August 31, 2007 by Tom Armstrong.

If you read today’s personal section of the Wall Street Journal, you discovered, if you did not already know, that football teams at all levels are spending megabucks on computer software and systems to give them an edge over opponents.

I happen to run one of these systems, and it will begin to consume much more of my time over the next several  months, so blogging will likely slow. We spent $25,000-$30,000 on a new system recently, so I’ve got a learning curve to climb. I will, however, blog every chance I get. 

Oh, yeah, GO VOLS!!!

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August 31, 2007 by Tom Armstrong.

I particularly enjoyed this read today. Its message, in part, is a simple one, which should only be a review even to casual market participants: The Fed’s job is to ensure stable economic growth and price stability, not to ride to the rescue of particular industries and firms, at least not when the general economy is relatively healthy. The opinion begins:

And so did a cry of lamentation arise from the multitudes unto Bernanke: Spare us, Oh Lord, from the wrath of subprime.

From the House of Countrywide wailing was heard, from the land of Dodd and Schumer there was gnashing of polls, and from the Kingdoms of Bear, Lehman and Cramer the rending of fine Italian garments: Set your righteous hand, glorious and merciful Fed, against our enemies among the rating agencies, the risk-averse and short-sellers. In your power and majesty, you need only say the word and interest rates shall fall, liquidity like manna shall descend from the skies, and easy credit shall flow once again across the parched and barren land.

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August 31, 2007 by Tom Armstrong.

Although I’m no fan of the GOP, I did enjoy this advice for attracting more females to the Republican Party:

Here’s an example of how a smart Republican could morph an old-fashioned Democratic talking point into a modern-day vote winner. Ms. Clinton likes to bang on about “inequality” in pay. The smart conservative would explain to a female audience that there indeed is inequality, and that the situation is grave. Only the bad guy isn’t the male boss; it’s the progressive tax code.

Most married women are second-earners. That means their income is added to that of their husband’s, and thus taxed at his highest marginal rate. So the married woman working as a secretary keeps less of her paycheck than the single woman who does the exact same job. This is the ultimate in “inequality,” yet Democrats constantly promote the very tax code that punishes married working women. In some cases, the tax burdens and child-care expenses for second-earners are so burdensome they can’t afford a career. But when was the last time a Republican pointed out that Ms. Clinton was helping to keep ladies in the kitchen?

For that matter, when was the last time a GOP candidate pointed out that their own free-market policies could help alleviate this problem? Should President Bush’s tax cuts expire, tens of thousands of middle-class women will see more of their paychecks disappear into the maw of their husband’s higher bracket. A really brave candidate would go so far as to promise eliminating this tax bias altogether. Under a flat tax, second-earner women would pay the same rate as unmarried women and the guy down the hall. Let Democrats bang the worn-out drum of a “living wage.” Republicans should customize their low-tax message to explain how they directly put more money into female pockets.

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August 30, 2007 by Tom Armstrong.

Read more about the Fair Tax.

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August 30, 2007 by Tom Armstrong.

The French welfare state must go.

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August 30, 2007 by Tom Armstrong.

More goodies from the NY Times; today, a letter to the Editor. It reads:

As an owner of a waterfront home in Florida, I read with interest the Op-Ed article “Who Will Pay for the Next Hurricane?” (Aug. 25). I agree in theory with risk-based premiums; however, given my experience with buying hazard insurance, I wonder whether these premiums do more to bloat the profits of insurance companies than to provide families a fair price for insurance in hazard-prone areas.

According to a March 1, 2007, Florida Office of Insurance Regulation report, the insurance industry reported $157.4 billion in profit, even after the severe storms of 2004 and 2005. Since 2002, my hazard-insurance premium has increased a whopping 714 percent.

I urge our legislators to look carefully at how such risks are calculated, and how insurance companies invest their profits in calm years so they can pay out claims in difficult years.

Notice any problems with the reasoning? I particularly enjoy this line:

I wonder whether these premiums do more to bloat the profits of insurance companies than to provide families a fair price for insurance in hazard-prone areas.

So, the high premiums in risk-prone areas are just another example of evil insurance companies “ripping-off” the consumer; they have little to do with managing risk. I think not. In fact, you will occasionally here of insurance firms exiting particular risk-prone areas, which is hardly a wise business practice of a company that can supposedly arbitarily overcharge consumers anytime it wants, just to increase profits.

