Sleepless in Midland

Tell us again how exactly is immigration helps the economy when so many are on welfare

Many economists contend that increased immigration is good for the economy in spite of the increased competition for jobs. The theory is that immigrants are consumers, and the increased demand for goods and services will have a positive effect on the economy. See previously on these pages: Finally, a plausible explanation of why increased immigration might not hurt local workers.

But the theory doesn't account for the increased demand for public services like welfare and health care. Most of us assume that illegal immigrants are taking advantage of any government largess they can get. But what about legal immigrants? Steven Camarota writes about that at Nationalreview.com. See It’s time to give preference to immigrants who are unlikely to use welfare programs:

We estimated that 49 percent of households headed by legal immigrants used one or more welfare programs in 2012, compared with 30 percent of households headed by the native-born. Legal immigrants have significantly higher use rates than native-born households overall and for cash programs, food programs, and Medicaid; use of housing programs is about the same as for natives. Among legal-immigrant households with children, the rate of welfare use is an astonishing 72 percent. There is no evidence that these numbers represent fraud; instead, they represent a profound problem with the selection criteria we use to admit legal immigrants.

The problem is the importation of uneducated, low skilled workers. Once they get to vote, they will probably vote for politicians who promise them more in the way of government benefits. That's bad for the economy and ultimately a threat to the country. Hence Mr. Camarota's premise: It’s time to give preference to immigrants who are unlikely to use welfare programs.

Meanwhile, President Obama plans to bring in 10,000 Syrian refugees next year. It's unlikely the government will utilize Mr. Camarota suggestions in selecting who gets in.

This Labor Day let's celebrate the fact that no other economy in the world rewards workers like ours

The science is settled. See Study: No economy in the world rewards smart, skilled workers more than America’s. There, James Pethokoukis cites the abstract for Returns to Skills around the World: Evidence from PIAAC, to wit:

Eight countries, including all Nordic countries, have returns between 12 and 15 percent, while six are above 21 percent with the largest return being 28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures, additional controls, and various subgroups. Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.

Pethokoukis makes this observation:

I find particularly interesting the finding that (a) the return to skills is highest in America and lowest in Nordic-land, and (b) returns are higher in economies with more open, private-sector based labor markets. Wouldn’t this seem to argue that higher US inequality — based on pre-tax, pre-transfer market incomes — reflects 21st century market forces rewarding ability rather than some sort of breakdown in social norms? If so, shouldn’t the policy response favor creating, as much as possible, a labor force better and more broadly capable of flourishing in this environment rather than artificially lowering the return to skills and America’s growth potential?

Yes and yes.

Then there's that pesky detail about the labor force participation rate stuck at 62.6 percent, a 38-year low. Little wonder that Donald Trump -- with his promise to create jobs -- has gained so much momentum.

Boom town man camps are dwindling away

Midland, Texas, one of the country's many oil boom towns, saw it population rise and unemployment rate drop over the past few years as the fracking boom brought workers in from around the country.

Inevitably, housing became short in supply as apartments filled and hotels and motels hung out their modern day equivalents of "No vacancy" signs.

So the oil companies moved into residential neighborhoods by leasing homes in which to house their workers. The city code enforcement office was probably flooded with complaints from long time residents seeking ways to rid their neighborhoods of these transient workers. And the police probably got their share of complaints about noisy shift workers letting off steam with tail gate parties in the driveways.

But the party's over. Now that the price of oil is half what it was at the peak and oil and gas exploration is declining, the workers are no longer needed. So the boom town man camps are drying up.

It's not just Midland. Bloomberg.com says it's happening throughout the oil producing areas. See The Oil Industry’s ‘Man Camps’ Are Dying. Excerpt:

America’s oilfield “man camps”—as the industry calls them—are turning into ghost towns as drillers cut back the free housing, food, and air travel once used to lure shale boom workers. The mini-settlements that sprang up throughout drilling regions in Texas, North Dakota, and Colorado are fading away as energy companies look to slash as much as $114 billion in spending this year, says a Cowen Group survey, and lay off tens of thousands of employees.

Post Script: The oil industry goes through periodic booms and busts. The cycle has repeated numerous times, and it will be repeated again. You can bank on it. In the next up cycle someone will inevitably say, "It's different this time." Don't you believe them.

The oil bubble has burst

Although no one could have predicted the exact date, the graphs showing meteoric oil production increases over the past few years were the handwriting on the wall. The law of supply and demand can't be repealed by wishful thinking.

