Wednesday, December 9, 2009

So why do you want intrusive government?

When you look at this administration's major actions, it is difficult to find one that is targeted at the problem it alleges to address. TARP was supposed to buy the underwater assets of banks but has instead turned out to be a gigantic slush fund. Cap and trade was intended to save the earth from global warming. But most experts agree that it will do little if anything to reduce global temperatures. Rather it will also be a gigantic slush fund where the government choses who to tax and who to subsidize. Financial reform has nothing to do with the mortgage problem and asset bubbles. Rather it creates an all powerful single federal czar to oversee consumer laws and regulates hedge funds which had nothing to do with the crises. Health care reform was based on accessibility, the uninsured and costs. The legislation before the congress addresses none of these issues. Rather it allows the government to seize one sixth of the economy. The stimulus package was to stop the rise in unemployment. However, again it was nothing but a big slush fund that had no impact on unemployment. Get the picture? Its like Orwell's 1984 in which the government agencies are mislabeled, e. g., the Ministry of Peace conducts war and the Ministry of Information is the propaganda arm of the government. All of the efforts of the Obama administration are likewise mislabeled. The only thing that is consistent is that each is intended to expand the reach and power of the federal government. Personally I do not understand how anyone could endorse such an approach that has only demonstrated failure throughout history. The government is neither efficient, compassionate, understanding or even remotely consumer-friendly. Its one-size-fits-most rules are the opposite of what is produced by the market. From what I can gather, there are two types who favor the expansion of government. The first are those who think that they will be the rule makers and can impose their superiorness upon the great unwashed. The second is the group that benefits from the government's largesse. Those who receive more in transfer payments than they pay in taxes. However, the vast majority of us are not in either group. We are the ones who are imposed on, who pay for all of this, and who find our standards of living declining. The majority of the American people understand this and are opposed to the government increasing its reach. The result of the government imposing itself on us raises the bottom by pushing down the top. Yet by discouraging productivity and innovation, the economy as a whole becomes worse off with less growth and ultimately less revenues. Lastly what all the pro-government people don't seem to realize that one day those in the government may not be sympathetic to the liberal causes and start sending the favors over to those who are currently being punished by the liberals. Remember "what goes around comes around."

Friday, December 4, 2009


I am not a climate scientist. However, I do know models since that is what I do for a living. In my profession, models are proffered and explored and criticized. I know of no "settled science". Constantly, we read of the consensus of economists predicting what inevitably turns out to be wrong. Yet economists are not vilified and go on to mis-predict the next event. One of the pieces of research commonly cited as evidence of mortgage pricing discrimination is so replete with errors that I use it in my doctoral seminar as an example of how to lie with statistics. Yet somehow, with global warming there is supposed to be "settled science". Well as I have written often, that alone made me a skeptic. The more I read, the more skeptical I became. This was before the email blowup at East Anglia. Now comes the following piece from Prof. Richard Lindzen of MIT who is an expert. So I ask you true believers again: Do you still believe in global warming?

OPINIONNOVEMBER 30, 2009, 7:44 P.M. ET
The Climate Science Isn't Settled
Confident predictions of catastrophe are unwarranted.

Is there a reason to be alarmed by the prospect of global warming? Consider that the measurement used, the globally averaged temperature anomaly (GATA), is always changing. Sometimes it goes up, sometimes down, and occasionally—such as for the last dozen years or so—it does little that can be discerned.

Claims that climate change is accelerating are bizarre. There is general support for the assertion that GATA has increased about 1.5 degrees Fahrenheit since the middle of the 19th century. The quality of the data is poor, though, and because the changes are small, it is easy to nudge such data a few tenths of a degree in any direction. Several of the emails from the University of East Anglia's Climate Research Unit (CRU) that have caused such a public ruckus dealt with how to do this so as to maximize apparent changes.

The general support for warming is based not so much on the quality of the data, but rather on the fact that there was a little ice age from about the 15th to the 19th century. Thus it is not surprising that temperatures should increase as we emerged from this episode. At the same time that we were emerging from the little ice age, the industrial era began, and this was accompanied by increasing emissions of greenhouse gases such as CO2, methane and nitrous oxide. CO2 is the most prominent of these, and it is again generally accepted that it has increased by about 30%.

The defining characteristic of a greenhouse gas is that it is relatively transparent to visible light from the sun but can absorb portions of thermal radiation. In general, the earth balances the incoming solar radiation by emitting thermal radiation, and the presence of greenhouse substances inhibits cooling by thermal radiation and leads to some warming.

That said, the main greenhouse substances in the earth's atmosphere are water vapor and high clouds. Let's refer to these as major greenhouse substances to distinguish them from the anthropogenic minor substances. Even a doubling of CO2 would only upset the original balance between incoming and outgoing radiation by about 2%. This is essentially what is called "climate forcing."

There is general agreement on the above findings. At this point there is no basis for alarm regardless of whether any relation between the observed warming and the observed increase in minor greenhouse gases can be established. Nevertheless, the most publicized claims of the U.N.'s Intergovernmental Panel on Climate Change (IPCC) deal exactly with whether any relation can be discerned. The failure of the attempts to link the two over the past 20 years bespeaks the weakness of any case for concern.

The IPCC's Scientific Assessments generally consist of about 1,000 pages of text. The Summary for Policymakers is 20 pages. It is, of course, impossible to accurately summarize the 1,000-page assessment in just 20 pages; at the very least, nuances and caveats have to be omitted. However, it has been my experience that even the summary is hardly ever looked at. Rather, the whole report tends to be characterized by a single iconic claim.

The main statement publicized after the last IPCC Scientific Assessment two years ago was that it was likely that most of the warming since 1957 (a point of anomalous cold) was due to man. This claim was based on the weak argument that the current models used by the IPCC couldn't reproduce the warming from about 1978 to 1998 without some forcing, and that the only forcing that they could think of was man. Even this argument assumes that these models adequately deal with natural internal variability—that is, such naturally occurring cycles as El Nino, the Pacific Decadal Oscillation, the Atlantic Multidecadal Oscillation, etc.

Yet articles from major modeling centers acknowledged that the failure of these models to anticipate the absence of warming for the past dozen years was due to the failure of these models to account for this natural internal variability. Thus even the basis for the weak IPCC argument for anthropogenic climate change was shown to be false.

Of course, none of the articles stressed this. Rather they emphasized that according to models modified to account for the natural internal variability, warming would resume—in 2009, 2013 and 2030, respectively.

But even if the IPCC's iconic statement were correct, it still would not be cause for alarm. After all we are still talking about tenths of a degree for over 75% of the climate forcing associated with a doubling of CO2. The potential (and only the potential) for alarm enters with the issue of climate sensitivity—which refers to the change that a doubling of CO2 will produce in GATA. It is generally accepted that a doubling of CO2 will only produce a change of about two degrees Fahrenheit if all else is held constant. This is unlikely to be much to worry about.

Yet current climate models predict much higher sensitivities. They do so because in these models, the main greenhouse substances (water vapor and clouds) act to amplify anything that CO2 does. This is referred to as positive feedback. But as the IPCC notes, clouds continue to be a source of major uncertainty in current models. Since clouds and water vapor are intimately related, the IPCC claim that they are more confident about water vapor is quite implausible.

There is some evidence of a positive feedback effect for water vapor in cloud-free regions, but a major part of any water-vapor feedback would have to acknowledge that cloud-free areas are always changing, and this remains an unknown. At this point, few scientists would argue that the science is settled. In particular, the question remains as to whether water vapor and clouds have positive or negative feedbacks.

The notion that the earth's climate is dominated by positive feedbacks is intuitively implausible, and the history of the earth's climate offers some guidance on this matter. About 2.5 billion years ago, the sun was 20%-30% less bright than now (compare this with the 2% perturbation that a doubling of CO2 would produce), and yet the evidence is that the oceans were unfrozen at the time, and that temperatures might not have been very different from today's. Carl Sagan in the 1970s referred to this as the "Early Faint Sun Paradox."

For more than 30 years there have been attempts to resolve the paradox with greenhouse gases. Some have suggested CO2—but the amount needed was thousands of times greater than present levels and incompatible with geological evidence. Methane also proved unlikely. It turns out that increased thin cirrus cloud coverage in the tropics readily resolves the paradox—but only if the clouds constitute a negative feedback. In present terms this means that they would diminish rather than enhance the impact of CO2.

There are quite a few papers in the literature that also point to the absence of positive feedbacks. The implied low sensitivity is entirely compatible with the small warming that has been observed. So how do models with high sensitivity manage to simulate the currently small response to a forcing that is almost as large as a doubling of CO2? Jeff Kiehl notes in a 2007 article from the National Center for Atmospheric Research, the models use another quantity that the IPCC lists as poorly known (namely aerosols) to arbitrarily cancel as much greenhouse warming as needed to match the data, with each model choosing a different degree of cancellation according to the sensitivity of that model.

What does all this have to do with climate catastrophe? The answer brings us to a scandal that is, in my opinion, considerably greater than that implied in the hacked emails from the Climate Research Unit (though perhaps not as bad as their destruction of raw data): namely the suggestion that the very existence of warming or of the greenhouse effect is tantamount to catastrophe. This is the grossest of "bait and switch" scams. It is only such a scam that lends importance to the machinations in the emails designed to nudge temperatures a few tenths of a degree.