The person writing the letter claims that his premiums have increased by more than 700% since 2002. I have no idea whether this is true, but if it is, it is an action taken by the insurance company to manage risk; that is, afterall, its business. By increasing premiums for higher risk areas and people, the insurance company is aiding society by reducing risk. Higher premiums tend to encourage less risk. For example, a higher premium might persuade a person living in a flood plain to live somewhere else, or the higher premium might encourage a speeder or accident-prone driver to slow down or be less neglectful in his driving.

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August 29, 2007 by Tom Armstrong.

Here’s an article from John Stossel on some new health care rankings.

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August 29, 2007 by Tom Armstrong.

You’ve got to love the NY Times. Here’s the typical leftish spin in a Times editorial today on the recent release of poverty data. It begins with the typical doom and gloom statement:

The economic party is winding down and most working Americans never even got near the punch bowl.

It concludes with suggestions that will put us on the path to utopia–and insults the present administration:

This stilted distribution of rewards underscores how economic growth alone has been insufficient to provide better living standards for most American families. What are needed are policies to help spread benefits broadly — be it more progressive taxation, or policies to strengthen public education and increase access to affordable health care.

Unfortunately, these policies are unlikely to come from the current White House. This administration prefers tax cuts for the lucky ones in the top five percent.

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August 29, 2007 by Tom Armstrong.

The opinion section of today’s WSJ has a good write-up on global warming news, and Burton Folsom writes that Mexico needs more property rights protections and American-style robber barons, as opposed to “political entreprenuers” like Carlos Slim.

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August 29, 2007 by Tom Armstrong.

From today’s WSJ, section C1:

Forget about Scylla and Charybdis. In the next few days, Federal Reserve Chairman Ben Bernanke has to set a course between market mayhem and the “Greenspan put.”

 The Greenspan put is the idea that, in times of crisis, the Fed will step in to bail out financial-market participants with lower interest rates, as it did in response to the Russian debt crisis in 1998, when Alan Greenspan was at its helm.

The term was coined in early 2000 by Credit Suisse trader Steve Kim, then a derivatives analyst at Merrill Lynch, and popularized by Pimco economist and fund manager Paul McCulley. A put option insures investors against losses. Both men felt that the belief the Fed would similarly insure investors against losses whenever markets got rocky encouraged risky investment behavior.

With markets again in turmoil, there’s been a cry from some Wall Streeters and corporate head honchos lately for the Fed to lower short-term interest rates to settle frayed nerves.

 The Fed took a step in that direction this month when it lowered rates on borrowing from its discount window. The more widely used federal funds market could be next. Fed- funds futures contracts, which price off of interest-rate expectations, show investors are nearly certain the Fed will cut its target fed funds rate by a quarter point to 5% next month.

But as they head off to their annual symposium at Jackson Hole, Wyo., this weekend, Fed officials may try to disabuse Wall Street of the notion. As ING Investment Management economic advisor Jim Griffin recently put it, the Fed “doesn’t want to embed a ‘Bernanke put’ in market mythology, or otherwise validate the irresponsible lending that produced the current mess.” (My emphasis)

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August 28, 2007 by Tom Armstrong.

This opinion in today’s WSJ begins:

The recent discovery by a retired businessman and climate kibitzer named Stephen McIntyre that 1934 — and not 1998 or 2006 — was the hottest year on record in the U.S. could not have been better timed. August is the month when temperatures are high and the news cycle is slow, leading, inevitably, to profound meditations on global warming. Newsweek performed its journalistic duty two weeks ago with an exposé on what it calls the global warming “denial machine.” I hereby perform mine with a denier’s confession.

I confess: I am prepared to acknowledge that Mr. McIntyre’s discovery amounts to what a New York Times reporter calls a “statistically meaningless” rearrangement of data.

But just how “meaningless” would this have seemed had it yielded the opposite result? Had Mr. McIntyre found that a collation error understated recent temperatures by 0.15 degrees Celsius (instead of overstating it by that amount, as he discovered), would the news coverage have differed in tone and approach? When it was reported in January that 2006 was one of the hottest years on record, NASA’s James Hansen used the occasion to warn grimly that “2007 is likely to be warmer than 2006.” Yet now he says, in connection to the data revision, that “in general I think we want to avoid going into more and more detail about ranking of individual years.”

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August 28, 2007 by Tom Armstrong.

Increasing the federal gas tax is not a good idea.

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August 28, 2007 by Tom Armstrong.

I tend to like teacher stories. Here’s one that has something to say about teacher turnover and pay. We have a severe problem recruiting math and science teachers in many school districts across the nation, while art, music and social studies teachers are in great abundance. Why? Public schools offer standardized salaries based on education level and experience, not teaching abilities, content area (important to consider because of differing opportunity costs for educators), etc. So, we have a school district offering the same salary to math and music teachers, yet one is in great demand and the other is begging for a job. The teacher unions typically will not permit a price (salary) adjustment to attract quality math teachers, so the jobs go to substitute teachers, which are typically low-quality. How does this help educate our kids?

