Happy Birthday, Milton Friedman

I am an economist because of Milton Friedman. More specifically, I am a free-market economist because my first economics professor had us read Friedman's Free to Choose and Galbraith's The New Industrial State. We also watched several episodes each of Friedman's TV series of the same name, and Galbraith's The Age of Uncertainty. After experiencing the turgidity of Galbraith alongside the clarity of Friedman, there was no turning back.

Today would have been Friedman's 100th birthday. Over at Cafe Hayek they have a collection of links to articles about Friedman's legacy.

Our best hope: A Damascene conversion

The Federal budget is probably in much worse shape than is indicated by Administration projections. As Greg Mankiw points out, the Administration's latest growth projections are well above those of private forecasters. Given the economic incompetence of the Administration, I'm fairly confident which set of projections is more likely.

Then again, maybe the President knows something we don't and the projections are embedded with the assumption that we won't have to suffer from his opposite-of-what-should-be-done policies for much longer. Maybe he's predicting his own electoral defeat, or that he will have a Saul-to-Paul conversion that will make him stop persecuting businesses and their employees. Other than wishful thinking, I can't think of any other explanations for the optimistic growth projections.

Who do you think you are!?

Mark Steyn sums up nicely the bizarre notion of stifling free speech in the name of tolerance: "If you’re only in favor of freedom of expression for people you agree with, you’re not doing it right."

It’s bad enough that in a supposedly free society you can’t sell a chicken sandwich to your fellow citizen without buying a bazillion permits from the state. If they can prevent you from selling a chicken sandwich because they don’t like your opinions, then what can’t they do to you?

Well-reasoned arguments are not enough to counter this lunacy, however. As Rush Limbaugh puts it, what is needed is to stand up and ask: "Who the hell do you think you are, Rahm Emanuel? Who the hell do you think you are? What country do you think you’re in?” Steyn is right: "Until more citizens of free nations are willing to say to statist hacks 'Who the hell do you think you are?', liberty will continue to bleed."

Real environmentalists should be happy

Walter Russell Mead has a great piece on the effect of the energy revolution on the environmental debate:

High praise indeed

A global warming skeptic who's a lot smarter than Al Gore

It's impossible to delve into Dyson's career without concluding he is several orders of magnitude smarter than the Al Gores of the world.

One of his themes is the complexity of the universe.

He thus gets a good laugh at all of the simplifiers of science, such as Gore and the rest of the what I like to call the climate scientology cult.

Anyone who knows anything about science realizes that something as complex as the Earth's atmosphere offers too many variables to be understood in a matter of mere years.

Research is just beginning into the role of carbon dioxide in the atmosphere, yet the climate scientologists claim to know exactly what effect each tiny increment of CO-2 will have on the environment.

Hmm, are other TARP recipients doing this?

GM Ramps Up Risky Subprime Auto Loans To Drive Sales

Potential borrowers of car loans are rated on FICO scores that range from 300 to 850. Anything under 660 is generally deemed subprime.

Subprime Key Driver
GM Financial auto loans to customers with FICO scores below 660 rose from 87% of total loans in Q4 2010 to 93% in Q1 2012.

The worse the FICO score, the bigger the increase. From Q4 2010 to Q1 2012, GM Financial loans to customers with the worst FICO scores — below 540 — shot up 79% to more than $2.3 billion. The second worst category, 540-599, rose 28% from about $3.4 billion to $4.3 billion.

Let me think...What is it about GM that makes it different from other companies? It couldn't be that it is largely owned by the federal government and the United Auto Workers, could it?  No, the government would never allow such a thing to happen after the mess we had in 2008.  And I'm pretty sure that a government-owned company would never use subprime lending to juice sales prior to an election in which two key auto-producing states, Michigan and Ohio, are up for grabs.

Besides, the government can surely be trusted to make sure that TARP recipients (GMAC, $12.5 billion; GM, $40 billion; and GM suppliers, $3.5 billion) don't ever put the economy at risk again.

I guess it will remain a mystery.

Was TARP worse than you think?

TARP Was Even Worse Than You Think: “An Abysmal Failure,” Barofsky Says:

Most Americans have a sense TARP was a badly managed program that bailed out "fat cat" bankers at the expense of U.S. taxpayers. Well, it's even worse than you think, according to Neil Barofsky, former special inspector general for TARP (SIGTARP).

