Quotulatiousness

October 17, 2016

Hillary Clinton tells us to expect a major US recession shortly after January 20, 2017

Filed under: Economics, Government, Politics, USA — Tags: , , , , — Nicholas @ 04:00

Fortunately, as Tim Worstall explains, politicians can rarely be believed — especially when it comes to economics:

Hillary Clinton Vows To Slam The Economy Into Recession Immediately Upon Election

This probably isn’t quite what Hillary Clinton intended to say but it is what she did say at a fundraiser on Friday night. That immediately upon election she would slam the US economy into a recession. For what she has said is that she’s not going to add a penny to the national debt. Which, in an economy running a $500 billion and change budget deficit means tax rises and or spending cuts of $500 billion and change immediately she takes the oath. And that’s a large enough and fierce enough change, before she does anything else, to bring back a recession.

[…]

Now, what she meant is something more like this. That she has some spending plans, which she does. And she is also proposing some tax rises. And that her tax rises will balance her spending plans and thus the mixture of plans will not increase the national debt. Which is possibly even true although I don’t believe a word of it myself. For her taxation plans are based upon static analyses when we really must use dynamic ones to measure tax changes. This is normally thought of as something that the right prefers. For if we measure the effects of tax cuts using the dynamic method then there will be some (please note, some, not enough for the cuts to pay for themselves) Laffer Effects meaning that the revenue loss is smaller than that under a static analysis. But this is also true about tax rises. Behaviour really does change when incentives change. Thus tax rises gain less revenue in real life than what a straight line or static analysis predicts.

That is, as I say, probably what she means. But that’s not actually what she said. She said she’ll not add a penny to the national debt. Which means that immediately on taking office she’s got to either raise taxes by $500 billion and change or reduce spending by that amount. Because the budget deficit is that $500 Big Ones and change at present and the deficit is the amount being added to the national debt each year. The problem with this being that that’s also some 3.5% or so of GDP and an immediate fiscal tightening of that amount would put the US economy back into recession.

March 30, 2016

QotD: The spendthrift governor, Nelson Rockefeller

Filed under: Government, Quotations, USA — Tags: , , , — Nicholas @ 01:00

In 15 years as governor of New York, Nelson A. Rockefeller, popularly known as “Rocky,” was as careful with the public’s money as he was with his own — which is to say, he spent lavishly, impulsively, and often indiscriminately. New Yorkers have been paying the bill ever since. As portrayed in Richard Norton Smith’s new biography, Rockefeller believed that there was no problem (least of all a lack of cash) too big to yield to a big-money solution. “As much as I loved Nelson,” Smith quotes the financier Frank Zarb, “his meter didn’t start until you reached a billion dollars.”

Rocky’s meter began to spin soon after he became governor of New York in 1959, and it accelerated as time went on. To be sure, every level of American government was expanding during the 1960s and 1970s. But Rockefeller made an outlier of the Empire State. He quadrupled the state budget and quintupled state debt, including off-the-books public-authority borrowing. He created the nation’s most lavish Medicaid program, designed to draw down maximum federal aid to the state while saddling New York City and county governments with half the non-federally reimbursed cost. He pushed through a collective bargaining law that would bequeath to New Yorkers the nation’s highest level of public-sector unionization. Though New York had been a cradle of open-handed liberalism, its state and local taxes, relative to personal income, were slightly below the national average when Rockefeller took office, according to Census data. By 1974, the combined burden had nearly doubled to a level well above the 50-state norm — where it has remained ever since.

Smith demonstrates that Rockefeller’s profligacy was at least as much a matter of personal disposition as political preference. There’s no small irony in this: Rocky’s grandfather, John D. Rockefeller, Sr., built his Standard Oil mega-fortune on penny-pinching attention to detail. As one story goes, even as a wealthy man, “Senior” was delighted to discover he could eke out a slightly larger profit by encouraging his employees to use one less drop of solder on each tin can of Standard Oil kerosene.

E.J. McMahon, “Hiya, Big Spender! For good or ill, Nelson Rockefeller’s legacy lives on”, City Journal, 2014-12-04.