For more on teacher pay, see this or this.

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August 27, 2007 by Tom Armstrong.

Short article on restricting labor competition in order to raise wage rates in your particular profession. Notice that the free market determines the equilibrium wage rate, and the state jumps in to modify that wage rate upward for the lobbying party, increasing the cost of that good or service to society. As explained in the article:

In fact, government licensing requirements are almost never pushed by consumers or consumer groups, but by associations of the professions or vocations to be licensed. The reason is simple. Licensing reduces competition, increasing the income of existing practitioners. License requirements that involve training subsidize businesses that often teach skills that may or may not be related to what is required to perform the job in the real world. And while licensing boards may occasionally pull the license of a bad apple licensee, they more commonly focus on tracking down unlicensed practitioners.

The license in not required to ensure a competent provider. The market will decide this through profits and losses. Provide a good service, and you’ll be rewarded; provide a bad service, however, and you’ll face bankruptcy (equivalent to having your license pulled).

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August 27, 2007 by Tom Armstrong.

How do teachers respond to financial incentives? Much like anyone else, as opposed the the idea held by some that they are entirely benevolent, self-sacrificing champions of children. Here is a story of one pilot program for teacher merit pay.

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August 27, 2007 by Tom Armstrong.

Notable from this article appearing today at National Reveiw Online:

The following are facts about persons defined as “poor” by the Census Bureau, taken from a variety of government reports:

46 percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.

80 percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.

Only six percent of poor households are overcrowded; two thirds have more than two rooms per person.

The typical poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)

Nearly three quarters of poor households own a car; 31 percent own two or more cars.

97 percent of poor households have a color television; over half own two or more color televisions.

78 percent have a VCR or DVD player.

62 percent have cable or satellite TV reception.

89 percent own microwave ovens, more than half have a stereo, and a more than a third have an automatic dishwasher.

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August 27, 2007 by Tom Armstrong.

From the WSJ Econ blog today:

Since credit markets began to seize up in late July, the Fed has used a variety of tools to try to restore confidence, short of cutting its main interest rate, the target for the federal funds rate, from its current 5.25%. Economists say it still has several tools left, but whether the Fed would be willing to use any is an open question.

The possibilities include: lowering the discount rate further; accepting a wider range of collateral in open market operations; permit non banks to borrow from the discount window; create a joint lending program with Treasury to lend to needy institutions, as it did in 1989 with thrifts; create a temporary facility for lending against commercial paper similar to what it created in late 1999 for the century date change; and open swap lines with the European Central Bank. A more detailed discussion follows.

Some have praised the Fed for trying to restore confidence to credit markets without cutting the federal funds rate, which they say would create moral hazard by bailing reckless lenders out of their bad decisions. Yet proponents of this logic need to be wary: bending rules and conventions so much to boost particular markets could ultimately create more moral hazard than a rate cut.

Fed vice-chairman Donald Kohn alluded to this very tradeoff in a speech last May. In it, he said a world in which capital markets have displaced banks as credit intermediaries probably would have more crises requiring cuts in interest rates, but this was “not really bad news.” Cutting rates “can greatly ameliorate the effects of market events on the economy, and … will carry less potential for increasing moral hazard than would the discount window lending that was a prominent feature of crisis management” when banks were more important.

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August 25, 2007 by Tom Armstrong.

Mary Peters, secretary of transportation, writes today:

Our system is failing because federal gasoline taxes are deposited into a centralized trust fund and allocated based on political will. Major spending decisions often have nothing to do with underlying economics, engineering realities or consumer needs. New programs and pet project earmarks have proliferated in recent years. The 2005 transportation funding bill, for example, included more than 6,000 politically driven earmarks reported to cost some $24 billion. That’s a staggering figure. The true price however is unfortunately much higher because earmarks typically represent only a fraction of project costs.

In addition to breeding wasteful spending, the gas tax does virtually nothing to reduce the explosion in highway congestion occurring in the past 25 years. Gas taxes are levied regardless of when and where someone drives, creating a misperception that highways are “free.” In turn, this encourages overuse and gridlock, often at precisely the times we need highways the most. The Government Accountability Office last month released a report arguing that gas taxes are fundamentally incapable of balancing supply and demand for roads during periods of congestion. We agree.

Read it all here.

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August 25, 2007 by Tom Armstrong.