The notion that complex climate "catastrophes" are simply a matter of the response of a single number, GATA, to a single forcing, CO2 (or solar forcing for that matter), represents a gigantic step backward in the science of climate. Many disasters associated with warming are simply normal occurrences whose existence is falsely claimed to be evidence of warming. And all these examples involve phenomena that are dependent on the confluence of many factors.

Our perceptions of nature are similarly dragged back centuries so that the normal occasional occurrences of open water in summer over the North Pole, droughts, floods, hurricanes, sea-level variations, etc. are all taken as omens, portending doom due to our sinful ways (as epitomized by our carbon footprint). All of these phenomena depend on the confluence of multiple factors as well.

Consider the following example. Suppose that I leave a box on the floor, and my wife trips on it, falling against my son, who is carrying a carton of eggs, which then fall and break. Our present approach to emissions would be analogous to deciding that the best way to prevent the breakage of eggs would be to outlaw leaving boxes on the floor. The chief difference is that in the case of atmospheric CO2 and climate catastrophe, the chain of inference is longer and less plausible than in my example.

Mr. Lindzen is professor of meteorology at the Massachusetts Institute of Technology.

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Thursday, December 3, 2009

Spread the wealth?

Remember when Joe Biden said that we needed to "spread the wealth?" My reaction was don't we do enough of that already with over $4 trillion going into poverty programs since LBJ? What Biden and his ilk actually mean is that they want to further confiscate more of the wealth of Americans and reallocate it, thereby increasing the power of politicians. I have always considered the measure of a society in how well off were its poor. That wealth is a combination of income, possessions, and income transfers. By any measure, America is a success for its poor would be considered middle class in most of the world. Mark Perry documents this in his blog ( when he shows not only are the rich getting richer but so are the poor. The liberals envision s fixed pie where in order to gain, one has to take from another. This is contrary to the pie growing lifting all boats.

Consider the findings of Robert Rector (

The following are facts about the 12 million persons defined as "poor" by the Census Bureau, taken from various gov¬ernment reports:
• Forty-three percent of all poor households actu¬ally own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
• Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
• Only 6 percent of poor households are over¬crowded. More than two-thirds have more than two rooms per person.
• The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
• Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
• Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
• Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
• Eighty-nine percent own microwave ovens, more than half have a stereo, and more than a third have an automatic dishwasher.
As a group, America's poor are far from being chronically undernourished. The average consump¬tion of protein, vitamins, and minerals is virtually the same for poor and middle-class children and, in most cases, is well above recommended norms. Poor children actually consume more meat than do higher-income children and have average protein intakes 100 percent above recommended levels. Most poor children today are, in fact, supernour¬ished and grow up to be, on average, one inch taller and 10 pounds heavier than the GIs who stormed the beaches of Normandy in World War II.

Tuesday, December 1, 2009

Still believe in global "warming"? Redux

Wall Street Journal
NOVEMBER 27, 2009, 7:02 P.M. ET
Rigging a Climate 'Consensus'
About those emails and 'peer review.'

The climatologists at the center of the leaked email and document scandal have taken the line that it is all much ado about nothing. Yes, the wording of their messages was unfortunate, but they insist this in no way undermines the underlying science. They're ignoring the damage they've done to public confidence in the arbiters of climate science.
"What they've done is search through stolen personal emails—confidential between colleagues who often speak in a language they understand and is often foreign to the outside world," Penn State's Michael Mann told Reuters Wednesday. Mr. Mann added that this has made "something innocent into something nefarious."
Phil Jones, director of the University of East Anglia's Climate Research Unit, from which the emails were lifted, is singing from the same climate hymnal. "My colleagues and I accept that some of the published emails do not read well. I regret any upset or confusion caused as a result. Some were clearly written in the heat of the moment, others use colloquialisms frequently used between close colleagues," he said this week.
We don't doubt that Mr. Jones would have phrased his emails differently if he expected them to end up in the newspaper. He's right that it doesn't look good that his May 2008 email to Mr. Mann regarding the U.N.'s Fourth Assessment Report said "Mike, Can you delete any emails you may have had with Keith re AR4?" Mr. Mann says he didn't delete any such emails, but the point is that Mr. Jones wanted them hidden.
The furor over these documents is not about tone, colloquialisms or whether climatologists are nice people. The real issue is what the messages say about the way the much-ballyhooed scientific consensus on global warming was arrived at, and how a single view of warming and its causes is being enforced. The impression left by the correspondence among Messrs. Mann and Jones and others is that the climate-tracking game has been rigged from the start.
According to this privileged group, only those whose work has been published in select scientific journals, after having gone through the "peer-review" process, can be relied on to critique the science. And sure enough, any challenges from critics outside this clique are dismissed and disparaged.
This September, Mr. Mann told a New York Times reporter in one of the leaked emails that: "Those such as [Stephen] McIntyre who operate almost entirely outside of this system are not to be trusted." Mr. McIntyre is a retired Canadian businessman who checks the findings of climate scientists and often publishes the mistakes he finds on his Web site, He holds the rare distinction of having forced Mr. Mann to publish a correction to one of his more famous papers.
As anonymous reviewers of choice for certain journals, Mr. Mann & Co. had considerable power to enforce the consensus, but it was not absolute, as they discovered in 2003. Mr. Mann noted in a March 2003 email, after the journal "Climate Research" published a paper not to Mr. Mann's liking, that "This was the danger of always criticising the skeptics for not publishing in the 'peer-reviewed literature'. Obviously, they found a solution to that—take over a journal!"
Mr. Mann went on to suggest that the journal itself be blackballed: "Perhaps we should encourage our colleagues in the climate research community to no longer submit to, or cite papers in, this journal. We would also need to consider what we tell or request of our more reasonable colleagues who currently sit on the editorial board." In other words, keep dissent out of the respected journals. When that fails, redefine what constitutes a respected journal to exclude any that publish inconvenient views.
A more thoughtful response to the emails comes from Mike Hulme, another climate scientist at the University of East Anglia, as reported by a New York Times blogger:
"This event might signal a crack that allows for processes of re-structuring scientific knowledge about climate change. It is possible that some areas of climate science has become sclerotic. It is possible that climate science has become too partisan, too centralized. The tribalism that some of the leaked emails display is something more usually associated with social organization within primitive cultures; it is not attractive when we find it at work inside science."
The response from the defenders of Mr. Mann and his circle has been that even if they did disparage doubters and exclude contrary points of view, theirs is still the best climate science. The proof for this is circular. It's the best, we're told, because it's the most-published and most-cited—in that same peer-reviewed literature. The public has every reason to ask why they felt the need to rig the game if their science is as indisputable as they claim.

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Monday, November 30, 2009

Obama isn't the only one who has lost his way

In an article in the Financial Times (, economist Jeffrey Sachs of Columbia University says that "Obama has lost his way on jobs". Sachs states that the Obama solution is a Keynesian approach which focuses on consumer spending. He notes that consumer and investment demands are too low for full employment. As he states, the administration has "gone about this with a combination of near-zero interest rates, massive Fed financing of mortgages and various consumption incentives, such as rebates for new home buyers and cash for clunkers." I presume he means federal financing of mortgages since the Fed hasn't stooped to that yet. Sachs must think that these are permanent states and he may be right since the administration's policies have been job and investment killers. He also finds the Republican solution of lower taxes to be lacking. The reason is interesting. It is that the amount of money that the federal government collects in taxes only covers the outlays on social security, medicare, medicaid, veterans benefits, defense and interest on the debt. All the other expenditures are financed on borrowed money. He contends that this results in critical areas (all the rest of the budget) being critically underfunded. Therefore a tax cut is impractical. Note that it is reasonable to assume that an increase in taxes would mean that his critical areas would be better funded but the increase in taxation would discourage investment rather than encourage it as he contends. His solution calls for three parts. First, promote greater exports through dollar depreciation. This is astounding since it is precisely what the Bush administration and the Obama administration have been doing. This has led to capital flight from the United States and slowed business investment domestically. Sachs should know this but apparently doesn't. Second, is a "massive expansion of education spending and job training." Well this country has done exactly that over the past three decades. What Sachs wants is even more spending. Instead he should insist that what is spent is spent to achieve the objectives of increasing education and increasing skill levels. We spend enough now. We don't spend it wisely. If the money were spend on schools that work like charter schools or Catholic schools rather than public schools, then we could achieve better results. Third, he favors a spurring of investment in "areas of high social return that are currently blocked by the lack of clear policies. The conversion to a low-carbon economy would create jobs in the short run, a more productive economy in the medium run and US technological leadership in the longer run." Where to begin? One, most studies have shown that "green" jobs are not sustainable and do not provide a long run boost in employment. Two, there is absolutely no evidence that conversion to low-carbon technology is more productive. Rather, most studies show just the opposite - that low carbon technology is higher cost and less productive. Three, US technological superiority stems from the US economic system being profit based rather than government subsidized. Sachs has obviously bought the global warming kool aid and his solutions follow from that. However, when viewed from my perspective, Obama is not the only one who has lost his way.

Monday, November 23, 2009

So what was left out?

Washington Wire
Political Insight and Analysis From The Wall Street Journal's Capital Bureau

President Barack Obama on Wednesday described his proposals as a “sweeping overhaul of the financial regulatory system” on a scale not seen since the Great Depression. The official White House document, titled “A New Foundation: Rebuilding Financial Supervision and Regulation,” runs 89 pages in length. Washington Wire condensed the full proposal to a more manageable series of bullet points.

