Bastiat's Bastions

Last January, I wrote in this post about how Mubarak’s hold on Egypt was lost, in part, due to food riots, riots over the rising prices of food.  The problem was that the government in Egypt, to placate its citizens, had created programs to keep food prices down, at least to some, creating “program addiction,” a situation that results in uprisings if the program is cut, and that is what happened in Egypt.

The problem with such programs that give something away is that people come to depend on the program, and then, more and more become attracted to the giveaway.  With increasing numbers of people depending on the program, spending goes up and up and the taxpayers are asked to assume a heavier and heavier burden.  The ranks of the dependent swell while the number of those providing the payments shrinks. 

Now it looks as if a similar problem is occurring.  Take a look at this recent report from Andrew Breitbart about the reported gasoline shortages in Egypt.  Prices of gasoline have been held down through the Egyptian government’s subsidies, but such subsidies look to be unaffordable, leaving the government but little choice to end them, meaning prices will rise.  How do you think the Egyptians will respond to a government that causes gasoline prices to double?  The new leaders of Egypt have not yet solidified their power.  Just like Mubarak, they may soon be out of a job.

As you can read in the Breitbart article, the authorities blame speculators and smugglers.  Hmm? Maybe.  What needs to be asked is “why is smuggling going on in the first place?  Could it be that the policy that keeps prices of gasoline at half of the price in a neighboring country CREATES the opportunity for someone clever to buy in one market at a low price and sells in another at a higher price?  Here is an excellent analysis of what is going on with subsidized oil in Indonesia Price differences create profit opportunities for smugglers.  They create even larger opportunities for thieves. 

So, are the smugglers causing the shortages, or are they just taking advantage of a situation that politicians set up to build and maintain support?

What we will see this term is that when it takes government edicts to keep prices low, the amount buyers want becomes high compared to the amount that sellers want to sell—the textbook definition of a shortage.

-MC

In 2006, Amanda Walker, one of my Economics 211 students, and I wrote this post on Thanksgiving.  I just found a similar article by Benjamin Powell, a fellow with the Independent Institute, an economics professor at Suffolk University and a contributor to the Charlotte Observer and The San Diego Union-Tribune, at a weekly email newsletter from the Independent Institute, called The Lighthouse.  Read Powell’s Lighthouse article on Thanksgiving here. 

The Pilgrims came here with altruistic values of  equal sharing based on need, much like the values of the Occupiers.  I was just in Washington, DC for the Southern Economic Association meeting.  On may way from the convention, I had to make a subway change at Metro Center, which is near the White House.  On my way to take a few photos of the White House, I came across a small encampment of the Washington, D.C. Occupiers.  Below are a few of the photos I shot of the OccupyWashington protesters.  (While it looks cold because of the fog and cloud cover, don’t feel too sorry for folks in the photos, as it was probably no cooler than 68 degrees at the time.)  Of course, I like the sentiment in the yellow sign the most.   Just click on a photo to see a larger version.   

Notice the use of the word “Needs” in several photos.  When does one person’s “need” become another’s obligation?  If one person is obligated to work to provide for someone else’s need, and this obligation is not voluntary, but coerced,wouldn’t that be forced labor?  Isn’t forced labor “slavery?”

Enjoy your Thanksgiving.  And enjoy your time with friends and family.

-MC

A few days ago I posted this comment on how local governments protect existing businesses from competition by erecting barriers to entry through occupational licensing.  That story reminded me of  another story along similar lines, about a pair of Washington, D.C. entrepreneurs, Taalib-Din Uqdah and Pamela Ferrell who started their small business, Cornrows & Co. in 1980, specializing in African hair braiding.  The pair came under fire by the DC cosmetology board for having a cosmetoloty license, which would require going through a cosmetology school and passing a test on methods of cutting, dyeing, straightening, and perming, but would cover their braiding techniques.  Here is the Institute of Justice’s “Backgrounder” on the case.

Last year, I posted this on the exams required for new florists that the Louisiana board that licenses florists uses to keep its numbers down and their prices up, mentioning other cases of occupational licensing, like the ones for CPAs and massage therapists.

Back in June of this year, John Stossel penned this article on local regulation of both taxi operation and hair braiding, and how it hits the poor, the people that politicians often claim to be fighting for.  Stossel makes a great case here against this sort of occupational licensing.

When it becomes more difficult to become a competitor than to go along with the status quo, both consumers and these competitors lose, all in the name of consumer protection.  What irony!  Or is it just that we don’t realize that Orwellian “NewSpeak“ has been here  for some time.

