So Much for Bipartisanship

Well the stimulus bill passed today, without a single Republican voting for it. I am not sure what is scarier, a $350 billion TARP package in the hands of a man who can't figure out how to use Turbotax properly, or $900 billion in the hands of Democrats eager to buy off votes.

Well for a refreshing breath of reality, the National Review has an excellent article on the failed history of Keynesian stimulus. I actually have a copy of the awkwardly named The General Theory of Employment, Interest and Money, sitting on my shelf, that I have been meaning to read. I will have to move it up in priority, so I know what woes are in store.

Using quaint Keynesian arguments to rationalize heavy spending is nothing new. But its resurgent popularity is somewhat surprising. Democrats and their favorite economists spent the past 25 years bemoaning the “twin deficits” of the 1980s and then claimed that the strong economy of the late 1990s was the result of President Clinton’s fiscal restraint — the precise opposite of “fiscal stimulus.” Also working in the anti-Keynesian mode, former treasury secretary Robert Rubin co-authored a 2004 paper with forecaster Allen Sinai and Peter Orzsag of the Brookings Institution, who now has been tapped by Obama to lead the Office of Management and Budget. They argued that “budget deficits decrease national saving, which reduces domestic investment and increases borrowing abroad.” Big budget deficits, warned Rubin, Orzsag, and Sinai, would “reduce future national income” and risk a “decline in confidence [which] can reduce stock prices.”

Joe the Dumber Speaks, Again

I had thought, well, I had hoped that Obama still had him locked in a closet somewhere, but apparently they still let him speak occasionally. Economist Gregory Mankiw, or as I call him, the anti-Krugman, takes him to task for his recent statement on the stimulus bill:

In a TV interview last month, Vice President Joe Biden said the following:

Every economist, as I've said, from conservative to liberal, acknowledges that direct government spending on a direct program now is the best way to infuse economic growth and create jobs.

That statement is clearly false. As I have documented on this blog in recent weeks, skeptics about a spending stimulus include quite a few well-known economists, such as (in alphabetical order) Alberto Alesina, Robert Barro, Gary Becker, John Cochrane, Eugene Fama, Robert Lucas, Greg Mankiw, Kevin Murphy, Thomas Sargent, Harald Uhlig, and Luigi Zingales--and I am sure there many others as well. Regardless of whether one agrees with them on the merits of the case, it is hard to dispute that this list is pretty impressive, as judged by the standard objective criteria by which economists evaluate one another. If any university managed to hire all of them, it would immediately have a top ranked economics department.

Ouch. It well worth reading the rest. I didn't realize that Mankiw had a blog. It is not on my to read list.

Kristof Copies Krugman

A couple of years ago I posted a link to Paul Krugman's excellent essay on sweatshops in the third world (this was back when Krugman was an actual economist).

For many years a huge Manila garbage dump known as Smokey Mountain was a favorite media symbol of Third World poverty. Several thousand men, women, and children lived on that dump--enduring the stench, the flies, and the toxic waste in order to make a living combing the garbage for scrap metal and other recyclables. And they lived there voluntarily, because the $10 or so a squatter family could clear in a day was better than the alternatives.

So I was a bit surprised to read this editorial recently by Nicolas Kristof in the New York Times:

Before Barack Obama and his team act on their talk about “labor standards,” I’d like to offer them a tour of the vast garbage dump here in Phnom Penh. This is a Dante-like vision of hell. It’s a mountain of festering refuse, a half-hour hike across, emitting clouds of smoke from subterranean fires.

The miasma of toxic stink leaves you gasping, breezes batter you with filth, and even the rats look forlorn. Then the smoke parts and you come across a child ambling barefoot, searching for old plastic cups that recyclers will buy for five cents a pound. Many families actually live in shacks on this smoking garbage.

Now I think both editorials are good mind you, and the wording is different enough that it is not plagiarism, but Kristof is hardly being original.

