The Wrong New Year's Resolution

Ahnold (California's dear Governor Schwarzenegger) has decided to cave in again to his Democrat thorn-in-the-side legislators and their constituents. He's been under pressure from them all year to tie the California minimum wage to the inflation rate, and he's just proposed a New Year's "compromise."

California has already got one of the higher minimum wage rates in the country ($6.75) and parts of it have the highest (San Francisco at $8.50.) We probably also have one of the highest cost of living indices, so it may seem to make sense; but first of all, legislating a minimum wage is irrelevant because the current market for labor is generally well above those rates. (I suspect the politicians are just milking our empathetic emotions for the grandstanding effect.)

Secondly, it's all about what I call the employment pyramid. At the pointy top, you have employers like Merrill Lynch who can afford to give out million-dollar bonuses to their key people. Even the secretaries are getting thousands. Obviously, these elite employers could care less about the minimum wage.



At the bottom, you have millions of tiny employers who have one, ten or maybe 100 employees. These people employ the majority of the population. They are the country's larger pyramid base. Right now, they might not care either about this legislation because things are going well. However, imagine that there were even a small, normal-sized slowdown in the economy. Placing a bar on low wages may prohibit the wide bottom rung of employers from hiring or even retaining workers.

Is that really what we want to do? It will snowball the downturn at an increasing rate, encourage a hiring freeze, maybe throw the economy into subzero, increase unemployment and burden government budgets that are already strained in the best of times.

But who's listening to me?

Oh, So That's What the French Mean by Privatization

I thought the French were trying to make progress with economic reforms. They've been opening up employment regulations, increasing patient contributions to health care, making at least a modicum of show of trying to get the unions to allow them to do anything (not easy), and actually going through with some privatizations ... or so I thought.

I just learned that when the French government privatized their national electricity and gas companies (EDF and GDF) in 2004, they merely reduced the state's participation from 100 to 70 percent. Good grief.


[Thanks, 2elevate.com, for this picture.]

I've also just learned from Lexpansion.com that the government has decided that they will "freeze" GDF rates for the winter in spite of a raise announced last June. Is it any surprise that Poweo, one of France's few independent energy suppliers, is going to "attack" the French government's decision. Well, I wish him good luck. He's a brave man, this Charles Beigbeder. (For more in French, read here. There's also general information about the French situation here in an article I wrote for mises.org.)

Whoa, Be Careful With Those Statistics

I just got my annual notification of the usual 20% medical coverage premium increase. All right already, I know I'm getting into those dangerous mature years; but still, when I remember my deductible of $5000, those monthly checks never cease to twist my gut.


[I'm an incurable photo stealer. Thank you "Kenko "for this, whoever you are.]

I realize that the CPI doesn't take medical insurance premiums into account -- probably because it does take into account the expenses that they should be based on (hospital and physician charges, prescriptions, etc.). Let's assume they are.

They also use rent as an indicator and not anything related to increasing home prices. This would seem to eliminate a lot of upward movement, but they must know what they're doing.

And then they pull gasoline out from certain calculations. I suppose the fact that the gas price fluctuates so much makes it a poor indication of what we actually have to spend...(?)

We all assume the Bureau of Labor Statistics has done its homework and knows why they have made these choices. Then again, remember what Mark Twain said? "There are three kinds of lies: lies, damned lies and statistics."

I Told You So

What a hopeful piece of economic news coming out of Africa. Read here how some Sudanese locals have engineered their own survival. Even the UN seems to be playing a positive role for once. This is the kind of lifting-oneself-up-by-the-bootstraps of which I think Africa is capable if we will only let them.



Photo by the article's author AP journalist Mohamed Osman.

This contrasts to the politically correct wisdom being thrown out by pop singer cum politicians with the aid of the Time Magazine et al. megaphone machine, claiming that if we only threw more money at poverty the problems would disappear. See my sarcasm here and here.

French Economics

I have a personal reason or two to study how the French situation evolves. First, I've spent the last 37 years speaking the language at home. Second, I've spent the last 37 years wondering when the French economic model would explode.

It's not just that my predictions are gratifying me by coming true, although that may be a part of my fascination. Behind my smug "I told you so" is a sinking heart for France's political and social future. And don't forget, but for the grace of [fill in the blank] go we, right here in the US, in a decade or so, if we're not careful. Jobs are at least one of the major keys, IMHO.



