Conservative Economics

My Favorite Month would be April if...

2011-04-05T10:17:00.004-05:00

...the Feds abolished the Internal Revenue Service. I love April. It's a time of renewal, not only in nature, but in my spirit. Then the IRS comes along and ruins my seasonal jubilation. I noticed that Scream 4 is coming out on April 15th. Somebody has a sense of humor.

When you're surrendering your hard earned money, the best you can do is keep a sense of humor about it. I play games in the for section of my payment check. This year I decided to write in "for: confiscation." It seems appropriate. After all, Merriam-Webster's first definition for confiscation states: to seize as forfeited to the public treasury.

The best I can do is stay upbeat facing the evils of usurpation as I try to spread the idea of freedom by voluntary allocation and its benefits to society.

American Origins: From the Colonies to the Constitution

2011-02-13T13:08:00.002-06:00

I just signed up for a history course taught by Thomas Woods. American Origins: From the Colonies to the Constitution which begins on March 5th. I am really looking forward to it.

I am currently in the middle of my first Mises Academy course How to Think: An Introduction to Logic taught by David Gordon. I must say it is exceptional. If you haven't taken a course from the Mises Academy yet, I highly recommend it. The price is cheaper and the content is better than most brick and mortar university courses.

Why I Recommend and Respect Tom Woods

2011-01-09T09:51:00.000-06:00

I am a huge fan of well-known people that take the time to respond thoughtfully to a seemingly unimportant stranger. So, I had a question about a source in Thomas Woods book The Politically Incorrect Guide to American History. I obtained his email and asked the following question:

On page 50 of the book there is a box that says "What the Press Said." In it there is a quote as following:

"[It was] merely an incident of the real controversy...[for] possession of the Federal Government is what both North and South are striving for."
-The New York Times in its description of slavery, 1854

When I try to find this source online, all I get is this page: http://www.nytimes.com/1860/07/04/news/the-slavery-question.html

If you read it, there is no mention of the first part of the quote in the article only the second part followed by "and the leading motive of the South is a determination to regard Slavery as their paramount interest, and its protection and perpetuation as their settled policy."

Something is definitely fishy. I tend to trust you far more than I do the New York Times, so I am wondering if I have not found the source you were referring to or if the NYT changed it?

He then graciously responded with:

Mr. Morr:

Grr. This just calls to mind the struggles I had with the publisher during the editing of that book. They wanted to substitute a different box for the one I had, so they chose this. I did not catch that they actually got the date partially wrong; I was referring to three NYT columns, one from 1854 and two from 1860 (May 30 and July 4). It is Eric Foner himself, an extremely pro-Lincoln and pro-Union historian, who notes the significance of the Times' concession: "The New York Times went so far as to claim that slavery itself was 'merely an incident of the real controversy,' since 'possession of the Federal Government is what both North and South are striving for.' In this it was only echoing the views of Webster and other northern Whigs of the 1840s who had opposed the annexation of Texas and the Mexican War on the grounds that any addition of slavery territory and subsequent admission of slave states would upset the balance of sectional power in the South's favor." (Foner, Free Soil, Free Labor, Free Men: The Ideology of the Republican Party Before the Civil War, p. 192.)

Tom

For your service to me Tom, I will recommend your latest book Nullification to everyone I know.

Love Song for F.A. Hayek

2010-12-21T18:50:00.000-06:00

This gets me excited about the recent growth in popularity of under appreciated individuals such as Hayek.

Courtesy of Dorian Electra

QE2 = Bank Bailout?

2010-11-18T08:54:00.000-06:00

You have got to be kidding. The hits just keep on coming for an economy that is suffering and a government that won't let it recover. Read more

On Bailouts

2010-08-24T17:59:00.002-05:00

Is it more efficient to keep fixing a rusty pipe that is incapable of holding water on its own or let someone install a new one that you don't have to keep fixing?

Zeitgeist Movement = Marxist Futurism?

2010-07-25T14:41:00.002-05:00

Perhaps. After a barrage of irrelevant comments from supporters of the Zeitgeist Movement on this blog, I did a little research into what they are all about. After reading a good bit of bantering over at the Mises forum, I can say that I am really unimpressed with the Zeitgeist position and their idea of what is called resource based economy. I have a general distrust of anything or anyone that has a disregard for logic and evidence-based argumentation. As indicated by one individual on the Mises forum, logic has been replaced with a sort of mystic hubris:

"lol. I will not debate this, because it is senseless to argue, considering those who argue seldom change their minds. lol. I doubt many will be able to understand the ZM concepts from where they are now. That's ok... it's not a matter of superiority or inferiority... it's all about cultural conditioning, which our present culture is expert at... And that will change anyway because of continuing information flow."

What a ridiculous string of words. It would be nice if these people were as open-minded as they claim to be. A little research and inquiry into the minds of Mises, Hayek, Rothbard et al might glean some understanding on economics and praxeology. They might come to the realization that resource based economy backed by a super computer that will bring superabundance to society is a fantasy that might be fitting for a Marxist science fiction, but not reality. The same poster on Mises forum later said:

And since I am putting in question the very foundation of this forum, I'm not surprised you would find my words useless. But I didn't come here to argue about this stuff, so I am bowing out. I do not wish to step upon your 'religion'. (which is another conceptual system people mistake for reality...)

That is an interesting assertion considering that is exactly what this "movement" appears to be - a religion.

Update (8/30/10): Robert Murphy took a stab at RBE over at Mises today. We share the same concerns.

7 Things the Government is Teaching Our Children About Money

2010-06-29T07:56:00.045-05:00

Congress handles our federal budget about as poorly as one could ever imagine handling a personal budget. The government is teaching our children the worst possible way to handle money and budgets. Here is a list of some of the lessons children might learn from government:

1. Spending money you don't have is stimulating.
2. Paying off debt is not important.
3. Managing money poorly will get you a raise.
4. Prudent shopping is unnecessary.
5. Work is optional for income.
6. Stealing is okay as long as the ends are deemed worthy.
7. Long term goals have no worth.

At face value, these lessons seem absolutely absurd. However, some (especially governments) seem to think it is the quintessential recipe for successful economy. I tend to think that what is actually good for my household economy is also good for the economy as a whole. When I economize, it is a good thing.

Mises Academy: New Way of Learning

2010-05-23T17:01:00.002-05:00

Absurdity of the State: Child Labor Violations

2010-04-10T10:33:00.005-05:00

Current laws forbid children from earning wages from their expertise. It doesn't matter if they are using the money to save for their future education or to live out their dreams such as Tallan "T-Man" Latz who loves to play his guitar as evidenced in the video below. He is seven years old, so he cannot legally be compensated for playing the guitar or even play in traditional establishments of business. He has a gift that people wish to compensate him for, therefore his talents have become an enemy of the State. When you factor in all the various levels of federal, state, and local laws it is a complex web of absurdity. It is about time we repeal these ridiculous laws.

Health Care Reform?

2010-04-05T21:32:00.004-05:00

H.L. Mencken once said that “Every election is a sort of advance auction sale of stolen goods.” The majority of the political process is deciding which favored groups get what. It is important to understand that with all spending bills, some people undoubtedly benefit whether they be a Wall Street CEO, a mid-western farmer, or an inner-city homeless person. This is the visible effect on which most people, even renowned economists, focus and rely to determine their opinion of the efficacy of a policy. This focus is also what makes for a poor economist – renowned or not. Henry Hazlitt wrote in his great book Economics in One Lesson, “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” Hazlitt further wrote, “Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson.”

There are definitely a lot of misconceptions about health care. The bigger picture should be explored in regards to health care intervention so we might attain a better grasp of where we stand. First, the current system is mixed with a large regulatory apparatus including subsidies, licenses, controls, patents, monopolies, and outright welfare. Government makes up 42% of all health services and supplies spending.[1] 75% of all citizens over the age of 65 are provided for by the government. Conservatives are wrong – we already have government health care. This bill just increases what we already have. A common misconception about our current system is probably epitomized in the town-hall exchange between Congressman Bob Inglis (R) and one of his constituents in South Carolina. The man charged that Inglis should “keep your government hands off my Medicare.”

The current legislation is basically a continued effort to repair a failed system that has been fiddled with for nearly a century. The first national conference that declared for universal health and social insurance was in the 1910s. It has taken 100 years to get where we are today and Obamacare isn’t even proposing anything that is close to total socialism of medical services regardless of purported intentions by opponents. The problem with socializing even just a bit more of health care is that it will produce exactly the same results here that it has everywhere else. We will increase over-consumption, rationing, and stagnation. The problem is that without freedom of exchange and market pricing, economic sense disappears and the system becomes entangling and impoverishing.

