Monday, August 29, 2011

Paul Krugman And The Alien Invasion?

During an interview with Fareed Zakaria, Paul Krugman suggested (in jest) that if were to fake a space alien invasion, the resulting surge in government spending and the monetary expansion would end the recession within 18 months. The flaws in his position are so glaring that even Stevie Wonder could see them! Have we not already engaged in profligate government spending via the wars in Iraq, Afghanistan and Pakistan? Estimates place the total cost as high as $3.7 trillion! And to no avail, the federal reserve has already presided over an aggressive expansion of the money supply via quantitative easing.

Krugman cites World War II as an example of massive government spending pulling the United States out of the Great Depression. But, he fails to consider the unique set of circumstances that allowed us to quickly pay off our war time debt. Specifically, in 1945 we were the only advanced, industrial nation that was not completely devastated by the war. And we did not face staunch competition from and massive trade deficits with China, Indian and other resurgent nations.  Were we to follow his recommendations, the costs (increased debt and inflation) would be certain, while the benefits would be dubious. But, if we were invaded by aliens, the only consolation would be that as one of earth's biggest a**holes, Krugman would surely be one of the first earthlings subject to an intergalactic anal probing.

Sunday, August 28, 2011

Accountants vs Philosophers?

The great divide that defines discussions on federal debt is not between liberals and conservatives, but between those who approach issues of government from the mindset of an accountant and those who approach it as a philosopher. The latter speaks about what government "should do," whereas the former calculates what government "can afford to do." For example, Nancy Pelosi Pelosi stated that cuts to seniors' benefits are "absolutely" off the table in the ongoing deficit reduction negotiations, yet entitlement spending compose 57% of the budget and face serious unfunded liabilities. A philosophically oriented commentator may defend the status quo of entitlements, whereas those who look at the issue with the eyes of an accountant see that there is no way to balance the budget without substantially reforming entitlements. This clash of visions is seen in a host of other debates. For example, Luis Gutierrez (D - IL) and other members of the Congressional Hispanic held out support for Obamacare, because undocumented immigrants were not eligible for the full array of federal subsidies. While their position that "all residents, documented or otherwise, have a right to government funded health care," may be philosophically sound, it completely ignores the fiscal reality that the United States faces. An astute accountant might respond "of course we can grant free health care to everyone, but given our level of debt, what other programs are you willing to cut to make it possible?"

Reflections on the Approval Rating of the Congress

A recent compilation of surveys places the approval rating of the congress between 12% - 18% and the Obama Administration's between 36% - 38%. In the case of the congress, this is lowest recorded level of public confidence in the history of the republic. I am certain that a key component in the growing public disenchantment towards politicians of both parties is the phenomena of mission inflation. Or more specifically, as the state has failed to live up to its ever expanding roles and responsibilities, so has the public's disenchantment grown. Prior to the FDR Administration, the majority of public expected little more from the federal government than: attending to national defense, maintaining secure borders, providing a balanced budget, facilitating interstate commerce, upholding law and order, maintaining basic infrastructure (roads, rails, utilities), upholding a sound currency, tariffs and taxation. Presumably the higher approval rating of past generations was indicative of the fact that by and large the state was fulfilling its clear and limited responsibilities.

Since, then, the role of the federal government has expanded to include the responsibilities of: nation builder (Iraq, Afghanistan, Libya, etc.), central economic planner (via a heavily interventionist federal reserve), provider of health care, housing, food, education, social security, social engineer and zealous nanny. As its role has expanded, it has increasingly fallen short on its (previously established) core missions: borders are not secure, as demonstrated by the unabated flow of contraband (drugs) and human traffic (illegal immigration), public finances are in dire straights, infrastructure is crumbling  and the dollar has substantially depreciated .Needless to say, it has not fared well in the expanded aspects of its core mission, as demonstrated by the near financial insolvency of the social security disability fund.

Progressives often declare that conservatives fail to recognize that without the state there would be no roads, schools, police or fire departments. Quite the contrary, the majority of conservatives fully affirm the government's responsibility in providing these vital services, but simply believe that ongoing mission inflation is intrinsically connected with their deterioration. But, more than anything I find it puzzling that many individuals who have little faith in the competence or even good will of their politicians seek to grant them an ever greater role in managing social and economic life. In the same breath they will decry the corrosive influence of special interests and corporate lobbyists on the political process, while also calling on the government to expand its control over health care and other vital sectors of the economy. Why? The idea that public welfare is best be served by a lean state focused on achieving clear, limited, vital missions is alien to their political lexicon.

