Red Clay Citizen

To All Politicians: Leave Speculators Alone

Professor Boudreaux hits the proverbial nail...

John McCain credits the recent fall in oil prices on President Bush's announced support for more off-shore drilling and, hence, on the fact that the future supply of oil likely will be higher than previously thought. ("McCain Credits Bush For Drop in Oil Price," July 23).  Sen. McCain also blames the preceding run-up in oil prices on unjustified speculation.

Sen. McCain can't have it both ways.  Prices either chiefly reflect the underlying reality of supply and demand or they don't.  If baseless speculation caused oil's price to rise to heights unjustified by supply and demand - if speculators are financial sorcerers who detach prices at will from underlying economic realities - how does a presidential announcement signaling higher future supplies cause lower prices?  On the other hand, if a more promising prospect of greater off-shore drilling really is responsible for pushing oil prices downward (which I think likely), why would Sen. McCain have ever blamed high oil prices on unjustified speculators rather than on the underlying conditions of supply and demand?

Oil: Econ for Lefties #423

Here's one of the little Koses -- offering an Open Letter to the President inviting him to explain why/how opening up the continental shelf to oil drilling would lower the price of oil. Since the Pres is probably busy, I'll be a stand-in:

Just wondering, by how many cents would you estimate that gasoline prices at the pump would drop if the entire continental shelf was opened to oil drilling?

If futures markets were equipped with crystal balls, there would be no futures market. Determining a future price would be the crystal ball equivalent. So the question betrays more than a little economic ignorance. I don't expect lefties to understand market uncertainties any more than I expect lefties to understand that the prospect of increased supply - particularly opening the entire Atlantic coast - would lower the price per barrel due to changes in forecast availability (often derided by the ignorant as unfair "speculation".) But by how much? We don't know.

Moreover, how much more would the price at the pump drop in that scenario than if current leaseholders merely drilled on the 68 million acres of oil and gas leases already granted on Federal lands which stand unused?

If it's still not cost-effective to drill in these areas, they won't drill. But more importantly, we must also consider that most known/accessible stocks are already factored into the price per barrel. This is the beauty of the distributed knowledge that those evil speculators bring to the process. So only new potential supplies would change the speculative landscape and thus the price per barrel (and price per gallon).

When would such savings be realized, and would that date come earlier than, say, the development of a domestically produced hydrogen-powered alternative vehicle?

Who knows? No one, does. But it's funny how lefties are eager to keep us at $4+ per gallon so they can pin all their hopes on their favored venture--which may or may not be realized in the future. Millions of market actors and investors are much better at teasing out this information. If hydrogen is viable, it will overtake gas in the same way gas overtook horses and buggies and petroleum overtook coal engines, and coal engines overtook whale oil. It's called the market process and it runs on price signals. If Stalin and the central committee had all the knowledge about what makes an economy tick, we wouldn't have found 1940s-era factories in Russia after the Collapse (1990s).

Finally, how do you expect companies to come up with the intensive capital investment such an overwhelming increase in domestic drilling would require while lowering prices?

The same way they came up with the capital to drill from 1000 - 10000 feet using expensive platforms in the Gulf of Mexico. If they couldn't come up with the capital, a de facto moratorium would remain. So what do you care? Might as well let 'em drill.

Happy to offer an economics lesson for a lefty. And since I know that this particular lefty hates to be referred to intellectuals and experts, I'll go ahead and link to one that explains why price signals, human ingenuity and distributed knowledge mean will never need to (nor would want to) put energy policy in the hands of government. (Julian Simon)
-Max Borders

To the N&O: The Plan Should Be to Stop Planning

The Raleigh News & Observer asks rhetorically "What's the Plan?" Then proceeds to list a slew of messes caused by government planning:

Inflation is up, the Dow is down. Fannie Mae and Freddie Mac, the federally chartered companies that hold or guarantee about half the mortgages in this country, have lost 80 percent of their value and now are being offered taxpayer money for a bailout -- but that money's limited by a struggling economy and the drain of the war in Iraq.

Then, as if the authors had forgotten what they had just written (and oblivious to the irony), proceed to critique the Bush Administration for a free-market "let-the-chips-fall" attitude to the economy! (This is, of course, a caricature of the Administration, which, sadly, cannot properly be made.)

