Wednesday, August 31, 2011

And God Said: "Let Me Entertain You"

One model for the reinvigoration of the independent sector in the provision of compassionate activities is the so-called public/non-profit partnership. (If you are asking how a non-profit can receive taxpayer funds and still be independent, then you've got an idea of where I am going). This report from the Washington Times out of (where else) Washington, D.C. shows why this half fish/half fowl program model can be a very bad idea.

Thursday, August 25, 2011

Just For Fun

Which NFL team should I root for? I've seen this on several sites, but this one on NRO has the best resolution. The listed author is "Interpretation By Design" and it is very, very funny. I am slammed. Right out of the gate: Do People Already Hate You? Yes. Then you're a Cowboys fan. To get to Doug's favorite Chicago Bears you have to go through about 20 nodes.

Steve Jobs the Entrepreneur

What a great article by Nick Schulz in NRO on Steve Jobs and the role of an entrepreneur. Schumpeter could not have written this any better himself.

Tuesday, August 23, 2011

Warren Buffett, Math Genius

Let's hear it for Lawyer Richard Epstein who unlocks the secret of algebra for Billionaire Warren Buffett, who believes that, having reached the deck of the luxury liner, it's time to pull up the ladder for everyone else trying to get there by making them pay higher taxes. (Buffett himself could always write a check to the U.S. Treasury to sooth his own social conscience).

Here is Buffett's argument:

"In 1992, the top 400 [tax filers] had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent."

Here's the algebra:

1992 ) .292 * 16.9 billion = 4.93 billion paid in taxes

2008 ) .215 * 90.9 billion = 19.54 billion paid in taxes

What Epstein didn't do is to adjust for inflation, which my quick calculation of the CPI shows that, even in inflation adjusted terms, the 400 top filers paid 12.53 billion in "real 1992" taxes in 2008 compared to 4.93 billion in taxes in 1992. So, while lowering the tax rates we more than doubled the tax collections from wealthy Americans. Buffett's argument, both explicitly and implicitly, is that these two things have nothing to do with one another. In other words, Warren Buffett believes that there is zero response in anyone's behavior due to after-tax returns.

And, to repeat, if Warren Buffett believes that he is underpaying for the services and/or satisfaction he receives from the federal government at the current tax rates, by all means let him write a check to the U.S. Treasury. The instructions on how to do so are here. Now, Doug and I have research which shows that people look upon taxes as a group commitment device. But, as one of America's wealthiest men, does Buffett really need to know that all of the little people of the world are falling into line before he steps forward and takes the lead on helping to do whatever it is that his increasing the federal general Treasury receipts will do? (Of course, Epstein's argument is essentially that following Buffett's prescription about raising tax rates may actually lower tax receipts anyway).

Can someone be as successful as Warren Buffett and NOT understand this basic math? It should not go without comment that Buffett's Berkshire-Hathaway's business lines are likely to increase in profits if there are expansions in things like life insurance, tax-deferred annuities, and municipal bonds, time-tested ways by which wealthy people avoid paying more taxes from higher (estate tax and marginal income tax) rates. The link in the previous sentence shows that B-H explicitly markets their products with an eye to helping customers legally reduce the taxes they pay to Uncle Sam. Maybe Buffett is a math genius after all.

Notice also that the first part of Epstein's article is a critique of Pope Benedict's economic comments. I plan to talk more about that in a later post.

Hat Tip to Andrew Stuttaford at NRO for the tip on Epstein's article.

Sunday, August 21, 2011

I Thod I Saw a Puddy Cat! Sufferin Succotash. No One Here But Us Federal Bureaucratttsh.

This story has been bouncing around the internet for several days on many other blogs. I wanted to post a link also, but it was so outrageous that I assumed it would be exposed an an Onion myth or something. Alas, as CBS, the heirs to Walter Cronkite (if not also Dan Rather) have confirmed the story, I guess there must be some truth. So, in case you have not already heard it, here is the story of the young environmentalist schoolgirl who was mugged by the reality of "a woman" from the U.S. Fish and Wildlife Service. Why is this stopping with a vague apology of a "clerical error" of "processing" by the USFWS? It would never have been "processed" if the federal agent hadn't reported the little girl in the first place. It seems to me that bowing, scraping, and groveling in person by the unnamed agent is a more appropriate closure.

Hat tip to: numerous bloggers who have been on top of this story, especially Mark Steyn.

Friday, August 19, 2011

Wise as Serpents: The Movie

Not really. But Wise as Serpents, the book, by Brad Hansen, Mark Isaac, and Doug Norton is now available on Kindle for only $1.99. We think it can be a great resources for highschool and/or college study groups wishing to establish both a Christian foundation for an analysis of economic questions, and an economics foundation to inform discussion of policy based upon Biblical justice.

