Archive for November, 2010

Happy Thanksgiving! Yesterday & 387 years ago.

Posted on November 26, 2010. Filed under: Uncategorized | Tags: |

From Reason TV, a Happy Thanksgiving and the words of the Governor in 1623.

That’s nearly 400 years ago.  It should be noted that it’s not 1620, nor 1621, it was in 1623, after accepting a private property system, that the Pilgrims had their first big first harvest.  They were suffering near starvation before, while trying to, as Obama said, “spread the wealth around”.

Economist Benjamin Powell tells the story:

Most people identify the origin of the holiday with the Pilgrims’ first bountiful harvest. But few understand how the Pilgrims actually solved their chronic food shortages.

Many people believe that after suffering through a severe winter, the Pilgrims’ food shortages were resolved the following spring when the Native Americans taught them to plant corn and a Thanksgiving celebration resulted. In fact, the pilgrims continued to face chronic food shortages for three years until the harvest of 1623. Bad weather or lack of farming knowledge did not cause the pilgrims’ shortages. Bad economic incentives did.

In 1620 Plymouth Plantation was founded with a system of communal property rights. Food and supplies were held in common and then distributed based on equality and need as determined by Plantation officials. People received the same rations whether or not they contributed to producing the food, and residents were forbidden from producing their own food. Governor William Bradford, in his 1647 history, Of Plymouth Plantation, wrote that this system was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort. The problem was that young men, that were most able and fit for labour, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense. Because of the poor incentives, little food was produced.

Faced with potential starvation in the spring of 1623, the colony decided to implement a new economic system. Every family was assigned a private parcel of land. They could then keep all they grew for themselves, but now they alone were responsible for feeding themselves. While not a complete private property system, the move away from communal ownership had dramatic results.

This change, Bradford wrote, had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been. Giving people economic incentives changed their behavior. Once the new system of property rights was in place, the women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability.

Once the Pilgrims in the Plymouth Plantation abandoned their communal economic system and adopted one with greater individual property rights, they never again faced the starvation and food shortages of the first three years. It was only after allowing greater property rights that they could feast without worrying that famine was just around the corner.

We are direct beneficiaries of the economics lesson the pilgrims learned in 1623. Today we have a much better developed and well-defined set of property rights. Our economic system offers incentives for us—in the form of prices and profits—to coordinate our individual behavior for the mutual benefit of all; even those we may not personally know.

It is customary in many families to give thanks to the hands that prepared this feast during the Thanksgiving dinner blessing. Perhaps we should also be thankful for the millions of other hands that helped get the dinner to the table: the grocer who sold us the turkey, the truck driver who delivered it to the store, and the farmer who raised it all contributed to our Thanksgiving dinner because our economic system rewards them. That’s the real lesson of Thanksgiving. The economic incentives provided by private competitive markets where people are left free to make their own choices make bountiful feasts possible.

(via Volokh, but I copied even more)

Productivity is why gov’t spending fiscal policy fails, but tax cuts work.

But there are no fast solutions to the US problems.  Be thankful that the US is so rich, and thanks to US leadership after WW II, so much of the world is so much better off.

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Accountant type economists saw it coming

Posted on November 26, 2010. Filed under: Uncategorized | Tags: , |

Greenspan and most macro-economists did NOT see the huge financial crisis coming.

None who rely on equilibrium type Keynes or neo-Keynesian type macro models, nor monetarist equilibrium type models saw it coming.

A few did see it coming, those that looked at flows of funds.

Here’s a great paper about it, Munich Personal RePEc. By Dirk J Bezemer, Groningen University, June 2009.  Best I’ve seen.

ABSTRACT (78 words)This paper presents evidence that accounting (or flow-of-fund) macroeconomic models helpedanticipate the credit crisis and economic recession. Equilibrium models ubiquitous in mainstreampolicy and research did not. This study identifies core differences, traces their intellectual pedigrees,and includes case studies of both types of models. It so provides constructive recommendations onrevising methods of financial stability assessment. Overall, the paper is a plea for research into thelink between accounting concepts and practices and macro economic outcomes.

Keywords: credit crisis, recession, prediction, macroeconomics, flow of funds, financialization,neoclassical economics, accounting research

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The Fed and Bankruptcy

Posted on November 21, 2010. Filed under: Uncategorized |

Alex & Tyler at MR are discussing the Fed, but missing the point.

