Dienstag, September 28, 2010

Unintended Consequences...

One of the downsides of the lack of economists in the loop is that those making policies are making mistakes, serious ones: the law of unintended consequences applies here with a vengeance.

Case in point: this.

Good old Matt Yglesias is in form, ranting and raving about how health care reform is key to making progressive policy "irreversible."

He presses all the proper buttons, using the plight of a middle-class family with their adopted daughter as a keystone, talking about how forcing the insurance companies to cover her regardless of her pre-existing condition will be one of the cornerstones of the health reform efforts, and how mean and nasty everyone is who opposes this.

What he doesn't talk about are the unintended consequences.

What are these?

Simple: health insurance companies are not offering that type of insurance any more. Rather than provide coverage that virtually guarantees that they will lose money, the insurance companies are no longer offering the coverage at all. Zilch, nada.

Of course, that the insurance companies would decline to enter into business activity that would lose them money never, ever crossed the brow of folks like Matt, who know significantly less about economics than they think they do.

But ask any industrial economist, someone who understands how companies behave under competitive pressures and how companies move their center of business around to meet market demands - we call these companies successful and survivors, as opposed to those companies who stick to a business plan and cannot consider themselves being anything but a producer of widgets in an economy that no longer demands widgets - and you'd get a "duh".

Companies are in business to make money. Take away their ability to make money, and within a very short period of time the only companies left are either doomed or are paid to not make money (aka "subsidies").

This is not rocket science. This is basic microeconomics. Which apparently the health reform people wouldn't recognize if it came up in front of them, waving a flag, and smacked them upside their face with a 2x4.

I'll give you another example of unintended consequences when no one listens to economists.

The US once had a broad-based and very successful shipping fleet. US-crewed and registered ships were profitable and more than competitive. Personnel costs in shipping are basically irrelevant, as fuel and capital costs are the vast majority of costs.

What happened?

The US tax code changed and US shipping companies had to pay US corporate taxes on overseas operations. Given that the US is the only country that taxes its shipping companies in this manner - it is one of the reasons why shipping can be a very lucrative business, as it operates largely tax-free because the activities involve are not within tax jurisdiction - this meant that US companies either moved their corporate headquarters overseas (duh) or sold their operations off to competitors before these operations became a loss-center.

Hence in the attempt to increase tax revenues - the justification for this, after all, was that it was "unfair" that these companies have what amounted to a tax break - an entire industry was basically eliminated.

The funny thing is, the industry was paying taxes. Any stock owner got rather nice dividends, which were then taxed at the personal tax rate. But in its infinite wisdom, the government decided that it was better - more just - that the industry cease to operate as American companies.

As a result, there is now movement to open up intra-coastal shipping (shipping from one US port to another US port) to foreign shipping because there is not enough US shipping to meet demand.

Duh. Given these circumstances, there never will be.

The laws of unintended consequences are simple. Just ask any industrial economist how they work. Were that a few more folks would do so, rather than be blinded by the brilliance of their sophomoric ideas.

Mittwoch, September 22, 2010

Epic Fail...

Six months into ObamaCare, and what do we have?

Broken promises, outright lies, and an Epic Fail.

I won't get into the details of the broken promises (see here, and yes, that is a link to the GOP website. Doesn't change the facts of the situation, sorry!)

What is more interesting is the fact that the Democrats are now facing an Epic Fail.

What is an Epic Fail?

From the Urban Dictionary:

A mistake of such monumental proportions that it requires its own term in order to successfully point out the unfathomable shortcomings of an individual or group.

What happens, then, when the President of the United States is responsible for an Epic Fail? When his party actually controlled both houses of Congress and where not a single member of the opposition thought his ideas were good and worth supporting? Where the political necessity of pushing the bill through took priority over giving anyone the time to actually read the bill and understand what was being pushed through Congress?

The Democrats were so convinced of the absolute, complete necessity of passing Health Care Reform (aka ObamaCare for now and forever) that they simply passed a bill that bears the mark of lobbyists and serves the industry, rather than the public. Costs aren't and won't be reduced; ObamaCare is the insurance industry's wet dream of being able to take more and more disposable income, helped along by the trial lawyers and aided by corrupt politicians who take their orders from unions and lobbyists.

Now we have the Epic Fail of the Democratic Party. It is going to be a very, very interesting couple of weeks to watch the moderate Democrats abandon their Great Leader and to watch the left go hysterical about how the mean and nasty Republicans are going to dump babies out into the streets and stomp on them while bayoneting social workers and tossing Grandma out of the airlock (or words to that effect).

