Thursday, June 26, 2008

Off to Montana!

Enough of this wet Iowa landscape. I'm taking off next for Montana, land of high prairies, snow-covered mountains, big grizzlies, and slow internet connections.

Well, we actually do have high speed connections, but I will likely have only sporadic access. And so dear readers (reader?) (Nat?) (anyone there?) my posting may be sporadic for the next month. But never doubt I'll return.

Best to all, and back soon!

(Photo: Pushups at 10,000 feet. Mats Roing & Charles Steele, Spanish Peaks, MT, July 2007. Faithful lab Dushka in foreground puzzles over this stunt.)


The best news I’ve heard in a long time!

The Supreme Court has issued its ruling in District of Columbia et al. v. Heller, and affirmed that the Second Amendment indeed protects an individual right to keep and bear arms. This is a very important result. The most fundamental individual rights are those of life, liberty and property, including the ability to protect them. This decision effectively overturns Federal bans on private ownership of firearms, and will make it much more difficult for the Federal, state, and local governments to disarm and oppress us. The majority opinion is extremely informative and well worth reading.

Self-defense is both a natural right and a responsibility. As I’ve noted before, no one is entitled to police protection by law. (I quoted Justice Stevens on this, and his point was noncontroversial. See the 5 June 2005 post on Castle Rock v. Gonzales.) The responsibility for self defense falls on the citizens, as it should. And government has no just power to prevent us from doing so.

It’s hard to understand the opposing view that holds that the Second Amendment guarantees the government the "right" to arm itself, "mad hatter logic" as the majority puts it. But this important decision comes none too soon, given that we are likely soon to have a Congress brim-full of mad hatters.

So, three cheers for the majority! And more importantly, heartfelt thank yous to Heller, Levy, Tom Palmer, and the other champions of liberty who took this case to the Supreme Court.

Tuesday, June 24, 2008

Economic illiterate attacks economics

From the man who admitted "I know a lot less about economics than I do about military or foreign policy issues. I still need to be educated." From the man who recently called for interest rates of zero percent. Now, an inane and factually incorrect attack on economists and economics:

"You know the economists? They're the same ones that didn't predict this housing crisis we're in. They're the same ones that didn't predict the dot-com meltdown. They're the same ones that didn't predict the inflation that's staring us in the face today."

This is simply militant ignorance. Economists warned of the dot-com bubble. Economists warned of the housing bubble before subprime mortgages became the preferred vehicle for promoting the mania. And economists have been warning of inflation for some time.

The U.S., and particularly Congress, has simply ignored sound economics, and the country is now plunging headlong into a financial and monetary debacle. Economics is what is needed, not econ bashing. McCain is an economic illiterate, and utterly unfit for any public office, and particularly the Presidency.

Does he want predictions? I predict this dunce won't win. (Election fraud doesn't count.)

But as I already predicted, he's back in the race for political excellence!

Sunday, June 22, 2008

Excellence in Politics!

As this poor Iowa pig swims for its life* in the recent floods, our two presidential candidates are revealing hidden political genius.

Senators Obama and McCain have both managed to find ways to blame each other for the Midwest flooding. Obama managed to take a particularly cheap shot with "I know that Sen. McCain felt as strongly as I did, feeling enormous sympathy for the victims of the recent flooding. I'm sure they appreciated the sentiment, but they probably would have appreciated it even more if Sen. McCain hadn't opposed legislation to fund levees and flood control programs, which he considers pork."

The McCain campaign, in turn, pointed out that McCain had in fact sponsored an amendment to the water projects bill that would have actually allocated the funds involved to levee construction, instead of to such things as beach restoration, conservation projects in the Florida Everglades, and similar, umm, pork. Obama voted against the amendment, which was defeated.

As it happens, neither man need feel guilty about having caused the flood. The water projects bill itself was passed, over George W.’s veto, and thus the Federal government eliminated flooding in the Midwest forever.

In his little talk, Obama went on to promise increased spending on, well, just about everything; and also proposed a new federal bureaucrat to help reduce red tape. So I think it’s clear that Obama has won this round of the "Excellence in Politics" game...pork, pork, and more pork, plus more government to help reduce the problems of too much government. McCain will really have to work to top this. (I’m sure he’s up to it, he has experience!)

* Note: the piglet in the photo is actually not escaping the Iowa floods; it is a competitor in the swim race at the annual International Pig Olympics in Moscow. Правда! Had I realized Russia had a Sport-Pig Federation, I would never have left!

Friday, June 20, 2008

Julian Simon’s Virtuous Cycle: the good news and the bad news

Why don’t we run out of resources? The late Julian Simon had several theoretical explanations for why finite natural resources are not, in the long run, a binding constraint on economic growth. One of the most important pieces of the explanation was his account of the "virtuous cycle." It works like this:

Suppose there is a fixed physical amount of some important material. Suppose also that per capita income grows, as does population. We would expect that this would begin to drive up the price of the material, which in turn would depress economic growth.

The result?