I must take a moment to point this out, because - like so many others in economic history - the News & Observer labors under the misunderstanding that complex economies can be planned and that planning failures can be fixed by bureaucrats with special knowledge. Call it the "Intelligent Design" fallacy, which has been thoroughly exposed and discredited by a number of luminaries and economic titans.

I hope the average reader is able to read between lines like:

But the White House and Congress, despite flurries of activity that seem driven by desperation, have been generally slow to respond. The "trickle down" of a bad economy feels this time like a waterfall.

A waterfall? Is the N&O seriously arguing with this shabby mixed metaphor that the economy is worse now than when Reagan took over from Carter? Or is this wobbly Wortspiel an attempt to discredit one of the most successful economic reform eras in U.S. history?

It's ill-advised rapid responses by government (responses to dumb planning that creates unintended consequences - whether bailouts, tax increases or fed infusions) that keep the business cycles booming and busting. Cheap shots like the above quote at supply-side economics are yet another example of journalists playing economists in the papers. It's this kind of unreflective pap that gets produced when reporters get their regular assignments done and the editor give them a crack at weighing in on something weighty. But it's rather like letting a filing clerk at the doctors' office play diagnostician for a day. I sure wouldn't want to be the patient.
-Max Borders

Oil Prices

Anyone noticed what happened to oil prices this week?

Bush says,"Drill."
Price of oil falls $16 per barrel in one week.

Coincidence?

Commodities Speculation: A Valuable History Lesson

Today's WSJ provides a great example of how government never learns from its past mistakes. In their lust to villainize anyone but the true culprit in rising energy prices (apparently there are no mirrors in Washington, DC), politicians are eagerly scapegoating the speculators in the commodities market.

But this is nothing new, and the WSJ points out what happened the last time politicians wanted to "reign in the excesses" of the speculation market:

"As it happens, though, there's a useful case-study in the relationship between futures markets and commodity prices: onions. Congress might want to brush up on the results of its prior antispeculation mania before it causes more trouble.

In 1958, Congress officially banned all futures trading in the fresh onion market. Growers blamed "moneyed interests" at the Chicago Mercantile Exchange for major price movements, which could sink so low that the sack would be worth more than the onions inside, then drive back up during other seasons or even month to month. Championed by a rookie Republican Congressman named Gerald Ford, the Onion Futures Act was the first (and only) time that futures trading in a specific commodity was prohibited, and the law is still on the books.

But even after the nefarious middlemen had been curbed, cash onion prices remained highly volatile. In a classic 1963 paper, Stanford economics professor Roger Gray examined the historical behavior of onion prices before and after the ban and showed how the futures market had actually served to stabilize prices."

The reader is then provided with this simple summary of why speculators simply can not drive up the price of any commodity:

"Futures trading can't drive up spot prices because the value of futures contracts agreed to by sellers expecting prices to fall must equal the value of contracts agreed to by buyers expecting prices to rise. Again, it merely offers commodity producers and consumers the opportunity to lock in the future price of goods, helping to protect against the risks of future price movements."

Lillington Democrat Etheridge to Meddle in Energy Markets

Wow! Can you believe this man's audacity?

So this week, with the help of U.S. Rep. Bob Etheridge, a Lillington Democrat, Congress will take on an obscure commodities market. Some oil experts say congressional action could have an immediate impact.

What experts? What impact? Even if it had a short-term "impact" it could have longterm devastation. The paper admits futures markets are obscure--which is to say Etheridge doesn't (nay can't know enough about them to get Congress to meddle). Etheridge - certainly no expert, with no stake in oil futures - is going to save consumers money at the pump by futzing around with futures markets! Lord have mercy. Just when you thought you'd heard everything, we've got people who not only think that they can repeal the laws of supply and demand, but that they know better than investors who help increase supply by their diverse, extremely critical judgments about these complex markets and related supply sources. Haven't they heard of short-selling? Again, I say wow.

Rep. Etheridge's meddling would be as dumb or dumber than skimming oil profits. It would be akin to my going down Papua New Guinea to educate the locals on better hunting techniques. Somebody please tell the News & Observer.
-Max Borders

Gas Prices: Whenever you hear "these speculators"...

