Monthly Archives: November 2008

A Good Arrrrrggguement

Posted on by razma766
Reply

Editor, The Wall Street Journal

200 Liberty Street

New York, NY 10281


To the Editor:


Arthur Bowring is correct that pirates raise costs to consumers (“The Price of Piracy,” November 25). Having to confront predators possessing the brute force to seize their cargoes and persons, merchants naturally cut back on their commercial activities and demand premium payments for whatever services they continue to perform.


But it’s no stretch to arrrggggue that pirates share much in common with the stationary bandits we call “governments.” Governments, too, routinely threaten to seize persons’assets and persons if those persons don’t pay the ransom called “taxes.” And like pirate activity, government regulations and taxes increase the risks and costs of doing business – expenses ultimately passed on to consumers.


The chief difference between the two sorts of bandits is that, unlike governments, pirates don’t insult the intelligence of their victims with assurances that the pirates’predations are for the victims’own good.

Sincerely,

Donald J. Boudreaux

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.

That Darn Free Market

Posted on by razma766
1

artgloriaborger

Kurt Bouwhuis, Mackinac Center Intern

“What we’re seeing — even before Obama is sworn in — is a changing of the guard, so the new folks are ready to take charge on Day One.

Some Republicans have predictably begun to grumble about the size of the stimulus package, but here’s a question: What would you in the GOP do differently? Would you continue the deregulation that got us into this mess? And didn’t you folks break the bank over the last couple of years? Aren’t even some of the most conservative economists now advising spending as a way to get ourselves out of this hole?” – Gloria Borger

Placing political labels to the side, I have two main issues with this short excerpt from an article titled Obama Takes Ownership of the Economy by Gloria Borger.  First off, did deregulation cause this “crisis”?  Second, you are not an economist at all if you believe more spending will get us out of this mess.

When blaming deregulation and the free market, it makes me think of a recent post from Cafe Hayek: “By “free market”, they must mean politically driven lending practices, price fixing in labor markets, price supports in agriculture, tariffs in steel trade, illegals relegated to permanent underclass, artificially low interest rates, government enforced monopolies, and fake money.” – Seanooski

Market regulation will never work effectively.  Why?  Because there is a relatively small number of regulators trying to control a relatively large group of individuals.  This leaves a small body of knowledge trying to outsmart a large body of knowledge.  Additionally, there are some individuals that understand the framework of regulation far better than the regulators.  What is the result?  Individuals will “break” the system.

inside-man-2006Think of it this way:  Suppose I have to design a security system to protect the world’s largest diamond.  I hire the best security design team to constantly design and update the security system.  Will I ever complete a system that is 100% safe?  Absolutely not!  Why?  Because there are individuals (who are most likely smarter than my top notch design team) working on a way to break the system and obtain the diamond.  Regulation in the market works in the same fashion.

“Economists” think spending will get us out of this mess…  What got us into this mess?  Among over regulation and a failing monetary policy, I would have to say borrowing money from foreigners and spending it all on consumption.  In the past, the United States would borrow money to save and invest.   We would then invest our savings in capital to increase our future production.  Recently, the United States borrows money to consume things like buying a new car, remodeling the kitchen, etc…  If we want the economy to be productive in the long run, we must allow the market to fall into a recession where we begin to save and invest rather than consume.

Additionally, CONSUMPTION DOES NOT CREATE ECONOMIC GROWTH.  How do businesses expand?  They borrow money from investors to build capital.  INVESTMENT CREATES ECONOMIC GROWTH.  The economy will not benefit from the government borrowing or printing money to offer consumers another stimulus package.  All this does is encourages the same consumption that got us into this mess.  We cannot expect foreigners to keep producing goods and services for free.  Although it’s a tough job to consume all these wonderful goods, perhaps we should try producing them.

Great Quote From SFE Blog

Posted on by razma766
Reply

elitism

“In short, free markets are nothing more than free individuals doing what they feel is best for themselves. Speaking out against it takes an immeasurable amount of arrogance.  It necessitates that you can be judge and jury in the lives of others, rather than allowing them to do the best they can with what they have.” – Isaac Morehouse

Students for a Free Economy

Developer Strikes It Rich With iPhone Game

Posted on by razma766
Reply

artiphonegamescnnKurt Bouwhuis, Mackinac Center Intern

The launch of the App Store for the iPhone has generated great results for consumers.  Developers looking to develop for the iPhone have relatively low barriers to entry, leaving a large amount of developers competing to create the best apps.  This large competitive field of developers has left consumers with a large variety of great apps, and also rewarded some top notch developers.