The higher price discourages consumption of the material, and thus slows the rate of depletion, but more importantly, the higher the price the more intense the search for substitutes, alternatives, and technical improvements that allow more services to be obtained from a given quantity of the material. As Simon pointed out, historically this search consistently generates knowledge and innovation that leaves us wealthier than if the problem had never been encountered. The end result is a virtuous cycle that drives economic growth. And furthermore, because there are increasing returns to knowledge, this process becomes stronger with higher levels of development.

This cycle makes theoretical sense, and empirically it’s a fundamental factor in historical economic growth. Now let’s apply it to oil.

Prices of crude oil have been sharply increasing throughout this decade. Economic growth, especially in Asia, is the fundamental factor. James Hamilton (Econobrowser) has some interesting figures suggesting that this has only begun. Most notably, oil demand in China grew 7.2% annually from 1990 to 2006, and in 2006, the Chinese consumed 2 barrels of oil per person. Contrast this with the average Mexican’s 6.6 barrels, or the average American’s 25, and it’s obvious that there’s enormous scope for growth in demand. We may debate peak oil and similar supply constraint theories (I’m doubtful), but the near certainty of sharply increasing world demand mean that prices will continue to rise. Even with optimistic projections for new oil sources, demand will grow faster than supply, and price will rise.

But while increasing scarcity isn’t good news, Simon’s cycle suggests it’s not a crisis, either. High prices are a central factor that will drive a rational switch to non-carbon energy sources. And over the longer haul, we ought to be better off for it.

That’s the good news.

So what was the downside? Consider that governments everywhere are working to interfere with prices, not by increasing supply or reducing demand, but by directly interfering with prices, as well as energy marketing decisions. For example, in the United States, members of Congress have suggested price ceilings, windfall profit taxes, excise tax cuts, drilling ANWR, increases in the Strategic Petroleum Reserve, decreases in the Strategic Petroleum Reserve, suing OPEC, nationalizing American oil companies, and who knows what else, all with the avowed intention of reducing prices. Some of the proposed actions might make sense in themselves, but many are utterly insane. But in all cases, the fixation on reducing prices is completely misplaced. Congress is not going to be able to restrict world demand. And let the French fishermen, British truckers, and their ilk strike all they want, neither will the French or U.K. governments, nor the E.U. for that matter. High prices for oil are a certainty. (One of the great ironies in all this is that at the same time the public and pols are clamoring for lower prices, many of the same are also calling for reduced oil consumption, for a variety of environmental, economic, and political reasons.)

The only choice we have is how we will respond to higher prices. We can either let them alone, and allow people to respond entrepreneurially, unleashing Simon’s virtuous cycle, or we can let governments take command, and attempt to eliminate scarcity by legislation and decree through political processes. This latter approach won't work, and will make the adjustment to economic realities much more difficult. Unfortunately, I can’t name a powerful politician today who doesn’t favor this latter approach.

And that’s the bad news.

(Oil barrel gif from Hisland Oil and Gas)

Thursday, June 19, 2008

Economic Incompetence in High Places

Oh no. The Department of Commerce just released figures for retail sales for this year. Commerce Secretary Carlos Gutierrez and others are crowing about the success of the rebate stimulus in warding off recession.

But why? Take a look at the actual release. Notice anything? How about the lack of adjustment for price changes? (Note the latest PPI figures show a substantial jump for May.) How about gasoline retailers sales leading the way? How about the .90 confidence interval being compatible with half as much increase? It isn’t clear that the permanent income hypothesis is falsified by these data.

But more importantly, suppose the preliminary results are correct and actually show an increase in consumption. Would such a jump in consumer spending be a good thing? Consumers are already overextended, with heavy debt loads and low saving rates. Add to this the likelihood that housing prices will continue to fall, further worsening the position of the average household. To the extent that the additional spending is simply consumers contending with higher prices for food and fuel, it’s difficult to understand what’s good about this. And if the additional spending is simply increased consumption, paid for by more federal borrowing, then it’s positively destructive. We’re consuming capital. Either way, there’s nothing here that warrants a sigh of relief. We are dealing with the consequences of an unsustainable credit bubble. The rebate is simply more of this - the Federal government borrows to finance increased spending. Such "stimulus" is what got us into this mess in the first place. OK, Mr. Bernanke has better access to data than I do...maybe he knows something I don’t, and he really is bringing us a nice soft landing. I don’t have any reason to believe this, but am always ready to acknowledge that the unforeseen lurks.

But scarier is the longer term outlook. For the Federal government, the current financial position is terrible. And unfortunately, it is likely to worsen, not improve. Neither presidential candidate has any sort of serious proposal for addressing the growing debt, and either one would be more likely to make it worse than better. As for Congress, the Democrats are almost certain to make further gains in the House, and probably in Senate, and it’s likely they’ll take the opportunity to increase health care entitlements and other spending, drastically, if they can. And we’ve already seen that the Republicans are worthless when it comes to controlling spending. And Bernanke and similar "experts" are utterly lost on this bigger problem.