Your next thought should be that the person uttering this phrase is challenged in terms of economics.

Here's a good explanation.

The Congressional leadership would like to find a scapegoat for energy prices. "Speculators" have been blamed for everything from the Great Depression to the housing bubble. But a fundamental understanding of futures markets - not to mention supply and demand - will help us cool our heads and temper our blame-laying. Indeed, if we look at the basic issue of supply (particularly in a lack of any real increase in domestic supply), the problem lies at the feet of those shouting the loudest about "speculators" on Capitol Hill.
-Max Borders

Gas Prices: Ga Ga over Transit?

So, with gas prices going up to record levels, is transit suddenly becoming a silver bullet?

NO, says Randal O'Toole. Here's why:

"Journalists are all gaga over reports of a 4 percent decline in driving and a 3.4 percent increase in transit ridership. But do the math: transit only carries about 1.5 percent of urban travel. Increase that by 3.4 percent and you can’t come close to making up for a 4 percent decline in the other 90-some percent.

Put it another way: APTA reports 86 million more transit rides in the first quarter of 2008 over the same quarter of 2007. The average transit ride is about 5.3 miles, to that’s about 455 million passenger miles.

Meanwhile, the Federal Highway Administration reports Americans drove 9.6 billion fewer miles in the first quarter of 2008 than in the same quarter of 2007. At an average occupancy of 1.6 people per car, that’s 15.4 billion passenger miles. The increase in transit ridership made up for only 3 percent of that amount.

Oh yes, that 4 percent drop in driving? It was for March, 2008 (the declines in January and February were only about 1 percent). But APTA’s report for March shows a 0.8 percent drop in transit ridership from March 2007. That’s some rescue!

Transit is not replacing driving because transit doesn’t go where people want to go when they want to go there. Instead of substituting transit for driving, people are trip chaining, carpooling, or just skipping low-priority trips.

Even to the extent that a few people take transit instead of driving, they aren’t saving energy. As the Antiplanner has shown, most transit uses as much if not more energy as cars. So if you ride transit, you are merely making someone else pay your fuel bill."
-Max Borders

Privatizing Government

What does the Democratic-led US Senate do when its government run restaurants are operating at deficits each year and the food and service is "substandard"?

It agrees to privatize them.  Sen. Diane Feinstein comments:

"Candidly, I don't think the taxpayers should be subsidizing something that doesn't need to be. There are parts of government that can be run like a business and should be run like businesses."

In a letter to colleagues, Feinstein said that the Government Accountability Office found that "financially breaking even has not been the objective of the current management due to an expectation that the restaurants will operate at a deficit annually." (emphasis mine).

How many other government operations lack profit motive that would be better served through private enterprise?  I would bet quite a few if we started making a list.

A Case for Sweatshops

If you have supported banning sweatshop labor, or even boycotting products made from such labor, you are probably consigning people to worse alternatives -- such as prostitution. Read Ben Powell's case here.
-Max Borders

Hugo Chavez Redux: In case you missed it.

Unbelievable.
-Max Borders

Offshore Drilling for N.C.?

Here's the legislation to study it. And the citizens agree, apparently. As gas prices continue to rise, let's see if this bill ever sees the light of day.
-Max Borders

Gas Prices: Some Sanity

Excellent perspective on gas prices in this interactive presentation. Enjoy.
-Max Borders

Gas Prices: Bicycle! Bicycle!

As China comes online thereby increasing the demand for gas (thus raising gas prices), Americans are turning to their old friend the bicycle. A strange role-reversal, indeed.

So, if people are riding bikes and driving more fuel efficient cars, why are environmentalists griping about oil prices/profits? Bicycle! Bicycle!
-Max Borders

Gas Prices: Harmless Holiday

Brian Caplan has a great NYTimes piece on why the Clinton/McCain gas tax holiday is a relatively harmless symbolic gesture in a sea of possible bad policy options:

The first is that the tax holiday is a relatively cheap symbolic gesture that makes truly bad policies less likely. The main causes of high gas prices are probably factors beyond our control, like rapid growth in China and India and low real interest rates. But voters don’t want to hear this; they want politicians to “do something!”

