19 June 2009 @ 8:24AM >> Remember when passing the Obama Administration’s stimulus plan was vital to saving the republic? The administration made all sorts of projections intended to demonstrate the necessity of their plan.

Well, now we’ve got a few months of data, so we can see how their plans panned out.

This chart shows Obama’s unemployment projections without the stimulus (the light blue line) and with the stimulus (dark blue line). Actual unemployment figures are shown as red dots:

(Hat Tip: Innocent Bystanders.)

31 May 2009 @ 5:18PM >> Slate’s Mickey Kaus looks at the the Obama Administration’s bailout of the United Auto Workers union and asks:

Why should the government tax unskilled workers making $18 an hour, who haven’t bankrupted their employers, in order to protect unskilled workers making $28 an hour, and who have bankrupted their employers, from having to take a pay cut?

6 May 2009 @ 9:29AM >> History is rife with examples of mafia ties to labor unions. Now, President Obama is using mafia tactics to steal from bondholders and give the loot to one of his biggest source of campaign funds, labor unions:

The President has just harshly castigated hedge fund managers for being unwilling to take his administration’s bid for their Chrysler bonds. He called them “speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”

[...]

The President and his team sought to avoid having Chrysler go [the normal bankruptcy] process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.

[...]

The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.

Yesterday, I mentioned the threats made by the Obama Administration against groups that lent money to Chrysler through bond holdings. More sources are contradicting the White House, which denied they made such threats:

Creditors to Chrysler describe negotiations with the company and the Obama administration as “a farce,” saying the administration was bent on forcing their hands using hardball tactics and threats.

Conversations with administration officials left them expecting that they would be politically targeted, two participants in the negotiations said.

Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.

The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking “end justifies the means” group they have ever encountered. Another characterized Obama was “the most dangerous smooth talker on the planet- and I knew Kissinger.” Both were voters for Obama in the last election.

It’s interesting that President Obama only uses these mafia-like tactics with fellow law-abiding citizens whose only “crime” is finding themselves opposed to Obama on one issue or another.

When it comes to thugs like Mahmoud Ahmadinejad and Hugo Chavez, suddenly Obama becomes Mr. Warm-and-Fuzzy, and it’s all smiles, handshakes and backslaps.

4 May 2009 >> New York Post columnist Irwin M. Stelzer notes that President Obama “said last week that he’d override the contractual and legal rights of Chrysler’s senior lenders and carve up the company between the government and the United Auto Workers.”

Stelzer continues:

Obama forced the senior lenders to take something like 30 cents for every dollar they’d lent Chrysler. Many lenders — the big banks who’d taken federal bailout money — rolled over. But some hedge-fund managers pointed out that they have a legal, fiduciary responsibility to do the best they can for their investors (which include pension funds) and decided to take their chances with a bankruptcy judge.

Never mind that this is their long-established legal right. Obama is furious with these “speculators,” and hinted that he knows where they live and will get even when the new financial-industry regulations are drafted.

This continued antagonism towards America’s business community may not be in the country’s best long-term interests, Stelzer points out:

[T]he president is counting on some of these “speculators” to partner with the Treasury and take a big stake in the toxic assets that are preventing the big banks from resuming normal lending. Unprotected by a rule of law, these investors will sit on their assets, rather than partner with a government that might some day decide, after the fact, that they made too much money, or should bear a larger portion of any losses than they had signed on to do.

Meanwhile, a prominent bankruptcy attorney, White & Case’s Tom Lauria, alleges White House threats against an opponent of the government’s Chrysler takeover plan:

One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight.

The most interesting thing about Lauria’s claim is that the Obama official threated to sic the White House Press Corps on offending “speculators.”

In theory, the White House Press Corps is an independent body, an arm of the press and not the Obama Administration. What would give this official the idea that the press corps would blindly do the administration’s bidding?

Perhaps the press could prove its independence by digging into this story a little bit deeper. (The White House has issued a blanket denial, but the varying accounts don’t add up.)

Nevertheless, I can certainly understand why an administration official might mistakenly conclude the hard-hitting media was merely an extension of Barack Obama’s PR apparatus.