This is where the absurdities of the Democratic Party have led us: a party dedicated to statism and fewer freedoms, all in the name of rights and maintaining power; a party incapable of cleansing itself, corrupt to the core and beholden to the rich (Soros) and criminal (unions); a party whose fundamental beliefs require perpetual denial of the laws of economics (and these laws are there: sooner or later you run out of other people's money...) and logic; a party indulgent and wastrel, concerning itself with the trivial, distracted from the greater truths, the lunatics firmly in control of the asylum and almost literally incapable of understanding why anyone could dare think different.

We haven't seen such an Epic Fail since the collapse of the Confederates in the Civil War.

It's gonna be an interesting fall. Pun intended.

Donnerstag, September 16, 2010


Martin Lukes, that is.

Parachuting accident.

Of course, given the fact that he was wearing a parachute, that shouldn't have made a difference, just as his purported upbringing gave him a cultural parachute that he also chose to ignore, preferring the head-long destructive path that was his life.

Looking back at his life, it strikes me that the thrownness to death is really what Martin exemplified. This is a primordial banality: we are thrown into the world with no preparation, with zero readiness, thrown towards our final destination, death and the unknown that comes with that. During life we are being-here, a nexus of being, localized and within a lived-world, a life-world that moves and changes according to our perceptions and our being's state in the world.

Much like Martin lived his life.

He is survived by an ex-wife, a son from his first marriage, a wife and twin children from the second marriage. Funeral ceremonies were not mentioned in the press release.

His last communication, by twitter, was "AARRRRRGGGGGHHHHH..."

Seldom was he so eloquent as in his final and departing statement.

After many years of providing head-shaking humor, the editors of the FT (one in particular), has finally, apparently, killed him off.

Of course, consider this (and I doubt the FT had thought of this): the thrownness is translated from the German "Geworfenheit", which could be construed to point to a crime involved in his death, not an accident: he was thrown from the plane, probably by all the women in his life.

He will be missed, but largely because reading his exploits almost invariably induced a visible cringe.

Mittwoch, September 15, 2010

A Balance for 9/11

Read this and judge for yourself. I am not as pessimistic has he is, but he has some good points on the downside.

Why am I more optimistic? Because in less than 2 months, the makeup of the Congress shall change. This is the best feature - some say the only redeeming one - of democracy as practiced in the American Republic: every two years, you can throw out scoundrels and bums, charlatans and fools. You can't throw them all out, but you can get started.

Best form of government ever.

Worth the read...

This in the Weekly Standard is worth the read. Seriously: Read.The.Whole.Damn.Thing. The indictment of parts of the French military is damning, and it would have taken so little to change the outcome. So very little indeed.

The incompetence of politicians...and the resulting futility of sacrifice. That one led to mutiny and revolt, the collapse of a government and a military dictatorship.

"We had been told, on leaving our native soil, that we were to defend the sacred rights conferred on us by so many of our citizens settled overseas, so many years of our presence, so many benefits brought by us to populations in need of our assistance and civilization. We were able to verify that this was true, and because it was true, we did not hesitate to shed our quota of blood, to sacrifice our youth and our hopes. We regretted nothing, but whereas we over here are inspired by their frame of mind, I am told that in Rome factions and conspiracies are rife, that treachery flourishes, and that many people in their uncertainty and confusion lend a ready ear to the dire temptations of relinquishment and vilify our action. I cannot believe that all this true, and yet recent wars have shown how pernicious such a state of mind could be and to where it could lead. Make haste to reassure me, I beg you, and tell me that our fellow citizens understand us, support us and protect us as we protect the glory of the Empire. If it should be otherwise, if we should leave our bleached bones on these desert sands in vain, then BEWARE THE ANGER OF THE LEGIONS!!"

This is attributed to being from a letter written by Marcus Flavinius, a centurion in the second cohort of the Augusta Legion serving overseas, to his cousin, Tertullus, in Rome, quoted in the Prologue of Jean Larteguay's, "The Centurions." However, it is unclear whether this quote is actually legitimate (largely due to the phrasing: if it is indeed based on an actual letter, then it has been heavily transliterated over the years into something more powerful than a probable original (I know from my Latin that this would be a very heavy text indeed).

That said: those who would throw away military accomplishments - indeed, victories - in the name of political gain and who would vilify soldiers for doing what they do should bear this well in mind.

Moving From Infuriation To Rage...

This got me back on the track of something I've been contemplating for a while. Sorry for being scarce lately, but reality intrudes.

The point that Auerback makes is correct: that TARP didn't address the problems, but rather enabled fraud to be unrolled in its entirety.

