Saturday, July 30, 2005

The Lonely Economist in Africa

As to what to do about Africa, as I said earlier, it does not suffice to throw grains or money at them. (Please see my cartoon here.)

I have run into an African economist who has had the courage to state this very sentiment from within the "horse's mouth," so to speak, and it must not be a very comfortable place for him. A write-up of his opinion is here.


James Shikwati

The most important piece of data he cites is the 33% import tariff on sub-Saharan grain. Can you believe that some Africans must pay a 33% tax on grain imported from fellow African countries, when the tax on European grain is only 12%? Are we dreaming here?

WHAT IS WRONG WITH THIS PICTURE??

The same people who are wailing about the world's insensitivity are taxing their own starving population to death!

See more about this brave gentleman at his website here and here.

Tuesday, July 26, 2005

Economics as a Soft Science

When is a horse not a horse?


photo by Kingfisher

I've run into a fantastic article pointing out the problem with government-funded research in any scientific field, and most particularly in the social sciences like economics. These "soft sciences" are the ones unlike physics, chemistry, biology, astronomy, etc. that have more than just precise, observable and manipulable data to work with. Often they deal with some aspect of human behavior, making it impossible to set up an experiment to manipulate a reproducible result. Examples of such "soft science" would be sociology, psychology, linguistics, anthopology, political science, history, and jurisprudence, and any of the modern combinations of the above.

Hard scientific research (in fact all scientific research, if it is to utilize that name) is not an art form. It must be performed according to strict objective parameters that have evolved over the centuries. The naming of any other type of research as "science" is very hard to defend given its subjective nature; and although such research might be valid as an exercise and perhaps even lead to useful conclusions, its subjectivity and punctuality make it more of an art form than a science - which is not to take away its value, but which does imply that such research has no place aspiring to be cloaked in the scientific veil. Otherwise, big mistakes can be made.

I've written about this in previous blogs, because it's one of my bugaboos. It is just too tempting for economists and other scientists to become snake oil salesmen.

Read the article here.

Saturday, July 23, 2005

John G. Roberts, Jr., Supreme Court nominee

Read a great Washington Post article here about the person who is Mr. Roberts. Maybe this guy is the perfect Supreme Court justice: a kind of idiot savant legal scholar who has had his eye on the prize since he acquired a conscience, and who plays a mean ambidextrous squash game. Don't bother trying to figure out whether this guy is left or right; he's obsessed with the letter of the law - maybe just what we need to return to a stricter interpretation of the Constitution.

(Economics, politics and jurisprudence are closely interwoven.)

"Tax-Eaters and Taxpayers" - Steven Malanga

This new book by a fellow at the Manhattan Institute has got to be one of the best I've seen in recent weeks. He has put his finger on the economic syndrome of the age. He calls it (and his book) The New New Left, consisting mainly of "tax-eaters" (as contrasted to taxpayers) and the politicians who pander to them.

The New New Left.

See his own write-up of the thesis here and see an interview here.

I'm not going to waste your time giving you a synopsis of it; just go and see for yourself. It's worth your time, and neither article is too long. Let me just say that it has to do with federally encouraged bureaucracies and ... the u-n-i-o-n-s.

A similar situation has arisen in the countries of Europe, who are our predecessors in this Odyssey towards socialist non-perfection. Germany is going through the throws of a political and economic re-evaluation of their future. Some are predicting that Germany will veer towards the free market; some think that the progressive left will win, albeit by a small margin (the usual 51 to 49); and still a third minority of the soothsayers think that Germany may replay its past as the split between the two major parties hands power to the third column, which is the most lethal: a Nazi-like coalition between the far left and the far right, exactly like in the 1930s.

See my article here to see the same story unfolding in France. During the last elections, both left and right were stunned to see that a third party called the "Front National" had moved into second place. This party is increasingly popular given its xenophobic distrust of immigrants (you thought all French were chauvinists; wait until you meet one of these) and its grandstanding against the corruption on the present-day political scene.

The good news is that once a country hits bottom, things can change for the better. The example of Ireland comes to mind. About 20 years ago, you couldn't think of that country without imagining blood in the streets and poverty. Today, Ireland is thriving, thanks to a newly elected free-market-oriented government.

Let's hope America's journey into left field will be a short one, and that we don't have to suffer bloodshed before we wake up.

Tuesday, July 19, 2005

Tragicomic Interlude

Today, you get one of my cartoons. Need I say more about what I think is wrong with Africa?


Friday, July 15, 2005

Man on a Soap Box, and a Note About Inflation

In California, we're not all nuts and fruits, even though it may seem that way. There are a few people - even a few in our legislature - who still have a grain or two of common sense and the courage to get up on their soap box and talk loud.