It’s not that our problems are inherently unsolvable. It’s rather that economic competence, or just plain good sense, seems increasingly scarce in high places. "What to do about high energy prices? Why, impose a ‘windfall profits tax,’ that’ll make ‘em give us cheaper oil!" "Health care insurance too expensive? Hey, let’s put the federal government in charge! With its proven record of cost cutting, things’ll be fine in no time!" "Asset bubbles out of control? Better give the Fed even more power." "And don’t forget the important role of ethanol in saving our energy economy!" "And when in doubt, spend, spend, spend!"

It’s not a nice situation. Here’s hoping that there are lots of pleasant unforeseen contingencies I’ve missed that will obviate all this. But in the meantime, well, it’s depressing to see the incompetence at work.

Sunday, June 15, 2008

Barack Obama on Father’s Day

Every time I prepare to say something bad about Barack Obama, he goes and says something like this.

Unforeseen Contingencies on Father’s Day

Time out for one of those rare personal posts.

My father died on 23 April of this year. It was sudden and unexpected, but not a surprise. He was quite elderly, and while in excellent shape, he had an aneurism that we all knew would eventually do him in. He’d lived with it for something like 15 years; the surgeons said they could fix it, but he such had a difficult time recovering from even minor surgery that he and my mother both guessed that he would not survive the surgery. And so they chose to do nothing - a good choice, as he lived well beyond his life expectancy. When he died, it was very fast. He suddenly collapsed, and it was over in less than an hour. As he lay dying, he and my mother reaffirmed their love for each other, and then, true to form, he began cracking jokes about the situation.

So this is the first Father’s Day I’ve experienced without being able to at least telephone my father. I’m thinking of him, of course, and this has me reflecting on what I learned from him. There are many things I could say, but one thing is always foremost on my mind. My father was an M.D., and from the very earliest, even before I was in school, I remember meeting people who would say to me "little boy, did you know your father saved my life?" It was no joke; they were serious. Dad was an otorhinolaryngologist (ear, nose, and throat specialist) was frequently called to the emergency room for a serious bleeding or breathing problem. I grew up thinking that is was normal for my father to occasionally save someone (and also knowing that he wasn’t always successful). Even at his funeral, a woman came up to me, crying, and told me her son apologized for not being able to come, and then told me a gripping story how many years before, her son had been in the ER, and his regular doctor had given up on trying to save him. My father was called, performed a tracheotomy, and, and as she put it "saved my son, and our family. We didn't realize how close it was at the time; your father came and talked with us after the operation and said everything was fine. It was only later we learned how close it had been."

What did I learn from all this? I grew up thinking it was normal to try to make things better than you find them, and that it is possible to accomplish rather remarkable things. I also had the highest appreciation for knowledge, and for ability. These things remain with me.

I cannot resist lapsing into an economics lesson: A number of us have lost our fathers. But what they’ve given us lives on. I hope for my readers that it’s good. The thing we should all do is take the good, and build on it. Anything bad, let it go by the wayside. This is the fundamental engine of economic growth, the intergenerational acquisition of capital, human and otherwise, but especially human. Never mind the mischief and damage perpetrated by our leaders. Our job is to build on the legacy we’ve received, from our parents, and their parents, and from others, and make the world better than it was when we entered it.

Happy Father’s Day.

Thursday, June 12, 2008

40 Days and 40 Nights? Fun in Iowa

I intend to write a post on America's bleak economic outlook; I'll do so soon.

But I am currently hunkering at a friend's place in Iowa City, Iowa. (Yes, close readers of UC will note some irony here...see the post of 3 Jan. 08 if you care about such minutiae.) Iowa is flooding, it's pouring rain, and every 5 minutes the radio has another of those Emergency Warning System broadcasts. The most interesting one so far is that a levee on the Iowa River broke, a little ways upstream from where I sit.

Now I am currently on very high ground, way, way higher than the river (too close for the lightning for my taste), but I feel sorry for those down along the river; this includes a substantial number of businesses, homes, and university buildings. These areas have largely been evacuated already, so I'm hoping people are safe.

Meanwhile, I've been involved in a rather strange and heated debate with Mr. John Lofton, editor of The American View, on the excellent Classically Liberal blog. It's a somewhat interesting if rambling debate, covering theology, medicine, medical ethics, libertarian political thought, abortion, and Terri Schiavo's death. Mr. Lofton is perhaps the most extreme of any political religious fundamentalist I've ever debated; he appears to be a fellow traveller of the Christian Reconstructionists (the people who advocate the death penalty for violations of teir interpretations of Old testament laws). I've set myself the task of swaying his views... we'll see. CLS is rather doubtful, and of course he's likely right. (Click the "Comments" to find the discussion.)

Iowa flooding update, 13 June : We're located on one of the high points of Iowa City, on what is the only though street still open with access to I-80. Hence, it's flooded, only with traffic, backed up from the Interstate all the way downtown, I suspect. I'm babysitting two dogs, and we're more or less penned in. Oh well, not to's nothing a good tornado won't cure. (Another summer in Iowa, good grief!)

Friday, June 06, 2008

Beyond our means?

Keynes argued that in the long run, we're all dead. The long run has finally arrived, and it turns out Keynes was right.

It's just an accountant in a suit and tie, but utterly terrifying, and not for the squeamish or faint-hearted.

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