For the regulation of financial firms, the proposal:

Creates Financial Services Oversight Council, which would coordinate activities among regulators, replacing the President’s Working Group.
Ensures that any financial firm big enough to pose a risk to the financial system would be heavily regulated by the Federal Reserve, including regular stress tests.
Says the Fed will have to “fundamentally adjust” its current supervision to more closely watch for systemic risks.
Allows the Fed to collect reports from all U.S. financial firms that meet “certain minimum size thresholds.”
Gives the Fed oversight over parent companies and all subsidiaries, including unregulated units and those based overseas.
Says the Treasury will re-examine capital standards for banks and bank-holding companies.
Tells regulators to issue guidelines on executive compensation, with the goal of aligning pay with long-term shareholder value, including a re-examination of the utility of golden parachutes.
Creates a new bank agency, the National Bank Supervisor, and kills the Office of Thrift Supervision. The new agency will look over national banks, including federal branches and agencies of foreign banks.
Forces industrial banks, non-bank financial firms and credit-card banks to become more traditional bank holding companies subject to federal oversight.
Kills the SEC program that supervised Wall Street investment banks.
Requires hedge funds, private-equity funds and venture-capital funds to register with the SEC, allowing the agency to collect data from the firms.
Subjects hedge funds to new requirements in areas such as record keeping, disclosure and reporting. The oversight would include assets under management, borrowings, off-balance sheet exposures.
Urges the SEC to give directors of money-market mutual funds the power to suspend redemptions, and take other action to strengthen regulation of money-market mutual funds to prevent runs.
Beefs up oversight of insurance by creating an office within the Treasury to coordinate information and policy.
Kicks off a process by which the Treasury and the Department of Housing and Urban Development will figure out the future of mortgage giants Fannie Mae, Freddie Mac and the federal home-loan banks, which could include winding them down, returning them to the private sector or refashioning them as public utilities.
For the regulation of financial markets, the proposal:

Brings the markets for over-the-counter derivatives and asset-backed securities into a regulatory framework, strengthens regulation of derivatives dealers and forces trades to be executed through public counterparties, such as exchanges
Toughens the regulatory regime, including more conservative capital requirements and tougher rules on counterparty credit exposure.
Strengthens laws designed to protect “unsophisticated parties” from trading derivatives “inappropriately.”
Gives the Fed more power over the infrastructure that governs these markets, such as payment and settlement systems.
Harmonizes the powers and authority of the SEC and CFTC to avoid conflicting rules relating to the same products or time-wasting turf battles over who should regulate what.
Tells the SEC and the CFTC to deliver a progress report by September.
Requires that originators, for example, mortgage brokers, should retain some economic interest in securitized products.
Directs regulators to “align” participants’ compensation with the long-term performance of underlying loans.
Urges the SEC to continue its efforts to improve the transparency and standardization of securitization markets and recommends the SEC have clear authority to require reporting from issuers of asset-back securities.
Urges the SEC to strengthen its regulation of credit-rating firms, including disclosing conflicts of interest, better differentiating between structured and unstructured debt and more clearly stating the risks of financial products.
Tells regulators to reduce their reliance on credit-rating firms.
For regulations protecting consumers and investors, the proposal:

Creates a new agency, the Consumer Financial Protection Agency, with broad authority over consumer-oriented financial products, such as mortgages and credit cards. The new agency would work with state regulators.
Gives the new agency power to write rules and levy fines based on a wide range of existing statutes.
Proposes new authority for the Federal Trade Commission over the banking sector, in areas such as data security.
Creates an outside advisory panel to keep an eye on emerging industry practices.
Says the new agency should play “a leading role” in educating consumers about finance.
Gives the new agency authority to ban or restrict mandatory arbitration clauses.
Improves transparency of consumer products and services disclosures.
Says the new regulator should have authority to define standards for simple “plain vanilla” products, such as mortgages, which would have to be offered “prominently” by companies.
Proposes the government “do more” to promote these simple products.
Beefs up the agency’s power to regulate unfair, deceptive or abusive practices.
Imposes “duties of care” that will have to be followed by financial intermediaries, such as stock brokers and financial advisers.
Regulates overdraft protection plans, treating them more like credit credit-card cash advances.
Promotes access to credit in line with community investment objectives.
Strengthens SEC’s framework for investor protection by expanding the agency’s powers to beef up disclosures to investors, establish a fiduciary duty for broker-dealers who offer advice and expand protection for whistleblowers, including a fund that would pay for certain information.
Requires non-binding shareholder votes on executive compensation packages.
Requires certain employers to offer an “automatic IRA plan” for employee retirement, with investment choices prescribed by regulation or statute.
Urges exploration of ways to improve participation in 401(k) retirement plans

To give the government more tools to manage crises, the proposal:

Creates a mechanism that allows the government to take over and unwind large, failing financial institutions.
Creates a formal process for deciding when to invoke this power, which could be initiated by the Treasury, Fed, FDIC or SEC.
Gives authority to make the final decision to the Treasury, with the backing of other regulators.
Gives the Treasury the authority to decide how to fix such a failing firm, whether through a conservatorship, receivership or some other method.
Taps the FDIC to act as conservator or receiver, except in the case of broker dealers or securities firms, in which case the SEC would take over.
Amends the Fed’s emergency lending powers to require prior written approval by the Treasury Secretary.

In the international sphere, the proposal:

Recommends international regulators strengthen their definition of regulatory capital to improve the quality, quantity, and international consistency of capital.
Recommends that various international bodies implement the Group of 20 recommendations, including requiring banks to hold more capital in good times to protect against downturns.
Urges that national authorities standardize oversight of credit derivatives and markets.
Recommends national authorities improve cooperation on supervision of globally interconnected financial firms.
Recommends regulators improve the way firms are unwound when they straddle borders.
Recommends strengthening the Financial Stability Board.
Urges other countries to follow the U.S. lead and: subject systemically significant companies to stricter oversight; expand regulation of hedge funds; review compensation practices; tighten rules governing credit-rating firms.

Monday, November 2, 2009

Economists have it all wrong

From the Knoxville News-Sentinel November 1, 2009

I read somewhere that 80 percent of economists polled said the recession was over. Experience tells us that if 80 percent of economists agree on something, then they are wrong. Remember when these same economists said that the passage of the stimulus bill would keep unemployment below 8 percent? When have you ever heard it reported that "the results are what economists had predicted?" Never.

Instead, it's "the results are different than what economists had forecast." The obvious conclusion is that the recession is not over.

When asked to explain the dismal employment picture, we are told that this is a "jobless recovery." This is an oxymoron and the last five letters aptly describe those who utter it. There is no such thing as a "jobless recovery." The economy recovers when people go back to work.

What is transpiring now is that businesses are reluctant to hire back workers even with an uptick in demand. It is costly to hire workers and is cheaper to pay current employees overtime. More workers won't be hired until employers are confident that the recovery is not temporary. Employers also are uncertain about the future because of the potential job-killing likelihood embodied in cap-and-trade, some of the proposals bandied about in health care reform, the increase in the minimum wage and increases in marginal tax rates.

I wrote on these pages that the increase in the minimum wage would increase unemployment among those who are paid the minimum wage. So tell black male teenagers that the increase in the minimum wage has made them better off when their unemployment rates increased from 39 percent to 50 percent since its implementation.

One well-known economist in the Obama administration said the stimulus package has created 30,000 jobs. Really? Are they permanent ones? Do they offset the job loss just in the month of August, where large businesses laid off 60,000 workers, medium-sized businesses cut 116,000 jobs and small businesses cut 122,000 jobs?

I know the Obama administration has brought back the Jimmy Carter idea of a $3,000 tax credit to create jobs. But it is doubtful that this will have any impact since the tax credit is only $3,000 for the first year and disappears after the third year. If businesses hire, it will be mainly temporary workers until it is certain that the recovery has some permanence.

So what is to be done? First, the administration should acknowledge that the engine of job creation lies in small business. Small businesses employ 48 million people. Medium-sized businesses employ 42 million and large businesses employ only 17 million. Yet the administration seems to favor large businesses over smaller enterprises.

If the problem is uncertainty, then the administration should remove the uncertain future burdens inherent in its proposals. It should remove some of the costly burdens on business - especially small businesses - from the health care legislation. It should kill cap-and-trade. It should repeal minimum wages. It should keep the Bush tax cuts and not raise marginal personal tax rates. It should drastically cut the payroll tax. Then we will see a strong recovery along with declines in the unemployment rate.

Dr. Harold Black is the James F. Smith Jr. Professor of Finance at the University of Tennessee. He can be reached at

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What in the world is the Fed doing?

