Monday, February 27, 2006

Kids in a Candy Store

Professor James Sheehan has a nice piece over at that pretty much nails the problem with misuse of computer and mathematical models by economists. I've always maintained that a lot of macro people, econometricians and hedge fund managers act like spoiled brats in a candy store.

[Thanks to for the photo.]

Sheehan bases his comments on those of Nassim Nicholas Taleb ("Fooled By Randomness, Random House 2004) and Robert Lucas. He says everyone in hedge funds has read Taleb's book. I hope economists have noticed it, too, because they're just as guilty.

I particularly like this quote:

"What has gone wrong with the development of economics as a science? Answer: There was a bunch of intelligent people who felt compelled to use mathematics just to tell themselves that they were rigorous in their thinking, that theirs was a science. Someone in a great rush decided to introduce mathematical modeling techniques (culprits: Leon Walras, Gerard Debreu, Paul Samuelson) without considering the fact that either the class of mathematics they were using was too restrictive for the class of problems they were dealing with, or that perhaps they should be aware that the precision of the language of mathematics could lead people to believe that they had solutions when in fact they had none…. Indeed the mathematics they dealt with did not work in the real world, possibly because we needed richer classes of processes — and they refused to accept the fact that no mathematics at all was probably better."

I wouldn't go that far. After all, just because the shoe doesn't fit doesn't mean you shouldn't wear shoes. That's the old story of throwing out the baby with the bath water.

And this one paraphrasing an idea from Lucas is nice:

"Nor do [economists] account for the possibility ... that people will incorporate predictable patterns into their expectations, thus canceling out the predictive value of such patterns."

These are what I call "duh" moments. Why don't hedgies, econometricians and macro people see the potential for error? 'Tis a puzzlement. I would guess it's the same addiction as gambling.

Read Sheehan's article here.

Economist Larry Summers Bites the Dust

Boy, an economist allegedly involved in a scandal. That's a rarity (I hope.) Read David McClintick's article here. The last straw, do you suppose?

[Thanks to for the photo.]

Separation of Science and State

Professor David S. Soderberg has written a beautiful article on my bugaboo, scientific "malpractice."

[Thanks to for the photo.]

He points out that government funding of scientific research, whether it be in the field of stem cells, energy or economics, is deleterious, adding flames to the fire of whatever causes nonscientific behavior in those who have purportedly ascribed to the scientific equivalent of the Hippocratic Oath.

It is Paul Feyerabend who coined the idea of "separation of science and state." Hear hear. I second the motion.

Are you listening, Arnold? Schwarzenegger has created a panel to fund stem cell research in California -- a big mistake, in my humble opinion. Same goes for Bush's efforts to have the government fund energy research. Tsk tsk, Mr. Small-Government Republican. I guess Republicans are just as vulnerable as Democrats to what I have coined as Public Choice Creep.

Read Soderberg's article here.

Thursday, February 23, 2006

Economic Prediction

From time to time, especially in the twilight afternoon hours, I put my sense of humor to bed and take up with a serious issue. Today, I am involved in a debate inside my own head, and with a couple of professionals I know, about the nature of economics as a science. Are those who require scientific methodological rigor in economics committing "scientism" or not?

[Thanks to for the image.]

I personally believe in the scientific method and in its application to economics. After all, my father was none other than Edward C. Harwood, founder of the American Institute for Economic Research, coauthor of "Useful Procedures of Inquiry" and of "A Current Appraisal of the Behavioral Sciences" (available here), and a true scientific-method philosopher if there ever was one. But at the same time, I confess to be able to identify with Mises and Hayek's argumentation about the limitations of this methodology in economics.

I also have observed that the "pure-science" econometricians, computer modelers and monetarists don't always produce irreproachable or relevant work. I would conjecture this is mostly due to their lack of understanding of the challenges inherent in "forecasting the skill of the skill forecast," which lack is afforded by our inexperience with what must be considered rudimentary tools, at least to date.