Sunday, August 21, 2011

On the Abuse of Undocumented Workers

Both progressives and conservatives acknowledge the troubling abuse of undocumented workers. The most jarring example is the Postville Kosher Slaughterhouse, in which investigators uncovered wretched working conditions, the use of child labor and a violation of a host of other regulations. And on a broader level, the endemic use of undocumented labor has contributed to the erosion of wages and working conditions. However, both sides present markedly different solutions. Progressives generally hold that the proper response is to "bring undocumented workers out of the shadows," through amnesty, unionization and the enforcement of wage and work place regulations. According to this vision, by improving working conditions for undocumented workers, they will help bolster conditions for all workers. This is seen in the AFL-CIO's establishment of a partnership with the National Day Labor Organizing Network, which is a sharp departure from their historic inclination towards restrictive immigration policies. While the progressive approach is intuitively appealing, many conservatives believe that is it fundamentally flawed because it fails to consider several important economic principles. Employers are attracted to undocumented labor precisely because they offer a respite from costly tax, wage and workplace regulation. If the employers were forced to apply the said standards to their undocumented or newly legalized employees, the said workers would lose the allure that they formerly held. Given basic laws of economics, we can be certain that a new black market would form in which many undocumented workers would choose to accept lower wages and working standards in order to gain a competitive advantage over their unionized counterparts. And naturally, many employers would happily oblige them. Thus, many conservatives are of the opinion that by its very nature, the conditions of the undocumented labor market cannot be substantially improved. Expanding regulations to cover undocumented workers would do little to improve their aggregate circumstances. Rather, they hold that the most effective remedy to abusive labor practices would be to dry up the demand for undocumented labor by heavily fining the employers who utilize them. And diminishing the key magnet (employment opportunities) that draws in undocumented immigrants is also a vastly more humane enforcement strategy than haranguing the immigrants themselves. Progressives may even learn one of the basic principles of economics: the working man has no better friend than a tight labor market, it is far more effective than government regulation in improving wages and working conditions.

Sunday, August 14, 2011

Jimmy Carter Prize For the Advancement of Douchebaggery: ACLU & MALDEF

We are proud to bestow the Jimmy Carter Prize For the Advancement of Douchebaggery to the American Civil Liberties Union and the Mexican American Legal Defense Fund for their consorted efforts to overturn Voter ID Acts across the country via onerous lawsuits. Such laws reflect the will of the electorate to combat voter fraud. Thankfully, in a recent ruling, the Supreme Court upheld Indiana's Voter ID Act, with the majority deciding that  “The law should be upheld because its overall burden is minimal and justified.” And in the opinion of the Chicago Freedom Forum, if an age were an ID is required to rent a movie, drive a car, or open up a bank account, requiring proof of identification as a prerequisite to vote is not asking too much. And if someone is not willing to make the minimum effort to obtain an ID, their capacity to contribute to the democratic process is dubious. In addition, they have aggressively fought efforts to establish English only ballots. Asking that a citizen obtain proficiency in English not an unreasonable proposition, because a viable democracy requires citizens who possess a basic knowledge of the laws and affairs of the land. Thus, for whatever good they have done, the ACLU and MALDEF have inadvertently contributed to the growing imbalance between rights and responsibilities and the ongoing devaluation of citizenship.

Anatomy of A Train Wreck: Causes of the Mortgage Meltdown

If you have the time, I highly recommend that you read Professor (of economics at the University of Texas at Dallas) Stan J Liebowitz's research on the causes of the mortgage meltdown. Dr. Liebowitz sites relaxed lending standards, encouraged by the federal government, as a significant factor. The primary culprit for changes in lending standards were not "de-regulation," but a concerted effort by politicians, banks and community activists to expand home ownership. Not surprisingly, degraded lending standards opened the way for the entrance for many speculators to enter the market and further inflate the housing bubble.

One key event was a report published by the Boston Federal Reserve in 1992 calling for private and public sector action to address the "widespread mortgage discrimination against African-Americans and other minorities." Their basic thesis was that discrimination was the primary cause of the higher rate rejection rate that African-Americans mortgage applicants experienced. From this conclusion they recommended the loosening of lending standards, which clearly contributing to the housing crash:

"Even the most determined lending institution will have difficulty cultivating business from minority customers if its underwriting standards contain arbitrary or unreasonable measures of creditworthiness."

"And Special care should be taken to ensure that standards are appropriate to the economic culture of urban, lower–income, and nontraditional consumers."

"Lack of credit history should not be seen as a negative factor. Certain cultures encourage people to “pay as you go” and avoid debt. Willingness to pay debt promptly can be determined through review of utility, rent, telephone, insurance, and medical bill payments...Successful participation in credit counseling or buyer education programs is another way that applicants can demonstrate an ability to manage their debts responsibly."

"Special consideration could be given to applicants with relatively high obligation ratios who have demonstrated an ability to cover high housing expenses in the past. Many lower–income households are accustomed to allocating a large percentage of their income toward rent."

"When considering the credit score, LTV and payment history, we put the greatest weight by far on the last variable…Payment history speaks for itself. To many lower-income homeowners and CRA borrowers, being able to own a home is a near-sacred obligation. A family will do almost anything to meet that monthly mortgage payment."