Forbes paints an ugly picture:

Prof. Bill Gilmer of the University of Houston has crunched the numbers on some worst-case scenarios for Houston. Assume an average 33% reduction in oil company capital spending this year, followed by 5% growth in 2016. That, figures Gilmer, would result in the loss of 75,000 Houston jobs. This would be an enormous shock considering that Houston has added 100,000 new jobs every year since 2011.

And it’s not just Houston. In North America, Midland, San Antonio, Sweetwater, Oklahoma City, Williston, Pittsburgh, Alberta, Mexico City, and even Bakersfield, Calif. will feel the pain. The layoffs have started, with about 15,000 cuts announced so far from the likes of Shell, BP , Pemex, Halliburton HAL +0.13%, Suncor and more (full list compiled at the end of this piece) and they will only get worse.

The oil and gas business is cyclical, and the cycles are long. We appear to have entered the downside of this particular cycle.

Well of course restaurants are going to pass Obamacare costs on to their customers

Last night on the local evening TV news there was a report about a regional restaurant franchise that shocked customers with a 2% fee appearing on the bill to cover Obamacare insurance costs. (The video doesn't seem to be online, but the story can be read at Restaurants Charging Customers For Employee Health Care.)

The TV version had some customer interviews, and they were not happy about it.

The concept is simple. When government raises taxes on a business the business can either pass the expense onto the customer, cut employees' salaries, or accept a lower profit. The disappointed customers seemed to think the company should eat the cost.

If even Harvard professors didn't understand that they were going to have to pay for Obamacare, then we can't fault the typical Buffalo Wild Wing diner for not comprehending the concept. But it certainly goes a long way toward explaining how easily socialism became acceptable to so many people.

There's a silver lining. Perhaps the fee on the restaurant bill is like the monolith in the movie "2001, a Space Odyssey."  It's a dawn of enlightenment. People may be realizing for the first time that there's a cost to socialism, and they're going to pay it.

Sharing the wealth -- Walmart has to reduce pay checks of upper level hourly workers to meet new minimum wage requirements

This is the way government works. It meddles in businesses to achieve social goals, but someone always has to pay. In this case, according to a Wahington Times article, Wal-mart has to meet minimum wage hikes in its stores in 21 states. And the result is that some of the higher paid hourly workers will get less.

Here's the link to Wal-Mart’s higher-skilled employees pinched to ‘absorb’ cost of minimum wage hikes. Excerpt:

Wal-Mart Stores Inc. will raise its base salaries at 1,434 stores to comply with minimum wage hikes that will go into effect in 21 states beginning Jan. 1, 2015.

The new laws have prompted Wal-Mart to adjust the minimum premium paid to its higher-skilled employees and combine its lowest three pay grades, Reuters reported Wednesday.

“Essentially that wage compression at the upper level of the hourly associate is going to help absorb that cost of the wage increase at the lower level,” a Wal-Mart manager told Reuters on condition of anonymity.

So a person who works hard, develops retail skills, and does a good job would ordinarily expect to get paid more. But along comes the government to invoke the from each according to his ability -- to each according to his needs Marxist method of wealth distribution. Except the "need" is an artificial construct of government feel-goodism.

Ya gotta love an optimist like Larry Kudlow

I used to enjoy his TV show on CNBC before it ended. But he's still around and still the optimist. Here's one of his latest missives at Washingtonexaminer.com: The optimistic GOP story everyone is missing. What they're missing is this:

The idea that nothing much will change if the GOP captures the whole Congress is just plain wrong. The politics and policies in Washington are about to change in a major way.

Obama may still be president. But he is going to be immediately confronted with a flood of new bills that will change the debate on tax reform, energy, health care, education, international trade and regulations. ...

Obama's head will spin with all the new paperwork on his desk. He may even have to cut back on his golf game.

Of course, because of his left-wing ideology, Obama may veto everything. But if he does, he's setting up a new Republican agenda for the 2016 presidential race. Either Hillary Clinton completely jumps the Obama ship, or she's pulled way left by the Democratic party's Bill de Blasio/Elizabeth Warren/Sandinista wing. Either way she's in trouble.

So is a Republican win in the Senate a done deal? We should wait til the votes are counted -- Obama's minions have a way of pulling votes out of the woodwork in close elections. But if Republicans do win then maybe, just maybe, they can slow down the momentum toward socialism and steer the country toward a smaller government with fewer regulations and an honest tax system.