There is another component rarely mentioned beyond casual concern. How do we pay for this sublime utopia of health parity? The government can’t pay for this by taxing everyone because citizens wouldn’t allow for it over the long term. The national debt is already enormous. We should look no further than the Federal Reserve. They will run the presses to pay for these foolish dreams. The Fed makes something like this possible – without it - no politician would make such bold promises. The real problem may not be the impossible visions of politicians. It may be the institution that allows for such foolery, and it comes at our own expense. Inflation through fiat currency is one of the most insidious mechanisms ever introduced to an economy.

We should be mindful that worsening the system of medical purveyance is only part of the defect of universal health insurance. The unseen costs will include worsening business cycles, depletion of the dollar, and destruction of private wealth via inflation which will be spread equally (ironic?) among all individuals whether rich or poor. I’ll close with the wisdom of Frederic Bastiat, the French economist of the 19th century:

“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a small present evil.”

Note:
1. Health Expenditures by Sponsers. http://www.cms.gov/NationalHealthExpendData/downloads/bhg08.pdf (PDF)

Should Government Subsidize Education?

2010-03-03T16:03:00.010-06:00

Staunch fiscal conservatives sometimes entertain or even fervently support the idea of subsidizing higher education. I do not entertain such ideas and neither does education expert James Stanfield from E.G. West Centre in the School of Education at Newcastle University located in Newcastle upon Tyne, UK. The Adam Smith Institute published a paper today by Stanfield that makes a very strong case against university subsidies. Stanfield steals a page right out of Frederic Bastiat's playbook. In the book That Which is Seen & That Which is Not Seen, Bastiat asserted that public policy via government intervention tended to result in not just one immediate and visible effect, but a whole host of hidden effects which accrue over time. Stanfield makes his case from this framework.

The case for government subsidies is based entirely on the assumption that it will not only benefit every individual student, but the society as a whole. Stanfield vitiates this writing,

"While it is claimed that the taxpayer will benefit indirectly from his so-called £400 investment, what is not seen is that the taxpayer would still enjoy the indirect benefits of higher education if students funded themselves."

The argument against public education is nothing new. Albert Jay Nock lectured about the ills of government interference in education circa 1930. His talks were compiled into a brilliant work known as The Theory of Education in the United States. The book is made up of a string of lectures given by Nock at the University of Virginia which makes the style interesting and direct. Nock took the issue of education seriously believing it to be a matter that greatly affected the welfare of our republic.

If you have any interest in education, I highly recommend reading both the current and vintage works by Stanfield and Nock. Picking up a copy of Bastiat's classic to read wouldn't hurt either.

Was the Wild West Really that "Wild?"

2010-01-18T14:18:00.018-06:00

The later half of the 19th century in the Western United States is often known as the period of the "Wild West." It is nearly always exaggerated by historians and Hollywood. The implication of this presentation is that, without government, society becomes disordered and out of control. Areas without a State become hotbeds for crime, exploitation, and inestimable rises in price. The Wild West is often cited as an example of such anarchic conditions. In their book The Not So Wild, Wild West: Property Rights on the Frontier, Terry L. Anderson and Peter J. Hill provide a solid exposition of the period and dispel many of these myths. Thomas Woods describes how the "Wild West" was more peaceful and much safer than most modern cities in his book 33 Questions About American History You're Not Supposed to Ask.

Among the most interesting aspects of this period in U.S. history were the innovations in property rights that occurred far from government enforcement. The pioneers themselves created and enforced contracts and, as Anderson and Hill describe, the result was a large relocation of population to the West relatively free of conflict. One problem arose from defining and defending property rights concerning cattle in large expanses of land. Several entrepreneurial solutions resolved these problems as they ensued. These solutions were gradually introduced, and included cattle branding, constant supervision by armed cowboys on horseback, and the invention of barbed wire. Barbed wire permitted for the first time an effective separation of vast stretches of land at an affordable price.

In a recent essay addressing conventional propaganda in regard to the period, Ryan McMaken described the American West as a "heritage of peace." It is important to understand that proponents of laissez-faire aren't subsequently forced to renounce all rules and forms of regulation. By definition, supporters of laissez-faire economics renounce rules and regulations enforced by coercive bureaucracies that can't go out of business. Don't fall for the straw man argument postured by statists that free-market supporters believe in a "no rules" system or that the "Wild West" was a period of excessive violence, severe injustice, and predominantly unsuitable for civilized human habitation.

Credibility Meltdown for Leading Climate Scientists

2009-11-24T09:56:00.009-06:00

The recent climate scandal involving the Climate Research Unit hack will likely prove to be a devastating blow to anthropogenic global warming (AGW) advocates. Andrew Bolt of the Herald Sun suggests:

"The 1079 emails and 72 documents seem indeed evidence of a scandal involving most of the most prominent scientists pushing the man-made warming theory - a scandal that is one of the greatest in modern science. I’ve been adding some of the most astonishing in updates below - emails suggesting conspiracy, collusion in exaggerating warming data, possibly illegal destruction of embarrassing information, organized resistance to disclosure, manipulation of data, private admissions of flaws in their public claims and much more. If it is as it now seems, never again will 'peer review' be used to shout down skeptics."

One of the documents released is a five-page document titled The Rules of the Game. A primer for propagating the AGW message to average people, the document is an abridgment of a longer document contained at the Web site of the UK Department for Environment, Food and Rural Affairs. One of its sections is entitled Blowing Away Myths. The document proposes that AGW supporters should

"forget the climate change detractors - those who deny climate change science are irritating, but unimportant. The argument is not about if we should deal with climate change, but how we should deal with climate change."

I find it risible that they think ignoring their opponents is equivalent to "blowing away myths." This appears to be typical behavior from AGW proponents; it screams intellectual dishonesty.

Corporate Nationalism: A Love Story

2009-10-01T11:48:00.020-05:00

Capitalism sure is unpopular these days. When I first saw the preview of Michael Moore's new documentary, Capitalism: A Love Story, I noticed that Moore is either ignorant of or disingenuous towards what actually constitutes capitalism. Watching just the preview, I saw Moore present our current system of corporate nationalism as if it were capitalism. This is strange coming from someone who supports government control of business.

Conveniently omitting better solutions, Michael Moore's documentaries instead give us plenty of emotionalism, some form of conspiracy, and a lack of real supporting evidence. Michael W. Covel confirms this in his candid movie review Michael Moore Kills Capitalism with Kool-Aid. One thing is for certain, our current system has allowed Moore to make millions from his propaganda and enjoy a more opulent lifestyle than most people in all of history. In fact, the movie industry is one of the least regulated industries in our country and more exemplary of a free market arena. Producers create a product and consumers can either take it or leave it. You would think Moore, whose net worth has been estimated to exceed $50 million, might at least acknowledge an economic system that provided the opportunity for such prosperity.

"Stimulus" Not So Stimulating

2009-09-11T11:46:00.010-05:00

Remember when the Obama administration was sounding alarms that we have to pass a stimulus package now or unemployment would soar? Check out the following chart that shows actual data plotted next to the unemployment forecasts with and without the stimulus package via Obama's economic team:

Post hoc ergo propter hoc informs us that the chart doesn't prove that the stimulus package caused the rise in unemployment, however, it doesn't bode well for the Keynesians.

Medicare Has Been Bankrupt For Some Time

2009-08-24T22:16:00.010-05:00

In March 2008, the U.S. government's Department of Health and Human Services published a press release stating:

This year the HI Trust Fund will spend more than its income, and from 2009 through 2017, about $342 billion will need to be transferred from the Federal treasury to cover beneficiaries' hospital insurance costs.

Medicare's Hospital Program Went Broke in 2008. Nobody Noticed.

In light of this, who in their right mind would want government to get more involved in health care? As one doctor noted, our current system is anything but a free market. Another doctor candidly said the government is the problem in health care.

Paul Krugman thinks that the free market cannot cure health care. Find out why he is dead wrong. We cannot afford to have government screw up our health care system even further than it already has; please write your Senators and Congressmen to voice your opinion.

Why Pay with Two-Dollar Bills?

2009-07-24T17:59:00.007-05:00

Today I was browsing through one of my favorite economic sites mises.org and I noticed a title that really grabbed my attention - Why I Pay with Two-Dollar Bills. What on earth could this article be about? After reading the article, I would describe it as creative awareness. Briggs Armstrong, a student at Auburn University, devised an ingenious plan to raise awareness for Austrian economics and the maladies of The Fed's monetary policies. I thought I would throw him a keyword anchored link to solidify his plan by helping move his article to the top of Google's search results for the phrase he is telling curious people to look up. If you have a blog or website, I suggest you help Briggs out and do the same. To learn what Briggs is up to, click why pay with two-dollar bills.