The report praised Country Wide Mortgages as the paragon for lending virtue, which is ironic, considering that they were one of the first lending firms to collapse because of their looser standards:

 After reviewing the Fed's research, Dr. Leibowitz found glaring statistical errors and structural flaws in the research, among them was the failure of the Fed to factor in pronounced differences in the mean credit score of different groups. When credit scores were factored in, the evidence of discrimination vanished.

One lesson we should gain from his research is the innate hazards of allowing government mandated social, rather than market criteria to determine financial transactions. I believe that we will witness a "school loan meltdown" for similar reasons. Here are some excerpts from his writings:

"Why did the mortgage market melt down so badly? Why were there so many defaults when the economy was not particularly weak? Why were the securities based upon these mortgages not considered anywhere as risky as they actually turned out to be? It is the thesis of this chapter that, in an attempt to increase homeownership, particularly by minorities and the less affluent, an attack on underwriting standards was undertaken by virtually every branch of the government since the early 1990s. The decline in mortgage underwriting standards was universally praised as an ‘innovation’ in mortgage lending by regulators, academic specialists, GSEs, and housing activists. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The bubble increased the number of housing speculators with estimates indicating that one quarter of all home sales were speculative sales prior to the bubble bursting. The recent rise in foreclosures is not related to the sub prime/prime distinction since both markets had  similar size increases in foreclosures that occurred at exactly the same time. Instead, the adjustable-rate/fixed-rate distinction is the key to understanding the rise in foreclosures. This is consistent with speculators turning and running when housing prices stopped rising. It is not consistent with the nasty-subprime-lender hypothesis currently considered to be the cause of the mortgage meltdown."

"The increase in home ownership increased the price of housing, helping to create a housing bubble. The bubble brought in a large number of speculators in the form of individuals owning one or two houses in the hope of quickly reselling them at a profit. Estimates are that one quarter of all home sales were speculative sales of this nature."

"In fact, the study was based on horribly mangled data that the authors of the study apparently never bothered to examine. Every later article of which I am aware accepted that the data were badly mangled, even those authored by individuals who ultimately agreed with the conclusions of the Boston Fed study. The authors of the Boston Fed study, however, stuck to their guns even in the face of overwhelming evidence that the data used in their study was riddled with errors. Ex post, this was a wise decision for them, even if a less than honorable one."

"When we attempted to conduct the statistical analysis removing the impact of these obvious data errors we found that the evidence of discrimination vanished. Without discrimination there would be no reason to try to ‘fix’ the mortgage market."

"One man’s innovation can be another man’s poison, in this case a poison that infected the entire industry. What you will not find, if you read the housing literature from 1990 until 2006, is any fear that perhaps these weaker lender standards that every government agency involved with housing tried to advance, that congress tried to advance, that the presidency tried to advance, that the GSEs tried to advance, and with which the penitent banks initially."

In spite of the abundant evidence of all the various successful attempts to relax underwriting standards, almost no one wants to blame those relaxed standards for what has happened. Instead, almost all the blame is focused on subprime lenders who happen to specialize in loans that use relaxed lending standards. Unscrupulous subprime lenders, we are told, are the guilty parties responsible for financial calamity at both the macro level and the personal level. They are financial vampires, sucking the lifeblood from hypnotized mortgage applicants who have signed forms giving away their souls. I refer to this as the subprime boogeyman story.

The bogeyman in the mortgage story is the unethical subprime mortgage broker who seduced unwary applicants out of their hard-earned, sacredly treated assets. The subprime boogeyman charged usurious rates for his mortgages and bamboozled his clients with artificially low teaser rates that allowed them to purchase homes that were unaffordable at realistic interest rates. This character has been pilloried by all manner of politician and pundit. Although a convenient scapegoat, this character does not appear responsible for the main part of the mortgage meltdown. This is not to say that there are not lying and cheating mortgage brokers—there are. But every profession, including economists, has its share of liars and cheaters.
There is an important problem with the hypothesis that evil subprime lenders caused the mortgage meltdown. That problem is the fact that subprime loans did not perform any worse than prime loans. .

The main facts standing in the way of the subprime-boogeyman theory is that adjustable rate prime mortgages had a larger percentage increase in default rates than did the subprime market and that overall there was very little difference between the prime market and the subprime market.

Which brings us back to the question: Why did default rates rise so rapidly for adjustable mortgages but nowhere as quickly for fixed rate mortgages? Higher interest rates seem unlikely to account for more than a small part of the increase in defaults. Declines in house prices, or more precisely, the ending of the price rise should have impacted both fixed rate and adjustable rate mortgages equally, if the population of homeowners was similar for the two types of loans since either group is as likely as the other to be underwater when home
prices fall.

