To be or not to be?

Through Hamlet, Shakespeare may be showing what he thinks makes a killer by illustrating the Prince of Denmark as a killer's antipathy. We know Hamlet is an educated man, he has gone to school for awhile His wiliness shows with his witty execution of Rosencrantz and Guildenstern. He clearly thinks things out from beginning to end, logically. It's his logic that allows him to second guess killing a person. He has ample opportunity to kill Claudius, but he hesitates. Hamlet would rather kill him when he's not praying. He finds a reason not to kill a person through reason. He even finds an excuse not to kill himself in his 'to be or not to be' soliloquy. He reasons that killing oneself is a great risk because he doesn't know what's coming afterward. He realizes the finality of death is too frightening to do it. The tragedy of Hamlet is the effects of his logic and reasoning causing him to hesitate. Each failed attempt at action has a natural consequence. Imagine if Hamlet would have dispatched Claudius during his phony prayer. Polonius probably would have lived; so would have Ophelia, Laertes, Gertrude and even Hamlet himself if he would have killed Claudius at that momemnt. Because of that hesitation to act, as many of us might have, there commences a terrible chain of events that costs many more lives than was necessary. It might be why we identify well with Hamlet. His hesitations are natural, but sometimes that hesitation comes with a steep price.
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Billions and Billions of Stars...

Last week I watched a fascinating documentary on Stanley Kubrick. Arthur C. Clarke was talking about Kubrick's 2001:A Space Odyssey. Something he said was thought-provoking that has really stuck with me, especially because I walk under the stars every night when I walk my dogs. Clarke said that behind every person was 30 ghosts. For every one human living there were 30 dead; this adds up to about 100-150 billion people who have ever walked the earth. That's about the same number as the stars in the sky. Clarke said, isn't it amazing that the Universe is so big that each person that has ever existed might have an entire world to themselves?

That's beyond my comprehension. If you really try and comprehend the sheer size of the Universe, you'll soon find it impossible. Our brains (as advanced as they are) do not have the ability to comprehend the vast size of our universe. To put it into context, the moon is about 500,000 miles away from earth. To travel around the Earth and end up at the same point, one must travel about 40,000 miles. The moon is more than ten times further than that distance, and that is the closest celestial body to our planet! The closest planet to Earth, Venus, is 25 million miles away. To travel 1 million miles on Earth, one would have to circle the planet nearly 30 times. To say we cannot comprehend the size of the universe is an understatement.

It is the most beautiful thing to look up in the sky at night and imagine where all those stars are. For all the shapes stars make in constellations, they are millions if not billions of miles away from each other. Such thoughts truly make me feel small, but it assures me that there is far more beyond this planet than most people bother to imagine. Next time you get the opportunity to look at the stars, see them and imagine the vastness of this universe. Even though we will never comprehend such size, it is an exercise enough to try.
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Money Supply Blues

As I hear more and more about this economic crisis, the pundits and politicians' voice begin to merge and it becomes a sort of white noise. There isn't much sense to be made out of most the reports, so as a statistician I prefer to look at data and see what the real story is. Data sometimes lies, but to be frank it lies a lot less than politicians and businessmen scrambling to keep their jobs. I went to the Bureau of Labor Statistics (BLS) website for some graphic interpretations of various economic data. As I had said back in March, the United States is in a recession, perhaps the worst in a very long time. But what does the data say about this? Inflation is currently at 3.7%, not much different from last year. The unemployment rate (6.7%) increases every month, but we're still nowhere near where we were in 1982 when the rate was around 10 percent. What really worries me is not the labor indicators, it's the monetary indicators. Check out the latest data and you will see what worries me.

In a little over a month the total money supply for Treasury and the Federal Reserve have sky-rocketed. This is the medicine that is supposed to soothe the credit markets. But at what cost? As Milton Friedman pointed out, inflation is always a monetary problem, how prescient. Some may say, so what? These are hard times that call for drastic measures. The cost of these drastic measures has been the potential implosion of the American government's credit-worthiness. To increase this money supply, debt must be sold, and interest paid to debt-holders. As this debt grows, it is nearly certain that the dollar will begin to lose its value. We saw this last year when the dollar plummeted against the Euro. This would change after Europe entered its own downturn, but the lesson remains. The danger of applying Keynesian economic theory is that in trying to breathe life into an economy one may end up destroying it instead.

One must ask during times such as these, how much government intervention is necessary to stave off disaster? Many people, including the insulated folks in DC, ponder this question as if it is abstract, and there are no real consequences to such tinkering. Much of this downturn can be attributed to overzealous tinkering in the housing market. If the government cannot take responsibility for their complicity in this matter, what makes you believe they have the wherewithal to fix it? We are witnessing the government solution, which is to print money. We are walking down a dangerous road, not unlike the 1930's. Government interference in economic markets exacerbated what could have been a severe recession and helped it become a depression. We have historical precedent, I can only hope that decision-makers will pay attention, but you'll pardon me if I doubt it.
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Shaking out of a funk

It has been so long since I've done this. I fear I might be rusty. I just thought I would come back and reread some of my old blogs. I was writing about the economic crisis in March and the housing crisis last December. Well, here I am a year later, and a year wiser. My writing style might have changed, I've been reading a lot of William Shakespeare lately, so don't be surprised if that shows up. I am coming out of a bit of a funk and I think writing may help pass the time and help revive my passion. It's funny but my therapy was listening to Shakespeare. I was able to put certain scenes of his plays on my Ipod. So I've taken to listening to pieces of his plays and watching them on the weekends. I have burned through so much in a relatively small amount of time.

I have seen or read in the past four months:
-Hamlet
-Henry V
-Othello
-Macbeth
-Richard III
-Julius Caesar
-Midsummer Night's Dream
-King Lear
-Romeo and Juliet
-Much Ado about nothing


I currently have in my Netflix Queue:
-Twelfth Night
-The Tempest
-The Girl Next Door (wrong queue)

Other than my more lascivious taste in Art (Girl Next Door Rocked!), I have really digested a lot of one artist. I don't even think I like this many of Mozart's pieces. Shakespeare is a genius with language and just sublime to listen to. I've even taking to memorizing verses of Shakespeare so I can recite it to myself. The characters are so relatable. Especially being depressed, I understood Hamlet better than I ever hoped to. His soliloquy on his own existence cuts to the core of every man who's ever been sad. My depression had a voice with Hamlet, my rage had a voice with Marc Antony, and my fantasy had a voice with Henry V's stirring speech at Agincourt. It really has been therapeutic...more than I could ever express if I had a thousand more words than the Bard himself. I hope to discuss a bit on each of the plays I've either read or seen. I absorbed a lot of Shakespeare so this might take awhile...
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Let's talk about poverty

So I see that John Edwards has finally hopped off the fence and picked a candidate. It seems like he was waiting for a winner to become apparent before making his endorsement. As I laid in bed, suffering through Edward's speech, my ears perked up when he mentioned poverty. The main reason he is supporting Barack Obama is because Obama plans to cut poverty in half within ten years. Those words seemed to echo of Lyndon Johnson's 'Great Society'. Those words sent shudders through my body; not because I favor poverty, but rather I fear the means used to eliminate that poverty. If there is one thing the state can never do, it is eliminate poverty.

Lyndon Johnson had good intentions when he proposed his war on poverty in the 1960s. America saw a great bloating in social programs, aimed at eliminating poverty. Welfare and Medicare are both prime examples of this farcical mission. Until the mid 1990s, Welfare payments were enough for a single mother to subsist. If someone is able to subsist at the teat of the government, then why work? Instead of lifting up someone's lot, the state guaranteed a permanent underclass by paying people simply for being poor.

