A picture says a thousand words

A graphic representation of the 2009 defecit

This is going to be a great 4 years. Change, indeed.

The Solution

I've figured out the solution to the economic "crisis". I, alone, can save 500,000,000 jobs.

End Social Security. That's all. No stimulus package needed.

Think about it. You immediately give every working person 12% more money each year to spend. It's a "progressive" tax cut, as the rich don't pay as much as a percentage (the cutoff for wages taxed is about $100k). You also give people the option to take a lump sum of what they have paid in, or leave it for when they retire. Those who are already retired and drawing Social Security payments would not be affected, as they just draw down the Trust Fund (assuming it exists. If not, I'm pretty sure the total liability of retired people isn't the $1 Trillion the 'stimulus' package will cost).

Sure, you'd have to iron out some details for people nearing retirement, but all in all, I think it would work. I'd even be willing to forgo the lump sum - they can keep what they have, so maybe have a cutoff of age 40, where if you are under 40, the government keeps what they took, if you are over 50 you have the option to stay in the program.

Think of how well that would stimulate the Economy! And give us a little freedom back.

Real Change.

Self fulfilling..

Talking us into a depression at Coyote Blog. Interesting employment stat included.

To add some anectdotal evidence: I deal with a couple of small business owners on a regular basis, as well as some very large organizations. All of them are having trouble hiring.

That's right.

Seocnd hand, through them, I'm hearing an awful lot about people cutting back and slowing growth in anticipation of poor results. Business is fine, but they are cutting back anyway.

I think all this doom and gloom talk might have something to do with that behavior.

Hair of the dog

I agree with and liked this explanation on why government spending won't get us out of a recession.

One could make the argument that the money pumped into the economy won't come from bread baked today and taken from the baker, but is instead from bread baked in the future, and that in the future, there will be such economic growth that the baker will have lots of excess bread.

But isn't that (spending now what we will have to pay off in the future) what got us into this mess?

How to fix the Economy, in 60 seconds or less

Anyone listening?

What newspaper writers aren't eager to tell you about prices.

That they have little to to with the cost of an item or service.

Don't let that stop them from getting worked up, along with polititians (D) who think text message profits might be too high.

Simple truth: The prices are set by the consumers and the wireless companies. There's plenty of competition to go around, in as much as regulators allow for it. If texting is too expensive, people will stop texting. (I don't text for just that reason.) Profits are not evil.

Be careful what you wish for...

An excellent essay on the European economic model, and why it might not be what y'all really want.

Easy Money

Is it just me, or does anyone else think we probably won't solve a problem caused (at least in part) by too much easy credit by reducing the price of money?

Am I missing something? I'm more of a Microeconomics guy, perhaps someone with a Macro background can help.

Hayek's Revenge

An awesome post at Ideoblog. Mostly great because of the phrase "Hayek's Revenge".

A little optimism won't hurt you

I looked at my Smith Barney account the other day. YTD, my wealth is down over $100k. That hurts, and it's scary. The 'crisis' is all around us, we can't make a move without seeing a 500 point drop here, or a bankruptcy there.

With all that, there is reason for optimism. This isn't the first person saying this, but it's the first one I came across today when looking for a link.

Galambos has been thinking for half a century about why economies thrive or fail. Besides his project of editing President Dwight D. Eisenhower's papers, he is one of the country's leading business chroniclers, having written or co-written numerous books on pharmaceuticals, telecommunications, business ethics and other subjects.

"I'm optimistic about the economy other than housing and finance," he said in an interview at his book-and newspaper-festooned house in Guilford.

"That does not seem to me to be running out of steam. I still think companies like Hewlett-Packard, companies like Intel - I see those kinds of companies grinding ahead. Wal-Mart and Target - I see them still on track. So the core of the economy seems to me to be still successful, still moving forward. The question is, can we pull up" out of the dive.

It is important to note that we are living in a vibrant economy. There are people making things, providing services, buying things, and buying services. That isn't going away. We still need computers, and drills, and TVs and sheets. I still need someone to fix my car and clean out my gutter.

So hang tough, we will get through this, and end up better off than we were before.

Just be cool.