October 1, 2015

US tax cut proposals fail the laugh test

Filed under: Economics, Government, Politics, USA — Tags: , , , — Nicholas @ 05:00

At Ace of Spades H.Q., Ace responds to a recent Kevin Williamson post:

It is standard conservative theory that tax cuts and spending cuts go hand in hand. But after decades of ever-rising spending, coupled with occasional tax cuts, I’m not so certain of that any longer.

I believe it was after Reagan that Republican theorists began justifying his model of tax-cuts-now-spending-cuts-later as the “starve the beast” theory of limiting government — if we cut taxes, therefore cutting government’s resources, we should, logically, force the government to adapt itself to living with fewer taxpayer dollars. Ergo, spending should be forced down by the practicalities of the situation — either you start cutting spending, or else you start running up dangerous, Greece-level of debts.

The problem is that this country has always elected the “or else” part of this syllogism: We are racking up dangerous, Greece-levels of debts, and we’re barely even talking about that any longer.

The problem has grown so immense that we’ve decided to declare it officially a Non-Problem. (It will decide to re-assert itself as a Really Big Problem in a short period of time.)

So I no longer believe in the “starve the beast” theory, because the “starve the beast” theory relies upon Americans understanding the mid-to-longer term trajectory of their spending choices, which they plainly do not.

Since Americans are not capable of understanding the mid-to-longer term trajectory of their spending choices, it seems to me the only way to impose budget discipline and spending rollback is to offer Americans an immediate, as opposed to future, confrontation with reality: that is, if Americans wish to have so much government, they should be forced to pay for the level of government they are choosing, and not defer that payment (as they apparently will choose, every single time) into the future, to be imposed upon their children.

But, instead, they must be forced to reckon with the level of government they are choosing now by paying the full freight and cost of that government now.

That is to say: I believe that rolling back spending is only possible when Americans are made to feel the costs of the government they’re choosing, and that will only happen when they’re forced to actually pay for it.

The biggest hurdle, after the economic illiteracy of the voting public, is the starkly clear self-interest of the politicians: they can get re-elected only if they pander sufficiently to the voters. The voters, who do not understand how the government works (and refuse to believe it when you tell them) … want ever-more of it to benefit them as soon as possible. Telling the voters that you’ll not only not give them more but that you’ll be giving them significantly less is a great way to lose your next election (assuming you don’t get thrown out of office before that even comes up).

July 23, 2015

The breakdown state of Greece

Filed under: Economics, Europe, History, Religion — Tags: , , , , , — Nicholas @ 03:00

David Warren, earlier this month, on the slow-motion financial, economic, and political disaster that is modern-day Greece:

Now seriously, gentle reader, we are being reminded that there is truly no way out — no foreseeable practical and material escape — from the Nanny State web we have woven. Except by catastrophe, and/or miracle. My fascination with Greece is, as I have said, to see what happens as that state breaks down. Greece is unrepresentative in some ways; she never was a truly Western country, and thus even her way of abandoning the Christian faith is different from the Western. Since the West freed her from the Infidel Turk, Greece has had the luxury to pick and choose between spiritual destinies. The West offered three: the Catholic, the Protestant, and the Revolutionary. Greece chose to dress her post-Byzantine, Orthodox self in the robes of Marianne, goddess of fake Liberty. They don’t fit, can’t, and she has experienced one wardrobe malfunction after another. Whereas the French, whom she most likes to emulate, at least know how to carry off satanic modernism in style.

Notwithstanding, the material facts of Nanny State are universal, and Greece can now serve as an illustration of their consequences — for the simple reason that she has made more mistakes, faster, than any other European country.

My fondest hope was that the failure of Greece would provoke a genuine re-assessment of the European Union. My worst fear is that it would instead make Europe’s commissars circle their wagon (the EU flag unintentionally represents this), and advance the continental nannyism in the vain belief that they can somehow save it. This, I observe, is what most likely happens. Or to put this another way, for the third time in a century, Europe has embarked on a mission of self-destruction, and will not turn back.