Whenever I hear of a politician speak about eliminating poverty, I just shake my head. The state replacing a free market in allocating capital is bound for failure. It's what we saw with Welfare, and it most certainly is what we will see with Social Security. These are all bloated programs that are aimed at eliminating poverty. The only way for poverty to truly be reduced is through growth in private business.

The state has tried to hire people for make-work projects (Tennessee Valley Authority) and they've tried paying them for doing nothing (Welfare). Programs that aim to eliminate poverty only end up perpetuating poverty. It's no wonder that the times where we see poverty decrease is through real income rises, due to higher demand for labor. If business is growing, they need more hands to help them grow. The more they grow, the higher wages that business will pay for labor. Business growth will always do more in alleviating poverty than either John Edwards or Barack Obama can ever imagine. I'll just keep my fingers crossed, and hope the next president doesn't repeat the mistakes of FDR or Lyndon Johnson.
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Red Queen

Since I've been sick these last couple days, sitting still in my bed, my mind has been busy at work while my body refuses. Being sick reminded me of a book I read about a year ago, called Red Queen: Evolution in Human Nature. It's about this constant race that humans have with bacteria and viruses. Our immune systems and viruses are constant adapting to do battle. A virus will evolve constantly until it can find a host. That host must adapt and evolve as well if they hope to beat the virus and return to good health. The author uses Lewis Carroll's character, The Red Queen, as a metaphor for this constant struggle. No matter how fast or long the Red Queen runs, she is always in the same place. It's an effective metaphor because the balance between human and microbes is ever-fragile. Each holding the keys to each other's destruction, yet never quite able to finish the job. This stuff is normally fascinating to me, but being sick gives me a chance to witness the exchange first hand.

My immune system is now struggling to defeat whatever internal infection I have. It could be bacteria or a virus. Either way, something is multiplying exponentially inside me. While the microbe multiplies, my immune system is busy not only trying to defeat the invader but also make copies for later. That microbe will never be able to penetrate again, even though it doesn't do much good. At the rate of reproduction, a virus can easily multiply thousands if not millions in a few days. Each of those viruses are different genetically, each hoping to find a host in which to replicate some more. Inside me, a battle is raging. My immune system will probably win out, but whatever I have will live on many generations. In the end, the microbes will win. They lose so many battes, but in the end they will win the war.

Evolution is always fascinating. Knowing that everything is always changing around us is stunning. We are always changing, but never really going anywhere. Our balance is at best tenous, and anything can happen at any time. It adds value to a world than many take for granted. The more I learn about little things like this, the more insignificant I feel. But it's not a bad insignificance. Even the most famous people of our time will be gone in a few hundred years as generations slowly forget. Being insignificant reminds me that everything continues on, whether anyone's here or not.
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How the mighty can fall

I know in this blog I've usually stuck to economics and politics. They usually dominate my reading, but I still read sports religiously as well. Growing up in Denver, I've always followed all Colorado sports as well as the national sports scene. As I grow older I look back at a lot of events with a different perspective. As analytical skills grow, you start to see things in sports that you didn't see as a kid. One example I can think of was in 1990, when Buster Douglas knocked out Mike Tyson.

I remember when it happened, everyone was speechless. It was unreal. This bruiser had been knocking people out left and right. He had so much going for him, I'm sure some were ready to put him in the company of Ali, Robinson, Marciano, etc. Then that night in Tokyo, Mike Tyson's Heel was laid bare for all opponents to see. The knockout showed what Tyson's life would be like from then on. He was sent to jail for rape shortly after and the downward spiral continued. Now twice a felon, Tyson lost his last fight to Kevin McBride right here in DC in 2005. How the mighty have fallen.

By the time Mike Tyson was knocked out in Tokyo, his fall had been well underway. I believe his downfall can be traced back to his trainer's death in late 1985. Cus D'Amato had helped Tyson turn his life around after ending up in Reform School as a teen. D'Amato trained Tyson, and was much like a father figure to Tyson. When D'Amato died, it was right as Tyson was ascending to great stardom. The man who had looked out for Tyson's best interests was gone, and the jackals were free to feast. For four years before the Tokyo fight, Tyson had not been trained to contend. Many sports historians will say, and I agree, that Tyson was still very raw.

The years he was knocking every one out, he only had one strategy: knock the other guy out. For those amateur and early professional years, that worked. For "tomato cans" and "has-beens," Tyson was a formitable force. Most were unable to withstand his early flurries of jabs, hooks, and upper-cuts. For those who could, they were so busy guarding that they were unable to mount any offense. Once he fought someone who could take his early punishment, and punch back, Tyson was in deep trouble.

As Tyson lay on the mat, hardly able to see with one eye almost closed, he must have been so confused. No one had ever been able to box with Tyson. Buster Douglas exposed Tyson's lack of defense, his unpreparedness, and his lax attitude. Tyson's training for that fight had been cursory. He obviously had not prepared for the fight, his trainers were sycophants. Tyson simply had no answer for Douglas' night of near-perfect boxing. Douglas continuously corned Tyson, jabbed precisely, and kept Tyson's flurries ineffective with his long reach. Although Tyson knocked Douglas down early, the whole fight belonged to Douglas. What Buster Douglas showed every Tyson opponent in the future was that Mike Tyson was a one-dimensional fighter. Tyson lacked the training support to teach the young fighter good defense and endurance. Training support that formerly came from Cus D'Amato.


The lesson of this downfall exposes a great truth in sports. Get better or get passed. The "Iron Mike" Tyson era lasted only as long as fighters feared him. He never received the guidance and direction needed to go beyond bully. Tyson never adapted, and he never recovered after that fight. Sports will always amplify an athlete's weakness. Most of the time the obselete athlete leaves the sport forcefully. It is the rarest of athletes, like Michael Jordan, John Elway or Ted Williams, who lose some physical gift, but yet somehow stay great in their sport. Mike Tyson never had what these athletes had, once he was exposed, he was never the same. His fury was usually weathered and Tyson would end up losing, either by knockout, TKO, or a decision. At least his story reveals what can happen to all of us in life when our specialty becomes obselete. Only those who can adapt will succeed, the ones who can't become obselete and sink. As true it is in sport, so too is it in life.
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To Protect and Delay

I've been meaning to complain about something that I feel does little good: speedtraps. I don't drive very much, but I do take the bus home from work every day. Today traffic was especially horrendous, some may chalk it up to regular DC Metro area traffic, but I saw something else. Three or four police cruisers were pulling over vehicles for assorted offenses; they were writing the tickets as the bus slowly crept by. As I watched those patrol officers doing their job, I had to think: is this necessary? Is it possible that this speed trap, which has all the best intentions, actually making traffic worse? How does one weigh the supposed greater good versus efficiency of traffic? Anyone who knows me knows the answer to that question, especially when the greater good being served is not clear at all.

I believe that those police officers are actually making more traffic simply by being there. Everyone knows that driving behavior changes when the boys in blue are out. Suddenly everyone's hands are at ten and two, their seatbelts are quickly clasped and most importantly, they slow down to or below the speed limit. I'm all for safety, but sudden slowdowns caused by traffic police presence is not for the greater good. What happens is a giant accordion effect, like a catepillar contracting before expanding. Traffic all slows down, and the effect trickles further and further back. Before you know it, the police have caused far more traffic by simply being present than if they were not.

There are other ways to monitor driving behavior, like cameras and sensors. In Germany, the police would put a radar in the back of a beat up van, pulled over on the side of the road snapping pictures and speeds of passing drivers. These unintrusive devices can ensure a steady flow of traffic while satisfying the need to catch speeders. I simply argue that a police officer's presence during an already congested rush hour is more harmful than good. Traffic inevitably slows, making congestion that much worse. Are the few speeders caught worth the headache that the police cause simply by being present?
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And the race drags on...

