Archive for the 'Economics' Category

Dennis Prager is on to Something

December 29, 2009

Dennis Prager’s column, Thank You to These Businesses and Products, is a good reminder that we should be thankful for how good we have it.  As a society, we are excellent at whining about our problems but, not so good at recognizing the things that make our lives better.

Here are some of the things I can about that have helped the quality of my life in the last few days:

  • The Realtime 4-wheel drive on my Honda C-RV made it easier and safer for us to get to and from work and visit family over a snowy Christmas weekend.
  • The local tire store was able to fit us in on short notice and put new tires on my other car right before the snow.
  • Plastic disc sleds and a snow shovel produces hours of entertainment for my family in building a sled run in our backyard.
  • The mapping software on my iPod Touch, connected via wireless to the Internet through my AT&T Uverse service, and a Sprint cell phone allowed me to help my wife find a safe route home during blizzard conditions.
  • Grocery stores open for our convenience, stocked full of food and household items.
  • The Wii game console which has turned my living room into a bowling alley.
  • Band-Aids, a bottle of hydrogen peroxide and anti-biotic ointment that allowed me to administer first aid on a minor break in my skin that was starting to become infected.  Now, a day later, it’s healed.
  • The people who made all of the stuff in my house that makes a much cozier environment that one that exists just a few feet away during a blizzard.   The roof keeps us dry.  The walls keep out the wind.  The insulation keeps out the cold and noise.  The furnace and natural gas extracted from deep within the earth keeps it warm inside.

Those are just a few things that come to mind.  Every minute of my day I come into contact with something that makes my life better.  I like Prager’s resolution to keep that in mind and discuss those things.

Advertisements

Walter Williams on Education

December 23, 2009

In his column today, Black Education, Walter Williams touches on some of the same things I touched on last April in my post on how to save education.

They have parents with little interest in their education. These students not only sabotage the education process, but make schools unsafe as well. These students should not be permitted to destroy the education chances of others.

I agree for any student that is disrupting others.  Education is expensive.  We pay $10,000 – $15,000 per student per year of K-12 education.  In return for spending this money, we should expect students to be on their best behavior and problem kids need to be removed from the population so other can learn.

Another issue deemed too delicate to discuss is the overall quality of people teaching our children. Students who have chosen education as their major have the lowest SAT scores of any other major. Students who have an education degree earn lower scores than any other major on graduate school admission tests such as the GRE, MCAT or LSAT. Schools of education, either graduate or undergraduate, represent the academic slums of most any university. They are home to the least able students and professors. Schools of education should be shut down.

This goes along with my belief that we need to remove bad teachers and reward good ones.  Teachers seem to hate the idea of performance measurement.  It’s not hard to see why based on Williams’ paragraph above, they aren’t that good.  Teaching is not an entitlement.

Yet another issue is the academic fraud committed by teachers and administrators. After all, what is it when a student is granted a diploma certifying a 12th grade level of achievement when in fact he can’t perform at the sixth- or seventh-grade level?

Agreed.  In my post, I wrote that teachers need to assess accurate grades that truly reflect the students’ proficiency of the subject matter.  There should be no other criteria when giving a grade.

In summary, public education is not good because it has stifled or simply has wrong-headed ideas on several important levels of feedback.

  1. Student grades.
  2. Student behavior.
  3. Management of teacher quality.
  4. Ultimately, the most important level of feedback that is stifled is funding.  Public education receives funds no matter what.   #4 enables #1 – 3.

Excellent Video Series on Keynes and Hayek

December 20, 2009

This makes the second link I’ve made to PBS Newshour in the past week.  The link will take you to a series of five video segments with economists Lord Skidelsky and Russ Roberts hosted by the Lehrer.  They discuss Keynes, markets, the financial crisis and a host of other topics and, as my previous link to an interview with George Shultz, is hosted by Paul Solman.

In one of the videos, Solman describes himself as a “dispassionate reporter.”  From what I’ve seen of his work so far, I agree.  Journalism needs more like him.  After watching over an hour of his interviews now, I can’t tell if his personal beliefs lean one way or the other.  What’s more, he seems to understand the subject and is interested in getting the real story out, rather than a stylized version of the story meant to fit a predetermined narrative.  Nor does he practice “gotcha” journalism.

One quote from Russ Roberts that I will take with me is, “Capitalism is a profit and loss system.  The profits encourage risk taking.  The losses encourage prudence.”

I highly recommend watching the video series if you are the least bit interested in economics or gaining a better understanding of the the true causes of the financial crisis.

