Recently in Economics Category

Wow.  He's getting so stupid that he's endanger of defying a different law of economics, namely that People Aren't THAT Stupid.

Witness, from Bloomberg, via hat tip to Greg Mankiw:

[Senator McCain] has shown increasing disdain for any economist who questions his policy prescriptions. Earlier this month, he lashed out at critics of his proposal for a summer gas-tax holiday.

"You know the economists?'' McCain said June 12 at Federal Hall, near the New York Stock Exchange. "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.''

Where to start.  So much stupidity.  Make him stop.

OK, first.  If you say shit like "The issue of economics is not something I've understood as well as I should" all the time, then maybe you should either a) shut the hell up about economics or b) check your facts really hard before you go spouting bullshit about the subject.

Second, and this is a little related to the first point about being able to check your facts if you don't STFU, As it happens, John's statement is simply false.  There are several very prominent economists that did indeed predict the housing crisis we're in, among them Dean Baker, who is, understandably, endlessly frustrated by all the idiots in the press and politics who keep saying that no one could have seen this coming, and Paul Krugman, whose predictions were not as dire as Dean's but definitely forbode some bad times for homeowners.  Furthermore, there were a ton of economists, hell, there were a ton of journalists, who saw the dot-com meltdown coming.  I mean, they didn't know exactly when, but they sure as hell knew that companies with negative net income were not worth $5 billion valuations.

And last, as Greg points out, let's be clear, John, that there is no magical other group of people who predicted all these things perfectly.  But nice straw man attempt.

Oh, yeah, and WTF at the Bloomberg article NOT POINTING ANY OF THIS OUT AS BULLSHIT.  It ends with the above quote as if this were some nugget of maverick wisdom.  Seriously, when are the press going to do their jobs and ask the man some hard questions.  On second thought, how about some questions that any competent college grad could answer?

I imagine good ol' John will become a recurring character in the people are stupid series, because, wow is that man dumb.

Recently John decided to demonstrates how much he cares about the environment by offering a $300 million dollar prize for anyone that invents a better car battery.

Newsflash, idiot:  anyone that invents a better car battery is set him/herself up for a shitload more than $300 million for it.

As Tom Lee points out, via hat tip to Ezra Klein, it's not as if car companies are sitting around yelling at their R&D departments to stop working on battery improvements.  Seriously, John, I know you are older than polyester, but I know a lot of smart old guys, so I'm going to have to come to the conclusion that you aren't ignorant of economics 101 simply because you went to college before Economics existed, but rather because you are just plain old stupid.

You want to help vs. global warming?  Offer a billion dollar prize to somebody who can figure out how to reverse the damage done to the ozone layer.  Because last time I checked, there is no huge market for that particular development, which means that anyone smart enough to do it isn't going to "waste their time" on that particular project.

By the way, it completely stuns me that the mainstream press let's John McCain get away with saying really, really genuinely stupid things all the time, particularly on things like economics, a subject in which he has already admitted to having no expertise whatsoever, without just once (one ****ing time!) calling him out for it.  I mean, Hillary got more than her share of shit for supporting the gas tax holiday (which was a very stupid idea), but John, who came up with it in the first place, didn't have to face one single reporter asking him "Can you name any economists who support this proposal?".  Not one journalist.    Seriously?

Wait...WHAT?

I never anticipated applying the Bizarro-World version of the fourth principle of economics to Greg Mankiw himself.

But today, Greg references the WSJ in his blog, in a manner that I can only presume means he agrees with the contents:

Steve in the WSJ:
Like philanthropy, saving is an act of self-denial that enriches your neighbors (by leaving more goods available for them to consume). But unlike philanthropy, saving is punished by the tax system (via the taxes on interest, dividends, capital gains and inheritance). That's nuts. When you tax saving, you encourage people - wealthy people in particular - to spend more and grab a larger share of the consumption pie. "More consumption by the rich" should not be among the primary objectives of the tax code.

The alternative is to tax consumption....you can easily implement a consumption tax with a Form 1040 that says: "How much did you earn this year? How much did you save? Now pay tax on the difference." And you can make that tax as progressive as you like.

At this point I have to say...what the hell?

I know Greg is a smart guy (I'm not so sure about Steve), but this is...well...brain dead.

Seriously, by consuming more, you "grab a larger share of the consumption pie".  Who invents this drivel?