This week's Economist.com KAL cartoon.


As you might have heard, Hillary Clinton won Pennsylvania on Tuesday. I was hoping for her to lose so that this race could be over. So, that didn't happen. Instead she's still in the race, brandishing her unique brand of populism. Chris Matthews suggested that Obama be more of a "firebrand" and a "torch-bearer" speaking for the working man. It really made me think about the contrast of this race. If you know some political science, then you know that the bulk of the voters are in the center. On the extreme left and extreme right are the minority. Most of the time the one who becomes elected President is the one most successful in collecting the majority of the center (moderates). But, this isn't so in these Primaries, why not?.

It seems that both Hillary Clinton and Barack Obama used to be far more center than they are today. Perhaps it was their centrist appeal that made them each "inevitable," albeit it at different times. Hillary was unstoppable when she declared her candidacy in 2006. How far she has fallen. Barack Obama seemed inevitable after a decisive Wisconsin vote, remember? Then a shellacking in Ohio, Texas(popular vote) and lately, Pennsylvania. It seems they've each flown from the center to the left. It seems the longer this race goes on, the more populist it becomes.

Look at the key issues, Universal Health Care, the Economy and good ole fashioned gossip! Each of these issues offers a vision for a better tomorrow, what they fail to mention is the cost. Populist sermons tend to leave out those pesky details. But who really cares about that when we hear that someone's preacher gave a bad sermon, or that someone conjured up memories of past battle in Bosnia? This is what the race has come down to: who can appeal most to both a populist media (Thank you Glenn Beck, Chris Matthews and Lou Dobbs), and a blue-collar worker who just lost his job. This is a recipe for some government intevention. That is why Hillary Clinton will be the next FDR.

Social Programs, Price Controls (she proposed them in her previous medical care plan in 1994), and so on can be relied upon if she is elected. She will have a friendly congress, she will probably have a friendly majority. Spend, Spend, Spend. Historically, this has gotten us into big trouble. We're just coming off a spending Republican Congress and President. In with a spending Democrat? I may not like either candidate right now, but I can't see Hillary as president, it's a scary proposition. I just hope the one who is the least left wins. Democrat or Republican, our economy will thank you in the end.
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Please don't politicize the Olympics

Anyone who has been following the news this week knows that the Olympic torch relay, which precedes the Olympic games is under way. You may also know that that relay has been fraught with interruptions, protests and lots of grand-standing. The subject of all this distress is China's treatment of Tibet, a small region that most Americans would have trouble finding on a map. It is true that China has been represssing Tibet for over 50 years now, and it is true that they are heavy-handed in dealing with the small Himalayan region, but my question is what does this have to do with the Olympics? I understand that the Olympic Games cast the host city into a limelight, but that doesn't mean they need to be politicized. The Olympics are supposed to be beyond politics, Hu Jintao won't be throwing the javelin, Nicholas Sarkoszy won't be running the 100m dash, and George Bush and Vladimir Putin won't be involved in synchronized swimming this summer. These world leaders have nothing to do with the Olympic Games, it should stay that way. I truly hope, for the athletes sake, that this doesn't turn into the 1980 and 1984 Summer Olympics.

In 1980, Jimmy Carter believed it to be the duty of the United States to boycott the Olympics in Moscow to protest the Soviet's invasion of Afghanistan. Sixty-two other countries joined in this protest. The Soviets retaliated by boycotting the Los Angeles Games in 1984. Political posturing won the day, but it was the athletes who lost. These athletes trained their entire lives to compete against the best in the Olympics. They gave their proverbial blood, sweat and tears to get to compete, and they could not. Why? Because their home country didn't like the politics of another's.

Politics and Policy have their time and their place. Every day, there is some speech by some politician, either applauding or decrying some country's foreign or domestic policy. That opinion can change from day to day, as politicians are notorious for this activity. The summer of 2008 will come and go, and eventually the world will again forget about Tibet, as they have for the last half-century. But, if we boycott the Olympics for that purpose, what have we gained? A headline today and a Wikipedia article tomorrow, not much else. All these athletes who have worked all their life for the opportunity to compete on the world stage, they will lose. For many, this is their only chance to compete. Politics and the Olympic Games should not mix. The world leaders can say what they want, they always do, but leave the games to the athletes.
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Africa and the Lessons of the American Revolution

What was the greatest test of the American Revolution? Was it when the signers of the Declaration of Independence sealed their document and watched it sail toward England, knowing what they had started? Or was it when the Articles of Confederation were determined to be inadequate as a governing document, and a new Constitution was needed? Perhaps it was all those bloody battles during the Revolutionary War, where men suffered from malnutrition and hypothermia, ready to quit. Though each of these events are considered important to the Revolution, they were not the greatest test. The greatest test was in 1800. Long after the Constitution had been ratified and George Washington had served his two terms as this nation's first President. John Adams had just lost the Presidential Election of 1800 to Thomas Jefferson. When John Adams ceded power to his political rival, I believe that to be the cementing of the greatness of the American Revolution. It would be a lesson that some current African leaders would be keen to heed; losing an election may be hard, but relinquishing control can be the greatest gift an ousted leader can give.

When George Washington died in 1799, the Federalist Party was in deep trouble. They had lost their uniter, and thus were destined to lose power. John Adams lost a hard fought election to a most bitter rival, Thomas Jefferson. It could have been so easy for Adams to turn his back on the system of government he himself had fought so hard for decades before. It most certainly would have been the end of the American Revolution if John Adams had ignored the will of the electors. It would not have been the first time a leader refused to acknowledge the will of the people. Kings and Queens had been doing it for centuries, why should the Americans be any different? John Adams, of course did not betray America, and handed the keys of power to his opponent. This changeover set the standard for this country to follow long after Adams died in 1826. It is this lesson that two recent African leaders have chosen to ignore at their own countries' peril.

This past December, Kenyan President Mwai Kibaki seemed to have lost an election to his rival, Raila Odinga. Allegations of ballot-stuffing and vote-fixing tarnished both sides of the election, and Kenya descended into chaos. Kibaki showed just how difficult it can be for a leader to heed the will of an election. He had stymied his country's growth and lost his bid for the Presidency. Instead of ceding power, he clung to it, ensuring the near-destruction of his own country. More recently, Robert Mugabe of Zimbabwe seems to have lost his latest bid to remain President. So far, there has not been violence on the scale of Kenya, but nothing is concluded yet. After nearly 30 years of power, Mugabe has nearly destroyed his country with 100,000%inflation, astronomical unemployment, and an administration frought with corruption. It appears that his time is at an end, but will he leave?

John Adams did more for his country by leaving than will ever be acknowledged in the history books. His presidency was marred by the Alien and Sedition Act as well as a near war with France. Power is not an easy thing to release, just ask Fidel Castro. Next January will be a lesson for the American people as President Bush will hand power over to most likely a political opponent. Change is necessary to correct the ills of the past and guide a new future. Kenya lost that opportunity in December, Zimbabwe will likely miss theirs, thankfully we will not miss ours. Good governance does not just mean just laws, and a working legal system. It can also mean leaving when your time is up. That is the unsung legacy that John Adams gave to the Revolution in 1801.
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How the government can help

As many people may know, the Fed has changed its long-standing policy of being the lender of last resort only to regulated-commercial banks. This turn became apparent with the backed rescue of Bear Stearns two weeks ago. They have provided the credit market with liquidity and has done its job of making sure the credit markets don't completely collapse, along with any consumer confidence in the markets. But what of the housing market? Is there anything the government can do to facilitate the recovery of the housing market? We read of Hillary Clinton's call for the government to buy up sub-prime mortgages and Barack Obama's call for additional stimulus money (about $30 billion last I heard). Most approaches from the fiscal side embraces the idea of the state solving the problem. I propose that they not solve the problem per se, but do their part to allow the market to solve the problem itself. What I speak of is the real estate short sale and what the government can do to facilitate them.