You may have heard how the State has gotten itself into some pretty murky financial waters over the last few years, due to the usual political overspending and lack of budgetary foresight. You've also heard about how loudmouth actor Arnold Schwarzenegger got us to boot out Gray Davis, our former Democrat governor, right on his ear.



Behind the catchy melody that got that entertainer elected were some very solid bass tones drumming out the refrain of economic restraint; and when Schwarzenegger took his place in Davis's chair, many Californians breathed a sigh of relief and allowed themselves once again to hope against hope that this upstart, this Austrian Oak, as he liked to refer to himself, might be able to use his fresh political naivete and brazen personality to cajole the legislature into getting serious about the California budget crisis.

A few years have passed, and Schwarzie has won a few, lost a few - all the while retaining his good sense of humor, it seems, if one is to judge from his regular public appearances on the Tonight Show. However, getting the Democrat majority to grow up and face budgetary reality proved to be just as gnarly a task as any the Terminator has faced to date.

Finally, after some pretty wise choices for council, a couple of dumb off-the-cuff remarks, and a few ear-catching, protracted tit-for-tat sessions with his would-be-nemesis, California Democrat Fabian Nunez, he has ended up coming to an agreement with the legislature, just in time to save face - or so we thought. Everyone was relieved. Finally. They've stopped the silliness. Yea! Maybe this State is going to be okay.

Or so I thought, until I read this balloon-pricker from one of the most outspoken bass-player Republicans of the State, Tom McClintock. It seems that the so-called "compromise" was worse than the budget proposals legislature already had rejected. Read his straight-shooting critique here.



Too bad the dang politicians can't put aside their petty feuding to think about their constituents and the State's future for a change, instead of feathering their own little special interest nests time after time after time. My heart has sunk - again.



Another Topic: A Note About Inflation

You probably are thinking, "Oh, 3% is really not so bad. The Feds have things under control. There won't be any real estate bubble bursting, stock market crashing, or business down-turning just yet. So what if no one - not even Greenspan - can figure out why long-term bond rates are so low while the Fed is moving its rate higher, contrary to everyone's expectations? No big deal."

Well, I just want you to do this little economics gymnastics. Let's imagine that you have managed to save $40,000 this year, and you put it in the bank at 3%. By the end of the year your money has earned $1,200. Sounds neat. You could pay one month's rent with that.

Well, if you earn a salary of $40,000 a year, by December inflation will have stolen one month's rent from you by taking $1,200 worth of purchasing power.

That's a lot of dough, don't you think? That's like asking you to pay a 13th month of rent every year, for nothing. Why is it that everyone is so content to have that much money disappear from their wallets? I don't get it. Maybe if we called it an "Inflation Tax" people might get the picture.

Read more about the subject in my earlier posts, most particularly here, and in my article here.

Friday, July 08, 2005

Economics Statistics Through the Looking Glass

Don't you just love it when the lowest unemployment figure in four years comes out, and the MSM (Mainstream Media, e.g. Reuters via the Washington Post, 7/8/05) headlines their report "Job Growth Tepid, Jobless Rate Drops"? Let's see, is that drop positive or negative?



I don't think we should necessarily give way to any primeval urges towards irrational exuberance or anything, but so what if job growth is tepid? This is still the most people who have worked since 2001.

And it's not the only example of manipulation in this article. Look at this sentence:

"...[T]he unemployment rate fell to its lowest point since September 2001 as few people joined the labor force" -

...(?) Now let me think a second; is that supposed to be good news or bad?

"June's tepid employment growth came in below analyst expectations ... but the decline in the unemployment rate ... was a nice surprise, since Wall Street had expected it to hold at 5.1 percent. The drop was mostly due to a paltry 1,000 increase in the work force ..."

Hmm. "Tepid" employment growth. And only a "paltry" 1,000. Even the all-knowing analysts didn't expect the situation to be this bad. I guess we're really in for trouble.

It goes on to enumerate the sectors where some of the increases have come; but then it finds another "sign of underlying weakness" in the unchanged workweeks. "Employers typically increase the length of the workweek before taking on new workers, so a lack of growth in that area can mean scant hiring ahead." (Oh dear, not good.)

"Factory payrolls shrank for the fourth straight month as auto assembly and parts plants cut back on production." (That does in fact sound depressing.) "A glut of inventories has prompted ... slow production .. [and] jobs have been lost ..." (Not very optimistic either, that.)

Now, the fact of the matter is that even some sound statistics crunchers are predicting that the business cycle expansion may be nearing the top of its Ferris wheel (see the June 2005 edition of one report here), but the Post doesn't really care what the problem is. They just want to degrade the President's policy of tax cuts in order to get his Party out of the White House and the legislature.