9 February 2009 @ 8:51AM >> According to Financial Week, Congressman Barney Frank, the Democrat who serves as the Chairman of the House Financial Services Committee, wants to limit executive pay of all companies:

Congress will consider legislation to extend some of the curbs on executive pay that now apply only to those banks receiving federal assistance, House Financial Services Committee Chairman Barney Frank said.

“There’s deeply rooted anger on the part of the average American,” the Massachusetts Democrat said at a Washington news conference today.

He said the compensation restrictions would apply to all financial institutions and might be extended to include all U.S. companies.

14 January 2009 @ 9:12AM >> Once Washington starts handing out the money, eventually everybody lines up:

With the financial industry, auto makers and more getting assistance from the federal government to stay afloat during the recession, the adult industry decided it would try to get something as well.

Girls Gone Wild CEO Joe Francis and “Hustler” magazine publisher Larry Flynt have said they will petition Congress for financial aid along the lines of what the Big Three auto makers are getting.

Francis said that he and Flynt are asking for $5 billion, and that they have sent letters to Treasury Secretary Henry Paulson, Congress and their local Congressman, Henry Waxman (D-Calif.) with the proposal. Rep. Waxman’s office did not immediately respond to a request for comment.

With the $5 billion, they would “invest in building new means of distribution, and shoring up our distribution right now to prevent further erosion from factors like Youporn and other Internet content that has seriously affected our business over the past few years,” Francis said in an interview with FOX Business. “We will use the money wisely, and we will create more jobs.”

Francis said that if invited, he and Flynt would drive across the country in a hybrid vehicle to present their plans to Congress.

The press release noted that DVD sales and rentals for the adult industry have decreased by 22% in the past year, partially because people are turning more and more to the Internet for adult content.

“People are too depressed to be sexually active,” Flynt said in the press release. “This is very unhealthy as a nation. Americans can do without cars and such but they cannot do without sex.”

Francis said he and Flynt would also be willing to discuss the possibility of the government buying equity stakes in their companies, as was done with financial firms.

“If the government would like to be a partner with Mr. Flynt and I, we’re certainly amenable to it,” he said.

As unlikely as it sounds, I wouldn’t discount the possibility of the government giving bailout money to the porn industry. After all, politicians and porn stars have a lot in common: their jobs both involve screwing people.

12 January 2009 >> As reported by the Washington Post:

With fuel prices declining, government mandates that automakers build highly fuel-efficient cars will be no more effective than combating obesity by forcing clothing manufacturers to make only small sizes.

Attributed to Bob Lutz
Vice Chairman of Global Product Development
General Motors

25 October 2008 @ 3:45PM >> Echoing a point I made on Tuesday, former Federal Reserve Chairman Alan Greenspan on Thursday discussed the limits of human understanding of systems as complex as the economy:

[W]e have this extraordinarily complex global economy, which as everybody now realizes is very difficult to forecast in any considerable detail.

And, Mr. Chairman, I know — I agree with you in the fact that there were a lot of people who raised issues about problems emerging, but there are always a lot of people raising issues, and half the time they’re wrong. And the question is, what do you do?

I mean, you point out quite correctly that the Federal Reserve had as good an economic organization as exists, and I would say, in the world. If all those extraordinarily capable people were unable to foresee the development of this critical problem, which undoubtedly was the cause of the world problem with respect to mortgage-backed securities, I have to — I think we have to ask ourselves, why is that?

And the answer is that we’re not smart enough as people. We just cannot see events that far in advance. And unless we can, it’s very difficult to look back and say, why didn’t we catch something?

21 October 2008 >> The current market turmoil is not due to an insufficient amount of government meddling; quite the opposite, as the Washington Post notes in an editorial today:

[T]he problem with the U.S. economy, more than lack of regulation, has been government’s failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.

[...]

We’ll never know how this newly liberated financial sector might have performed on a playing field designed by Adam Smith. That’s because government interventions of all kinds, from the defense budget to farm supports, shaped the business environment. No subsidy would prove more fateful than the massive federal commitment to residential real estate — from the mortgage interest tax deduction to Fannie Mae and Freddie Mac to the Federal Reserve’s low interest rates under Mr. Greenspan. Unregulated derivatives known as credit-default swaps did accentuate the boom in mortgage-based investments, by allowing investors to transfer risk rather than setting aside cash reserves. But government helped make mortgages a purportedly sure thing in the first place. Home prices seemed to stand on a solid floor built by Washington.

