He says what I fear.  One good thing though…

Noteworthy up here on Wall Street, a great many Obama supporters — especially hedge-fund types who voted for “change” — are becoming disillusioned with the performances of Obama and Treasury man Geithner.

Great post.  Read it.

Seth

HT to AmericanThinker

I have a long list of people I would love to meet.  But I have a short list of people I would like to BE.  To make that list you have to have the kind of life that I envy.

But Russ Roberts is on that short list.  Russ is a Professor of Economics at GMU, co-proprietor of the Cafe Hayek blog and host of the worlds greatest podcast, EconTalk. (What!  You haven’t subscribed in iTunes yet.  What is wrong with you?)

EconTalk is the main reason I have Robert’s envy!  Interviewing world class public intellectuals, authors, economists, and journalists.  Oh joy!!  He is a smart and respectful interviewer with just the right enough fight in him to make it interesting.  Even those that don’t share his worldview admire his podcast.

Right now, EconTalk is in serious contention to be voted best podcast in this years Weblog awards against sites with much greater media heft (such as several NPR podcasts who can “advertise” the awards to a national radio audience.)  EconTalk really is the best of the lot.

So please go right here, right now and vote for EconTalk.  You can vote once a day from each computer.  Vote early and often.

Steve

Ben Stein is known for his libertarian/right wing political views.  What many may not know is that he has an undergraduate degree in economics and that his father was a famous economist who advised President Nixon. He seems to have surprised some people by coming out in favor of a bailout of the automobile industry as well as a large fiscal stimulus in this column.

I am certain that he is right about fiscal stimulus.  And I am coming around to agree with him on a bailout of the auto industry.  I am certain of this, as the economy becomes flooded with cheap dollars, the value of the dollar will drop against other currencies and foreign investment is going to shrink dramatically.  It’s a good time to buy gold.

Steve

A few months ago Scott posted the following:

Good People: This Email is a little long. Written by a Professor of Economics at the University of Georgia, it is very informative. miles

The wealthy pay most of the taxes, so it should be no surprised that they get a larger percentage of the tax cut total back! It is only fair.

——

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a dollar out of the $20,’declared the sixth man. He pointed to the tenth man,’ but he got $10!’

‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’

‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’

‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia

My friend TNT got this same email from a friend and replied as follows. I thought this was good:

Under the Obama as Bartender plan, instead of reducing the cost of all the beers to $80, he would keep it at $100 (he would really like to increase this amount but knows that he can’t in the current economic climate so he keeps things the same). He does however change the way he charges the 10 guys as follows:

2 of the first four men that didn’t pay anything before would receive $3 each for drinking their beers.

The next 2 that also didn’t pay anything before would would receive $1 each for drinking their beers.

The fifth guy and sixth guy would now pay nothing.

The seventh would still pay $7.

The eighth guy would pay $15.

The ninth guy would pay $21.

The tenth guy would pay $65.

The tenth guy then goes to another bar (we’ll call it China) where he can drink cheaper because

1) they don’t have to pay for other people’s drinks

2) the drinks are cheaper because the bar owner doesn’t waste all of his money on non-sense spending

When that hapens, the first 4 guys are left wondering why they don’t get paid to drink beer anymore. They then complain to the bartender that he promised them money to drink his beer. He throws his hands up and says “Sorry, I really thought that payment plan for you guys would work. By the way, guys 7-9 now have to pick up more of the tab now that the tenth guy left. And the rest of you guys need to get a job so you can pay for at least some of yours.” They all riot and the bar is torn to shreds. The bar that the tenth guy went to (remember, its name was China) takes over Obama’s bar ( they got it for a good price too since they were the majority debt holders of the Obama bar anyway).

Just to play both sides fairly, the McSame plan would be as follows:

He would still lower the costs of the beers to $80, even though it still costs him $100 or more to serve them, the difference of which he borrows from the other bars down the street, mostly the China bar. Every one would pay a little less for their beers as they did in the original story.