The preceding quote is from meteorologist Henk Tennekes and concerns climatology. He has written a truly fascinating piece over at Tennekes paraphrases Karl Popper as follows:

"Popper wrote, this demand [that scientists be held accountable for the accuracy of their predictions] leads to “infinite regress”: computations of forecast skill are much harder than the forecasts themselves, and the next level, forecasting the skill of the skill forecast, is insurmountable when a complex system such as the climate is involved. Popper concluded that the positivist claims of science are in general unwarranted. "

Again about climatology, Tennekes also says:

"The constraints imposed by the planetary ecosystem require continuous adjustment and permanent adaptation. Predictive skills are of secondary importance."

(The whole article is great, by the way. I recommend it highly.)

Although I may not wish to go so far as to equate economics with climatology and state that "predictive skills are of secondary importance" in economics, I will state my belief that economic prediction is limited (at the moment at least) by economics' dependence upon a social "ecosystem" (context) that also requires "continuous adjustment and permanent adaptation," due (1) partly to our lack of understanding of human behavior (although perhaps to a lesser degree than climatologists' untenable grasp on climate's "living" ecosystem, with its random causality sources like sunspots and solar radiation, etc.) Secondly, their lack of understanding is also partly due (2) to the evolution of technology, politics, international dynamics, social evolution and other contributory factors that modify human behavior unpredictably (for the moment), and partly (3) to the nonlinearity of it all, or at best to the complexity of its multiple linearities.

A perspective overview of the tendencies of market and public choice behavior has become increasingly discernible to the economic scientist, and this may be enough to allow us to understand most of what we need to know to make some pretty valid predictions. On the other hand, judging from the plethora of conflicting theory that still exists in the field today, it is also possible (but not certain) that human action, studied in its own right by another conflicted social science, psychology, may need to be a lot better understood, and thus "predictable," before we can come to grips with our subject. Human behavior, or at least certain facets of it, is still complex (although perhaps closer to our grasp than sunspots) and will most likely require more than these last 200 years of scientific inquiry to get it right.

On the other hand, perhaps we can go for another goal, which is what Tennekes calls the "vulnerability approach." This sounds much more attainable. (See Comment 26 in the article.) In any event, I will bet my rationality on the ultimate success of the scientific method to the extent that success is measured by the achievement of some measure of the capacity to predict; but in the meantime, my heart strings long for answers now and become easily bewitched by Mises's and Hayek's premise that economics has its scientific limitations by definition.

The Bobos

The French have a great saying to describe their progressive liberals: "La gauche caviar," the Caviar Left. This is a reference to the Left's hypocritical preaching to the masses about equality while living high off the hog behind the scenes -- or even in front of the scenes, given that the European politicians are a deservedly and publically acknowledged elite class of human being.

[Thanks to for the photo.]

I didn't realize we have a similar phrase, perhaps coined by Ilya Shapiro here: "Bobos," short for Bourgeois Bohemians. (No, see comment by Professor Arnold Kling. This term was coined by David Brooks in his book Bobos in Paradise. Thank you, Professor.)

I like that. Although I must say, in this country we've got a combination of both, Bourgeois Bohemian Caviar Leftists, in the persons of John Kerry, Ted Kennedy, Hillary Clinton, George Soros, Warren Buffett, et al.

Oh, the economics of politics.

Peiser et al. Hit the Road Running

Update on Global Warming:

Follow this pivotally important intervention by the skeptics. They have subpoenaed Science Magazine for archives. This should expose the defects in the hockey stick argument once and for all.

Climate Audit: An Open Letter to Science

[Thanks to for the picture.]

Wednesday, February 22, 2006

Today's Cartoon: Poor Bernanke

He's got some pretty unruly bubbles to take care of.

Friday, February 17, 2006

Governor Schwarzenegger: Move Over

Oops. He already has, and to the wrong side of the bed.

I used to like this guy, even had some hopes he'd be Reagan-smart about economics. Now I'm beginning to realize he's the opportunist we all feared deep down that he was. He's not only sleeping with Democrat Maria Schriver, he's got the whole Liberal Left in there with them.

[Thanks to for the image.]

He's come out with a hair-brained idea that you've all heard before. It's a plan to "combat global warming that recommends raising [California's already record] petroleum prices and requiring industries to report, for the first time, their greenhouse gas emissions."