Coupled with the pay czar Ken Feinberg's capping executive pay at TARP banks at $500,000 the Fed has weighed in with its own pay plans. The Fed says that it is within its rule-making authority to review and regulate pay packages that threaten the solvency of those it regulates. Although many will say that the Fed is overstepping its authority, in the past the courts have granted it wide latitude in its rule making. This is not unprecedented. When I was at the National Credit Union Administration, we forced some credit unions that based their incentive pay on growth in size to alter those incentives. Naturally, such a package would encourage growth in size which may also encourage increased risk taking. Thus, so long as the Fed adheres to evaluating plans and their impact on risk, I have no problem with what the Fed is doing. Note I did not say that the Fed should determine the salaries. I did not say that the Fed should cap salaries. Those are beyond the purview of the Fed because the Fed does not have a clue as to what those salaries should be. However, I actually believe that all of this is just the Fed showboating. Bernanke has been nominated but will not be confirmed until January. Research has shown that the Fed generally accommodates the administration until the chairman is reconfirmed by the Senate. Since the president hates profits (just listen to his words) and thinks executives are overpaid (again listen to his words) then the Bernanke is going to do all that he can to show he is one of the team - until he is confirmed. Then I expect him to do what all Fed chairmen have done under the same circumstances. That is grow a set, become independent, do what really is best for the economy and hope for a one term president.

Thursday, October 15, 2009

Professor Bashing 101

One of the favorite mantras of talk radio is the influence of left wing university professors on the youth of America. Don't believe it. I am in my 40th year of university teaching. What I have found teaching at big public institutions in the south and small liberal colleges in the north is that students are almost always more conservative than the professors. Now I am a laissez-faire free market economist. That means I am a conservative in that the market solutions are in general more optimal than those imposed by the government. I teach this. I live it. I use supply and demand as solutions to most economic and financial problems. You would think that in an environment where most of my colleagues are white and liberal, that a black conservative would find rough sledding. Nothing could be farther from the truth. I cannot point to a single instance in which my race has been an issue at the university. I do not have students complaining that I am somehow a traitor. I do not have students complaining that I am indoctrinating them. Quite the contrary. I have heard from liberal and conservative students that it is refreshing for them to hear the other side - leaving it up to them to decided where the truth lies. In my 40 years, I can only point to a handful of students who say that I changed them from liberal to conservative and I know of no students who have said that some professor converted them from conservative to liberal. Think about it. In a broader sense have those who carp on the liberalness of professors ever stop to wonder why anyone is a conservative at all? The media is liberal. The movies are liberal. Artists are liberal. Musicians are liberal. Teachers are liberal from pre-school to grad school. Virtually every influence in our society is dominated by liberals. Yet we hear that the country is mainly center-right. How could this be? If all of these do not convert us and our kids, then what real influence could professors have on our youth?

Wednesday, October 14, 2009

Health Care Redux

The Senate Finance Committee just passed the outline of a health care bill. The 200 page outline is not a bill as has been reported in the press but will be cobbled together with the bill out of the Dodd committee to get a "final" bill that will go to committee. There it will be cobbled with the House bill. The House bill be be one cobbled together with the three bills that have passed House committees. Got all of that? Thus, no one has a clue as to what the final final bill will look like. One thing appears certain: no "public" option. No "trigger" that will result in a "public" option. It is also certain that universal insurance coverage will not occur. It is simply too expensive. What is more likely is something like what is bankrupting Massachusetts. As I have written before, Massachusetts mandated certain levels of coverage whether you wanted it or not. If you had a policy that provided less than the mandated coverage you were taxed $1,000. Note that when the plan was passed, there was no $1,000 tax. This was added to meet shortfalls. I find it interesting that the President says that we can pass healthcare or insurance care and it not increase costs because half of the projected costs will come from cost savings. Of course no one believes that. PriceWaterhouse scored the Senate Finance outline of a bill and found that the mandates would result in increased premiums of $4,000 per household and $1,500 for singles. You know, if Obama could really deliver $500 billion in cost savings then the administration should deliver the savings now. That would receive the bipartisan support that the president craves. However, just like Massachusetts, what ever comes out of the congress will be a cost illusion with higher costs levied down the road.

Friday, October 9, 2009

Are we safe now?

Barack Obama being awarded the Nobel peace prize is akin to my giving my students A's before they have passed an exam. I stopped taking the Nobel prize seriously when it was awarded to Arafat and Carter. Giving it to Al Gore only provided confirmation that it was a political prize and not an earned one. If the president has gotten the peace prize then why do I not feel safe? As a matter of fact I feel less safe than at any time in my adult life. Our Middle East policy looks like one of appeasement. We are talking to the Iranis while they make their bomb. Obama has a 9% approval rating in Israel - who obviously don't feel safer. The Afghani policy is confusing at best. Are we staying in force, staying put, pulling back, leaving? We appear weak to the North Koreans. Obama will meet with our adversaries but shuns the Dali Lama. The Iranis are found to have a new nuclear facility but instead of announcing it in his speech at the UN, Obama waits a day and announces it in Pittsburgh at the G20. We turn our backs on the Poles and the Czechs and coddle the Russians. We are letting Gitmo radicals loose on the world. We seem to be employing Clinton's policy of treating terrorism as a crime. That got us the Cole, the Colbart Towers, the bombing of the African embassies and the twin towers. The world all of a sudden seems to be a more dangerous place because our president seems to be relying on his charm and little else. Maybe we will be safer because of personal smiling diplomacy. I certainly may be wrong - and I hope I am but our charming president seems more and more like Neville Chamberlain.

Thursday, October 8, 2009

In Defense of Capitalism

A couple of weeks ago I was asked to go on a local talk radio show to defend capitalism. It seems that with Michael Moore's movie and all the charges of reckless greed on Wall Street, capitalism is under attack. However, citing Bernie Madoff and the collapse in the financial markets as reasons to dump capitalism is a bit extreme. It is akin to condemning all mankind because of the actions of despots such as Stalin and Mao. By the way, I was pleased to see that Moore's movie opened to "disappointing ticket sales." It was probably because folks showed up at the theater expecting free admission or just making a contribution according to their means. After all isn't it ironic that capitalism has made Moore rich while he whines about it all the way to the bank? Obviously his public is a bunch of idiots. Well back to capitalism. As I told the host recall that when a Russian prime minister came to the US and was taken to a Baskin-Robbins. He was flustered. He said that this was the reason why capitalism would fail. It was wasteful to produce 44 flavors of ice cream when chocolate, vanilla and strawberry would suffice. Au contraire. He doesn't realize that it is the strength of capitalism to provide a supply if the demand for the product is profitable. It on the other hand is wasteful to produce a product that sits on the shelves unsold - something the Russians are intimately familiar with. If I were the dictator, only chocolate chocolate chip ice cream would be produced and there would be no light beer - only stouts and porters. Why? Because that is my taste. There would be no need for any others. However, I can no longer find chocolate chocolate chip in my local stores. I guess the demand wasn't there. You see the difference in capitalism and socialism is that in capitalism, the tastes of many are imposed on the few while in socialism, the tastes of the few are imposed on the many. Finally, all this reminds me of what Milton Friedman said when asked why socialism attracted so many intellectuals. His response was that the tendency of the intellectual is to think his tastes are superior to others and the desire to impose them on others is what attracts the intellectual to the left. Finally, I said that perhaps the best indicator of how well a system performs is the economic wellbeing of its poor. In America, the poor on average would be middle class in Europe. Robert Rector of the Heritage Foundation is a leading expert on this issue and shows how well off are America's poor. Everything is relative. It is only because of the comparison with the nonpoor that America's poor seem impoverished. But given their true income and assets, they are only poor here. A few years ago I had a black student come to class wearing a t-shirt with a person in chains. The caption was "I did not ask to be brought here." I said to her "Aren't you glad you were?" Her response was "Hell yes!" Enough said. Capitalism triumphs.

Tuesday, September 22, 2009

Happy Anniversary

October 3 is the first anniversary of TARP - the Troubled Asset Relief Program. You recall that the original intent of the bill was to purchase troubled assets from financial institutions to restore confidence in the credit markets. I had written when the act was proposed that it was doomed to fail. What was the price for the assets purchased? If purchased at market value, then it would do the institutions little good because it would still leave their balance sheets impaired. If purchased at a premium then the Feds would be stuck with an instantly underwater asset. In any event, it escaped me how all of this was to restore confidence. Of course, even the government soon realized the folly of its ways and quickly modified the implementation of the act - much to the chagrin of some legislators - to inject capital instead into failing institutions. I was actually ok with this if the capital was in the form of preferred stock. I favored the use of cumulative preferred where dividends were "guaranteed". If not paid then there would be an arrearage where the missed preferred stock dividends would all be paid prior to any payments to common stockholders. Of course, preferred stockholders do not have a vote or a direct say which seemed appropriate for the federal government. However, I was not surprised when the Feds decided to purchase common stock instead which gave this government entre into the decision making process at the largest financial institutions in the country. The president insists that he does not want to run the banks, he does not want to run the automobile industry and he does not want to run the insurance industry. Really? Then why is he? Have you heard a definitive exit strategy from the president? Neither have I.

Wednesday, September 16, 2009

More Random Thoughts

The president in his speech to Wall Street on September 15 said that the days of "reckless behavior and unchecked excess at the heart of this crisis" are over. Au contraire, it is continuing. Only this time it is the government that is engaging in reckless behavior and unchecked excess. How else would you describe the $2 billion deficit, TARP, stimulus, cap and trade and health care reform?

Given the dislike for both parties, some are advocating a third party - like the Libertarian party. The problem is that given the structure of our political process a third party will insure permanent power being ceded to the Democrats. This is because the libertarians will come from the Republican base leaving the democrats with solid majorities in congress. America traditionally is divided into thirds. One third calling themselves democrats, one third republicans and one third independents. The power goes to the party that can sway the independents to their side. If members of the republican base have had it with the Washington republican establishment, then they need to vote them out of office and replace them with conservative republicans.