The correct response, to my humble mind, would have been on two fronts. First, to acknowledge that Greece can’t pay, and therefore write off the debts. Let them start again from scratch, according to their lights, providing whatever humanitarian aid can be afforded, but making clear it is a gift, and therefore delivering it through visibly European (and North American) agencies. Never let anyone think he is receiving gifts by right, and thus confuse gifts with payment. But don’t kick Greece out of anything; they have as much right to use euros while unwinding as the Argentines had to use U.S. dollars through their last bankruptcy. In defiance of post-modern sentimentalism, I would say it is possible to be both charitable, and firm.

Second, to begin a peaceful disassembly of most of the pan-European scheme, including the euro currency, which doesn’t and can’t work. Restore marks, francs, lire, pesetas; but also gradually downsize the Brussels bureaucracy to what it can and did do reasonably well — as a clearing house for trade transactions. This would be sane, now the ambition of a “European nation” is proved to have been foolish in itself. It would be insane, politically, to leave it to the member countries’ respective nationalist lunatics to achieve the same end by jingo, with the violence that follows inevitably from that.

It is in this greater (political, not religious) light that I think another bailout for Greece is a horror. It means Europe’s politicians are accelerating down a blind alley — the political equivalent of “the spirit of Vatican II.”

February 17, 2015

In praise of “dynamic scoring”

Filed under: Economics, Government, USA — Tags: , , , — Nicholas @ 02:00

Dan Mitchell explains why there’s a need to change the way the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) “keep score” on how proposed legislative changes will impact the US economy:

cartoon-cboThe CBO, for instance, puts together economic analysis and baseline forecasts of revenue and spending, while also estimating what will happen if there are changes to spending programs. Seems like a straightforward task, but what if the bureaucrats assume that government spending “stimulates” the economy and they fail to measure the harmful impact of diverting resources from the productive sector of the economy to Washington?

The JCT, by contrast, prepares estimates of what will happen to revenue if politicians make various changes in tax policy. Sounds like a simple task, but what if the bureaucrats make the ridiculous assumption that tax policy has no measurable impact on jobs, growth, or competitiveness, which leads to the preposterous conclusion that you maximize revenue with 100 percent tax rates?

Writing for Investor’s Business Daily, former Treasury Department officials Ernie Christian and Gary Robbins explain why the controversy over these topics – sometimes referred to as “static scoring” vs “dynamic scoring” – is so important.

    It is Economics 101 that many federal taxes, regulations and spending programs create powerful incentives for people not to work, save, invest or otherwise efficiently perform the functions essential to their own well-being. These government-induced changes in behavior set off a chain reaction of macroeconomic effects that impair GDP growth, kill jobs, lower incomes and restrict upward mobility, especially among lower- and middle-income families. …Such measurements are de rigueur among credible academic and private-sector researchers who seek to determine the true size of the tax and regulatory burden on the economy and the true value of government spending, taking into account the economic damage it often causes.

But not all supposed experts look at these second-order or indirect effects of government policy.

And what’s amazing is that the official scorekeepers in Washington are the ones who refuse to recognize the real-world impact of changes in government policy.

    These indirect costs of government, in particular or in total, have not been calculated and disclosed in the Budget of the United States or in analyses by the Congressional Budget Office. The result of this deliberate omission by Washington has been to understate many costs of government, often by more than 100%, and grossly overstate its benefits. …It is on this foundation of disinformation that the highly disrespected, overly expensive and too often destructive federal government in Washington has been built.

December 4, 2014

If you think your mortgage is bad, here’s a bit of perspective

Filed under: Britain, Economics, History — Tags: , — Nicholas @ 00:02

Britain is deeply in debt, like most western countries, but some of the debt is much longer term than usual:

Britain will pay off all of its debt used to fund World War One next March, when it redeems a government bond first issued more than 80 years ago to help pay for the conflict.

The finance ministry said on Wednesday that it would redeem the 1.9 billion pound ($3 billion), 3.5 percent War Loan — a perpetual bond which means it has no fixed maturity date — on March 9 next year.

Issued in 1932, the War Loan was used to refinance debt accumulated during World War One, which ended in 1918.

Some market experts said they would miss the bond as a rare historical curiosity in modern finance.

“For those of us who’ve been looking at the gilt market for a long time, a little bit of magic has fallen out of the market,” said Barclays fixed income strategist Moyeen Islam.