A short sale is when a homeowner sells his or her house for less than what they owe on the house. This leaves a remainder for the houseowner to pay. In a short sale, the bank can agree to forgive the remaining debt on the mortgage basically in exchange for the home being sold. The down side of this deal is that the difference between the selling price and the mortgage debt is taxable income. In some markets, houses are losing hundreds of thousands of dollars in value. That is a lot of money to be added on someone's tax return as income. So much so in fact, that homeowners may still choose bankruptcy or foreclosure because they cannot afford this loss. This is where the government can help.

A well-regulated fiscal policy by the US government can forgive that loss through legislated tax policy. The government through its tax policy can facilitate short sales all over the country. If that loss is not counted as income, then this may lubricate the market better than any liquidity policy by the Federal Reserve.

This will revive the real estate market in several ways. First, it will allow buyers to enter the market again through short sales. Banks, needing better collateral to loan again, will have a lower price to loan a potential buyer. A lower price means a higher likelihood of having the 10-20% down on a new home. The mortgage market can move away from the fast-cash, no collateral, interest-only ways toward a more stable credit market with buyers with better credit. Second, this prevents the banks from taking on countless assets on their balance sheet through foreclosure, which will be sold at a loss anyway. Why not take that loss upfront, with someone not only still occupying the house, but still paying a mortgage? It may be less, but it is a lot more than if the bank was forced to bear the costs of foreclosure. Lastly, it will guide the housing market toward a more natural equilibrium. No one can argue that the housing market was inflated by the time of this downturn. A downward correction is needed, encouraging short sales will facilitate this correction.

If the government regulates these short sales to prevent misuse and fraud (and this is a big IF), then tax-forgiveness can be the lubrication the real estate market needs to move toward stability. A poorly regulated financial market, facilitated by the Fed's cheap money policy from 2001 to 2007 caused a white hot rise in real estate prices. They are coming down, and some argue they have further to fall. Now, this can be an absymal crash or it can be guided landing. The government has the fiscal authority to change tax law. Forgiving this mortgage debt is how the state can help. It is a minimal intervention, but it can have maximum effectiveness if it is done soon. The state will intervene at some point, let's just hope it is with the feather touch and not the iron fist. We may all lose in the end if that fist comes crashing down.
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1929 all over again?

As anyone reading this blog may realize, my eyes have turned on to this country's current economic crisis. I've been seeing a few news articles that suggest that this recent turmoil in the financial markets is dangerously similar to the crash that occurred in October 1929. When historians remember the Great Depression, they point at one moment as the turning point: Black Friday. Normally, the way it is read is that of some kind of cause; what most may not realize is that Black Friday was an effect. We would be wise to remember the lessons of 1929-1930. If we do, then we will see that today's problems are not that of the Great Depression, at least not yet.

A myth, propagated by the likes of J.K. Galbraith, blame the crash of 1929 on impetous investment and an immature margin system. Too many people bought too much stock with credit, and a chain reaction of margin calls sent the stock market into a downward spiral that caused the Great Depression. Though the stock market did in fact crash, this was a response to government legislation, not irrational investing. The legislation I refer to is the Smoot-Hawley Tariff of 1930 which sliced this country's imports in half, nearly overnight. An Act that spurred retaliation tariffs from other countries and ground international trade to a virtual halt. The crash of 1929 was in response to the likelihood that Herbert Hoover was going to sign the Tariff into law. Investors were not irrational as some would believe. They knew what was coming, and a massive sell-off was the result. This sell-off culminated on Black Friday. This sell-off was the result of a government's attempt to heal an economy by restricting international trade. It was the greatest backfire in this country's history.

There are similarities between today's markets and those of the late 1920's. The tariff was passed in response to a recession in 1929. A recession that occurred as countries were still healing from the First World War. Our government tried to "fix" our economy and ended up destroying it instead. What will we do now that our economy has faltered? Xenophobic rage is boiling up again, with hatred for China, India and other countries that have "stolen" our prosperity. Will we again try to block international trade in response to a recession? It could happen. Listen to today's rhetoric, especially from the Democrats. Free trade is the cure to this mess not the disease. The lessons from history are laid bare for all to see, do not ignore it; for a wise man once said those who ignore history are bound to repeat it.
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Why buy American?

If anyone is unaware, let me be the first to let you know that this economy is, in fact, in a recession. Now that is not official, but last month private industry shed over 100,000 jobs. There should be little doubt at this point that our economy is shrinking. But, what does this mean? Besides the obvious fact that many Americans are now out of work, or looking for work, there is the predictable backlash against some scapegoat. Our economic woes aren't our fault, they must be someone else's. I recently received this email that perfectly illustrates what I'm talking about:

As you may have heard the Bush Administration said each and every one of us would now get a nice rebate. If we spend that money at Wal-Mart, all the money will go to China. If we spend it on gasoline it will all go to the Arabs, if we purchase a computer it will all go to India, if we purchase fruit and vegetables it will all go to Mexico, Honduras, and Guatemala, if we purchase a good car it will all go to Japan, if we purchase useless crap it will all go to Taiwan and none of it will help the American economy.

We need to keep that money here in America, so the only way to keep that money here at home is to buy beer, since those are the only businesses still in the US.

What these statements show is a sign of the times, and a shallow knowledge of economics and trade. It is short-sighted to assume that since we buy something from somewhere, that money is gone and we are at some net loss. We are living in a global economy, and America is losing its status as the powerhouse. I imagine that upsets a lot of people. I guess many Americans believe that we should be manufacturing goods, and if we are not, then we are somehow worse off. There is a reason we get all these products from the abovenamed places. They are less expensive! We are buying these products at a lower price than what can be produced here, and we end up with more money in our pocket to spend on something else. We have a net gain! We are better off, why can't anyone see this?

Buying our products at lower prices not only helps consumers, but it also spawns new industries. There is a reason why sales is one of the hottest jobs today. Someone has to package and distribute all these foreign products in America. Who do you think does all this? Americans! Jobs are also created by international trade. For the last ten or so years, we have been trading with these international partners. I didn't hear people complaining then. Only now, after our own housing market and financial industries have collapsed do we turn to the foreign monster.

It is time that we move on from this pointless xenophobia. International trade is a boon to all who participate. Shift can sometimes be painful, as many Americans are noticing, but new jobs and new industries come from this shift. New opportunities will come. Trying to persuade an otherwise ignorant consumer to buy American simply for the fact that it is American is a great way to ensure that this recession continues. You want them to spend more money than they did yesterday for a product because of where it is made? If a product is good, then buy it, it doesn't matter where it comes from. A prosperous global economy makes the world better off and in the long run it will make America better off. Look past the foreign-bashing, and you will see that.
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Why Keynesian Economics won't end this

I've written on the ideas of why Keynesian economics does not work in the past. Simply put, an unproductive government cannot be trusted to make better decisions with people's money than they themselves. The saddest thing is that voices like this are being drowned in a sea of populist economics.