So what do I think might be the real cause of a cyclical downturn at this point? I think it's the government's mishandling of the taxpayers' money, through their poor spending habits, their meddling with commerce and interest rates, and their subsidizing of excessive purchasing media. All together, these fiscal and political crimes create an imbalanced and unsustainable facade of expansion of the economy.

For more on these topics, see my published articles listed in the right margin; also, see archives, most particularly here.

Saturday, July 02, 2005

Economics - Multiple Personality Disorder

The more I learn about the field of economics, the more I realize that my blog's name, Sybil, is quite appropriate. You may recall the 1976 film of the same name with Sally Field, recounting the true story of a woman who developed 16 personalities.



The many faces of economics aren't far behind. When one starts to study the field, you find that there are a multitude of theories and schools of thought, as is the case with most of the behavioral sciences like psychology, sociology, linguistics and others, and as contrasted to the hard ones like neurobiology, physics, astronomy, et al.

Just to name a few:

First, we have the Classical Austrians, represented best in these modern times by Von Mises and Von Hayek, dedicated to preserving the free market, a 100% gold backed monetary system, and small government.

Then there were the Keynesians, named after the English lord with an original lifestyle and an irresponsible, spendthrift philosophy: "Print the money and they will spend. (To hell with tomorrow.)" He was the Messiah in the 30s, then fell into disgrace, and now seems to be making a comeback through a future back door. (See below.)

The Monetarists inherited the ensuing pendulum swing. They are mainly represented by the sage Milton Friedman and his ilk. Within some great reasoning is their most precarious belief that a single body of economists (the Fed) holds the key to wealth and fortune for everyone, not simply by opening the Keynesian faucet of purchasing media, but opening and more importantly CLOSING it. I think history will find them off the mark as well. After all, this is simply measured Keynesianism, because once you let that particular cat out of the bag, you cannot put him back in - at least not all the way - to wit our dollar that is worth a 1900 penny or two today.

Next we have the economic Bottom Feeders, thriving and multiplying rapidly from all this political credit spending. The Progressive Socialist Taxer/Spender politicians, originally thought to belong to the Democratic Party but now pervasive in the Republican Party as well, have a tremendous influence on economic thought because they hold the reigns of power - and this whether they were elected by the Ds or the Rs. (They really should have their own political party label.) These people think they have the key to taking money from the rich to help the poor (and other special interests), simply by transforming their superior selves into the regal genies that are indispensable to the process. Unfortunately, a band of economists with fantasies of self aggrandizement have taken to fawning upon them. A pox on them all. (See this site for an analysis of the whole Washington spectrum.)

Then we have the Sweet Water School and the Salt Water School, names invented by professor, economist, and fellow columnist Arnold Kling. The first holds that people act rationally and in their own interest when making economic decisions, and the second thinks that people don't, at least not always. The names come from the universities that lean towards each philosophy - Chicago, Minnesota and Rochester near the Great Lakes on the one hand (the Friedmans' fiefdom), and Harvard, Berkeley and MIT on the saltier coasts (the DeLongs, Kahneman, et al.) Personally, I think both schools have a semantic problem; but that doesn't stop them from trying to use the following fellows' methods to prove their case.

These are the Laboratory Ratkeepers and the Econometricians, the experimenters and math idiot savants who believe that everything can be reduced to double-blind games, algebraic formulae and computer models. Unfortunately, they don't all look before they leap to conclusions. Climatology has some of these risk-taking athletes as well.

Another: the Supply Siders put all their hopes in the basket of lowering taxes so that the people can spend their own money as they see fit - a marvelous idea, if only we could stop the government from spending the money we didn't give them and the Fed from feeding us too much credit and thereby stealing our purchasing power as fast as we will let them. I would tie Reagan's name in with this bunch, but personally I don't think he could be described as a Supply Sider.

He belongs more to the Adam Smith Common Sense Club, of which I make myself an honorary associate member. Schwarzenegger also tries to fit his ideas under Adam Smith's rather large hat; however, we'll see if he can stop splitting his own personality. (If it weren't split, he wouldn't be asking Warren Buffett for advice; and I'm sure being married to one of those Progressive Kennedy's doesn't help either.)

There are more schools of thought; but the one I like most is the one I know best: my own alma mater. Mine can be described as the Edward C. Harwood School of Economics, as he dissected, analyzed and professed it at his American Institute for Economic Reseach. He was a classicist in many ways, but differed from them in a few important aspects. More on this later.

See more about him and them elsewhere.