More Pessimism

I’ve let my links build up over the past few days, so I have plenty of kvetching to do.

- South Park on the economy.  Special guest star:  Tim Geithner, landing on Bailout.

- Geithner “is open to” an international basket of currencies.  Aside from causing the dollar to tumble (until he “clarified” his remarks), this wouldn’t work in any practical sense, as it would allow for currency arbitrage and would be well beyond the optimal currency area.  Following from Robert Mundell’s research, you could argue that the US itself is too large an area for a single currency, and though Mundell supported a common currency among European countries, the different situations of various countries indicates that one monetary policy is inefficient, but that’s all you get with one currency.  Here is Tim Geithner’s next press conference.

- Geithner’s new plan remains a bad idea.  Private profits and public losses lead to excessive risk-taking because the risk-takers aren’t the losers.  Doesn’t this sound familiar?

- Obama throws one of the two or three Treasury officials out there under the bus.

- George Selgin has good sense.  Naturally, those in power will ignore him.  A couple years ago, I was flirting with the idea of free banking but didn’t know how it would work.  Selgin’s work has me practically convinced.  At the very worst, it couldn’t be worse than government-run banking and currency.

- There is an idea out there that the Federal Reserve could float its own debt to avoid inflation.  Robert Murphy is absolutely right in pointing out that this just delays the inevitable, and in the process increases what the rate of inflation will be.  Because this is a bad idea, I expect it to be put into practice.

- In good news, Obama asked Paul Volcker to head a tax reform panel.  There are three stated goals:  collecting uncollected taxes, closing loopholes, and simplifying the tax code.  Even if Obama were serious about legitimate tax reform (something I doubt), this sounds suspiciously like the 1985 tax reform.  I remember reading something James Buchanan wrote a decade or so later:  he was glad that he was able to get down on paper before the reform kicked in his prediction of what would happen, namely that within a few years, all of those old loopholes would be put right back in.  A complex tax code is an equilibrium situation, and the only way to get out of that equilibrium is to prevent Congress from allowing loopholes to begin with, and that means a fixed tax rate and unalterable definitions of income.  Although this is pie-in-the-sky, it is an ideal we should try to approximate, but the only way to do this is on the constitutional level, not the level of legislature.

- Good thing the adults are in charge, right?

- On the bright side, Congress is shelving its AIG tax.  The dark side is that people in Congress even proposed it.

- Jonah Goldberg points out that big business and the left actually fit better than big business and the fusionist right.  Far from scorning big business with its legislation, “progressives” often allowed large firms to write the rules and regulations on industries (especially during Franklin Roosevelt’s administration), to the detriment of small firms and potential competitors.  Companies on top want to keep their advantage by increasing the cost of entry, and the left has the same goals (though for different reasons).  It’s those free-market radicals who oppose these “rational” policies.  Unfortunately, we’re a minority in either party, and politicians have to deal with these firms as an interest.  Like a midwesterner going up against ethanol, trying to break the big government-big business combination is practically a fool’s errand.

Quick hits

– The Simpsons chalkboard gag this Sunday? “My piggy bank is not eligible for TARP.” This has been my one economics comment for Spring 2009.

– Immediately after RFE/RL posted the story on Medvedev, we get this gem. Anybody else think this show would do well in Russia?

Link Dumpoff Saturday

It’s Saturday night, post-shabbat, and I’m going to drop a bunch of links that I have and want to get rid of.

- Tracking of tied US foreign aid will begin once more.  “Tied aid” means that aid must be spent on US companies.  This creates inefficiencies, as Easterly and Freschi note.  Getting a reckoning of exactly how much US foreign aid is tied is a good start to ending that practice as much as is possible.

- It turns out that “new job” counts don’t actually mean anything.  I am, you can imagine, shocked and amazed that pseudo-precise numbers based on fuzzy generalizations and Keynesian models have no basis in reality.

