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Archive for the ‘Economics’ Category

Perhaps the title of this post is a little harsh as the stupidity is not particularly profound. As a matter of fact, the stupidity that Think Progress displays in this Twitter posting from November 20th is completely common.

First off, this is what we’d call a fallacy of false dilemma. The idea that believing in hard work and individual merit and believing in inheritance rights are mutually exclusive is ridiculous on its face. But there’s a much greater ignorance at work here.

The support of hard work and individual merit is actually stems from a support of free markets, as those two principles are keys success in such an economic environment. The bedrock of the free market is property rights. The adoption of a 100% inheritance tax would, to any thinking person, be a fundamental violation of property rights, as it assumes that upon death ones property reverts to state ownership rather than as they might have chosen to divvy it up while they were alive.

Understood this way, rather than being an indication of cognitive dissonance as Think Progress suggests it is, the belief in hard work and merit actually precludes the belief in a 100% inheritance tax.

Note: Before someone else points it out; yes, I’m well aware that assuming Think Progress’s tweets are generated by something other than a rhesus monkey mashing a keyboard with his fists is dangerous.

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I’m always amazed at the level of ignorance our elected officials show in their interpretations of even the most simple of economic developments. Today, just as in yesteryear when the economic boogyman might have been the stocking frame knitting machine, those in power recoil in horror at labor and resource saving devices, seeing the development of such devices as a threat to jobs. The latest battle in the saga of officeholder vs. economic literacy pits Representative Jesse Jackson Jr. (D-IL) against the Apple iPad. This from Real Clear Politics:

“A few short weeks ago I came to the House floor after having purchased an iPad and said that I happened to believe, Mr. Speaker, that at some point in time this new device, which is now probably responsible for eliminating thousands of American jobs. Now Borders is closing stores because, why do you need to go to Borders anymore? Why do you need to go to Barnes & Noble? Buy an iPad and download your newspaper, download your book, download your magazine,”

Gasp! The electronic media is cutting into the demand for physical books! What ever will we do?

Well, if Representative Jackson would take a moment to actually think critically, he might realize just how unfounded and silly his concern is.

The cost of an eBook is considerably cheaper than that of a physical hardcover release. For example, Tina Fey’s new book Bossypants has a list price of $26.99 at Barnes and Noble (although retail prices vary). The very same book, purchased electronically for a Barnes and Noble Nook or iPad, retails for $12.99. That difference represents a savings to the consumer (remember those people?) of $14.00. With that extra $14, the consumer can purchase more goods and services. He has his book and now he can, in addition, afford a ticket to a movie. The movie theater becomes the beneficiary of the new innovation, and the jobs that may be lost with the book seller are recovered in this other sector of the economy. The consumer has also benefitted as his purchasing power has increased, as they can now read Tina Fey’s book AND watch the latest derivative piece of crap or remake out of Hollywood.

Of course, there are far too many effects that will unfold as a result of the switch from the physical book format to the eBook to completely catalogue them here. Some of those effects will be disruptive to the economy as money shifts from sector to sector to meet new demands and realities. But one thing it will not do is eliminate jobs.

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It’s being reported by local news in Massachusetts that a serial arsonist is targeting homes in upscale neighborhoods. Here it is as reported by Glenn Beck’s The Blaze:

Upscale towns in Massachusetts are on alert as police and fire officials are investigating another fire in which an arsonist scawled a “f*** the rich” graffiti message at the scene. The latest incident in Sandwich follows another suspicious incident in Barnstable.

I know that this might sound like a tragic event but please don’t despair, as I will explain to you why this arsonist is not a criminal, but a public benefactor.

This act will undoubtedly stimulate the local economy. As the home was burnt to the ground, it will inevitably need to be rebuilt. This will give work to a whole slew of manufacturers and service providers. Carpenters will be required to cut lumber to size for a new frame for the home. Sheet rock hangers will need to be employed, and sheet rock, spackle, and rock screws will need to be purchased from a local Home Depot, Lowes, or even better a local mom and pop hardware store. The same goes for the roofer and the hardware that will be required for that aspect of the job. So goes the painters, the electricians, and countless other professionals who depend on home construction for a living.

Let’s also remember that the wealth of the rich is ‘idle’. This little act, while it might be dramatic, will have the positive effect of releasing that idle wealth from banks and various other institutions where it has no benefits to the economy as a whole.

Don’t weep for the homeowner, after all, he can afford to build a new house. The jobs created by the arsonist however, in accordance with the Keynesian multiplier, could have the effect of stimulating between $1.50 and $2.00 worth of economic activity for every dollar spent on the new home, whereas the home itself created no economic activity whatsoever.