Hey, I'm an optimist too! It will happen!

Libertarians want limited government, not no government

Some Republicans are almost as bad as Democrats in disparaging libertarians. To hear them, the word "libertarian" may as well mean "anarchist."

For a well written article about how libertarians want a balanced, limited government, not an absence of government, see Richard A. Epstein's Setting Krugman Straight.

In order to set the stage for this critique, it is necessary to first establish how libertarians understand free markets. Most emphatically, these markets do not operate in a vacuum. They require that we have clear assignments of rights to both human labor and external objects. The standard position here is that all individuals own their own labor and the various resources, both physical and intangible, that they acquire either by initial capture or by transfer from a prior owner. Its basic system of exchange must be protected by vigorous rules that prevent all self-interested individuals from disrupting voluntary transactions. There must be formalities with certain classes of contracts to increase security of exchange. And there must be strong rules to prevent bad actors from bypassing the market by seizing things that do not belong to them. That prohibition against theft in turn requires the state to provide remedies against other actions that destroy the property of other persons, not only by direct blows but also by pollution. Far from rejecting these government limitations on individual activities, a responsible system of laissez-faire capitalism necessarily embraces them. A sensible libertarian is a classical liberal in the tradition of Adam Smith and David Hume. On economic issues he is no anarchist, but a believer in limited government.

For an added bonus he provided a liberal dose of Krugman bashing.

Via Future of Capitalism.

Unemployment - Democrats say we need more gov programs, Republicans say we need tax cuts -- neither likely to work

Jim Hightower, once the future Rush Limbaugh of the left, is still shilling for the Democrat agenda. And a recent column of his, What job Creation Numbers Don't Tell Us, actually made some good observations. What the jobs numbers don't tell us is that the number of jobs created since the Great Recession officially ended roughly equal the number of jobs lost during the Great Recession. The problem is that the population still grew during that period of time with about 15 million more working-age people in the job market, many of whom are looking for work.

Hightower's solution is for congress to pass a national jobs program, among other big government projects. Don't we already know this is not a viable long term solution?

Republicans, on the other hand, say we need lower taxes and a balanced budget. But that's not likely to work either. See James Pethokoukis' What conservatives don't understand about the modern US economy.

What we need is a free market with minimal government involvement. End government/corporate cronyism. Eliminate or at least reduce the barriers to entry by new businesses. Encourage free enterprise. End the tax code as we know it and implement a flat tax. We've gone a long way down the road toward a big government with its hands in everything. There's a possibility that's it too late to reverse course. But that's too pessimistic.

American was built on ambition, creativity, freedom, and pride. Those traits are still here, just dormant. Some day that sleeping giant will awaken and cast off the chains that hold it down.  May it come sooner rather than later.

Should we be worried about what the robot workforce will do to society as we know it?

Michael R. Strain thinks so. In Robot workers could tear America's social fabric he notes that the industrial revolution dislocated many workers and created havoc in society which lasted for decades.

We redicule the Luddites for trying to slow progress. But they were the ones who experienced some real suffering.

Mr. Strain fears that the same thing could happen again as the technological revolution advances. He could be right, especially since our schools are doing such a poor job of preparing students for the jobs that are still there much less the jobs that don't exist yet.

George Soros went short on the stock market last year

George Soros has come to be known as a political powerhouse of the left. Maybe he was indoctrinated early on to the myths of socialism, and as an adult he has used his immense wealth to help elect Democrats and defeat Republicans.

But being wrong headed about socialism doesn't mean he's wrong about everything. He has always been a very shrewd and successful investor. And he has the big buck to show for it.

So this news that his fund management company was holding put options on 7,090,000 shares of the SPDR S&P 500 ETF (SPY) at the end of Q4 is telling. Source: REVEALED: George Soros Doubled His Bet That The Stock Market Is Going Down.

The present tense of that Business Insider headline was a little bit misleading, but that's the price we pay in these days of website hit seeking missives.

Back to the point, by the end of last year Soros was betting that the market would go down. The S&P did take a dip in January, and he may have cashed out then. And what he's doing now isn't revealed. But it is interesting that this old socialist still has the timing touch.

Niall Ferguson's six killer apps for prosperity

That's clever the way he uses the word "apps" to get to a level he thinks the people who need to hear him will understand.