-MC

In this post on Bastiat’s Bastions in May, I discussed how congressmen do not play by the same “insider trading” laws they have set up for the rest of us.  Congressmen increase their personal wealth while in office by trading on information about matters that come before them and by trading based on information about actions Congress will take.  Their trading make Martha Stewart look like, well, Martha Stewart.

In this CNBC article, Jack Abramoff, without naming names, says that that is exactly what is going on in Congress, corrupt insider trading.

Who to blame?  We keep sending these guys back to DC to do it again.

-MC

Here is an ABC News report on GDP growth for this year’s 3rd quarter, the months of July, August and September.  In a month, the 3rd quarter figures will be revised and more data comes in for September.  The report from the government agency that gathers this information, the Bureau of Economic Analysis, is here. This updates a blog post I had earlier this summer.

-MC

While you can never determine the cause of a factor, call it Y, merely by its correlation with another factor, X, you can sometimes rule out causes.  Even then, one must take a great deal of care in the analysis.  Remember that Y and X might be correlated because X causes Y, but Y could cause X.  Also Z might cause both X and Y.  To help in your thinking about all of this, consider an association that we find between charter schools and teacher burnout that I noticed on John Stossel’s Blog “John Stossel’s Take.”

While true enough, this is quite misleading.  Stossel points in his blog to a study, “Parallel Patterns: Teacher Attrition in Charter vs. District Schools,”  by the National Charter School Research Project (note that this could be a biased study).   While the study did find 52% higher attrition rates for teachers in charter schools, once one statistically controls for the sometimes conveniently neglected fact that charter schools are more likely to be in disadvantaged areas and that charter schools disproportionately hire teachers right out of college, teachers who are more likely to quit, the study finds:

“Teachers working in urban charter schools are 24% less likely to exit the system than similar teachers working in urban traditional schools.”

The use of appropriate control variables, our Ceteris Paribus  or “holding other things constant,” are vital to any serious study.

-MC

What was that again, about our hypocrisy?  Recently (10/8/10), I posted an article “Drugs, Money and American Hypocrisy.”  Here are a few updates, some news articles about the currency dispute with China and what we in the US are doing about our own currency. 

First is this article from Reuters on how some Federal Reserve officials are advocating inflation to affect the dollar’s exchange rates.  

Next is this article from Bloomberg on how the expectations of the Federal Reserve expansion of the money supply to increase inflation is already affecting our exchange rates with other currencies. 

With this devaluation of the dollar relative other major currencies as reported here by the Financial Times, there is the possibility that other countries will retaliate with their own devaluations (see this article from Reuters).   With no major currencies holding their value, one would expect gold to get bid up even higher. 

The US continues its fight with China, claiming that the Chinese are manipulating their currency, but ignore that man behind the curtain who seems to be pulling levers and turning knobs, just watch the Chinese currency.  Even if the Chinese are pushing their prices down, why should we in the US really complain?  This just gives us lower prices, particularly at Wal-Mart, helping the poor and the unemployed. 

At least for now, the Obama administration is taking the higher road, and has backed off of labeling the Chinese as currency manipulators.  They seem to be waiting at least until after the midterm elections in the US and after the meeting by the leaders of the “Group of 20″ in Seoul, S. Korea on 11/11/10. 

Update on this update–this just in–(10/25/2010), from Reuters and on the CNBC website: I just read hear that Germany is now accusing the US of currency manipulation, the same claim the US is about to make against China.   

Perhaps our own leaders would do well to follow that New Testament advice, to ”Judge not, lest ye be judged.”

–MC

Now, I am not an America basher.  But, from time to time, we can be a bit hypocritical.  For instance, at the same time that we complain to Mexico about the drug traffic through their country, Californians are considering the decriminalization of marijuana.  The Mexican government has surely noticed (see article here)

But worse, is the hypocrisy of our elected officials in the U.S. House of Representatives, along with the Secretary of Treasury, Timothy Geithner, Senator Olympia Snowe (ME-R), and others for condemning China’s currency policies, in what they claim to be manipulation of the currency value, while the U.S. seems to be devaluing the dollar in the same fashion.  Mark Perry, Professor of Economics, University of Michigan-Flint, and a visiting scholar at the American Enterprise Institute in Washington, D.C., cleverly highlights the hypocrisy of the China currency bashers in this blogpost by editing or marking up an article on China currency manipulation, replacing China and its renminbi (yuan) with the U.S. and the dollar.

Of course, even if China is manipulating the renminbi in order to make Chinese goods less expensive for Americans, low prices happen to be one of the best anti-poverty programs we could have, making each dollar a poor person has go further in the marketplace.  If the Chinese wish to send us their goods at very low prices, subsidizing the American consumer, especially the poorest consumers, should we tell them no?  It is just as if the Chinese were writing all of us a check each month, that is, if they are truly manipulating their currency.