Read the full article here.

The best way for Arnold to lower greenhouse gases is to shut his mouth and get out of the way.

He's an embarrassing traitor even to his moderate-conservative base. I predict that his mea culpas and hypocritical about-face will be apparent to, and rejected by, even the West Coast liberals, and that he can wiggle and struggle all he wants, he's a goner.

Gosh, maybe I was right about BP. Do you suppose he's in bed with them too? (See what I'm referring to here.)

Thursday, February 16, 2006

A Glimmer of Hope

I've been following the Porkbusters activities over at My heart jumped when I saw how activist they are becoming. I had to ask myself, Is this blog thing really going to change the course of American government and hence of the nation? Is blogging the most economic and efficacious way to get our politicians to sit up and listen to the quiet roar of the silent common-sense majority?

Read here the latest news on their fight against government pork.

If France is Doing It, It Must Be Wrong

Just learned from Yahoo France (Reuters) that the French Socialist Party has asked that a "prelevement exceptionnel" (one-time tax) be imposed upon oil companies' "surprofits" (windfall profits.) Read their story in French here.

Isn't that proof enough that the idea is ridiculous?

[Thanks to for the image.]

BP: Disingenuous Marketing Campaign or a Bet on the Wrong Horse?

Far be it from me to criticize corporations, even if they are one of the big oil companies. In fact, I've even been defending them against the Congressional hyenas. But when they pull a stunt like this, I get mad.

They've announced to the press that they're going to start up a huge, squeaky clean "hydrogen-fueled power plant" near Los Angeles. (See the original Bloomberg article.) But if you read between the lines, the true story seems to be that this is feel-good economics.

[Thanks to for the image.]

What they in fact will be building is a coke-burning plant (coke is a source of carbon, like coal) that will use steam (i.e. heated water) to produce hydrogen first. They then reconvert that hydrogen into water in the second stage production of clean energy, injecting the CO2 produced in the process into the ground. If that sounds expensive and energy wasteful, it is.

Of course there is no mention of this fact in the press release. Nor does it mention that this is an experimental process. From an economic point of view, they'd be better off simply building one of the newer cleaner-burning oil or coal plants -- unless, of course, they're banking on some rich liberal kids coughing up the dough for their environmentalist-friendly product, or maybe on some self-interested politician pushing it into a state government energy monopoly. Heaven knows in California that's certainly a possibility, and that is where the plant will be located... oh, perhaps the State is already involved?

I have seen BP's ingratiating advertisements on TV, all warm and fuzzy green, but I thought their marketing was at least sincere. I didn't realize they would stoop to hiding the facts. Tsk tsk. No wonder big oil has gotten a bad reputation.

Or maybe I'm all wet, and they're betting on the right horse after all. Only time, and the market, and don't forget the politicians (whom they know better than I) will tell.

Wednesday, February 15, 2006

Fed as Lender of Last Resort

I've just had an epiphany, thanks to Doug Noland over at the Prudent Bear. It's the U.S. Fed, stupid! The buck stops at their doorstep.

[Thanks to for the image.]

Over the last few months, I've been searching for the source of world confidence in the dollar that is causing foreign investors to continue to buy dollars in the face of the evidence that the U.S. in in the midst of an unprecedented credit boom (yes, in spite of the CPI figures.)

Noland's sentence is what gives it away:

"I believe the widespread perception that policymakers are prepared to bolster the boom - and will definitely not tolerate a bust - is an integral factor associated with major (throw caution to the wind) Credit System 'Blow-offs.' "

He's hit it on the head. The Fed has become the global Lender of Last Resort.

That explains why everyone wants to buy dollar instruments in spite of our (relatively) humongous consumer and governmental debt statistics and of all the overheated economy indicators. And everyone knows that the U.S. Fed will "not tolerate a bust." Not only that, the world is confident the Fed has the wherewithal to pull it off.

That's it! Doug, you ARE a genius. Read the full article here.

The only remaining question is, will it work for much longer.

Bernanke: Hot and Cold, Just the Way Goldilocks Likes It

At first blush, Bernanke's speech gives you the impression that we finally have a Fed chairman who can speak English.