Let me clue Steve and Greg in a little suttin'.  When Jon Edwards "consumes" a $400 haircut, he may receive some emotional value, but his pie does not get any bigger (in fact, from an investment perspective this is a pretty fucking terrible deal for the former senator).  When Paris Hilton buys a $5.9 Million house, sure, her pie gets bigger.  But so does the pie of her real estate broker.  And the construction firm that built that house, and all the contractors that work for him, and all the laborers that work for the contractor.  When a wealthy person buys a Porsche, his "pie" does not get bigger (again, the re-sale value on that brand new Bentley?  Not so high).

You want to know the easiest way to grab the biggest piece of the pie?  Live way below your means and invest your capital in positive net-present-value investments instead of "wasting" it on consumption.  Things you consume don't earn compound interest, most of the things you consume aren't assets at all, and the assets you do acquire through consumption can rarely be re-sold at book value.  And yes, this is all true even after you account for capital gains taxes.  Seriously, we learn this shit in Finance 101, Steve.  And you work at the Journal.

News flash:  for those of us who aren't rich, it is in our best interests that richer people save, since that consumption drives the economy.  We like the fact that wealthier people have incentives to eat at outrageously expensive restaurants and get very expensive haircuts and get very expensive cars/boats/houses.  Because most of the people who waiter or cook at expensive restaurants aren't rich, most of the stylists at expensive salons aren't rich, and most of the laborers at Porsche or BMW aren't very rich, and their lives would sort of suck if the demand for their products dried up.  And Steve's implication that I would be richer because there are more Porsches to go around (or, relatedly, because Porsches get cheaper because there is less demand) if all the rich people stopped consuming is more than laughable.

Oh, it is entirely clear why Mr. Mankiw and Mr. Stevens want savings to be tax-free -- they are probably savvy with their money and do more saving than consuming (because they know that saving and investing leads to wealth, and consuming doesn't).  And it is true that for the average american, who has way too much debt, saving more and consuming less would be very wise, and the government might do well to encourage that behavior among some income groups.  But saying "Hey, that's unfair, look, the incentives for rich people is to buy lots of stuff and we all know that buying lots of stuff makes you even richer!" is, well, I'd say disingenuous but, are you kidding me?  Steve, you're either being stupid or you are running a con job.

If you want to be progressive, incentivize the poor to save and the rich to spend.   And don't give me any bullshit about how the markets need capital.  The incentive scheme would have to be very perverse before wealthy investors would "spending their money on goodies" a better positive net-present-value investment than the stock market.

Sigh.  People really need to do some Econ 101.

So, lately there has been a lot of stink that apparently OJ Mayo took money in the form of bribes from sports agents for the priviledge of representing him in the NBA draft.  Many people are aghast.  And my reaction is:

Are you people completely daft?

Seriously, I'm not sure where you guys grew up, but in the world *I* live in, when you have a talent/skill/product that other people want really badly, then you charge money for it.  Economics 101, baby.  There's literally nothing immoral about this.  I'm reminded very much of George Lucas' distribution deals when he made Star Wars: Episode 1.  Standard industry practice is for film distributors to take a percentage of the film's ticket sales in return for distributing the film.  This is a deal that most directors and distributors take because they don't always know how successful there film will be, so they worry about overpaying if they pay a flat fee for distribution.

But George, however, knew quite well that the first Star Wars movie in 20 years was a guaranteed hit that would basically sell a trillion movie tickets.  He told the distributors, "You can take $1 million or you can fuck off.  That's the deal."

OJ Mayo is saying "I know you usually get sweet royalties from guys who are hoping they crack the lottery.  But I know what I'm worth.  So give me $500k or fuck off.  That's the deal."

Economics ONE OH ONE, baby.

Why shouldn't athletes be allowed to charge whatever they want for the privilege of representing them?  Because Sports Agents don't want them to?  WHAT?  I don't want to pay for my coffee at Starbucks either.  I think it's an outrage that they charge money for it.  Welcome to the real world.  I found it very amusing that David Falk is quoted as saying:

It's not competition based on merit. It's competition based on improper inducements. I think it's an abomination.

No, Dave, it's competition based on PRICE.  You may think it's an abomination.  Well, of course you do, just like  American Airlines CEO Robert Crandall, who famously got caught trying to fix airline prices with his competitors.

He could go the other way and say "Well, I'm not willing to pay the usual X% agent fees, I will only pay .5X %."  And you know what?  Agents will line up to take the contract anyway.  As much as David Falk doesn't want to compete on price (what member or an oligopoly does!?), you can't break the laws of supply and demand.