CSPAN Porn

I was amused by this passage:

WASHINGTON - Barack Obama’s $825 billion plan to boost the recession-bound U.S. economy has some elements that, well, aren’t the sort of stimulus that House Minority Leader John Boehner says he can believe in.

“I’m concerned about the size of the package, and I’m concerned about some of the spending that’s in there,” Boehner complained Friday after a meeting at White House.

“How can you spend hundreds of millions of dollars on contraceptives? How does that stimulate the economy?”

OK, maybe I have a dirty mind, but when talking about contraceptives you should be careful discussing "stimulate" and the "size of packages".

Obama Does Have Superpowers!

Faster than a speeding bullet, stronger than a locomotive... able to time travel. From the new White House website.

President Obama swiftly responded to Hurricane Katrina.

Yeah, OK, buddy.

Michael Shermer on the Bailouts

Ever since I have taken up following conspiracy theorists I have been reading a lot of Michael Shermer, he is founder of the the Skeptic Society after all. He recently wrote a pretty decent book on economics, which I got an autographed copy of (and actually made a YouTube video of when the troofers interrupted it). He continues this theme with a editorial in the City Journal.

Though the financial crisis is complex and has many explanations, one of its primary causes involves Fannie Mae and Freddie Mac, the nation’s largest guarantors of home mortgages. Recall that Fannie and Freddie are government-run organizations that do not make loans directly to customers; rather, they buy loans from the banks that make those loans directly. In spring 1999, Fannie and Freddie—under pressure from the Clinton administration—increased their portfolio of loans to lower- and moderate-income borrowers from 44 percent to 50 percent by 2001. That meant granting loans to higher-risk customers.

Now, there’s nothing wrong with corporations’ and institutions’ taking higher risks, so long as they adjust for it by charging more. The higher price acts as a risk signal to both buyers and sellers, thereby dialing up their emotion of risk aversion. That’s what Fannie Mae was already doing, in fact: when it purchased loans that banks made to high-risk customers, it bought only those that charged 3 to 4 percentage points higher than conventional loans. But under the new program, Fannie would buy high-risk mortgages that were only 1 point above a conventional 30-year fixed-rate mortgage (and that added point would be dropped after two years of steady payments). In other words, the normal risk signal sent to high-risk customers—you can have the loan, but it’s going to cost you a lot more—was removed.

Atlas Still Shrugs

One of the greatest books ever, but one I hoped wouldn't come true.

Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.

Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated "Atlas" as the second-most
influential book in their lives, behind only the Bible.

Only in Seattle: Part II

Well they at least figured out that it isn't really that big of a deal to put salt in the ocean, but geez, they have to hire a consultant. Doesn't anyone on the city council have a cousin in Spokane or something?

The Seattle City Council will consider hiring an outside consultant to look at the city's response to December's historic snowstorms.

City departments will give the mayor a report Jan. 30, but Councilmember Tom Rasmussen said this morning that an outside party could help city officials figure out what went wrong.

The storms stranded bus riders and left ice and compact snow on many streets for nearly two weeks.

The Wall Street Journal Imitates Me

Igor Panarin, the Russian academic who predicted the collapse of the United States, is back. This time on the front page of the Wall Street Journal. They left out much of the nutty stuff:

He based the forecast on classified data supplied to him by FAPSI analysts, he says. He predicts that economic, financial and demographic trends will provoke a political and social crisis in the U.S. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the union. Social unrest up to and including a civil war will follow. The U.S. will then split along ethnic lines, and foreign powers will move in.

California will form the nucleus of what he calls "The Californian Republic," and will be part of China or under Chinese influence. Texas will be the heart of "The Texas Republic," a cluster of states that will go to Mexico or fall under Mexican influence. Washington, D.C., and New York will be part of an "Atlantic America" that may join the European Union. Canada will grab a group of Northern states Prof. Panarin calls "The Central North American Republic." Hawaii, he suggests, will be a protectorate of Japan or China, and Alaska will be subsumed into Russia.