What needs to be pointed out however, is that they’re not actually paying off the WW1 debt: they’re eliminating that particular interest-bearing bond (because it’s now paying a higher rate of interest than the UK government’s other debt instruments). The money to pay off the current holders of those bonds will be borrowed on the market at current market rates. That’s the government equivalent of paying off one credit card with another … you still have a debt, it’s just being held by a different lender now. Tim Worstall explains:

As background, yes, Britain ran up big debts in WWI. Those were those National War Bonds. And interest rates changed a bit, finances moved around, and in 1927 it was decided that those National War Bonds should be changed. And the change was to turn them into perpetual bonds: the capital would never be paid off, there would just be a stream of interest off into the indefinite future. The government retained the right to buy them in at any point (a “call option” on them) which is what Osborne is exercising now. One more thing: there were other bits and pieces of debt lying around. Odd bits and pieces from the 19th century, debt from the Crimean War, from those (not large enough) attempts to deal with the Great Famine in Ireland, bits and pieces relating to the Napoleonic Wars and even, would you believe it, some parts that related all the way back to the South Sea Company and the South Sea Bubble of the 1720s (although that connection is pretty remote).

All of these pieces were dumped into the same pot and “consolidated” into these perpetual bonds. They were and are thus known as “Consols”.

What Osborne is going to do is exercise that call option and bring those bonds back in. But he’s not actually “paying off” those debts. He’s going to issue other, more conventional, gilts in order to have the money to give to those sending in their Consols. He must be doing that: the government really is borrowing £100 billion a year and change at present. This is no more “paying off” those debts than my taking out a bank loan to pay off my credit card is paying off debts. It might well be a very good idea to do that, given the difference in the terms of the debts and the interest rates, but it’s still not paying off, is it?

H/T to Elizabeth for the original link.

October 28, 2014

Civil service pensions

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 07:12

In City Magazine, Steven Malanga looks at Canada’s civil service pension problems, which may not be quite as bad as some US state problems, but are still going to be a source of conflict going forward:

Governments throughout the country are grappling with as much as $300 billion in unfunded government-worker retirement debt. In a country of just 38.5 million people, that’s a pension problem roughly equivalent to the one that California faces. And it’s widely shared.

Municipalities throughout Quebec, for instance, owe some $4 billion in retirement promises that have yet to be funded, prompting the province’s new Liberal government to demand this summer that workers pay more to bolster the system. A new report on the finances of Ontario’s government-owned utilities revealed their pensions to be unsustainable without deep subsidies from Canadian electricity customers. For every dollar that workers contribute toward their retirement, government-owned utilities now spend on average about four dollars, raised through electric bills—though the cost is even higher at some operations. The news is even bleaker at the federal level, where Canada faces more than $200 billion in total retirement debt for public workers, when the cost of future health-care promises made to public-sector workers is combined with pension commitments. One big problem is pension debt at Canada Post, whose budget is so strained that the federal government gave the mail service a four-year reprieve on making payments into its pension system, even though it’s already severely underfunded.

At the heart of Canada’s pension woes are some of the same forces that have helped rack up several trillion dollars in state and local pension liabilities in the United States. For years, Canadian governments have provided generous pensions at low costs to employees. Workers could earn full benefits while retiring in their mid-fifties, even as they lived longer. Politicians relied on optimistic assumptions about stock-market returns to justify those benefits. Governments were quick to grant additional benefits to politically powerful employee groups, but they underfunded pensions when budgets got tight.

October 25, 2014

Destroying the “too big to fail” meme

Filed under: Britain, Economics — Tags: , , , — Nicholas @ 10:09

In the Telegraph, Allister Heath makes a case for the looming end to the economically disastrous notion that certain entities are “too big to fail”:

Bank bail-outs have been a cultural catastrophe for those of us who support free markets, low taxes and enterprise. During the 1980s and 1990s, much of the British public came to accept and even embrace capitalism, in return for a simple deal: profits and losses would both have to be privatised. Clever entrepreneurs, savvy traders or brilliant footballers would be encouraged to make money; but companies and investors that placed the wrong bets would be allowed to fail, with no pity.