During our last big energy crisis, in the 1970s, “something” turned out to be a salad of populist nonsense: price controls, rationing, windfall profits taxes, arcane loopholes and lots of lawsuits. That political response turned an inconvenience into a disaster.

We can do better this time. Since in an election year Congress will feel compelled to show the voters that it feels their pain, let’s do something that at least keeps energy markets in good working order. The tax holiday fits the bill. Markets will adjust to it, no problem. And it won’t cost much — the estimated $9 billion in lost revenue is about $30 per person. That’s not a bad price to pay for a little insurance against a rerun of misguided ’70s measures.

I'm glad they're letting some free-market "fundamentalists" into the NYTimes lately. Tyler Cowen, Brian Caplan and Alex Tabarrok are such a refreshing antedote to the incessant Krugmania we usually see.
-Max Borders

Down, Doomsayer

Great article from the Denver Post on chicken littles and economic demogoguery:

As market strategist Ed Yardeni (hat tip to U.S. World and News Report) claimed, "this profits recession is very much limited to the Financials sector and the Homebuilding industry . . . . Removing these two reveals that profits rose 15.9 percent in Q4 and around 12.0 percent during Q1. The resilience of 'core' profits and of the economy in the face of the worst credit crisis since the 1930s is impressive indeed."

That kind of perspective is, typically, lacking in economic coverage. Take, for instance, the housing crisis. It is real. It is painful. Yet more Americans own their own homes now than ever before. Those evil corporate warlords who had the audacity to offer low-interest mortgages put millions of families that otherwise would never have been able to afford it into homes. Only a fraction risk losing their investment.

And speaking of doomsaying, Boston's NPR affiliate is lamenting the lack of jobs for teens during the downturn. Professor Boudreaux explains that minimum wage laws are largely to blame:

I listened to your segment documenting teenagers' struggle to find summer jobs (May 2).  Several times you asked why teens are suffering this difficulty, but not once did you mention, as a possible explanation, the higher minimum wage.

The economic theory (and much evidence) of how minimum-wage legislation affects employment explains remarkably well the patterns you document. Teenagers have few skills, so their value to employers is low.  It is precisely such low-skilled workers who are priced out of the job market by minimum-wage legislation.   In addition, the fact that the teens having the hardest time finding jobs are minority kids from inner cities is also explained by economics: by creating a surplus of low-skilled workers, the minimum-wage encourages employers to discriminate in favor of white suburban kids and against minority youths.

The government reaps what it sows.
-Max Borders

Why Do You Favor Limited Government?

Richard Rahn of the Cato Institute and Institute for Global Economic Growth offers up this outstanding piece in the Washington Times. In it, he shatters many of the coveted fallacies of the big government, less liberty crowd:

"...the arguments from the big government advocates are usually based on a combination of economic and historical ignorance, including an inability to think beyond Stage 1, envy, and just plain delusional thinking."

Rahn goes on to include some examples that shatter some of this delusional thinking, including:

"• Most government programs do not live up to their billing in that they cost far more than projected and produce less than promised. Recent U.S. government studies have shown that about 50 percent of all taxpayer dollars do not achieve the promised results. There is little reason to believe most other governments perform any better. There is no evidence that governments spending more money use it any more efficiently than those spending less, and the contrary is more often the case.

• Most people can make better decisions about how to spend their money to aid their families than can politicians and government bureaucrats. When taxes rise, people's ability to take care of themselves is reduced and they more become dependent on government.

• Higher tax rates reduce individual liberty by denying people the fruits of their own labor."

Let's be clear, it is systemic and uncorrectable flaws that makes government so inefficient - not the people in charge at any given time. To continue to expand government and believe in politicians as the solution to virtually every problem in society is fool's gold, and does much more harm than good.

Government Jobs: Broken Windows Fallacy

This is the saddest thing I've read in a long time. The worst is the quote from Mike Walden, an economist at N.C. state who actually does stuff for JLF!

"Government jobs are an important cushion for the economy when the private sector falters," says North Carolina State University economist Michael Walden. Huh? Somebody please take away this man's Keynesian crackpipe.

Perhaps they took Mike out of context, but Lordy Lord, surely he knows about deadweight loss and the broken windows fallacy.