Friday Posts: Spanish Jobs Program Bombs, so Does American*

Doug and I were at one of the first conferences in which an academic report (Calzada et al.) on the bursting of the Spanish "Green Jobs Bubble" was presented, and we've been using the results in our Economics of Sustainability class. I don't know what effect that evidence has had on American students with an initial inclination to follow the Spanish model. (Full disclosure: I recently bought a set of solar garden lights, and so far I am very happy with them).

But, the transferability to the U.S. of the problems with promoting "green" technology as fundamentally a "jobs" program is now evident, as these three media articles from this week demonstrate: my previous post from Seattle on their cash for caulkers program, this from the Boston Herald on the bankruptcy of a "star" Massachusetts solar firm, and even this from the New York Times . Venture capital firms constantly make guesses about which firms are making new products or offering new services that are going to have profitable markets. Many, many times those start-up firms fail to pan-out. That's the nature of the business, but the risks are absorbed for the small chance of investing in the next Apple or Facebook. Survival for a VC firm will include having staff with a good nose for good investments and, as Alchian so famously pointed out in the 1950's, good or bad luck. We need to fundamentally rethink the models, popular with both "liberal" and "conservative" politicians, of the government acting like a venture capital firm: what works, what are the costs and distortions, and what is the ultimate goal? ("Number of jobs" is not necessarily a good indicator of long term success,as the Spanish bubble demonstrated).

*Hat tip to Hotair on the New York Times article. And, yes, the title is a musical reference.

Tuesday, August 16, 2011

Ah, That Stimulating Cup of Seattle Juice, Leaking Out of the Bucket All Over The Pavement.

According to KOMO News in Seattle, on Earth Day "last year" (so I'm assuming that's April 22, 2010) Seattle received a $20 federal million weatherization("cash for caulkers") grant that was supposed to retrofit 2,000 homes and create 2,000 "green jobs." Sixteen months later, a grand total of 3 homes have been retrofitted and 14 (mostly administrative, not construction) jobs have been "created" --- I put that in quotes because it assumes no job loss from the taxes and borrowing that funded the $20 million. Now that's a "leaky bucket."

As President Obama says, he was shocked to discover that there is no longer any such thing as a "shovel ready" project. This is a serious macroeconomic problem, because it calls into question a most basic, practical level the usefulness of macroeconomic counter-cyclical (Keynesian) stimulus programs. In other words, even if Keynes was correct in his underlying formal theory, if the environmental impact statements and labor and wage studies and so forth make it impossible to time counter-cyclical stimulus correctly, then it doesn't matter how correct Keynes' theory is/was, it's not going to work in practice. That's why I was in favor of the idea that if the Administration was going to try a Keynesian stimulus, it should have addressed this problem head on, by a decree of an economic emergency that would have suspended many barriers to shovel-readiness.

Hap Tip to Drudge.

Friday, August 12, 2011

Friday Link: Taking it in the Shorts

My link for Friday is this Bloomberg discussion about several European countries banning short selling in their stock markets. "Unintended consequences" is only the beginning of a discussion of why this is a bad idea (and note that the topic of "unintended consequences" is discussed explicitly in the article). How about: "May have the exact opposite effect as intended." Or, as I read yesterday, (and I apologize for not writing down the author of the quote), "This is like unhooking your heart monitor because you don't want to hear bad news."

Saturday, August 6, 2011

BPD, West Virginia

There is one area in which I am in partial sympathy with the late Senator Robert Byrd. I believe that the federal government is too concentrated in Washington, D.C. For example, I find the idea that the National Museum of the American Indian is in Washington, DC not only an example of more wealth transfer to an area simply because it exercises political power, but also bordering on the insulting given the atrocities inflicted on Native Americans from Washington, D.C.. I actually find it refreshing when some important functions, such as the Centers for Disease Control, are located elsewhere (CDC is in Atlanta).

On the other hand, the late Senator Robert Byrd's lifetime challenge seems to have been to move as much of the federal government as he could get away with to West Virginia. (In this he simply followed in the great tradition of Lyndon Johnson who tried to move as much of the federal government to Texas as he could get away with.)

I remember a complicated legal question I had for the IRS a few years ago, and I was told "Oh, you need to talk to our office in West Virginia." Well, you remember all the brouhaha we've been having recently over our public debt. What I didn't know until I read an article by Mark Steyn and double checked it in an archived article in TIME, is that the U S Bureau of the Public Debt is located in...West Virginia. So if the US ever defaults on our public debt, does that mean that all of those Chinese and European creditors will have to stand in a line waiting for West Virginia? That will have to be good for their hotel, motel, and restaurant business. Somewhere, Robert Byrd is smiling (something he actually didn't do very much when he was alive).

Friday, August 5, 2011

Friday Links

Here are my two choices for the week:

Selling Lemonade Is Not A Crime. I agree wholeheartedly, but let's admit that there are lines to be drawn. Many homeowners agree to property covenants that they will not operate a business out of their residence. If Junior is 24 and operating a lunch wagon on the front yard, then there's probably an enforcement issue.

