The Sub-Prime Issue in Everyday Terms

HT: Greg Mankiw

Uniquely Unqualified

As coercive monopolies that spend other people's money taken by force, governments are uniquely unqualified to solve problems. They are riddled by ignorance, perverse incentives, incompetence and self-serving.

From John Stossel's latest column, this time on global warming. Regardless of what you think about global warming, it is important to remember that if the government gets involved things will become significantly worse that they otherwise would be. This is an important distinction to make when talking to those who are commonly classified as "left wing": just because you oppose government intervention to solve a problem does not mean you don't think it is a problem.

For instance, when I suggest that the Public School System should be dismantled with the same enthusiasm shown by Canadians for clubbing baby seals, I am often met with some variation of the sentiment "But don't you care about children's education?" This is a false dichotomy. I believe that Public Schools help our nation's children far less than they harm. The fact that I do hate children is irrelevant. Far too often, libertarian objections to grandiose government schemes are dismissed with the retort that we don't care about children/whales/rainforests/working-class mothers/starving corn farmers, while the central-planner has his priorities straight and should, therefore, be trusted.

Some people view government as some kind of benevolent force that can counteract the self-serving interests of corporations and the free market. They think that because government is not accountable to market forces, it is above self interest. This is among the most dangerous ideas still widely accepted (the idea that burning children alive will ensure a rich harvest is currently out of favor). A government is made up of people, just like any organization. Those people work for their own betterment and interests just like anyone else. The fact that governments do not produce anything of their own and survive by taking from others is not a virtue, and it certainly does not ensure virtue in those who are employed by government.

When a corporation puts its resources behind a project it stands to lose those resources, and will do what it takes to protect them from being misused. A government, since it just spends other peoples money, will always through good money after bad, claiming that with a little more budget everything will work.

Income Inequality

TCS Daily has a nice little article about income inequality. While I recommend reading the whole thing (it isn't very long), here is a summary of the points made:

• Those who advocate leaving things up to markets are not necessarily believing in market forces with blind faith. Rather, while we recognize that markets fail and that government intervention is another option, we believe that government fails much more frequently than markets do.
• Income inequality is a poor measure of prosperity. That is, who cares what one's position is relative to someone else's? What really matters is how well off one is in more absolute terms.

CEO Pay

Townhall has a good, one page article entitled "In Defense of CEO Compensation" in which the author presents a nice, concise overview of the defense of high CEO pay. Money quote:

"It's sad that this is the level of economic literacy among the media. If the press ignored advances in other scientific fields as much as they do in economics, we'd see weathermen advising readers to offer sacrifices to the rain gods."

Also, as an extra added bonus, the author takes an off-the-cuff shot at unintended consequences of government regulation vis-a-vis corporate raiders.

Great article on the housing bubble

From The Motely Fool, comes this headline (and article): "Desperate Realtors Applaud Bailout" with the gem of a subtitle: "The National Association of Realtors likes the idea of a subprime bailout. Big surreise."

Ethanol Issue Analysis - Vol. III

From Rolling Stone, comes the latest in a series of overarching looks at the ethanol issue entitled "The Ethanol Scam: One of America's Biggest Political Boondoggles". Definitely worth reading all the way through. Apologies for posting this soooo late.

HT: Fark

For posts regarding the first two "holistic" analyses of the Ethanol issue, see here and here.

Ethanol Strikes - Vol. VII

Wow, Ethanol is really on a roll today. This installment's victim: The Chesapeake Bay.

Ethanol Strikes - Vol. VI

Latest victim: The Family Farm.

Ah, But What Does Your Free Buy You?

Massachusetts' mandatory health insurance law has made insurance available to everyone. What it haven't made available are actual doctors. The Wall Street Journal has a report on what happens to people who sign up for their first health insurance.

On the day Ms. Lewis signed up, she said she called more than two dozen primary-care doctors approved by her insurer looking for a checkup. All of them turned her away.

Her experience stands to be common among the 550,000 people whom Massachusetts hopes to rescue from the ranks of the uninsured. They will be seeking care in a state with a "critical shortage" of primary-care physicians, according to a study by the Massachusetts Medical Society released yesterday, which found that 49% of internists aren't accepting new patients. Boston's top three teaching hospitals say that 95% of their 270 doctors in general practice have halted enrollment.

For those residents who can get an appointment with their primary-care doctor, the average wait is more than seven weeks, according to the medical society, a 57% leap from last year's survey.
...
A principal reason: too little money for too much work. Median income for primary-care doctors was $162,000 in 2004, the lowest of any physician type, according to a study by the Medical Group Management Association in Englewood, Colo. Specialists earned a median of $297,000, with cardiologists and radiologists exceeding $400,000.

At the same time, the workweek for primary-care doctors has lengthened, and they are seeing more patients. The advent of managed care in the mid-1990s added to the burden as insurance companies called on primary-care doctors to serve as gatekeepers for their patients' referrals to specialty medicine.