The Keynesian Magic Trick

2009-07-21T20:59:00.007-05:00

The key to a good magic trick is the art of misdirection. If I can get you to focus on this hand over here, then I can perform something else over here - a sleight of hand, if you will. A clever Keynesian will give you what seems to be a correct premise and then try to pull the wool over your eyes in the conclusion.

This sleight of hand emerges, for instance, when Paul Krugman argues that consumer spending causes the economy to grow. If you read Krugman for very long, you will notice that consumer (or government) spending is his holy grail. Spending is always in the back of his mind. Keynesians begin their argument with the definition of gross domestic product (GDP), which is in the form of an equation:

GDP = Consumption + Investment + Government Expenditures + Net Exports

What is the Keynesian conclusion based on this equation? "If you increase consumer consumption or maybe even government expenditures from an 800 billion dollar spending bill, you will increase GDP." That makes sense, right? If you add to one side of the equation, then the other side must increase equally.

So you are probably thinking that Keynesians have discovered the secret to economic prosperity, right? Not so fast. What if one of the variables on the right side (such as investment) decreased in equal proportion to the increase in spending? The equation would still hold true without an increase in GDP on the left side. Here's another scenario: What if investment decreases more than the other variables increase? Then you have negative growth, and a decrease in GDP. That would be counter-productive.

Maybe one day, even in the mainstream, the Keynesian fallacy will be put to rest for good.

Further Reading:

The Second Coming of Keynes

Anthropomorphic Global Warming Supporters Challenge Conservative Economics

2009-07-01T21:22:00.013-05:00

We are not exactly sure how a debate like this gets started on Facebook, but somehow Conservative Economics managed to ruffle the feathers of two AGW supporters. It all started when we posted a joke about global warming:

"Caveman Guide to Global Warming - Great ball of fire in sky heat small rock. Smaller creatures on small rock no heat rock."

Within a few hours, Conservative Economics was slammed with ad hominem attacks insulting all skeptics of Anthropomorphic Global Warming not to mention cavemen:

AGW Supporter #1:
Cavemen are notoriously retarded.

AGW Supporter #2:
Sounds like the mentality of people who don't "believe" in global warming. Caveman is perfectly appropriate.

Conservative Economics:
Surely you can do better than argumentum ad hominem.
http://www.ibdeditorials.com/IBDArticles.aspx?id=330911757213432&kw=warming

AGW Supporter #2:
From an actual scientific article (not a newspaper): "there is a scientific consensus on the reality of anthropogenic climate change. Climate scientists have repeatedly tried to make this clear. It is time for the rest of us to listen."
http://www.sciencemag.org/cgi/content/full/306/5702/1686

It's hardly worth it to argue this point. Refusing to believe in 20 years of research and evidence because of a few funded studies here and there is a perfectly good basis for an ad hominem comment -- because if you still aren't getting it, facts clearly aren't going to change anything.

As for IBD, it is definitely in the best interest of business for climate change to be out of our hands -- then business doesn't have to account for pollution and poor environmental practices.

Conservative Economics:
Yes, let's move the ad hominem to the news source – because clearly a scientific magazine is more able to link to scientific studies than a news magazine. The IPCC report did not conclusively link greenhouse gases to observed temperature rises. The 2007 report says that there is a 90 percent chance that a one-degree increase in temperature during the 20th century was caused by man's greenhouse gas emissions. That is a large uncertainty in scientific terms, since a 95% confidence interval is usually regarded as convincing. Your article correctly states that, "The scientific consensus might, of course, be wrong."

Of course it is hardly worth arguing the point, when you can successfully preempt the debate with rhetoric. It is especially convenient to do so when the "consensus" is reversing direction: http://online.wsj.com/article/SB124597505076157449.html

There is never a good basis for an ad hominem attack, unless you plan to subvert debate using a fallacy that may go unnoticed.

You discuss the consensus, as if "consensus" were the be-all end-all of scientific debate. What exactly is this scientific consensus? Three main points:

1. We have had some global mean warming – approximately 0.6 degrees centigrade.
2. CO2 is a greenhouse gas and its increase should contribute to warming.
3. There is good evidence that man has been responsible for the recent increase in CO2.

Richard S. Lindzen says these are all trivial points in his paper Understanding Common Climate Claims, "While these claims may be contested, they are indeed widely accepted. The only problem is that these claims do not suggest alarm."

http://www.geocraft.com/WVFossils/Reference_Docs/Lindzen_2005_Climate_Claims.pdf

I guess this scientific consensus also means that we should simply ignore the 700 International scientists (and growing) that dissent over man-made global warming claims?

http://epw.senate.gov/public/index.cfm?FuseAction=Minority.Blogs&ContentRecord_id=10fe77b0-802a-23ad-4df1-fc38ed4f85e3

Two issues that I have yet to see addressed are (1) why the earth's temperatures have flat-lined since 2001 and (2) how humans are responsible for big increases in greenhouse gases when they only represent 3.4% of the 3.62% of greenhouse gases that are CO2 as was candidly charted at the end of the IBD article. If these points aren't addressed, then "20 years of research and evidence" doesn't mean much.

Actually, carbon trading stands to be great business for big players like Goldman Sachs. Indeed, the big business lobby is in a great position to gain from government-mandated climate control. I know it is easier to create a vacuum or conspiracy theory like "funded" studies or business "interest", but it doesn't hold any real weight for the debate. The economic reality is that small business and the American people will be losers from the higher costs of government intervention – not to mention all the corruption that is likely to surface.

AGW Supporter #2:
1. 700 scientists? Who are they? Do they study climate change? I'm a scientist. Do I count? Learn to recognize propaganda.

2. Carbon dioxide is one of six greenhouse gases that contribute to global warming. Learn the science.

3. Your original post was insulting and demeaning to the THOUSANDS of scientists world-wide who do believe in climate change, and to people like myself who have read about climate change for years. I am now finished with this discussion.

Conservative Economics:
1. If you weren't emotionally invested in it, you might actually read the report to find out who they are if that concerns you so much. Ever think of the IPCC and EPA being propaganda machines? I mean it is in their "best interest" to have a problem like this to "solve" is it not? This couldn't be why they suppressed the EPA scientist's recent study that had findings contrary to AGW? Regardless, I just assumed they had good intentions and read their findings. By the way, do you know how many scientists participated in the latest IPCC report? 52. Clearly, Tolstoy syndrome has set in fully for the believers. Here are just a few of the comments by skeptical scientists:

“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...The main basis of the claim that man’s release of greenhouse gases is the cause of the warming is based almost entirely upon climate models. We all know the frailty of models concerning the air-surface system.”
- Atmospheric Scientist Dr. Joanne Simpson, the first woman in the world to receive a PhD in meteorology, and formerly of NASA, who has authored more than 190 studies and has been called “among the most preeminent 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.”
- UN IPCC Japanese Scientist Dr. Kiminori Itoh, an award-winning PhD environmental physical chemist.

You are free to read the rest of the 700+ in the report I linked.

2. Yes, you are right. The EPA says that motor vehicles contribute to 4 out of the 6 including carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons. Since you are the expert on science (and clearly I don't know science), perhaps you can answer for me why there is no correlation between hydrocarbon use (gas, oil, and coal) and temperature? Why does solar irradiance correlate well with temperature? How are the AWG supporting scientists addressing the fact that correlation is not causation in their findings? Why do these scientists focus much more on CO2 than the other greenhouse gases? Good science involves welcoming and answering questions – not avoiding them.

3. Right. So, restating your source and pointing out the uncertainty is insulting, but characterizing skeptics as "cavemen" isn't insulting and demeaning? Give me a break.

I agree with Lindzen's conclusion:

"A question rarely asked, but nonetheless important, is whether the promotion of alarmism is really good for science? The situation may not be so remote from the impact of Lysenkoism on Soviet genetics. However, personally, I think the future will view the response of contemporary society to 'global warming' as simply another example of the appropriateness of the fable of the Emperor’s New Clothes. For the sake of the science, I hope that future arrives soon."

What is Economics?

2009-06-11T15:44:00.008-05:00

Lionel Robbins, a British economist, said that "Economics is the study of the use of scarce resources which have alternative uses." This might be the best definition of economics I have come across. Resources are scarce which means that people want more than is available to them. Another way of saying it is that our wants are unlimited and the resources to fulfill our wants are limited. Scarcity required us to economize, therefore the need for economics was born.