Speaking of Ezra, he has a nice piece about how our Biofuel subsidies are responsible for about 1/3 of the current global food crisis.

I've said this before.

Seriously.  This has reached ridiculous levels.  I understand that no one that works in the agriculture industry will agree with me (i.e. the ones that benefit from the $8.9 billion that our government put directly in the pockets of large agra firms last year), but the rest of you, COME ON.

Write your congressman/woman.  Tell him/her that you get it.  You know they saw "An Inconvenient Truth".  You know they watched Al Gore get the Nobel Prize.  You know they are really worried about being perceived as doing something about global warming.  And you need to tell them, RIGHT NOW, that:

a) You will still vote for them even if they don't pass every damn energy efficiency bill or alternative fuel source bill that comes within ten miles of their freaking desk.  Quantity is not Quality.

a) You WON'T vote for them if they keep placing politics above smart decision making.  Unintended Consequences really freaking matter.  PEOPLE ARE DYING HERE.  This isn't a joke, and this isn't harmless pandering to some green-earth hippies.

I am genuinely worried about global warming, really.  And I am all about reducing greenhouse gases.  I'm in favor of the Pigou Club (I think the $1/gallon proposal of the Pigou Club is too cheap, actually), tolls on freeways, an end to coal-powered electricity, etc.  I'm willing to put my money where my mouth is, and in a way that isn't popular;  pay the price at the gas pump every week and you feel it.  But if the government just gives your money away in farm subsidies it feels "free" to you.

But get real here.  We (yes, we, as in YOU and I) are starving our brothers and sisters.  One hundred million people are going to move from "poor" to "absolute poverty" in the coming year.  Not "food stamp" poverty.  "Death, Starvation, Famine, Disease" poverty.    ONE HUNDRED MILLION PEOPLE.  This must stop!  Write your senators and congressmen/women now!

One last addendum.

Good People of Iowa.  I understand that much of your economy is dependent on corn (but probably not nearly as much as YOU think it is).  But you seriously need to tell Sen. Charles Grassley that shit like this is so not OK:

"If part of our problem is that the Chinese are going to eat meat and you've got to have corn and soybeans to feed the Chinese their meat, then why isn't it just as legitimate for the Chinese to go back and eat rice as it is for us to change our policy on corn to ethanol?" Grassley asked in a conference call with reporters.

Are you ****ing kidding me?  Write your representative now.

The price of food is starting to hurt.  I've blogged about this before, but Paul Krugman has brought it up again in  his column in the NY Times (Grains Gone Wild), and the mainstream media is starting to pay attention to this.  If you travel to poorer countries it can't escape your attention -- my wife recently e-mailed me from southeast Asia and asked "Hey, mr. economist guy, me and my friends want to know why wheat is getting so expensive!" because it is a big story in that area of the world.  There are lots of reasons including the fall of the dollar and the rising cost of energy (read: oil), but as Krugman says (and I did in my previous post on this subject), it basically boils down to:

And meanwhile, land used to grow biofuel feedstock is land not available to grow food, so subsidies to biofuels are a major factor in the food crisis. You might put it this way: people are starving in Africa so that American politicians can court votes in farm states.

Again, Ethanol == EVIL.

A story in the Wall Street Journal brings up the debate in congress over whether Telcos like AT&T or Verizon should be held responsible for handing over customer data to the US government illegally when the US government was illegally wiretapping its citizens.

Why is there a debate here?  WTF?

The Bush administration wants to shield telecom providers from lawsuits faced as a result of participation in the president's warrantless wiretapping program and says the provision is needed to ensure future cooperation from the companies.

Yeah.  Did I mention that the whole operation was illegal?  Let's be clear here.  NO ONE in D.C. is arguing that any part of this operation was legal (the White House has claimed that it has special war-time powers to ignore the law, but never claimed that it was acting within the law).

So, basically, Bush is saying, "Ya'll can't persecute them or they won't help me break the law next time around."

Yes, I intentionally replaced prosecute with persecute.  If the man can't speak coherently, don't expect me to correct his grammar when I paraphrase him.

Anyway, the WSJ goes on:

Why is immunity needed? The White House argues that private business, particularly telecom companies, won't cooperate with intelligence-gathering if they face the threat of legal liability. "Allowing foreign terrorists, the ACLU, or anyone else to sue telecom companies because they cooperated with our government in an effort to stop enemy attacks during a congressionally authorized period of war makes absolutely no sense," says Robert Turner, a University of Virginia law professor who testified Wednesday before the House Judiciary Committee.