Since no government regulator can know in advance how new man-made economic rules will affect the financial choices people make, no regulator is ever capable of understanding the full set of potential pitfalls those regulations could create. Any wholesale changes to the functioning of our markets is therefore extremely risky.

In a political environment like this, new regulations are an easy sell. People will support any bill that puts a stop to Demonized Financial Activity X—as long as they think it’ll only cost other people. But when deciding whether to support a particular regulatory solution, remember that you’ll never get to hear a full accounting of its possible downsides. That’s because there’s no human or computer on the planet capable of accurately modeling the quintillions of variables that will also change as those regulatory changes ripple through the world’s economic oceans.

New regulations may seem obvious, but the damage they can cause rarely is, sometimes even in retrospect.

Since those with an ample supply of pessimism are already comparing our economy to that of the Great Depression—I’m not denying there’s the potential for pain in our future, but call me once the economy has contracted by 33% or when unemployment hits 25%—perhaps it’s useful to recall what happened in the 1930s when government bureaucrats in their infinitesimal wisdom decided that they knew better than markets:

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

[...]

“The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,” Cole said. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

Sadly, our country once again seems to be blindly groping its way towards socialism.

2 July 2008 @ 9:36AM >> Politicians like John McCain and Barack Obama show a fundamental misunderstanding of economics when they attack “speculators” as the cause of price increases for things like oil. Leaving aside the falling dollar—which increases the price of anything imported—the prices of commodities and raw materials are going up because demand for those materials has increased all over the world. And that demand has been increasing faster than supply.

In other words, as Robert J. Samuelson shows in the Washington Post, the shocking reality is that the law of supply and demand is governing the prices of commodities, not some unseen cabal of evil “speculators” gaming the system.

Unfortunately for politicians, economic laws can’t be demagogued. A suspicious and easily-caricatured “other” is needed to attack. So even though politicians themselves have done much to constrict the supply of certain commodities (oil) and artificially raise demand for others (corn), they’d prefer to blame the price increases on someone else. So “speculators”—who actually use futures markets to shield themselves from future risk—are now the villain du jour.

Let’s say you want to buy a plane ticket to visit a relative for Christmas. You might decide to buy the ticket now or months before Christmas. Many other people will do the same. You might just like making plans early, or you might be thinking about all those bills you’ll have around Christmas. Part of the rationale for buying early is that it helps you manage future expenses better by shifting some of the burden to today. Or you might just worry that the tickets will cost more in the future.

Well, the airline does the same thing.

It takes a lot of fuel to fly, and any significant change in the price of fuel changes the economics of every flight. So, airlines can buy fuel futures, meaning that they make a financial commitment today in exchange for a guarantee to get fuel at a certain price in the future. If the price of fuel moves up significantly, the airlines are protected because their price is locked in by the futures contract. This helps prevent airlines from taking massive losses on flights in the future, and it’s what enables them to sell you tickets months in advance.

If there were no futures market, airlines would be taking a big risk by selling tickets far in the future. Without the ability to lock in fuel prices, every ticket sold would amount to a bet taken by the airline. The futures market allows the airline to shift that gamble to a third party: whoever purchases the other side of the futures contract.

The so-called “speculators” aren’t gaming the market, they’re lubricating the market. Without them, commerce would be riskier and more expensive.

It’s too bad that both major party candidates don’t get this.

14 February 2007 @ 7:59AM >> The federal budget surplus increased by 82% in January.

(Surplus? There’s a budget surplus? Who knew? Certainly not the media.)

---

Update: A criticism of the post is that by focusing on one month, I painted an inaccurate picture. The statistics were for the month of January. I generally assume people will follow the links for the full story. But just in case, the first link from MarketWatch indicates that tax receipts are generally higher in January due to individuals (like me) making estimated tax payments.

But MarketWatch also states: “For the first four months of the 2007 fiscal year, the deficit was $42.2 billion, about 57.2% lower than the $98.4 billion deficit in the same period in the previous fiscal year.” The trajectory of the falling deficit is impressive, potentially leading to a balanced budget by mid-2008.