Steve Demeter, 29, created the app Trism and has made over $250,000. He talks about what a great opportunity the App Store has been and how it would be much more difficult to develop a game for the Playstation or Xbox.

The full article is located here

Will Creating Money Out Of Thin Air Save Our Economy?

Posted on by razma766
Reply

0

Kurt Bouwhuis, Mackinac Center Intern

I came across this article today while reading the Detroit News.  There are a couple economists who voice their opinions about where the economy is going.  The general consensus was that the United States economy will continue to be in a recession until the middle of next year.  Some of the proposed solutions bothered me.  The following will illustrate my point:

“We’re not forecasting economic catastrophe,” Crary said. “We expect the set of policies put in place will be successful.”

Among the policies she expects to see are stimulus checks given to taxpayers to spur spending, more money for infrastructure improvements and state and local governments, loans for domestic automakers and extended unemployment benefits.

She warned that if steps aren’t taken to spur the economy the recession would be worse.

At first glance, I thought the policies listed above were the policies that got us into this mess; not the ones that were going to “save” us.  First off, spending does NOT generate economic growth.  Investment generates economic growth.  When looking at spending, you should take into account where the money is coming from.  Considering the Federal Government is in debt up to their eye balls, it seems strange to assume they have money laying around to lend to automakers, give to citizens, and spend on infrastructure.  Additionally, investing in a business that is losing $2.5 billion a quarter (GM) is not considered an investment that will create desirable economic outcomes.

Coldest Hot October Ever!

Posted on by razma766
2
asnow1By: Isaac Morehouse at the SFE Blog
Posted on November 17, 2008

Another one for the “doomsday prophets falsifications” file.  After reporting that last month was the hottest October on record, Al Gore’s favorite scientist had to (once again*) retract his findings:  From the Telegraph:

The error was so glaring that when it was reported on the two blogs – run by the US meteorologist Anthony Watts and Steve McIntyre, the Canadian computer analyst who won fame for his expert debunking of the notorious “hockey stick” graph – GISS began hastily revising its figures. This only made the confusion worse because, to compensate for the lowered temperatures in Russia, GISS claimed to have discovered a new “hotspot” in the Arctic – in a month when satellite images were showing Arctic sea-ice recovering so fast from its summer melt that three weeks ago it was 30 per cent more extensive than at the same time last year.

*Also from the article – “In 2007 he was forced [...] to revise his published figures for US surface temperatures, to show that the hottest decade of the 20th century was not the 1990s, as he had claimed, but the 1930s.”

Don’t Feed the Animals

Posted on by razma766
Reply

republican_logoKurt Bouwhuis, Mackinac Center Intern

“You actually have a consensus among conservative, Republican-leaning economists and liberal, left-leaning economists. And the consensus is this: that we have to do whatever it takes to get this economy moving again, that we’re going to have to spend money now to stimulate the economy,” Obama said on the program, which aired Sunday.

I hope “whatever it takes” does not include creating money out of thin air and distributing it to individuals and businesses at arbitrary quantities that bureaucrats sees fit.  I also hope Obama and his board of economists understand that you do not grow an economy with spending, but rather, investment.  You will see short run benefits from spending, but you will see stable long term growth with investment.  This is assuming there are no entities messing around with the interest rates (Fed), sending inaccurate market signals to capitalists and entrepreneurs, causing an inefficient allocation of resources.

donkey-democrat-logo1Sounds to me as though this “market crisis” will convey enough insecurity to pave the way for the unveiling of a new New Deal.  Together, these two parties will lead us down a path where we will continue to live way beyond our means through the creation of numerous short run solutions. If we truly want to “fix” the economy, we may want to look at what makes an economy prosper.  I would argue prosperity comes from allowing an economy to create goods and services that are demanded by consumers around the globe at a profitable price.  If your economy is creating goods and services that people want, your economy will prosper.  Aiding the economy has nothing to do with printing money, or stimulus checks, or public health care, or tampering with the interest rates, or subsidizing, or regulating…  An economy will prosper when it is allowed to produce.