Read the premonitions of the International Herald Tribune in an article here. Last I heard, this newspaper had its head office in Paris, so they may know what they're talking about. I suppose there's also the possibility that it's your usual MSM hype. Only patient, impartial, scientific time will tell. (Let me know if the article goes off line, and I'll reprint it.)

If you're interested in this subject, you may also be interested in my own articles here and here.

Holiday Cheer

On a More Serious Note

The 23rd of December seems an appropriate time to post something that deserves your attention and reflection, even if it is only obliquely related to economics.

Click Here.

Cartoon of the Day

Today you get this:

What's Wrong with This Picture

If it weren't for the fellow in the middle, I might not have said anything, but to me Bono's rise in political influence is the epitome of Public Choice economics at work. PC says that the issues, policies and people that come to the forefront are those that will buy votes for politicians and the visible organizations that support them. Time Mag's choice confirms what we knew all along, i.e. they'll always come down on the side of PC (Political Correctness.) Unfortunately for Africa, Bono's Throw-Money-At-'Em PC ideas aren't either correct or efficacious. (See my commentary on the subject here.)

I wonder if they would have chosen Tookie Williams had his execution day been scheduled for a couple of weeks later -- nah, probably not; the Nobel committee took too much PC wind out of that sail.

I can't decide which is worse: That Bono doesn't realize he is being used as a pawn on this political power chessboard, or he does.

Interesting Words from an Interesting Source

Who said this?

"You have to look at the system of currency pegs--when a currency is tied to the dollar or to another hard currency. This peg may not hold, but people assume that there is a fixed relationship between the dollar and, let's say, the Thai currency or the Malaysian currency. They then exploit the difference in domestic interest rates and the international market. They borrow in dollars and they lend in the domestic currency. They make a fortune in the process, as long as the peg holds. But because of, maybe, excessive borrowing, which allows a country to maintain a trade deficit over an extended period of time, or to engage in a currency or real estate boom financed by dollars, you have over-heating, trade imbalance, and then the capital flows reverse. People want to take their money out, instead of putting it in, and you have a crisis."

He may be confused about politics, but he sure talks a good capital markets game -- and something sounds vaguely familiar...


George Soros in an interview on Frontline in the spring of 1999

Today's Cartoon

WalMart is a favorite whipping boy of certain people who don't get economics. Here's my view of reality. It's called the free market at work.

No Way to Run an Economy

Just read this over at Breitbart (AP release):

"The Federal Reserve is expected to hike interest rates another quarter point today. But after 18 months in which the Fed has been pushing rates higher to keep inflation under control, the central bank appears to be getting close to the end of its rate increase campaign. However, there is a divergence of opinion among economists on just when the rate increases will cease. One group thinks the Fed will stop after two more rate increases, while analysts who are more worried about inflation think the central bank could raise rates perhaps four more times."

Good grief. How can anyone run their business or invest in the future with that kind of uncertainty? This is nuts. And when I think that the buck will not stop here.

Sometimes I'm a Sucker for a Good Ad

Maybe you've all seen this one, but I hadn't. Try it out. It was made for those who TiVo, but it's fun anyway. Oh, the economics of good marketing.
Click Here.

Don't Tell Anybody, but Gold is Making a Comeback

Have you noticed? Gold has passed over the bar of $500 an ounce. According to an article at the Financial Times, some big buyer in Japan is the cause of it. Other speculators, central bankers and investors will probably start to sit up and take notice soon, if they haven't already.



Just keep in mind that these spikes are just that -- spikes. The real figure to pay attention to is the underlying tendency. Ever since we abandoned the gold standard (officially back in the 70's, but the early 1900's is when it began), gold has risen to an approximate real exchange value with regard to the various fiat (unstandardized) currencies that are "floating" around (pardon the pun.) This rise gives us a good idea of how much purchasing power all of our paper money has lost over the last century. For example, gold has gone from around $20 an ounce to $500. Our dollar has dropped a corresponding 96%, from $1.00 to about $.04 of 1900 purchasing power.

It's enough to want to make you scream. What ARE they THINKING, over there at the Fed? They are supposed to be minding the banks and preserving our monetary system, and they are letting both go to hell in a handbasket.

I've always been a believer that you may be able to take the gold out of the standard, but you can't take the standard out of gold.