February 29, 2008 by Tom Armstrong.

From The Economist:

Mr Obama advertises himself as something fresh, hopeful and new. But on economic matters at least he, like Mrs Clinton, has begun to look a rather ordinary old-style Democrat.

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February 29, 2008 by Tom Armstrong.

Dollar’s Dive Deepens as Oil Soars, from today’s WSJ (subscription required).

The Bernanke Reflation, also from the WSJ.

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February 28, 2008 by Tom Armstrong.

This excellent article in the City Journal tells us what some ordinary people think about mortgage bailout plans. Notable:

But Times readers aren’t biting. More than 400 online responses to the article ran 20 to one against any taxpayer rescue, citing principles of fairness and basic economics. Some readers pointed out that able-minded people are responsible for their own financial decisions, or that a bailout would punish people who behaved rationally during the housing boom. “I’ll be darned if my tax dollars have to go save some folks who couldn’t understand what ‘variable rate’ meant, or who bought beyond their means,” wrote one. “I have excellent credit and did not overextend myself. Any one who studies history could see the pattern and should not have gotten caught up with this recent cycle,” wrote another. “The changing housing market meant that I, a lifelong renter, would finally have a chance to purchase a home now that prices are being lowered,” noted a third.

A bailout will also encourage reckless behavior down the road, argued one correspondent: “Any so-called government ‘rescue’ will simply serve to encourage such irresponsible actions sometime again in the future.” And though disguised as compassion, a bailout would benefit a powerful special interest at the expense of the taxpayer: “Why should government reduce exposures these banks have?” another response asked. “They lent these dollars.”

My thoughts: Progressives are always advocating policies to create more affordable housing, but now that we’re getting it, they want less affordable housing. As a home owner, I don’t like having less to borrow against or having to accept less at closing. But it’s not a total loss. I must accept 10% less for my house at closing, but the housing I’m looking at is also down 10%. No loss. In fact, when transactions costs are considered, I may come out ahead, since many of the related fees are based on the home’s cost. I have less to borrow against, but perhaps that will just encourage me to be more disciplined in my saving.

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February 28, 2008 by Tom Armstrong.

From the NY Times. Notable:

Now come Mr. Obama and Mrs. Clinton, campaigning across Ohio with a similar kind of tough talk about foreign trade. Based on what they’re saying, you’d have to conclude that they believe that Nafta and other trade agreements have caused Ohio’s huge economic problems.

“She says speeches don’t put food on the table,” Mr. Obama said in Youngstown. “You know what? Nafta didn’t put food on the table, either.” Later, he went further, claiming that Ohio’s workers have “watched job after job after job disappear because of bad trade deals like Nafta.”

Mrs. Clinton’s advisers, meanwhile, have been putting out the word that she tried to persuade her husband not to support Nafta — which liberalized trade with Mexico and Canada — when he was running for president. (He did support it, aggressively, and signed it into law in 1993.) “I’m not just going to talk about what’s wrong with Nafta,” she said in Youngstown, the day after Mr. Obama had been there. “I’m going to fix it and I have a four-point plan to do exactly that.”

But when you read this plan, or Mr. Obama’s trade agenda, you discover none of it is particularly radical. Neither candidate calls for a repeal of Nafta, or anything close to it. Both instead want to tinker with the bureaucratic innards of the agreement. They want stronger “labor and environmental standards” and better “enforcement mechanisms.”

It’s a bit of an odd situation. They call the country’s trade policy a disaster, and yet their plan to fix it starts with, um, cracking down on Mexican pollution.

The question this raises is what Mr. Obama or Mrs. Clinton would really do about Ohio’s troubles if one of them became president — and whether it would make a difference.

There is no doubt that trade has hurt many people in Ohio. In just the last few months, Alcatel-Lucent has announced plans to close a telecommunications equipment factory in Columbus and move some of the jobs to China, while a steel-door plant near Youngstown shut its doors and shipped some of its equipment to Mexico.