(Assuming the government doesn't screw it all up, but I think we can stop them)

Timely

An article written by Rothbard in 1969, that everyone should read today.

There are, however, some critical problems in the assumption that the market economy is the culprit. For "general economic theory" teaches us that supply and demand always tend to be in equilibrium in the market and that therefore prices of products as well as of the factors that contribute to production are always tending toward some equilibrium point. Even though changes of data, which are always taking place, prevent equilibrium from ever being reached, there is nothing in the general theory of the market system that would account for regular and recurring boom-and-bust phases of the business cycle. Modern economists "solve" this problem by simply keeping their general price and market theory and their business cycle theory in separate, tightly-sealed compartments, with never the twain meeting, much less integrated with each other. Economists, unfortunately, have forgotten that there is only one economy and therefore only one integrated economic theory. Neither economic life nor the structure of theory can or should be in watertight compartments; our knowledge of the economy is either one integrated whole or it is nothing. Yet most economists are content to apply totally separate and, indeed, mutually exclusive, theories for general price analysis and for business cycles. They cannot be genuine economic scientists so long as they are content to keep operating in this primitive way.

But there are still graver problems with the currently fashionable approach. Economists also do not see one particularly critical problem because they do not bother to square their business cycle and general price theories: the peculiar breakdown of the entrepreneurial function at times of economic crisis and depression. In the market economy, one of the most vital functions of the businessman is to be an "entrepreneur," a man who invests in productive methods, who buys equipment and hires labor to produce something which he is not sure will reap him any return. In short, the entrepreneurial function is the function of forecasting the uncertain future. Before embarking on any investment or line of production, the entrepreneur, or "enterpriser," must estimate present and future costs and future revenues and therefore estimate whether and how much profits he will earn from the investment. If he forecasts well and significantly better than his business competitors, he will reap profits from his investment. The better his forecasting, the higher the profits he will earn. If, on the other hand, he is a poor forecaster and overestimates the demand for his product, he will suffer losses and pretty soon be forced out of the business.

The market economy, then, is a profit-and-loss economy, in which the acumen and ability of business entrepreneurs is gauged by the profits and losses they reap. The market economy, moreover, contains a built-in mechanism, a kind of natural selection, that ensures the survival and the flourishing of the superior forecaster and the weeding-out of the inferior ones. For the more profits reaped by the better forecasters, the greater become their business responsibilities, and the more they will have available to invest in the productive system. On the other hand, a few years of making losses will drive the poorer forecasters and entrepreneurs out of business altogether and push them into the ranks of salaried employees.

If, then, the market economy has a built-in natural selection mechanism for good entrepreneurs, this means that, generally, we would expect not many business firms to be making losses. And, in fact, if we look around at the economy on an average day or year, we will find that losses are not very widespread. But, in that case, the odd fact that needs explaining is this: How is it that, periodically, in times of the onset of recessions and especially in steep depressions, the business world suddenly experiences a massive cluster of severe losses? A moment arrives when business firms, previously highly astute entrepreneurs in their ability to make profits and avoid losses, suddenly and dismayingly find themselves, almost all of them, suffering severe and unaccountable losses? How come? Here is a momentous fact that any theory of depressions must explain. An explanation such as "underconsumption" — a drop in total consumer spending — is not sufficient, for one thing, because what needs to be explained is why businessmen, able to forecast all manner of previous economic changes and developments, proved themselves totally and catastrophically unable to forecast this alleged drop in consumer demand. Why this sudden failure in forecasting ability?

Go read the whole thing. Learn something today.

Twofer

Two great posts from Don Boudreaux.

First, he comments on "frozen credit markets". You know, the ones that make the bailout necessary.

He also rounds up some sensible commentary on the bailout.

When other people say it well

Just link to them.

Unfortunately, the same isn't true for money. Its supply is determined consciously by a board. Unable to know and adjust to changes in people's demand for money - and subject always to political pressures to grease the economy with the snake oil of easy money - the Federal Reserve distorts the economy with its inevitably mistaken decisions on the supply of money. Asset bubbles are part of the price we pay for this primitive way of supplying money.

Economics is cool

Freedom to Fail

I have some thoughts on the current economic 'crisis' and the US government response.