Now here’s the question: Why does this sound insane when I say it, but not when the government makes it official policy?

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Jack Cafferty currently has a post on his blog complaining about the tiny pay raise that the military will be receiving this year; 1.4% to be exact. While this is indeed a shame, the hyper-partisan Cafferty takes the opportunity to link this small increase to the extension of the current tax rate for wealthy Americans and business owners. The logic goes, if the government can pay out to the wealthiest Americans, why can’t it give the military a greater pay increase? To this, I have two things to say to Mr. Cafferty.

1. Ask yourself, why isn’t military pay on par with that of other federal employees? As the Washington Examiner reported:

Data compiled by the Commerce Department’s Bureau of Economic Analysis reveals the extent of the pay gap between federal and private workers. As of 2008, the average federal salary was $119,982, compared with $59,909 for the average private sector employee. In other words, the average federal bureaucrat makes twice as much as the average working taxpayer. Add the value of benefits like health care and pensions, and the gap grows even bigger. The average federal employee’s benefits add $40,785 to his annual total compensation, whereas the average working taxpayer’s benefits increase his total compensation by only $9,881. In other words, federal workers are paid on average salaries that are twice as generous as those in the private sector, and they receive benefits that are four times greater.

So while those who put their lives on the line are neglected this year, federal pencil pushers and bureaucrats continue to live high on the hog. This is the true outrage, as government workers are clearly being paid over and above what the market would bear and are tying up valuable resources that could otherwise be used to increase the pay of soldiers.

The answer is simple Jack; the military has no SEIU or AFL-CIO constantly lobbying Washington or spending nights in the Lincoln bedroom in order to secure increased pay for its members.

2. Please stop pretending that maintaining the current tax rates for the wealthy, and thus not taking in the revenue raising them would otherwise have generated, is in any way effecting military pay. If you’ve been paying attention, it would be very apparent that government revenue has very little bearing on government expenditure. If it did, we wouldn’t have 1.3 trillion dollar budget deficit and a national debt nearing 14 trillion. To make the claim that the Federal government can’t find room for a higher pay raise for the military because they have failed to adequately adjust their revenue, especially in light of all of that borrowing and money printing they have no problem engaging in for other expenditures,  is the height of dishonesty.

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Originally published at Parcbench.com.

The comparison of economics and “global climatology” might at first glance seem odd, but it becomes less so when you consider that the study of complex systems will share certain features no matter what the individual field is. This comparison seems even timelier when you consider that we live in an age in which the economy and climate, we are told, are inextricably linked. Under careful scrutiny, the idea that “global climate” can be simplified and explained by a single relationship, between CO2 and temperature as it were, seems highly unlikely.

The study of economics is as old as civilization itself, starting with the first monetary systems in the ancient world. Economic thought evolved and took the shape we see today over several millennia of observation, trial and error. The cumulative results of all of these years of economic study have led to great leaps in the quality of human life. The development over time of the free price system for example led to more efficient distribution of scarce resources and rapid economic development in the western world.

But in addition to all of the wonderful advancements that came about as a result of the study of economics, it also gave rise to just as many crackpot, dead end theories. One such theory was postulated by a chronically indebted German writer named Marx, who proclaimed with scientific certainty that the era of free market capitalism would whither away under the weight of the workers will to claim the means of production. Of course, this would be followed in short order by the rise of the proletarian paradise and equitable distribution of goods and services.

What the heck was that guy thinking?

The study of the global climate on the other hand is still a study that’s in its infancy by comparison. The first climate model for example didn’t appear until the 1950’s, and even then the first global climate model didn’t take shape until the 1970’s.

To compound this, we need to address the incomplete nature of the data at our disposal for studying the global climate. We have little reliable data before the early 20th century, and almost none before the mid 19th century because few would have thought to collect it.

Consider also that the global climate is also not only a system that is more complex than any economy; it is arguably the most complex system on earth.

When we question the accuracy of the doomsayers though, we are told that computer models have predicted rising global temperatures, hurricanes, and various other conditions that could lead to the extinction of the human race. We are thought to be fools for not accepting that the apocalypse foretold by the machines is nearly upon us. We’re compared to those who question the holocaust and are labeled “deniers”.

But this reliance on computer models as the foundation of their argument is suspect to say the least; and here too economics has tread.

Shortly before his death in 1965 famed polish economist Oskar Lange published an article entitled The Computer and the Market. In it, the socialist Lange pronounces that the both government planning and the free market price system had become obsolete as a means of calculating the demands of the market. With the computer, Lange argued, the vacillations of the market could be predicted with a higher accuracy than any human institution could ever hope to.

