Thursday, September 29, 2011

Rationale for Operation Twist

So I was looking at this graph of term structures for the end of September of the past 5 years: 

Operation twist is designed to raise short rates and lower long rates in an attempt to reduce the distance between the two rates. In other words, to make 2011 term structure look more like 2006/2007, albeit at a lower level. I haven't done a lot of leg work on this one, but will a flatter term structure help? I'm not convinced the bank lending behavior of 2006/2007 is something we want to repeat. Any thoughts on this issue?

Happy Birthday, Lech Walesa

A man truly deserving of the Nobel Peace Prize, Lech was an electrician but mostly he was a freedom fighter. He fought against the Soviets for the freedom of Poland. The eventual fall of the USSR was caused because the subordinate states would no longer tolerate the Soviet presence. Leaders like Lech were instrumental in the freedom revolution of eastern European states.

They have a long way to go, and it takes a long time for good institutions to form, but it's obviously better in Eastern Europe without the Soviet state than with it.

For more on Lech:

Tuesday, September 20, 2011

Economic Freedom of the World

Cato Institute has just released it's 15th annual economic freedom of the world study.The primary highlight: United States is #10. The top ten:

Hong Kong
New Zealand
United Kingdom

Now, Singapore and UK are social more restrictive than the U.S. so obviously this index includes tradeoffs. But I would like to point out the following: the greater the economic freedom, the better off the people of the country, especially the very poor. Second, economic freedom leads social/political freedom.

Monday, September 19, 2011

Thoughts on the "Super Committee"

As you may know, the “super committee” is charged with coming up with at least $1.5 trillion in savings over the next ten years or so.  Should the committee fail to produce those savings, and should Congress fail to vote (and maybe pass) those recommendations by the end of December, automatic cuts go into place beginning in 2013.  (which, of course, will happen)

I’ve read where some on the committee are willing to reform Medicare and Social Security if other members will consider increasing taxes (or tax rates).  Some members favor some kind of grand bargain that will encompass major entitlement reforms.  I say there’s no need to consider increasing taxes to gain the right to reform Social Security or Medicare.  No, that will happen on its own, because these two entitlement programs are rapidly spinning out of control and will need addressing regardless. 
Social Security has already begun paying out more (in benefits) than it takes in (payroll taxes), which wasn’t supposed to happen until many years down the road.  An unfavorable economy coupled with lower tax revenue, and an increase in claims has pushed the program faster toward default.  Medicare is in even worse shape with costs set to explode as baby boomers retire en masse.  These two programs will go bankrupt soon enough, and to cave on taxes now would be short-sighted, in my humble opinion.

Friday, September 16, 2011

Locked up in the Land of the Free

The United States has less than 5 percent of the world's population, but _________.  

I’m sure this coordinating conjunction can be completed using any number of (in)dependent clauses depending on your political persuasion.  However, cast your political bias aside for a moment and consider this one:

But has a quarter of the world’s prisoners. 
Here are some startling facts.  There are roughly 2.3 million people in American prisons; there are about 1.6 million prisoners in communist China.  Within the US adult population, 1 in 100 is locked up. 

Per 100,000 people, there are:
·         751 prisoners in the U.S.
·         627 prisoners in Russia
·         151 prisoners in England
·         88 prisoners in Germany
·         63 prisoners in Japan

No matter your political bent, this should concern just about everyone.  This is the result of the State gone wild banning this and mandating that.  Criminal statutes lurk in just about every activity Americans undertake.  Do the wrong thing, and chances are you’ll end up in jail.  In some cases, you won’t even know you’ve skirted the law.

Scary for a country that espouses to be land of the free. 

See here for the 2008 article.

Economic Theory Union Style

“The Postal Service should be urging Congress to address the cause of its problems – not slashing service and demolishing its network," union president Cliff Guffey said

This quote from Union chief Cliff Guffey was in response to the USPS plan to shutter several post offices and mail sorting facilities in the face of major budget shortfalls – shortfalls resulting from a huge decline in mail volume.

I would certainly like to know what this union boss suggests.  I suppose Congress could pass a law banning email, facsimiles, texting, and telephones, and then outlaw UPS and FedEx.  Outside of this, the USPS will eventually succumb to market bearing forces and the public will be made better off.

Worthwhile Research

Here is a research report from Deustche Bank, a German investment bank. It's short, but indicates that the Austrian theory of the business cycle is a better explanation of booms&busts than Keynesian or neoclassical theories.

Monday, September 12, 2011

Why the Stimulus Failed

Here is a nice overview with lots of references regarding the ARRA and why it failed.

Thursday, September 1, 2011

Green Jobs not to Envy

More evidence that top-down planning often results in failure.  In this case, about 1/2 billion of your tax dollars down the drain. 

Solyndra, which received $535 million in stimulus money, plans to file for bankruptcy. Do we need any more proof that Obama's green jobs initiative is a complete failure?

Enough of the insanity please.