Anyway, Ferguson sounds pessimistic when he sounds the alarm about America in such articles as America’s ‘Oh Sh*T!’ Moment or How America Lost Its Way. And to put a little urgency to it, he says civilizations don't decline, historically they collapse in a very short order sometimes as little as a decade.

The killer apps he says propelled the West ahead of the rest are these:

1. Competition. Europe was politically fragmented into multiple monarchies and republics, which were in turn internally divided into competing corporate entities, among them the ancestors of modern business corporations.

2. The Scientific Revolution. All the major 17th-century breakthroughs in mathematics, astronomy, physics, chemistry, and biology happened in Western Europe.

3. The Rule of Law and Representative Government. An optimal system of social and political order emerged in the English-speaking world, based on private-property rights and the representation of property owners in elected legislatures.

4. Modern Medicine. Nearly all the major 19th- and 20th-century breakthroughs in health care were made by Western Europeans and North Americans.

5. The Consumer Society. The Industrial Revolution took place where there was both a supply of productivity—enhancing technologies and a demand for more, better, and cheaper goods, beginning with cotton garments.

6. The Work Ethic. Westerners were the first people in the world to combine more extensive and intensive labor with higher savings rates, permitting sustained capital accumulation.

(He talks about the topic in this Ted talk.)

Unfortunately, Western societies, and especially the U.S., are deleting their own killer apps. There's hope, but it won't do to sit around thinking there will be plenty of time to stop a slow decline. If/when it happens it will come rather suddenly and will be difficult or impossible to stop. What to do?

What we need to do is to delete the viruses that have crept into our system: the anticompetitive quasi monopolies that blight everything from banking to public education; the politically correct pseudosciences and soft subjects that deflect good students away from hard science; the lobbyists who subvert the rule of law for the sake of the special interests they represent—to say nothing of our crazily dysfunctional system of health care, our overleveraged personal finances, and our newfound unemployment ethic.

Ferguson wrote that two years ago. We need that reboot now.

Cato tells us how to get back on track

Most of us will readily acknowledge that the federal government is growing too fast. How fast? Brian Domitrovic provides some facts:

The basic metric that reflects all this is the level of federal spending. In 2013 the government of the United States spent 55 percent more money — in real, inflation-adjusted terms — than it did in 1999. Economic growth in that 14-year span has been 30 percent. Where government at all levels soaked up 32 percent of national economic output in 1999, it took in 37 percent in 2013 — an increase of nearly a sixth, in less than a decade and a half. By way of comparison, for the first 125 years of this nation’s existence under the Constitution, through 1914, government spending was largely parked between 3 percent and 6 percent of national output.

That it's growing at all in this economic environment isn't so good, but when it's growing too fast we should really be concerned. Problem is, most Americans are not. Mr. Domitrovic suggests that many Americans have gotten used to the idea, and younger folks who've come of age during this time won't see it as a problem at all. There will be a day when no one remembers what it was like not to live under a huge government.

Mr. Domitrovic harkens back to the days of the Ronald Reagan, the tax cut, and a growing economy. Ah, the good old days. Democrats called it "the decade of greed," which showed how little they really understood about incentives and the economy.

What to do? His solution is in the title: Tax Revolt! It’s Time to Learn from Past SuccessHe closes with this:

Tax cuts, stable money, and the rendering of spending and regulation as superfluous are the formula of the supply-side revolution — the Reagan Revolution. They stand sentinel right there, not long ago in our history, as the way to advance through our sluggishness and purposelessness today.

Via.

Can it happen again? I want to be optimistic. All it would take is a few million changed minds.

An interesting remark by Bill Gates about raising the minimum wage

It's nice that someone watches MSNBC so we don't have to. Mike Miller at ijreview.com did and reported about it in This Was Not The Answer MSNBC Host Anticipated From Bill Gates About Raising The Minimum Wage. (Via Future of Capitalism .) Apparently Mika Brzezinski, expecting to hear the party line, asked Bill Gates whether he supported a hike in the minimum wage. Gates answered:

Well, jobs are a great thing. So you have to be a bit careful: If you raise the minimum wage, you’re encouraging labor substitution, and you’re going to go buy machines and automate things — or cause jobs to appear outside of that jurisdiction. And so within certain limits, you know, it does cause job destruction. If you really start pushing it, then you’re just making a huge trade-off.

If workers get too expensive, businesses will build robots to do the work or move where wages are lower. Makes sense, but too often logic gets clouded by good intentions.