In Massachusetts, the state-subsidized plans, collectively called Commonwealth Care, are provided by private insurance companies. Patients can choose from among six options. Residents who make between one and three times the poverty level ($48,000 for a family of three) are now eligible for coverage under the plan. Doctors are reimbursed by insurance providers -- at below-market rates comparable with Medicaid reimbursements.

I can only hope that the debacle in the Commonwealth will serve as a warning before we end up with national healthcare.

HT Don Luskin

Two More SCOTUS Decisions

The Supreme Court has been announcing a lot of 5-4 decisions lately. Two of the latest are lifting the ban on retail price floors and ruling that race cannot be used to determine school assignments for students. I highly encourage you to read up on both decisions.

Home Depot and Day Laborers

From MSNBC article:

"Home Depot is tired of being forced by local governments to accommodate the day laborers who turn up in its store parking lots seeking construction work. So the Georgia-based company turned to Congress for help.

"The Senate could respond this week by attaching language to the immigration bill that would prohibit city councils from requiring home improvement stores to pay for shelters or other services to help maintain orderly day labor sites.

"The amendment, sponsored by Sen. Johnny Isakson, a Georgia Republican, is designed to curtail a practice in the California communities of Mountain View and Burbank, where city councils recently have forced Home Depot to build facilities for day laborers onsite or elsewhere, hire security staff and offer bathrooms in order to get the permits necessary for its operations.

...

"Mountain View is considering a proposal to require Home Depot to pay $250,000 toward a permanent day labor center and to establish an educational outreach program for workers and contractors before building a store there. The city of Burbank required the company to build a similar hiring center at its store that opened last year and to provide the city with $94,000 to cover the costs of additional services.

"[Laura Macias, mayor of Mountain View, California] said local governments impose requirements on developers all the time based on specific, case-by-case needs.

"'Once you're part of a community, there are land-use responsibilities, whether it's a center for day workers or traffic congestion remedies or park fees,' she said. 'To have it always fall back on the cities, that comes back on the taxpayers and it just doesn't seem fair.'

"'If you want to build and make tons of money from our community, we're going to want something in return,' Macias said."

Elsewhere in the article, the tactics of the local governments in question are called "extortion", while government representatives say that Washington has no business meddling in local affairs (a point with which I almost if not always agree). Read the whole article for more.

One of the things that I find most egregious about this situation is the stated position of the mayor of Mountain View in the last two paragraphs. She seems to assume that these centers and programs must be funded and is saying that it is better to charge Home Depot for it than the taxpayers. She also seems to ignore completely the fact that, if Home Depot makes a lot of money by opening that store, they are, by definition, contributing to the community in the form of providing goods and/or services that people obviously value - to say nothing of the fact that Home Depot is paying taxes on all that money they're making anyway.

Government Efficiency

Cato has a great post regarding efficiency (or the lack thereof) in government programs:

"One of the behind-the-scenes initiatives of President Bush’s budget staff the past six years has been something called the Program Assessment Ratings Tool (PART) analysis. It’s an effort to measure the 'effectiveness' and 'efficiency' of nearly 1,000 federal programs. Each program is graded on how well they achieve their 'goals,' with marks ranging from 'effective' (the equivalent of an A grade) to 'ineffective' (the equivalent of an F grade)."

The post then goes on to discuss whether we should be happy that some program get A's - after all, most of them are things we don't want the government doing in the first place and, therefore, it might be better if they did them poorly. You should read the entire post.

Ethanol: Food vs. Fuel

Reason has a great article entitled "Feed SUVs and Starve People?" in which is discussed the over arching global impact of diverting resources that would otherwise represent food (corn, sugar, etc.) to ethanol production. Definitely worth the read.

Identical Sets

Apparently, "Consumers" and "Taxpayers" are two different sets of people.

More on Microsoft

Cato has an interesting post regarding the Microsoft issue. Also, in case you missed it, there is a good debate going on in the comment thread of that post. Check it out.

Ethanol Strikes - Vol. IV

Today's installment: milk.

Apparently, Being Competitive Is Illegal

From Reuters:

"U.S. antitrust authorities confirmed on Tuesday they reached an accord with Microsoft Corp. requiring the company to modify its Vista operating system in response to complaints its desktop search function puts Google Inc. and other potential competitors at a disadvantage.

"The Justice Department said Microsoft would create a 'mechanism' for computer users and manufacturers to select a default program to handle desktop search."

More from the New York Times:

"Google maintained that its desktop search program, available as a free download, was slowed by an equivalent feature that is built into Vista. When the Google and Microsoft search programs run simultaneously, their indexing programs slow the operating system considerably, Google contends. As a result, Google has said that Vista violated Microsoft’s 2002 antitrust settlement, which prohibits Microsoft from designing operating systems that limit the choices of consumers."