From today’s WSJ (subscription required), notable:

It was supposed to have limits. Schip’s champions argued that the program would not be an open-ended entitlement, obligating the state (Texas) to pay for anyone who met eligibility requirements and signed up. Instead they promised to cap the costs at a specific dollar amount each year. If too many people sought to sign up, Schip administrators were to draw up waiting lists and halt enrollment.

It didn’t work out that way, of course. Once it was up and running, the program mushroomed in cost and few officials wanted to control its growth. In 2001, its first full year, Texas’s Schip cost $381 million. One year later, the program was up to $679 million and the state was headed into a $10 billion budget deficit. (The state has budgeted more than $900 million for the program for 2008.)

Not coincidentally, in 2002 Republicans won control of the legislature for the first time in more than 100 years. Shortly thereafter, Republicans cleaned up the Schip program by requiring that beneficiaries apply every six months instead of once a year (circumstances often change throughout year), and by mandating that those enrolled in the program meet specific income and assets tests. These reforms aimed to make sure the program really was a last resort for poor parents seeking health care for their children.

The assets test revealed evidence of abuse. Under the reforms, families were generously allowed to exempt up to $15,000 in value of one vehicle and up to $4,650 for a second. But several Texans were caught collecting Schip benefits while driving expensive, late model luxury cars. One person had three automobiles worth more than $50,000 after the exemptions. Another family was denied enrollment when found to have $150,000 in IRAs.

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August 24, 2007 by Tom Armstrong.

From today’s WSJ:

Having determined that nearly every feature of modern human existence is bad for the environment — driving, eating meat, turning on the lights, having children, exhaling — the greens have followed the argument to its logical limit. The problem is human existence.

That, at least, is the message of this summer’s surprise eco-hit, “The World Without Us.” Science writer Alan Weisman explores how nature would respond if Homo sapiens abruptly went extinct. Though the book continues to climb the bestseller lists, it isn’t exactly beach reading.

Cities and towns in a few decades would be reclaimed by wilderness. Our dogs will be killed off quickly by natural predators, but without pesticides the new world will be good for mosquitoes. For the most part, Mr. Weisman intends to show the enduring harm of, well, us. In a world voided of human activity, he estimates it will take 100,000 years, or more, for atmospheric CO2 to revert to pre-industrial levels. Plastic will be our Ozmandias, the last artifact of civilization. And so forth.

It’s not hard to see the appeal of such a macabre thought experiment for the most uncompromising environmentalists, who often seem to favor “the earth” over people. But what draws normal book buyers? Curiosity, no doubt. Perhaps, also, it’s the seam of apocalyptic pessimism that runs through a lot of environmental advocacy, from Malthus to Gore. Besides, if one is wrestling with apocalypse, there isn’t much point in considering actual costs or policy consequences — which in “Without Us” would appear rather extreme.

Unto dust we’ll return, of course, and the planet indeed will go on without us. Even so, if we’re intent on reducing our “ecological footprint,” it would be nice to envision a world where there are still [human] footprints.

Also, you can read about how the rich are paying more than their fair share in taxes here.

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August 24, 2007 by Tom Armstrong.

I’d tend to concur with Becker (posted earlier today), but Kudlow has this view on cutting the Fed Funds rate.

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August 24, 2007 by Tom Armstrong.

So you don’t drive a hybrid, you don’t even recycle. If you’re poor or middle class, you can expect a call from Al Gore. Otherwise, all can be forgiven.

Some affluent folks, such as Mr. Gore, tell us that we must protect the environment by doing our part. It turns out that these very people are the ones most likely to pollute the most (they can afford the lux goods such as private aircraft and yachts). For example, Mr. Gore, it was determined, pollutes more than 13 times the average Tennessean. But he’s wealthy, so all is forgiven. He just buys carbon “offsets,” much like a Catholic indulgence (so you’ve sinned, all can be forgiven…at the right price).

Do these “offsets” provide a net benefit to the environment? I would guess no, but I have no specific data. I suspect they are much more like the classic indulgence–provide a guilt-free way to pollute, a back door to sin, if you will. Maybe, one day, if we’re lucky, we will have “offsets” for murder, that way famous, wealthy individuals like the ”Juice” would not have to be inconvenienced by a pesky trail.

Click here to read what the liberal Robert Frank thinks in todays WSJ.

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August 24, 2007 by Tom Armstrong.

From Tyler Cowen at Marginal Revolution:

Growing up, I regarded Pennsylvania as the most typical and most American part of the country; I loved it.  I loved the mid-sized towns with old industrial and domestic architecture, I loved the museums of Philadelphia, and I loved the bridges of Pittsburgh.  Of course this was before America moved South and I gave the honor of most American place to Knoxville, Tennessee. 