Scarcity has also required us to study trade-offs or the various uses of resources. Thomas Sowell states in his brilliant book Basic Economics:

"Not only scarcity but also "alternative uses" are at the heart of economics. If each resource had only one use, economics would be much simpler. But water can be used to produce ice or steam by itself or innumerable other mixtures and compounds in combination with other things. A virtually limitless number of products can also be produce from wood or from petroleum, iron ore, etc. How much of each resource should be allocated to each of its many uses? Every economy has to answer that question, and each one does, in one way or another, efficiently or inefficiently. Doing so efficiently is what economics is all about."

Fallacy of Economics

You may have heard the saying that an economist thinks he knows more about money than the people who have it. This comes from a misunderstanding of economics and what it entails. Decisions don't even have to involve money to be economic. Economics is not about how to make money or how to run a business. It is about the study of relationships between items such as prices, commerce, wages, and international trade from the viewpoint of how it affects the distribution of scarce resources to society. Even more broadly defined, Economics is the inquiry of praxeology - the study of human action or conduct. Ludwig von Mises championed the inclusion of all human action into the study of economics and anything less was incomplete.

Benefit of Economics

How can we benefit from economics? Economics helps us determine how well the various uses of resources affects our society. More specifically, we can determine what particular actions or policies do to either increase poverty or wealth. This can be very valuable indeed.

Why Does Government Often Fail?

2009-06-01T00:19:00.000-05:00

Government often fails not because of the people in it, but because of the nature of government itself. Government takes whatever individual brilliance exists and turns it into collective incompetence. Most activities of the government are to "solve" problems. However, once an agency or program is setup to "solve" the problem, it is in its best interest to simply "manage" the problem. Ronald Reagan said it well,

"No government ever voluntarily reduces itself in size. So, governments' programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth."

Let's look closer at why government fails. If a government agency solves a "problem", it gets less money as its funds are funneled elsewhere. If a government agency fails to solve its "problem", it complains of underfunding and gets more money.

If a business solves a problem for customers, it gets more customers and more money. If a business fails to help customers solve their problems, the customers go elsewhere and the business loses money.

As you can see, the incentives are backwards with government which explains its high rate of failure.

Can you imagine a business that paid employees more if they did less work and paid them less if they did more work? The idea is clearly foolish; anyone can see that if you pay people more for doing a poor job, it won't be long before all the employees are doing as little work as possible to increase their pay. Doing a good job is challenging, but any boob can do a poor job.

Ron Paul Predicted Housing Crisis

2009-05-20T08:20:00.007-05:00

Why am I not surprised that Ron Paul predicted the housing crisis back in September of 2003?

"Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing."

It is too bad government didn't listen to him then, but how often do they really ever take heed to sound advice?

Check out the full text of the hearing at http://www.lewrockwell.com/paul/paul128.html

Discrimination From The Bench

2009-05-15T10:19:00.006-05:00

President Obama has decided to usher in a new era of "social justice" through empathy which gives judges the right to discriminate in order to prevent discrimination. Wait....HUH?

*Cartoon by Michael Ramirez

The Advance of Socialism

2009-04-26T01:24:00.011-05:00

The advance of socialism in the United States is alarming. While its progression is nothing new, the rate at which the government is invading every part of our lives is rapidly increasing. Deficit spending, increased regulation & central planning, company takeovers, and "stimulus" redistribution are just a few current examples. We can call on the great French economist and philosopher Frederic Bastiat for explanations and arguments against socialism which are equally valid today as they were in 1850. Here are a few excerpts from Bastiat's The Law:

"Socialists desire to practice legal plunder, not illegal plunder. Socialists, like all other monopolists, desire to make the law their own weapon. And when once the law is on the side of socialism, how can it be used against socialism? For when plunder is abetted by the law, it does not fear your courts, your gendarmes, and your prisons. Rather, it may call upon them for help.

To prevent this, you would exclude socialism from entering into the making of laws? You would prevent socialists from entering the Legislative Palace? You shall not succeed, I predict, so long as legal plunder continues to be the main business of the legislature. It is illogical — in fact, absurd — to assume otherwise.
Here I encounter the most popular fallacy of our times. It is not considered sufficient that the law should be just; it must be philanthropic. Nor is it sufficient that the law should guarantee to every citizen the free and inoffensive use of his faculties for physical, intellectual, and moral self-improvement. Instead, it is demanded that the law should directly extend welfare, education, and morality throughout the nation.
This is the seductive lure of socialism. And I repeat again: These two uses of the law are in direct contradiction to each other. We must choose between them. A citizen cannot at the same time be free and not free.
The sincerity of those who advocate protectionism, socialism, and communism is not here questioned. Any writer who would do that must be influenced by a political spirit or a political fear. It is to be pointed out, however, that protectionism, socialism, and communism are basically the same plant in three different stages of its growth. All that can be said is that legal plunder is more visible in communism because it is complete plunder; and in protectionism because the plunder is limited to specific groups and industries. Thus it follows that, of the three systems, socialism is the vaguest, the most indecisive, and, consequently, the most sincere stage of development.
But sincere or insincere, the intentions of persons are not here under question. In fact, I have already said that legal plunder is based partially on philanthropy, even though it is a false philanthropy.
With this explanation, let us examine the value — the origin and the tendency — of this popular aspiration which claims to accomplish the general welfare by general plunder."

If you have not read The Law, you will really benefit from doing so. We must fight this promotion of general welfare by government to avoid the general plunder that proceeds from it. We must defend our individuality, liberty, and property from the encroaching Statist who wishes to take it away. The uninhibited use of our natural rights, given from God, is what will bring about the greatest societal good. Law must be used only to preserve the three basic requirements: life, liberty, and the pursuit of happiness. As M. Carlier said, "We must make war against socialism."

Costs and Benefits of Ethanol Mandates

2009-03-24T20:23:00.005-05:00

For members of the environmental left, the costs of mandating ethanol use in fuel have become an inconvenient truth. As I will demonstrate shortly, the costs far outweigh the benefits. The environmental and economic case against the policy is very solid.

Let's begin with the benefits of using more ethanol as a fuel source for automobiles. The main benefit touted by environmentalists is that ethanol has fewer carbon emissions than gasoline; therefore, it is better for the environment. The reasoning is that ethanol emits approximately one third less greenhouse gas than gasoline, all other things being equal. This would in theory help reduce global warming. When we discuss the costs, it will be apparent that they bring the net benefit to almost zero or zero.

The other benefit is the gravy train it provides for its producers. Iain Murray (2008) describes this well in his book The Really Inconvenient Truths,

"If the government pays you to produce something and then tells your customers they must buy it, you don't really have to do much except sit back and collect the checks" (p. 59).

I would like to think that was not their goal in the beginning, but the fact that special interests have a tendency of making their way into policy leads me to believe otherwise.

The costs of this policy are extensive, ranging from increased food prices to environmental costs. There are several reasons that ethanol mandates cause food prices to increase. One reason is that they eliminate a large portion of the supply of corn to food consumers. This causes items like tortillas in Mexico to skyrocket in price. For people that can buy food in Mexico, the increase in tortilla price encourages the consumption of less nutritious substitutes. The effect for people that can't afford food is hunger. Another cost is that corn takes up a larger portion of available crop land robbing the supply of land for other crops such as soybeans, cotton, and barley which subsequently raises their prices (Murray). High food prices also have a political cost. They cause more political instability throughout the world especially in poorer nations. As might be expected, burning food instead of gasoline intensifies famine. One example is that higher food prices reduce the effectiveness of aid from organizations such as the United Nations' World food program.

Ethanol production is more expensive and complex than gasoline production. Higher energy inputs for ethanol production include farming, distilling, and transportation. Because of the high cost of production, the government has to provide subsidies to producers estimated at $5 billion per year to help make ethanol production profitable. This costs approximately 40 cents per bushel paid by all taxpayers. Consumers bear the cost of an ethanol tariff of 2.5 percent from low-cost importers like Brazil which drives up the price per gallon even more. Another cost is that ethanol produces a lower energy output compared to gasoline. One gallon of ethanol only produces two thirds the energy content of a gallon of gasoline. Ethanol reduces the fuel efficiency of every gallon purchased at the pump (Murray).