Michael Medved on the Dennis Miller Show

December 20, 2009

After Lane Meyer turned me back onto the Dennis Miller Show, I went to iTunes and grabbed a bunch of a recent interviews from the Dennis Miller show.

Miller gives a great interview.

One of the interviews happened to be with another radio show host, columnist and author, Michael Medved.  Medved was plugging his new book, the Five Big Lies About American Business.

Medved hit on a concept that Miller didn’t even seem to understand and I’m not sure he understood after Medved explained about two and half times.

Medved said that many people view business people as greedy and not giving back in the way charity to communities.  But, these business people do contribute to society.  They produce goods that other people value enough to voluntarily buy.

That’s very important.

At the root of capitalism is the idea of voluntary, mutual beneficial exchange.  Mutually beneficial means both sides come out ahead.  Win-win.

By providing one side of those transactions – goods and services that people value enough to buy – they are contributing to society.  They are adding value to society.

I’ve said before that in all of the trade that has taken place between myself and Bill Gates, Bill Gates really got the short end of the stick.  Now, I don’t feel sorry for him in anyway, but the point is to recognize that he has added a great deal of value to my life.  Much of my the livelihood I’ve earned over the past couple decades were based on Bill’s products.

Medved’s point is one that we each experience every day, but very few ever recognize it.  On your next purchase, ask yourself why you purchased it.  Was it voluntary?  Why were you willing to give up some of your hard earned money for it?  What value did it bring to your life?  How much would you have willing paid for it?  How much more of it would you buy if it were cheaper?

Miller heard Medved, but he took Medved’s point to mean that the businessperson contributes to society only by providing jobs.  That’s important too.  But, the value the businessperson provides in his or her products or services was Medved’s point and it’s invisible to most people.

It shouldn’t be.

George Schultz on PBS

December 17, 2009

Frustrated with Tiger Woods banality on the major networks last night, I switched on PBS and caught a segment on the Lehrer News Hour with George Schultz discussing his belief that the financial crisis was due to the government creating a moral hazard with it’s ‘too big to fail’ bail-out nonsense.  He asks, if they’re too big to fail, why not make them smaller?  Great question.

I highly recommend watching the video.  Click here and it should be the first video listed on the left of the screen.

I nearly fell out of my chair.  Finally, some reason in media.  Good job Lehrer.  Getting warmer.

Moral hazard is the unintuitive lingo economists use to describe the idea that if someone or something is there to bail you out, you do things differently than you would if you didn’t have that backup.

If somebody knows they’ll be bailed out, they take excessive risks because they do it [take risks] on the taxpayers dollar.  The whole system is badly damaged when bailouts occur because it takes accountability out of the system and the market system depends on accountability, so we have to design a system so that anybody in it can fail.

The interviewer, who I hope was playing dumb for his audience (I think he was), asks Shultz if this is something he’s seen in the past or “is this a new phenomenon?”   This isn’t new.

This is everyday human behavior  that’s been around since the dawn of mankind.  If someone tells you they’ll pay for your retirement, you don’t save as much.  If you parents got you out of trouble when you were a kid, you got into more trouble.

Schultz explained two examples from the past to illustrate moral hazard.

First was a strike the longshoreman in 1968.  President Johnson enjoined the strike to prevent national emergency.  When Nixon took office and Schultz became his Secretary of Labor, another strike fired up, why not?  The President is going to help them get what we want to avoid a national emergency.

Schultz said Johnson was wrong and Nixon should stay out of it.  It would teach them “they have to take responsibility for their own actions,” kind of like the parent who finally learns they aren’t helping matters by soothing the temporary pain for the child who made a bad decision.  Nixon listened and the strikes died down.

Another example was with the failure Penn Central railroad.  The railroad grossly managed their affairs.  The Federal Reserve Chairman, Arthur Burns, wanted to give Penn Central a bailout to prevent a massive failure of the financial system.  Sound familiar?

In the end, he didn’t bail them out because they had retained Burns’ former law firm and a bailout would look too suspicious.  Penn Central failed.  There was no ripple effect.  The economy kept chugging.

While Schultz said a lot of good things in the interview, that wasn’t the part that fascinated me.  What fascinated me was that there was no yelling.  He wasn’t chastised for challenging today’s conventional wisdom that markets failed.  He was allowed to state his case and rationale in a calm manner and the interviewer tried to understand his points, rather than stuff him in the face with populist lay-ups.

I could imagine Matt Lauer conducting the same interview.  When Schultz said that staying out of the strikes would teach them they they need to take responsibility for their actions, I could envision Lauer cutting him off and asking him in his condescending tone something like, “but don’t you think the longshoremen need the muscle of the government behind them, because the companies have all the bargaining power?”  Or, “shouldn’t we have bailed out Penn Central?  X thousands lost their jobs.”