Back in 2000, the typical Ohio family was still making more money than the typical American family, according to Moody’s Economy.com. But over the last eight years, real median income in Ohio has dropped almost 10 percent, to about $47,000, leaving it $2,300 below the national median.

“Trade has winners and losers,” said Alan Blinder, a former vice chairman of the Federal Reserve and a Democrat, “and there have been a lot of losers in Ohio.”

The first problem with what the candidates have been saying is that Ohio’s troubles haven’t really been caused by trade agreements. When Nafta took effect on Jan. 1, 1994, Ohio had 990,000 manufacturing jobs. Two years later, it had 1.03 million. The number remained above one million for the rest of the 1990s, before plummeting in this decade to just 775,000 today.

It’s hard to look at this history and conclude Nafta is the villain. In fact, Nafta did little to reduce tariffs on Mexican manufacturers, notes Matthew Slaughter, a Dartmouth economist. Those tariffs were already low before the agreement was signed.

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February 28, 2008 by Tom Armstrong.

WSJ Opinion. Notable:

One lesson of the inflationary 1970s: A country that will not accept the possibility of a small recession will end up having a big one when the politicians at last respond to the public’s complaints about inflation. Instead of paying the relatively small cost of a possible recession, the public pays the much larger cost of sustained inflation and a deeper recession. And enduring the deeper recession is the only way to convince the public that the Fed has at last decided to slow inflation….

The Fed’s recent behavior is in sharp contrast to the European Central Bank. The ECB keeps its eye on both objectives, growth and low inflation. It doesn’t shift back and forth from one to the other. The Fed should do the same. In the 1970s, because the Fed shifted from one goal to the other and back again, it achieved neither. Both inflation and unemployment rose on average, then fell together in the 1980s — after the Fed controlled inflation.

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February 28, 2008 by Tom Armstrong.

From today’s WSJ. Notable:

Democrats claim the world hates America because President Bush has behaved like a global bully. But we don’t recall him ever ordering an ally to rewrite an existing agreement on American terms — or else.

Yet that’s exactly what both Hillary Clinton and Barack Obama are now promising to do to our closest neighbors, Mexico and Canada. At their Ohio debate on Tuesday, first Mrs. Clinton, followed ever so quickly by Mr. Obama, pledged to pull America out of the North American Free Trade Agreement if the two countries don’t agree to rewrite it on Yankee terms. How’s that for global “unilateralism”?

Democrats sure have come a long way from the 1990s, when Bill Clinton pushed Nafta through a Democratic Congress. And the truth is that both Mrs. Clinton and Mr. Obama have spoken favorably about Nafta in the past. Yet now they are sounding the loudest protectionist notes by a potential President in decades. More dangerous, neither is telling the truth about the role of trade in the U.S. economy. If either one makes it to the White House, he or she will carry the weight of this campaign protectionism while trying to lead the global economy….

In the first 10 years of the deal, the U.S. economy added 18 million jobs and the jobless rate sank to record lows….

But the Illinois Senator is less than honest about his own Nafta history. In his race for his Senate seat in 2004, he told Illinois farmers that the U.S. benefits from exports under the World Trade Organization and Nafta, and he recommended that the U.S. go after more deals like it. He also discouraged protectionism, warning that “as an exporting state, Illinois would be hurt by a trade war sparked by tariffs. This would be particularly devastating to our agricultural economy.”

But that was when he was trying to appeal to farmers who rely on exports. Now that he’s battling for union endorsements, Mr. Obama says he “would immediately call the president of Mexico, the president of Canada [we presume he meant the prime minister], to try to amend Nafta, because I think that we can get labor agreements in that agreement right now.”

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February 27, 2008 by Tom Armstrong.

Gun laws are laws against self-defense…. When Washington, D.C., passed its tough handgun ban years ago, gun violence rose.

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February 27, 2008 by Tom Armstrong.

If you have not already, watch the 7 minute Laffer Curve II video at You Tube.

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February 27, 2008 by Tom Armstrong.