The costs don't end there. There are several environmental costs involved with mandated ethanol use. The pursuit of meeting biofuel standards by using more land to produce ethanol interferes with the biodiversity of species. Indonesia provides an example of a policy driving the rapid use of natural habitats to make more palm oil which is used to mix with diesel to make biodiesel. The pursuit is accelerating the destruction of the orangutan habitat and thousands of orangutan. It doesn't stop there. Other endangered species such as the Asian elephant and Sumatran tiger are getting in the way of clearing land. Clearing land to sustain ethanol mandates bears another cost as trees are reduced. Fewer trees lessens the ability to absorb carbon dioxide and disrupts habitats for wildlife (Murray).

As I mentioned earlier, one of the benefits of ethanol use is lower emissions of greenhouse gasses. However, there are hidden costs that negate the benefit. The reality is that one gallon of ethanol is actually responsible for the emissions of nearly two gallons of gasoline. Ethanol emission increases are due to less efficient energy requiring the use of more fuel to go the same distance. Ethanol also has a higher fossil fuel energy cost in its production than it replaces. Corn ethanol uses 29 percent more energy than it replaces. Renton Righelato of the World Land Trust added up all the costs and estimated an increase of between two and nine times more greenhouse gas released into the atmosphere from biofuels than fossil fuels (Murray).

Iain Murray builds a strong case against mandated ethanol in his book, but neglects to mention at least a few costs. What are the effects on vehicles using the fuel? Does ethanol affect engine life negatively? First, ethanol attracts water and water in the fuel system is bad for engines. Even though it does appear that most vehicles prevent the attraction of water by ethanol, the threat is always there. Second, we know that ethanol has a tendency to damage boat fuel tanks that are made of fiberglass causing costly repairs. Mechanics are forced to cut through a boat's hull, remove the ruined tank piece by piece, and make further engine repairs (Douglass, 2008). I think adding these costs would make Murray's case even stronger.

Those primarily affected by government mandates of ethanol are the poor. The poor are affected more sharply by price increases because they have less income. Less income means a higher percentage of their income must be devoted to food. The effects of U.S. ethanol policy are not limited to the United States. They affect prices all over the world. For instance, tortilla prices in Mexico, pork prices in China, soybean prices in Indonesia, and many other markets are all going up due to less supply and higher input costs.

After all costs of mandating ethanol production and use are figured, the benefits in terms of emissions reduction are small and maybe even non-existent. Microscopic benefits means that every cost almost fully reduces the net benefits from ethanol use. This policy causes higher prices, increased hunger, political instability, and the reduction of wildlife habitat in the name of reducing greenhouse gas emissions that are at best minuscule (Murray). Congress may do well to rethink their costly decisions related to ethanol policy and engage in something more useful like organic lawn care.

Sources:

Douglass, E. (2008). Effects of ethanol-laced gasoline rock boaters. LA Times.
http://articles.latimes.com/2008/apr/15/business/fi-boat15

Murray, I. (2008). The really inconvenient truths. Washington, DC: Regnery.

The Language of the Left

2009-02-27T19:14:00.014-06:00

Deciphering what Obama and his cronies use in their speeches requires a liberal CliffsNotes. Kimberley Strassel lays out translations for common statements in Obama's speeches to help make sense of his lofty rhetoric.

"We are not going to get relief by turning back to the very same policies that for the last eight years doubled the national debt and threw our economy into a tailspin." Translation: Blame Republicans, and tax cuts.

- It's time to "make hard choices to bring our deficit down." Translation: Hello, higher taxes.

"The only way to fully restore America's economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world." Translation: Big government.

"We need to make clean, renewable energy the profitable kind of energy." Translation: Your utility bills are going up.

"If your family earns less than $250,000 a year, you will not see your taxes increased a single dime." Translation: For now.

I find Mr. Obama's style of language disturbing. Obama slyly glosses over what he is really doing with the intent of fooling Americans who don't pay attention to what he says. It helps him usher in economic policies that have failed many times throughout history; policies that have always given the Left more of what they want - power. Thomas Sowell outlines the purpose of the Left's vocabulary in his book The Vision of the Anointed:

The vocabulary of the Left sets out to "either preempt issues rather than debate them, set the anointed and the benighted on different moral and intellectual planes, or evade the issue of personal responsibility."

It is not surprising that you can easily find at least one of these three within any one of Obama's speeches.

Sane Reading for Troubled Times

2009-02-16T09:49:00.013-06:00

A recent article from World magazine titled Sane Reading lists some of the greatest economic books (in my opinion) ever written to help wade through today's financial insanity.

I generally disagree with many of John Maynard Keynes' economic conclusions. However, I respect his ability to explore new theories, his support of free markets, and his contribution to some of the great economic quotes. I find the following quote a bit ironic because I think many people have become a slave to Keynes himself,

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."

Without further ado, here is the list of books:

The Forgotten Man by Amity Shlaes
Economics in One Lesson by Henry Hazlitt
The Road to Serfdom by F.A. Hayek
Capitalism and Freedom by Milton Friedman
Economic Facts and Fallacies by Thomas Sowell
The Wealth of Nations by Adam Smith
Human Action by Ludwig Von Mises
Book of Proverbs by King Solomon and miscellaneous contributors

I have read about half of these books and I am eager to read the other half. The ones that I have read are excellent, so I don't doubt that the rest are great reads. World magazine is what I consider to be a respectable and unbiased weekly news source as opposed to Time magazine which is full of liberal bias.

Politicians and Economics

2009-01-17T22:05:00.010-06:00

At least one politician seems to understand economics and the path down which we are heading. Ron Paul writes,

"Contrary to the belief of many, the goal of the economy is not job creation. Jobs can be a sign of a healthy economy, as a high energy level can be a sign of a healthy body. But just as unhealthy substances can artificially give the addict that burst of energy that has nothing to do with health, artificially created jobs just exacerbate our problems. The goal of a healthy economy is productivity. Jobs are a positive outcome of that. A "job" could be to dig a hole one day, and fill it back up the next, or perhaps the equivalent at a desk. This does no one any good. But the value in that paycheck ultimately has to come from taxing someone productive. Some think this round-robin type of economic model is supposed to get us somewhere."

The ignorance of how the economic world really works especially related to current "stimulus" packages and job creation plans worries me. I just hope some other politicians will take a cue from Congressman Paul.

You can read the rest of his article here:
Stimulating Our Way to Rock Bottom

Middle Class Squeeze

2009-01-06T09:36:00.004-06:00

Watching the media these days can cause you to think that there is no hope for the middle or lower classes in America. They are clearly getting squeezed by the corporate giants and it just isn't fair. We need economic justice, cries the media. To continue the thought of just how good we have it in America, watch this video with Drew Carey from reason.tv to get some perspective.

The Economics in Costs of Production

2008-12-27T18:57:00.006-06:00

There are many costs of production in developing products for the marketplace. Our economic goal should be to lower costs of production to make products more affordable for everyone.

You might ask, "doesn't lower production costs just mean higher profit margins for big corporations?" Maybe with a monopoly or oligopoly, but not when competition is involved in the market. Competition drives producers to pass on the cost savings to consumers to stay competitive and increase market share.

Why is this our goal? Because the best way to improve the standards of living for everyone is to lower the costs of living. This allows us to use the money that we save on these goods to purchase other goods. Lower costs of production not only stimulate more economic growth, but they help lift the poor out of poverty more than any government sponsored activity ever could.

"Wal-Mart has done more for poor people than any ten liberals, at least nine of whom are almost guaranteed to hate Wal-Mart." -Thomas Sowell

Lower costs also make products that used to only be available to the wealthy available to all. The television, microwave, and computer are just a few examples. This is why poorer people in America have high standards of living compared to the poorest countries in the world. You can see some of the things that America's poor have been able to enjoy in my post on capitalism.

So, what things can be done to lower costs of production? Here is a list of just a few:

Increase productivity of labor
Decrease taxes on business
Improve efficiency through technology and innovative ideas

If you can think of more ways to lower costs of production, feel free to leave a comment.

The Economic Goal of Society

2008-11-30T14:37:00.003-06:00

All the recent political rhetoric about "fixing" the economy and society has led me to define exactly what the economic goal is or should be for our society. It is not surprising that this goal applies to individuals as much as it does to society as a whole. The economic goal is to produce optimal results with the least effort.¹

This goal suggests that progress must be made economically by increasing production without increasing labor. We seem to have forgotten that this was the driving force of invention from the very beginning. Man invented the wheel, the railroad, and the automobile all to save labor for other uses. Our goal is innovation to maximize production. In the next few posts, I will be discussing why this is the best goal to pursue economically.