Then Lauer wouldn’t have given Schutlz a chance to explain that the end result of the actions that weren’t taken were far away better than what would have happened after the temporary soothing of the government action, much like the parent who finally decides its time for their kids to learn a lesson.

Tick, tick, tick, tick

December 14, 2009

Ricky Gervais, creator of the television show The Office, and Andy Rooney both lamented about how much money they have on this evening’s 60 Minutes.  Ricky said that he doesn’t work harder than a lot of other folks, but earns many multiples of their income.  He said that a large part of his success was due to luck.

I agree.  Nassim Taleb, author of the Black Swan and Fooled by Randomness, educated me on how much luck plays in the success of successful people.  As Taleb says, we always hear about the successful people but never about the just as talented people who aren’t as successful because they just haven’t had their lucky break.  Sometimes it’s as simple as meeting the right person at a party.

But, I will give Ricky something, he does have talent.  He makes me laugh.  I enjoy his humor, acting and writing.  Not to say that others aren’t as deserving, but any dollars Ricky has of mine in his pocket were well earned.

Rooney seemed bothered by having more than his share, but comforted by the fact that he doesn’t have as much as others.  He referenced the Forbes 400 list of the richest 400 people as proof.

What bothered me: C’mon guys.  Rather than feel down about being wealthy, celebrate it.  Encourage others.  Tell us how awesome it is that we live in a world where you can follow your dreams, work hard and be rewarded.  Acknowledge, as Ricky did, that there is some luck to it, but one thing is for certain – they wouldn’t have been successful if they hadn’t tried.

And, if you don’t have a dream but can still live a decent, comfortable life as a nurse, engineer, electrician or some other chosen profession, that’s awesome too.  Compared to how people lived a century ago or how people live in other parts of the world (some within a day’s drive for most of us) – we are all rock stars.  That something that we should feel good about it.

We should be asking ourselves why that is.  What are the root causes that allow each of us live better than royalty in the past in exchange for an honest day’s work?  We should want more of that.

They showed an 80s video of Ricky taking a stab at the music business.  Apparently it didn’t work out.  He wasn’t bothered by it.  He seemed to recognize that all things don’t work out, but trying matters.

Tick, tick, tick

December 14, 2009

In an interview on 60 Minutes this evening, Obama blamed Wall Street bankers for the nation’s financial troubles.  If I remember correctly, the question was asked if banks are repaying TARP funds so they could pay their CEOs big bonuses.  To that, Obama said that he thinks that’s a motivation and that Wall Street still doesn’t get it that everyone is mad at them for causing the financial mess (paraphrased from memory).

What’s sad is that many American accept this explanation and we never hold government accountable for their role in the mess.

A true leader would own up to it.  Wall Street certainly played a role in the financial crisis, but they by no means acted alone.  This is where journalism needs to DO IT’S JOB!

Here are some great questions I would have loved to ask President Obama at that point:

1.  Do you think the government or government agencies had any role in the financial crisis or did Wall Street act alone?

2. Do you believe the Federal Reserve should have acted quicker to remove excess money supply after it seemed that the economy got back on track after 9/11?

3. You don’t believe that government put pressure on banks to make credit easier (i.e. lend to people they would normally consider high credit risks) in order to push this idea of expanding home ownership?

4. Didn’t the government provide implicit guarantees to subprime lending, again to expand home ownership, through Fannie Mae and Freddie Mac?

5. Wasn’t Fannie and Freddie one of the largest, if not largest, provider of these bad loans?  And weren’t they acting under direction from Congress?

6.  Weren’t regulations proposed in 2004 that would have reduced the risk of the housing crisis by making it tougher to get loans, but those regulations were rejected by Congress because they would have interfered with the goal of expanding home ownership?

6.  In order for us to better trust your leadership, shouldn’t we expect you to be honest about government’s role in the financial mess?  Rather, you seem to pretend that government has not blame and we should continue to blindly trust the government as you want to expand regulatory power even further.

7. Please tell me, how are the new financial regulatory powers that your administration is proposing different from those in 2004?  Why didn’t the current regulations not work to prevent the crisis?  Did anyone in government not even recognize that a crisis was about to happen?  If not, how can we trust those in government to recognize the next crisis?

8. What do you think about the people who borrowed well beyond their means?  Shouldn’t they have acted more prudently?  Shouldn’t we expect our citizens, who are provided thirteen years of education with a total valued at $150,000, to make responsible financial choices?  Shouldn’t we expect them to be able to read and understand a loan document and do their homework about the realities and responsibilities that come with home ownership?