But after closer inspection, I note some haze that is successful in confusing the issue just about as much as Greenspan's gibberish. For example:

"Experience shows that low and stable inflation and inflation expectations are also associated with greater short-term stability in output and employment, perhaps in part because they give the central bank greater latitude to counter transitory disturbances to the economy." (Reuters quotes, here on 02/15/06.)

Sounds like he's saying that a stable environment gives the Fed an opportunity to mess with it, but he couldn't have meant that, could he? And it makes you wonder just what "transitory disturbances" could coexist with "stable inflation," "inflation expectations" and "short-term stability." (Here's a hint:)

[Thanks to for the picture.]

Then we have this:

"In sum, achieving price stability is not only important in itself; it is also central to attaining the Federal Reserve's other mandated objectives of maximum sustainable employment and moderate long-term interest rates."

This sounds like he is saying that the Fed has chosen to concentrate on the control of symptoms rather than on the optimum health of the patient, or that the economy couldn't heal itself without doses of preventive medicine. If you ask me, it's the doctor's prescription drugs that sickening the patient.

But that's just my take.

Otherwise, contrary to my cartoon earlier, he's taken hold of the attention of everybody. At least for the time being. And I must say, he's much easier to read than his predecessor. Whether he's more transparent or not will remain to be seen. After all is said and done, he's just as we expected him to be. Clearer in phraseology, but just as opaque when it comes giving us an indication of how to plan for our future.

But then, isn't that what the Fed's for?

Bernanke: "Ladies and Gentlemen of the Senate"

Today, in honor of Dr. Bernanke's first speech, I'm giving you one of my cartoons. This is the way I saw his new mandate last week, when I heard about Greenspan's $120,000 hourly fee and the mediatic reaction to Greenspan's dinner remarks at Lehman Bros. I have to say, my vision has changed now that Bernanke has given his speech.

Monday, February 13, 2006

Trade Deficit: Debt or Just Data?

Who was that dumb academic who invented the phrases "trade deficit" and "current account imbalance?" He or she must have known that from a theoretical point of view, the words "deficit" and "imbalance" are really misnomers when they refer to trade and the current account. By definition, the "trade deficit" or "imbalance" is counterbalanced by a "surplus" of investment in American assets. There can be no "deficit" as there is with a household, corporate or government budget deficit.

[Thanks to for the image.]

For a good explanation of why the abstract notion of a trade deficit is not a true deficit, read this article at Tech Central Station.

On the other hand, what does worry me is that the world is now investing in the American marketplace as though it were the latest stock market fad, and they're doing so with our own dollars, i.e. those dollars we've been "printing" with abandon. That's the true imbalance, and one that deserves close study. There is no longer a gold standard requiring us to come up with the goods. Foreign holders of dollars can no longer demand that we give them our money's worth.

So are they taking us at our word? And how good is our word?

That is indeed the question, and I don't think even Alan Greenspan the Grand Pooh-bah knows for sure (and if he does, he's not tellin'.)

No Way to Run an Economy

Markets are jittery, trying to sniff out the latest bubble so they can park their reserves in it. This is a big week. Bernanke gives his first speech, investors are squeemish, gold is hovering, the Dow can't seem to get it up, and market commentary has taken on the sound of a Poker rap sheet. "If" this does this, or "if" that does that, "then investors would be wise to"... whatever.

[Thanks to for the image.]

"Right now, the market is going through rapid rotation and very little stability in the process of trying to find sector leadership," investment strategist Fred Dickson of D.A. Davidson & Co. declares here.

That's what I said, we're all bubble-searching.

This week's economic data may offer clues on inflation and how many more rate increases might be ahead. Then maybe our corporations can settle down and get back to the real business at hand, instead of worrying about where to put their reserves and pension money.

Makes me nervous just thinking about Wednesday. I'd hate to be a big-time business person right now.

Gold Funds: The People's Gold Standard?

I'm really excited about the concept behind gold funds, of which there are now five. I can't say I know them well, nor do I own any ETF (exchange traded funds) shares; but the idea sounds just fantastic. It has that emotional appeal of a people's revolt against the fiat currency (unstandardized money) that the central planners have imposed upon us since the 1970s, if not earlier.

