Stationary Bandit

A Thought from Edmund Burke

From "Thoughts and Details on Scarcity'":

To provide for us in our necessities is not in the power of Government. It would be a vain presumption in statesmen to think they can do it. The people maintain them, and not they the people. It is in the power of Government to prevent much evil; it can do very little positive good in this, or perhaps in any thing else.

Are there any Burkeans in modern US politics?

Maybe I forgot what I learned in ECON 101...

But doesn't raising the cost of labor through a health care bill provision that increases payroll taxes reduce the demand for labor?  If it costs more to high workers, then firms hire less workers.  Paul Krugman thinks not and chastises Bryan Caplan for it.  He argues that it affects the supply side.  But Krugman has pulled a smoke and mirrors job.  He is referring to aggregate supply and Caplan labor demand.  They are talking about two different models.  This allows Krugman to imply Caplan has made an elementary error when Krugman just clouded the discussion by not explicitly stating what model he was using.  Changes in the labor market appear in aggregate supply.  Like Caplan, I miss the Accidental Theorist.

Interview with Thomas Schelling

Here and here.  Thought provoking as expected.  Here is a portion:

And there's sort of a cruel paradox there. On the one hand, it does seem like you want to say to India and China, "Grow your economies so that you have a greater capacity to adapt to climate change." On the other hand, it seems like that growth will also exacerbate the effects of the climate change. It seems like the growth that creates adaptive capacity is racing against the growth that is aggravating what the adaptive capacity is needed to protect against.

Yeah, except that if the developed countries -- the OECD or something like that, plus Japan -- if they are really serious, they'll tell India and China and Brazil, "we're going to provide enormous assistance to help reduce your dependence on fossil fuels. And we don't expect you to pay for it yourselves. We will pay for it because we're rich and you're not." But once we get whatever we're going to get -- you know, our own Waxman-Markey kind of thing, and some of the European countries have that too -- then I think we have to decide which developing countries participate, to what extent and so forth. We're going to have to find some institutions that determine which developing countries get the assistance, and how much. And we're going to have to have some intermediate organization to administer the funds and ensure that they are used for what they are intended for. This will have to be something at least on the scale of the old Marshall Plan.

But while people talk about this -- the need for aid from the developed countries -- nobody that I know of is thinking about how in the world you organize so that the rich countries can agree what you do with the poor. You need to know who divides the money, and who monitors is. We're going to need a whole new set of institutions, beyond the Copenhagen kind of institutions, where the rich countries decide what they're going to do about their own emissions.

Audit the Fed?

A petition signed by a number of prominent economists opposes "The Federal Reserve Transparency Act of 2009" because they claim it threatens the independence of the Fed and its ability to curtail inflation when necessary.  I am not sure that the Fed has that much independence in the first place.  After all fiscal deficits put upward pressure on interest rates so the Fed increases the monetary base to offset them if it targets interest rates.  In other word, the Fed accommodates the spending behavior of Congress.  Once the recession ends and the deficits continue to rise due to the stimulus money finally being spent, will the Fed raise interest rates?  I remain skeptical it will especially if it is an election year. 

UPDATE: Allan Melzer has a similar view.

Is "too big too fail" conditional on political contributions?

 Simon Johnson answers "yes".

So then it all comes down to political donations.  At least in terms of what is in the public record, Mr. Peek has not been overly generous, but he did give money to John McCain – and not to any Democrats.  If this is in fact the limit of his recent contributions, I think you know the outcome.

I have no doubt Simon Johnson's analysis is correct.  The theory of "too big to fail" has always seemed to me suspect.  What is the threshold?  Economic theory does not offer an answer and I am unaware of robust empirical work that offers a number.  Ultimately and sadly, it is a political threshold.  You are too big to fail when times are tough and you made major contributions to the incumbent party.

UPDATE: From Reuters:

In leaving CIT Group Inc to sink or swim on its own, U.S. officials are gambling that financial markets and the economy are now strong enough to withstand the possibility a big lender collapses.

On Wednesday, ten months to the day after the bankruptcy of Lehman Brothers exacerbated the global credit crisis, CIT said bailout talks with the government had ended, a development which may push the 101 year old company closer to failure.

Sure it is 1/10th the size of Lehman Brothers so maybe firm size matters although I doubt it.  Once again, is the threshold arbitrary on economic grounds and conditional on politics?

Two Comments on Obama's Ghana Speech

The President said "development depends upon good governance." That's good news.  But later he stated that "wealthy nations must open our doors to goods and services from Africa in a meaningful way."  Great idea except I doubt that the President believes it.  After all, he voted for the Farm Bill.  Of course, rhetorically he has criticized farm subsidies but when he had the opportunity to vote against them, he chose not to.

Why is this not bigger news?

Justice Ginsberg stated that:

Frankly I had thought that at the time Roe was decided, there was concern about population growth and particularly growth in populations that we don’t want to have too many of. So that Roe was going to be then set up for Medicaid funding for abortion.

I am not surprised by this.  Eugenics and Progressive era politics were closely aligned.  I guess the relationship still persists although not as strongly.

Ominous or Outlier?

Tim Hortons Inc.,the largest fast- food chain in Canada, filed to reorganize as a Canadian company to lower its tax rate.

Tim Hortons, which presently operates out of Oakville, Ontario, will become a unit of a Canadian-based parent with the same name, the company said today in a statement. Its current parent is based in Delaware.

No need to comment. Story here.

A Quick Thought on the Relatively Efficiency of Medicare

From CNN.

Plainclothes investigators sent to test security at federal buildings in four U.S. cities were successful in smuggling bomb components through guard posts at all 10 of the sites they visited, according to a government report.

The investigators then assembled the bombs in restrooms and freely entered numerous government offices while carrying the devices in briefcases, the report said.

If security does not check for bombs, then why should I expect public sector empoyees to check for fraud.

Treat Adults like Adults

I always enjoy reading something by one of my dissertation committee members in the major news outlets.  Todd Zywicki writes

Instead of a new consumer financial products safety commission, Washington should revise the disclosures it mandates for mortgages, its tax and other incentives that encourage overinvestment in housing, and the incentives for homeowners to walk away from their homes. Our current problems are caused by misaligned incentives and the rational response of consumers and lenders to those incentives. It's not a crisis of consumer protection. A new agency premised on the erroneous belief what consumers need is to be protected from themselves is likely to do more harm than good.

Best I can tell, almost all proposed regulations depend on the assumed ignorance of consumers.  Someone must be the victim.  The current "reforms" to the mortgage industry are a case in point.  Create a safety product commission and the problem virtually disappears.  However, many foreclosures are perfectly rational, the borrower weighed the costs and benefits of being foreclosed and chose optimally.  Ignorance was not the problem; the incentives were. Maybe the Obama Adminstration should establish a Financial Market Incentive Alignment Commision instead.