So, let me get this straight, Microsoft is being punished for allegedly putting its competitors at a disadvantage. Well, heck, we better start suing every company in the US (as well as any company in any other capitalist country on which we can get our hands) since they, by definition, are either a) doing that or b) trying to do that. After all, trying to create and sustain a competitive advantage over one's rivals is what companies have to do to remain competitive, stay in business, and, ultimately, drive innovation and create value for all stakeholders (shareholders, employees, and customers).

On top of that, it is not just that Google is somehow put at a disadvantage - it's that, apparently, Microsoft is obligated to provide society with a software platform on which any other company can build software (that competes with its own, don't forget) that runs just as well as anything that is built-in. This is like saying that Ford is obligated to create a vehicle in which any after market peripheral device (radio, CD player, ejection seat, etc.) works perfectly even if it replicates something that a built-in component already does. Imagine if a third party parts manufacturer sued GM or Ford because their (the third party manufacturer) part (which, remember is, at least partially, redundant) doesn't work flawlessly in every car GM or Ford produces. That would be absurd - everyone would consider the part manufacturer responsible for the operation of their own product.

At this rate, Microsoft might as well be classified as a public utility that is beholden to society the way phone companies are. Just as phone companies are required to ask permission of the government before changing prices (up or down in many cases) and to allow others to lease their lines at wholesale prices so that third parties can compete with them using their own assets, Microsoft could be forced to submit everything it does to DOJ inspectors and to allow any company that wants to build software to do so at its expense. At least in the case of the phone companies, one could begin to make a case that the only reason the phone company is in such a great position is because there was basically a government sanctioned monopoly for decades. What's the excuse with Microsoft? They were too good at creating value for consumers?

Ethanol Strikes Again (again)

The latest product whose price ethanol raises: gasoline. Nice.

Reap What You Sow

It seems that there is going to be an over supply issue with ethanol later this year. I am shocked, SHOCKED! After all, market forces are supposed to . . . oh, wait, never mind.

But, that's not all - it gets better:

"'We expect the relentless supply of new ethanol production capacity will lead to a 70 percent decline in margins by 2009,' wrote Bank of America analyst Eric K. Brown in a report late last month. The report, 'The Ethanol Floodgates Have Opened,' downgraded ratings on several ethanol-related stocks.

"Researchers at Iowa State University also raised concerns about profit margins being battered by corn prices that, driven by ethanol, have risen from under $3 per bushel last summer to close to $4 per bushel lately. They say that will make it difficult for ethanol plants to make money. And as the ethanol supply grows, they predict, ethanol prices will drop relative to gasoline unless there’s a change in government policy to encourage more demand for it."

What a fantastic idea! Let's have a government policy change to bail out an industry that faces potential problems precisely because of government intervention.

"Ethanol now makes up about 4.5 percent of the nation’s gasoline mix, depending on location. Once that rises to 10 percent — the percentage all cars now sold in the U.S. can use without modifications — [Bruce Babcock, director of the Center for Agriculture and Rural Development at Iowa State] questions where any additional demand would come from. Given that ethanol has about two-thirds the energy content of gasoline, he said, ethanol would have to be priced at two-thirds the price of gasoline to induce a major turn toward E85, an 85 percent ethanol blend that can power flex-fuel vehicles.

"'Otherwise no one will fill up with E85,' he said.

"The chairman of the National Corn Growers Association, Gerald Tumbleson, shares that concern.

"'We call it a ’blend wall,’ said Tumbleson, who farms near Sherburn in southern Minnesota. 'If you hit that blend wall, what’s the value of our product? That’s what makes us nervous.'

"Tumbleson said corn growers are hoping to get laws changed to require even greater use of ethanol, such as a 20 percent mandate. He said America’s energy independence is at stake."

Ethanol Strikes Again

First, it was Mexican tortillas, then it was German beer, now it's both Tequila:

"Mexican farmers are setting ablaze fields of blue agave, the cactus-like plant used to make the fiery spirit tequila, and resowing the land with corn as soaring U.S. ethanol demand pushes up prices.

"The switch to corn will contribute to an expected scarcity of agave in coming years, with officials predicting that farmers will plant between 25 percent and 35 percent less agave this year to turn the land over to corn."

and pork:

"A record 3-1/2 year stretch of profits for hog producers appears to be coming to an end this year due to high corn costs, but a growing export market could again bolster profits in coming years, a leading agriculture economist said.

"'The cost of corn comes in as the number one concern among big producers,' said University of Missouri agricultural economist Glenn Grimes, who was on the sidelines at the World Pork Expo industry gathering this week.

"'The odds are about 90 percent that we will see some red ink for at least one or two or three months this fall.'

"Surging demand for corn from ethanol producers helped drive corn prices to the highest level in a decade in February. The cost of producing hogs was currently about $7 to $9 per hundredweight higher than a year ago, Grimes said."

Question: where was congress while we were all being charged "unconscionably excessive prices" for pork and the meat producers were raking in "windfall profits"?