The story still ends with the tenth guy taking his business to the China bar and the China bar taking over McSame’s bar. The only difference is the bar didn’t get destroyed in the process. I’m not sure that is all that much better, but I’d rather NOT have to spend my nights posting watch with a shotgun on my roof if I didn’t have to.

All the while there are 3 other bartenders out there that could actually fix the problems the bar is having, but most of the patrons are too drunk and think they only have a choice between McSame and Nobama.

I wonder which dialect of Chinese I should try to learn first?

TNT

Seth

Megan McCardle has written a beautiful post on why we ought to let the Big Three fail.  It is both lyrical prose and a fabulous explanation of the opportunity cost of bailing out failing industries.

But it doesn’t matter.  These vital towns, where generations of people lived happy lives and raised fat, burbling babies to a middle-class adulthood, are all dying.  Should the government save these places too?  Shall we support Eastman Kodak indefinitely, whether or not it can produce a product anyone wants to buy?  And Xerox, and Carrier, and a thousand companies you’ve never heard of?  Shall we make it illegal to make a better product than American corporations?  Why not just ban new products that make old ones unprofitable?

To do that, we’ll have to take the money from other people, in other cities.  Other businesses will not get the capital that we give to dying firms, so they won’t expand.  Some other families, not yours, will lose their homes because their business failed, or have to move away from home in order to get jobs because their area is in the doldrums.  Meanwhile, everyone in the country will be slightly worse off, because we’ve shifted limited economic resources towards products they demonstrably do not want…

…Moreover, it wouldn’t be right to save it by destroying someone else’s business, killing someone else’s town.  That’s the choice we are facing.  At its heart, economics is not about money; it is about resources.  Every dollar sent to Detroit buys a yard of steel, a reel of copper wire, an hour of labor that now cannot be consumed by a business that actually produces a profitable, desireable product.  It’s not right to strangle those businesses in order to steal some air for the dying giants of an earlier day.

Steve

Greg Mankiw gives very sensible advice to the President-Elect:

• Listen to your economists
• Embrace some Republican Ideas
• Pay attention to the government’s budget constraints
• Recognize your past mistakes

Read the whole thing for the particulars.

Steve

Ross Douthat channels Seth and I here, here and here on the issue of Obama and abortion.  Ross asserts:

Look, there are a variety of not-unreasonable ways for Americans who believe the unborn deserve legal protection to justify a vote for Barack Obama. But to claim that a candidate who seems primed to begin disbursing taxpayer dollars in support of abortion and embryo-destructive research as soon as he enters the White House somehow represented the better choice for anti-abortion Americans on anti-abortion grounds is an argument that deserves to met, not with engagement, but with contempt.

This is the exact same argument I made in this post.

Steve

This letter by Steven Horwitz, Professor of Economics at St. Lawrence University, beautifully rebuts the notion that the current economic meltdown was a failure of free-markets.  He indicts five government interventions in the market as being largely culpable:

• Fannie Mae and Freddie Mac insured loans that would never have happened in a truly free-market while forcing banks to underwrite loans to “distressed areas” that never would have gotten approved using traditional underwriting standards.
• With the  1994 renewal and revision of the Community Reinvestment Act, “Congress explicitly directed Fannie and Freddie to expand their lending to borrowers with marginal credit as a way of expanding homeownership.”
• The worst hit areas in the country are characterized by significant land use regulations which drove up the prices of homes and contributed to risky borrowing.
• The Federal Reserve, “nominally private but granted enormous monopoly” powers to regulate the currency, drove down interest rates and fueled the borrowing binge.
• Finally, in 2004 and 2005, as penance for an accounting scandal, Fannie and Freddie agreed to expand their lending to low income customers.  “Both agreed to acquire greater amounts of subprime and Alt-A loans, sending the green light to banks to originate them. From 2003 [corrected on 10/19/08] to 2006, the percentage of loans in those riskier categories grew from 8% to 20% of all US mortgage originations“

Horwitz letter does not deny or mitigate the place that “greed” played in this crisis.  Indeed, profit seeking and maximization are like the air we breathe or gravity, ever-present and unavoidable.  He opines:

No free market economist thinks “greed is always good.” What we think is good are institutions that play to the self-interest of private actors by rewarding them for serving the public, not just themselves. We believe that’s what genuinely free markets do. Market exchanges are mutually beneficial. When the law messes up by either poorly defining the rules of the game or trying to override them through regulation, self-interested behavior is no longer economically mutually beneficial. The private sector then profits by serving narrow political ends rather than serving the public. In such cases, greed leads to bad consequences. But it’s bad not because it’s greed/self-interest rather because the institutional context within which it operates channels self-interest in socially unproductive ways.