Barak Obama and others suggest businesses should be punished for investing capital overseas. I’d like to see these peoples’ investment portfolios to determine where they are putting their money. I’d be willing to bet they also are chasing returns and trying to diversify overseas. It’s bad policy, both for individuals and businesses, to accept lower returns and to place all one’s eggs in one basket, which results in lower growth and greater risk. I’d love to see Obama’s investment portfolio.

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February 27, 2008 by Tom Armstrong.

From this post at Cafe Hayek:

Trade is just one manifestation of consumer sovereignty.  Just as there are, by Blinder’s calculus, winners and losers from consumers shifting their expenditures from goods made in America to goods made abroad, there are winners and losers from consumers shifting their expenditures from goods made in Illinois to goods made in Arizona - and from consumers shifting their expenditures from donuts, beef, cigarettes, whiskey, and train travel to bagels, fish, yoga lessons, wine, and air travel.  Trade plays no unique, or uniquely important, role as an avenue of economic change spurred in part by consumer sovereignty.  The only practical way to rid the economy of such “loses” is to try to freeze it, a futile step that will in the long-run only make losers of everyone.

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February 27, 2008 by Tom Armstrong.

Clip from this opinion in today’s WSJ:

Do the poorer households that were the targets of these initiatives actually benefit from homeownership? Carolina Katz Reid, then at the University of Washington, looked at the question systematically, using subjects who bought houses between 1977 and 1993. For most low-income households, homeownership proved a bad bet, even in a rising market. Mortgage costs ate up their incomes and tied them down in subpar neighborhoods with bad schools and inferior job opportunities. Their capital gains were subpar or nonexistent even if they managed to hold onto their houses for a decade. Lacking much income, they didn’t benefit from the mortgage-interest deduction.

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February 27, 2008 by Tom Armstrong.

From today’s WSJ:

No, we’re not talking about Barack Obama’s opposition to the post-9/11 antiterror law. We’re referring to the Senator’s support for something called the Patriot Employer Act, which deserves more attention as an indicator of his economic agenda.

Along with Democratic co-sponsors Sherrod Brown and Dick Durbin, Mr. Obama introduced the bill in the Senate in August 2007. Recently in Janesville, Wis., he repeated his intention to make it a priority as President: “We will end the tax breaks for companies who ship our jobs overseas, and we will give those breaks to companies who create good jobs with decent wages right here in America.”

 Mr. Obama’s proposal would designate certain companies as “patriot employers” and favor them over other, presumably not so patriotic, businesses.

The legislation takes four pages to define “patriotic” companies as those that: “pay at least 60 percent of each employee’s health care premiums”; have a position of “neutrality in employee [union] organizing drives”; “maintain or increase the number of full-time workers in the United States relative to the number of full-time workers outside of the United States”; pay a salary to each employee “not less than an amount equal to the federal poverty level”; and provide a pension plan.

In other words, a patriotic employer is one which fulfills the fondest Big Labor agenda, regardless of the competitive implications. The proposal ignores the marketplace reality that businesses hire a work force they can afford to pay and still make money. Coercing companies into raising wages and benefits above market rates may only lead to fewer workers getting hired in the first place.

Under Mr. Obama’s plan, “patriot employers” qualify for a 1% tax credit on their profits. To finance this tax break, American companies with subsidiaries abroad would have to pay the U.S. corporate tax on profits earned abroad, rather than the corporate tax of the host country where they are earned. Since the U.S. corporate tax rate is 35%, while most of the world has a lower rate, this amounts to a big tax increase on earnings owned abroad.

Put another way, U.S. companies would suddenly have to pay a higher tax rate than their Chinese, Japanese and European competitors. According to research by Peter Merrill, an international tax expert at PriceWaterhouseCoopers, this change would “raise the cost of capital of U.S. multinationals and cause them to lose market share to foreign rivals.” Apparently Mr. Obama believes that by making U.S. companies less profitable and less competitive world-wide, they will somehow be able to create more jobs in America.