[Thanks to for the image.]

If I understand correctly, gold funds are simply vaults that store bullion in exactly the quantity people have bought, and the funds' managers pay themselves with a small annual storage fee. No mess, no bother, no "investment advice," except of course the funds must guarantee the safety of their reserves. I'd love to visit them all and see their facilities, see who these people are. I think they've got guts.

Read more about these funds here.

Oh-Oh, We've Got Another Michael Moore

Only this time he's aimed his musket at Wal-Mart. Robert Greenwald has made a documentary that tells all the dirt. The only problem is, the only people not complaining are the "asylum's" inmates, Wal-Mart's employees and Wal-Mart's customers.

If only propaganda producers had the slightest comprehension of basic economics. Good Grief. They are grasping at moralistic straws.

See my cartoon on the subject here and read more about the film here.

See the movie's website here.

A Fantasy Conversation Between Greenspan and Zhou

I dreamed that Greenspan and Zhou Xiaochuan, China's central bank governor, had a conversation -- must have been a couple of years ago. In my dream, Zhou called Greenspan and said something like, "Alan, as you know, we've been pegging to your dollar for a while now because we like the way you do business. But don't you think you've loosened up the money machine enough by now? I know credit has succeeded in keeping your economy from tanking after the dot-com bubble and 9/11, and thanks to you we've been able to give a great boost to Chinese expansion. And neither of us will forget that this has helped you keep your U.S. CPI so low that your money expansion can proceed virtually unnoticed.

"But now your dollar is quite weak, and we think we need to unpeg our currency. We've got to stop accumulating dollars and your low-interest Treasuries. This pegging is causing some speculative havoc in our real estate and other capital markets. What do you think?"

Greenspan replied, "Well, if you wouldn't mind, Xiaochuan, as you can see we've begun our rate hikes now that the economy is coming out of the doldrums, and we believe that things should be up and running nicely within a year or so. Perhaps you could hold off a few more months. You'll see, the dollar will start its comeback soon and you can start unpegging nice and easy."

"Okay. Sounds like a plan."

And you know what? In my dream they succeed. If it were true... Hey, you know, so far reality doesn't seem too far off? This unpegging is going quite smoothly. I wonder if this is the first time in history a strong currency has been pegged to a weaker one. Usually, it's the other way around, and it all comes crashing down when the weaker nation gets caught in a credit squeeze.

Hmm. Maybe I can just keep on dreaming that the U.S. doesn't fall into one of those.

Friday, February 10, 2006

The Stock Market and the Equity Risk Premium

Investing in the stock market has always appeared risky to me, although I admit it's a gut reaction. Bonds scare me too, although less so, for reasons which I can't explain, having never owned any.

The fact that "a lot of bright economists" can't find a reason for a higher risk premium for equities than for bonds doesn't surprise me, but Peter Swan's recent idea seems to describe my own feelings pretty precisely.

[Thanks to for the photo.]

He says:

""While financial economists are used to thinking of equity markets as being highly liquid, they are in fact highly illiquid relative to government securities such as bonds and Treasury bills," he says. "In the US over the 21-year period, 1980-2000 the average turnover rate for US government bonds and Treasury bills was 13.9 times per annum compared with 0.575 times per annum for equity on the New York Stock Exchange, a relative rate of 24.58 times ... My basic idea is that the equity premium is no more than compensation to equity holders for this greater illiquidity." (Quoted in The Australian by Alan Wood, here.)

This jives with my gut feeling -- a scientifically insignificant finding, perhaps, but a crucial one as concerns my own behavior.

China to Set Up Gold Fund

What a coincidence. (Not.) More news on the coming gold investment fund that China intends to set up. Don't know what effect this will have -- are the Chinese like the Indians, holding a lot of gold in jewelry and perhaps coin or bullion form?

My Dad used to say that there was nothing like the wisdom of a French peasant: They always had a stash of gold hidden away in a mattress where the totalitarian politicians couldn't get at it. I suspect the Chinese are no less wise.

Interesting. More about this here.