Since the time of FDR and the disastrous policies of the New Deal, governments have been trying to ease economic woe with policies fraught with unintended consequences. We've already seen the first strike from fiscal policy. The Congress and President made record time in passing legislation giving everyone in the country a tax rebate check. This reeks of political posturing in an election year. That check will do as much for the economy as attempting to put out a forest fire with a squirt-gun. But, this is the playbook for economic downturns. Encourage consumption through either government programs (WIC, Welfare, Social Security, etc.) or through direct payment (rebate checks). These programs will do nothing to consumption in the long-run, even in the short-run its effects are questionable.

It appears to me that this economy is undergoing a general deflation from an artificial inflation. Two examples lend credence to this idea. First, the housing market. Thanks to the Fed's cheap money policy and perverse economic incentives, housing prices skyrocketed far past anything that can be attributed to a rise in value. People with awful credit were allowed to take out hundreds of thousands of dollars in loans and credit. Even some with reasonable credit dove in over their heads. Now the market is shrinking, there will be a lot of casualties.

But what about the weakening dollar? Through this government's excessive and destructive spending on credit, the dollar became very strong through foreign investment. The dollar kept its status as long as our economy was strong. Now that the economy has turned, those investments aren't so great. That investment is starting to wane, and this is showing up in the flight to commodities (ahem, gold and oil). If the government sticks by its Keynesian guns and tries to spend its way out this, then you can expect even bigger problems than we have today.

An unbridled government spending spree will weaken the dollar even more. This means higher oil prices (oil price is tied to the dollar), as well as higher overall prices, since cheapness in exports will have been washed away in a high exchange rate. Remember, there are consequences to unwise spending. We found that out in the 1930s with the depression, in the 1970s with inflation and gas lines, and today with both a crumbling housing market and a freefalling dollar. Unless the government reins in spending (through perhaps a Balanced Budget Amendment), we can expect to see a lot more widespread suffering, as the State tries to "fix" this problem. Unlikely, but we can always hope though, can't we?
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Chilun gettin dem Edications?

For most who know much about our public school system, they should know not how good or bad it is, but rather how inconsistent it is. As a student in the Cherry Creek School district in Aurora, Colorado, I've seen how good a public school can be. It doesn't hurt that the school is in a very affluent area which pads tax revenues. This allows the school to hire better teachers, offer better books and overall a better curriculum. For me, it allowed me to get a leg up on thousands of other American students, like my wife who attended a less presitigious school. In Miami, less prestigious means schools like those in the movies "Dangerous Minds," or "Stand and Deliver." Places where survival was not always assured, much less an education.

In Miami, the tax revenue is far less than some affluent neighborhood in Colorado. My wife tells me stories of classrooms not having enough desks or books. Students would have to sit on chairs and balance their notepads and books on their laps. Although I know one example does not make a trend, I've heard about the general dilapidation of school systems all over the country, especially here in D.C. A strong teacher's union, with low tax revenues makes for one shitty school system. A school system that has claimed countless administrators in trying to fix it. I believe this inefficiency lies in the fact that schooling is administered by the government.

But why would I say the government makes inefficient school systems? It is very simple. It all goes back to the idea that in trying to do everything, nothing is done well. This is just as true in schooling. I believe a more specified system would do better for the individual student and his or her parents. If parents were allowed to choose a school for their child the same way they choose their children's food, clothing, etc., then they would be better able to choose the best school and indirectly the best future for their child. Please don't be fooled, most parents do want what's best for their children, despite what seems like constant news of child abuse. Horrible parents are outliers, otherwise they would be more common and far less horrifying.

Giving parents the ability to choose schools allows schools to compete for that choice. This gives schools the incentive to provide better books, hire the best teachers and offer a competitive curriculum that will provide for a child's future. A private school can have just as much scrutiny as any public school. An example that relates is the rating companies for the stock market. The same can be done with schools. This would help parents make the right choice for their children. What's better, this would lead to an entire industry opening up in the economy. Tax money would go back to the taxpayer, some of which would go toward tuition.

I know this could be a lot longer argument and that I've forgotten or glossed over a lot. The idea is still valid though. Providing for children's future is not a government's job, it is a parent's. Giving them the opportunity to provide the best education is the best thing any state can do for its constituents. It makes an economy more productive and gives children the best tools to compete in an ever-shifting world.
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Cry Havoc, Please!

I just don't get it. Especially after seeing Tuesday's primary results, I am even more confounded. This truly is the election that won't die! I asked in my last entry if Obama would strike while Clinton was ready to fall. The answer? An infallible no! It would appear as though Obama really is a lolligager who can't come up with the right formula to deliver a game-ending shot. Instead, it was Hillary Clinton who delivered the precise blow. Back-room deals with Canada, unanswered questions about slumlords seems to have rocked Barack Obama from his hope pedestal. It would appear as though both candidates are ready for a romp in the mud. Indeed, if Obama wants to survive and win this nomination, he has little choice.

What I don't understand is that I, as a relative policital neophyte, see glaring omissions or inconsistencies in Clinton's arguments for her presidency. Why doesn't everyone else? It seems the media broadcasts these concerns hourly, yet no one hears. Am I just taking crazy pills, or has the world gone topsy-turvy? Number one, what experience is this that she is flaunting so wildly? She is in her second term as a junior senator from New York. That is her only elected position! Experience? I'm sorry, but First Lady does not count. You had sex with the President, fantastic. Apparently, so did a few other ladies (allegedly). Number two, she's horribly inconsistent with her message. Now she's against NAFTA? Come on everybody, let's take a timeout from trade? What does that even mean? I thought it was abundantly clear in her book that it was a 'great success,' what gives? Lastly, she is about as transparent as a lump of coal. Her income, or more accurately her sources of income have become a state secret. One of the themes of this election has been a movement toward government accountability, and that begins with transparency.

Last I checked Obama is from the Chicago school of politics, which I read today handles politics 'with a crowbar.' It would behoove Mr. Obama to break this woman down, now that he has been struck with the proverbial kitchen sink. I'm sorry, but now's the time to expose Hillary Clinton for the ever-shifter that she is. To do otherwise would be to let this country slip back into business as usual, extinguishing any hope of a better future.
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Political Judo Flip

I was listening to Keith Olbermann on my daily walk home, and listened as Olbermann described the last Clinton-Obama debate. He used the term "political jujitsu"(I'm not kidding). He used phrases such as striking your opponent when they least expect it and letting your opponent strike you and use that momentum to gain control. As I didn't see the debate I saw in my head Obama and Clinton not debating politely on serious issues, but rather fighting in Mortal Kombat.

I suppose this primary is much like the end of well-matched fight in Mortal Kombat. Hillary Clinton is the dizzy, defeated fighter. She whirls around aimlessly as the program demands "Finish Her!" I guess after Tuesday we'll know what Obama did. Did he lolligag and lose the fight, or did he pull out her spine (or some other cool finishing move), and hear the words, "You Win Rayden, er..I mean Obama." I guess you can just call it...Political Ninjitsu! *POW*
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Terrorists in the Senate!

What kind of terrorist is this?

A terrifying terrorist! Are you terrified?



How about now?


BOO!


No, it's not John McCain...It's Achmed, The Dead Terrorist. With all these terrorists running around our Senate, who knows, perhaps he'll run for President too!
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Human Behavior in a Free Market

I just read an article that says that 45 percent of economists believe that we are headed for a recession, the other 55 don't believe that we will have a recession, more of a "relatively muted" downturn. I suppose most people would read this and wipe that sweat from their brow and say phew! that was close. I remain my ever-cynical self though. The worst part about this report is to know whether these future predictions will come true. They could be absolutely correct, but they could be absolutely wrong.