Maybe someone will coin a cool word to describe this rule: Regulations are always going to have unintended consequences no matter how noble the intentions.

Sidebar: Speaking of Gates and the government, he can't be too happy that the NSA exploited Microsoft's error reporting system.

Some very smart people on the minimum wage

Joseph J. Sabia and Robert B. Nielsen in Can Raising the Minimum Wage Reduce Poverty and Hardship? New Evidence from the Survey of Income and Program Participation:

It’s an intuitive thought: Raise the wages of the lowest paid workers, and poverty rates are sure to fall. Unfortunately, the empirical evidence hasn’t borne this out. Instead, multiple studies have demonstrated little to no relationship between a higher minimum wage and reductions in poverty.

They point to three factors that defeat the premise:

First, many people living in poverty don’t work and thus cannot benefit from a higher wage; second, a large number of minimum wage earners are not living in poor families; finally, raising the minimum wage can have the unintended consequence of reducing demand for the least-skilled employees.

Mark J. Perry in Raising minimum wage would be disastrous for minorities, especially black male teens, whose jobless rate is now 44.3%:

A question for proponents of the minimum wage, including President Obama, would be: Given a current jobless rate of 44.3% for black male teens, would that group of America’s most vulnerable and unemployed workers receive any benefits from a 39% increase in the minimum wage from $7.25 to $10.10 per hour?  Or would they most likely suffer from a minimum wage increase?

For the answer, see the title.

Don Boudreaux at Cafe Hayek:

Minimum-wage proponents fancy themselves to be especially “Progressive,” humane, caring, and economically sophisticated. ... But truly humane and caring people do not cavalierly (as do proponents of minimum-wage legislation) support a government prohibition on would-be workers offering to work for lower wages if these would-be workers can’t find jobs at higher wages – especially when such a prohibition is based upon questionable evidence, convoluted theorizing, and officious ethics.  Most minimum-wage proponents don’t have bad motives; they have insufficiently thoughtful motives.

James Pethokoukis in There are better anti-poverty tools than the minimum wage:

Would raising the minimum wage cause job losses? Lots of conflicting studies here. But a 2013 literature review by David Neumark, J.M. Ian Salas, and William Wascher concluded “that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.” And research last month from Texas A&M economists Jonathan Meer and Jeremy West find raising minimum wage levels may discourage firms over the long-term from hiring new workers. And that may be particularly true thanks to continuing — even accelerating — advances in automation.

Mark J. Perry again, in Who’d a-thunk It? 18 different minimum wages in American Samoa by industry and a 30% jobless rate?:

The US Department of Labor mandates and enforces about 18 different minimum wages in American Samoa by industry.  Oh, and the jobless rate there is almost 30%.

That is, if you trust the supposed wisdom of politicians to know what the “correct” single minimum wage is for the entire US economy (currently $7.25 per hour), shouldn’t you also trust those same politicians to know what the “correct” minimum wage is for America’s many different  industries?

Finally, Thomas Sowell and Walter Williams discuss their work history as teens. If there had been a minimum wage, they would have been unemployed. Listen here. Or if you're a racist, don't listen.

The most depressing assessment I've read so far this year

Talk about a downer. It's an editorial at Investors.com titled 11 Nasty Trends That Will Test America's Resilience. And here are those nasty trends right here:

Extremely Limited Prosperity "Yes, corporate profits have increased, but companies worried about what lies ahead under Obama are holding on to cash or buying back stock rather than hiring workers. "

A Wide Economic Growth Gap "The Obama recovery is the most feeble since the Great Depression. "

A Massive Ongoing Jobs Gap "By this time in past recoveries, the economy had churned out at least a 10% gain in net new jobs. This time, the hamstrung economy has managed just over 4%. "

Dependency Growing, Not Jobs "Today, 47 million people are on food stamps, up from about 28 million when Obama was sworn in. And disability rolls have swollen by 2 million. ... It has also led to a startling surge in Americans' dependence on government handouts — a radical altering of the country's traditional culture of self-reliance and hard work. "

America's Global Strength Wanes "For more than a decade, the IBD/TIPP Poll has asked Americans about the U.S. position in the world. Our final poll of 2013 is in, and opinions have never been lower. "

Workers Leave Labor Force "The number of people who tell the government they are not in the labor force has jumped by 10 million since Obama took office, and 91.5 million Americans are not working at all. "

America, The Biggest Debtor Ever "Today, our total debt is right at 100% [of GDP] — a level that many economists believe endangers future economic growth. The bad news is, it could rise to 150% or higher in coming decades. That's national insolvency. "

Real Jobless Rate? Double Digits "The government's U6 rate — which adds in those who are only marginally employed, or working part time but want full-time work — pegs the unemployment rate at a hefty 13.2%. "

Regulation Is Huge Hidden Tax "According to the respected Competitive Enterprise Institute, regulations are an annual tax on the U.S. economy equal to $1.5 trillion. "

What America Really Owes "They call this the long-term fiscal gap. Depending on how it's counted, over the next 75 years the U.S. must find $54 trillion to $200 trillion to pay for all our promises."