AFL-CIO: Look at the Figures

The trade deficit is a record $725.8 billion, but it is not disquieting for the reasons you'd think. Unemployment is at 4.7% and falling, so to blame importing for the lack of jobs in America is just plain silly.

AP journalist Martin Crutsinger quotes Richard Trumka, secretary-treasurer of the AFL-CIO, as saying:

"Such a huge trade gap undercuts domestic manufacturing and destroys good U.S. jobs," said Richard Trumka, secretary-treasuer of labor's AFL-CIO. "America's gargantuan trade deficit is a weight around American workers' necks that is pulling them into a cycle of debt, bankruptcy and low-wage service jobs." (U.S. Trade Deficit Hits All-Time High,, 4/10/06.)

[Thanks to for the photo.]

I've rarely read a more striking non-sequitur. Since when does a trade deficit force someone to buy more than he can afford? And if those service jobs pay less than the old manufacturing jobs -- which may be true given the unbelievable wages some union workers were making -- then those workers should face up to the fact that they were living high off the hog.

For example, a checker at our local supermarket was making something like $18 an hour plus full health coverage and retirement benefits. That's incredible. And the Long Beach dock workers were on strike when their take-home pay was between $80,000 and $100,000 a year plus all the freebies. Are these people out of touch with reality or what? That's more than a good attorney makes after 7 years of college.

I see nothing wrong with manufacturing workers changing job descriptions, on the contrary. If the change in the economy got me out of a factory and into a service job, I'd be thankful.

It sounds like Mr. Trumka is more worried about losing his own job than he is those of his members.

Wednesday, February 08, 2006

$120,000 an hour -- Greenspan's New Going Rate

Greenspan spoke Tuesday via video link from his apartment in New York, broadcasting to Japan. He also gave a similar one-hour interview to Lehman Brothers the same day.

Read more here.

Government Pork: Quite an Expensive Pig

$1.4 billion (that's a "B") for federal employees to attend conferences. (Read more here.)

For example, $17 million for the 2004 Bankok International AIDS conference, later judged as "irrelevant" -- enough money to treat 1,500 HIV positive individuals for one year.

At a different page here, we get the following from Michelle Malkin:

$1,401,104,263 spent on employee and representative trips and conferences over the last five years by the federal government. They list them in detail.

Warning: The fainthearted will swoon.

[Thanks to for the image.]

Tuesday, February 07, 2006

News Flash from Drudge: President Insulted at King Ceremonies

Democratic critics have just insulted the President and gotten a standing ovation for it, at of all places the King ceremonies. See here, things have turned sour for the Prez in Georgia. The insults came from the preacher himself, Rev. Lowery, and former President Carter, as well.

Wow. That's below the belt. And at a funeral, too.

The Pres should hire some new press advisors. That was a costly boo-boo. Talk about bad press-market choices.

Riding the "Greenspan Boom[s]"

The "Great Inflationist," that's what Doug Noland at the Prudent Bear calls Alan Greenspan who sure came off his beat at the Fed as the wise comptroller of the currency, didn't he? Thanks to him, "inflation is under control," right? Oh, the Great Illusionist.

He does appear the portrait of discreet wisdom, measuring his every word, talking in rhymes and riddles; but the man's actions speak much louder and clearer than his public words, and strangely enough, they contradict his own previously written economic philosophy.

To me, he's the epitome of hypocrisy, but I'll give him a chance to explain himself in his memoirs. Maybe he'll have some explanation and all of us credit hawks will go, "Oh... so THAT's it..."

Yup, this Noland, we see eye to eye. The more I read him, the more I like him. His latest piece here gives a scathing summary of the Alan Greenspan monetary era.

See my own article here for a lighter take on the man. Also, for a more detailed discussion of inflation, read here.

Monday, February 06, 2006

Budget 101: A Common Sense View

The President's budget makes an effort to reduce spending, and we can predict that the left is gearing up to resist because the reductions are in Medicare. I'd just like to ask them, "Okay, if you were in charge, where would you make the cuts?" Obviously, their response would be "defense." But they know very well that it's difficult to justify a cut in the defense budget right now (even though we all know there must be some waste there.)