Protectionist policies, such as those endorsed in the recent House of Representatives vote that sacrifice the wellbeing of the poor at the expense of well-healed special interests that especially harm the poor.  Moreover, such trade policy action is likely to bring about countermeasures by China which could lead to a deepening of the recession, the same way that the Smoot-Hawley Tariff of 1930 led the country into the Great Depression (see Wikipedia on this).

We should also be mindful that we depend on the Chinese to keep lending us to fund our huge deficits.  Should the Chinese retaliate against our self-harming protectionist moves by just slowing down in their purchases of our treasury bills at auction, our interest rates could jump dramatically, and our debt will climb at an even greater pace than it is climbing now.

–MC

Years ago, I read Tom Godwin’s science fiction short story, “The Cold Equations.”  Wikipedia has a pretty accurate summary of the story here.  Sometimes in life we have to make decisions not to help someone, because by doing so, others will react in ways that bring harm to themselves and others. 

A fire department in Tennessee let a house burn to the ground and did nothing to put it out, but then put out a fire that spread to the neighbor’s house (read the story here).  Whoa.  Harsh.  But perhaps, the result of those cold equations.

Notice that the fire was in a rural part of a county, outside of the town fire department’s jurisdiction.  The fire department for years had offered to provide fire protection to homeowners in areas outside of their city limits, provided the homeowner had paid a $75 annual fee–sort of a form of fire insurance.

If they accepted the $75 fee when a fire was burning, no one in those rural areas would ever pay again for fire-fighting services.  Then, the fire department would not have the resources to fight fires outside of the city limits.  No one in the rural parts of the county would have fire protection after that.  This is a problem economists call the “free-rider problem,” where people expect to be able to let others pay for their goods or services.  The suppliers are not able to collect enough to be able to provide the service at all, and so they do not, even though it is worth what the sellers are asking for the service.  The result is that no one gets the service.

And while I do not like the Obama Health Care program, forcing people to pay ahead of time making them buy health insurance is just a reaction to a free-rider problem we have in health care, especially since emergency rooms in hospitals are not allowed to do what the fire department did, they must treat the patient.

So, while the decision of the fire department seems harsh, if they were to have gone ahead and put out that fire, they would soon have been unable to provide such services to their rural neighbors at all.

–MC

Responding to McCain’s sole zinger line in the final debate, “If you wanted to run against George Bush, you should have run for president four years ago,” Obama compared McCain’s voting record with the White House position and pointed out that McCain voted with the Bush White House 90 percent of the time. Then Obama repeated that old line “And if it walks like a duck….”

In a now well-known interview, Obama’s running mate, Joe Biden, laughed off a question about Obama being a socialist. Well, there are very few admitted socialists elected to office in this country. And to my knowledge, only one avowed socialist elected to any national office in the last 30 years, Bernie Sanders from the state of Vermont (see this article in the New York Times Magazine from January 21, 2007 by Mark Leibovich). Sanders calls himself a social democrat but has officially run as an Independent over the years.

I started to wonder how close Obama’s voting record was to Senator Sanders, since the closeness of McCain’s vote turned him into George W. So I went to the website of the U.S. Senate and found the Senate roll call votes here. Both Obama and Sanders are freshmen Senators in the 110^th Congress, so it makes their voting records easy to compare.

In one crucial respect, their voting records are quite different. Senator Sanders missed only 6 out of 655 votes held in the Senate in the 110^th Congress, voting over 99% of the time. Obama, on the other hand, had voted only 36% of the time in 2008 and slightly less than 54% of the time in the 110^th Congress (2007 and 2008 combined). Of course, Obama ran for president and Sanders did not. Still, by August 3, 2007, Obama had already missed more votes in the U.S. Senate than Sanders had by October of this year. And there weren’t any primaries to run for before that August date.

After excluding the many votes that Obama did not cast and the few that Sanders could not cast, there were 348 votes where both voted. Of these 348 votes, Obama voted with Sanders 320 times, or 92% of the time.

Certainly, Obama’s redistribution policies and his proposed takeover of the U.S. health care system, his agreement (like McCain and Bush) to take over banks and help out the auto industry, his plan to take away the secret ballot from workers for union representation elections and his proposal to lift the minimum wage to one that compares to what the French have (which has led to widespread minority youth unemployment and riots there), all show that

Obama has the socialist walk and quack down pat.

With a voting record that matches the voting record of an avowed socialist, how can Obama deny being a socialist? Bernie Sanders doesn’t.

-MC