Go Green (Voluntarily)

Coercion and bureaucracy need not apply

If something is a good idea the politicians want to go along for the ride. Already people are voluntarily going green, stores are selling trendy shopping bags, plastic water bottles are everywhere. For those of us living in NYC we can check a box on our ConEdison bill which states we want alternative energy as our source. If this is what people want this is what the market will provide.

Too, corporations can play along with the Voluntary Carbon Standard which is a way for business to offset carbon emissions and get consumer kudos (read larger social demand for their products) for doing so.

There is no point really for some government-created regulatory scheme that will just create a decline in the US manufactoring base relative to the already more quickly growing India and China. We might was well just take the around $2,000 per year per family the cap-and-trade scheme would cost and give it to the governments of China and India, who control the currencies of their populations and thus decrease the standards of living of their people by subsidizing exports. Its a scam to say that cap-and-trade is needed when it is already being done, voluntarily. To put this brake on US productivity as some do-gooder political expediency will just mean the dollar's further decline, we have enough unsustainable government programs and debt, enough is enough.

IMF: Just Say No

Bureaucracy and Crisis

It's well known that bureaucracies step-in in times of crisis in order to offer solutions, or to change or enlarge their own mandate, which don't necessarily address the underlying problems causing the crisis. And, in fact, the fake solution just hides the underlying problem and makes the situaton worse. Like putting a bandaid on an infectious wound without cleaning the wound first.

This is happening now with the IMF, just as the IMF outlived its usefullness when Nixon pulled-out of the Gold Standard in 1971. The IMF was founded under Bretton Woods in 1944 to faciliate gold and currency movements to ensure a smoothly functioning Gold Standard, then when the Gold Standard ended the IMF re-invented itself as a guarantor (to the internationally politically-connected) of those lending money to governments in the 'developing world'.

International banks got the nice high returns for lending to poor countries with high risk ratings, the countries (the leadership of those countries be they elected fairly or not) didn't have to reform their fiscal and monetary policies to meet the demands of free international currency and debt markets, and the lendors got "bailed-out" went it all went awry. Needless to say as well that subsidizing the cash flow of poor countries doesn't help them become more accountable to their citizenry, nor does cheap money help economization of scarce resources as distorts the price signals necessary to make sound fiscal decisions.

So with the rapid economic growth after recovery from the 2001-2002 recession, the demand for IMF 'services' declined. Which brings us to today. We have seen the institutionalization of 'too big to fail' monetary policy in the developed world, where 'bailouts' and the anti-competitive measures this policy creates, raising the cost of banking services to everyone while the banks make monopoly rents, have become the norm.

So now the IMF is getting into the 'too big to fail' - systemic risk - bailout act and wants to create an international insurance fund (funded by taxes on international finance transactions of course) to bailout private international banks. Of course it goes without saying that an increase in taxes during a jobless economic recovery is the last thing the world needs. Whereas the most rational solution is to remove the lendor of last resort mindset which hasn't addressed the goverment-created asset bubble in the first place.

The solution is to let banks that make bad investments fail, not to enlarge a bad domestic policy agenda to the international. Just say no to (more) socialization of risk and private return, which has been the IMF's business model since 1971. If banks really wanted or needed an insurance fund they would create one themselves, privately, funded by their own contributions.

The Fallacy of the "Do-Nothing" Nobel

Politics and economics

It's great that our new President won the Nobel Peace Prize, but perhaps yes like Lech Walesa said it's perhaps too early and like others who have said it doesn't do Prez Obama any favors as who likes to be given something for nothing? It hurts both the giver and the receiver.

But the Prez has not done nothing. Here is just a short list of things that Workers throws out as not being so 'peace-oriented':

* Built-up troops in Afghanistan instead of unwinding there as he said he would.
* Re-appointed bailout Ben Bernanke which means the institutionalization of unjust bailouts and their attendent redistribution upwards to the wealthy financial sector oligopolists.
* Violated the rights of GM bondholders in favor of the special interest labor unions. It should be noted that Walesa's Solidarity union was against the State-suppression in Poland, not aided by same.
* Put trade barriers on importation on Chinese tires into the US, which hurts our biggest trading partner and who also holds our debt and who is starting to retaliate. This economic nationalism is not at all "peace"-ful.
* Tried to sell "stimulus" spending (e.g., more unsustainable debt creation) to the Europeans, e.g., if the US is getting in more debt, let's export that idea so it hurst us less badly. Luckily, sanely, the Europeans didn't fall for it, just a little bit on their own before-hand.

Let's be honest and admit it is not a "do-nothing" Nobel. It is just politics trumping economics, which is what happens because people naturally like famous, popular people. Of course, after 8 years of overt war-mongering the world is happy to see someone who talks of working together. But still the facts listed above might speak for themselves.

Green Hypocrisy

Is it green or is it mean?

We have seen recent trade barriers against Chinese solar panels imported into the US. The question is this. The global change thing (itself controversal as some studies show that the planet hasn't gotten any warmer during the last ten years) is a global phenomenom, so requires a global solution. So what is the logic in preventing those who wish to buy the cheapest source of alternative energy from doing so? Is it only green if it is made by people who vote domestically and who get government subsidies ("stimulus" spending and protection from competition) for their work? Hmmm, must be. I don't know about you but this smacks of hyprocrisy.

Encouraging foreign producers of alternative sources would seem like the right thing to do (export markets spillover to foreign local domestic consumption as costs are reduced). Hume was a 'sceptic' (albiet in a different sense) so is Workers. It seems like 'global warming' and going green is just politics as usual. Protectionism is just bad economic policy, be it against lower cost tires or lower cost energy sources. The people pay and pay and pay for political follies.

FDIC Bailout

Why not make it communist?