"It would be reasonable for Russia to lay claim to Alaska; it was part of the Russian Empire for a long time." A framed satellite image of the Bering Strait that separates Alaska from Russia like a thread hangs from his office wall. "It's not there for no reason," he says with a sly grin.

Only In Seattle

Now correct me if I am wrong, but isn't the Puget Sound pretty salty already?

The icy streets are the result of Seattle's refusal to use salt, an effective ice-buster used by the state Department of Transportation and cities accustomed to dealing with heavy winter snows.

"If we were using salt, you'd see patches of bare road because salt is very effective," Wiggins said. "We decided not to utilize salt because it's not a healthy addition to Puget Sound."

Russia Gets Scarier

As I have mentioned before, as a long time student of Russia, the Putin regime scares me. Things are getting worse as the prepare to essentially ban dissent:

Putin did not specify who might pose a threat to Russia's stability. But in the past, he has often blamed Western security services of trying to destabilize the country using opposition groups and non-governmental organizations as their instruments.

"Any attempts to weaken or destabilize Russia, harm the interests of the country will be toughly suppressed," they quoted ex-KGB spy Putin as telling an annual meeting of top spies and security officers ahead of their professional holiday.

But what do you expect from a country which has a national holiday for the secret police?

The Day of Security Officers is marked annually on December 20, a day when in 1917 Bolshevik rulers created the CheKa secret police to suppress their foes. After a string of transformations, the Cheka became the KGB.

As president, Putin always personally attended the holiday meetings of security officials. Medvedev, a former corporate lawyer with no security background, stayed away and sent his chief of staff Sergei Naryshkin to deliver his greetings.

Al Gore and the Broken Window Fallacy

One of the things that drives me nuts (admittedly, there are a lot right now) is the constant insistance among environmentalists and politicians that "alternative energy" will "create jobs", somehow justifying large government expenditures to pay companies to do things which they would not normally waste money on. As Obama said when he met Al Gore today:

"We all believe what the scientists have been telling us for years now, that this is a matter of urgency and national security, and it has to be dealt with in a serious way," Obama said. "We have the opportunity now to make jobs all across this country, in all 50 states, to repower America. ... We are not going to miss this opportunity," he said.

OK, now if you want to argue that "green energy" has some sort of positive externalities in regards to the environment or national defense, you might have an argument, I am not saying it would be a good one, but you could at least make it, but to argue that it is an economic benefit in that it provides jobs, is a fallacy. Under no circumstances is it an economic benefit to subsidize people to do things in a manner which are a less efficient application of resources than they would otherwise. If solar power costs $20 per megawatt, and coal costs $10 a megawatt, it is never an economic benefit to pay someone $20 extra per megawatt in order to get them to put up solar cells. You might as well just use coal and pay them $10 to surf the Internet for Carrie Underwood videos.

This tactic, commonly used by politicians is a variation of the Broken Window Fallacy, by which you argue an economic benefit to smashing windows in order to employ window repairman, but at a loss to society as a whole.

The AP On Military Education

The AP, which has pretty much given up reporting the news and become an editorial service, has written an article on why soldiers are reenlisting in the military because... well apparently they can't get a job anywhere else. While obviously a bad economy probably has an effect, they take the John Kerry education approach.

Roughly 208,000 men and women left the military in 2007. Some were rank-and-file warriors, while others worked in specialized fields such as satellite communications or computer networking. Only about 30 percent of enlisted soldiers hold a bachelor's degree.

Only about 30 percent of enlisted soldiers hold a bachelor's degree? Well, how does that compare to the population at large? Well, according to the US Census, 27.1%, or less than the military, and this is not even counting officers, who almost all have degrees. So why exactly did they add the "only"?

Krugman and the Depression

When Paul Krugman recently won the Nobel Prize, I was worried, not so much that he didn't deserve it for his earlier work, but that he would use the fame to legitimize his much less rigorous later work. My fears were proven correct when I saw his new book The Return of Depression Economics, or rather a rehash of his old book of the same name, staring at me from the shelves of the local Barnes & Noble, complete with a "Nobel Prize Winner" emblazoned on the front cover.