Note:
1. Economics in One Lesson © 1979. Henry Hazlitt. The Fetish of Full Employment. p. 71

Why Capitalism is the Best Economics System

2008-11-02T11:32:00.007-06:00

Capitalism is an economic system based on private ownership in which activities are primarily determined by the function of a free market rather than by central government planning.¹

Be aware that when I speak of capitalism, I am referring to what is known as laissez-faire, meaning 'allow to do'. In other words, an economy with little government intervention. The U.S. is currently under a system known as a mixed economy, which is basically a mixture of capitalism and socialism. Capitalism works well because of the way it deals with self-interest, distributes limited resources, grows standards of living, and provides incentives for excellence. We will discuss these four concepts in detail:

Self-Interest

"It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interests." -Adam Smith

The prevailing interest among humans in this world is self-interest. Anti-capitalists call it greed. Religion calls it sin. Science calls it survival. In fact, few philosophies refer to self interest in itself as something good, but it is inescapable. You cannot educate people out of self-interest. It is the natural order of human behavior and the only way to tame this beast is to work with it. Dr. Walter E. Williams describes how capitalism works with self-interest:

"Capitalism is relatively new in human history. Prior to capitalism, the way people amassed great wealth was by looting, plundering and enslaving their fellow man. Capitalism made it possible to become wealthy by serving your fellow man." ²

Don't take this as an argument that capitalism is perfect or produces perfect results. Far from it. However, capitalism is the closest thing to a perfect economic system we will ever see on this earth.

Limited Resources

There are a limited number of resources in the world. Therefore, a system is needed that rations out these resources in a manner that benefits all the stakeholders. As we discussed in Gas Shortages previously, prices determined through supply and demand allow resources to be allocated to those who need them most. In the case of a crisis, the person with an empty tank of gas can buy what he currently needs most (because the price will be high enough to deter people who don't really need it).

Standard of Living

While political rhetoric often describes dire economic conditions and the woes of class separation, the truth is, people have access to more products and services than ever before. There are many ways to gauge the current standard of living, but let's discuss a few related to "the poor". Robert Rector of the Heritage Foundation³ wrote using 1990 census data:

38 percent of the persons whom the Census Bureau identifies as "poor" own their own homes with a median value of $39,200.
62 percent of "poor" households own a car; 14 percent own two or more cars.
Nearly half of all "poor" households have air-conditioning; 31 percent have microwave ovens.
Nationwide, some 22,000 "poor" households have heated swimming pools or Jacuzzis.

Excellence

Capitalism is the only economic system in the world that promotes voluntary excellence in individuals. Individuals are rewarded based on the amount of value they provide to the market. Capitalism provides incentives to be great and invent things that were never thought possible. It is a system that promotes growth among individuals and society as a whole.

While it would be impossible here to fully explain all the reasons why capitalism is the best economic system in this post, there are many books devoted to this endeavor. Some of these books include:

Capitalism and Freedom by Milton Friedman
The Wealth of Nations by Adam Smith
Free to Choose by Milton Friedman and Rose Friedman
The Politically Incorrect Guide to Capitalism by Robert Murphy
Freedomnomics by John Lott

Sources:
1. Capitalism. Wikipedia.
2. Capitalism and the Common Man. Walter E. Williams. August 25, 1997.
3. How "Poor" are America's Poor? Robert Rector. September 21, 1990.

The Relationship Between Politics and Economics

2008-10-30T11:42:00.002-05:00

With less than a week to go till the election, we see the economy going through a roller coaster ride of sorts. Seems like one day it's up by 900 and the next it's down by the same. With these sudden changes in the economy so close to the election, one might wonder does politics play a role in the economy?

An article from Politico¹ talks about this relationship. The article states that in the past the stock market has not been driven by election day events. It seems like this year may yield different results, especially when you factor in the recent bailout packages that have occurred. The next president will have to manage the aftermath of all of this on top of the economic plans each has promised in their election campaigns.

Speaking of those economic plans, many believe that they will also be a driving force behind the economy mainly because of the vast differences between both candidates' plans. There are three big issues that both candidates wildly differ on when it comes to the economy: taxation, trade, and union membership.

Both candidates state that they are advocating tax cuts, but in different ways. McCain is for giving tax cuts directly to the people while Obama wants to give a tax credit to the people on their income tax form. For more details on Obama's plan see our post on Tax Cut or Income Redistribution.

In the past, Obama has been a critic of NAFTA and other free trade agreements according to an article from The Nation². Putting requirements on free trade will hurt American goods being imported into other countries consequently hurting the businesses that make the goods. This could be devastating to companies such as IBM and Caterpillar that rely heavily on overseas business. McCain, however, has always been a proponent of free trade and will either keep the status quo or reduce the requirements on free trade.

Labor unions have had their place in our economy for generations. In the past, they have instituted such changes as child labor laws and the eight-hour day. However, in today's global economy, they tend to make corporations less competitive. In an article from The Heritage Foundation³, the writer states that labor unions now add to costs and discourage productivity. Obama wants to make union membership easier by doing away with secret ballots, according to a Fox News article⁴. This will drive union membership to an all time high causing a massive increase in salaries for already struggling companies. McCain is an anti-union guy and would probably do away with them all together if he could.

As you can see both of these candidates differ greatly on their economic ideals. Could this be causing a lot of the uncertainty we have seen in the markets? I think so. While there might be no direct connection between politics and economics, there is certainly a long term effect that comes from the policies that our politicians make today.

Sources:
1. Will the election drive the Dow? The Politico. October 22, 2008.
2. Obama Goes Soft on Free Trade. The Nation. June 18, 2008.
3. Do Americans today still need labor unions? The Heritage Foundation. April 1, 2008.
4. Secret Ballots May End in Union Elections If Obama Becomes President. Fox News. May 19, 2008

Sex and Money

2008-10-15T21:34:00.022-05:00

Too often, opponents of sex education in schools make a slippery slope argument when talking about teen sex. (We promise this does have something to do with economics). The argument goes like this: "Handing out condoms in schools will encourage teen sexual activity, therefore, handing out condoms is a bad idea."

True, it is a fallacious argument, but that doesn't mean that the conclusion is necessarily wrong. You have to look at incentives. Most teens will either have sex or not have sex regardless of whether or not they are using birth control. However, a small few would be afraid to have sex because they might get pregnant. With the possibility that they could have sex and have far less risk of getting pregnant, they might be open to the risk versus the reward. In other words, there is no absolute that birth control is completely neutral in regard to teen decision-making. This is all the more reason to allow parents, who know their children better than anyone else, to make the decisions about sex education with their children.

Opponents of this view would argue that it’s best to cover all the bases. For what purpose? To reduce teenage pregnancies? While proponents consider sex education to be one of the primary tools to help teens avoid unintended pregnancies¹, it has certainly had an opposite effect since being instituted. In fact, pregnancy in teenage girls had been declining in the late 50's and early 60's² when sex education was being called for to solve a so-called teenage "crisis". So, after the government implemented sex education programs, what were the results? The pregnancy rate among 15 to 19 year old females rose from approximately 68 per thousand in 1970 to approximately 96 per thousand by 1980.³

More recently, the rate declined to 75 pregnancies per thousand females aged 15 to 19.⁴ Although this is a decrease from the 1990's, it is still higher than the years prior to sex education programs. So, what could have caused the recent declines in teen pregnancy? Sex education was provided throughout this time. Abortion was legal throughout this time. Perhaps the decrease is due to more widespread abstinence programs like True Love Waits, or better education about HIV transmission. Maybe some improvement in sex education played a role. However, we are still not getting the desired results after 30+ years of this public policy.

Sargent Shriver, former head of the Office of Economic Opportunity, which led the early charge for more sex education and "family planning" clinics, testified candidly to a congressional committee in 1978:

"Just as venereal disease has skyrocketed 350% in the last 15 years when we have had more clinics, more pills, and more sex education than ever in history, teen-age pregnancy has risen."⁵

Am I saying that sex education was the cause of the rise in pregnancies? No. Since correlation is not causation, there is no proof that sex education is the cause. However, it is obvious that sex education programs do not succeed in their goal of reducing teenage pregnancies and the spreading of sexually transmitted diseases.