The causes of the boat we are all in are myriad, but one thing is clear to me: going back to the late 70's, I can find instances of the government interfering in the market, and the majority of that interference (from making mortgages 'easier' to get to Sarbaines Oxley) has had a net negative effect. Certainly not the only issue, but part of the problem.

The solution, in my opinion, is NOT a bailout. People must have the freedom to fail. Failure helps set prices, and helps the market learn from mistakes. Bailing out companies and individuals who made poor choices will harm everyone long term, given there is no incentive to make a good choice in the future.

My wife put it very well to me last night over a glass of very good inexpensive Pinot Noir. For some context, it was 8pm and we were sitting down to eat. I had just returned home after being gone for 12 hours - I had an all day meeting in Philadelphia, left my house a little before 8am, got home at 8pm, because that is what successful people do. She had been working all day to build her business. She said: "I am a little tired of all of it. We make smart choices, we work hard to take care of ourselves, and we are always the ones everyone comes to for a bailout."

It's so true.

We further discussed that this isn't about not helping people who can't help themselves, or people who get down on their luck through things that are out of their control. Heck, I'm willing to help people who make dumb choices and end up destitute. I don't want anyone to be hungry, I want everyone to have a nice place to live, a car, to be able to enjoy all the things I enjoy. I'm better off if they do, because they will be buying the things my wife and I work to produce or provide. But if you can't make the payment on your $1 Million dollar house because you got an ARM and make $150K a year, you need to suffer the consequences. And if you are the bank who made that loan, you need to suffer the consequences. Otherwise, you'll do it again.

Paulson said he understands taxpayers aren't going to be happy about footing the bill, but the government bailout will be less painful than the alternative recession. I'm not convinced that's the case. We don't know what's going to happen, and we certainly have history on our side thinking the government plan will fail. Glenn Beck said yesterday: "A failed Administration, a failed Congress coming up with a plan to fix a failing market... this can't fail!"

Trust the calm people. If you just hang in there, everything will work out OK. We all need things, we all can produce things other people need, there is no way a free market system can collapse. It may change, but we'll all make it.

Unfortunately, we must do something, even if it's the wrong something.

Gas Prices and Economic Ignorance

Radley Balko on the candidates and Economic ignorance.

Understanding the basics

Shouldn't someone who writes for an investing advice website understand the basics of Macroeconomics? I think so.

Micheal Shedlock, a "Registered Investment Advisor", claims a recession is obvious based on recent unemployment numbers.

The establishment data was the 5 consecutive decline.

Highlights

34,000 construction jobs were lost
26,000 manufacturing jobs were lost
27,000 retail trade jobs were lost
29,000 professional and business services jobs were lost
8,000 service providing jobs were added
A total of 57,000 goods producing jobs were lost (higher paying jobs), and for the first time in quite some time, few service providing (generally lower paying jobs) were added. Government, the last pace one wants to see jobs, added 17,000 jobs or the service sector would have actually contracted.

Weakness is now nearly across the board. The last remaining holdouts is education and health services which added 54,000 jobs. But looking ahead there is going to be trouble in this area as states, especially California, cut back services.

These are clearly recession totals yet still we have pundits debating whether or not we are in recession.

So where is he wrong? Recession has a specific definition, and it isn't based on the number of jobs added or removed from the 'Economy'. As a matter of fact, some increase in unemployment could be linked to an upswing in productivity.

Now, this doesn't mean things are as good as they could be, but it's an inflationary issue, not a recession issue.

Another example of government intervention screwing you

And another example of what "free government run healthcare" will be like.

Baltimore taxi drivers, being a reasonably ingenious sort, have figured out that sitting waiting for someone to call for a cab and going where the dispatcher tells them is more economical from a fuel usage standpoint than driving around looking for people waving their hands.

The most important passage from the article:

A fare increase might help, but taxi drivers such as Okiyi probably will have to struggle through the summer without any changes. Cab fares start at $1.80 and rise in 20-cent increments based on mileage and waiting time. A 55-cent fuel surcharge is added on top of those rates.