 

I'm not sure that I agree with a lot that Barofsky has to say here about TARP.  I was a Fed economist at the time, and TARP and other programs were sold as necessary evils to prevent the collapse of the financial sector.  They were not to save the financial sector for its own sake, but to save the rest of the economy, which relied on the existence of a functioning financial sector.  Saving Wall Street was the same as saving Main Street.  Plus, as repugnant as it was to bail out bankers who were in trouble because of their own decisions, many bankers and others in the financial sector were innocent victims.

More on goons and thugs running Chicago

From Eugene Volokh: Chicago Alderman: I Will Deny Business Permit Because “There Are Consequences for [Its Owner's] Statements and Beliefs,” and They Should Include Denial

This is just appalling. A government official thinks that the proper “consequence” for a business owner’s “statements and beliefs” is the denial of the ability to do business. Because he’s “sure the majority of” his constituents find the owner’s “comments and attitudes repugnant,” it’s just fine for him to use the coercive power of the government to block the business from opening up a store. His “belief in equality is resolute,” and that apparently justifies him discriminating against businesspeople for exercising their First Amendment rights to speak out. They “should really reconsider [their] platform on gay issues,” or else the government of Chicago will exclude them from the alderman’s ward.

As I noted before, such a viewpoint-based denial of a business permit is a blatant violation of the First Amendment. But that doesn’t seem to bother Alderman Moreno, because his “principles” seem to demand this sort of unconstitutional behavior. As I said, just appalling.

What else is there to say?

US economic growth slowed to 1.5 pct. rate in Q2 

Since early 2009 I have been saying that the policies pushed and implemented by the Obama Administration have been pretty much the opposite of what is needed to get the economy back on track.  Three years after the recession ended we're still seeing pathetic growth, and it has nothing at all to do with the hand that the President was dealt.  Deep recessions are typically followed by strong recoveries (here and here), and the reason this has not happened is due entirely due to the wrongheaded economic policies that the administration has hampered the economy with.

When thugs and goons are in charge

Chicago plans to punish private citizens who express political views contrary to the Mayor's, and the Mayor is proud of it. That certainly does sound a lot like the Chicago values the Mayor is trying to protect: Emanuel goes after Chick-fil-A for boss’ anti-gay views 

Note that Chick-fil-A's owner did not discriminate against anyone, or break any laws or rules. Its owner simply had the nerve to express his personal opinions. How dare he!

In related news: Rahm welcomes help from Farrakahn, ignores anti-Semitic remarks 

So, in Chicago it's okay to be an anti-semite and racialist, but don't you dare cross one of the Mayor's key voting blocs.

From March,Venezuelan strong man Hugo Chavez threatens companies that support the opposition:

“I have a list of private banks that are financing the opposition’s destabilizing plans,” Chavez, 57, said. “It wouldn’t be bad at all to issue a decree and bring those firms under state control. Large national and some international companies that earn more than enough money here.”

Argentina takes control of newsprint business:

Economic liberty intertwined with civil liberty, part 7,914,886: “The paper used to produce newspapers came under government control in Argentina on Thursday, in a long-sought victory for President Cristina Fernandez in her dispute with the country’s opposition media”...

Dictator Juan Peron used similar methods to muzzle the press, while in Mexico for decades governments of the ruling PRI closely controlled newsprint allocation, a power they were not hesitant to use to bring excessively independent publishers to heel.

Good enough for gummint work

Jobs Program Spent $76,000 Per Person To Help Youth Find Minimum Wage Jobs: 

• Wasteful administrative costs are eating up job training dollars.  In one program, just 14 cents of every dollar went to actual job training.
  
• Questionable spending abounds.  For example, the Job Corps program spent $36,000 on flowers and billboards.  Other expenditures included bowling trips and recreational activities that had little to do with job training.
  
• Some job training programs appear to segregate participants by race, gender, and background.  For example, Oklahoma's 40 job training programs have eight that target Native Americans and seven for veterans--"some of which require veterans to pursue training for 'green skills,' not because of labor market analysis but because politicians in Washington are imposing ideological agendas on states." 

Somewhat more than Al Gore

How much did the government contribute to developing the internet?  Urban legend has it that the internet was a government project that ended up spurring an economic bonanza.  This legend was recently and famously repeated by President Obama when he made his case that everyone owes everything to the government.  The reality is quite different from this legend, however, and it is more accurate to say that the internet exists only because the government got out of the way and private businesses took advantage of the technology that the government had been sitting on.  Here's Gordon Crovitz in the Wall Street Journal:

As for the government's role, the Internet was fully privatized in 1995, when a remaining piece of the network run by the National Science Foundation was closed—just as the commercial Web began to boom. Blogger Brian Carnell wrote in 1999: "The Internet, in fact, reaffirms the basic free market critique of large government. Here for 30 years the government had an immensely useful protocol for transferring information, TCP/IP, but it languished. . . . In less than a decade, private concerns have taken that protocol and created one of the most important technological revolutions of the millennia."