This is the core of what is being said:

Calling the TARP a success is like claiming your wastrel son is getting his life together because he's settled his gambling debts, while omitting that you are paying for his apartment, got him an overpaid job at your company, and handing him $100 bills more than occasionally.

and this:

...inadequate capital didn't cause the financial crisis. Lying and corruption did.

and this:

Congress adopted unprincipled accounting principles that permit banks to lie about asset values in order to hide their massive losses on loans and investments, which allowed them to raise the capital.

and finally:

The problem is that the policy was not shaped by finance or sound economics, but by politics. Both administrations have sought to keep the American people from knowing about these cover-ups and secret subsidies because they know that we would not tolerate either policy. The cover-ups and secret subsidies are not simply awful financial policies; they are also a betrayal of democracy. And our press has gone from clulessly enabling this treachery to actively promoting it.

This should be sending the American voting population into a collective rage: this goes beyond the usual (largely Democratic) corruption of Congress and is the active defrauding of an entire generation, the generation which has given so richly to the Democrats and their smokescreen of liberalism and "being for the common man".

Nothing could be further from the truth: that is the fundamental of any fraud.

I think you need to consider this: TARP did save the US banking system from collapse, did prevent The Great Depression 2.0, and did prevent an even worse world-wide melt-down that would have seen most of the world's economy collapse.

It did so at the cost of bankrupting US government finances.

Who profited?

Those who were liars and who were corrupting the banking system in the name of profits. In other words, a significant number of folks. All the subprime lenders, all those who aided and abetted them, as well as their political lackeys. All the derivative sellers who were betting on the other side, buying insurance on their neighbors' houses while selling gasoline and matches to known pyromaniacs (and making it clear which houses weren't to be burned down).

If you look at the real, underlying economy, ignoring the feel-good numbers, you can see that the real economy is in a depression: employment remains way down, consumer spending remains weak, and there is a very, very long way to go before we approach pre-recession employment and wage levels.

The economy is in a depression, not a recession. It was caused by moral hazard and is characterized by "Too Big To Fail", which at the end of the day really means "I Can't Allow My Campaign Sponsors To Go Bankrupt" or words to that effect.

This isn't merely infuriating: it should generate genuine rage, since it literally means that our children's futures are being sold down the pike for a pittance today. The only ones profiting are those who were deeply invested in the fraud that drove the collapse: unless that fraud is addressed, nothing will change, as Mr. Auerback correctly says.

Oh, and as an afterthought (and this is something I have repeated here a number of times): mark-to-market accounting valuations are pro-cyclical and guarantee that normal business cycle movements become crises. Mark-to-market is, in any trading environment, an invitation to mass bankruptcy and unemployment, as well as extremely risky investments and loans made during any upswing. As such it is something that only accountants can love, since they don't care about the real-world effects of accounting rules.

For the economy to really, truly, recover, we need to get both accountants and lawyers back to where they belong: support services that serve the real economy and those who create real value, rather than the parasitical entities they have become today, who aim at controlling the real economy in their own interests. Being a lawyer or an accountant should be a hindrance to your career as a businessman, not an asset.

Donnerstag, September 09, 2010

Hell Frozen Over...Really.

Yes, hell has frozen over.

I am going to link to two articles by a certain writer, one whose name has become a verb.

Read this.

And then read this.

While normally I would love to fisk Mr. Fisk, this is an occasion where I cannot, will not, would not.

Read the whole thing and understand my repulsion. This is not propaganda, trying to make things worse than they seem. It is an indictment of an entire culture, one richly deserved, an indictment of failed societies, without any sense of honor or faith, without any sense of morality.

All done in the name of honor and morality.

Read the whole thing. Both of them.

Learning From The Master...

There's an article in today's FAZ. Just in German, but let me give you the gist of it. It's too precious for words...

German development aid is largely organized by something called the GTZ, the "Gesellscahft für Technische Zusammenarbeit" or Society for Technological Cooperation. The GTZ is active in the Congo, it's one of the key countries for German development aid.

The accounts of the GTZ have been frozen and the building they own there has been confiscated.

What happened? Someone take off with the books, disappear with the petty cash, run away from the bills with a new car for a mistress?


Instead, it's the lawyers. In this case, Congoese lawyers.

Tabura Kashali trades in wood in Goma. Back in 1994 he was supposed to deliver wood to a refugee camp. Of the 3400 cubic meters he was to deliver, 2820 never arrived, and he claimed it was stolen. He demanded $47k for the entire delivery, although security was his job. The GTZ paid him $8500. Four months later, Kashali sued the GTZ in the Congo courts, demanding $15k additional payment. The judge awared him $150k, i.e. 10 times the amount. The GTZ appealed, and Kashali counter-sued, asking for $33.8k, $80k in lost profits and $190k in damages and interest, using the same judge. The GTZ lost the appeal and was sentenced to pay the sum total of $280k. This was 2006.