He has it backwards: The offshore activities of U.S. companies tend to increase rather than reduce domestic business. A 2005 National Bureau of Economic Research study by economists from Harvard and the University of Michigan found that more foreign investment by U.S. companies leads to greater domestic investment, and that U.S. firms’ hiring of more offshore workers is positively, not negatively, associated with the number of American workers they hire. That’s in part because often what is produced overseas by subsidiaries are component parts to final, higher-value-added products manufactured here.

Mr. Obama is also proposing to raise tax rates on affluent individuals, as well as on capital gains and dividends. This would also lead to more capital and jobs leaving the U.S. The after-tax return on U.S. investment would fall appreciably if these tax hikes were adopted, and no amount of tax-credit subsidy will keep capital from fleeing to lower tax jurisdictions.

If the U.S. didn’t impose the second highest corporate income tax rate in the world, companies would have less incentive to move jobs overseas. Rather than giving politically correct companies a 1% tax credit, it makes more sense to reduce the U.S. corporate tax rate for everyone — by at least 10 percentage points to the global average.

Economists have long understood that companies don’t really pay taxes; they merely collect them. A study by the American Enterprise Institute has shown that U.S. workers bear the cost of the corporate income tax in lower wages and salaries. To borrow Mr. Obama’s language, what’s really unpatriotic is the 35% U.S. corporate tax rate.

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February 26, 2008 by Tom Armstrong.

Steve Forbes has a good rant in the most recent Forbes issue. Notable:

Astonishingly, a growing body of research has found that changes in sunspot activity directly correlate with temperature changes on Earth. Solar cycles usually fluctuate every 11 years. Alas, sunspot activity has been rather quiet recently. If it doesn’t pick up in a couple of years we could be in for a long-term cooling the likes of which has not been experienced since the so-called Little Ice Age more than 300 years ago. That period was marked by frigid bouts of weather that devastated crops and led to periodic famines. Back then, for instance, London’s Thames River often froze, whereas today that body of water gets ice only when it’s spilled overboard by revelers on boating excursions. And guess what? The last big freeze came after the kind of sunspot abnormality that may be unfolding now.

That meanie Paul Johnson does not believe the U.S. taxpayer should bail debtors and creditors out of the mortgage mess. Heartless. How dare any one espouse the virtues of free market capitalism.

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February 26, 2008 by Tom Armstrong.

Although I took several econ classes in my undergrad program, I loathed them all (that’s why I majored instead in finance). It was not until the end of the undergrad program that I began to appreciate economics. My first teachers were Friedman, Sowell, Ayn Rand, and Mankiw. Later I began to read some more complicated textbooks and research. But my study of economics suffered from the Law of Diminishing Marginal Utility. Each additional book or paper I’d read became a little less enjoyable. I felt I was maybe just losing my interest in the subject. Not so.

I found this link on Mankiw’s site discussing the same issue. And it’s true, as others say: reading the Mankiw textbooks is all any one really needs to understand basic economics. Although I can’t imagine not studying statistics or reading Varian, Paul Samuelson or Olivier Blanchard. And, of course, every Milton Friedman book should be read.

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February 26, 2008 by Tom Armstrong.

Watch the second part of the Laffer Curve video at YouTube. (I must link indirectly to it, via Cafe Hayek.)

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February 26, 2008 by Tom Armstrong.

AAA Oligopoly 

What happens when the feds license only a few companies to provide a service, and then require investors to buy that service?

For the answer, take a look at the mess in today’s bond market, where investors have been hanging on whether the main government-appointed credit rating agencies — Standard and Poor’s and Moody’s — would downgrade bond insurers MBIA and Ambac. Equities rallied yesterday when the agencies maintained their AAA ratings.

Bankruptcy Act 

Has Harry Reid realized that the just-enacted $168 billion stimulus plan will do nothing to encourage economic growth? On the same day that President Bush signed the bill, February 13, the Senate Majority Leader introduced Son of Stimulus, with plans for a floor vote today.