Describing these sexual education programs, a congressional committee report said:

"The primary objective of Federal efforts in family life and sex education has been to reduce unwanted pregnancy rates among teenagers, while the primary goal of most sex educators appears to be encouragement of healthy attitudes about sex and sexuality."⁶

An article in the Chicago Sun Times stated,

"A popular sex instructional program for junior high school students, aged 13 and 14, shows film strips of four naked couples, two homo-sexual and two heterosexual, performing a variety of sexually explicit acts, and teachers are warned with a cautionary note from the sex educators not to show the material to parents or friends: "Many of the materials of this program shown to people outside the context of the program itself can evoke misunderstanding and difficulties."⁷

Dissenters can always dismiss this evidence as "right wing propaganda", but the fact is that sex education programs have not reduced teen pregnancies or sexually transmitted diseases which is their purpose. Instead, they preempt parents' decisions as to when and how their children are introduced to sex. Perhaps it was inappropriate for the former head of the Office of Economic Opportunity to lead the original charge for sex education. However, now that taxpayers are funding efforts to reduce teen pregnancy, they should demand that lawmakers provide a more effective alternative. To date, the most effective way to prevent pregnancy and the spreading of STD's is abstinence. For this reason, we support teaching abstinence and the limitations of traditional birth control (such as condoms) as part of sex education.

For more information about abstinence education and comprehensive sex education visit parentsfortruth.org or the possible role of money with certain sex education groups here. Also, check out the economic implications of teen pregnancy.

Sources:
1. Theodore Ooms, Teenage Pregnancy in a Family Context, pp. 39-40, cited in Thomas Sowell, The Vision of the Anointed.
2. ibid. Jacqueline Kasun, The War against Population, p. 144.
3. ibid. Jacqueline Kasun, The War against Population, pp. 142, 144.
4. Guttmacher Institute, U.S. Teenage Pregnancy Statistics: National and State Trends and Trends by Race and Ethnicity, accessed Sept. 12, 2006.
5. Thomas Sowell, The Vision of the Anointed, p. 18.
6. ibid. Fertility and Contraception in the United States: Report Prepared by the Select Committee on Population (Washington, D.C.: U.S. Government Printing Office, 1978), p. 5.
7. ibid. Suzanne Fields, " 'War' Pits Parents vs. Public Policy," Chicago Sun Times, October 17, 1992, p. 19.

Capital Gains Tax - The Obama Effect

2008-09-21T11:18:00.016-05:00

We talked about Obama's tax cuts in an earlier post. Today we are going to discuss Obama's plan to increase the capital gains tax. This is a tax charged on capital gains or profits from stocks, bonds, precious metals, and property.¹ So, who wins with an increased capital gains tax? Does the government win with increased tax revenues? We know for sure the politician wins if he gets elected for promising to "stick it to the rich," but what about the American people? Let's explore the effects of an increased capital gains tax.

Charles Gibson from ABC recently interviewed Obama and asked a question about the economic effects of a capital gains tax. Obama could not hide his ignorance on the subject, but that isn't important to him as Thomas Sowell states:

What effect a higher capital gains tax rate will have on the economy today and on people's pensions in later years is a question that is not even on Senator Obama's radar screen.²

Why would Charles Gibson ask such a question? Because history shows that government often takes in higher revenues from a lower capital gains tax.

Raising the capital gains tax reduces the formation of capital equipment. Why is that bad? Capital equipment allows workers to be more productive which gives them the ability to earn higher wages. Therefore, capital gains taxes contribute to stunted wage growth for skilled American workers.

Roughly 95 percent of the growth in wages over the past 40 years is explained by the capital-to-labor ratio.³

Also, lower tax rates on capital gains increases the volume of capital gains realizations. This is what causes an increase in tax revenues. The increase in revenues can be explained by the "lock-in" effect, which causes people to hold on to their investments to avoid paying a rate perceived to be too high. While the tax revenue increase is significantly higher right after the cuts are imposed, there is a normalizing of the gains over time. The drop in gains over time has been the strongest argument of critics, but does not provide sufficient evidence to discard the policy. It certainly provides no evidence to increase the tax. The critics don't take into account other unseen benefits of lowering the rate either.

Another negative scenario is that inflation and phantom gains can have an adverse affect on capital gains. The U.S. has had inflation every year since 1940, except 1949.⁴ With inflation the value of capital rises in dollar terms even if the real value remains constant. This can cause someone to be taxed for a gain they never really had even with the lower long-term tax rate. The higher the capital gains tax and the lower the real return, the more likely this situation is to occur.

In 2004, the capital gains tax generated $56 billion, about three percent of federal revenues.³ That accounts for very little of overall federal tax revenues. Therefore, higher, static, or even lower capital gains taxes has little effect on the total tax revenue collected regardless of the direction it travels.

Finally, the capital gains tax dampens risk incentive by reducing the rate of return for risk takers.³ Reduced rates of return mean that people will undertake less risk. If entrepreneurs take less risk, economic growth will decline. That hurts the rich, middle class, and poor alike.

"The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy."
-John F. Kennedy

Sources:
1. Capital Gains Tax. Wikipedia.
2. The Gailbraith Effect? Human Events. Thomas Sowell. August 12, 2008.
3. Tax Cut Beneficiaries. Walter Williams. January 11, 2006.
4. Capital Gains Taxes. The Library of Economics and Liberty. Joseph J. Cordes.

Hurricane Ike: Gas Shortages

2008-09-18T16:38:00.015-05:00

Josh Mathes over at Capitalism's Truths made a great point about political pressure regarding price gouging during the recent hurricane. Gas stations were pressured to hold gas prices steady despite increasing demand, so naturally a lot of them ran out of gas.

Had they been able to raise prices accordingly, shortages would have been reduced and only the people that really needed gas would have bought it. Instead, everyone with the notion to fill up their half-full gas tanks just to be "safe" did so. A good portion of economics is the study of how society distributes scarce resources.

Capitalism is the most efficient system of rationing limited resources. It rations to those that receive the greatest benefit from the resources through supply and demand. Thomas Sowell expressed the concept well with:

While economists are talking supply and demand, politicians are talking compassion, "change" and being on the side of the angels-- and against drilling for our own oil.¹

Source:
1. Thomas Sowell, Too "Complex"?, May 13, 2008.

Obama's Economic Plan: Tax Cut or Income Redistribution?

2008-09-11T10:06:00.034-05:00

After listening to speeches from both presidential candidates about their economic policies, one has to wonder what are the main differences between them. This is the first of many posts I will be doing differentiating the economic positions of these two candidates. In this post, I am going to break down one part of Senator Obama's Ecomonic Plan.

Obama has given many speeches recently focusing on the economy. In these speeches, he said that he will give a tax cut to 95% of American families. In fact, there is a partisan website dedicated to this tax cut that supposedly calculates how much you will get back. Of course, they don't tell you how they do the calculating, just that the data comes from the Tax Policy Center. Ironically, the Tax Policy Center states

"TPC estimates the Obama plan would cut taxes by $2.9 trillion from 2009-2018. McCain would reduce taxes by nearly $4.2 trillion."

I'm sure many of you saw the recent Bill O'Reilly interview with Senator Obama where he again states this as part of his economic policy. Bill O'Reilly, however, calls out the Senator on this issue and calls it what it really is. O'Reilly states

"...you're taking the wealthy in America and the big earners, OK, you're taking money away from them and you're giving it to people who don't [have money]. That's called income redistribution. It's a socialist tenant."

The two key phrases in the quote are income redistribution and socialist tenant. Obama wants to take money from the top 5%, who already carry the majority of the tax burden and give it to the bottom 95% regardless of if they pay taxes or not. That means someone who pays absolutely nothing in taxes, under Obama's plan, would get a check from the government. I don't know about you but that sounds like income redistribution and socialism to me.

While income redistribution and socialism are misguided ideals to me, it is the way he promotes them that's the most troubling. He is using class warfare to get across this message to the American people. Look at this Obama quote taken from an Investor's Business Daily article

"The rich in America have little to complain about. The distribution of wealth is skewed, and levels of inequality are now higher than at any time since the Gilded Age."

The article goes on to state that the division between the classes is always in flux. While right now you might be in the middle class, there's a good chance you will move up either through some personal effort or by riding an expanding economy. I have attached a chart¹ from this article that shows how economic growth can propel you from one income quintile to another. This begs the question: is there really any difference between the classes since they're always in flux?

What about people like you and me? People who work hard everyday and pay their taxes accordingly. We're going to get a tax cut right? Well, not exactly. What Obama proposes is less of a tax cut and more of a tax credit. Listen to what Charles Krauthammer said on Special Report with Brit Hume

"Now, if you aren't paying taxes because your bracket is low, you are getting a check. If you are, the check is in the form of a credit, and it reduces your income tax. Normally if you say "I'm cutting taxes," it is a cut in rates. This is not a cut in rates. This is a check. In other words, it is what we called earlier in the year a "stimulus package," and that is spending. It is not a tax cut. It's a clever way for a Democrat to increase spending that is essentially a handout and call it a tax cut."