The FDIC is requiring the banks whose deposits it guarantees to replenish the deposit insurance fund to the tune of $45 billion (bank profits are estimated to be about only $5 billion for the year).

Let's deconstruct this. First off, the banks like the FDIC because it means they get cheaper funds than the market would allow if they didn't have the government guarantee. Secondly, the FDIC guarantee is a package deal with cheap access to discounted funds and bailouts from the Federal Reserve bank. Who pays? The people pay for this system because the bailouts mean that the value of the dollar goes down, while the banking sector gets government-sponsored monopoly above-normal profits (and thusly nice fat salaries for creating more debt).

No the answer is not to put salary caps on market activity. The answer is to remove barriers to market activity. The reason the banks have to pay so much to replenish the FDIC deposit guarantee fund is because many of their fellow banks went bancrupt or were forced into bancruptcy (who makes these enforced-bancruptcy decisions and what their motivations are, eg the public choice aspects, are left alone here for now).

So then the answer should be obvious. The banks should self-insure each other's deposits. This way they have the incentive to monitor each other's performances and risk management. The FDIC doesnt really have this incentive because their own money is not at risk. At the same time this would remove the counter-incentives to prudent money management, and thusly reduce unsustainable asset bubbles and the harm that these do to people, by getting the government (central bank) out of the bailout business.

A Note on Financial Regulation "Reform"

Too big to do well

Many say that deregulation was the cause of the current financial "crisis" (this in quotes because most probaby we have positive economic growth now). So, well, we are still stuck with politicans needing to be seen to do something to 'correct' the most recent financial "mess" (again in quotes as interest rates are pretty low!) and to prevent it from happening again. And of course there is nothing worse than a 'do nothing' politician, yes?

The well-respected Critical Review's most recent double issue is on the crisis. Yes, perhaps, some financial deregulation took place (not that market players weren't already doing the things that the deregulation then made legal: transactions drive policy, policy doesn't drive transactions, and who is to say, what objective metric can be used, to determinine if any deregulation was greater or lesser than any other market distortions placed on market actors during any given period of 'deregulation'). Any deregulation of the last, say, 10 years, just peeled back some layers of ad hoc, counter-and adverse-policy incentives, however well-intentioned, that have been added-on to the US financial system over the last 75 years (including said years of deregulation). It wasn't 'deregulation' that took place, merely adjustments to existing regulation. Certain layers of the onion were peeled back but the regulatory onion was rotten from the core out.

For example the FHA and Fannie Mae and Freddie Mac incentives to creating lending for people that can't afford their own homes wasn't changed. (Initially put in place 75 years ago to encourage home-ownership and prevent organized communism, something that still is government policy today, despite the death of communism as a viable political option). The mortgage interest write-offs which encourages debt creation by individuals weren't changed. And most importantly the Federal Reserve too big to fail "systemic risk" bailout policies haven't changed one iota, and in fact have gotten worse because have now expanded way beyond just banks themselves. And the fact that "too big to fail" was so universally and widely applied has just meant that "bailout" has become an accepted policy option, thus creating more adverse incentives against prudent funds-management on behalf of the the regulated.

So as we debate "super-regulators" versus the Fed as the regulator of the financial sector, Workers votes for "anyone but the Fed" (kind of like "none of the above" but more pragmatic). The Fed is supposed to control inflation through the money supply and interest rates (whether they can actually do this or if this does more harm than good is beyond this posting). The Fed regulating the financial sector as well as controlling monetary policy is kind of like the fox guarding the hen house.

The Fed as regulator then has incentives to target, support and direct resources towards those that do what they say, while those that don't do what they say lose their favor (and, well, shall we say, are forced into bancruptcy). This just creates anti-competitive, Fed-created, financial monopolies and the user of financial services (all of us) lose due to anti-competition as there becomes less and less, and bigger and bigger, financial institutions to work with. Fees charged by the 'regulated' increase as monopoly power created by the 'regulator' increases.

The answer is to decouple Fed oversight of banks from the Fed's authorization of inflation control. The answer is certainly not to give the Fed more regulatory oversight. Too much power in any one institution is bad for a free society. The market can, and does, compete away private monopolies over time, but a government-created monopoly can have no competition.

Sowell's Rule and Economic Nationalism

Politics as usual

There are some reports that economic growth is positive now in the United States, this is great, it means that business people are over the 'shock' of the financial crisis, have internalized the devaluation of the dollar due to the bailouts and fiscal stimulus, and are starting to invest and thusly later, with a lag, this will mean job creation. However not all is rosy on the economic front. President Obama is now going to put in place tariffs of 35% on tires imported from China, something of course, his labor union supporters (the United Steelworkers, a large donor, like all unions, to Obama's campaign, represents tire workers in the USA) have been asking for.

This is fully consistent with Thomas Sowell's "Law" which states the first rule of economics is that resources are scarce and the first rule of politics is to ignore the first rule of economics. Logic dictates that this is bad for everyone in the economy, meaning those that drive cars or consume goods which are transported by the vehicles who use the tires (meaning, yes, everyone), because delivery costs are now going to go up. Yet of course it is good for tire companies because they are now protected from competition. This just means an increasing upward spiral of tire costs because the US tire companies now have less incentive to innovate and reduce costs.

It also shows, unfortunately, that the Obama administration's economic policy is really short-sighted. It is well-known that politicians have more immediate time preferences compared to people who actually produce value in an economy, leading not least to the growth of the state, but this is ridiculous. China is growing twice if not three or four times the rate of the United States and is a major buyer of the very debt that the US government creates to, yes, give fiscal stimulus money to more special interest groups. We should be cooperating economically with China - US innovation and Chinese manufactoring prowess working together brings prosperity to both countries - but now this policy of economic nationalism (protectionism) is poisoning the goose that lays the golden egg.