First, Long Term Capital Management.  Should have been allowed to go bankrupt. A key gov’t job in a market system is to Enforce Contracts, including, under Rule of Law, creating a reasonable amount of justice when one side FAILS to fulfill their contractual obligations. Not having bankruptcy law available and usable for LTCM was a gov’t failure — not preparing one after the 1998 bailout is inexcusable.

I do believe that the USA financial system would have been better without a Fed (Alex is right!)– but even more firmly believe this cannot be proven, and that the political desire to have influence over an institution with the power of the Fed will dominate any Ron Paul ideal of a Free Banking world (Tyler’s conclusion is the 99.9% probable result for the next 20 years).  Heck, we are unlikely to even take the baby step of allowing competing currencies.

Besides allowing war by the gov’t, the Fed also pretty much insures that the super-rich can stay that way, and socialize any Big Losses that their risky behavior creates, rather than lose it <i>en masse</i>.

Because the Fed is gov’t, it learns more slowly then the rich would learn w/o the Fed. If we, the people, are gonna be stuck with a Fed, we MR folk would be more productive to push for overall better monetary policy.  But economists can’t even agree on what the definition of money is, much less the optimal policy.

CPI inflation measures aren’t considered clear facts about inflation, either,  there is a not-well defined money to be controlled by the Fed to maintain a not fully defined inflation/ price level.

Even with a Fed, we need better bankruptcy laws to allow the Big Banks to go belly up.  We need better rating agencies, perhaps to be expanded as more insurance, too, and if we can’t have Free Rating agencies, which we don’t have now, it’s silly to believe in Free Banking.  (Even without reading the article in favor of it.)

An obvious PR problem is that the relaxation of prior banking restrictions, “freeing up the banks”, certainly did contribute to the current crisis.  To actually de-regulate will require taking specific steps, but with respect to the Fed, I’m not reading here much in the way of “small steps toward a much better world”.

So Alex, Tyler, what policy changes do you actually recommend?  Whether or not you believe the case for a Fed is weak, what laws should be changed now?

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From WW II to World Peace

Posted on November 21, 2010. Filed under: Uncategorized |

The road to World Peace is thru Human Rights, Free Press, Free Religion Democracy (that is successful in peacefully changing leaders), Rule of Law that applies to the poor AND the rich and powerful, and Limited Government.
A world without dictators.  But Obama thinks those in Iran who oppose their dictators are undeserving of much support.  Those in Russia who dare oppose Putin are beaten up, or murdered, or tried for tax evasion if rich and almost certainly guilty like all rich in Russia, but only those who oppose Putin are tried.
Putin is not now, and has never been, the friend of democracy or human rights. Neither are the mullahs in Iran.  But leaders of both countries support nearly unlimited gov’t, and it seems that Obama does, as well.
Japan, and (West) Germany suffered defeat, unconditional surrender to the USA/ allies (including Stalin), and were rebuilt with limited governments.  The US should not be fighting unless unconditional surrender of the enemy is the goal.
But in the rebuilding, nation building a Free country, the US needs to be more honest that we don’t know how to do it well.  My own suggestion is to go more towards a Swiss Confederation of cantons / city states, with limited military, and quite limited gov’t.  The idea of freedom, like earlier community organizing, is to empower local people to have the means of, peacefully, solving their own most pressing problems, in accordance with the limited resources.  A budget.  Such a model would be better for Iraq & Baghdad, and especially Afghanistan.  Who is the Swiss President?  Who cares, has little power … Yet the Swiss are among the most economically successful, and peaceful, folk in Europe.
Community organizing in America has degenerated into creation of victim lobbies demanding cash from outside.  Foreign Aid has degenerated into supporting paperwork projects which seldom help poor people, but provide very comfy lives to the bureaucrats who are good at the paperwork.

(via Belmont Club, whom I have long been reading.  A great WW II view of the Japanese Surrender.)

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Racist Democratic Party – never equal treatment

Posted on November 20, 2010. Filed under: Uncategorized |

For 100 years after the Civil War, won by Republican Lincoln’s generals, the Democratic Party in the South was anti-black.  It was successful Dems in office that produced the terrible Jim Crow laws.