The Wall Street Journal, however, once again in defense of reality economics, has an interesting editorial on a topic in his book today:

This reality shows most clearly in the data -- everyone's data. During the Depression the federal government did not survey unemployment routinely as it does today. But a young economist named Stanley Lebergott helped the Bureau of Labor Statistics in Washington compile systematic unemployment data for that key period. He counted up what he called "regular work" such as a job as a school teacher or a job in the private sector. He intentionally did not include temporary jobs in emergency programs -- because to count a short-term, make-work project as a real job was to mask the anxiety of one who really didn't have regular work with long-term prospects.

The result is what we today call the Lebergott/Bureau of Labor Statistics series. They show one man in four was unemployed when Roosevelt took office. They show joblessness overall always above the 14% line from 1931 to 1940. Six years into the New Deal and its programs to create jobs or help organized labor, two in 10 men were unemployed. Mr. Lebergott went on to become one of America's premier economic historians at Wesleyan University. His data are what I cite. So do others, including our president-elect in the "60 Minutes" interview.

One of the Best Arguments Against Something...

Is the fact that Pat Buchanan is for it...

I am a bit behind commenting on this subject, but this bailout of the Big Three is just idiotic. Personally I am rather upset at much of the bailout in general, but this is not a systemic problem, it is unique to the incompetence of the industry. Here is Herr Pat's spin:

In a good year, like 2005, Americans buy more than 17 million new cars, and West Europeans as many. Tens of millions in Eastern Europe, Russia, China, India and Southeast Asia are now moving into the middle class each year. These folks will all need or want one or two family cars. If we let the U.S. auto industry die, that immense and burgeoning market will be lost forever to America, and ceded to Asia.

"Who cares?" comes the free-traders' reply. Japanese and Koreans are setting up factories here. They can pick up the slack.

But that means Americans will work for and depend on foreign companies for a necessity of our national life as vital as the imported oil and gas on which our cars and trucks operate. All the profits of the mighty automobile industry in America will be sent abroad.

Hey genius, the profits go to the shareholders. Based on their profitability, I am sure more profit has gone to Americans who hold Honda stock than GM lately. In fact the Big 3 have been one of the biggest destroyers of wealth in the history of the world.

The Stupidest Housing Crash Idea

The most distressing part of the housing crash is how everyone is willing to throw away capitalism, over a crisis which hasn't even caused a recession yet. Having caused this crisis largely through idiotic government policy encouraging lenient lending standards, politicians now claim to be our saviors. Even they have not approached the idiocy of this idea though.

Napoleoni said that in Islamist finance, banks do not charge interest for loans and that this encourages entrepreneurs."

Money has to be invested," she said. "It has to be invested in the real economy, and through real growth, they can produce more money. This system could help us to get out of the current crisis."

Charles Kalm, a graduate assistant from the International Studies Institute, said Americans need to heed the advice of economists like Napoleoni."I think that we can all agree that our economic system is malfunctioning," he said.

"There are a number of things that are going to have to happen to help the average guy, all of the working people, the banks and to help with the main problem, which is faith in the economy."

Yeah, and exactly how well has this financial vehicle worked out for the Islamic world? Even with all of their oil resources, the UN has to do special reports on the economic disaster that is the Arab world. Despite all this wealth, their financial insitutions are a joke. For example:

With few exceptions, the region is plagued by corrupt, state-dominated economies, excessive regulation and bureaucracy, and poorly constructed legal and regulatory frameworks that hinder private sector development, foreign direct investment, and job creation. The 280 million people of the 22 Arab countries combined have a gross domestic product less than that of Spain; 25 percent of Arabs live below the poverty line; foreign direct investment rose everywhere last year, except the Middle East; total nonfossil fuel exports from the entire region amount to less than the total exports of Finland; the Arab world has witnessed a near zero percent growth rate over the past 30 years, while all other developing countries grew at 2.5 percent per annum.