Tax Holidays Are A Bad Idea: Unintended consequences, unintended consequences, unintend.....

Thursday, August 4, 2011

As Belgium Waffles....

As I am writing this at the closing bell, the Dow Jones Industrial average has dropped over 500 points (over 4 % of value) today. The talk is not a lot about what is going on in the U.S. (although the July Unemployment numbers come out tomorrow) but rather what is going on in Europe. Why should our markets be so nervous? Why should we care that the Wall Street Journal reported today U.K. regulators' interest in Belgian debt, in addition to the known problems of Greece, Ireland, Spain, and Italy. I ask you, when was the last time you had a thought about Belgium one way or another (and I don't count Belgian waffles)?

Tuesday, August 2, 2011

Good. Food.

Doug and I have been involved in a lot of recent discussions about the Lord's Supper (Communion, the Eucharist). For those of you who would like to read a very well written discussion of the Reformed view of Communion (which, as the author points out, turned out to be in many ways similar to the Orthodox view), I invite you to read this fine article.

Johnny, We Hardly Knew Ye?

There are several media reports (I got mine from Rich Lowry) that Sen. Richard Durbin (D- IL) is saying that with the passage of the compromise agreement on the debt ceiling, we are witnessing "the final internment of John Maynard Keynes." As an economist, I wonder if that's true? If so, why? And, to what effect?

Are we witnessing the death of Keynes own formidable intellectual legacy? I don't think so. The death of naive post-war Keynesianism? That died during the simultaneous inflation/recessions of the 1970s. Perhaps we are witnessing the death of the facility with which those who politically favor more and more government central planning of the economy can merge Keynesian-like economic arguments with their own political agendas. But if that died, it died several weeks and months ago, as it became clear that the massive ratcheting up of the trajectory of federal spending (and with it the federal debt) has failed to solve the nation's current economic problems.

Don't take this that I am an enemy of Keynes. I'm not a macroeconomist by research field, by I teach it in principles courses and I have to keep a straight face when I discuss other economic theories that try to explain-away the disaster and misery that were the Great Depression of the 1930s. Keynes at least recognized that something was amiss.

I also think that the first Keynes versus Hayek "rap" video was fun, but I kind of wish that the creators would put it to rest. Economics shouldn't be about (although it sometimes is) some kind of zero-sum smackdown in the schoolyard at recess. It seems to me, as an outsider with no skin in the macroeconomics theory game, that there are more similarities between Keynes and Hayek that might be realized. I hear both Keynesians and Austrians talking about asset bubbles, for example. Keynes famously referred to "animal spirits". Schumpeter highlighted the crucial role of entrepreneurs. Neither Keynesians nor Austrians are fans of the static, soul-less, microeconomics of equilibrium price theory. I am sure there are others. The point is, Keynesianism may indeed be dying, but I wouldn't count out that dead scribbler John Maynard Keynes, at least not yet.

Monday, August 1, 2011


When the Collective Bargaining Agreement (CBA) for the NFL was completed the pulse of Sports Talk radio spiked and excited fans like me tuned in to hear all the latest news. Now, I am ready for the season to start and I'm tired of hearing whether people are satisfied/dissatisfied with their team's brief off-season acquisitions and cuts. But, perhaps what I was most dissatisfied about were the numerous comparisons between the NFL and Players Association and the debt ceiling negotiations. The latter is about the future landscape of the United States in almost all imaginable ways, while the former is about a sport (albeit a beloved one) and how to divide a pie.

This morning when I pocketed my iPhone, the news alert box reported a debt ceiling agreement (still needs to be passed). The bill was not beloved amongst everyone. Democratic House Member Emanuel Cleaver called the deal a "sugar-coated Satan sandwich", and, while Republican House Members have not provided quotes quite as memorable many of them are also dissatisfied. But, the Wall Street Journal reported this morning that this was perhaps the greatest victory for conservatives since the 1996 Welfare Reform.  This was a compromise that does not solve all the problems instead it kicks the ball in the conservative direction to be determined later. The bill still leaves open a number of political strategies for both parties to exhaust in the upcoming 2012 elections. Meanwhile, those elections will determine whether the American people have more appetite for conservative reforms. 

As mentioned earlier, these are more than standard negotiations. The United States is at a turning point in history where it will decide whether to adopt large government that wields panels of experts slated to solve all our problems or a smaller government that allows people to select into and exit from specific governance communities based on how well those people solve problems. Like Charles Krauthammer wrote in a recent National Review article,

We’re only at the midpoint. Obama won a great victory in 2008 that he took as a mandate to transform America toward European-style social democracy. The subsequent counterrevolution delivered to that project a staggering rebuke in November 2010. Under our incremental system, however, a rebuke delivered is not a mandate conferred. That awaits definitive resolution, the rubber match of November 2012.

Like the sports radio soon I will be tired of reading and listening to these discussions. For now, I read about them, knowing that next November will go a long way to determining the future of our country.