Near the end of the letter Horwitz states:

We can disagree in good faith about what to do next, and we can disagree in good faith about the degree to which government intervention caused the problems, but blaming a non-existent free market for a crisis that clearly was to some extent the result of government’s extensive interventions in that market is unfair. So if I have persuaded you of nothing else, I hope deeply that I have persuaded you of that.

In the end, all I can ask of you is that you continue to think this through. Explaining this crisis by greed won’t get you far as greed, like gravity, is a constant in our world. Explaining it as a failure of free markets faces the obvious truth that these markets were far from free of government. Consider that you may be mistaken. Consider that perhaps government intervention, not free markets, caused profit-seekers to undertake activities that harmed the economy. Consider that government intervention might have led banks and other organizations to take on risks that they never should have. Consider that government central banks are the only organizations capable of fueling this fire with excess credit. And consider that various regulations might have forced banks into bad loans and artificially pushed up home prices. Lastly, consider that private sector actors are quite happy to support such intervention and regulation because it is profitable.

Horwitz also superbly explains why industry often supports regulatory regimes (it reduces competition) and often tend to “capture” the regulatory mechanisms that are supposed to be overseeing their activities. Read the whole thing.

Steve

HT to Don at Cafe Hayek

LINK

Steve

He says:

McCain, just like Obama, believes that taxes should be levied for the purpose of funding social programs that redistribute income downwards. (We’ll leave aside, for the moment, the fact that both of them also believe that taxes should be levied for the purpose of funding a bloated military-industrial complex and other things that redistribute at least some of the income upward.) McCain and Obama may envision different forms and scopes for those programs, and those differences may or may not have profound consequences in practice. However, the McCain rhetoric is being employed to argue that just about any downward redistribution is a type of socialism. If it is (at least in McCain’s usage of the term) then McCain is a socialist. Maybe not as much of a socialist as Obama (we’ll leave aside welfare for the rich, for the moment) but a socialist nonetheless.

If the pinko pot wants to call the kettle red, well, have fun. One can argue that McCain is a lesser evil according to the manner in which he has framed the issue (leave aside welfare for defense contractors, because military spending isn’t actually spending, in the bipartisan consensus) but that’s about it. The party that expanded government spending for 8 years (even leaving aside military spending) and brought us the Medicare prescription drug benefit simply has no credibility on whining about redistribution. Of course, one could acknowledge this and still argue that at least McCain will spend less money on social programs (not so sure that’s true, and of course we’re leaving aside a whole pack of pachyderms in the room, but whatever). Still, the rhetoric as currently framed defies credibility. As McCain and Palin are currently framing the argument, any sort of redistributive social program is welfare and hence socialism (according to their usages, mind you–Gov. Palin, what do you think about Alaska’s oil fund?).

The post is HERE and the commentary over there is intelligent as usual. You should join in.

Scott

Seth has encouraged me to make the comment I made to this post into its own post. I have pasted below with some additional thoughts on the topic:

Cynthia,

Thanks for joining the conversation. You will find by a perusal of our posts that neither Seth nor I are your typical, conservative, knee-jerk evangelical Republicans.

I noticed from your website that you seem to firmly believe that Obama will reduce the number of Abortions. I think this position is incredibly out of touch with reality. Even Scott has admitted, albeit reluctantly, that taxpayer funding of abortion may increase the number of abortions. For Seth and I, it is a very simple proposition: you get more of what you subsidize. The government’s explicit reasons for subsidizing anything is to get more of the thing. Want more research into alternate energy sources? Subsidize it. Want more people to get a college education? Subsidize it. Want more people to own homes? Subsidize the owning of a home. There are many ways to subsidize something. Tax Credits. Tax Breaks. Direct funding. Grants. Payments in kind.