Not only did this trigger an explosion in prosperity, it also helped shift the British mindset towards a much more pro-enterprise position. The rules of the game felt fair: risk and reward went hand in hand. The government would serve as an umpire, not a supporter of vested interests.

But the crisis of 2007-09 put an end to this implicit bargain, at least in the eyes of vast swathes of the public. They saw large institutions bailed out at great public expense, and with substantial amounts of taxpayer money put at risk. It started to look as if — when it came to the banking industry at least — risk had been socialised while profits remained private. To many members of the public, it was a case of heads you win and tails we lose. Profits were retained by a small elite, while losses were spread much more broadly — or so it felt.

Needless to say, the reality was more complex. Shareholders of bailed-out banks often lost everything. But bondholders were rescued, institutions survived, staff contracts were not ripped up and the process of creative destruction was severely derailed. And while big beasts were kept afloat, many smaller firms went bust and many ordinary folk lost their jobs. This is one reason — together with an incorrect narrative of the causes of the crisis which wrongly absolves governments and central banks — for increased support for punitive tax and government meddling in prices and wages.

So why did governments turn their back on capitalism and suddenly refuse to let market forces do their work? The uncontrolled failure of a major financial institution has a much broader, system-wide impact than the uncontrolled failure of a hair salon. Under traditional bankruptcy law, however, both would be treated in the same way, which simply makes no sense. One needs a different approach to tackle the failure of major banks or insurers — a proper Plan B. With the right institutions in place, there need not be such a thing as “too big to fail”. With the correct planning and tools, even the largest of financial firms can be dismantled sensibly without wiping out millions of depositors and triggering another Great Depression.

October 2, 2014

On national defence, don’t listen to Harper’s words – watch his actions

Filed under: Cancon, Government, Military — Tags: , , , — Nicholas @ 09:28

At The 3Ds Blog, Jack Granatstein explains why the Canadian Forces are once again being starved of funding:

A few years ago I wrote that no government since that of Louis St Laurent in the 1950s had done more to improve the defence of Canada than Stephen Harper’s Conservatives. The St Laurent Liberals built up the armed forces to deal with the war in Korea and with the defence of North America and western Europe in the face of Soviet expansionism. At its peak, the defence budget took more than seven percent of Canada’s Gross Domestic Product, and the army, navy, and air force had as many as 120,000 men and women in the regular forces.

No one could expect any government in this century to spend on that scale, but the Conservative government did treat defence well in its first years in power. The commitment to the Afghan War, never very popular, was handled capably, and the troops received everything they needed — helicopters, new artillery, upgraded armoured personnel carriers, and tanks, not to mention new transport aircraft. The number of regulars rose slowly and slightly toward 65,000, and the government presented a schematic Canada First Defence Policy in 2008 that listed a range of objectives and equipment acquisitions. The budget projections were colossal, almost $500 billions to be spent over the next 20 years.

But that was then, this is now:

The result was that the defence budget was cut, in substantial part because deficit reduction and a budget surplus were more important than “toys for the boys.” From a peak of $21 billion in 2009-10, the defence budget in this fiscal year is $18.2 billion, about a 13 percent reduction in dollars made worse by inflation. The percentage of GDP spent on defence is now hovering at one percent, the lowest since the 1930s. In 2009, it was 1.3 percent. Making matters even worse, the Department of National Defence somehow cannot spend all the money it gets, returning almost $10 billion to the Treasury since 2006.

Despite Harper’s tough talk on the international stage, his government’s active neglect of the needs of the armed forces means we can’t back up his pugnacious rhetoric with any serious military effort: a frigate in the Black Sea, four CF-18s in the Baltic, a couple of transport aircraft shuttling supplies into Erbil, and a small special forces contingent helping the Kurds … and that’s about our current limit for overseas deployment. The Royal Canadian Air Force is still waiting for new helicopters (after more than 20 years of stop-go-stop procurement disasters) and a decision on replacing the CF-18. The Royal Canadian Navy just announced the immediate retirement of four ships, with no replacements available for years (if ever), and the Canadian Army is struggling to maintain equipment and keep up training schedules due to budget constraints.