Long-Term Fiscal Outlook Is Ugly "The result: A massive deficit of nearly 20% of GDP. At that level, all capital available for spending or investment will go to finance the government's red ink."

Happy New Year!

Should unemployment benefits be extended?

The knee jerk reaction for most of us is "no" as more jobless benefits would seem to result in uninspired job hunts. But here's another side to it. In 3 smart reasons to extend unemployment benefits, James Pethokoukis quotes three reasons his colleague Michael Strain presented in a WaPo interview. Here's the short version:

1. Ordinarily one would expect unemployment insurance to lengthen unemployment. But that hasn't been the case in this recession.

2. If individuals take more time to look for a job they may be more likely to find one they'll stick with for a longer time than if they simply took the first job that came along.

3. Many of the long term unemployed are educated, have kids, and are in their earning prime. It seems unlikely that they are dragging their feet in the job hunt because of the unemployment checks.

That last one in particular makes a lot of sense. As for how to get workers back to work, see Pethokoukis again in Here’s what the GOP should propose for ending America’s jobs crisis, which recommends, among other things, relaxing occupational licensing requirements, lowering the minimum wage for some jobs, and relocation subsidies so the unemployed can move to the places where the jobs are.

Although not mentioned specifically, a repeal of Obamacare would eliminate a big hindrance to job creation.

Norway -- rich in oil rich, high in debt

Finding a buried treasure of black gold has been a blessing for some and a curse for others. For Norway, a blessing so far. But there are clouds on the horizon as politician promise more and more while using the Norwegian Oil Fund as collateral for more and more debt. See in Washington Times, VITENBERG: Norway’s shame: How a nation squandered its oil riches. Excerpt:

Some 50 years ago, Njord, the mythological Norsk god of wealth, smiled on the hardworking fishermen and lumberjacks, and presented Norway with the gift of oil. In financial terms, this was a handsome gift indeed, currently translated into a natural bounty worth $740 billion.

Successive Norwegian governments pledged to save this wealth for the welfare of future generations. Yet, half a century after this windfall began, questions increasingly arise of whether Norway’s handling of its oil wealth has even withstood the test of the past, much less the future. ...

First, the oil fund is a mathematical artifice. At three-quarters of a trillion dollars, the Norwegian Oil Fund appears to provide plenty for a country with scarcely 5 million citizens. Yet the country has accumulated a foreign debt that, at $657 billion, is almost as massive. Subtracting the debt from the fund’s $740 billion leaves a balance of only $83 billion. In other words, there is a treasure chest, but it is almost empty: Njord’s prize for future generations is only a little more than 10 percent of its putative value.

Actually, to be fair to the politicians, party-like-there's-no-tomorrow is more or less a trend among most governing bodies. So they are simply following the herd, if that can be claimed as a defense.

Careful what you wish for with the fix for income inequality

You don't have to look very far to find someone in the msm complaining about income inequality. "The rich get richer and the poor get poorer," is a popular refrain among the envious. In reality, during those phases of the economic cycle when the rich get richer the low income people generally do better, too. During bad time, both the rich and poor get hurt, but the rich generally have built a cushion that softens the blow during down times.

Anyway, someone using the name Jonathan Fast has penned a wonderful little satirical recipe for reducing inequality. Click Some Modest Proposals to Solve the Inequality Problem.

He notes three factors that have contributed to inequality: The 30 year stock market boom, globalization, and the two earner family. So what's the solution to inequality? Simple. Eliminate those three things. Cause the stock market to crash, get some trade tariffs and barriers to curtail global buying and selling, and put working women back in the kitchen. Hilarious.

Via Newmarksdoor.com.