Obama cannot on the one hand claim that he wants fewer abortions and on the other hand push for taxpayer funded abortions. Even if it is not his intent, the effect of such a policy will be more abortions. You get more of what you subsidize. Obama is on the record as saying that he would push for the repeal of the Hyde Amendment which limits taxpayer funding of abortion.

That is a demand side argument. On the supply side, Obama supports policies that would reduce the cost of abortion. He has stated that his first act as President would be to sign the Freedom of Choice Act which would effectively overturn many states limits on abortion. Having to tell your parent that you are pregnant and want an abortion is a cost. Obama wants to eliminate that cost. Waiting periods and other state regulations of abortion increase both the monetary and non-monetary costs of abortion. The current wording of the act would, in fact, eliminate legal protections extended to medical personnel who refuse to participate in abortion procedures or advise women on the availability of abortions. This increases the cost of abortions by limiting the supply. He wants to reduce that cost. (Not to mention the moral abomination of not offering protection for people to live according to their own consciences).

Effectively, Obama wants to increase the demand of abortions through subsidies and by lowering the costs.

Obama and his supporters have never denied that Obama said these things. There is no indication from the campaign or other sources that he was disingenuous about his statements. All we have is statements made in front of religious voters that he wants to reduce the number of abortions. And yet all his policy prescriptions would have the exact opposite effect. At some point, if Obama is sincere in his desire to reduce the number of abortions, he might actually have to support some policies that would have the effect of reducing the number of abortions.

If I told you that I wanted to reduce America’s dependence on foreign oil and encourage alternative energy development but my policy prescriptions were that I wanted tax dollars to subsidize the sale of gasoline and I favored tax credits for ownership of large SUV’s, would you believe me? I wouldn’t believe me either. So why do you believe Obama’s campaign rhetoric on this issue?

I would at least like evangelical Obama supporters to admit that the evidence is that more abortions would occur under an Obama administration. Admit it and make your case for Obama on other grounds. And be prepared to defend that position.

Steve

In addition, I want to add another proposition: Obama’s policies will also increase the number of unwanted pregnancies by encouraging irresponsible sexual behavior. The reason is quite simple: if taxpayer funding of abortions are available, it effectively reduces the risk of unwanted pregnancy. By lowering the risk, it increases the risky behavior. In the 1970’s, when the government was moving to mandate passive restraint systems in automobiles, a number of prominent economists argued that the effect of such laws would be to increase the number of traffic fatalities. Drivers, they reasoned, would drive more recklessly and take on more risk. Their predictions proved to be correct. Involuntary passive restraint systems actually increased traffic fatalities.

Here is an article from TIME magazine making the point:

The point, stresses Adams, is that drivers who feel safe may actually increase the risk that they pose to other drivers, bicyclists, pedestrians and their own passengers (while an average of 80% of drivers buckle up, only 68% of their rear-seat passengers do). And risk compensation is hardly confined to the act of driving a car. Think of a trapeze artist, suggests Adams, or a rock climber, motorcyclist or college kid on a hot date. Add some safety equipment to the equation — a net, rope, helmet or a condom respectively — and the person may try maneuvers that he or she would otherwise consider foolish. In the case of seat belts, instead of a simple, straightforward reduction in deaths, the end result is actually a more complicated redistribution of risk and fatalities. For the sake of argument, offers Adams, imagine how it might affect the behavior of drivers if a sharp stake were mounted in the middle of the steering wheel? Or if the bumper were packed with explosives. Perverse, yes, but it certainly provides a vivid example of how a perception of risk could modify behavior.

There is no reason to believe that the same thing will not happen with horny 17 year olds in the back of the car. The lower risk of unwanted pregnancy, through taxpayer funded abortion, will encourage riskier sexual behavior which will lead to a higher teen pregnancy rate, higher STD infection rates, more low birth-weight babies (because some of those horny teens in the light of the day will elect not to abort) and increase all the social ills that accompany teen pregnancy.

