And I wish it wasn’t so, but pain is how most people will have to learn. Buffeting them from that only prolongs the faulty thinking.

Unfortunately, even in the misguided belief that propping up the market is an effective method for stabilizing it, President Obama’s plan ignores the reality of the market. It appears to be nothing more than Do Something at its worst.

“The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it,” Obama said at a speech in Mesa, Ariz. The White House released an early transcript.

Those of us who played by the rules are those of us who bought what we could afford and continue to pay for what is not worth what we owe. We don’t need or want to be “rescued”. Giving me money that you will extract from me later through taxes is hardly a bargain worth applauding.

If the plan rescues people like me:

Finance companies cannot currently refinance a loan if the homeowner owes more than 80 percent of the home’s value. But under the plan, Fannie and Freddie — which were taken over by the government last year — would be able to refinance a mortgage if it does not exceed 105 percent of the current value of the property. For example, if the value of the borrower’s property is $200,000, but the homeowner owes $210,000, he or she could still qualify for the program. The program will not launch until March 4.

The housing market in America is far worse than a 1.05 loan-to-current-value ratio. I’d flip cartwheels up-and-down my street if I had a 1.05 ratio. I think most people with negative equity are in the same situation. (If the administration knows something to the contrary, now might be a good time to provide that information.) This plan hardly seems a response to that, under the not-conceded belief that the government should get further involved. President Obama wants to add further government involvement and debt to rescue people who would lose no more than 5% if they sell today? A homeowner who can’t cover a 5% loss shouldn’t own a home. A homeowner with a ratio larger than 1.05 will apparently see no benefit.

Maybe the theory is that propping up home values by the claimed $6,000 will grease the market into action. That’s unlikely, at best, but it’s not the claim the administration is making. This plan gets us nowhere other than $75 billion further in debt, with a more-entrenched, market-distorting incentive system.

When a politician offers to save the economy, he will seek to destroy it first.

GM and Chrysler are back at the federal trough, this time hoping to extract billions more in “loans” from American taxpayers. This is not a surprise. David Z asks the right questions at no third solution:

What happens when April comes around, and General Motors still doesn’t have a viable future? Do they get more money? At what point does the nonsense end? At what point do the politicians recognize and accept the fact that continually taking money from the taxpayers and giving it to companies like General Motors in massive corporate welfare schemes can’t ever work? …

Giving money to Detroit auto makers is nothing more than a lesson in how to destroy wealth. First, we destroyed $17.4 billion. Next we’ll destroy at least $14 and probably $21.6 billion, as the article states. At some point we (i.e. Congress) need to realize that these companies are dead. Walking dead, but they’re dead. Treat the original “loans” as a sunk cost, hope to recover something in bankruptcy, and move on with a commitment to never make that mistake again with someone else’s money.

That won’t happen, as suggested by the Obama administration yesterday.

“The president of the United States wants to see a strong and vibrant auto industry that’s employing tens of thousands of hardworking Americans and building the cars of tomorrow for Americans right now. That’s what this president wants to see,” Obama spokesman Robert Gibbs told reporters aboard Air Force One.

President Obama apparently believes that wishing makes it so. It doesn’t. The rational economic perspective would remove obstacles to a strong and vibrant free market that deploys – and redeploys – its finite resources in the most productive manner possible. Employment of hardworking Americans (and Chinese and Germans and Brazilians and …) would follow.

But the president isn’t interested in a rational economic perspective because the president, like all the politicians in Congress, is interested only in political games. Watching as winners and losers emerge based on merit is too risky. Picking the winners and losers himself better enhances his power. That’s what this president wants to see. A free market without centrally-planned allocation of resources won’t provide that, so it mustn’t be allowed.

Press Release: An Instrument of Distortion

I loosely follow a rule in my blogging that I don’t bother with press releases. They’re skewed to push the angle of whoever is paying the bill. It might be worth picking out the propaganda from a press release to find the facts, but I can usually achieve that with less effort by going to news sources to make a point. (Of course, most news sources reporting on circumcision are filled with propaganda, too.) Generally a press release is only good for demonstrating propaganda. This recent press release is a good example:

Hospitals in states where Medicaid does not pay for routine male circumcision are only about half as likely to perform the procedure, and this disparity could lead to an increased risk of HIV infection among lower-income children later in life, according to a UCLA AIDS Institute study.

The first half is fact. The second half is conjecture. News, then propaganda. The HIV-circumcision studies researched the effect of voluntary, adult male circumcision in reducing the risk of female-to-male HIV transmission from heterosexual intercourse. It is inaccurate to draw the conclusion that the foreskin puts men at higher risk of HIV. Unprotected sex with HIV-infected partners increases an individual’s risk of HIV infection. The male must first engage in that specific activity to become infected. Focusing on the foreskin distracts from efforts to reduce such behavior.

But that doesn’t sell the way fear sells.

But recent clinical trials in South Africa, Kenya and Uganda have revealed that male circumcision can reduce a man’s risk of becoming infected with HIV from a female partner by 55 to 76 percent. In June 2007, the AAP began reviewing its stance on the procedure.

By now you know what was left out of that summary, right? When public health officials talk about voluntary, adult male circumcision, they never mean voluntary, adult. Never.