I think he has it backwards

The Washington Post has an analysis by Chris Cizzilla of the economies of presidential-election swing states. According to Cizzilla, the improving economies of those states, at least relative to the awful national economy, will make them more likely to end up in President Obama's column:

In seven of those 12 states — Iowa, New Hampshire, New Mexico, Ohio, Pennsylvania, Virginia and Wisconsin — the unemployment rate is below the June national average of 8.2 percent. In some, it is considerably less than the national average; the June rates in New Hampshire, Iowa and Virginia were below 6 percent. Even in Ohio, a state hit hard by the collapse of the manufacturing sector, the unemployment rate is a full percentage point below the U.S. average. Republicans note that the unemployment rate rose between May and June in Colorado, Iowa, New Hampshire and Virginia, among other swing states.

In the four swing states where the rate is above the national average — Florida, Michigan, Nevada and North Carolina — the trend line is headed downward. Nevada’s June unemployment rate was an eye-popping 11.6 percent, but that was down from 13.8 percent in June 2011. Ditto Florida (10.7 percent in June 2011, 8.6 percent now), Michigan (10.6 percent in 2011, 8.6 percent now) and North Carolina (10.6 percent in 2011, 9.4 percent now).

The problem with this analysis is that almost all of these states either began succeeding economically only after they swung Republican in their statehouses in 2011 (Florida, Michigan, Wisconsin, Virginia, New Mexico, Ohio, Iowa, Pennsylvania) or is poised to elect a Republican governor to replace its current, wildly unpopular Democratic governor (North Carolina).  Even if the Republican governors are not responsible for their states' good fortunes, I bet they'll be able to take credit, especially since their electorates just replaced Democrats.

I'm no expert when it comes to politics, but that looks like good news for Romney rather than Obama.

Dodd-Frank and Obamacare: Birds of a feather

A hastily designed and poorly conceived legislative monstrosity that will fail to do what its framers claim it would do and is riddled with carve-outs based on political connections.  Years after it was signed into law, the regulations underlying it are still not close to being written, making it impossible for businesses to calculate future costs, or to even know what will be legal and illegal next year.

How to lose an election: Sound economics

Good Economics but Bad Politics?  As I've noted before, there is actually broad agreement among economists about many policy areas.  Veronique De Rugy points to a segment on NPR highlighting this point, along with the political perils of acting on this agreement.

On Wednesday, NPR’s Planet Money had a very good segment that listed six policies that economists from all sides of the political spectrum could agree on but no politicians would ever dare to run with.

Here are the policies:

• Eliminate the mortgage interest tax deduction.
• End the tax deduction companies get for providing health-care to employees.
• Eliminate the corporate income tax.
• Eliminate all income and payroll taxes. All of them.
• Tax carbon emissions.
• Legalize marijuana.

According to the story, no politicians who plan on winning would run with these policies.

Corporate cronyism under the guise of helping family farms

Crop cronyism: Trillion-dollar farm bill is the latest example of what’s wrong with our economy:

Combine a Midwestern drought with pointless ethanol mandates, and the supplies of corn inevitably dwindle, driving prices sky high. Politicians like Sen. Claire McCaskill, Missouri Democrat, are citing the crop crisis as an excuse to ram through a near-$1 trillion farm bill. While a bit of that cash might find its way to a small farmer, the bulk of the loot will be transferred to individuals who are anything but poor. Like the bank bailouts and TARP, the farm bill illustrates the capture of the legislative process by special interests. ...

The greatest scourge to the honest Midwest farmer is not unfavorable weather, pestilence or disease. Far worse for them is the plague of politicians who create an artificial market in which only those with influence can truly compete. Defeating the budget-busting 2012 farm bill is the best chance at a good harvest.

St. Louis employment

According to new data released by the ISEE at Lindenwood University, and your's truly, the BLS is again way off on its estimates of St. Louis payroll employment. Here are the ISEE and BLS series:



For details, look at this and go here. The long and short of it is that we've done a lot better (net gain of 12,400 jobs) than the BLS says (net loss of 2,100 jobs) over the past year, but it has still been pretty dismal. I've been making the case for a while that St. Louis goes as the U.S. goes, and this graph illustrates that:

A peek inside the FOMC

For the past three years or so the Fed has been secretly videotaping the meetings of the Federal Open Market Committee.  A leaker inside the Fed has given me this snippet.  See great minds at work:

The French are so much more sophisticated

After banning the burqa, French lawmakers target floral dresses:

An embarassing spectacle took hold of the French parliament on Tuesday when a Socialist minister turned up to work in a floral dress. Rightwing lawmakers raised their eyebrows and hooted as minister of territories and housing, Cécile Duflot, took to the podium to speak about an architecture project.