The reason I say this is in the name of praxeology (study of human behavior). To try and predict what millions of people are going to do tomorrow is impossible, even with a copious amount of data. What that data indicates is the past performance, which is no indicator of the future. Data analysis, especially in economics, is sketchy at best. The best that economic indicators can do is say, "if all things remain the same, this curve can predict the future." What economic analysis cannot predict, no matter how hard they try, is the anomaly of shocks. These can be as small as a new trend pushing the market in an unexpected direction or as large as planes flying into buildings, precipitating what was a simmering recession in 2001.

Who could have predicted in July, that in August we would see the beginnings of the latest credit crunch? What about a Hurricane that would destroy much of the city of New Orleans? Who could have predicted in August 2001 that one month later this country would suffer the worst terrorist attack in its history? It is shocks like these that make economic prediction at best an expensive preoccupation and at worst a horribile misguidance.

The beauty of the free market is the sheer inability for anyone to predict collective action in any reliable way. Just look at the stock market. With all our technology and brain-power, we still can't figure out when those shocks are going to occur, and which way a company's value is going to go from day to day, much less from year to year. Don't be taken so quickly by economists' prediction, the free market is not so easily lassoed.
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Why Nerds will Always Win

Recently, there was a book review in The Economist about nerds and why they are important. It brought up some good points about "nerds" and "jocks." One point was that it was essential that the ones people call "nerds" know that as time goes by, things do get easier. As a nerd myself, this would have been nice information to have as I suffered the slings and arrows of childhood ridicule. I do realize that now that I am probably better off than most of those kids who focused their attention on breaking down others rather than studying and bettering themselves. Most importantly, I realized that the statement that things get better with time is inevitable. Nerds will always overcome. Why? Because of their big brains, and I think I can prove it.

When comparing jocks and nerds, one notices the most obvious difference: physicality. In high school and sometimes in college, jocks will push around the nerds, for a variety of reasons. The reasons do not matter, what matters is that jocks will lose their greatest gift far sooner than nerds ever will. Physical strength and prowess inevitably fade with time. Strength increases, peaks and then declines. It is the destiny of all who rest all their mantel on physical ability. Even the greatest of athletes are lucky to have their abilities past age 35. The average career in the NFL, which houses some of the most physically fit athletes, is a paltry five years. What then? What happens after the glory of athleticism fades? What is the fate of those who pushed others around, what is the fate of the bully?

When watching "Bowling for Columbine," (which I absolutely despised) Michael Moore was interviewing Matt Stone from "South Park" fame. Although the movie itself was better suited as a frisbee than a real documentary, Stone said something profound enough for me to remember after most of that drivol faded away. To paraphrase, he said if only there was some way to tell these kids (when discussing the Columbine massacre) that there is so much more after high school and those who ridiculed them would be in the same town in 20 years selling insurance, there wouldn't be so many shootings at these schools. I'm at a point in my life where I can really say that is true. While jocks and ridiculers' talents fade, the brain and intelligence will increase as long as you're learning. That's why nerds will always win.

As their strength fades, ours grows. At some point in everyone's life, they will have to depend on their brains more than their brawn. For those who have not honed their learning skills, and focused only on destroying others, the time will come when they will have to use their intelligence. If there is none, then Matt Stone is right, in 20 years they'll be managing a fast-food restaurant or selling insurance. Always know, what goes around comes around and those who gave it will always get it in the end.
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51% No More

Last night, I saw Jon Stewart on Larry King Live. He said something that seems to resonate through this primary season and probably through November when we annoint the new president. He was dwelling on what was so wrong with the Bush administration and the way it governed. I will have to paraphrase, so please pardon me if there are any errors.

Stewart had said that both George Bush and Dick Cheney were looking for a "51% government," in other words, ruling for the constituency and no one else. When this is considered, he doesn't seem to be too far from the truth. We saw Republicans blatantly turn their back on their principles from 2000 to 2006 when they were punished by losing their seats in both houses. I seem to remember the conservative appeal of small government and fiscal responsibility. I suppose these were great ideals until the Republicans held both the presidency and the majority vote in Congress.

We saw a surplus in 2000 go to an over $9 trillion dollar debt today (check out the progress). Fiscal responsibility? Last I checked, spending on credit (at least to this ridiculous extreme) is not responsible. It's about as irresponsible as I can imagine.

What about that small government, libertarian-minded ideal that was touted so hard through the Reagan years? Does anyone remember the Department of Homeland Security? To make something smaller, you normally shrink it, right? Maybe I'm confused, but adding an entire department to the government doesn't make it smaller, or does it? I don't know.

The appeal of the prospective candidates, Obama and McCain is their willingness to turn their back on party politics for the greater good. To be fair, this has been shown more for John McCain than for Barack Obama. What has impressed me about both men is their ability to listen to both sides and make a wise decision. The polarity we see today is not a result of listening to both sides and making wise decisions. This country can only move forward when reason and flexibility are traits of our head of state. Thankfully, with either candidate, we can say that that is true, at least in 2009 it will be.
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The Broken Paradigm

As I watch these Democratic primaries, much like a housewife watches her soaps, the drama continues. Unfortunately, it looks like this drama is beginning to end. I read in Reuters that now Sen. Clinton is "ridiculing" Obama as all talk and no substance. She's posted attack ads, accused him of plagiarism and now she says he has no substance. This led me to think about the ideas of paradigms and why, barring some miracle, Hillary Clinton will not get the Democratic nomination.

It's as simple as looking at the candidates. Senators Clinton, Obama, McCain: which one doesn't belong? The one that isn't being touted for their appeal to independent voters. That's right, Hillary Clinton is your winner, or in this case your loser. The way she is running her campaign, reminds me of how political races have been won (at least in my memory) in the past. It's not about how I am qualified, it's how my opponent isn't qualified. It's attacking, quite simply that wins races. Johnson did it to Goldwater with a simple allusion to nuclear war (never mind the real war Johnson was running in Vietnam). George W. Bush did it with John Kerry, in addition to a brutal attack on Kerry's command experience, now more famously known as "swiftboating." Hillary Clinton is now trying the same thing, the problem is that it appears that Americans have become smarter, we've moved on.

In addition to his "lofty rhetoric" Obama does have specific plans. It's as easy as looking on the internet. There is substance as well as talk. Attack ads show an old paradigm that doesn't appear to be working anymore. Just ask any business that produces obsolete products, they don't sell; apparently neither does Hillary.
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The "Inevitable" Machine Creaks

So, I hear that Hillary Clinton has had a hierarchical shake-up in her campaign. Apparently, according to CNN, the campaign has been sending mixed messages to different states, they don't know who's in charge. Sounds pretty bad. After seeing that report, something dawned on me that might tell me how this election might fare.

This most recent news, coupled along with news that Sen. Clinton had to loan her own campaign $5 million, has not fared well for the former First Lady. While these shake-ups and stop-gaps are dotting the Clinton campaign, it seems that the Obama campaign can't even spend all the money he has gotten. On the same day that Clinton disclosed her investment, it was revealed that Senator Obama had raised $3 million, not only in one day, but all on the internet. These things don't seem to bode well for Hillary Clinton.

If anyone remembers how she started this race, it was clear and dominant. She lead national polls (she still does today, but not by near as much), and was seen as a somewhat inevitable pick for the Democratic nominee. That may be why her campaign looks like it's faltering now. Early in the race, where money was plentiful, it probably wasn't that important who was in charge at the campaign or how the money was spent. Nobody expected a long primary campaign. I think with these news bits, it's showing that the Clinton campaign is faltering at a protracted campaign. The first assumption of economics is the scaracity of resources. Everything will run out at some time. With the last two nights handing Barack Obama every state voting, whether it's a caucus in Nebraska or Louisiana, one might expect that resources are running out for Sen. Clinton.

I hope the Clinton campaign can figure something out. The way Obama craziness is spreading, they may not have much more time left.