The Bigger The Unproductive Firm, The More Vital It Is To Let It Fail

Posted on by razma766
1

Editor, Washington Post
1150 15th St., NW
Washington, DC 20071

Dear Editor:

Countless flaws infect the arguments – offered in your pages today by both Jeffrey Sachs and Robert Samuelson – for a government bailout of GM, Ford, and Chrysler. Not least among these flaws is the common presumption that these firms are too big to be allowed to fail.

These firms certainly are big, meaning that they use unusually large amounts of productive resources. If they have reasonable potential to put these resources to good use in the future, Chapter 11 bankruptcy will likely uncover this fact and ensure that these firms are not disassembled. But if the only way to keep these firms operating is a government bailout, then taxpayers will be subsidizing the continued employment of gargantuan quantities of productive resources in unproductive pursuits. That’s a recipe for economic stagnation.

Popular sentiment has it backward: the bigger the unproductive firm, the more vital it is to let it fail.

Sincerely,

Donald J. Boudreaux

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.

In vino veritas?

Posted on by lmruhland
Reply

Lauren Ruhland, MCPP science editor and 2008 summer intern

Michigan’s current law prohibiting out-of-state vinyards from shipping wine directly to consumers fell afoul of the state Supreme Court, which ruled in September that the law is unconstitutional because it discriminated between Michigan and non-Michigan wineries.  How did your lawmakers respond?  Not by opening up the market and letting consumers choose between a wide range of grape-derived alcoholic beverages.  Instead, they’ve drafted a bill to prohibit all wine deliveries, whether the vendor is within or outside Michigan.  It’s expected to reach the floor just in time for the holiday season.

Bailout the “Big” Three?

Posted on by razma766
3

Governor Granholm with the Chevrolet Volt Electric Concept VehicKurt Bouwhuis, Mackinac Center Intern

“In the United States alone, U.S. automakers directly employ about 355,000 workers, and another 4.5 million Americans work in sectors that are supported by the auto industry. Auto manufacturers are the largest purchasers of U.S. manufactured steel, aluminum, iron, copper, plastics, rubber, electronics and computer chips. Hundreds of automotive suppliers in all 50 states rely on U.S. automakers for their core business. Last year, the auto industry purchased $156 billion from U.S. auto parts suppliers. This industry is vital to millions of citizens in our states and across the country.”– Jennifer Granholm

Would all those jobs vanish off the face of the earth if the big three went under?  Would consumers instantaneously demand less cars?  Absolutely not!  Another automotive manufacturer would need to fill in for the decrease in supply of automobiles.  Foreign automotive manufacturers currently employ United States auto workers and would continue to do so if the big three went under.  There would be an abundance of unemployed automotive labor in the United States, which one of the many foreign manufacturers would surely utilize.

Let’s suppose the worst happens and all these jobs vanish entirely.  In the short run, the economic impact would be catastrophic.  We would have a large spike in unemployment, as individuals reallocate resources in the economy.  In the long run, however, would be much better off?  We would be better off because we would be eliminating entities that do not create wealth.  The big three currently combines raw materials, labor, and capital in such a way that the outcome is a good that is valued less then the sum of it parts.  Growing such a business model hinders economic growth.  I’ll illustrate this point with a simple example:

Suppose I directly employ 5 million people in the process of making encyclopedias.  Before I know it, this new technology emerges called the Internet.  This new technology delivers infinitely more information that is dynamically updates at a much lower costs.  Over the next couple years, my sales begin to decline.  I start laying people off, and cutting back on production.  My company begins to show losses.  But wait!  I have numerous suppliers across the country, with business models that depend almost entirely on my encyclopedia production.  Should the government bail me out?

Why not?  The United States Government seems to have a fancy for investing in failing entities.  In fact, Jennifer Granholm, has made a new friend who can save the American automotive industry. “The bottom line is (Obama) is committed to this industry surviving and thriving,” Granholm told the Free Press in Lansing, Mich. “It is a great statement of confidence in his belief in the industry and it’s importance, not just to Michigan but to the rest of the country.” — Jennifer Granholm

Econ Talk – Richard Epstein

Posted on by razma766
1

epsteinRichard Epstein of the University of Chicago talks with EconTalk host Russ Roberts about the relationship between happiness and wealth, the effects of inequality on happiness, and the economics of envy and altruism. He also applies the theory of evolution to explain some of the findings of the happiness literature.

Click here to listen – http://www.econtalk.org/archives/2008/11/richard_epstein.html

Follow

Get every new post delivered to your Inbox.