Isn't it interesting that the left's reaction to Joe Wilson's singular outburst has been the charge of "racism"? I personally don't know how they got there from there but it has been the manta of the media and the left ever since. This tells me that they have lost the battle over healthcare. The cry of "racism" is a last desperate attempt to get votes from the opposition to such an odious package. "I can't vote against this because I don't want to be accused of racism." Well I guess we are all racists now. I oppose health care "reform" - actually its health care takeover - for the reasons given in the editorial below. Since I will put my bona fides up against anyone (with the possible exception of John Lewis), dare they call me a "racist"?

Monday, September 7, 2009

Health Care Overhaul Not Needed

This article appeared in the Knoxville News-Sentinel on September 6, 2009.

The nation is engaged in a spirited debate on health care, and it is wonderful to see democracy in full voice. Is there justification for a government takeover of health care?

First, is the debate over the quality of health care itself? Certainly, there is no dispute that cancer survival rates in the United States are dramatically higher than in managed-care countries. What about the delivery of health care? In Canada, a million people are waiting to see specialists, while another million are waiting for operations. This is in a country of 33 million! Can you imagine 18 million Americans waiting either to see a specialist or for an operation? Certainly, the issue is not access to health care since hospitals do not deny treatment to those who show up at their doors. Thus, the reason cannot be poor U.S. health care.

Second, is the debate over insurance? The Administration's estimate of 47 million "Americans" without insurance is bogus. Of that number, perhaps 12 million are illegal immigrants. Some 16 million make more than $50,000 a year but opt not to have insurance, and 9 million are unemployed but are typically without insurance for less than four months.

That leaves about 10 million citizens or 3 percent of the total population. It is irrational to dismantle U.S. health care for so small a number. A system could be constructed to cover this 3 percent and to provide catastrophic care for a fraction of the costs of a government takeover.

Third, is it because the rising costs of health care are the result of little competition? The president argues that a "public option" run by the government would create competition in the insurance marketplace and drive down costs. His example of the postal service giving competition to FedEx and UPS is laughable, and everyone knows it. It is the other way around. The postal service loses $7 billion a year and would lose more if its monopoly on first class mail were repealed. The reason why there is little competition and that costs are high is because the government prohibits competition. States set the rules, prohibit interstate competition and set costly mandates that drive up rates. If the president wants competition, the way to provide it is to take the government-imposed restrictions off the provision of insurance.

Fourth, is the proposed takeover because of costs? The president has stated that we pay a larger percentage of our gross domestic product (17 percent) for health care than any other industrialized country and that this cost is a "threat to our economy?" As Craig Karpel pointed out in the Wall Street Journal, would we be less threatened if we spent 8 percent like Haiti? Health care would be a threat to our economy only if it resulted in a net loss to the country. But does it?

Health care is a good like any other good. It employs 10 percent of the U.S. work force, contributes significantly to American exports, and its existence has lessened the impact of the recession. Karpel points to a study by Bob Hall of Stanford University and Charlie Jones of North Carolina State University that finds that by mid-century, the optimal amount of U.S. health care spending should be 30 percent of GDP.

If the president's assertion of a "threat" is true, it is true not for the health care industry, which is a productive part of U.S. society. The threat comes from the portion of the economy that is a net loss. It comes from the net loss of enterprises such as the post office, Amtrack, Social Security, Medicare and Medicaid. It comes from the federal government.

Monday, August 31, 2009

Is this the change we were promised?

Remember the old saying "If you can keep your head while all those around you have lost theirs - then you probably have misinterpreted the situation?" Well thats how I feel about this administration and its actions. The president as a candidate constantly berated the Bush administration for running up record deficits of $400 billion. Bush was irresponsible so said candidate Obama by increasing federal spending while cutting taxes. Never mind that tax receipts increased - it was just because that spending increased by more. So instead of getting fiscal responsibility, we are getting just the opposite - fiscal irresponsibility. The budget deficit is projected to increase by a factor of four to $2 trillion. The administration is saying that they had to do this because they didn't realize the depth of the mess that Bush had gotten us into. Only an Obama loyalist would believe such nonsense. The surge of spending on bailouts, on TARP II, on "stimulus" packages, on cars-for -clunkers, on the takeover of banks, the domestic automobile industry,of Fannie Mae and Freddie Mac, the obscenity of AIG and on you-name -it had less to do with Bush than to do with an attempt to increase the federal government's reach in the economy. This reach is going to manifest itself in a projected budget deficit of $10 trillion over the next ten years. Yet this projection from CBO is a rosy scenario. It assumes dramatic increases in tax revenues that could only occur if all the Bush tax cuts lapse, if the dreaded alternative minimum tax is kept and if taxes are raised across the board. If these all do not occur then the deficit will be $2 billion more. Lest we have short memories, the electorate voted out the first President Bush for violating the "read my lips, no new taxes" pledge. The current president has also made a pledge of not raising the taxes in any form for those making $250,000 or less. He cannot possibly keep that promise. If he violates it, he will be shown the door. The only alternative is to see huge tax increases during a second Obama term - if he somehow gets re-elected. However, keep in mind. If he is re-elected and pushes through these tax increases, then all those out side of "safe" districts will be defeated. You would think that these vulnerable politicians in swing districts would know this and vote against "change".

Congratulations Ben!

Ben Bernanke has been nominated by the President for a second term as Fed chairman. Congratulations Ben! You earned it having provided the most accommodating monetary policy for the administration since oh Alan Greenspan. Since you were a governor at Greenspan's Fed, your reward from the Bush administration was being given the chairmanship. So accommodating is nothing new for you. Some have written that Larry Summers was a candidate for the job but the president did not want to give the impression of appointing a lap dog that would compromise the Fed's independence. As if the Fed's independence can be compromised more! However, I understand that the Fed can be intoxicating and that the chairmanship can be downright addictive. Reserach shows that the Fed is usually most accommodating when a chairman seeks to be reappointed by a new president. However, thereafter the Fed regains its stones. Anyway, if Larry Summers had been appointed, the president is smart enough to know that the Fed chairman has only one vote on the Open Market Committee. An appointment of an outsider would cause friction enough. An appointment of an obvious flunky might cause an outright rebellion. One thing to note is that some talking heads are contending that the policies of this president are intended to destroy the country. I for one find this hard to believe because it would lead to the defeat at the polls of his supporters in congress - and nothing is more important to our elected officials in Washington than re-election. Indeed, if the president wanted to wound the country, he would have not re-appointed Bernanke. That would have lead to a sharp decline in the stock market. The market would realize that all bets were off. The Fed would be in crisis. There would be never ending relenting monetary ease, higher rates of inflation and more monetarization of the national debt. So the president had his chance to spur a severe economic downturn and spurned it. So congratulations Ben. You sucked up to the president and got renominated. Hopefully after your confirmation by the Senate, you will regain your integrity and assert Fed independence. I can only hope.

Tuesday, August 18, 2009

So Where are Willie and LaToya?

Remember when people wonder why hurricanes were only named after women? Obviously, if they were named after men they would have to be called himacanes. Well the esteemed congresswoman Sheila Jackson Lee now famous for chatting on her cell phone during a recent town hall also is notable for two other things. First she asked if the Mars probe could take a picture where Neil Armstrong landed and second she wondered why the National Hurricane Center didn't have black names for hurricanes. Now before you laugh look at the following names for future hurricanes. For the complete list go to

Atlantic Names

2009 2010 2011
Ana Alex Arlene
Bill Bonnie Bret
Claudette Colin Cindy
Danny Danielle Don
Erika Earl Emily
Fred Fiona Franklin
Grace Gaston Gert
Henri Hermine Harvey
Ida Igor Irene
Joaguin Julia Jose
Kate Karl Katia
Larry Lisa Lee
Mindy Matthew Maria
Nicholas Nicole Nate
Odette Otto Ophelia
Peter Paula Philippe
Rose Richard Rina
Sam Shary Sean
Teresa Tomas Tammy
Victor Virginie Vince
Wanda Walter Whitney

Audit the Fed?

I have made little secret the fact that I do not care for the Bernanke Fed. Although it appears that Bernanke is campaigning for re-appointment, his actions are consistent with those his predecessor used while President Bush was in office. Recall that government spending exploded under George Bush. Even though tax revenues increased federal expenditures increased by even more causing an increase in the deficit. The Fed accommodated by purchasing the Treasury bills used to finance the deficit resulting in driving down interest rates and keeping them down. The result was the boom in the mortgage market and the eventual bursting of the bubble. Then came the ill-fated stimulus programs under Bush and the TARP fiasco. Ignoring history which shows that stimulus programs always fail because consumers and businesses seek to pay down debt during recessions rather than increase spending, both Bush and Obama felt the political need to endorse such a program. There is little evidence that Obama’s stimulus has stimulated the economy. Rather it was used to bail out state governments.

In the meanwhile the Fed has continued to provide accommodative monetary policy. Now the Congress led by Ron Paul is seeking an audit of the Fed. They want to know who the Fed is lending to and how much. The Fed argues that such an audit would have an adverse impact on the borrowers as their clients and the market would react negatively to the information. Some back Paul’s bill because they are Fed conspiracy theorists and believe that the Fed is just helping to enrich a precious few. Others back Paul because they want more openness in government. So who is right – the Fed or Ron Paul?