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Internet and Regulation (how boring)

The internet is successful precisely because it is a capitalist venture, it is a wise investment. From the internet we learn the greatest achievements of the free market. Just look at your internet; just visualize how often you've seen a sleek, dynamic, friendly...government website? Not very often if you're anything like me, you've been frustrated (to say the least) by a whole array of government services in your lifetime. Think about it, whether it's the DMV or road repair, you've surely seen the shortcomings of government services. Like the DMV, I go to government websites because I have to, not because I want to. The reason the internet is so great is because it’s not full of government websites. They’re hard to find, ask anyone who’s tried to find an actual government website. It’s easy to find a business on the internet, right? Want pizza? Go online and order the pizzas. Want to hear the latest music and download it without the hassle of a CD? Go to iTunes, ON THE INTERNET. When it comes to competition, the government can’t compete on the web. Anyone who’s used the internet knows.

We have the speed, the power and the capabilities to navigate the world like never before because of private money. The internet has been a boon to anyone who wants to make money. Whether that's a guy running a porn website (sorry, they are profitable), or a banker who is investing in an online trade company, there's a lot of money to be made on the internet. I argue that this is a result of a highly profitable business and a minimum amount of regulation. Think about it. Haven't you ever heard anyone complain that regulation can't keep up with the speed of the internet technology turnover? That's because, like most any other business pre-regulation, the internet is profitable. If they are profitable, people want a piece, and that means investment (wouldn’t you like to own a successful business?), investment in the growth and success of that industry. We saw it as early as the Industrial Revolution; there was exponential growth in England and later in America. We saw it in our steel and oil industries. It's usually a good idea that a technology is going to stagnate when you see increased regulation. I can't tell you if they are beginning to increase regulation and laws against internet activity, but I can tell that if they are, that internet technology drive will slow dramatically.

With growth always comes prosperity, people are happy. They are being compensated for their work and they are allowed to trade their own goods for things (material wealth). Why is that so bad? As with all industries, there will be more regulation on the internet. That can be assured. The encroachment on this growth in internet trade and commerce will surely slow down and discourage investment. This doesn't give an internet company the capital they need to expand. Once expansion slows, this discourages even more capital investment, and so on until a new equilibrium is met, at a far lower standard. This is why investments move overseas to more profitable ventures. Costs are not heavily regulated, and simply, investment and business are more profitable. See an Asian skyscraper lately? They're pretty tall and took a lot of work to build. You think those construction workers were working for free? Would you?

Like it or not, we are human; we are greedy. To deny this is a waste of time and energy. We have a chance to be able to trade with one another while not necessarily trusting each other. The internet gives us that perfect opportunity; I believe most companies have benefited from the internet. This tech growth has been for the most part a boon (sorry tech boom & bust). It has revealed a side of people most wouldn't have imagined twenty years ago (Porn growth, no pun intended). That side is revealed and it is profitable, sorry, vice sells. If we can get past ourselves and not encourage moral regulation and suffocate a business, one that employs real people, then we can actually see the real gifts of capitalism: Prosperity, Wealth, Freedom. All these things can be ours, let's just hope the internet can be the rare survivor of a regulation onslaught. I'm sure it's going to be ugly so enjoy it while it's good. It may not be so good tomorrow.

It may be bad, but it's the best we've got! I'm just happy I can write this and not expect thugs to break down my door and arrest me for crimes against the State. Phew!
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Unintended Consequences Summed up

I know this is passing something on second-hand, since I saw a piece of this article of the Freakonomics blog(best blog ever). But, I had to pass it on to whomever reads this blog in case you missed it. This is the best, and most simple explanation of governmental unintended consequences I've seen. If you can understand this, you can understand much of what happens in the interaction between the State and Society per se.

This is Alex Tabarrok (GO GMU PATRIOTS), writing on Marginal Revolution:

The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences.

Unintended consequences are not restricted to government regulation of society but can also happen when government tries to regulate other complex systems such as the ecosystem (e.g. fire prevention policy that reduces forest diversity and increases mass fires, dam building that destroys wet lands and makes floods more likely etc.) Unintended consequences can even happen in the attempted regulation of complex physical systems (here is a classic example involving turbulence).

The fact that unintended consequences of government regulation are usually (but not always or necessarily) negative is not an accident. A regulation requiring apartments to have air-conditioning, for example, pushes the rental contract against the landlord and in favor of the tenant but the landlord can easily push back by raising the rent and in so doing will create a situation where both the landlord and tenant are worse off.

More generally, when regulation pushes against incentives, incentives tend to push back creating unintended consequences. Not all regulation pushes against incentives, some regulations try to change incentives but incentives are complex and constraints change so even incentive-driven regulations can have unintended consequences.

Does the law of unintended consequences mean that the government should never try to regulate complex systems? No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high.

I couldn't have explained it better if I tried.
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Crack to Chasms

It seems for years the Democrats have been impotent in the face of the Republican movement. Since Bill Clinton left office in January 2001, it seems like the Democratic party has lost its identity, momentum and general reputation in the United States. Every time I would see a fight along party lines, for example immigration, the Democrats couldn't muster the alliances needed to pass legislation in this bargaining political body. I personally couldn't figure out the reason, but I think this primary season is magnifying the reason why the Democrats have been so impotent.

As Barack Obama and Hillary Clinton exchange barbs for votes, a terrible crack in the Democratic party is showing like it never has before. With Obama and Clinton nearly neck-and-neck in this primary race, a cleave in the party is exposed and may end up costing the Democratic Party a presidential election if they're not careful. With such a tight race, emotions are naturally high. If the Democrats continue this infighting, the crack will change into a chasm. If enough feelings are hurt by the time of nomination, the Democratic party will have a problem.

Let's say for example, Hillary Clinton wins a close Democratic party nomination, and the Obama followers lose bitterly, they may boycott the polls. It's happened before, it can happen again. If Obama or Clinton followers were to not vote in protest, which is possible, it would likely cost the Democratic Party the presidential election and cause much future strife. If you're hoping for a Democrat in 2008, you better hope that one candidate separates him or herself enough to be able to make peace with the other side. If the nomination continues to be a close race, the Democratic party will have some issues to resolve before they can unify and run for the Presidency.
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Identity Theft and the Legal System

I just read a fascinating article on identity theft http://www.guardian.co.uk/technology/2008/jan/15/data.security, that suggests that government protect its citizens' identity much like they protect nuclear waste. I personally believe that is a fine idea, but I also believe that it is an idea that may not be implemented realistically. The reason I say this is because if there is one thing you can depend on in life is that no one will care about you (or your identity information in this case) as much as you do. I have an idea that is a slight twist on this article's focus: treat identities as you would a copyright or a patent with the same legal protections. The article suggests that a government that stores identity information sit on it for between 100-150 years. What about giving people the legal rights to protect their identity much like they would protect an invention or a piece of literature? It's not too much of a stretch if you think about it.

To clarify, let me use an example. Awhile ago, Bank of America admitted that they had lost some data containing identity information on thousands of customers. If there had been any identity theft as a result, the victim would be powerless to do anything about it. Similar to malpractice suits, I think it would be viable to have the identity theft victim sue the responsible parties for negligence in keeping (and the subsequent losing of) the identity information. If our identities are legally protected as any patent or copyright, the responsibility for holding that information tight would fall on the information collector. If there are real and financial consequences of losing customers' information, perhaps there would be more impetus to protecting that information.