They believed that blacks were inferior/ whites better, so that it was acceptable to treat blacks differently, and worse.  The Republicans, more oriented towards individuals, were always mildly against this Dem racism.  In the Civil Rights Act of 1964, here are the votes:

Civil Rights Act of 1964 – Vote statistics

Vote totals:

  • The Original House Version: 290-130
  • The Senate Version: 73-27
  • The Senate Version, as voted on by the House: 289-126

By Party: The Original House Version:

The Senate Version:

  • Democratic Party: 46-22
  • Republican Party: 27-6

The Senate Version, voted on by the House:

  • Democratic Party: 153-91
  • Republican Party: 136-35

By Party and Region:

The Original House Version:

  • Southern Democrats: 7-87
  • Southern Republicans: 0-10
  • Northern Democrats: 145-9
  • Northern Republicans: 138-24

The Senate Version:

  • Southern Democrats: 1-21
  • Southern Republicans: 0-1
  • Northern Democrats: 46-1
  • Northern Republicans: 27-5
"The Congressional Quarterly of June 26, 1964 recorded that in the
Senate, only 69 percent of Democrats (46 for, 21 against) voted for
the Civil Rights Act as compared to 82 percent of Republicans (27 for,
6 against). All southern Democratic senators voted against the act.
[...]  In the House of Representatives, 61 percent of Democrats (152
for, 96 against) voted for the Civil Rights Act; 92 of the 103
Southern Democrats voted against it. Among Republicans, 80 percent
(138 for, 34 against) voted for it." link

These totals primarily show the anti-black racism of the Dems.  “Because blacks are inferior, the society is allowed to treat them worse,” seems the ideology.

Today, it seems there has been a huge change.  But not in the inferiority issue, instead on what it means.  Today, PC Democrats demand that “victims should be treated better by society than non-victims”.  And, “blacks have been victims of whites.”  Thus, the PC Dems demand that “black victims should be treated better by society than whites.”

It’s almost as if the Dems now think, “because blacks are inferior, we need to treat them better.”  No change in the superiority racism of group identity politics, but a big change in what it means.  Under Jim Crow, inferiority meant worse treatment.  Under Dem PC, inferiority means victimhood, means better treatment.  In no case do the Dems believe in equal treatment.

While the racist Dems still seem to believe that blacks are inferior — they are not allowed to speak this, nor allow anybody else to speak it.  “Being a victim” replaces “being inferior” as a reason to treat groups differently.  Affirmative Action, which can also be called Affirmative Racism.  Unequal treatment.

Republicans are generally against group rights and identity politics OTHER than legal Americans being different than non-Americans.  The vast majority of Reps want to follow ML King’s ideal of judging each human as person based on their individual characteristics, not their group identities.

I know I do.  I’ve been reading a lot of Ta-Nehisi Coates (The Atlantic, a thinking Leftist), so have been thinking about this more.

Republicans are generally against group identity / different treatment.

Negrophilia – From Slave Block to Pedastal, is also making me think, review.

With black Obama in the White House, maybe we can begin to dismantle the Affirmative Racism which has been stealing accountability from so much of the black community.  They need self respect, which cannot be given by gov’t programs.

Better work habits would be good too, but that’s true of most people, including me.

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Dems violate law to delay Financial Crisis report

Posted on November 18, 2010. Filed under: Politics | Tags: , |

The majority Dems in control of the Financial Crisis Inquiry Commission (“FCIC”) voted to violate the law, and delay their report.

FCIC Media Release. (HT Keith Hennessey, at Stanford!)

The Reps voted to obey the law and deliver a report on time, noting the delay seemed to be in order to release it at the same time as a book about it.

4 Reps Media Release.

For Dems, laws & deadlines are for the little people.

Of course, part of the reason for the crisis was that big rich companies were illiquid, and possibly insolvent, and they were “required by law” to pay certain obligations on time.  Payment on time, following the laws … this is how civilizations are successfully built.  And not following the laws is how they crumble.

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50% Tax Credit on house payment to replace MID

Posted on November 18, 2010. Filed under: Uncategorized |

To reduce the housing problem the best policy is Tax Credits.

The Interest Deduction Housing bubble
A well-known, and middle class beloved feature of the US income tax code is that house Mortgage Interest is Deductible (the MID). Thus, a $2000/ month payment which is $1900 interest, at a 30% tax rate, means an offsetting tax reduction of $570, for an effective net house buying cost of only $1430. If the tax rate is only 20%, the deduction is only $380/ month.