At this point the Congo government intervened and paid $150 920, which at that point was exactly half of the sum owed (with interest). That was 2007. This year - three years later - Kashali demanded the other half plus interest, which had grown to $91 150 on top of the $150 920. Otherwise he would request that GTZ property by seized to pay these debts. The GTZ went to the German Ambassador, who tried to talk to the Minister for Development, who couldn't be bothered to meet with him. On 2 June 2010, Kashali demanded, on top of the monies owed to him, $1.5m dollars in damages. The GTZ had to set up a deposit account with close to $250k in it to avoid having their accounts seized.

In a second case, the "Initiative congolaise pour la gestion autonome des populations" or ICGP, was hired by the GTZ in 2002 to help after the volcano eruption in Goma. The ICGP, which is an NGO, received around $1mn to help, but it became quickly apparent that they were both incompetent and corrupt, and the GTZ cancelled the contract. The ICGP promptly sued, found the right judge, and has now seized the GTZ building in the Congo and has frozen over 44 GTZ accounts.

Adding insult to injury, the GTZ now has to pay $20k/month to use their own building, reflecting a rental contract that they did not even sign. If they don't pay, they will be locked out of the building and would have to leave the country.

The Germans (as opposed to the ex-colonial powers, the French and the Belgians) now have a reputation for being easy prey. After being fired, one former employee sued for $1.9mn damages, his wife (who quit her job) has sued for $51k in damages.

There is a treaty between Germany and the Congo which expressly acknowledges that the GTZ does not have immunity before the courts, but which expressly also states that accounts can't be frozen. This is being explicitly ignored by the courts.

It doesn't stop the Germans from investing in the Congo: they are to deliver new turbines for the hydroelectric plant in Inga, near Kinshasa, for between $15mn and $40mn, depending on the size of the project.

Well, one thing is clear: the Congo does not need any help whatsoever in regards to lawyers, they seem to have learned well enough from American trial lawyers to strike out on their own.

Dienstag, September 07, 2010

Fair Enough...

One of the text-book definitions of a depression is a decline in overall economic output of more than 15% with a recovery that takes more than five years.

Fair enough.

Today's Wall Street Journal runs this headline:

The Obama Economy

How trillions in fiscal and monetary stimulus produced a 1.6% recovery.

Fair enough.

Consider this: this may actually be the good news.

Bluntly, it will be at least another 2-3 years before the economy starts to approach pre-recession levels. Given the time already lapsed, we are looking at least five years before the economy recovers to where it once was.

Hence: one condition of a depression is fulfilled.

Now, one of the mantras coming from President Obama and the Democratic Party is that the massive upswing in government debt is really all Bush's fault, that they inherited this.

Fair enough.

Of course, that really means that the avoidance of Depression 2.0 (or at least the really, really bad parts of it, i.e. that -15% growth) can't be claimed by President Obama and his administration.

Make up your minds, Democrats: either pony up, accept the debt as the necessary evil to avoid Depression 2.0 and claim the moral ownership of recovery, or blame it on Bush, but then accept that avoiding Depression 2.0 is something that Mr. Bush can lay claim to. Not the Obama Administration, which seems hell-bent on redistribution policies that are so 20th century.

Can't have both.

Fair enough?

Freitag, September 03, 2010

Quote of the Day...

In this case, I'm not sure where I read it.

The best description of the state of the economy is that we are now in a supermodel economy. The curves just keep on getting flatter and flatter.

While obviously true for interest rates, it's also indicative of the general malaise: no one is investing, no one is buying big-ticket items, no one is building worth a damn. Even government spending is flat, given how the US government shot its wad buying off the unions and democratic interest groups (with the pretense, but really at the expense, of creating jobs).

Why are the curves so flat? Because we are going to be very, very lucky if we can continue to tread water and not go under.

Banking is all about getting rewards for taking risks. No one can risk, right now, the collapse of government finances if interest rates were to increase. This is an inverse risk, where nothing happens because no one wants to go there, rather than everyone wanting to get a piece of the pie that got us in the trouble we are now in.

Donnerstag, September 02, 2010

Quote of the Day...

Just intuitively, if the inflation rate is at a 50-year low and the unemployment rate is near a 50-year high, it's hard to believe that the monetary dials are set right.

From here.

The man's got a point: there are too many who believe that the orthodoxy will come up with a solution. Keynes does not have a solution for our problem (he'd be aghast at the idea that during an upswing, government finances worsened, rather than having gotten better) and there really are no solutions that do not include either the gutting of holy calves or the dismantling of what are effectively Third Rails in US politics (the concept that the government can be the best solution for things like pensions and health care).

Anything else means you are living in denial of the problem.

Inflation at a fifty-year low and unemployment near a 50-years high = does not compute in the standard macroeconomic models.

Something has to give. The way things look right now, when it does give way, watch out downstream.