And, as Granatstein points out, if the Liberals or NDP win the next federal election, the situation will get worse, not better, as neither party sees the military as any kind of priority — quite the opposite.

Update: Speaking of cheeseparing “economies”, here’s the Department of National Defence’s most recent “saving”.

National Defence slashed its annual order of ammunition this year to save money — a revelation that raised fresh questions Wednesday about just how prepared Canada is to do battle with militants in the Middle East, Murray Brewster of the Canadian Press writes.

More from his article:

The 38 per cent cut was large enough to cause other government departments, Public Works and Industry Canada in particular, to sit up and take stock of the impact, internal documents obtained by The Canadian Press show.

One such document, a memo to Public Works Minister Diane Finley dated Feb. 5, 2014, indicates her department tried to convince defence officials to either abandon the cut or at least spread it out over a couple of years.

Defence officials said that would be impossible, because “they would not allow the department to meet its financial targets.”

As a result, the 2014 ammunition budget was reduced to $94 million from $153 million.

During the early phases of the Afghan war, National Defence was caught similarly flat-footed and had to rush an order through General Dynamic Ordnance, particularly for artillery shells.

The memo surfaced on the same day Prime Minister Stephen Harper told the House of Commons that the cost of deploying special forces to northern Iraq is being taken out of the department’s current budget.

September 23, 2014

“Rock star economy” leads to first majority government in New Zealand since 1996

Filed under: Economics, Pacific, Politics — Tags: , , , , — Nicholas @ 08:06

Anthony Fensom reports on Saturday’s election results in New Zealand:

New Zealand’s “rock star economy” helped center-right Prime Minister John Key achieve a thumping election victory. But with major trading partner China slowing, are financial market celebrations premature?

The New Zealand dollar, government bonds, and stocks gained after Key’s National Party romped to power in Saturday’s poll, securing its third straight term and the nation’s first majority government since proportional representation was introduced in 1996.

Despite “dirty politics” claims and a late attempted campaign ambush by internet entrepreneur Kim Dotcom, the incumbent National Party won 61 of 121 parliamentary seats and 48.1 percent of the vote, the party’s best result since 1951.

In contrast, the main opposition left-leaning Labour Party, which pledged an expansion of government, secured only 24.7 percent of the vote for its worst performance since 1922. The Greens won 10 percent and New Zealand First 8.9 percent as pre-election predictions of a closer race proved false.

Key pledged to maintain strategic alliances with the Maori, ACT and United Future parties, which won four seats between them, further strengthening his parliamentary majority.

[…]

“Like [Australian Prime Minister] Abbott, Key as a new prime minister inherited a budget and an economy in deep trouble…Six years later, the budget is in surplus, unemployment at 5.6 percent is falling and the economy is growing so strongly the New Zealand Reserve Bank became the first among developed countries to raise interest rates to deter inflation,” noted the Australian Financial Review’s Jennifer Hewett.

“Not only did the Key government cut personal and corporate tax rates, it raised the goods and services tax to 15 percent while steadily reducing government spending over years of ‘zero budgets,’” wrote Hewett, who urged Abbott to “learn some sharp lessons” from Key’s electoral successes.

Key’s party has pledged to cut government debt to 20 percent of gross domestic product (GDP), reduce taxes “when there is room to do so” and create more jobs, aiming to undertake further labor and regulatory reforms as well as boosting the supply of housing.

September 2, 2014

British government “austerity”

Filed under: Britain, Economics, Media — Tags: , , , — Nicholas @ 14:29

Theodore Dalrymple explains why changing the name of something does not actually change the thing being described, no matter how much politicians or journalists wish it did:

… some errors are important, and one sees them more insistently the older one grows. For example, the other day I read an article in Le Monde about the forthcoming referendum in Scotland on independence from the United Kingdom. The author of the article was clearly sympathetic to the cause of independence, but that was not the cause of my irritation with the article, nor the fact that he quoted an old man, a former trade union militant, who said that he was in favor of independence, among other reasons, because the United Kingdom was the fourth most unequal country in the world. If old men in Scotland can be as ignorant of the world as that, it is an interesting sociological observation; and the author of the article is almost certainly right that those in favor of Scottish independence favor a state even more extensive in the name of equality than the one that they already have.