One possibility for the remarkable increase in defaults on adjustable rate mortgages, is that adjustable rate mortgages drew a very different types of home buyer than did fixed rate. mortgages. Fixed rate mortgages, since they charge higher interest rates, make sense for people who plan to stay in their homes for several years and who do not want to risk the possibility of rates increasing. Adjustable rate mortgages, on the other hand, are most attractive for people who intend to stay in a home for only a short period of time if at all. Such buyers get the lower interest rate without the worry about interest rates rising in the future,  since they do not intend to own the home for long enough for the rates to reset.

One type of home purchaser that would be particularly attracted to adjustable rate mortgages is the speculative buyer. These would be people not expecting to stay in their house very long. One sub-type in this genre is flippers, as seen on several television shows. House flippers consist of people who intend to make some alterations to a house and then sell it at a profit. The other type of person looking for a short term gain can be called ATMers. These are individuals or families who like to use the appreciation of a house as a personal.

We are experiencing one of the worst financial panics in the post WWII era. Everyone knows that the increase in mortgage defaults has been the primary driver for these financial difficulties. The mortgages with outrageously lax underwriting standards that have been justifiably ridiculed in the press are not unusual outliers but unfortunately representative of a great many mortgages that have been made in the last few years.

The question that is being asked is the correct question: how did it come about that our financial system allowed such loans to be made, condoned such loans, and even celebrated such loans? The answers that are being given are not yet the correct ones, however. The main answer that is being given, that unscrupulous lenders were taking advantage of poorly informed borrowers, does not fit the evidence nor does it dig deep enough.

Almost completely ignored are the ‘mortgage innovations’ that are largely the responsibility of the federal government. These ‘innovations,’ heralded as such by regulators, politicians, GSEs, and academics are the true culprits responsible for the mortgage meltdown. Without these innovations we would not have seen prime mortgages made with zero downpayments, which is what happens when individuals use a second mortgage to cover the downpayment of the first. Nor would we have seen “liar loans” where the applicant was allowed to make up an income number, unless the applicant was putting up an enormous downpayment, which was the perfectly reasonable historical usage of no-doc loans.

The political housing establishment, by which I mean the federal government and all the agencies involved with regulating housing and mortgages, is proud of its mortgage innovations because they increased homeownership. The housing establishment refuses, however, to take the blame for the flip side of its focus on increasing homeownership—first, the bubble in home prices caused by the lowering of underwriting standards and then the bursting of the bubble with the almost catastrophic consequences to the economy as a whole and the financial difficulties being faced by some of the very homeowners the housing establishment claims to be trying to benefit.

The hypothesis that currently seems to best fit with the evidence suggests that housing speculators were taking out many loans with the hope of a quick and profitable turnover. These housing speculators did not much care about the terms of their mortgages because they didn’t expect to be making payments for very long. But it is clear why they would prefer adjustable rate mortgages. The hypothesis also is consistent with speculators often lying about their income on their loan applications and taking out teaser rates so they would qualify for larger loans, so they could make a bigger bet on housing. Under this hypothesis borrowers are adults, not witless pawns. When the housing bubble stopped growing, according to this hypothesis, these speculators turned and ran. Left holding the mortgage-debt bag are the investors who lent money to these speculators. The size of the mortgage-debt bag was so massive that fear of being left holding it brought the financial system to its knees.

Why Did The Press Remains Silent About Gay Bashing in Amsterdam?

A few years ago, a fashion show in Amsterdam that was set up to raise awareness for gay rights was attacked by a group of 10 Muslim immigrants. Interestingly this story was not broken in the United States by the mainstream media or even by the gay rights oriented newspapers and websites, but by the conservative website We can be certain that if members of the dreaded "Christian Right," were responsible for this revolting act of intolerance, it would have received ample press coverage. I suspect this is because the press is uncomfortable presenting news that departs from the dominant liberal narrative that presents Muslim migrants and other minorities as victims, rather than perpetrators of hate crimes.

Muslims Attack Gay Model at Amsterdam Fashion Show, American Left Silent

Posted on June 6, 2008 by Rob Taylor

On April 30th a fashion show in Amsterdam which was supposed to raise awareness for gay rights was disrupted by a group of ten Muslim youths who pulled openly gay model Marc DuPree down from the catwalk and brutally assaulted him. When another model attempted to intervene that person was also assaulted. The organizer of the event, Jennifer Delano, has gone on record saying she would never organize another fashion show there and that Amsterdam was “no longer a tolerant city.
As Gay Patriot, who found this story, points out there has been no mention of this story in the MSM or the American gay media. It’s been over a month and none of the people who supposedly cover news important to gays wrote a word about this blatant display of gay bashing.

Gay patriot has translations of two Dutch articles, the first of which is sensational enough that you’d think the cable news channels would be all over a story like this:

Amsterdam : On Queen's Day [national holiday, birthday of the late Queen Juliana of the Netherlands], in a side street of Rembrandt Square, a gay fashion show was severely disrupted. The model was dragged down from the catwalk by ten young guys.

