November 1, 2007 by Tom Armstrong.

With all the protectionism talk lately, let’s remember the words of Adam Smith in The Wealth of Nations:

It is a maxim of every prudent master of a family, never to attempt to make at home what it will cost hime more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbors, and to purchase with a part of its produce, or what is the same thing, with the price of part of it, whatever else they have occasion for.

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November 1, 2007 by Tom Armstrong.

This WSJ opinion is a must read for those who advocate for usury laws.

One particular friend and I have had frequent usury discussions. He once believed, like many people, that the high interest rates charged to the least credit worthy were merely to exploit these people; he also believed these high interest rates led to “excess profits.”  Not so, I would always reply.

As for the excess profits, he was only considering one side of the equation, forgetting costs entirely. So let’s consider how providing loans to the least credit worthy might be more expensive than providing loans to prime borrowers.

First, a subprime lender must move to where his customers live and work, often in crime-infested areas, resulting in higher security and insurance costs to the lender. Also, loans to subprime borrowers tend to be less in dollar terms than to more credit-worthy borrowers, so it will require more loan officers to underwrite and service the average, say, $500 subprime loan than the average, say, $5,000 loan to the more credit-worthy borrower; that is, 10 subprime loans must be underwritten and serviced for each of the average loans to the better credit risks, resulting in more personnel and overhead costs for the subprime lender. Lastly, it’s good to keep in mind that the default rates for subprime borrowers vastly exceed those default rates for prime borrowers.

As you might imagine, the market does not allow subprime lenders to earn “excess” profits–they are not monopolists. If they were earning “excess” profits, you would see other lenders enter the business until the additional competition decreased profits until they were more in line with other investment alternatives.

My friend finally got it when he saw a few dozen of these subprime lenders fail in a matter of weeks, which was, of course, not long ago. If we set interest rates below market rates, we will harm the poor by depriving them of credit.

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November 1, 2007 by Tom Armstrong.

The co-winner of this year’s Nobel Peace Prize writes in todays WSJ, beginning with:

I’ve had a lot of fun recently with my tiny (and unofficial) slice of the 2007 Nobel Peace Prize awarded to the Intergovernmental Panel on Climate Change (IPCC). But, though I was one of thousands of IPCC participants, I don’t think I will add “0.0001 Nobel Laureate” to my resume.

The other half of the prize was awarded to former Vice President Al Gore, whose carbon footprint would stomp my neighborhood flat. But that’s another story.

He continues: 

Mother Nature simply operates at a level of complexity that is, at this point, beyond the mastery of mere mortals (such as scientists) and the tools available to us. As my high-school physics teacher admonished us in those we-shall-conquer-the-world-with-a-slide-rule days, “Begin all of your scientific pronouncements with ‘At our present level of ignorance, we think we know . . .’”

I haven’t seen that type of climate humility lately. Rather I see jump-to-conclusions advocates and, unfortunately, some scientists who see in every weather anomaly the specter of a global-warming apocalypse. Explaining each successive phenomenon as a result of human action gives them comfort and an easy answer.

Others of us scratch our heads and try to understand the real causes behind what we see. We discount the possibility that everything is caused by human actions, because everything we’ve seen the climate do has happened before. Sea levels rise and fall continually. The Arctic ice cap has shrunk before. One millennium there are hippos swimming in the Thames, and a geological blink later there is an ice bridge linking Asia and North America.

He concludes:

But what is the economic and human price, and what is it worth given the scientific uncertainty?

My experience as a missionary teacher in Africa opened my eyes to this simple fact: Without access to energy, life is brutal and short. The uncertain impacts of global warming far in the future must be weighed against disasters at our doorsteps today. Bjorn Lomborg’s Copenhagen Consensus 2004, a cost-benefit analysis of health issues by leading economists (including three Nobelists), calculated that spending on health issues such as micronutrients for children, HIV/AIDS and water purification has benefits 50 to 200 times those of attempting to marginally limit “global warming.”

Given the scientific uncertainty and our relative impotence regarding climate change, the moral imperative here seems clear to me.

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November 1, 2007 by Tom Armstrong.

Article in Time on Ron Paul. I concur with many of Paul’s ideas, and he endorses many of the books I like to read (really, the man could have a full-time job just endorsing books). I am, however, reluctant to support a man that has been in Congress for more than 30 years. If he could not have made any significant changes in the past 30 years, he’s unlikely to do so in four to eight years as president. Having said that, I would vote for him over any of the other candidates, liberal or conservative. Knowing he will not obtain the nomination of the GOP, I will not be supporting any other candidate for president unless the libertarians nominate a decent candidate this year. 

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November 1, 2007 by Tom Armstrong.

I have yet to read them, but these look promising:

The Impact of Miltion Friedman on Modern Monetary Economics

Voting as a Rational Choice: Why and How People Vote to Improve the Well–Being of Others.

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