Both. Revelation of the lending information will have an adverse market effect. However, that effect will be short-lived. Second, the congress should know what the Fed is doing. My proposal is for an annual audit to be conducted of the Fed and the information be given to the House and Senate banking committees in a closed door session. Much like the CIA reveals its operations to congress behind closed doors, so should the Fed.

Monday, July 20, 2009

Read my lips?

The President is fast becoming the poster child for "How can you tell a politician is lying?" In his speech July 20, 2009 on health care I was wondering what country he was talking about. It was certainly no country with which I was familiar. Here is a sampling of what was said "We spoke about the amount of time and money wasted on insurance-driven bureaucracy. We spoke about the growing number of Americans who are uninsured and underinsured. We spoke about what's wrong with a system where women can't always afford maternity care and parents can't afford checkups for their kids, and end up seeking treatment in emergency rooms like the ones here at Children's. We spoke about the fact that it's very hard even for families who have health insurance to access primary care physicians and pediatricians. In a city like Washington, D.C., you've got all the doctors in one half of the city, very few doctors in the other half of the city. And part of that has to do with just the manner in which reimbursement is taking place and the disincentives for doctors, nurses, and physicians assistants in caring for those who are most in need." "Now, we've talked this problem to death, year after year. But unless we act -- and act now -- none of this will change. Just a quick statistic I heard about this hospital: Just a few years ago, there were approximately 50,000 people coming into the emergency room. Now they've got 85,000. There's been almost a doubling of emergency room care in a relatively short span of time, which is putting enormous strains on the system as a whole. That's the status quo, and it's only going to get worse." I thought for a moment he was talking about the doctor "shortage" in Canada where there are few doctors and dentists in rural areas. Or maybe he was talking about emergency room usage in Massachusetts going up after institution mandatory statewide health care. Or maybe he was talking about the administrative waste in medicare where the cost per patient is 25 percent higher than under private plans. What about cost containment? Would someone please tell me how the federal government is supposed to contain the cost of health care? Lets look at medicare and medicaid. Medicare's growth in spending is outpacing its revenue growth and its spending is expected to double in the next 25 years. We all have seen the projects that the Medicare Trust fund will run out of money by 2025. Medicaid, an open ended entitlement with no defined limit on beneficiaries or costs, is projected to grow at an annual rate of 7.9 percent by 2017 almost double the projected growth in the economy. One study finds that Medicaid has encouraged overutilization of health care resources without real evidence of improving health of the poor. Lastly, overutilization of emergency rooms is given as one of the country's major problems because the uninsured are forced to seek medical care there. Well a study of ER use in Massachusetts is an eyeopener. If finds that "non-urgent — use of the Emergency Room was not limited to uninsured populations. It showed up across the board. People covered by private insurance, Medicaid and Medicare were just as likely to use the ER for non-urgent care as people without health insurance. About 20% of all ER visits by privately insured and Medicare patients were for non-urgent purposes. About 24% of all ER visits by Medicaid beneficiaries and people without any insurance were for non-urgent purposes.
Second, another 25% of all ER visits for each group were for primary care treatable/preventable maladies. In other words, almost half of all ER visits were either for conditions that could have waited at least 24 hours to be addressed, or could have been solved in a doctor’s office."

What all of this means is that the President is trying to manufacture a crisis in order to ram through his health care takeover. Never mind that the Federal government has failed at containing costs of its health care programs. Never mind that the problem of ER use will not go away. Never mind that the proposed solutions are no solutions at all. I think the President really knows - just like the rest of us - that a national healthcare system will not improve health care, will not contain costs and will make all of us worse off. However, it will give the government control of one-sixth of GDP and control over the most vital aspect of our lives. So is it any wonder that he and the democrats are rushing this through at breakneck speed?

Wednesday, July 15, 2009

Still "believe" in global warming?

In addition to the EPA burying a report questioning the relationship between CO2 and the earth's temperatures come the following conference on climate change ignored by the main stream press.

Scientists abandon global warming 'lie'
650 to dissent at U.N. climate change conference

Posted: December 11, 2008
12:00 am Eastern

© 2009 WorldNetDaily
WASHINGTON – A United Nations climate change conference in Poland is about to get a surprise from 650 leading scientists who scoff at doomsday reports of man-made global warming – labeling them variously a lie, a hoax and part of a new religion.

Later today, their voices will be heard in a U.S. Senate minority report quoting the scientists, many of whom are current and former members of the U.N.'s own Intergovernmental Panel on Climate Change.

About 250 of the scientists quoted in the report have joined the dissenting scientists in the last year alone.

In fact, the total number of scientists represented in the report is 12 times the number of U.N. scientists who authored the official IPCC 2007 report.
Here are some choice excerpts from the report:
• "I am a skeptic ... . Global warming has become a new religion." -- Nobel Prize Winner for Physics, Ivar Giaever.
• "Since I am no longer affiliated with any organization nor receiving any funding, I can speak quite frankly ... . As a scientist I remain skeptical." -- Atmospheric Scientist Dr. Joanne Simpson, the first woman in the world to receive a Ph.D. in meteorology and formerly of NASA who has authored more than 190 studies and has been called "among the most pre-eminent scientists of the last 100 years."
• Warming fears are the "worst scientific scandal in the history ... . When people come to know what the truth is, they will feel deceived by science and scientists." -- U.N. IPCC Japanese Scientist Dr. Kiminori Itoh, an award-winning Ph.D. environmental physical chemist.
• "The IPCC has actually become a closed circuit; it doesn't listen to others. It doesn't have open minds ... . I am really amazed that the Nobel Peace Prize has been given on scientifically incorrect conclusions by people who are not geologists." -- Indian geologist Dr. Arun D. Ahluwalia at Punjab University and a board member of the U.N.-supported International Year of the Planet.
• "The models and forecasts of the U.N. IPCC "are incorrect because they only are based on mathematical models and presented results at scenarios that do not include, for example, solar activity." -- Victor Manuel Velasco Herrera, a researcher at the Institute of Geophysics of the National Autonomous University of Mexico.
• "It is a blatant lie put forth in the media that makes it seem there is only a fringe of scientists who don't buy into anthropogenic global warming." -- U.S. Government Atmospheric Scientist Stanley B. Goldenberg of the Hurricane Research Division of NOAA, the National Oceanic and Atmospheric Administration
• "Even doubling or tripling the amount of carbon dioxide will virtually have little impact, as water vapor and water condensed on particles as clouds dominate the worldwide scene and always will." -- Geoffrey G. Duffy, a professor in the Department of Chemical and Materials Engineering of the University of Auckland, New Zealand.
• "After reading [U.N. IPCC chairman] Pachauri's asinine comment [comparing skeptics to] Flat Earthers, it's hard to remain quiet." -- Climate statistician Dr. William M. Briggs, who specializes in the statistics of forecast evaluation, serves on the American Meteorological Society's Probability and Statistics Committee and is an associate editor of Monthly Weather Review.
• "For how many years must the planet cool before we begin to understand that the planet is not warming? For how many years must cooling go on?" -- Geologist Dr. David Gee, the chairman of the science committee of the 2008 International Geological Congress who has authored 130 plus peer-reviewed papers, and is currently at Uppsala University in Sweden.
• "Gore prompted me to start delving into the science again and I quickly found myself solidly in the skeptic camp ... . Climate models can at best be useful for explaining climate changes after the fact." -- Meteorologist Hajo Smit of Holland, who reversed his belief in man-made warming to become a skeptic, is a former member of the Dutch U.N. IPCC committee.
• "Many [scientists] are now searching for a way to back out quietly (from promoting warming fears), without having their professional careers ruined." -- Atmospheric physicist James A. Peden, formerly of the Space Research and Coordination Center in Pittsburgh, Pa.
• "Creating an ideology pegged to carbon dioxide is a dangerous nonsense ... . The present alarm on climate change is an instrument of social control, a pretext for major businesses and political battle. It became an ideology, which is concerning." -- Environmental Scientist Professor Delgado Domingos of Portugal, the founder of the Numerical Weather Forecast group, has more than 150 published articles.
• "CO2 emissions
make absolutely no difference one way or another ... . Every scientist knows this, but it doesn't pay to say so ... . Global warming, as a political vehicle, keeps Europeans in the driver's seat and developing nations walking barefoot." -- Dr. Takeda Kunihiko, vice-chancellor of the Institute of Science and Technology Research at Chubu University in Japan.
• "The [global warming] scaremongering has its justification in the fact that it is something that generates funds." -- Award-winning Paleontologist Dr. Eduardo Tonni, of the Committee for Scientific Research in Buenos Aires and head of the Paleontology Department at the University of La Plata.

The report also includes new peer-reviewed scientific studies and analyses refuting man-made warming fears and a climate developments that contradict the theory.

Monday, July 6, 2009

Move the Fed!