Baltimore's 1,000 cabs are regulated by the Maryland Public Service Commission, which evaluates twice a year whether industry costs have risen to a point where the charges can be passed on to consumers. LaWanda Edwards, a PSC spokeswoman, said the fuel surcharge has not changed since 2006, when the average price of a gallon of regular gasoline was $3.12.

Before that, the fuel surcharge was 15 cents. Any increase in the meter rate or fuel surcharge would not take effect until September, Edwards said.

No emergency surcharge in response to the present fuel price spike has been discussed, Edwards said. But the PSC evaluates the cab industry's rates every January and July, she said. Cab companies have not complained officially about their rising gasoline costs because they expect that they will have an opportunity for an adjustment after the PSC reviews the industry conditions next month, Edwards said.

In recent weeks, taxi companies in many towns and cities across the United States have asked for - and, in many cases, received - permission to increase their prices, either in the form of a fuel surcharge or an increase in meter rates.

Cab companies in Oklahoma City, St. Louis and small cities in Massachusetts and Indiana have obtained increases, according to news reports. And Chicago recently passed its first fuel surcharge for taxis, tacking on up to $1 per ride, the Chicago Tribune reported.

Meanwhile, taxi industries in Boston, Buffalo, N.Y., and Manchester, N.H., are pushing for fare increases or fuel surcharges to help get them through the fuel pinch.

"Nationwide, the industry is asking for rate relief, which means a fare increase," said Alfred LaGasse, president of the Taxicab, Limousine & Paratransit Association, a national trade group that represents about 1,000 transportation companies. "It's pretty universal. It's not limited to large cities or small cities."

On Friday, Montgomery County allowed its four cab companies, which operate about 650 cabs, to institute a 90-day emergency fuel surcharge of $1.50 per trip.

Notice the word "allowed". Since taxi drivers' and companies' prices are set by the government, they must take other actions in order to sustain their business. Which means worse service for you. Instead of being able to decide to hail that cab when it starts to rain on your walk home, you'll have to call for one, and wait 20 minutes (assuming they'll send a cab to someone who called from a cell phone without an address.)

This, of course, is the best example to the layperson, but price fixing by government has a number of drawbacks, as it always limits the choice of the consumer. Want a nicer cab, and willing to pay for it? Tough. Want to get the cab faster, and pay a little extra? Tough. Want a bargain cab that's a little less comfortable? Tough again.

It's not all gas prices, you know...

While we blame high gas prices for everything, including kids not getting limos for prom, we need to keep some other stuff in mind.

Many operators have added surcharges in response to higher gasoline prices, which reached an average of $3.63 per gallon for regular unleaded in Maryland, AAA Mid-Atlantic reported yesterday. Rogers raised rates $35, bringing the cost of renting a limo to $885 for eight hours.

"The gas prices definitely are not helping us," she said. "It is working against us. We are trying not to raise the prices [again]. But the industry is suffering. It's not too far off."

Richard Kane, owner of International Limousine Service in Washington and president of the National Limousine Association, said operators suffered first-quarter losses of 10 percent to 30 percent.

Rate increases implemented in response to higher fuel costs range from 8 percent to 20 percent, Kane said.

"It is unfortunate, but we have to pass the costs on," said Kane, 38, who has tacked on a 13.5 percent surcharge.

Mike Vallard, owner of Bel Air-based Higher Quality Limousines, is among those who decided against raising prices, resigning himself to the possibility of simply breaking even. Vallard, who is president of the Maryland Limousine Association, charges $800 for six hours and $1,000 for eight hours.

First, a $35 increase to $885 is less than a 5% increase. Also, keep in mind it is harder for teens to get jobs than it used to be, due at least in part to the higher minimum wage, which primarily impacts part time and teenage workers. Also, don't forget the sales tax increase in Maryland from 5% to 6%. On that same $850 original limo rate, the increase in the sales tax is $8.50, about a quarter of the increase due to gas.

Micro vs. Macro

An awesome transcript of a lecture to a Macroeconomics class by Gary North.

I think he might be a MicroEconomist.

Me too.

I heart Economics

Drew Cary on the middle class, and how we are actually far better off than we've been in the past, regardless of what you see on the news.