Some readers will object to this argument on the grounds that people do not make decisions this way. In fact, all of us make dozens of calculations a day weighing risk and reward. From the TIME article:

The bottom line is that risk doesn’t exist in a vacuum and that there are a host of factors that come into play, including the rewards of risk, whether they are financial, physical or emotional. It is this very human context in which risk exists that is key, says Adams, who titled one of his recent blogs: “What kills you matters — not numbers.” Our reactions to risk very much depend on the degree to which it is voluntary (scuba diving), unavoidable (public transit) or imposed (air quality), the degree to which we feel we are in control (driving) or at the mercy of others (plane travel), and the degree to which the source of possible danger is benign (doctor’s orders), indifferent (nature) or malign (murder and terrorism). We make dozens of risk calculations daily, but you can book odds that most of them are so autom

Steve

Matt Yglesias says

To bolster what Ryan Avent is saying here, I don’t care how much of a free trader you are, it’d be bizarre to make trade policy the decisive factor in your presidential preference this year. It’s clear enough that neither Barack Obama nor John McCain is going to somehow repeal NAFTA or undo the WTO. Meanwhile, it’s also clear enough that neither Obama nor McCain is going to get the new congress to agree to any major new trade agreements. Beyond that, the collapse of the Doha Round makes it seem like even a president very eager to sign new trade agreements would have difficulty coming up with any new ones to sign.

Trade is an interesting subject, but it just not a policy area likely to shift a great deal over the next few years no matter who wins. The most important trade-related thing we could do at this point has to do with agriculture, but structural issues in American politics that have nothing to do with the identity of the President make it very unlikely that anything will change. If you really care about moving the ball forward, trade-wise, what’s needed is some smart ideas about practical approaches to farm policy reform.

I think he makes sense. Do you?

Scott

This is rich. In an interview from earlier this year, she said:

A few weeks before she was nominated for Vice-President, she told a visiting journalist—Philip Gourevitch, of this magazine—that “we’re set up, unlike other states in the union, where it’s collectively Alaskans own the resources. So we share in the wealth when the development of these resources occurs.” Perhaps there is some meaningful distinction between spreading the wealth and sharing it (“collectively,” no less), but finding it would require the analytic skills of Karl the Marxist.

LINK

Scott

I’ve discovered THIS BLOG - BailoutSleuth.com, which is staying on top of the details of how our taxpayer bailout money is being used.

They’ve pointed out that the new contracts that are being signed with banks for the bailout are BEING HEAVILY REDACTED so we can’t know the details. That sucks and is wrong.
************
On a side note, I have also decided to buy a blue suit and shave my head in the hopes of being chosen as the next bailout executive.

This article, written on Friday before yesterdays recovery is an evenhanded analysis of the Markets response to the crisis and is contrasted with the Great Depression in 1932:

In fact, the market is probably wrong again in its obsession over whether this decline will turn into a cataclysmic collapse. Eugene White, an economics professor at Rutgers University who is an expert on the crash of 1929 and its aftermath, thinks that the only real similarity between today’s climate and the Great Depression is that, once again, “the market is moving on fear, not facts.” As bumbling as its response so far may seem, the government’s actions in 2008 are “way different” from the hands-off mentality of the Hoover administration and the rigid detachment of the Federal Reserve in 1929 through 1932. “Policymakers are making much wiser decisions,” says Prof. White, “and we are moving in the right direction.”

One of the things that economists who study monetary policy and the money supply have learned by studying the Great Depression (most notably Milton Friedman and Anna Schwartz in their A Monetary History of the United States) is that the Federal Reserve completely botched the handling of the crisis and greatly exacerbated the increased the misery it caused by contracting the money supply and not providing liquidity to the banks when the “runs” were occurring.  TARP was a bad rescue plan (because it should have gone about recapitalizing the banks differently and allowed the industry to shrink).  But it least it was a step in the right direction in recognizing the role the Federal Reserve needed to play.

Steve