The homosexual model Mike du Pree was dragged down from the catwalk by ten young guys. When he wanted to defend himself he got hit several times. A bystander stood up for the victim and a fight evolved. The show was organized precisely to promote tolerance towards homosexuals.

Before things got out of hand, the atmosphere was already tense. The public made comments about the outfits and a couple of models were insulted. The attack on Du Pree was the worst moment. "Mike got dragged down by his arm," says the organizer Jennifer Delano. They pinched him, he defended himself and then the guys of immigrant background started to hit him. According to her it was a group of ten young guys of Muslim background. The fight didn’t last long, but the police was too late.

Delano doesn't  know yet whether she will organize a fashion show for tolerance ever again. "I first need to recover from what happened, the initiator says." According to her, "Amsterdam is no longer a tolerant city." She will officially report the incident to the police and she considers to take legal action against the perpetrators. They are still free to roam.

May 1, 2008. Gay Krant [Gay Newspaper]

A fashion show that devolves into a mini-riot? Where the victim of a vicious gang assault is a gay man? This is news gold, yet the left leaning American media and the netroots are virtually silent. I wonder why?

And one would think that the Gay Pride movement would be up in arms over the very public attack of a gay man by a group of homophobes. But I guess Gay Pride really means never having to take a strong stand against the people who want you dead.

As “right winger” I’m often called a homophobe even though I support the rights of gays to get married in civil unions, think all Americans should be treated equally and believe hatred of gays is as un-American as Communism. And this will be one of the few blogs where you read about this story.

I think my gay friends should remember that next time some lefty blog implies “The Right” hates gays. At least we on the right want justice for the ones brutalized by gangs, even if it’s a gang made up of people from the “oppressed” classes.

Can your lefty “friends” say the same?

Why Should We Be Surprised (That Women Are Harrassed In London)?

The Indian Express published an article that spoke of the harrasment of women who did not don the islamic headscarve, in the Tower Hamlets area of London. Why should we be surprised? In the name of multiculturalism, a series of British governments introduces a large population of individuals with a distinct culture into its midst, makes no efforts to assimilate them towards British norms and values and becomes surprised when some of their members maintain the more dubious practices of their homeland? When people move to a neightborhood or nation, most will bring their culture, which entails far more than their cuisine, clothing and music. They bring their age old norms and practices, which are often compatible with those of the host neighborhood or nation. But, others are not. An honest discourse on the promises and perils of multiculturalism should not be the sole domain of the far right, but part of a thoughtful discussion that involves broad segments of society.

London Taliban' target women, homosexuals

Mon Apr 18 2011, 16:22 hrs


Women who do not wear headscarves are being threatened with violence and even death.

By Ashoka Kumar Jha

Women who do not wear headscarves are being threatened with violence and even death by Islamic extremist group Taliban, in a bid to impose Sharia Law in Britain.

According to police investigations in the Tower Hamlets area of London, other targets of these Islamist extremists include homosexuals.

Some incidents have been reported that include the placing of stickers on public walls, which state it is a ''gay-free zone'' and the daubing of paint on posters for clothing shops featuring women in bikinis.

In response to such incidents, Ghaffar Hussain, of the anti-extremism Quilliam Foundation, said that the intimidation was the work of ''Talibanesque thugs''.

“This minority think they have the right to impose their fringe interpretation of Islam on others,” the Daily Mail quoted Hussain, as saying.

Police official Paul Rickett said that three men have been charged with religiously-aggravated criminal damage in connection with some of the incidents, which have mirrored crude attempt at censorship in Birmingham.

“I am saddened that there are a small minority of people who do not wish to respect the lifestyle choices of others,” said Rickett.

“We work closely with faith leaders in the community, the Tower Hamlets interfaith forum, our partner agencies and the local community to ensure that people feel safe in the borough,” he added.

Firebrand Muslim cleric Anjem Choudary said that he was aware of individuals who would speak up if they saw a Muslim woman without a headscarf, but insisted they were only giving advice about their views of Islam.

Monday, August 8, 2011

Structural Unemployment or Why There Are So Many Filipino Nurses.

Most politicians speak about the need to "create more jobs" as a means to address our high unemployment rate, usually proposing a costly mix of tax cuts and corporate subsidies. While a relative lack of job opportunities is a factor, a far more pertinent one is structural unemployment, which is defined as "a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment. Even though the number of vacancies may be equal to, or greater than, the number of the unemployed, the unemployed workers may lack the skills needed for the jobs; or they may not live in the part of the country or world where the jobs are available."   In the case of the United States we have a vast surplus of unskilled labor and at least in some sectors of the economy, we are experiencing a shortage of skilled labor. This accounts for the high level of unemployment among unskilled workers and the low level of unemployment among most skilled workers.