There was a light of reason in the article, on these dim circumstances of public sector growth:

"More hiring has nothing to do with good government or economic policy," says economist Kenneth Brown, research director at the Rio Grande Foundation in Albuquerque. "It has everything to do with government being slow to react to economic change." (HT: Hayes)
-Max Borders

Subprime Crisis: A Reasonable Post-Mortem

General hysterics about the subprime fallout and associated calls for government intervention make perfect demogoguery fodder for pundits, presidential candidates and economic illiterates. But if you've been looking for an intellectually honest, well-researched and thorough post mortem? Here's your paper.

Zywicki and Adamson not only caution us not to regulate away the aspects of the mortgage lending system that enabled millions of people to own homes at all, but not to forget the checkered history that lead up to crisis and helped to create it. In other words, blame is to be apportioned evenly among government regulators, the fed, lenders and borrowers themselves. The point of regulation going forward should not be to bail out irresponsible lenders or create impeditments to ownership, but help lenders correctly to gauge risk and to ensure abuses by either party are curbed.

The authors ask reasonable questions about the "optimum" level of foreclosure, and caution us not to forget the types of speculative investments that count among the foreclosures.In short, this is a rich complicated account written by talented economists. But it's a breath of fresh air compared to what you read in the papers.
-Max Borders

Moore's Endorsement and the State Pension Fund

By now, many of you have probably heard Barack Obama's commercial in which he proclaims he will impose a "windfall profits tax" on oil companies - specifically mentioning Exxon Mobil.

From an economics standpoint, it is an unavoidable fact that such a tax would harm shareholders of the affected companies. Oil industry analyst John Parry, senior vice president of John S. Herold, Inc., an independent research firm, explains it this way in this article:

"Giving that money (profits) to widows and retirees and grandmothers is good," said Parry. "This is a big help to smokestack America, which is holding big pension funds. If they want a windfall profits tax, taking 20 percent off the price of oil stocks, they're going to drag down a lot of buying power and hurt a lot of people."

On a related note, most of you also probably know by now that Democratic Gubernatorial candidate Richard Moore has endorsed Obama.

What do these two things have in common? Plenty.

Richard Moore's primary responsibility as State Treasurer has been to manage the state employee retirement pension fund. This fund provides retirement benefits for North Carolina's retired teachers, firemen/women, rescue squad workers and most other former government employees.

The allocation of the fund's overall "investment pool" consists of five primary subgroups: short-and long-term investment funds, the equity investment portfolio, the real estate investment portfolio, and the alternative investment portfolio.

A look through the treasurer's FY2006-07 Annual Report reveals some of the top holdings in each of the "investment pool" categories. What is the number one holding for the equity investment portfolio? See for yourself:

That's right, Exxon Mobil. In short, Treasurer Moore has endorsed a presidential candidate proposing a tax scheme that will hurt the returns of the very pension fund he has managed for the past seven years.

I'm not in the media, but if I was I just might consider asking him about this.

(HT: Francis D.)

Gas Prices: Why So High?

Here's a great econ 101 lesson on gas prices. I'd like to know why the water companies haven't been hauled before Congress and accused of price gouging.
-Max Borders

Krugman: Two Ripostes

With a recession nigh or here, we should expect the demogogues and the government pundits to start sounding off. But the Don Boudreauxs of the world will be there to check their reasoning:

#1 Paul Krugman repeats the refrain that the economy for ordinary Americans is a shambles ("Crisis of Confidence," April 14).  I'm doubtful, but will here assume that he's correct about this matter.  What conclusion are we to draw?

Rather than conclude (as Mr. Krugman does) that this problem reflects a need for higher taxes and greater government control over the economy, why not conclude the opposite? At no time since Mr. Krugman's imagined Golden Age of the 1970s has Uncle Sam's budget been severely reduced.  Indeed, inflation-adjusted spending on programs such as Social Security, Medicare, and Medicaid have consistently risen since then.  During the past three decades, some welfare programs have been scaled back, while others have been expanded and even newly created.  We now have, as we did not prior to the 1970s, cabinet-level departments to regulate energy, education, veterans affairs, and homeland security.  Some regulations have been repealed, while others have been created at both the state and national levels.