For this bill Mr. Reid decided to ignore the normal vetting of committee hearings and markups, and it shows. Democrats laud the $200 million in the bill for credit counseling, but the actual language of the bill directs $200 billion to something called the Neighborhood Reinvestment Corporation. We trust this error will be eliminated before Mr. Reid achieves Guinness fame for creating the world’s most expensive typo.

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February 25, 2008 by Tom Armstrong.

By applying the pay-go principle to tax cuts, Washington is effectively chasing its fiscal tail. Because Washington will not cut spending, taxes will never go down, only up. And using it for short-term tax cut extensions, like the one year AMT patch, is the budget equivalent to renting tax policy.

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February 25, 2008 by Tom Armstrong.

The authors estimate that smoking bans increase fatal drunken-driving accidents by about 13%, or about 2.5 such accidents per year for a typical county.

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February 24, 2008 by Tom Armstrong.

In government, money flows to those with power. In the private sector, however, dollars are much more likely to flow to those who are innovative, productive, respectful, and value adding.

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February 24, 2008 by Tom Armstrong.

This “progressive” piece had me rolling in laughter. The author really believes what he is writing. Good stuff.

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February 24, 2008 by Tom Armstrong.

This person writes today in the LA Times on the evils of health insurers. He lists several things wrong and how government could be used to “fix” all the problems. I particularly enjoyed this paragraph:

Not all of us, however, make this deal with insurers. About 50 million Americans are uninsured, and tens of millions more are underinsured. There’s no law that says we all must have insurance or that insurance companies must agree to cover us. Given that, it’s natural that insurers — which are, after all, for-profit companies, not government agencies or public trusts — turn their attention to making deals with the most profitable among us and avoiding deals (or finding ways to break contracts) with the least profitable.

So, governement can step in and solve all our problems? Does this person think people are not denied care under universal health care systems? It’s not money or insurance that limits our ability to treat everyone. Those things only help allocate health care. If the U.S. instituted universal health care tomorrow, we would still be constrained by reality. We would not have any more doctors, nurses, health care facilities, etc. We would, however, since everyone would be living at the expense of everyone else, see an increase in medical demand. Demand up, supply unmoved. That spells shortage.

This author might want to read how people are denied care in universal systems around the would via other rationing systems, such as waiting lines. Or read this news from England. It begins:

The London Telegraph is reporting that the doctors believe “smokers, heavy drinkers, the obese and the elderly should be barred from receiving some operations.”

Perhaps the doctors are following the lead of the National Institute for Health and Clinical Excellence, the British agency that provides guidance on public health. In 2005, NICE proposed that the National Health Service use age as a measurement of a patient’s worthiness for treatment.

The reason for the hard hearts in Britain: The NHS can no longer afford to provide free treatment for everyone.

For Britons, health care rationing isn’t just a threat. It’s a reality. The Telegraph says roughly one in 10 hospitals — usually those with financial problems — now deny some surgery to smokers and the obese.

Mankiw has something to say about this too.

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February 24, 2008 by Tom Armstrong.

Tennessee is number one.

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February 24, 2008 by Tom Armstrong.

We need school choice now. Sure, it probably would not be pleasant for public school teachers (like myself), but our primarly objective is to better educate students, not please teachers and school administrators.

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February 23, 2008 by Tom Armstrong.

It’s price targeting, not monopoly pricing–A short and good read.

Here’s another article on the mortgage mess. I say let the market deal with these problems with losses and bankruptcy. Capitalism works best when it is allowed to hurt. When it is no longer allowed to hurt (or reward) it stops being free-market capitalism. I am often accused of being cold-hearted, but, as even the liberal Paul Samuelson has said, warm hearts alone cannot feed the hunger or heal the sick. Furthermore, those who moralize (i.e. call names) are those who lack understanding of the systematic processes of the marketplace.

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February 23, 2008 by Tom Armstrong.