As US house prices generally increased from the Volker-Reagan recovery of 1984, there was always an incentive to keep the interest portion of the mortgage payment high, so that more of it was deducted. This was both in selling then buying, or flipping, and also in re-financing with equity loans – that convert the equity which was paid for and from appreciation into loan, and especially interest payment. So that it’s deductible.

Instead, there should be some percentage of house payment, both interest and principal, that qualifies for a tax credit. If it was a 30% credit above, the tax credit would be $600. But, unlike the interest deduction, this credit would continue even as the payment shifts in time from interest to more principal – and it is the principal payments that build up the equity. Clearly a flat % tax credit is better for middle and lower class, than a deduction where the rich in the highest bracket get the most benefit.

There should also be a lifetime maximum on how much tax credit can be granted. With median taxpayer income of about $40k per year, a good lifetime maximum of about 10 midian tax years ($400k) would be good , to limit the total benefit, and reduce the speculator investment reasons for house flipping. Creating a formula for adjustment now, allows the natural growth of income to lead to an increase in the lifetime benefit.

In the current popped-housing bubble economy, a huge 50% tax credit should be enacted, with a $20k / yr maximum credit ($40k in house payments, or 100% of prior year’s median taxable income), so as to immediately benefit those making house payments, and give bankers some relief through fewer foreclosures because buyers can afford more after-tax house payments. This high 50% credit rate could be slowly reduced towards the “normal” 30% range, as the prior year’s unemployment drops from 8.0 % to 6.0%. Those 20 steps of 0.1% each should be a full 1% drop on the credit rate, in the following year, to be adjusted yearly.

Summary:
1) Tax credit instead of deduction, start at 50%
2) Credit on both interest and principal
3) Lifetime maximum, 10 years of median taxable income (now about $400k)
4) Yearly maximum credit of half the median taxable income (now about $20k)
5) Slowly reduce the credit, as the unemployment rate comes down, with a final target rate of 30%. The credit rate reduction could begin decreasing when unemployment is less than 8%.

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Gerrymander 201- maximize compactness

Posted on November 11, 2010. Filed under: Politics |

Best explanation of the redistricting problem I’ve seen is Zombie’s Gerrymander 1.01.  Thanks.

For the problem,  he has no solution.  I do.

Every state will have to have contiguous, roughly equal sized population districts.
What is needed is an objective measure of “compactness”.

Here it is: miles of district border.

Linear Programing Problem: minimize the “total” number of miles of district borders, under population constraints.
Proposed rule: Have a prize, of $1,000,000, to the first person or organization which submits the Best redistricting plan for the state, based on the official 2010 Census  population numbers.

Each district must be contiguous.

There will be an average number of people per district, of AvP. The maximum difference between a district’s P and AvP is 4% (plus or minus).  Each population absolute difference is also counted as a (+) mile for the objective minimization.
Additional border modifications to reduce counted miles:

District Borders which are on a county border are discounted at 50%.

Borders on a city border are discounted at 50% (or an added 10% discount to a county border).

Borders on a school district border are discounted at 20% (or an added 5% to county or city border).

Each contestant shall produce the full map of the districts, with the populations, miles,  and discounts, itemized for each district.

Because the Republicans are a majority, getting it right and fair, now, is more important than majority domination now.  Tho, if done at Federal level, too — it can be a requirement for any state (like NY or CA?) that comes asking for Fed $ for bailout.
If the Feds have the cash that (blue?) states need … let them change (for the better) to get it.

There’s also a good ReDistricting Game available at USC.

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Tax Cuts, Tax Holidays, Tax Loans

Posted on November 10, 2010. Filed under: Uncategorized |

The Bush Tax cuts were actually a very long tax holiday, a temporary reduction in taxes.  Had they expired in 2005 (or 2004?), they probably would have crashed the housing market sooner, but at far less total cost.

Republicans should favor tax cuts.  All of them.

Also tax holidays, all.

And, my own idea, Reps should promote counter-cyclical Tax Loans.

Where taxpayers borrow their own tax payments today, to be repaid with Fed prime interest, in the future.

Instead of sending the IRS money, companies and individuals would send the IRS a form  to borrow up to 100% of the tax owed.  To be repaid in 4 years, starting after a 1 year grace period of interest only payments.

Thus, more taxpayers could have more disposable/ investable money now, while the full business cycle deficit doesn’t get worse because this tax loan money will be repaid.

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