Robert Higgs clarifies "regime uncertainty" -- doesn't mean gov shutdown

Robert Higgs coined the phrase "regime uncertainty" in his work explaining why the Great Depression lasted so much longer than it should have. In short, Roosevelt was such a rabid regulator that he made businesses afraid to invest. Thus the depression went on and on.

More recently, the Obama administration has done the same thing with his drive to regulate or tax so many things. For one example, take Obamacare. Businesses are preparing to minimize the deleterious effects and workers are fearing the high cost of mandatory medical insurance or the fee for foregoing said insurance. All of this curtails growth.

Here's Mr. Higgs' own explanation of the current regime uncertainty.

In contrast, I consider regime uncertainty as a form of uncertainty related to the public’s—especially the private investors’—confidence in the future security of private property rights, which can be impaired by future regulatory changes (e.g., Dodd-Frank and Obamacare regulations), court decisions, administrative twists and turns, tax increases in various forms (e.g., Obamacare penalties enforced through the income-tax system), monetary-policy changes that threaten the dollar’s purchasing power and distort the allocation of credit, and personnel changes in the government’s corps of executives, judges, and assorted capos.

But apparently some Obama fans have tried to distort Higgs' concept to include cutbacks or interruptions in government spending and thus spread the blame to those who think reduced government spending is a good thing. Not so fast. Here's Higgs again:

... For the overwhelming majority of the people, reduced government spending is a godsend, even if many people do not know that it is, because it helps to reduce the scale and scope of the government’s destructive involvement in economic life and because it reduces the crowding out of productive private activities, such as private provision of education and of assistance to the poor and others in economic distress. Shifting resources from the government to private individuals is always a beneficial development, given that the government not only wastes many resources, but actually employs resources in destructive ways that harm the welfare of the general public.

Insert knife,

Mainstream commentators seem to get their knickers in a twist especially when government employees are furloughed or some sort of government handout is temporarily suspended. In anything but the shortest-term perspective, however, these developments are positive, not negative. It is good to get people off the dole, and if budgetary mismanagement brings about this result, so much the better for the mismanagement. ...

then twist:

If only people could bring themselves to see the government for what, all in all, it is—a force for plunder, waste, and destruction—they might then have the wit to worry less about government spending cutbacks and to worry more about the manifold ways in which the government generates what I call regime uncertainty.

Read the whole thing at Government Spending and Regime Uncertainty—a Clarification.

Maybe Bernanke was on the right track after all

This just goes to show how ignorant I must be about monetary policy. I was on the side of Ben Bernanke's detractors all the while when the Fed was conducting the multiple QEs. Surely it would have to cause inflation sooner or later. Well, it will have to be later.

From Mark J. Perry: Based on the Fed’s preferred inflation measure, Ben Bernanke has the best inflation record of any Fed chair since WWII:

For inflation measured from the price index for Personal Consumption Expenditures — the Federal Reserve’s preferred measure of inflation to assess monetary policy — Bernanke’s average inflation rate of 1.8% over his term through Q2 2013 is the lowest average inflation rate of any Fed chair during the postwar period. For the most recent quarter (Q2 2013), Personal Consumption Expenditure inflation was only 1.1%, the lowest rate in the last 15 quarters, and that inflation measure has been below 2% for the last five quarters starting in the second quarter last year.

All righty then.

"Personal Consumption Expenditures" is defined at bea.gov which provides this as its reason for importance:

Personal consumption expenditures (PCE) is the primary measure of consumer spending on goods and services in the U.S. economy. It accounts for about two-thirds of domestic final spending, and thus it is the primary engine that drives future economic growth. PCE shows how much of the income earned by households is being spent on current consumption as opposed to how much is being saved for future consumption.

Hmm. So if it's a ratio of spending to savings then consumers must be doing a lot of saving. That's what they're supposed to be doing, but it does seem to suggest a level of pessimism. For that I blame regime uncertainty.

Higher minimum wage equals higher prices

Ask any legitimate economist about minimum wage requirements and you'll hear how counter productive they are. A higher minimum wage requirement not only reduces the number of jobs that pay minimum wage, it increases production costs in those businesses that pay minimum wage. And the higher production cost gets passed on to the consumer in the form of a higher price for the product. A twofer -- higher unemployment and inflation -- what a treat.

But it makes minimum wage proponents feel good and maybe gets them votes, so to hell with the consequences. (Now there's a bumper sticker.)

This brings us to a very good article by Ira Stoll in which he tells of a shopping experiment he conducted. See Obama’s High Wage Vision Hides Some High Costs to Consumers.