9. What personal finance advice would you give Americans?

10.  Some say that people were motivated to borrow beyond their means because they felt that home prices were appreciating so rapidly that they could always sell the house and make a nice profit.  In other words, they were borrowing on future hopes rather than their realistic income.  Don’t you think that the government’s finances are reflecting that same behavior?  We are borrowing beyond our means with the hope that the economy will grow strong and pay for it.  Haven’t we learned our lesson here?  Don’t we know how this story is likely to end?

Wealth has Benefitted the Few

December 9, 2009

Good words from the 1840s written by a guy I never heard of (Thomas Babington Macaulay), but apparently Don Boudreaux, author of this blog post has.  Thank goodness for wikipedia (which makes a lot of information, that even the wealthy didn’t have easy access to in the 1840s, available to almost anyone for free):

It may well be, in the twentieth century … that numerous comforts and luxuries which are now unknown, or confined to a few, may be within the reach of every diligent and thrifty workingman.  And yet it may then be the mode to assert that the increase of wealth and the progress of science have benefited the few at the expense of the many.

He was right.   As Janet Jackson asks, “what have you done for me lately?”  We have a tough time recognizing just how much better off we are than previous generations or people living with us in our world today. Current generations forget how much better off we are than when they were younger.  I can’t imagine life without the internet or cell phone, yet I lived a good deal of my life without those things.

As a kid, whenever I complained of a minor discomfort the older generations would tell of how they walked to school backyards through 10 foot drifts of snow with nothing but newspapers tied around their feet.  Or, if I left some food on my plate, there were starving children in other parts of the world that would love to have it.

But, somehow the very same people who saw fit to point out magnificent luxuries that I took for granted often forget about those when discussing the inequities they see today.

As Einstein said, it’s all relative.   The trick that causes this is using the immediate haves and have nots as the basis for comparison.

If you compare the medical care Teddy Kennedy received while fighting cancer to what a poor schmuck like you or I would receive, your sense of fairness may be challenged.  However, compare the treatment that a poor schmuck would receive to what Teddy Kennedy would have received 5, 10, 15 or 40 years ago and you’ll realize that poor schmucks have it pretty good.

And in another 5 or years, the treatment Kennedy received will likely be in reach of poor schmucks.  I know, I know…that doesn’t help the poor schmucks today.

But, sure it does.  Again, what poor schmucks receive today is better than what Kennedy would have received 5 to 10 years ago.  In fact, poor schmucks today should be thanking the Kennedys of 5 – 10 years ago for testing out the stuff which made it possible to be available now.

A Great Point

December 8, 2009

Thomas Sowell makes a great point in his column today, Jobs or Snow Jobs.

President Obama keeps talking about the jobs his administration is “creating” but there are more people unemployed now than before he took office. How can there be more unemployment after so many jobs have been “created”?

I suggest reading the whole column.  Here’s another nugget:

Minimum wage laws appear to give low-income workers something for nothing– and appearances are what count in politics. Realities can be left to others, so long as appearances get votes.

People with low skills or little experience usually get paid low wages. Passing a minimum wage law does not make them any more valuable. At a higher wage, it can just make them expendable. Raising the minimum wage in the midst of a recession was guaranteed to increase unemployment among the young– and it has.

Constant government experiments with new bright ideas is another common feature of Obama’s “change” and FDR’s New Deal. The uncertainty that this unpredictable experimentation generates makes employers reluctant to hire. Destroying some jobs while creating other jobs does not get you very far, except politically. But politically is what matters to politicians, even if their policies needlessly prolong a recession or depression.

Maybe we need to elect leaders that have the backbone to tell us the truth and inspire us to solve our own problems – rather than politicians that promise a free lunch and sweet nothings in exchange for your vote.

Jobs Summit

December 5, 2009

This is a good recording of a broadcast on a Minnesota National Public Radio program with economists Russ Roberts and Josh Bivens discussing the jobs summit.  The economists get going about 10 minutes into the recording.

Josh represents what I disdain.  He comes across as confident, smart and completely disconnected from the you and I.  He’s an intellectual elite.  I’ve personally seen his type wreck companies and then rationalize why it wasn’t their fault.  His types also created the financial crisis.  I believe his types evolved from what was once known as a snake oil salesman.  He’s playing a con.  I’m not sure if he really even cares if he’s right or wrong.  His main motivation is to be seen as the smartest guy in the room.

Folks like Russ, on the other hand, we should listen to more.  He says, “I want you to be skeptical, even of me.”  He connects with the callers on the phone and understands what’s going on in their lives.  He says we shouldn’t trust economists, especially those with a great deal of data and models supposedly backing them up.