Not surprisingly, the “sexist imbeciles” in question denied any wrongdoing. “We were just admiring her,” conservative MP Patrick Balkany told French daily Le Figaro. “If she didn’t want us to take an interest in her, then she shouldn’t have changed her look.” Adding insult to injury, he suggested that she had only worn the dress “to get us to listen to what she had to say.” MP Jaqcues Myard went one sorry step further, telling Le Point magazine that the catcalls were a way of “paying homage to the beauty of this woman”. 

Well, there is an election to win

Why is the press misreporting news about the Chevy Volt?   The Volt, which costs taxpayers up to $250,000 each to produce, is heralded as a successful cornerstone of the President's industrial policy.  Here are some headlines (collected together by Seton Motley):

GM's Volt Sales Up in June

Surprising June Sales for Volt

Chevy Volt Leads US Plug-In Car Sales

Chevy Volt Sales Increases

Volt Records Second-Best Sales Month

And here is the reality: GM sells 1760 Volts in June, double from 2011 

Compared with absurdly pathetic sales in 2011, sales in 2012 are only laughingly pathetic! Success!

The Obama recovery

This is the sort of thing that happens when every economic policy you pursue is the opposite of what should be done: Americans Joining Disability Now Outpaces Americans Finding Jobs

Who will regulate..

the private regulators' government regulators? Consumer bureau to police credit reporting bureau.  Well, that's one way to prevent more downgrades of Federal debt.

No, it will be much more than that

The Post-Dispatch published a real howler of an op-ed last week in which the claim was made that the Medicaire expansion under Obamacare would cost the average Missourian just $20 per year. Patrick Ishmael acts too gentlemanly in describing Robert Gatter's claim as "creative accounting." A more-accurate description would be ludicrously incompetent or ludicrously dishonest accounting.

Belaboring Libor

Rick Santelli had a nice rant about how the Federal Reserve Bank of New York was aware of the problems in the Libor market over four years age, yet did nothing about it. 

According to the Wall Street Journal, a wide range of policymakers and regulators (senior officials at Treasury, the Fed Board of Governors, and the regional Feds) were informed in 2008 about the rate-rigging. They are either all complicit in this scandal, or there really isn't much of a scandal after all:

The regulators and their media cheerleaders can't have it both ways. If the problem with Libor bidding was merely an "incentive to misreport" and thus nothing for regulators to get too worked up about, then let's fix the way banks report the rates, or find some other way to determine such a rate, and move on.

But if this is really the epic deceit and crime we are now reading about, then either new evidence needs to come to light, or the regulators who smiled and nodded and "Okayed" and "Mm hmmed" through the panic years are complicit with the banks now in the dock. They had ample opportunity to shut down this behavior, but nothing released by the New York Fed or the Bank of England suggests much more than a raised eyebrow at the time.

If heads are going to continue to roll over Libor, they should also include those of Mr. Geithner and the rest of the regulators who let this slide.

Not a blood relation, but he makes a lot of sense

Wall rallies for better Canada-U.S. relations, decries policies of Obama administration

How to fix health care

There are many reasons why the monstrosity that is Obamacare will not fix our health care problems.  The obsession of late has been the individual mandate, which presents an interesting constitutional issue that was screwed up to no one's satisfaction by the silliness of Chief Justice Roberts's opinion.  John Cochrane has an excellent article advising that we need to move on from the individual mandate and actually fix health care.

Fix health care, not just health insurance. Where are the health-care equivalents of Southwest Airlines Co., Wal-Mart Stores Inc. (WMT) and Apple Inc. -- innovating, dramatically lowering costs and bringing everyday low prices to health care? They have been kept out of the market by anti-competitive regulation. As one small example, in my state of Illinois, every new hospital, expansion of an existing facility or major equipment purchase must obtain a “certificate of need” from a state board. “Need” explicitly means that it doesn’t undermine incumbents’ profits.

Insurance should be insurance, reserved for unpredictable and catastrophic expenses. Car insurance doesn’t pay for oil changes, and you shouldn’t pay for checkups through health- insurance premiums. Such insurance would be a lot cheaper, and more people would buy it.

