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Archive for February, 2010

I posted an amusing (and disappointing) graph in January showing how economists consistently failed to predict major changes in GDP. Russ Roberts of George Mason University explains in the Wall Street Journal that we should blame the practitioners of macroeconomics. They want the profession to be a hard science like physics, and some of them dream of the day when sophisticated models will make at least soft versions of central planning possible. But this is a fundamentally flawed way of thinking about economics. Professor Roberts says that the profession is more like biology because of the economy’s complex and unpredictable nature. Microeconomists, by contrast, focus on human behavior and thus are far more likely to have useful (and pro-market) insights about public policy:

The defenders of modern macroeconomics argue that if we just study the economy long enough, we’ll soon be able to model it accurately and design better policy. Soon. That reminds me of the permanent sign in the bar: Free Beer Tomorrow. We should face the evidence that we are no better today at predicting tomorrow than we were yesterday. Eighty years after the Great Depression we still argue about what caused it and why it ended. If economics is a science, it is more like biology than physics. Biologists try to understand the relationships in a complex system. That’s hard enough. But they can’t tell you what will happen with any precision to the population of a particular species of frog if rainfall goes up this year in a particular rain forest. They might not even be able to count the number of frogs right now with any exactness. We have the same problems in economics. The economy is a complex system, our data are imperfect and our models inevitably fail to account for all the interactions. The bottom line is that we should expect less of economists. Economics is a powerful tool, a lens for organizing one’s thinking about the complexity of the world around us. That should be enough. We should be honest about what we know, what we don’t know and what we may never know. Admitting that publicly is the first step toward respectability.

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Political Humor

Live by the teleprompter, die by the teleprompter.

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Pulling no punches, Mark Steyn ponders the entitlement-driven collapse of Greece and asks why politicians in America are repeating the same mistakes:

Chapter One (the introduction of unsustainable entitlements) leads eventually to Chapter Twenty (total societal collapse): The Greeks are at Chapter Seventeen or Eighteen. What’s happening in the developed world today isn’t so very hard to understand: The 20th-century Bismarckian welfare state has run out of people to stick it to. In America, the feckless, insatiable boobs in Washington, Sacramento, Albany, and elsewhere are screwing over our kids and grandkids. …By the way, you don’t have to go to Greece to experience Greek-style retirement: The Athenian “public service” of California has been metaphorically face down in the ouzo for a generation. …as the Greek protests make plain, nothing makes an individual more selfish than the socially equitable communitarianism of big government: Once a chap’s enjoying the fruits of government health care, government-paid vacation, government-funded early retirement, and all the rest, he couldn’t give a hoot about the general societal interest; he’s got his, and to hell with everyone else. People’s sense of entitlement endures long after the entitlement has ceased to make sense. …Think of Greece as California: Every year an irresponsible and corrupt bureaucracy awards itself higher pay and better benefits paid for by an ever-shrinking wealth-generating class. …The problem is there are never enough of “the rich” to fund the entitlement state, because in the end it disincentivizes everything from wealth creation to self-reliance… And in America, Obama, Pelosi, and Reid are saying we need to paddle faster to catch up with the Greeks… What could go wrong?

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A new study from the University of Michigan Law School’s Empirical Legal Studies Center finds that it is more difficult today for politicians to impose excessive financial regulation because firms can migrate to jurisdictions with more pro-market policy. The author notes tht this is less true for institutions, such as big banks, that want government protection, but laissez-faire entities such as hedge funds have substantial ability to flee bad government policy:

Jurisdictional competition spread from corporate law to its close cousin, securities law. Historically, issuers listed their stock for trading on one of the exchanges in the country where they principally did business. Improvements in communication and related technologies, however, have made possible an international market for stock exchange listings that resembles in many respects the long‐standing federal market for corporate charters in the United States. Now companies can list their shares for trading on exchanges in any number of countries; there is no longer a logical nexus between the site of a company’s headquarters and where its shares are traded. …Does that free movement of capital limit the ability of the Obama administration to reform financial regulation in the United States? …After the United States effectively raised listing standards by enacting the Sarbanes‐Oxley Act in 2002, foreign companies headed for the door. London seized the opportunity; fourteen of the top twenty initial public offerings (“IPOs”) listed on the London Stock Exchange (“LSE”) came from outside the United Kingdom in 2005 to 2008. By contrast, only four of the top twenty IPOs in New York came from outside the United States. Further, it was not only foreign companies that were leaving; United States companies left the public market in droves, headed for the greener (or at less regulated) fields of private equity, and they were not being replaced. A Grant Thornton study documented a staggering thirty‐nine percent decline in United States listings from a peak of 8,823 in 1997 to only 5,401 in 2008. …hedge funds can go elsewhere if a country tries to enmesh them in red tape. Running a hedge fund only requires an office and an Internet connection. …Debates over hedge fund regulation take place against the shadow of the threat of the flight of these financial intermediaries. And that flight has already begun. The United Kingdom raised its top tax rate to fifty percent in April. That move, along with EU restrictions on borrowing by hedge funds, already prompted a number of hedge funds to emigrate to greener pastures. …Hedge fund bankers are not happy about being treated like bankers. Unlike bankers, however, they do not have to stick around and take it. “About [twenty] percent of the hedge‐fund community could leave the [United Kingdom] in the next two or three years. The feeling among the hedge‐community is there is a better place to be.” Where is that better place? Asia. Places like Singapore are attracting hedge funds… Of course, the fact that Singapore does not tax capital gains may have had something to do with its attractiveness. …So what does global competition mean for populist retribution against the money changers? Apparently it depends on the mobility of the money changes you are talking about. Big banks need government backing to be credible with depositors and counterparties, so the bankers at those institutions are going to have to stick around and take it. Smaller institutions, like hedge funds, are much more portable, and if Western governments attempt to impose banker‐like restrictions on them, they will head elsewhere. …The forces of financial capitalism can no longer be confined within the boundaries of a single nation, so regulation is not simply a matter of mustering the requisite political will. There is no shortage of anger against the bankers in the current environment, but it can only be deployed against financial intermediaries who cannot flee the regulatory wrath. …International competition in financial services regulation now serves as a check on populist retribution, but only a partial one.

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For those of you who saw this segment of Wednesday’s show on CNBC, my co-host got quite agitated when I said I did not want America to have a substandard government-dictated healthcare system. Simon expressed doubt about my assertions, so it’s rather serendipitous that Investor’s Business Daily just editorialized about a new report (from the UK) about the failings of one British hospital system:

American health care is not British health care, at least not yet. But if Democrats get their way, this country will rush to adopt a system much like the one that is killing people in Great Britain. Democrats say that what they have planned for U.S. health care is not a copy of the British system. But a nationalized health care system, no matter how it’s tailored, will collapse like other socialist programs. Government-run health care may at times look like it works, but it is unsustainable — and deadly. Consider the British hospital trust that was the focus of a recently completed independent inquiry. According to U.K. media reports, the review found that at least 400 and as many as 1,200 patients died from 2005 to 2008 because of poor care by Mid Staffordshire National Health Service Foundation Trust, which operates two hospitals. …The inquiry also noted “serious departures from the standard of basic care which every patient is entitled to expect,” abuses of elderly patients, and the too-common presence of unwashed patients and bedding “soiled with urine and feces for considerable periods of time.” Other sanitation problems included the presence of blood, discarded needles and used dressings. These problems shouldn’t be unexpected. Last year, the media reported that up to 10,000 cancer patients were dying needlessly in the U.K. each year because their condition was diagnosed too late, according to research by the government’s director of cancer services. Also in 2009, there were reports that the health secretary ordered a probe into “claims that patients are dying due to poor care in at least 27 hospitals around the country.”

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The Taxpayers Alliance in London has an amusing video highlighting different ways the government has wasted money on global warming/climate change propaganda. Or maybe it’s only amusing because I’m American and my tax dollars weren’t being wasted on the projects in the video.

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Saw this very encouraging CNN story linked on Hotair.com. According to a new poll, a comfortable majority of Americans recognize that the federal government is an immediate threat to the rights and freedoms of ordinary people. My only quibble is that we’re way past the threat stage. Between an oppressive tax system and a dependency-creating morass of spending programs, the federal government already is undermining our liberties. Our Founding Fathers would be very disappointed to see what has happened to our nation:

A majority of Americans think the federal government poses a threat to rights of Americans, according to a new national poll. Fifty-six percent of people questioned in a CNN/Opinion Research Corporation survey released Friday say they think the federal government’s become so large and powerful that it poses an immediate threat to the rights and freedoms of ordinary citizens. …According to CNN poll numbers released Sunday, Americans overwhelmingly think that the U.S. government is broken – though the public overwhelmingly holds out hope that what’s broken can be fixed.

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