One word in this quote leaps off the page and that's "handout". Basically, Obama wants to give all the people who don't pay taxes a handout while calling it a tax cut. This just goes to illustrate that you must always read the fine print when it comes to any candidate's economic policies. Just because something sounds good in a sound bite doesn't mean it's good for the country.

Source:
1. Obamanomics Flunks The Test. Investors Business Daily. August 1, 2008.

How Oil Prices are Determined

2008-09-10T17:56:00.020-05:00

I have friends who talk about gas prices as if oil and gas companies participate in price fixing to set the price as they wish. This is a false concept. History and economics tell us a different story.

Who are the stakeholders in this equation of oil prices? Producers, traders, and consumers all play a key role in determining the price of oil and gas.

Oil producers like Exxon Mobil, Chevron, and governments of other countries control the supply of oil based on economics. When oil prices go up, producers seek out more oil to bring to the market. When oil prices go down, producers slow down production. This is driven by a profit motive known as the law of supply.

Commodity traders help determine oil prices by bidding on oil futures contracts. They make their bids based on factors such as current supply in terms of output, oil reserves, and demand for oil.

Consumers determine price by providing demand for the product. As the price increases the demand falls and as the price decreases the demand increases. This is normally shown through what is known as a demand curve. During the rise to $4.00/gallon gasoline, many factors contributed to the rapid price increases. One factor was China importing extra oil products for the Olympics causing an artificial rise in demand. After the Olympics, China's government realized they had extra reserves and decided to cease importing oil until more of the reserves are depleted. You may have noticed how the price of gas dropped around $.50 per gallon in some places after the Olympics. The market is normalizing and prices should continue to drop barring any unforeseen crisis.

When someone starts to complain about oil prices, remember the stakeholders and forget the "evil oil company" propaganda.

What Does the Freddie Mac/Fannie Mae Bailout Mean to Taxpayers?

2008-09-10T12:33:00.020-05:00

I'm sure that most of you have heard about the massive government bailout of the financial institutions of Freddie Mac and Fannie Mae. Both of these mortgage lenders have somewhat of an identity crisis. Are they part of the private or public sector? The answer is both. As Neil Cavuto points out in a transcript from his show "You're a private entity, so you can make money. Or you're a public entity, so you can't fail. Turns out you can't make money. And you can very much fail."

So how is it going to effect you, the taxpayer? Well, Neil states that the bailout is going to cost the government more than $400 billion. This adds even more debt to the huge national deficit number they are always talking about (which stands around $10 trillion as of now). Neil goes on to say that the tax cuts that both presidential candidates are promising are basically dead. While I don't know about the validity of that statement, I do know that I don't like paying someone else's mortgage note.

I don't know for sure, but after hearing this I think that government bailouts might be a bad idea. At least one presidential candidate is looking to change this practice. Of course, it's also good to know that Chuck Norris agrees with me.

Capitalism,Taxes and Redistribution of Wealth

2008-09-04T00:11:00.017-05:00

Taxes have a huge effect on the economy and are often the subject of heated debates. Very few can agree on who should take on the tax burden.

Often, our tax system quickly becomes a redistribution of wealth (AKA taking from those that earned it and giving to those that didn't) instead of a means to finance needed government activities like national defense. The respected economist, Walter Williams, pointed out what taxing the wealthy is really like in this statement:

"Why is it that Michael Jordan earns $33 million a year and I don't even earn one-half of one percent of that? I can play basketball, but my problem is with my fellow man, who'd plunk down $200 to see Jordan play and wouldn't pay a dollar to see me play. I'm also willing to sell my name as endorsements for sneakers and sport clothing, but no one has approached me. The bottom line explanation of Michael Jordan's income relative to mine lies in his capacity to please his fellow man. The person who takes exception to Jordan's salary or sees him, as my letter-writer does, as making "little contribution to society" is really disagreeing with decisions made by millions upon millions of independent decision-makers who decided to fork over their money to see Jordan play. The suggestion that Congress ought to take part of Jordan's earnings and give it to someone else is the same as arrogantly saying, "I know better who ought to receive those dollars."

Jordan deserves every bit of the wealth he accumulated because of the excellence he created through hard work and practice. Fans and consumers rewarded him for it. That is capitalism at its best.

I would like to make another point that is rarely made about taxing the wealthy or the middle class for that matter. The government robs them of the opportunity to choose of their own free will to give to those in need. Politicians take away that wonderful feeling of giving and helping others in need to turn around and take the credit for themselves. Not every wealthy person gives back of course, but most realize that giving value to others was the key to the door to success and wealth.

Governor Palin and Tax Cuts

2008-09-03T23:34:00.010-05:00

Governor Palin made a pretty incredible speech on Wednesday night at the Republican Convention. She proved to be quite a powerhouse and an understandable source of fear for the Democratic ticket. One of the big issues for this election is the economy. Palin and the Republicans have indicated that they are for tax cuts, but how does that really affect the economy?

Let's talk specifically about raising taxes for the wealthy, a concept that the Left so often promotes.

The argument is that tax cuts only help the wealthy. If this means that the wealthy are benefited proportionately to the amount they pay in comparison to other taxpayers, this is right. It makes sense that if you have a tax cut, taxpayers pay less. The more taxes you pay, the more money you save from tax cuts. But as you should know, the wealthy still pay nearly all taxes. In fact, since the Bush tax cuts, the wealthy actually pay a higher percentage of all federal income taxes than before. In 2000, the top 25% of income earners paid 84% of all federal income taxes. That number was 86% in 2005 according to IRS data. If the argument that tax cuts only help the wealthy, this percentage should have decreased.

Another argument is that cutting taxes reduces federal income for needed government activities. While this is certainly the case as you approach 0% taxes, it is untrue in general. The truth is that optimal tax revenues are generated by a median and generally acceptable tax rate. Therefore, if taxes are too high (which they usually are), reducing the rate will lead to increased revenues.

This leads to another common argument that if tax cuts raise revenues, why don't we just make the rate 0% and have unlimited tax revenue. Professor Laffer made this concept understandable. If tax rates are 0%, obviously revenue is also 0%. If taxes are 100%, revenues are still 0%, because no one is going to work if the government confiscates all earnings.

I heard someone say, "You have to be kidding that I will work less if the government taxes me 2% more." This statement is probably true for that person and most, but as all economists know, there is a curve. Some people would actually work less. The greater the tax burden, the more it affects the incentive to work.

I look at the current tax system as a big bully trying to steal your lunch money. If you give up 2% more, what is to stop him from taking a little more and a little more? You have to stand up to bullies and say, "Enough is enough."

The First Rule of Economics

2008-09-02T18:20:00.022-05:00

There is no free lunch. You've heard all the terms like free health care, free benefits, and free education. At first glance, they appear to cost nothing, but it is the unseen that bears the cost.

French economist Frederic Bastiat's (1801-1850) pamphlet pointed this out in "What is Seen and What is Not Seen", where he says, "There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen."¹

I always laugh when I hear people talking about the "free" benefits they get with their job. They think of them as a perk to the job, but really they are just a trade off between their wage. Their employer only has a certain amount to pay each worker before that business is no longer profitable. If the employer spends more of this money on their benefits, the employer must spend less on their wages.

The seen is always evident, but the unseen is where the key to the economic equation lies.

The trite expression "There is no free lunch" has become trite precisely because it has turned out to be true for so long and in so many different contexts.
-Thomas Sowell

Source:
1. There is No Free Lunch. Walter E. Williams. September 24, 2001.

The Constitution and Economic Freedom

2008-09-01T17:39:00.021-05:00

I created this blog to discuss things that I believe passionately about and to provide information on the principles of economics. I hope to do this based on demonstrable or tested truths rather than rhetorical opinions. Everyone has some beliefs based in their surroundings and experiences. You could say that I was always a conservative, but I did not really become a conservative until I studied economics in college. I quickly wondered how anyone that studied and understood economic principles could ever desire things like increasing taxes and raising the minimum wage. My economics professor once said, "a free market system isn't perfect, but it's the best system we know about."

There are two things that I firmly believe in when it comes to politics and government: The Constitution and economic freedom, two things that make America a great country. The problem is that these two pillars in the creation of the United States of America are under attack. There are groups attacking from many angles trying to build a different America: “The world as it is” and “The world as it should be..."

We can only fight this stigma, this flawed ideology, by educating ourselves. I think my economics professor understood this and did his best to educate his students on economic principles proven over and over throughout history. I hope to do the same.

"Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence."
-John Adams