Insurance should be individual, portable from job to job and state to state, and guaranteed renewable for people who get sick. That neatly solves the pre-existing-condition nightmare. Insurance companies would be happy to sell such coverage. The government stands in the way, by subsidizing employer-based group plans at the expense of individual insurance. (My “Health status insurance” proposal is one example among many that describe functional private health insurance.)

Cost control is achieved in only one way. Competition. Not price controls.

Innovation comes from competition, too, and from innovators’ ability to initially charge rich people more -- and their ability to pay it -- make great profits, and then commoditize. You cannot have innovation in a government cost- controlled system.

The key to the whole solution is to no longer use employers as the means for subsidizing health insurance. The convoluted way we do it now creates many of the biggest problems.  Get rid of the tax advantages to employer-provided health care and subsidize the purchase of insurance directly by giving vouchers to individuals.

So this is settled science?

IPCC Admits Its Past Reports Were Junk.  It turns out that the much-vaunted IPCC reports were not so peer-reviewed after all.  In fact, much of their methodology would not pass a smell test, never mind a statistical significance test.   

And what of the next IPCC report, due out in 2013 and 2014?  The near-final drafts of that report have been circulating for months already.  They were written by scientists chosen by politicians rather than on the basis of merit; many of them were reviewing their own work and were free to ignore the questions and comments of people with whom they disagree. 

I had little faith from the very beginning when the summary of one of the first reports included a chart showing the rise in temperatures from about 1860 onward, thereby linking it with increasing industrialization. They had purposely cut out the data from the hundred or so years prior to that, when temperatures rose at about the same rate, but with very little accompanying industrialization. I'm not an expert on the science behind global warming, and it's possible that the alarmists have a point. But the shrillness and outright fraud that accompanies much of the "science" means that I just don't trust anything that they say.

Down Obama's drain

The two great bipartisan economic reforms of the last three decades were the 1986 tax reform, which slashed marginal income tax rates while greatly broadening the tax base; and Bill Clinton's welfare reform in 1996.

Our current president is doing all he can to eliminate both of these economic and social successes.  His tax plans are to raise tax rates and reduce the tax base by expanding deductions to benefit green industries and union-heavy manufacturers.  Now he is trying to dismantle welfare reform, but not through the democratic process, by diktat: Obama to Clinton welfare reform: Drop dead

It's innumeracy rather than deviousness

Dan Amira has pointed out an interesting fact: Every Single Media Outlet Is Misreporting Obama’s Tax Proposal.  In short, President Obama's tax proposal is to maintain the Bush tax cuts on all income below $250,000, but to reverse the Bush tax cuts for income above that level.  The proposal is consistently misreported as a "one-year extension of the Bush-era tax cuts for people making less than $250,000," which is untrue. Obama's proposal would maintain Bush tax cuts for everyone, including those making more than $250,000: the first $250,000 would be taxed at Bush-era rates and every dollar above that would face the pre-Bush tax rate.

Amira's headline implies that there is something devious about this misreporting, but I think it's nothing more than simple innumeracy.

It's still intrepid, just not nearly as intrepid

As trumpeted at arcticrow, a group of four explorers will be "raising awareness about the Arctic Ocean by undertaking the first, non-stop, unsupported row across the Arctic Ocean." Sounds pretty intrepid, doesn't it? Well, it turns out that it's not nearly as intrepid as they make it out to be. As outlined at Watts Up With That, the journey will hug the coast and cross a tiny corner of the Arctic Ocean and that it "looks like the crossing will take a couple of hours."

It does look as though their minor stunt will fool the gullible press: LA Times, Business Week, NY Times. It would take about five minutes of research on Google to figure it out. I suppose it was one of those stories that is too good to check.

This is what economic cronyism looks like

Imagine that. If you give economic decision-making to political hacks, business decisions tend to royally screw over some people so that political cronies can enrich themselves.

Back from vacation

I haven't posted in a while I was on vacation at beautiful Lake Oneida, NY, just outside of Syracuse. 

I always enjoy going back to Upstate New York, having spent the first 25 years of my life there. But it does provide daily reminders of the utter pointlessness of some government regulations. On the other hand, because the Oneida Indian Nation owns gas stations in the area, I was able to avoid two of them. First, their gas stations don't require customers to squeeze the handle the entire time that gas is pumping, unlike in the rest of New York. Also, they sell no-ethanol gas, so I was able to take great pleasure in avoiding one of the most wasteful, pointless, and foolish policies in our history.