The Federal Reserve is a curious creation. In an effort to keep it insulated from the political whims of the president and the congress, it was made as independent as a central bank can be - with one exception. Its seven governors serve 14 year terms and once appointed by the president and confirmed by the senate cannot be fired - only impeached. Its chairman is appointed to a 4 year term which is staggered with that of the president's so a new president has to wait two years to appoint the chairman. The Fed is off budget and self funding so congress cannot influence the Fed's decisions by controlling its funding. The Open Market Committee which sets and implements monetary policy is made up of the 7 governors, the president of the New York Fed and three of the other 11 reserve bank presidents who serve on a rotating basis. The banks that are members of the Fed have limited influence on the Board of Governors and the chairman in that they do not have direct input over Fed decisions. The member banks do elect directors of the reserve banks, but those directors essentially serve only a limited advisory role and have no direct voice in either the running of the reserve bank or on monetary policy. I know there are all sorts of conspiracy theories out there but none make a great deal of sense once scrutinized. The recent financial "reform" legislation introduced would give the Fed some additional oversight responsibilities but that legislation discussed below goes in the wrong direction. The Fed argues that it needs hands on regulatory authority in order to conduct monetary policy. This is bogus. The Fed has always been a power hungry institution and simply wants to gain more power - like any politician or regulator. In reality regulatory oversight distracts the Fed. It should not write banking regulations, it should not regulate state member banks, bank holding companies, financial holding companies, foreign banks operating in the US or US banks operating abroad. The Fed should only concentrate on monetary policy. Oh. As to the one thing missing from insulating the Fed? It should not be located in Washington, DC. Here the Fed is acutely aware of the pressures applied by the administration and the congress. Fed governors live in the area surrounded by neighbors who live off the Federal government and are directly influenced by Fed decisions. Research has shown that the Fed is influenced by all these factors if only by osmosis. What can be done? Move the Fed to Kansas City. There, surrounded by real people who have to actually work at productive ventures for a living, the Fed would make better and more rational decisions.

Ever Wonder Why Regulations Don't Work?

Proposals don't fix reason for crisis

Politicians, like generals, fight the last war. A clear case in point is the proposed legislation on financial institutions.

The main parts are that the FDIC would be able to seize nonbank companies that pose a systemic risk to the economy, the Office of Thrift Supervision will be merged into the Office of the Comptroller of the Currency, financial companies would be required to hold more capital, hedge funds would get regulatory oversight, a new consumer agency would be created to regulate financial products, and the Fed would get oversight authority over all big financial companies.

These proposals are backward-looking. The power to seize nonbanks was likely prompted by the failure and subsequent bailout of AIG. The imposition of more capital would lessen the cost of failure to the government but not lower the likelihood of failure. The government has always wanted to regulate hedge funds, and the financial crisis gives it that opportunity, even though hedge funds had nothing to do with the financial crisis. There were critics of some financial products offered to consumers, but the banking agencies already had oversight responsibilities, making the new agency redundant. Since the Fed already regulates bank holding companies and financial holding companies, the new legislation must intend to include financial institutions that are not members of holding companies.

The merger of the OTS into the OCC is of little consequence.

Note that none of the proposals addresses the reasons for the financial crisis - namely asset bubbles. Remember when Alan Greenspan said in 1996 referring to the stock market that "irrational exuberance has duly escalated asset values?" That bubble was fueled by the dot-com craze and wiped out more than $5 trillion in market value. Although the rules will do nothing to prevent asset bubbles, at least they also will do little harm - which is in direct contrast to cap-and-trade, which arguably is the single worse piece of congressional legislation in the history of the republic.

What to do? Here is some unsolicited advice from someone who has taught regulation, written regulation, headed a federal regulatory agency, and been the subject of regulation as a director of one of the nation's largest savings and loans and as a director of the nation's largest real estate investment trust:

n There is no such thing as systemic risk. If it is too large to fail, it is too large to exist. Use the existing anti-trust legislation to limit monopolies (private or government) and to encourage competition.

n The market is always ahead of regulation. Enact rules that make market participants apply for use of new instruments and explain their risk. The regulator would have 90 days to either approve or disapprove. If no action is taken, then the instrument can be used.

n Prevent asset bubbles. Both the New York Stock Exchange and Nasdaq can suspend trading of company stocks and that of the entire exchange. The SEC also can suspend trading if it "is in the public interest."

Friday, June 12, 2009

I'm Kickin in my Red Prius?

Our musical heritage is full of songs depicting the American love for the automobile. I have listed a few below in no particular order although I am really fond of Maybelinne, Pink Cadillac, Freeway of Love and especially Mustang Sally. So I am wondering will the truly awful looking teeny cars, plug-ins and greenie weenie hybrids inspire the next generation of songs? I'm gettin' a jolt from my Volt?

I’ve omitted songs that do not specifically mention a make like Drive my Car by the Beatles.

"Freeway of Love" (Pink Cadillac)- Aretha Franklin

"Little Red Corvette" - Prince

" Jaguar" - The Who

"Mustang Sally" - Wilson Picket Pickett)

“64 Chevolet Impala” – Dr Dre (explicit)

“Wild, Wild Mustang_ (The Del-Tones)

"Little Deuce Coupe" - Beach Boys "Mercedes Benz" - Janis Joplin

"My Hooptie" (about a 69 Buick) Sir Mix-A-Lot (taken from his 1989 album Seminar)

“Pink Cadillac” – Natalie Cole

"Jeepster" by T. Rex

“Go Mustang” – T-Rex

"I'm Changing My Name to Chrysler" - Tom Paxton

"Chevy Van" - Sammy Johns

“Long White Cadillac” - The Blasters

“Who's Cadillac is That?” - War

“Little GTO” – Ronnie and the Daytonas

“Maybelline” – Chuck Berry (Coupe de Ville)

“Shelby GT 356” – Chesterfield Kings

“Rollin in My 5.0” (Mustang) – Vanilla Ice

“Chevrolet” – ZZ Top

Wednesday, June 10, 2009

Is Justice Blind?

Supreme Court nominee's Sonia Sotomayor comments regarding a wise Latina judge based on her life experiences could make better decisions than a white male judge elicited cries of racism from her detractors. It also elicited comments about how "justice is blind" and should be practiced without regard to demographics of the parties in court and only to the law. Judge Sotomayor is wrong. A wise Latina judge would not make better decisions but could possibly make different decisions than a white male judge. While her first statement can be called "racist", the second statement clearly is not. Justice is not blind and there is nothing wrong with that. Consider this: the Supreme Court rarely has unanimous decisions. The reason is that the law is rarely precise and ironclad. This leads to interpretations which is true with any field of endeavor. Economics, for example, is a discipline with clear theories and hypotheses, yet economists are famous for disagreeing with each other. Climate scientists have clarity as well, yet disagree over virtually all important issues including climate change. Judges are no different. It would be naive to think that a judge's life experiences, tastes and preferences, values and principles would have no impact on the interpretation of the law. However, whether the interpretation of one type of judge (say a Latina) is superior to that of another (say a white male) is clearly debatable. Nevertheless, one would expect agreement on those cases that are basically free from interpretation. However, those are the cases that seldom come before the Supreme Court. The open and shut cases are ones that the Supreme Court do not hear except to overturn egregious earlier decision (Plessey v Ferguson). The very cases that are on its docket are there precisely because of nuance rather than crystal clarity. These are the cases that will garner split decisions which may result in truly "bad" law or "good" law - depending on your personal views. Consider that in the Robert's court one third of the decisions were by a 5-4 vote. Thirteen of those cases were decided by all the "conservative" judges plus Kennedy; six cases were decided by all the "liberal" judges plus Kennedy; the remaining five had a mixture of both conservative and liberal justices. Now since all the justices are constitutional experts, why aren't all their decisions unanimous if justice were indeed blind?

Wednesday, June 3, 2009

Some More Random Thoughts

1. Part of the criticisms of Chrysler and GM is that they have "too many dealers" and bankruptcy allows them to shed those dealers without additional compensation (when GM dropped the Oldsmobile brand they paid the dealers over $1 billion). I simply do not understand this argument. Since the dealers are independent businesses, if they are not profitable then they will themselves go out of business. Why should the manufacturer care if there are 5,000 dealers or 1,000 dealers if the same amount of cars are sold?

2. I love basketball but am not a basketball fan. The game - especially the NBA - is unwatchable mainly because I hate all the tattoos. As a result, I pull for the team with the fewest tattoos. This year I was pulling for the Lakers to beat the Nuggets - who are unwatchable - and for the Magic to beat LaBron James' Cavaliers - who are equally unwatchable. If the results had been otherwise, I would not have watched the finals.

3. Of all the topics that I write about, the three that generate the most controversy are on global warming, the "fair" tax, and the Fed. With global warming and the fair tax, I tread on some people's gospel. Understand dear reader that I come to each issue only with the bias imposed by market economics. I do my research and reach a conclusion. When critics challenge me I gladly send them the sources that have shaped my opinion. The third area is the Fed where there appears to be vast believers in some conspiracy shaped by Griffin's "The Creature from Jeykll Island". I have serious doubts about anyone who believes in conspiracies and wonders whether they have thought through the consequences of their beliefs. Don't get me wrong. I am not defending the Fed - I am one of its harshest critics. Like Milton Friedman, I believe that the Fed should adopt the monetary rule. That is, it should set the rate of growth in the money supply equal to the long run rate of real economic growth. That way, monetary policy no longer becomes the main source of destabilization within the economy. The Greenspan Fed was responsible for the current economic crisis and the Bernanke Fed has done us all a disservice by not only prolonging the crisis but by sowing the seeds for more future economic destabilization. However, I do not believe that the Fed is a tool of manipulation by a few powerful figures for their own benefit. If that were true, then they would have put out a contract on Bernanke who has probably helped destroy much of their new worth.