This responsibility goes beyond private businesses and corporations to public institutions' guarding identity information as well. Giving citizens the means to sue the government, as well as companies, for similar negligence gives the state the sorely needed incentive to guard personal information. I'm not normally for what's sometimes called "jackpot justice" through suing, but for identity theft I believe it is essential to make real consequences for those who do not normally have the incentive to protect someone's identity as fiercely as the private citizen. Only then, by shifting the incentive to the data collector can we assure higher security and punish harshly lax identity protection.
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Washington Post Unfair?

I've only worked in Washington DC for a little over six months, and already I've seen three labor disputes in the area. To be honest, there wasn't much difference between the three disputes. From Commerce Bank to Boston Properties to the Washington Post, all the complainants had the same gripe: their wages were "unfair." The one dispute that offered the most information was WashingtonPostUnfair.com. Of course I write the website because they claim that the "real story" is there (check it out for yourself).

The claim is that the Post production workers are being treated "unfairly" while executives pad their pockets at the workers' expense. Workers haven't gotten a pay raise in five years, and now the Post wants to control the workers' pension funds. Now, I would love to read something that will give me both sides of the story. Unfortunately, I was unable to find any. As with so many things in this world, there are several perspectives and viewpoints to one situation. I have a few questions, how long was the last collective bargaining contract good for? The answer to this may offer perspective on why they haven't gotten a pay raise in five years. If they haven't gotten a pay raise in five years, why are they complaining now? Why can't each worker negotiate a pay raise on their own? These banners that adorn the Metro stations leave more questions than answers, and the website gives only one side to the "real story."

These questions all lead to my main gripes with labor unions: Price Controls and Collective Bargaining. Both of which help a few at the expense of many. They are the main reasons why I believe their labor to be inefficient and the cause of so many people spending their days protesting, rathering than working. At this time I must apologize in advance because this blog may be slightly longer than others that I've written. The length is required though to expose why labor unions, guilds and other collective labor groups are so bad for any economy. They suffocate so much productivity to benefit so relatively few. Economic reasoning must be applied to understand these inefficiencies.

First, it must be remembered that labor economics is not that much different than any other economics. Labor itself is subject to the laws of supply and demand. Wages are no different than what we commonly see as price and the quantity supplied is simply the participation in the labor force. The same rules apply, as price falls demand increases and as demand increases, so too must supply. What labor unions are allowed to do, with the blessing (and therefore the enforcement) of the government, is to implement price controls on labor. These are done through collective bargaining agreements, where labor and management bargain for a set wage (other non-monetary benefits included) for a set amount of time. On the face of this, there are problems. First, as with any other commodity, a price freeze is inherently inefficient. This is because no one can tell the future, no matter how much they say they can. No one can foresee shocks in the economy that will expose the previous price freeze as either too high or too low. The free market in labor is not allowed to work and therefore there is inefficieny. At this point, you may say, so what if there's inefficiency? As long as you see the dirty faces of workers and hear their sad stories, you may be more inclined to allow inefficiency so that these workers can feed their families. What you may not see are the hundreds, if not thousands of potential workers who are never hired because the labor union has set the wage too high to hire others. This inefficiency means that these unemployed workers cannot work. What some may see as a boring graph represents those who do not work. Labor unions contribute more to poverty than anyone can imagine.

The second issue, collective bargaining, exposes even another inefficiency and goes back to WashingtonPostUnfair.com. As a member of a labor union, you relinquish the right to negotiate your own wages. Even those with absolutely no economic knowledge can see the problem with this. If you cannot be trusted to negotiate the best wages for yourself, then what makes the labor unions so qualified? Collective bargaining takes away an individual's right to accomodate their own preferences. When a collective bargaining agreement is met, can you really say that all individuals in the union are having their preferences realized? Since we are all individuals with individual preferences, by definition it is impossible. Only the individual can realize his or her own preference. That is why a "fair" wage is so subjective; what's fair to me may not be fair to you and vice versa. That is why it is literally impossible for the Washington Post to give its workers a "fair" wage without negotiating with each worker. A collective bargaining agreement will only be "fair" to the portion of the collective that believes it's fair. The term "fair" is so subjective and undefinable; perhaps that is why the term is used so often. Fairness, like beauty, is in the eye of the beholder.

I know I haven't even begun to discuss unions is full, but I hope this was at least a beginning. Always watch out for those who speak in vague terms, such as fair. Terms like this leave much to be desired, and are said to gain favor with an ignorant mass to the union's "plight." Just remember, get the information and find out what is really happening below the surface
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Get Ready for the Mud

After what can be called a rather vanilla Iowa caucus, at least on the Democrats' side, we now hear that the proverbial gloves are coming off. Most may chalk this up to politics as usual, but for those who know how the Iowa caucus worked, and how the New Hampshire primaries will differ can see why the mud-slinging should begin in earnest for the Democrats.

In the Democratic primaries in Iowa, a candidate must meet a "viability" threshold of 15% in order to be counted as a viable candidate. For those who do not meet this threshold, for example Dennis Kucinich, the voters for such a candidate may choose a second candidate. This is why we saw that Kucinich himself said that if he did not reach the viability threshold that he would endorse Barack Obama as a second choice. This is why even though Joseph Biden harshly criticized Hillary Clinton, the Clinton campaign still spoke positively of the Biden campaign. This viability threshold kept the mud out of Democratic candidate's hands, and ensured a fairly friendly campaign in Iowa for all the top candidates.

In the New Hampshire Primary, there is no such viability threshold, and no second chances for voters. What this means is that negative campaigns can begin on the Democratic side. On the Republicans' side in Iowa there is no viability threshold in their caucus, and that perhaps may be why Mitt Romney attacked Mike Huckabee so relentlessly. We should see this same behavior from here on out. Those who dislike negative campaigning and mud-slinging would be wise to filter their media for the next 11 months, because the presidency has not been this up for grabs in most people's lifetimes. It's going to be a hell of a fight, be it Democrat or Republican, the dirt is going to fly.
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A Public/Private Economy

In intro economics, many students (myself included) learned about Keynesian economics (named for John Maynard Keynes). That is, National Income (GDP) is made up three distinct contributaries: Consumption, Investment and Government spending. During times of feast, the government is to raise taxes and cut spending; during times of famine, the government is to spend its revenue, raised from taxes and increase spending to prop up the economy. In other words, it is up to the government, not the consumers or investors to pull an economy up out of a down cycle.

In order to see why this argument is not the best cure for a down cycle, we have to remember what government spending is. It is a sort of indirect consumption. That is, after a government taxes its constituents, it spends money on "public goods," which can be broadly defined from military and police to a more leftist version with employment programs, welfare and medicare for the elderly and poor. Government spending, for all its pomp and circumstance, is inefficient. Simply stated, the government is spending your money for you. For politicians and bureaucrats, it is more or less monopoly money. It is not earned, it is taken. Because it is not earned, it is not spent with the same frugality and wisdom as someone spending the money he or she earned according to the individual's preferences (private consumption). It is not government spending that props up an economy, it is private consumption. Cutting taxes and allowing consumers to spend their money is the best cure for a downcycle, not indirect consumption as some Keynesians may have you believe.

Nothing will top a free market when it comes to an economy. When people are allowed to exercise their consumption preferences, investors may follow the signals to invest in serving consumers (business investment). A private economy is the most efficient. When people are not allowed to follow their preferences and are forced to surrender a growing portion of their earnings to someone who will spend it less wisely, how does this rescue an economy? It is important to consider this when many politicians say that raising taxes and more spending are the only ways to fix our economy. The government's rightful place is protecting investment and consumption from fraud, not to participate actively in an economy. Such participation only ensures further inefficiency and a further drop in the economy.

I know this isn't the most thorough examination of this topic, but no one came here to read a book ;) If anyone would like a further examination, please let me know and we'll discuss some more.
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