No, I was irritated rather by the fact that the author of the article accepted that the policy of the present British government can properly be described as one of austerity. What the alleged austerity amounts to is this: that in the current year the government will borrow only one in six of the pounds it spends instead of one in five, as it did last year. As to the reasons for this less than startling decline in its borrowing requirements, it was not because the government was spending less but because it was receiving more taxes, from the speculative housing bubble which it has done much to fuel. If that bubble should burst, the borrowing necessary to maintain current levels of expenditure (already very high) would rise again, possibly higher than ever.

This is not a question of whether the economic policy followed by the government is the right one or not: perhaps it is and perhaps it isn’t. It is a question of the honest use of words. One would not say of a man who passed from smoking sixty cigarettes a day to fifty that he had given up smoking, or that he had exercised great self-denial. And one would not, or rather should not, say of an organization that had balanced its budget once in fifty years (the British government) that it was practicing austerity merely because it had to borrow a slightly lower percentage of what it spent than it did the year before. This is to deprive words of their meaning.

But does this matter? As the philosopher Bishop Butler once said, everything is what it is and not another thing. A budget deficit is a budget deficit, whether you call it profligacy or austerity. A thing is not changed by being called something different.

Unfortunately, matters are not quite as clear-cut as that. In human affairs, words matter, as much because of their connotations as of their denotations. Austerity means stern treatment and self-discipline. It means harshness and astringency. Needless to say, harshness in their government is not what most people look or will vote for. If reducing the rate at which you overspend and accumulate debt is called austerity, no one will dare go any further in that direction, though it were the right direction in which to go. Words, said Hobbes, are wise men’s counters but the money of fools: so that many men will take the name for the thing itself. Whether more active attempts to balance the budget would be advisable I leave to economists to decide (they can’t, of course).

July 30, 2014

QotD: Balancing the budget

Filed under: Economics, Government, Politics, Quotations — Tags: , — Nicholas @ 00:01

… it sounds like a sober and centrist position. I mean who believes in deficit financing? Well everybody but you’re not suppose to admit it out loud. Like dwarf porn. Many watch but few will say so. What it means in practice is one of two things. If an actual conservative uses the term it means that the public service is getting taken to the tool shed. There being few actual conservatives in politics what it usually means is that we’ll keep spending until someone makes us stop.

That’s when the bond market vigilantes step in. Then everyone blames the bond market for ending the party. The kind politician would love, absolutely love, to spend more money on “X” but those evil Gordon Gekko types won’t let him. In truth the bond market traders are no more responsible for a government going broke than a doctor is responsible for giving an alcoholic DT.

The state, observed Bastiat so many years ago, is the great fiction by which everyone tries to live at the expense of everyone else. Politics is the lie that this can go on indefinitely. Voters complain about the low levels of honesty in politics. But a dishonest political class is the product of a dishonest electorate. If people want something for nothing, they’ll get the lying louses they deserve. Fool me once, shame on you. Fool me a hundred years in a row and the shame is very much on the ordinary bitchin’ voter.

Richard Anderson, “Transparent Lies”, The Gods of the Copybook Headings, 2014-07-28.

May 25, 2014

The case for reparations

Filed under: Economics, History, USA — Tags: , , , — Nicholas @ 09:34

Another discussion that seems to have taken centre stage recently (at least in some US publications) is the argument that reparations are owed to the descendents of African American slaves:

Ta-Nehisi Coates has an excellent essay about the historical treatment of African Americans over the centuries, the legacy of slavery and Jim Crow and all that. And more specifically he addresses the problem of what African Americans have had stolen from them over that period of time. All of which leads various economist types to try to put a value on the theft of that labour. Tyler Cowen thinks that non-slaves have lost as much (or, given their greater number, cumulatively) or more thus there is no amount of reparations possible. For slavery itself means that current society is poorer than it would have been without slavery. If we leave that argument aside there’s another way of calculating what reparations might or should be. And it has been done rather cleverly here. However, I think we still end up in roughly the same sort of place. Which is that even if reparations for slavery are logically or morally due, the actual amount is still going to end up being pretty much nothing.