On Cap and Trade

The following appeared in the Knoxville News-Sentinel on May 3, 2009

In December 2007, I wrote about the economic consequences of enacting the Kyoto Accords on carbon emissions. Briefly, there was a rise in unemployment, a fall in GDP, a rise in utility bills and gasoline costs. These results occurred in the countries that adopted Kyoto. It is also interesting that emissions in Europe increased from 2000 to 2006 by 3.5 percent while in the US, emissions only increased by 0.7 percent. I guess that is a confirmation of Harold Black's First Law: Any Law worth being circumvented will be."

Yet despite this evidence, we are now faced with cap and trade on steroids. President Obama's budget calls for a reduction in US carbon emissions by 80 percent by 2050. Just recently, Henry Waxman introduced in the US House a bill calling for a reduction of 20 percent by 2020.

The economic impact will be staggering. Gasoline prices will increase by 50 percent. Energy prices will double. Economic growth will fall by 2 percent. Interest rates will rise. Inflation will increase. Unemployment will be permanently in the double digits. Construction, manufacturing and other industries will relocate to other countries.

Given the economic effects of cap and trade one wonders why any politician would vote for it. The reason why politicians want cap and trade is that it would constitute the largest tax increase in history and would be used to pay for the unprecedented increase in government spending. Politicians know that the trillion dollar deficits cannot be solely paid by taxing businesses or higher income households. That is why I have said before that the most likely alternative is to impose a consumption tax on top of the current income tax. Cap and trade taxes the production and use of fossil fuels and the Obama administration estimates that it would bring in $650 billion over the first 8 years. The second reason that politicians would favor cap and trade is dramatically increases their power. The $650 billion would be doled out by the government. The government could then pick winners and losers. It would tax carbon users and subsidize "greenies". As a sop to the public, the budget remits $400 to single worker families and $800 to two worker families - while costing them an estimated $4,000.

Since it would be political suicide to vote for a dramatic increase in taxes along with permanent decrease in the standard of living, Obama and Waxman will get cap and trade through the back door. The EPA has announced that carbon emissions are a pollutant and endanger health. As such it has the authority to impose carbon caps under the 1970 Clean Air Act.

To "cap" this all off, the EPA is following a political agenda and not a scientific one. Many environmental models show minimal if any effect on global temperatures. Indeed, last year 31,000 scientists signed a petition asserting that there is no convincing scientific evidence linking greenhouse gases to global temperature change. So dear reader, how are we going to extricate ourselves from this mess?

Friday, May 29, 2009

What would Adam Smith do?

My sophomore year I read Adam Smith's Wealth of Nations and have never been the same since. It remains #1 on the list of my favorite books. I wondered what would Adam Smith say with regard to the growing slice of the economic pie spent by the government on social programs. This was answered when I read the excellent analysis by Profs. Jody Lipford and Jerry Slice of Presbyterian College. An excerpt follows below.

The Role of Government in Modern U.S. Society: What Would Adam Smith Say?
December 10, 2007
Jody W. Lipford, Jerry Slice
Washington Examiner (excerpt), Orange County Register

The role of government in the United States and other western democracies has expanded dramatically over the last century. Compared to its pre-twentieth century functions, government has taken on new and vast roles, including old-age pensions, government-provided health care, and a host of other programs that typically comprise a modern welfare state.

What would Adam Smith, the eighteenth-century Scottish moral philosopher, say about the expanded role of our modern government? For Smith, the ideal functions of government were few and well defined. In his classic work, An Inquiry into the Nature and Causes of the Wealth of Nations, written in 1776, Smith outlined three important government functions: national defense, administration of justice (law and order), and the provision of certain public goods (e.g., transportation infrastructure and basic and applied education). Clearly, government has grown beyond the bounds of these simple duties.

Some would argue that government has expanded because of necessity, that modern society requires redistribution of wealth for stability and regulation to constrain the excesses of an unfettered market. Many believe it is unrealistic for government in the twenty-first century to adhere to the limited roles envisioned by Smith. We have our doubts about these arguments. However, we raise a different but related question: if Smith is right that national defense, administration of justice, and public goods are essential to a free and prosperous society, might government’s expanded roles one day crowd out its traditional and essential functions to that society’s detriment?

When we examine evidence on this question, the findings are striking. We first categorize national government expenditures according to whether or not Smith would support them. Under the category Smith would support, we include expenditures on national defense, administration of justice, transportation, and education. We consider social expenditures on Social Security, Medicare, health, income security, and labor and social services beyond the bounds that Smith would support. Next, we examine trends in these expenditures.

Here are some of our findings:

  • In 1962, expenditures that Smith advocated accounted for 54.4 percent of the U.S. budget. Yet, by 2005, this percentage had fallen to 27.6 percent, with the Congressional Budget Office projecting this percentage to fall to 22.0 percent by 2011.

  • The trend for the social expenditure category runs in the opposite direction. In 1962, social expenditures accounted for only 23.4 percent of the U.S. budget, but by 2005, they accounted for 58.1 percent, and they are expected to account for 63.3 percent of the budget by 2011.

  • When we examine state and local government expenditures, we find the same trends, though they are less pronounced than their federal counterparts. The trends show no sign of reversal for either level of government.

Our analysis shows that social spending is rapidly replacing expenditures on traditional government functions advocated by Smith. As a result, governments will find it increasingly difficult to provide and maintain traditional services without significant tax increases or larger deficits.

These observations are not lost on federal budgetary experts. The Congressional Budget Office (CBO) documents that the amount and composition of federal spending have “changed dramatically,” and that most of that growth has been in three programs: Social Security, Medicare, and Medicaid. These programs now account for 42 percent of federal expenditures. In total, mandatory programs now account for over half of federal spending. The CBO notes that health expenditures will increase much more than Social Security expenditures in coming years, and that “if past growth rates persist, spending for health care will eventually consume such a large share of the nation’s output that real (inflation-adjusted) spending on other goods will have to decline sharply.”

The consequences are clear. Continued higher rates of social spending will require higher taxes, larger deficits, or dramatic cuts in other government programs, such as those deemed essential by Smith. These, in turn, may cause “slow private capital formation, lower economic growth, and in the extreme...a sustained economic contraction,” according to the CBO. These outcomes are the opposite of Smith’s model for economic prosperity.

Despite these dire predictions and their resulting consequences, the political will for change is weak. And the longer these trends continue, the more difficult it will be politically to change them. Perhaps it is time for the American public and its elected officials to give more heed to the wise words of a Scottish philosopher who wrote some 230 years ago.

Jody W. Lipford is a professor of economics at Presbyterian College in Clinton, S.C.
Jerry Slice is a professors of economics at Presbyterian College in Clinton, S.C.

Friday, May 8, 2009

Go on with your bad self Montana

This is from the Motley Fool's blog.

(Personal note: the Interstate Commerce clause was the justification for outlawing segregation in public facilities in the south - so I have mixed feelings about its use.)

I HEART Montana!


I don't have a lot of time, so will make this quick.

Excerpts from here. Commentary in bold.

The state of Montana has decided to pick a fight with the Federal Government. The Montana State Legislature recently passed legislation, which was signed into law by the Democratic Govenor Brian Schweitzer, which exempts citizens of Montana from federal background check requirements if a gun was made in Montana, sold to a resident of Montana, and intended to remain within Montana.

The idea behind this is that if the gun remains within the state then the commerce clause of the U.S. constitution does not apply and the Federal Government would not be allowed to regulate the sale or distribution of these firearms. This is an interesting concept, and is sure to generate a fight. This one could get really ugly, really fast.

I'm sorry what's that US gov't? You say that states rights are dead? I don't f^&king think so!

Montana is claiming that this is less of a gun control issue and more of a state’s rights issue.  That may be the case, but I can’t think of a quicker way to generate a federal fight that is on the express lane to the Supreme Court than something like the sale of guns.  For once it appears that legislators actually had some logical thought processes when they came up with this plan.  Great work Montana.  I also find it interesting that the Governor of Montana is a democrat and he is supporting this legislation on the basis that the states should be free of such federal conrol

States should be free of such federal control. The interstate commerce clause is possibly the most abused clause in the entire Constitution, and it's time to return to what our founders intended for the states to be, and that's individual states with their own laws free from the powers of a central gov't.

To put it another way, the federal gov't and the supreme court have ruled many times in the past that all the states were going to be whitewashed and made to follow estentially the same laws (federal), and Montana has just said "um...screw that I think we are going to be RED instead of white."

Not surprising from the state which was first to remove federally imposed speed limits even though the gov't threatened to remove interstate funding....(lol as if the federal gov't would let the interstates go to ruin...).

I know that similar arguments were made when the issue of Marijuana grown and used (is that the term you would use?) in California does not fall under federal authority because it does not enter the stream of “interstate commerce” which would allow federal regulation.  The argument failed because the Supreme Court stated that pot grown in California was indistinguishable from pot grown outside of California.  The Montana gun manufacturer would get around this requirement by a “Made in Montana” stamp which is clearly place on the gun.

See, and you thought there was no reason that the pot-heads and gun nuts would ever get together! Well...bring on the pot-smoking gun toters cause mama always said "freedom is as freedom does!"