Again, I call bullshit.  I call holy-shit-that-bullshit-stinks-more-than-ordinary-bullshit.

(And, before I go any further, your little trick of putting the ACLU right next to terrorists in the same sentence is deplorable.  Ooooooh, you're a tricky little bastard aren't you?  Almost fell for that one!  Of course, it's even more deplorable that the WSJ didn't MAKE FUN OF YOUR TRANSPARENT BIAS.  All the fucking time, with the press corp...)

Mr. Turner, when our government breaks the law there should be consequences.  Furthermore, when our government approaches a corporation and asks them to help it break the law, we WANT the corporations to react something like this:

"You want what?  Is that legal?"

"No?  Then, um, why should we do that?"

"So, lemme get this straight.  You're breaking federal law and you want us to help?"

"Lemme talk to my boss...."

"OK, he says that shit's illegal.  Get the hell out of here."

And if they don't react like that, OF COURSE we want the ACLU to sue them!  They broke the LAW!

Now, Mr. Turner, I'm pretty sure you know the law better than I do.  And there are plenty of provisions in the law that allow for corporations to be treated just like people.  But I'm also pretty sure that I am more familiar with corporations, and their economic incentives, than you are.  Let me tell you a little secret:  even though the law pretends that corporations are people, corporations aren't people.  They don't have moral codes.  They are collections of individuals who react according to one primary incentive:  making money for their shareholders.  Sure, there are other incentives, and some stakeholders may have some moral incentives, but that one incentive is by far the biggest.

One part of making lots of money is to keep costs down.  So when the US government knocks on your door and says "Gimme some data.  I know it's illegal, but I don't care," you can refuse, but that will probably cost money.  Why?  Well, the government has lots of powers to do lots of things that will cost you lots of money (audits, investigations, etc.).  Even the very time that your lawyers spend arguing with the FBI over the legality of it all is expensive.  So what do many corporations do?  They hand over the docs.  Screw the law, costs too much money.

So, you do the math.  Do you want to leave it up to the corporations to weigh morality/legality vs. cost?  Especially when the "cost" of breaking the law appears to pretty much be zero, because congress will grant them immunity anyway?

Or do you want the corporation to say "Well, if we break this law, it could cost us $1000 per customer affected?"

I'm not that good at math, but...oh, wait, no I'm actually pretty good at math.  Of course I want the corporations to have solid economic incentives for not breaking the law.


Hat tip to Marginal Revolution

This title is going to become one of my recurring themes, for sure.  Ethanol is EVIL.  It doesn't help reduce global warming, it isn't cheaper or more efficient than petrol, but worse, some (also pretty evil) PR people have somehow managed to convince everyone that its a weapon in our fight to reduce global warming.  As a result, politicians in recent years have lined up to pump money into the (did I mention it's EVIL yet!?) Ethanol industry.

So, this is why economics matters.  This is why economics should be a requirement in every high school, rather than an elective that some business majors take and then promptly work really hard to forget.  A tiny, tiny bit of economics is all anyone needed to know in advance that these subsidies were Really Bad Things.

Food prices have risen 75% since 2005 (in inflation adjusted terms).  This matters a LOT to poor families.  And why?  Ethanol subsidies.

From the Economist:

"But the rise in prices is also the self-inflicted result of America's reckless ethanol subsidies. This year biofuels will take a third of America's (record) maize harvest. That affects food markets directly: fill up an SUV's fuel tank with ethanol and you have used enough maize to feed a person for a year. And it affects them indirectly, as farmers switch to maize from other crops. The 30m tonnes of extra maize going to ethanol this year amounts to half the fall in the world's overall grain stocks."

The bolded part is pretty amazing.  And all the people everywhere patting themselves on the fucking back for how they're helping reduce global warming.  The sad part about this is that aside from the Economist, I haven't seen a single mainstream media outlet run ONE FUCKING STORY about how useless Ethanol is, and how reckless and destructive ethanol subsidies are.  Oh, sure, every once in a while a biochemist gets 30 seconds on CNN and mentions that Ethanol only really offers about a 1% fuel-efficiency savings over regular gasoline, but the interviewer is always quick to move on.

I'm a big fan of Greg Mankiw's Pigou Club, a huge opponent of agricultural subsidies (especially for EVIL PRODUCTS).