Lowering rates again?

The Fed is talking about cutting rates again. When will these guys figure out that it's a credit SUPPLY problem, not a credit demand problem, and that cutting rates will only make credit supply dry up further. In fact, the Fed should be raising rates, not cutting them.

Consider this, if you had $100 and someone wanted to borrow it, would you be more likely to lend it if they gave you $5 back, or if they gave you $10 back? Assuming you're not a golfer, you said $10. By lowering rates, the Fed would drive down the amount of money that lenders get paid for lending, and make lenders less willing to lend.

Truthiness is Real

Scott Adams (the Dilbert guy) posted some good links suggesting Truthiness is a far more serious concept than Stephen Colbert probably expected.

Will the real conservatives please stand up?

This historical stereotypes of political parties is this:
* Democrats increased taxes and increased spending
* Republicans decreased taxes and decreased spending

However, the Republican stereotype has ceased to be true. During the Bush administration and the Republican majority in Congress, Republicans have become the party that decreases taxes and increases spending. This puts us in a position of funding the government by printing money. This is obviously unsustainable without driving up inflation, but so far Republicans have escaped detection of this by the public.

This is sad in that it leaves American voters with no choice for a party that will reduce spending. This is a significant gap in American politics. If it continues, Republicans are in danger of losing their reputation of being the party of small government and reduced spending, especially if the Democrats or another party fill the gap and pick up responsibility for cutting spending.

How Paulson's Plan Might Fail

Hank Paulson wants to buy up bad assets in a reverse auction. The main problem with this is that it is not targeted on the right companies. There are roughly 3 kinds of companies in this crisis:

1. Companies in good shape that don't need a bailout


2. Companies in terrible shape that will probably fail even with a bailout or should not be rescued


3. Companies in bad shape but will benefit from a bailout or need to be rescued

Bailout money should only go to companies in the 3rd group and should absolutely not go to the 2nd group. With Paulson's plan, we're going to be giving money to all 3 of these groups. This will raise the costs to taxpayers much higher than it needs to be. And it risks not having enough money for the 3rd group because we've given so much to the first and second groups.

Whatever bailout plan we come up with, it needs to target the places where it's most needed.

$700 billion?

Wow. $700 billion. Seriously?

The most shocking thing about this is that people just seem to be going along with it. The most discussed questions seem to be, how will it be done and what will it mean to spend $700 billion. Once again the media is just rolling over and accepting that whatever the Bush administration says is a good idea. Even the feeble democrats in congress are willing to go along if they get "oversight". No one seems to be asking if it should be done at all.

Giving George Bush another $700 billion is about the dumbest thing I've ever heard. We already gave him hundreds of billions for Iraq and look at what a mess he made of it. At what point in the last 7 and a half years has the Bush administration done anything to suggest they should be trusted with $700 billion.

That said, giving anyone $700 billion to fix this problem is idiotic. If the only way you can think of to fix something is to throw $700 billion at it, you've effectively proven you're not going to be able to fix it at all--$700 billion or not. Bernanke and Paulson have consistently tried to inflate themselves out of trouble. They already have us in a real recession, if not a nominal one.

Inflation is now, and has been, way above the meager growth rates the Bush administration is citing to prove that there's no recession. If we're all making fewer dollars in real terms than we were 6 months ago, that's a recession.

Printing money is not a solution. We'll just have inflation to go with our economic crisis instead of just an economic crisis. Please, someone stop these maniacs.

Recognize this market?

So, imagine this scenario: there are 3 people, Andy, Billy and Charlie.

Andy has a product to sell. Billy is compelled, under penalty of death, to spend whatever money he has on this product, regardless of price. Is it a mob protection racket maybe?

Now Charlie won't buy Andy's product no matter how cheap it is. Even if Andy were giving it away, Charlie wouldn't take it.

So before going further, what price should Andy charge? Since neither Billy or Charlie decide based on price, Andy should charge as much as possible right?

By now you probably recognize this market as a free health care market. This is basically the reason why health care can't be a functional free market. One side can charge as much as possible, and the other must continue to pay and pay and pay, just to survive. The market is not balanced or free when one side isn't free to choose whether or not to participate.