Thanks, I guess–my hometown.

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August 24, 2007 by Tom Armstrong.

Gary Becker writes:

…

I have been a strong opponent of bailouts of individual companies since I do not believe in the “too big to fail” justification when applied even to large manufacturers, financial intermediaries, or service companies. In particular, I was against the Fed’s putting pressure on private investors to bail out Long Term Capital during the financial crisis of the late 1990’s. It would be a further mistake for the Fed or other Central banks to come to the assistance of hedge funds or other lenders that may be in financial difficulties because they excessively invested in assets of dubious value. They should bear the consequences of their mistakes. In particular, no assistance should be given to home lenders or others who might go bankrupt because it made an excessive number of highly risky mortgage loans to borrowers with dubious credit.

He concludes:

I conclude that central banks should be especially vigilant for signs that the damage is spreading to fundamental economy indicators, but should refrain from any special actions until that time. Otherwise, central bank policy would get confused between rules that depend on broad developments in the economy, and discretion that is affected by development in the housing market, the market for credit, or other specific markets.

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August 24, 2007 by Tom Armstrong.

Interested in Web technologies and developments? Read this current article in Business 2.0. If you’re not familiar with Facebook, it may be hard to follow.

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August 23, 2007 by Tom Armstrong.

Another viewpoint, one offered today in the WSJ on why we should lower the Fed Funds rate (subscription required).

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August 23, 2007 by Tom Armstrong.

Fine, short article today on free trade. It begins:

Did you know — better, would you have guessed? — that the top income-tax rate in India, which is the home of breast-fed socialism, is a mere 30 percent? That is down from 60 percent in 1979. How does that compare? Well, in the United Kingdom it is down from 83 percent in 1979 to 40 percent today; in the United States, from 70 to 35. In all three cases, it has been cut roughly in half.

But not all the economic news is good, and we hear, especially from upward-bound Democratic leaders, about the loss of manufacturing jobs for American workers. This is attributable, of course, to a variety of causes, some entirely bad (lax immigration laws), others good in themselves though with bad side effects (free trade, the decline in the power of the labor unions). The most alluring comparisons would be with Japan and Germany, which have the reputation of carrying their solicitude toward the domestic working classes to extraordinary lengths.

In fact, in the last dozen or so years (1992-2005), U.S. manufacturing jobs have dropped by 20 percent. In Japan and Germany the drop in such jobs is comparable. Alan Reynolds, in his masterly study “Income and Wealth,” unpacks some of the assumptions. “Anxiety about deindustrialization or downsizing is usually linked to international trade through catch-words like ‘globalization’ or ‘offshoring,’” Reynolds writes. “The United States is widely imagined to have ‘exported jobs’ to countries that export more than they import, such as Japan and Germany, even though manufacturing employment declined even more dramatically in those countries where overall job growth has been abysmal.”

Also consider:

U.S. manufacturing jobs have been lost through automation, but this is so in every major industrial economy. The question to ask is: Have those who have lost employment on that account found jobs elsewhere? The answer is that yes, it is so in the United States, where a large number of those who have lost their jobs in manufacturing have moved to higher-skilled, higher-paying jobs in service industries. “As we discovered with the ‘vanishing middle class,’” Reynolds points out, “a rising percentage of American families left the middle class manufacturing jobs by moving up.”

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August 23, 2007 by Tom Armstrong.

Online banking rates are great. Savings rates can reach 5.5%, which is the rate Countrywide is currently offering on deposits of at least $10,000 (wonder why). There are literally dozens of online banks offering savings rates over 4%. I have taken advantage of this. I keep most of my cash in online banks, and I’ve had no complaints until recently. I wrote earlier of my intention to purchase Countrywide shares at prices below $20–I’m still waiting for my funds to clear. It’s never taken more than 5 or 6 days, but that’s still too long for some people. It’s cost me a 20-25% rise in shares, so one might say I’ve lost on my online account in the long term. Or, perhaps, you would advice me to wait and see what the share price is in a few months or a year–might turn out to have saved me big.

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August 23, 2007 by Tom Armstrong.

The Fed is partly to blame for our current situation. Now the Fed looks like it will try to correct its previous rate cuts with more cuts. These actions and mentality creates a moral hazard. 

We’ve all known people with liquidity problems, often resulting from over-consumption, which was financed with credit cards. We might bail them out once, but more than once and the bailout is expected, so the behavior is never altered. A rate cut is not needed.

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August 22, 2007 by Tom Armstrong.

John Stossel’s latest column is a must read.

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