My #2 Tennessee Vols (where I got my degrees) take on the #1 Memphis Tigers tonight. Read preview. I’ll have to listen to my theme song to get myself prepared.

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February 23, 2008 by Tom Armstrong.

Check out some of these short Milton Friedman video clips.

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February 22, 2008 by Tom Armstrong.

I recently posted this concerning an argument between a coworker and myself. We have discussed it a little more since that post, but I seem to be winning. I always know when I’m winning, because I start to hear name calling. My coworker today sent me this in response to some economic theory I sent him:

Not much time but I will answer in part and fill in the rest later. I am
living in the real world. Unlike you I have over 50 years of real world
experience, unlike you who takes his book learning and tries to apply it
to the real world. You are what we laughingly call a nerd. Great ideas
in principal, sound great in books, (which is where you learned them),
but not enough real world experience to be taken seriously.

Here is my response to him:

So you think you’re right because you have more experience? I suppose, using that logic, that all people older than me must be correct and myself wrong. I guess, in that case, anyone older than you must make them right and you wrong. But if people older than you agree with me, does that then make me right? I, therefore, must be right by your logic of older is correct, because my ideas and opinions have been influenced by people even older than yourself. Thanks for proving me right.

Furthermore, you mean younger people can’t learn from the experience of their elders. I can’t learn from reading books, going to school, listening to the experiences of older people like you. Really? You might want to put a little more thought into this.

My books and listening to people older and smarter than myself is precisely why I tend to have good arguments. I listen to smart people with EXPERIENCE. I learn from their EXPERIENCE. Your EXPERIENCE does not trump the EXPERIENCE of all other people’s EXPERIENCE on Earth. As a well-learned, well-reasoned nerd, I can’t take your reasoning seriously.

By the way, this man wants to place health care and pretty much everything else in the commons. I guess the failed socialist experiments around the world he experienced in his lifetime did not teach him much. Experience means nothing without an open mind willing to learn and adapt. And does he really believe I and others can’t learn from the experience of others by listening to them and reading their work?

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February 22, 2008 by Tom Armstrong.

Here is a questionable quote:

A ten percent increase in the male graduation rate would reduce murder and assault arrest by 20 percent, motor vehicle theft by 13 percent, and arson by 8 percent.

Graduation from high school is implied. Well, I have a plan that can quickly and greatly reduce murder and assault arrests, motor vehicle thefts, and arson: let’s just graduate every male that enters high school. Yeah, that should do the trick.

It’s not graduation that promotes benefits for society;  it’s the efforts and skills learned in the graduation process that produce benefits for society, not the act of graduation itself.

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February 22, 2008 by Tom Armstrong.

The speeding freight train carrying toxic waste liability for makers, sellers and purchasers of compact fluorescent lightbulbs, or CFLs, was only faintly audible in the distance last spring when this column first warned of it. Now we’re beginning to see that environmentalist-stoked train speed toward its victims, whom President Bush and Congress just finished tying to the tracks.

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February 22, 2008 by Tom Armstrong.

From today’s WSJ. Excerpt:

Mr. Clinton has also been raising cash for the Clinton Foundation, which funds his charitable activities and Presidential library. The foundation has raised more than $500 million, but Mr. Clinton has refused to release a donor list.

What we do know is that Mr. Clinton has allowed donors to use his influence to advance their business interests. That was the case with Frank Giustra, a Canadian mining financier, who won a huge mining concession in Kazakhstan after Mr. Clinton flew all the way to Almaty to introduce him to President Nursultan Nazarbayev. Bloomberg reported this week that Mr. Clinton has also been a frequent flyer on Mr. Giustra’s corporate jet.

Mr. Giustra later donated $31.3 million to the Clinton Foundation and has pledged $100 million more.

…

Mr. Obama has released his tax returns and has suggested Mrs. Clinton do the same because “the American people deserve to know where you get your income from.” If the Clintons continue to keep his and her finances under wraps, the public would be wise, given their history, to assume they have something to hide.

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