- Robert McCain has a good post on a rather pernicious form of fallacious argumentation:  take a couple words here, a sentence there, and voila! your opponent is now evil.

- Daring to be different:  James Buchanan.  Buchanan is one of my favorite economists and one of my favorite writers.  He got how to tell an entertaining yet elucidating story, and his innovations with regard to public choice and constitutional economics pushed forward the level of discourse in economics.  It was unfortunate that it took his colleagues so long to recognize this, but at least they’ve done so in his case, if not Gordon Tullock’s.

- Here is an article describing a paper on how Shi’a terrorists fight differently than Sunni terrorists.  My thought on the conclusions is that the differences in style are reactions to American tactics.  We focused on going after Sunni terrorist-sponsoring regimes in Iraq and Afghanistan, leaving the Shi’a Iran and Syria* alone.  Because of this, taking out the infrastructure of Sunni terrorist organizations leaves them fighting in a more desperate manner, whereas the Shi’a organizations such as Hezbollah have a more-established base.  Had we gone after Iran instead of Iraq, I would guess that this trend would be closer to the converse.

* – Okay, Syria is run by Sunnis, but they support Shi’a terrorism, notably Hezbollah.  Don’t tell that to the State department, though—they know that Sunni and Shi’a would never work together on anything!

Any Good News Today?

We’ll see…

- Tim Geithner’s five big misconceptions.  Geithner’s plan is a massive public-private partnership, and I’m quite wary of them for the same reason Jim Lindgren is:  private profits, public (i.e., taxpayer) losses.  This greatly increases risks because the risk-takers don’t lose anything near what the real value of the loss is.  Tyler Cowen shows how you can game the Geithner plan, and I expect it to happen.  Regulation is slower than regulatory entrepreneurship, and that’s assuming that the regulators are actually interested in stopping this.  Considering that most of the players will be those who put money into Dodd, Frank, and Obama’s election funds, why do I get the feeling that they’ll just look the other way?  Oh, that’s right:  because they already did once.

- On the plus side, the market’s gone up.  This could be a bottoming out effect or could be due to the fact that existing businesses are going to get quite the handout from the government.  This is a good reason why stock markets are an imperfect measure of economic policy ramifications—they measure one particular set of interests.  Geithner’s plan is very good for existing businesses and very bad for taxpayers.

- Barney Frank knows what executives should make.  How about we regulate Barney Frank’s salary?  Better yet, vote him out of office, Massachusetteans.  And Democrats are sounding more and more like mobsters.

- Big business likes regulation.  Why?  Because big business profits from regulation.  Regulations are often written by large, existing firms and are written with an eye toward locking out new competitors.  Big Steel wants carbon cap-and-trade because they know they’ll get another barrier to entry for new firms, thereby allowing existing firms to charge higher prices.  On a related note.

- The newspaper bailout won’t create any capture problems for newspaper reporters, but that’s only because they’re already in the bag for Democrats.

- Bob Murphy points out that this idea to kill 10% of cash holding value is a bad one.  Instead of people “being glad to lend at negative 2%,” they would get out of US dollars.  If I’m expecting that 10% of my cash holdings (which, fortunately, are nearly $0) go poof, I’m switching to Canadian dollars.  Wait…did I just say that out loud?

- Also from Murphy:  Bernanke will face more problems soon.  As soon as monetary demand drops (which will occur when people start to think that we’re near the bottom of our recession), all of that extra money that Bernanke pumped into the system will turn into inflation unless he raises interest rates and performs open market operations to remove the dollars.  He won’t do that because then we’ll have a knock-off recession, and because his political masters won’t let him.  Once again, I must continue to say that the Federal Reserve is not independent and is under Congressional and Presidential control.  A truly independent Federal Reserve might produce a chairman willing to take those lumps—Paul Volcker did—but in this climate?  Absolutely not.

- On the plus side, we don’t hear much about global warming anymore.  Incidentally, wild, anthropogenic global warming is still a myth, and over the past few years, global warming itself has been a myth.