Personally, I think there should be a balanced budget amendment, perhaps with a tightly worded exception override allowing perhaps only 1 or 2 percent leeway for very specific circumstances and triggering specific budget adjustments and calculations.

I know, I know, Congress would have no problem -- for example right now -- overriding the budget for Iraq, and we're back to square one; but there must be some way to keep this from happening. Specific language could force them all to go through the motions of justifying their override, to limit the excess to the 1 or 2 percent, and to make the appropriate cuts elsewhere -- either through consensus or through mandated general cuts, the choice being up to the legislature.

But we all know, that's like asking the wolves to tend the sheep.

[Thanks to for the image.]

Friday, February 03, 2006

PS: I Forgot Slovakia's Successful Social Security Reform

This is even more embarrassing. Slovakia has managed to reform their Social Security program, while we can't even get to first base. Read Tech Central Station's article here.

[Thanks to for the photo.]

Not Peasants After All

Estonia. Bulgaria. Slovakia. These are names that conjure up images of head-scarfed women with scythes. Not any more. The Eastern European countries are already outdoing their Western brothers in the economics department.

[Thanks to for the picture.]

All three have instigated the flat tax and have lowered their corporate taxes so far that Western Europe has considered penalties for "unfair competition."

It's time for all good men to come to the aid of their party. Those leaders of the Western World would do well to put a lid on their rants, open their eyes, and watch how it's done by our humble Eastern neighbors.

On the other side of the globe, Hong Kong now tops the charts for the most free nation in the world, according to a Heritage Foundation index published yearly here. The US is tied in 9th position with Australia and New Zealand.

Ninth? Yes, ninth. After Hong Kong, you've got Singapore, Ireland, Luxembourg, the United Kingdom, Iceland, Estonia (Estonia??), and Denmark.

Wow. Hey Prez, tell Karl Rove to shut up and start doin' what the presidential advisers of former Communist countries have done, whatever that is, because it's working better in their strife-tired soil than right here in the West's vigorous free market's own fertile back yard.

Inflation's Ugly Head

So, the stock market is pouting the new unemployment figures and wage increases, and rightly so. The pundits blame coming inflation. Finally. I've been waiting for things to get heated up.

Everyone thought they had the Fed figured out. "There'll be a couple more rate hikes, Bernanke will have to do at least one, you know, to show that he's not a pussy cat. Then he'll start to ease pressure." Yada, yada, yada.

Sure, all else being equal. But as usual, all else isn't equal. BOY, markets are jittery. (I'll bet Mr. Bernanke has a few butterflies, too.) I myself wouldn't know where to put a few bucks if I had any. Real estate is topped out, the Dow is on high choppy seas, and even gold looks bubbly -- but I still like it, the 1980s price of $850 an ounce translates to something above $2,000 today, right? So maybe we'll see some more action...

Then again, bonds may go higher (if China and Japan can ever ease up on their addiction.) Oh, and CDs are rising a bit, but how long should I tie myself up, in this rising rate environment? Wait, how about investing in China and Japan? Surely their currency will have to be released soon ...

[Thanks to for the image.]

"Whoa! Wait a minute! I sound like a speculator. WHY AM I TALKING LIKE THIS? Stop it right now."

"Well, you're talking like this because the markets are so volatile, so skittish, so nervous. I know, you should be concentrating on producing something useful, like a new energy source, and you're frustrated, you can't concentrate..."

"But I'm a Wise Long-Term Investor, not a speculator..."

"Okay, so go ahead, just tell me Ms. Wise Long-Term Investor, where the heck are you going to put the bucks? Huh? Just give me a simple answer. You gunna just sit on'em 'till hell freezes over?"

"...Hmmmm....Let me think a minute."

"Make it quick, because they're rotting away in some silly underrated savings prison at the moment... Tick, tick, tick..."

Senator, Are You Listening?

Sometimes I write to my legislators on a federal and state level, even though I know that they are all on the wrong side of the fence economically speaking -- even the Republicans (to wit the President's speech Tuesday night.) For example, I wrote to Diane Feinstein requesting that she not vote to penalize the oil companies for windfall profits. I get a letter back stating this:

"Thank you for writing to me to express your concerns about price gouging at the gasoline pump. I always appreciate hearing from constituents on issues that are important to them and welcome the opportunity to respond.