Every time I visit a hospital or geriatric center, the reality of structural unemployment is highlighted by the large number of Filipinos who were invited to the United States to fill nursing positions. In other words, even in the face of high unemployment, an insufficient supply of nurses is generated among American citizens to meet the high demand for nursing. Before I continue, I must emphasize that this is not an anti-immigrant diatribe; quite the contrary, they are providing much needed skilled labor and a modicum of cost control in a sector beset by constant price inflation.The relative lack of interest of Americans in nursing is all the more puzzling considering that nurses are generally well paid, in fact their average salary in Chicago is $76,000 plus benefits.

So, what could possibly account for the large number of Americans who are not responding to the high demand (wages) for nurses and other skilled labor positions? Part of this stems from the time needed for workers to shift from economic sectors rendered largely moribund (such as construction) by the collapse of the housing bubble to expanding sectors, like health care. Extended unemployment benefits and misguided government efforts to stimulate construction and other beleaguered economic sectors, limits incentives for workers and firms to make the tough transition. The inability to sell one's house also makes it difficult to workers to relocate to more economically vibrant regions of the country.

Also, the myriad of (health, housing and food) subsidies offered by the state to low wage workers diminish incentives to develop the skills needed to obtain employment that would allow them to meet those needs on their own. These policies may be well meaning, but they have indirectly exacerbated the problem of a growing surplus of low skill labor.
Shifting subsidies towards select educational endeavors would be far wiser. The reason I use the term select is because many individuals utilize heavily subsided loans to obtain degrees in fields that are already beset by high levels of unemployment. So, as much as I love literature, theater and philosophy, given widespread budgetary woes, we should limiting the level of public subsidies offered to those who pursue studies in the these fields. In contrast economic logic dictates that if we must offer subsidies, we should direct them towards those who pursue an education in high demand fields such as medicine, mathematics, engineering, education, computer science, etc. But, the value of a cultured, thoughtful citizenry leads me to support a core, cultural curriculum (that includes literature, history, art & music) to all students regardless of their primary area of study.

On a cultural level, I wonder if general shifts in American culture towards instant gratification and the cult of self esteem, is a culprit in the failure of more students to pursue studies in the sciences. For most students, the rewards offered by scientific endeavors are not intrinsic and immediate, but are derived from the sense of achievement and mastery gained by solving an equation or a quandary. Discipline and the pursuit of education does not come natural to children or adults, it must be instilled by committed parents. And the failure of parents and teachers to do so has very real economic consequences. But, until the American people are able to produce more nurses, I will declare "maligayang pagdating sa Estados Unidos," which in Tagalog means "welcome to the United States."

Sunday, August 7, 2011

Republican Reductionism

It would seem that many Republicans have reduced the great, multifaceted vision of conservatism to a single commandment: thou shalt not raise taxes. While the growth of the debt has largely been driven by spending, it's solution must include revenue increases. To think that our fiscal ills can be cured with no pain and sacrifice is foolish enough to have come from the mind of a liberal.

Will Shock Therapy Be Necessary?

Anyone who has reviewed the hard numbers is aware that the current fiscal path of the United States is completely unsustainable and the surge in government debt and unfunded liabilities will either lead to bankruptcy or long term economic stagnation. In the second, more probably scenario, taxes will be substantially raised and a larger and larger portion of expenditures will be shifted away from discretionary programs (education, infrastructure, technological investment, defense, etc.) towards mandatory domestic spending (entitlements and pensions) and the servicing of debt (interest payments). This will place enormous burdens on an already beleaguered private sector and limit our capacity to invest in education and infrastructure. And almost certainly, the state will rely on inflationary measures to meet impossible financial promises, which history shows is fraught with economic hazards. Or, the nation can establish a sustainable fiscal path by substantially reevaluating and reforming the size, scope and priorities of the state. So, if the need for significant reform is so obvious, why has it not occurred? 

Over the long run, balancing the budget, eliminating subsidies and curbing entitlements would result in greater economic health for the nation, but at least in the short run, these measures would increase economic distress, which in a competitive political environment is impossible. Balancing the budget through deep spending cuts and tax hikes would certainly increase unemployment. Much needed reductions in military spending would further increase unemployment by diminishing the demand for goods and services produced by military based industries and decommissioning troops would increase the supply of labor. Ending the war on drugs would save us billions of dollars, but would result in a loss of the relatively high paying jobs that the incarceration industry provides and freed prisons would further expand the supply of labor. Eliminating agricultural subsidies would induce temporary pain for farmers, but would result in a more economically rational market. Gradually reducing subsidies (welfare) for single motherhood would cause distress, but over the long run would result in a reduction of costly social pathologies. Increasing educational subsidies, while decreasing welfare would provide incentives for workers to shift away from economic sector with a surplus of labor (i.e. low wages) towards ones with a high demand for labor (i.e. high wages). Curbing the supply of government subsidized undocumented labor would offer net savings to tax payers, but would impose significant costs on a myriad of industries. Some firms would shift to documented labor, others would invest in automation, while others would wither on the vine.
The most challenging reforms would address the expanded role of the federal reserve, because it would entail challenging deeply entrenched political and economic practices. More than anything allowing for true economic corrections, rather than maintaining a regimen of central planning, economic stimulus and inflation would be an indispensable step in reestablishing a sound economy and currency. For example, rather than seek to bolster the housing market and construction sector, the government could allow for organic market corrections to proceed. This would entail a gradual liquidation of bad debt, the rational reallocation of capital and labor and deflation that would synchronize housing prices with real, sustainable demand. And refusing to bail out moribund (but politically connected) firms, rather than allowing for their liquidation, would cause temporary distress, but re-establish market discipline and curtail nepotism. Contrary to popular narratives, most firms that become bankrupt through ill management do not disappear, but are rather bought up by more competent investors.