Weren't FDR's New Deal and LBJ's Great Society - most of which programs remain with us today - supposed to make life better for ordinary Americans?  If Mr. Krugman's factual claim about the state of the economy is correct, these programs clearly have failed.

#2 Arguing that today's economy is "considerably worse" than official data suggests, Paul Krugman notes that "The official unemployment rate may be relatively low - but the percentage of prime-working-age Americans without jobs, which isn't the same thing, is historically high" ("Crisis of Confidence," April 14).

Sounds awful, for Mr. Krugman here implies that Americans between the ages of 25 and 54 have more difficulty finding jobs today than they did even during the Great Depression.  But this implication fails the smell test.  There are many reasons why some prime-working-age people are without jobs - reasons having nothing to do with being unemployed.  Retirees are without jobs; many full-time students are without jobs; stay-at-home parents are without jobs.  Contrary to Mr. Krugman's suggestion, perhaps the economy is trending so remarkably WELL, over the long run, that more and more people remain in school longer and retire earlier, a luxury much less affordable in the past."

-Max Borders

Gas Prices: If You're Thinking Price Controls...

Remember what happens when prices don't reflect scarcity.
-Max Borders

Skybus: What the...?

Piedmont Publius is, perhaps, as confused as we are at the rationale behind central planners like Henry Isaacson o'er there in the Triad. Here's Isaacson - quoted by the PP - opining about the market dynamics:

I want people in the Triad to understand that Allegiant is an altogether different airline than Skybus,” Isaacson said. “They’ve been around for awhile; they’ve been making money; they’re established. I think the only reason they were leaving us is that Skybus was sort of permeating the low-fare territory. They don’t compete at the point of origin with another low-fare carrier.”

Is this 20/20 hindsight or something Isaacson could have sussed beforehand? Seriously, a company that hasn't been around for awhile, isn't making money and isn't established in an industry plagued by multiple factors like unstable inputs (jet fuel)... Why are these bureaucrats throwing our cash at such poor investments? This attempt to pick winners and losers is just wacky. Isaacson, et al, couldn't possibly have had the prescience to predict what Allegiant called the "destablizing" factor of Skybus -- never mind that these subsidies contributed to the destabilization. Nor does 20/20 hindsight help matters once everything goes haywire.

Excuse me, Mr. Isaacson, I think I'd like to invest my own resources. I'm pretty sure Vanguard or I could do a heckuva lot better than you.
-Max Borders

Tony Rand -- Champion of the Free Market?

Earlier today, the General Assembly's Joint Study Committee on Automobile Insurance Modernization met to consider a proposal to change the way every North Carolinian purchases auto insurance.  Currently, those of us who have clean driving records pay a surcharge of 2.7% to fund a risk pool of those who make insurance claims.  Thus, us safe drivers are subsidizing bad drivers to the tune of $139 million this year.  (In some years, it's more, some years it's less).

Sen. Tony Rand as chairman of the committee asked if that was fair for safe drivers to pay higher rates for auto insurance and shouldn't we just let everyone be judged on their relative risk?  "Everybody should pay their own way. I should pay mine and not subsidize everybody else.  We should have some relative expectation that you (bad drivers) pay some fair share of the pool." 
Basically, his proposal would take one giant step towards deregulating and dramatically increasing competition in the auto insurance market.  (Some government insurance actuary stood up and argued that increased competition would increase rates -- I haven't figured that one out yet.)

Naturally, Insurance Commissioner Jim Long was opposed to the proposal. 

Will this proposal have legs when the General Assembly reconvenes in a few weeks?  I don't know, but it's one we'll sure be watching. 

And if we can apply free market economics to auto insurance, can't we also apply it to other insurance markets -- health, homeowners, etc.?