My distrust of the establishment media’s reporting of the economy still stands. I would hope the media would be equally vigorous in reporting good economic news regardless of which party occupies the White House. And by many measures, the economy over the last few years has outperformed the economy of the mid-to-late 1990s. Unlike then, today’s boom is not based on the irrational exuberance of an Internet-driven stock market bubble. And unlike today, the 1990s economy was not saddled with the massive economic damage caused by the September 11th attacks.

Nevertheless, a surplus in a single month is not the same as a surplus for the fiscal year, and we’re not there yet. The fact that, in my view, the media represents the economy inaccurately is no excuse for my doing the same.

22 January 2007 @ 7:02AM >> From Briefing.com:

On Friday, it was reported that the December US federal budget showed a surplus of $44.5 billion. This was well above the expected $24 billion.

The twelve month trailing deficit is now down to $208 billion.

This is amazing. The US federal deficit is now down to just 1.5% of GDP (through fourth quarter estimates).

At the end of 2003 the deficit was running at over 3.8% of GDP and was in excess of $420 billion. The forecasts were for “$400 to $500 billion yearly deficits as far as the eye can see.”

That conventional wisdom has been proved COMPLETELY WRONG. Yet, the belief seems to linger on. There are continued constant references to the “huge budget deficits” in the press on nearly a non-stop basis.

The fact is, the accumulated deficit as a percentage of GDP has fallen from 75% in 1994 to about 61% today. The deficit is shrinking not just on a current year basis, but also as a burden to future generations.

This improvement is even more remarkable considering that the Iraq war is costing approximately $100 billion per year, and that reconstruction costs for Katrina are also in the past twelve months’ data.

If not for these factors, the deficit would be nearly in balance and certainly less than 1% of GDP.

Furthermore, when state budget surpluses are taken into account, the current US government deficit is closer to just 1% of GDP. This consolidate figure including state budgets is actually a better measure of the fiscal health of US government overall and is more accurate in terms of comparing to other countries.

Speaking of which, Italy, Germany, Japan, and France continue to run deficits in excess of 3% of GDP. That is far higher than the US percentage of 1.5%, or 1% for all government. Italy’s accumulated deficit is 100%, Japan’s is 100%, and the EU as a whole is close to 65%.

It can easily be argued that there is in fact no current budget crisis in the US.

This is not to say that curtailing the deficit further would not make sense. Nor is it to ignore the long-term problems posed by the need to fund social security or Medicare. Those are budget issues that need to be addressed.

Nevertheless, the clamor over the current deficit is blown way out of proportion. It may simply be lingering pessimism in the press, or it may be supported by those advocating tax hikes.

Or, it may be that the people advocating tax hikes have a lot of allies in the press, and that both camps have an ideological vested interest in convincing people that the economy is in the tank and the federal government needs to grow even further.

I suspect the economic gloom and doom in the press will continue...at least until the next time a Democrat occupies the White House, when the same economic situation that prevails today will suddenly be reported as positive news.

19 October 2006 @ 5:25PM >> Even fictional currencies in virtual words are within the reach of the taxman:

Users of online worlds such as Second Life and World of Warcraft transact millions of dollars worth of virtual goods and services every day, and these virtual economies are beginning to draw the attention of real-world authorities.

“Right now we’re at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise — taxes, barter exchanges, property and wealth,” said Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress.

“You could argue that to a certain degree the law has fallen (behind) because you can have a virtual asset and virtual capital gains, but there’s no mechanism by which you’re taxed on this stuff,” he told Reuters in a telephone interview.

The increasing size and public profile of virtual economies, the largest of which have millions of users and gross domestic products that rival those of small countries, have made them increasingly difficult for lawmakers and regulators to ignore.

...in much the same way that a weekend invitation to the Kennedy compound is hard for alcoholic philanderers to ignore.

29 June 2006 >> Although the feeling is far from universal, a vocal minority of Americans despise Wal-Mart. Chief among them is author Barbara Ehrenreich, the doyenne of defeatists who, in such uplifting titles as Nickel and Dimed: On (Not) Getting By in America and Bait and Switch: The (Futile) Pursuit of the American Dream, makes a career out of finding the black cloud that surrounds every silver lining.