As my friend, Franklin, once said, "You can't wait for heart surgery to go on sale."

Nobel for Linus Torvalds

The Nobel people ought to consider Linus Torvalds for the next Nobel Prize for Economics. The open source model of software development has exposed a new kind of market, one where the cost of producing and distributing a product falls to zero, leaving only the cost of designing it. "Open source" is now even spreading to other cheaply produced products, even though they don't actually have "source". The Linux kernel is by far the most successful open source product. Through his work with Linux, Linus has proven that this kind of market can work and that people are willing to give away the effort of designing a product for the seemingly small benefits of notoriety and creative expression.

I suppose it might make sense for Richard Stallman to share in the Nobel Prize, for creating the GPL, but the idea of giving him an economics award is almost too much for me.

Stopping Illegal Immigration is Easy

Immigration was a big deal in US elections recently. Even now, America's presidential candidates seem obligated to out-tough each other on border security. It's so simple-minded. Stopping illegal immigration is not a problem. Simply raising the number of legal immigrants would greatly reduce illegal migration. Scrapping the caps altogether would bring illegal immigration to nearly zero. It would make us more secure too, by drying up the illegal routes into the country. Will any politician ever have the good sense or courage to explain this to the American people?
Probably not for a while, but one can hope.

Oil Supply & Demand Crossover

There seems to be a disagreement about whether high oil prices are caused by speculators or simple supply and demand. That speculation hasn't driven up other commodities, suggests speculation alone doesn't drive up prices. And there are no reports of hoarding or oversupplies of oil. But there's not so much oil that buyers can withhold buying buying to drive down prices.

It seems possible that we, as a planet, are now consuming exactly as much oil as we are producing. And it's clear that demand is increasing faster than supply. That is, we may be at the point in history where demand is about to surpass our supply. It's not Peak Oil, but it's the Oil Crossover point of supply and demand.

Peak Oil is a useful event to consider, but isn't valid for temporal predictions because it primarily considers supply. The predicted effects of Peak Oil are based on supply _and_ demand, but the predicted occurrence is based solely on supply. This doesn't make any sense at all.

The supply and demand crossover point is a more meaningful point in time. The Oil Crossover is the point in time when the predicted effects of Peak Oil will actually begin. The world doesn't need to have topped out its potential oil supply to experience global shortages. Rapidly increasing demand will do just fine. And, you may have noticed, demand is rising rather rapidly.

The danger is that policy makers are considering the right effects but at the wrong time. Policy makers use optimistic estimates of oil supply as an excuse to delay restraints on demand. Given this global unwillingness to restrain demand even slightly, it should be no surprise if it's rising demand that eventually brings us to the effects of peak oil, rather than shrinking supply. Nor should there be any surprise if we've finally reached the Oil Crossover.

Zero Percent Corporate Income Tax

Governments try to gain favor with companies by giving generous tax credits if they locate an office or factory within their jurisdiction. This is often looked at as unfair because it only goes to big companies. However, the way to fix this is not to stop giving tax credits to some companies, but instead, to lower taxes for all companies... all the way down to zero.

Corporations aren't people and don't hoard money the same way. When corporations get money, they spend it on roughly 3 things: buy more goods and services, expand the business by hiring people and investing, or give money to people as compensation. The first 2 cases are good uses of money that will lead directly to economic growth and shouldn't be taxed.

The third case is when corporate profits become personal income, which is already taxed. The difference is that taxing at the corporate level is regressive, because it taxes all recipients at the same corporate rate, no matter their income. If you wait for the money to become personal income, it can then be taxed on a progressive scale.

In each case, it's better if the company spends its money on something other than corporate income tax.

Fix Lending Standards

One of the problems leading to the current economic disaster was lax standards by lenders. This happened because lenders were able to sell the loans on to uninformed investors. There is a simple fix to this: require lenders to keep a certain percentage of all loans they make. If lenders have to keep between 10 and 25 percent of all loans, it will keep them from knowingly making bad or risky loans with the intent of selling them on.