Racist!

It is no surprise that the New York Times should endorse Obama, this is the newspaper that sponsors Paul Krugman, Maureen Dowd and Bob Herbert after all. But could they at least have the class not to make up fake claims of racism while doing it?

In the same time, Senator John McCain of Arizona has retreated farther and farther to the fringe of American politics, running a campaign on partisan division, class warfare and even hints of racism. His policies and worldview are mired in the past. His choice of a running mate so evidently unfit for the office was a final act of opportunism and bad judgment that eclipsed the accomplishments of 26 years in Congress.

Of course, while calling Governor Palin as unfit for office, they claim that Obama is, endorsing Obama's own circular logic that running for office itself is the primary qualification.

As tough as the times are, the selection of a new president is easy. After nearly two years of a grueling and ugly campaign, Senator Barack Obama of Illinois has proved that he is the right choice to be the 44th president of the United States.

In other news, the New York Times has been downgraded to junk status this week...

Unbelievable.

More On The Moron

The idiotic thing, his warning of a Obama presidency wasn't even the stupidest thing he said in that speech.

"I've forgotten more about foreign policy than most of my colleagues know, so I'm not being falsely humble with you. I think I can be value added, but this guy has it," the Senate Foreign Relations chairman said of Obama. "This guy has it. But he's gonna need your help. Because I promise you, you all are gonna be sitting here a year from now going, 'Oh my God, why are they there in the polls? Why is the polling so down? Why is this thing so tough?' We're gonna have to make some incredibly tough decisions in the first two years. So I'm asking you now, I'm asking you now, be prepared to stick with us. Remember the faith you had at this point because you're going to have to reinforce us."

I would agree that he has forgotten a lot, this is the guy after all, who thinks that we kicked Hezbollah out of Lebanon.

"Joe the Dumber" Speaks

Earlier I asked just how dumb Joe Biden is, Joe apparently didn't realize that was a rhetorical question.

"Mark my words," the Democratic vice presidential nominee warned at the second of his two Seattle fundraisers Sunday. "It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking. We're about to elect a brilliant 47-year-old senator president of the United States of America. Remember I said it standing here if you don't remember anything else I said. Watch, we're gonna have an international crisis, a generated crisis, to test the mettle of this guy."

OK, so if we elect this young an inexperienced guy, that will guarantee an international incident on the scale of the Cuban Missile Crisis? And this is supposed to a reason to vote for him?

More on Krugman

The Wall Street Journal has an excellent article on what praises Herr Kruggy deserves, and doesn't deserve:

In his popular writing, Paul Krugman is at his best when defending free trade. My favorite is example is his "Ricardo's Difficult Idea," published in the mid-1990s, in which he shares a frustration many of us economists have felt -- that the vast majority of noneconomist intellectuals don't understand David Ricardo's famous insight about free trade almost 200 years ago.

Ricardo grasped that people will specialize in producing the goods and services in which they have a comparative advantage. The result is that we never need to worry about low-wage countries competing us out of jobs; the most they can do is change those goods and services in which we have a comparative advantage. For example, though you can rake leaves faster than the teenager next door, it still makes sense to hire him because you have a comparative advantage in writing software programs. Mr. Krugman points out that most noneconomist intellectuals are unwilling to take even 10 minutes to understand this. But that doesn't stop them from writing about trade as if they're informed.

Don Luskin, however, resurrects the Krugman Truth Squad, with the cleverest line:

More likely, the Nobel committee decided deliberately to overlook Krugman’s political extremism, just as it chose to overlook John Nash’s schizophrenia in 1994. That’s not to say Krugman is crazy, though he has stated: “my economic theories have no doubt been influenced by my relationship with my cats.”

Whatever the committee was thinking, the only remaining question is what the living Paul Krugman will do with his $1.4 million prize. Will he pay taxes on it at the low rates established in 2003 by George W. Bush, a president and a policy that Krugman has worked so assiduously to discredit? Or will he voluntarily pay at the higher rates he advocates?