In a debate hosted by Slate, scholar Jason Furman attempts to inject some elementary understanding of economics into Mistress Ehrenreich’s dark world:

I live near a Best Buy, the Wal-Mart of electronics stores. Directly across the street is Stereo Exchange, a boutique outfit with high-end equipment that is consistently rated the best stereo store in New York. Best Buy has a great selection and it’s pretty cheap, but don’t expect the salespeople to know the difference between a plasma TV and an LCD TV—if you manage to attract their attention in the first place. Stereo Exchange has several fawning and knowledgeable staff members, typically serving the one or two customers in the store at any given moment.

I assume that Stereo Exchange pays its staff a lot more than Best Buy does. But this doesn’t make Best Buy a bad company or prove that it exploits its workers. No one would say that Wal-Mart exploits its workers because they’re paid less than doctors. Nor would anyone say that Wal-Mart is a terrific company because it pays its employees a lot more than McDonalds does.

Now imagine that Best Buys across the country were replaced by Stereo Exchanges. We would have more “good jobs” and fewer “bad jobs.” The average wage in the electronics retail sector would go up. But where would all the former Best Buy workers go? Most of them wouldn’t work at Stereo Exchange. Maybe some would take a pay cut and work at McDonalds. Maybe others would get lucky and find this was just the prod they needed to find a better job. It’s hardly obvious this would be an improvement.

...but there wouldn’t be any more ugly Wal-Mart boxes dotting the landscape! And I suspect that elitist aesthetics—rather than a craving for so-called “economic justice”—is behind the latte left’s continued assault on Wal-Mart.

After all, how do you define economic justice? If a company has $20,000 each month to spend on salaries, it can hire 5 people at $4,000/month or 10 people at $2,000/month. Is a higher salary better if fewer people are employed? I guess that depends on whether you’re one of the 5 people who would get a raise or one of the 5 people who would lose their jobs if the company decided to double salaries.

By decrying the salaries paid by Wal-Mart, the Barbara Ehrenreichs of the world seem to be arguing for less employment, not more. Where’s the justice in that?

2 December 2005 @ 2:30PM >> One of the reasons I will probably never be considered a journalist is that I am insufficiently pessimistic for the job. Life will hand you plenty of cause to be periodically despondent; you don’t really need to go around looking for the dark cloud that surrounds every silver lining. That attitude alone would disqualify me from ever becoming an economic reporter:

During a quarter century of analyzing and forecasting the economy, I have never seen anything like this. No matter what happens, no matter what data are released, no matter which way markets move, a pall of pessimism hangs over the economy.

It is amazing. Everything is negative. When bond yields rise, it is considered bad for the housing market and the consumer. But if bond yields fall and the yield curve narrows toward inversion, that is bad too, because an inverted yield curve could signal a recession.

If housing data weaken, as they did on Monday when existing home sales fell, well that is a sign of a bursting housing bubble. If housing data strengthen, as they did on Tuesday when new home sales rose, that is negative because the Fed may raise rates further. If foreigners buy our bonds, we are not saving for ourselves. If foreigners do not buy our bonds, interest rates could rise. If wages go up, inflation is coming. If wages go down, the economy is in trouble.

This onslaught of negative thinking is clearly having an impact. During the 2004 presidential campaign, when attacks on the economy were in full force, 36% of Americans thought we were in recession. One year later, even though unemployment has fallen from 5.5% to 5%, and real GDP has expanded by 3.7%, the number who think a recession is underway has climbed to 43%.

This is a real conundrum. It is true, bad things have happened. Katrina wiped out a major city and many people are still displaced. GM has announced massive layoffs. Underfunded pension plans are being handed off to the government. Oil, gasoline and natural gas prices have soared. Despite it all, the U.S. economy continues to flourish.

It sure isn’t reported that way. If all you had to go on were the establishment media portrayals of the economy—as opposed to, you know, actual evidence—you would certainly be left with the same impression that the Democrats tried to impart during the last presidential campaign: namely, that we’re mired in the worst economy since Herbert Hoover and the Great Depression.

It’s funny, though. Just a few years ago, the general tone of economic reporting seemed a lot sunnier. Go back to the 1996 election and compare, for example, the unemployment data with that from the same point in the 2004 campaign. Notice any difference in the numbers? How about people’s perceptions of those numbers?

I wonder if the way economic news is reported has anything to do with the occupant of the White House...