The most (seemingly) radical proposal would be to allow for market forces, rather than central planning to determine interests rates. Rather than maintain interests rates below inflation to spur unsustainable spending, market forces would drive up interest rates, providing incentives for a debt ridden public to increase their savings rate. When aggregate savings sufficiently increased the supply of available capital, market forces would drive down interest rates and create incentives for investment. This would simultaneously increase the demand for investment capital (loans), while temporarily limiting the incentives for savings. This would surely induce painful corrections across the economy, but over the long run would spare the American people from disastrous government created bubbles, booms and busts. More than anything, allowing for a shift away from over-consumption and debt towards saving, investing and production, would create a more sound and sustainable economy. For, it has become abundantly evident that a consumer, rather than a producer driven economy is not the path to long term prosperity.

All those who journey down unsustainable paths must sooner or later acquiesce to the need for change. The questions is not if, but rather in what manner will economic reform be pursued. A study of history shows that reform can be undertaken over time in a measured fashion or by shock therapy. In the former, forward thinking leaders directly confront fundamental economic ills and over time enact painful, but needed reform. In this scenario, the government is able to act with foresight, rather than react to increasingly destabilizing economic corrections. The best example is China; starting in 1978, Deng Xiaoping and more forward thinking factions of the communist party assessed that in the long run their economic path was unsustainable and began 30 years of gradual, yet significant economic reform. While the Chinese government merits harsh criticism for its abysmal human rights record, it has presided over a continuous economic boom that has raised the living standards of millions of its citizens and allowed it to become one of the main financiers of the American government's spending binge.

However, in most cases, a nation demonstrates an unwillingness to confront and reform unsustainable economic and fiscal paths. Rather than allow for needed market corrections and austerity measures, the government opts for expanded state intervention in the economy (stimulus measures, manipulation of interest rates, expansion of the money supply, etc.) which at best forestalls the inevitable. Eventually the day of reckoning arrives and the severity of the market distortions and the debt overwhelms the capacity of the state, forcing it to finally enact needed structural reforms. But, unlike its forward thinking compatriots, they do not have the luxury of pursuing proactive, measured reforms, rather they are forced to enact reactive, emergency measures. Owing to the swiftness and severity, such measures can be dubbed "shock therapy." The most prominent example is Chile. In 1973, Chile was ravaged by massive inflation (700%), huge government deficits and a shortage of basic goods and services. The military junta was faced with the choice of pursuing half measures that would at beast result in continued economic sickness or pursue bold economic reform. They chose the latter, they sharply reduced government spending, curtailed the money supply to bring inflation under control, privatized hemorrhaging state enterprises, eliminated subsidies, opened up Chile to foreign trade and investment, etc. This shock therapy resulted in an immediate rise in unemployment, a sharp drop in production and a decline in living standards. But, over time the reforms bore fruit and Chile is now the most stable, prosperous and least corrupt nation in Latin America. In contrast its neighbors that failed to undertake measured reforms or shock therapy now languish in relative economic and social malaise.

The Obama Administration's continued reliance on Keynesian (stimulus) measures leads me to conclude that they lack the insight or will to pursue measured structural reforms. I predict that we will only begin to seriously address our fundamental fiscal ills when our foreign creditors cut us off or substantially raise the cost of borrowing. Or, worse yet, when foreign governments abandon the dollar as the de-facto global currency. At that point we will be forced to react, most likely in the form of wide reaching economic, political and cultural shock therapy. While I dread this prospect, perhaps we have reached the point were only a significant shock will awaken us from our half century of statist somnolence and insatiable sense entitlement.

Reconsidering The Liberal Narrative On Crime

For at least half a century, the dominant narrative among liberals and large segments of American society is that criminal behavior is primarily a bi product of economic forces. So, it reasoned that that economic downturns increased crime, a belief which is not support by data. The NY Times had an interesting piece, Steady Decline in Major Crime Baffles Experts, which documented how crime has continued to drop, even in the face of a major recession and a surge in the jobless rate. NPR had a broader, article that looked at the history of crime rates in the United States and found that they actually declined during the Great Depression and increased during the economic boom of the 1950's and 1960's.