[…]

Thus today’s value of what was stolen from the slaves is that $1.75 trillion. Which is, when you look at it, a formidable sum of money. Except, actually, it isn’t. The net wealth of the entire country is around $80 trillion or so. So it’s a trivial percentage of the national wealth. Or we could look at it another way. There’s 42 million or so African Americans (defined as having some possibly slave and black antebellum ancestry) so the capital sum would be some $40,000 for each of them. Which, while a nice enough sum to receive isn’t the sort of life changing sum some might think might be due in reparations.

And we can also break it down another way. Think of that as the capital sum and then apply that 4% return to it. That would be an extra $1,600 in income per year to each and every descendant of slaves. Or, in total, something like $70 billion a year. Which, in the context of a $15 trillion economy is pretty much next to nothing. About, in fact, the size of the food stamp or SNAP program.

Even if slavery reparations are righteously due they would amount to around and about the current cost of food stamps. Which is, as I say, around and about nothing given the size of the entire economy. And, I would also wager, not an amount that anyone at all thinks is going to fix the problems that beset parts of American society today.

April 13, 2014

Reason.tv – Glenn Reynolds on the Future of Higher Education

Filed under: Books, Economics, Media — Tags: , , — Nicholas @ 10:48

Published on 10 Apr 2014

“It’s kind of a weird thing that’s happened with American society — this idea that you have to have a college degree to be a respectable member of the middle class,” says Glenn Reynolds, professor of law at the University of Tennessee and purveyor of the popular Instapundit blog. Reynolds’ latest work, The New School: How the Information Age Will Save American Education From Itself, looks at the higher education bubble and how parents, students, and educators can remake the education system.

Reynolds sat down with Reason TV‘s Alexis Garcia to discuss why Americans are spending more for a college education and how students are responding to increasing tuition costs. “Given how expensive it is to go to college, there has to be a return sufficient to make it worth the time and especially the money,” Reynolds states. “You’re seeing declining enrollment in some schools and you’re seeing much more price resistance on the part of both parents and students.”

The discussion also includes Reynolds’ take on school choice, the upcoming elections, the current state of the blogosphere, and whether or not both political parties are necessary. Nearly a decade after Reynolds published An Army of Davids: How Markets and Technology Empower Ordinary People to Beat Big Media, Big Government, and Other Goliaths, the blogfather still remains optimistic about technology’s ability to empower the individual and inspire grassroots movements.

March 29, 2014

The “Lehman Sisters” wouldn’t have been more risk-averse, actually

Filed under: Business, Economics, USA — Tags: , , , — Nicholas @ 10:56

Tim Worstall looks at the occasional claim that if Lehman Brothers had actually been “Lehman Sisters” (that is, an organization with much higher female participation), then they would have taken on less financial risk and therefore not have been the trigger to the financial meltdown:

… there’s very definitely an element of truth to this: but the final story is rather different from what is commonly assumed. It’s only if financial organisations are completely female, or completely male, that risk is reduced. Adding more of either gender to an organisation actually increases risk.

[…]

Mixed gender environments increase risk tolerance in both men and women. So adding women to an all male institution increases, likely, the risk that organisation will tolerate. And so does adding men to an all female one. Not just because the men sway the average but because both men and women become more risk tolerant in the presence of the other sex.

Thus it would be correct to say that Lehman Sisters would have been less risk tolerant than Lehman Brothers. But the reality of what there actually was at the firm was that it was a mixed gender environment and so more risk tolerant than either of the single gender hypotheticals would have been. It is gender diversity itself that increases risk tolerance, reduces risk aversion.

Which leads to an interesting thought. Everyone generally agrees that banking as a whole has become more risk tolerant, and thus more fragile, in recent decades. These are also the decades when women have made significant inroads into that area of professional life. Which leaves us with something of a conundrum. We generally believe that fragility in the banking system is a bad idea. We also all generally believe that gender equality is a good idea. But that gender equality of women going into finance and banking seems to increase the fragility of the system given that rise in risk tolerance from a mixed gender environment.

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