On Pessimism and Not Repeating Depression-Era Policies

Don Boudreaux reminds people to ignore the pessimism coming from "progressive" circles -- those who would take the mildest economic downturn and use it to justify more government intervention in the economy (intervention that is largely responsible for boom/bust cycles). Boudreaux suggests folks read Bryan Caplan's Myth of the Rational Voter which every thinking person should use to temper the "Pessimistic bias" one of five major biases that plague non-economists and poor Naomi Klein. Here's a slice:

"Russ [Roberts] and myself (because we're economists?) and many of the commentors here at the Cafe are not pessimistic about the long-run.  Problems come; problems are solved.  Inability to see the details of the future scare many people; this inability doesn't scare me.  As long as individuals have a sufficient quantum of freedom, their self-interest and creativity and inevitable competition will "solve" almost any problem over the long-haul.  It's a pattern repeated countless times over the past two-hundred years in capitalist countries.  (Please, please don't trot out the Great Depression as a counter-example.  First, it was clearly worsened by the Federal Reserve's catastrophically bad monetary policy, and by the worldwide spread of protectionism -- helped along by the Smoot-Hawley tariff.  More importantly, there's compelling evidence that the risks of full-throttle socialization of the economy were then real enough to scare investors away until the mid-1940s.  And even this greatest of all of America's depressions lasted only ten or fifteen years, depending on how you define the end of the Depression.)"

I've pointed to a lot of bad editorializing recently (from the N&O in particular) and would recommend Cafe Hayek as a daily dose and The Myth of the Rational Voter as an antidote to these horrible rehashings of your junior high textbook on the Depression and progressive-era thinking. Been there, done that.
-Max Borders

Journalists do Econ Redux

Here's what happens when kids who grow up getting overdoses of revisionist depression-era history written by liberal non-economists in the public schools. They write this when they grow up and become journalists (read: not economists):

It's safe to assume President Bush and his advisers wince at that description, since it calls to mind another Republican president, Herbert Hoover, whose free-market, time-will-tell, all-things-run-in-cycles attitude helped plunge the United States into financial catastrophe.

First of all, the republican/democrat distinction was totally different in those days. So trying to paint republicans as any kind of caricature of today is totally off the mark. Also, Herbert Hoover was not a free-marketeer at all. While you may have heard this in junior high because FDR did so many zany things in the name of regulation, this characterization of Hoover is completely false. In fact, they called him the "engineer" and he certainly thought he could engineer the economy. He simply got out engineered by FDR who ended up making things much worse, not improving anything as your progressive textbook would have you believe. Business cycles are largely the result of fed policy and regulation (read: intervention), not the other way around. Read this for a good history of the Depression. And read this to see why "engineering" the economy a la Hoover or FDR or the Fed causes crests and troughs, booms and busts.

But the N&O gets worse in its editorializing on economic matters:

For while it's true that individuals must use good judgment in their financial affairs, and surely some didn't when taking out their troubled mortgages, for one example, the free-and-easy regulatory system contributed to making it easier for them to get themselves in trouble. And to obtain their mortgages, after all, they didn't rob banks. They applied for loans that somebody approved.

The free-and-easy regulatory system? Try the free and easy pressure by "progressives" HUD and other agencies for mortgage lenders and other institutions to push loans onto high risk populations. Let's also remember that government interventions and bailouts yield more profligacy and risky behavior, not less, because the market is stern with punishment and people learn from their failures. Government is simply trying to legislate away risk. I'm weary of the media fifth column calling for the government to be our mommies and daddies when it comes to economic matters--particularly that of people AND lenders who were irresponsible. Success and failure are two sides of the same coin when it comes to creating wealth. N&O's economically ill-informed editorializing contributes to terrible myths about the supposed social benefits of government paternalism -- ideas that have thoroughly been discredited.

This media narrative of markets as enemy is getting old and tired. It's spun by people who have absolutely no authority to speak on such matters. Their proposals are completely counterproductive.
-Max Borders

Google's Green Parody

I can think of no more fitting irony than this "awareness raising" initiative by Google. Why such smart people at such a great company would get into this kind of goofy greenwashing? Anyway, this sums up the irony:

"As to why we don't do this permanently - it saves no energy; modern displays use the same amount of power regardless of what they display." This is pretty much analogous to all the (marginal) energy conservation programs like NC Greenpower. In other words, it's sort of like this: if everyone stopped using Google to educate themselves on how to use fewer Google searches (and it worked) Google would have fewer incentives to invest in new algorithms and technologies for Web searches. 'But the human mind is an unlimited resource and fossil fuels are not' Google might reply.

The late great Julian Simon argued they - human ingenuity linked to the use of resources - are one in the same. Resources never run out. I think I'll leave my computer on all night tonight.
-Max Borders