As the press release so helpfully theorizes in its opening line:

Lack of coverage puts low-income children at higher risk of HIV infection

Think of the (poor) children. That’s not very original. It has the added bonus of being inaccurate. Are these children sexually active? Specifically for the age of the children discussed in this press release, the answer is no for 100% of them. They are not at risk of (female-to-male) sexually-transmitted HIV infection. But those necessary, contradictory details must be ignored. Think of the (poor) children.

That is how propaganda is done.

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Not to let an opportunity go to push for a collective response to an individual problem, the Family Planning Cooperative Purchasing Program helpfully regurgitates this press release, with the necessary bits of speculation helpfully emphasized in bold. An example:

In addition to the overall lower circumcision rates, the researchers found that the more Hispanics a hospital served, the fewer circumcisions the hospital performed. For Hispanic parents, the circumcision decision was about more than simply cost, since male Hispanic infants were unlikely to receive the procedure even in states in which it was fully covered by Medicaid.

What point is FPCPP trying to make with that emphasis, given the sentence that follows it? The only justification I infer is an implicit suggestion that we need to encourage Hispanics to “Americanize”. That wouldn’t surprise me because it’s the typical, mindless support for non-therapeutic genital mutilation in America. And FPCPP files this under “Public Policy”, among other categories. See above re: voluntary and adult. If it’s not that, I’m stumped.

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You and I, through a grant from the National Institute of Mental Health, paid for this research. Mental Health? With mission creep like that, who could possibly worry about government-run health care?

However, this raises the question of national health care and the future of routine infant male circumcision in America. I’ve long held that the former would not end the latter. The political environment for defending non-therapeutic circumcision is too strong, as evidenced by studies like the one leading to the above press release. No politician is going to say that parents can’t circumcise, despite the clear constitutional flaw in our status quo.

Ending public funding isn’t sufficient. The state should not pay for mutilation, but fails to end the practice. Poor parents pay for the surgery out-of-pocket. They complain about it, citing the potential benefits as an excuse for why Someone Else should pay, but they pay the cost anyway. Their sons are not protected by their state’s lack of Medicaid reimbursement. And ending government reimbursement doesn’t always end government reimbursement, as Minnesota’s politically-motivated solution showed.

Still, I need to have a think on my position. I won’t suddenly support government-run health care, but I should explore the nuances further.

“Stimulus” suggests we should constantly change the rules.

From a Forbes article on the porktastic spending bill’s impact on business:

Currently firms are allowed to record their losses during the previous two tax years. The compromise bill permits only companies with $15 million in gross revenues to account for the losses five years back. That’s particularly bad news for big manufacturers and homebuilders who have been hammered by the downturn.

Many firms had already planned on taking the tax break. “We had a large number of clients who were very far down the road of having their taxes prepared,” says Clint Stretch, a tax expert at Deloitte Tax.

If I’m to believe the porktastic spending bill will stimulate the economy, isn’t this the type of wasteful productivity we want to root out? They’ve produced their tax returns already. Bah. If we change the rules, they’ll have to do them again. Think of how many people tax firms will have to hire. It’s brilliant.

While we’re at it, change the 2008 individual tax filing rules. I’ve already filed mine, so changing the rules would make me do work. And maybe pass a law that only TaxCut can get the new rules, since I used TurboTax. I’ll have to buy a new copy of software. Sure I can deduct that from my taxes, but it would stimulate the economy.

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No matter how many times it’s identified, the Broken Window fallacy will never go away. Why should it, of course? Advocating for inefficiency has its privileges, like a plush gig at the New York Times.

Is God an economist?

Charles Munger has a column in this morning’s Washington Post. I’d use an insulting adjective to preface “column” if I could think of one awful enough to accurately depict his nonsense.

Our situation is dire. Moderate booms and busts are inevitable in free-market capitalism. But a boom-bust cycle as gross as the one that caused our present misery is dangerous, and recurrences should be prevented. The country is understandably depressed — mired in issues involving fiscal stimulus, which is needed, and improvements in bank strength. A key question: Should we opt for even more pain now to gain a better future? For instance, should we create new controls to stamp out much sin and folly and thus dampen future booms? The answer is yes.

Sin. That’s how you know you need to go no further. But we must, just to know where it will lead because central planners never understand that “imposing” is not a synonym for “restoring”.

Sensible reform cannot avoid causing significant pain, which is worth enduring to gain extra safety and more exemplary conduct. And only when there is strong public revulsion, such as exists today, can legislators minimize the influence of powerful special interests enough to bring about needed revisions in law.

Speaking of synonyms, “strong public revulsion” is a synonym for “populism”. Through the first two paragraphs, it’s clear that Munger has no interest in the economics of the current recession. Its narrative offends him so we must all act with the force of the government, consequences be damned.

Many contributors to our over-the-top boom, which led to the gross bust, are known. They include insufficient controls over morality and prudence in banks and investment banks; …

Insufficient controls over morality. Does Munger explain this? Of course not, because strong public revulsion covers it. We’re all outraged, so we must Do Something. His something is to increase taxes because it is our duty to “demand at least some increase in conventional taxes or the imposition of some new consumption taxes” to punish ourselves for our immorality.

The rest of the column is an incoherent, crusading mess.