"I understand and share the concerns that you mention in your letter. I have no doubt that gasoline price gouging occurred in the aftermath of Hurricane Katrina.

"...I believe the time has come for Congress to take action. You will be pleased to know that I am working with Senator Maria Cantwell (D-WA) on legislation that would give the President the authority to declare a national energy emergency so that the Federal Trade Commission (FTC) could investigate and punish price gougers. "

The French have a saying for this. It's "Parles a mon cul, ma tete est malade." Talk to my butt, my head is sick. Or, Go away, you're bothering me.

[Thanks for for the picture.]

I'd like to put a face on the idiot who pushes that form letter button.

Thursday, February 02, 2006

Not So Fast, Mr. President

Alan Reynolds, writing at, does a nice job of blowing President Bush's non-sequiturs out of the water. As I listened to the Prez's speech, I found myself doing a -- "Now wait; what did he just say? I thought Republicans were supposed to be for smaller government!"

He sounds more and more like he's campaigning to the Democrats. Who does he take us for, a bunch of fools?

[Thanks to for the image.]

Here's an example. Reynolds points out that President Bush wants us to become more independent from Middle East oil by increasing research on ethanol and other useless products, even though first of all those products take "gobs of energy" to produce, and secondly, once produced and introduced into a gas tank, ethanol increases fuel consumption by 30%. "If alternative energy sources have any chance of being competitive, they will not need subsidies." Touché, Mr. Reynolds.

He goes on to point out that there is an ethanol lobby, a hybrid lobby and other special interest groups who have influence on politicians, and apparently even presidents.

Read this article. It's a delightful one. Especially if you too are No One's Fool, like Cato's Alan Reynolds.

Stephen Harper's Surprising Canadian Victory

In an article here, the Washington Post points out that Canada's new Prime Minister is definitely not a liberal. Paul Martin, outgoing PM, has said Stephen Harper's agenda is "drawn from the extreme right in the United States." The article describes his favoring the Iraq war, opposing Kyoto on global warming, and being a social conservative as right-wing; but no mention is made of his economics. It will be interesting to see what he does with the behemoth to the north.

By the way, did you know that Gerhard Schroeder is now a "agent" for Russian President Vladimir Putin? I wonder what the job description is.

Wednesday, February 01, 2006

Keep Your Rotten Mitts Off My Gas Money

Congress is about to tax big oil. Guess who pays for taxes? The people who buy the taxed products. Please send a letter, e-mail or call your Senate and House representatives to encourage them to stop killing us with taxes. We are not stupid. We see through the leftist grandstanding when people like Kennedy stand up and scream that the oil CEOs are thieves.

Don't let the government bums run the economy. The free market doesn't need them; we don't need them. A pox on them all.

"Perestroika Before Glasnost." But Of Course.

This Tech Central Station article by James V. DeLong has got to be one of the most visionary I've read in months. It may be idealistic, but I like it. Here are the essential points:

"The Chinese are undertaking simultaneously several of the most difficult tasks that any nation can attempt. They are loosening the grasp of an authoritarian regime; fostering rapid economic development; and evolving the proper form of government for a huge population of widely varying sophistication and skill in the technological age, bearing in mind the history and culture of China.

"Were I a Chinese leader, I would be thinking along the following lines.

"We have no model for this daring and difficult enterprise, even if we think that in the long-term we need some variation of a democratic state. The West's assumption that all we need do is ape it represents a presumption that would be amusing if the issue were not so serious, because democracy in the West is in serious jeopardy.

"Look at Russia, where the recommended shock treatment approach was a disaster. The lesson may be that converting to a more capitalistic state requires economic loosening before political loosening -- perestroika before glasnost. The rule of law may have to start at the top and then extend downward, and be followed by a broad voting franchise only after the basics of industrial development are firmly in place. This was, after all, the pattern of the Western democracies. Magna Carta was for barons, not peasants."

Read the full article here.

Build first; inhabit second. I like this idea of perestroika before glasnost. It makes perfect economic sense.