We now realize that there isn’t a computer in existence that can predict the choices of millions of people participating in a market. Even computers that are infinitely faster than Lange could ever have envisioned in the 1960’s fail to do so. If such calculations were possible, Wall Street would never have a losing day.

This isn’t to say that computer models are useless in either field, as they are successfully employed every day in both. What is apparent though is that even the most powerful computer is limited in its output by the limitations of individuals who are responsible for its input.

Anyone who is familiar with the study of complex systems understands that the relationships found within those systems are rarely simple. Yet day after day, we are being bombarded with news stories that attribute nearly every naturally occurring phenomenon to a singular relationship between temperature and a trace gas in the atmosphere. In time though, it is likely that most rational people will say the same thing about Gore as they do about Marx.

What the heck was that guy thinking?

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Our government is once again making economic decisions based on age-old economic fallacies. In particular, it is saying that money spent by the government will bring about returns greater than the initial amount spent.  The Associated Press explains the Multiplier Effect, as it is known in economic circles, thusly:

That money ripples through the economy, into supermarkets, gasoline stations, utilities, convenience stores. That allows those businesses to hire more people, who, in turn, spend more money.

The Congressional Budget Office says every $1 spent on unemployment benefits generates up to $1.90 in economic growth. The program is the most effective government policy for generating growth among 11 options the CBO has analyzed.

Mark Zandi, chief economist at Moody’s Analytics, puts the bang-for-a-buck figure at $1.61, and a recent Labor Department study estimates it at $2.

This multiplier is currently being used to justify the extension of jobless benefits by a number of sources including Nancy Pelosi who is insisting that, “For every dollar the federal government invests in unemployment benefits, the return is $1.73 in economic growth.” Unfortunately, reality does not jive with Nancy Pelosi, the CBO, or the Labor Department’s numbers. The Multiplier Effect is a Keynesian invention and it is based on economic fallacy from top to bottom. As a matter of fact, economically speaking, spending based on this myth tends to be losing propositions.

Let’s conduct a praxeological experiment here. Imagine that Retailer X takes a dollar out of it’s till and hands it to Person A. Person A then takes the dollar and spends it with Retailer X. Retailer X now services Person A, incurring all of the costs associated with that service (perhaps a new shirt and the labor cost of a retail employee). Looked at this way, Retailer X, in the end, didn’t have a dollar returned to him, he had a dollar MINUS THE COST OF THE SERVICE.

Those who peddle this myth would have you believe that because Retailer X needed to hire a new employee, that somehow Retailer X has benefitted from the transaction. Nonsense! Aggregate this effect over the entire economy and what you get is not economic stimulus, but rather a cycle of diminishing returns.

I might add to this commentary that extending the jobless benefits has the effect of keeping the unemployment rate down, as it keeps a segment of the unemployed from looking for jobs. Through the magic of government statistics, people who are not looking for jobs are not counted amongst the unemployed, keeping the rate at a politically manageable 9% or so. Your government hard at work!

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Nobel Prize winning arsonist FA Hayek

A fire in a rural Tennessee community has sparked a considerable amount of debate recently. A man, having failed to pay a required $75 fee, was refused the services of a local fire department; even after the home owner pleaded and agreed to pay for the service. Progressive commentators quickly jumped on the incident as an illustration of the dangers of the free market.  Keith Olbermann for example used the incident to bash free market boosters within the Tea Party movement. In its coverage of the story, Slate side by sided a picture of Free Market economist FA Hayek with a burning house. Even conservatives have jumped on the band wagon, using the incident as a warning to other conservatives to tamp down their enthusiasm for free market policies.

The argument is pure straw-man. The fire department was following local government policy. Had this truly been a case of free market economics at work, the outcome of this story would have been considerably different for several reasons:

1)      He would not be refused service; he would have been billed for it after the fact. The $75 dollar fee would have been more akin to an insurance payment to cover your fire protection for the year. However, failure to pay the insurance fee would not have led to denial of service once the house was on fire; he would simply have been billed full price for the service after it had been rendered.

2)      While the man might not have his house, he still has his freedom. If this had been a compulsory tax that the man had refused to pay he wouldn’t simply have lost his house, he would have been incarcerated for tax evasion.

3)      The refusal of service is usually the strong-arm tactic of monopolistic entities. In this case, that monopolistic entity was the fire-department of South Fulton. Under free market conditions, allowing houses to burn down would not be acceptable and local consumers of fire prevention services would chose to patronize providers who aren’t so crass. The government fire department, in this case, will most likely not be held to account for having allowed the house to burn, as firemen were simply following GOVERNMENT POLICY.

Don’t believe the attacks on the market. The outcome of this incident lies purely on the shoulders of government established and protected monopoly of service.

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