While experts continue to debate the cause of this phenomena, one thing is for certain, it casts serious doubt on the dominant liberal narrative. In Time Magazine, several theories are presented to explain declining crime, which focus on the evolution of crime prevention strategies, which I have listed below. But, according to Howard Bloom, the inverse relationship between crime and economic decline has occurred in many countries and cultures. In his absolutely fascinating work, the Lucifer Principle, he presents an explanation centered around sociobiologyevolutionary psychology and paleopsychology. Due to time constraints, I cannot undertake an exploration of his fascinating theories, so I highly recommend you read his works, they will encourage you to look at social and cultural phenomena from an entirely different perspective.

The Lockup Factor

In his book Why Crime Rates Fell, Tufts University sociologist John Conklin concluded that up to half of the improvement was due to a single factor: more people in prison. The U.S. prison population grew by more than half a million during the 1990s and continued to grow, although more slowly, in the next decade. Go back half a century: as sentencing became more lenient in the 1960s and '70s, the crime rate started to rise. When lawmakers responded to the crime wave by building prisons and mandating tough sentences, the number of prisoners increased and the number of crimes fell.

The Data-Processing Factor

"In interviews with police chiefs across the country, TIME heard the same story again and again. It is the saga of a revolution in law enforcement, a new way of battling the bad guys, and it begins, at least in some tellings, with a colorful New York City transit cop named Jack Maple. He worked the subways back when the city was averaging four, five, almost six murders a day, and even though the experts informed him that crime was inseparable from such "root causes" as poverty and despair, Maple developed a theory that the key cause was criminals. If police collected and analyzed enough data, they could figure out where the criminals liked to operate and when they tended to be there. VoilĂ : go there and arrest them, and crime would go down. Maple sold his boss, William Bratton, on the idea of data-driven policing, and when Bratton was promoted to police commissioner under New York City Mayor Rudolph Giuliani in 1994, his ideas went citywide. They evolved into CompStat, a real-time database of crime statistics and other intelligence useful for pinpointing trouble spots and targeting resources. CompStat put precinct captains and district commanders in the hot seat, and results followed. Crime plummeted. The city of fear became one of the safest major cities in America, and Commissioner Bratton landed on the cover of TIME."

The New Economy of Crime

Criminologists will tell you, however, that the tale of CompStat is not the whole story. New York City's crime rate actually began to drop a couple of years before Giuliani became mayor. And rates began falling in cities without CompStat at about the same time — though not as rapidly as in New York. For while police were changing tactics, the criminals were shifting gears too.

The high-crime hell of the 1980s and early '90s was a period of chaos in the illegal drug trade. Powder cocaine was generally measured and sold in multiple-dose amounts behind locked doors, but crack was relatively cheap and highly portable. Upstart young dealers saw an opening and shouldered their way into a business long dominated by established kingpins. Trading valuable drugs for ready cash in plain sight was a recipe for robbery and intimidation. Dealers armed themselves for protection, and soon every teenage squabble in crack territory carried a risk that bullets would fly.

From that low point, the drug business has settled down in most cities. Distribution is better organized. Crack use has fallen by perhaps 20%, according to UCLA criminal-justice expert Mark Kleiman, as younger users have turned against a drug that had devastated their neighborhoods. Opiates and marijuana are illegal, just like cocaine, but they don't turn users into paranoid, agitated, would-be supermen. "A heroin corner is a happy corner" where junkies quietly nod off, says David Simon, creator of the TV series The Wire, who used to cover cops for the Baltimore Sun.

Thursday, August 4, 2011

Elderly Parents As Tax Dependents

A basic understanding of accounting and shifting demographics makes it clear that social security will become insolvent. Or, the real value of the payments will be whittled away by inflation. Either way, fewer elderly individuals will be able to live off it. And in the bigger picture, the capacity of the state to care for a greying population, will significantly diminish and families will have to take up the slack. Allowing children to declare their elderly parents as dependents on their tax returns would provide incentives and the ability for more individuals to do so.

Monday, August 1, 2011

Anything But Country Music?

Pictured Above: The Great Hank Williams Sr

From my childhood through my college years I would ask friends and new acquaintances what music they enjoyed. The majority would answer "anything but country!" The underlying (and bigoted) assumption was that country music was for "hicks" and "rednecks." Until recently I shared these sentiments, but increasingly I have grown to love classical country, blue grass and folk music, which is musically and emotionally rich and lyrically down to earth. For my skeptical friends, I recommend that you check out Johnny Cash, Steve Earle, Patsy Montana, Hank Williams Sr, Bill MonroeLefty Frizzell, Clarence Ashley and Conway Twitty, just to name a few. And to my international readers, you will see that American Musical Culture has far more to offer than vulgar, corporate produced rock and rap, we have a rich and diverse tradition of folk music. Enjoy!