Mr. Stoll noted Obama's speech last month in which he vowed to focus his attention on asking businesses to raise wages. Obama singled out The Container Store as a business with a relationship with its employees which earned the President's approval. Mr. Stoll noted that The Container Store's website says they pay their sales people 50% to 100% more than the retail average. So he decided to pay one of their stores a visit. Exerpt:

Enticed by the presidential endorsement, I stopped by The Container Store in Chestnut Hill, Mass., on Friday and checked prices on a few items. ...

Then I headed to a nearby Walmart, whose wages and benefits are denounced as stingy by Mr. Obama’s political allies, to compare prices. ...

The full shopping list — ten of each kind of hanger, the can opener, the file cabinet, and the milk crate — cost $236.17 at The Container Store, and $48.69 at Walmart. That’s $187.48 more at The Container Store than at Walmart.

But he notes that Obama really isn't asking businesses to set an example, he's laying the groundwork for a federally mandated hike in minimum wage from $7.25 to $9.00.

More:

If you think your tax bill or credit card bills are high now, just wait until the receipts of your shopping trips start including the passed-along costs for paying President Obama’s definition of “decent” wages.

This is the social democracy that Obama wants, but as Margaret Thatcher would put it, "They're progressively reducing the choice available to ordinary people."

Thomas Sowell explains the mindset of the left

Thomas Sowell is one of our great thinkers, and we would do well to pay attention to him. Recently he penned a four part series of articles explaining the mindset of the left. Links to the four articles follow below with very short synopses and quotes from each.

In The Mindset of the Left: Part I he explains that the left is always trying to blame bad behavior on external factors:

At least as far back as the 18th century, the left has struggled to avoid facing the plain fact of evil — that some people simply choose to do things that they know to be wrong when they do them. Every kind of excuse, from poverty to an unhappy childhood, is used by the left to explain and excuse evil.

In The Mindset of the Left: Part II he addresses the left's relationship with poverty and implies a sinister goal of ginning up government dependence:

Most Americans with incomes below the official poverty level have air-conditioning, television, own a motor vehicle and, far from being hungry, are more likely than other Americans to be overweight. But an arbitrary definition of words and numbers gives them access to the taxpayers' money.

This kind of "poverty" can easily become a way of life, not only for today's "poor," but for their children and grandchildren.

Even when they have the potential to become productive members of society, the loss of welfare state benefits if they try to do so is an implicit "tax" on what they would earn that often exceeds the explicit tax on a millionaire.

If increasing your income by $10,000 would cause you to lose $15,000 in government benefits, would you do it?

In short, the political left's welfare state makes poverty more comfortable, while penalizing attempts to rise out of poverty. Unless we believe that some people are predestined to be poor, the left's agenda is a disservice to them, as well as to society. The vast amounts of money wasted are by no means the worst of it.

In The Mindset of the Left: Part III he talks about equality and the left's obsession with equal outcomes.

A never-ending source of grievances for the left is the fact that some groups are "over-represented" in desirable occupations, institutions and income brackets, while other groups are "under-represented."

From all the indignation and outrage about this expressed on the left, you might think that it was impossible that different groups are simply better at different things. ...

All this moral melodrama has served as a background for the political agenda of the left, which has claimed to be able to lift the poor out of poverty and in general make the world a better place. This claim has been made for centuries, and in countries around the world. And it has failed for centuries in countries around the world.

In The Mindset of the Left: Part IV he gets to the left's assumption that they know better than everybody else.

At the heart of the left's vision of the world is the implicit assumption that high-minded third parties like themselves can make better decisions for other people than those people can make for themselves.

That arbitrary and unsubstantiated assumption underlies a wide spectrum of laws and policies over the years, ranging from urban renewal to ObamaCare.

He goes on to provide a personal example. After he left home at the age of 17 he worked two jobs totaling 60 hours a week so that he could not only pay for necessities but save money. However, back then unemployment among black youths was a fraction of what it would become later when the economy prospered. That was because the left kept raising the minimum wage which had the effect of eliminating jobs. He goes on:

I don't know what I would have done if such busybody policies had been in effect back in 1949, and prevented me from finding a job before my last dollar ran out.

My personal experience is just one small example of what it is like when your options are very limited. The prosperous busybodies of the left are constantly promoting policies which reduce the existing options of poor people even more.

Saving the best for last, Sowell concludes with this:

Nothing is easier for people with degrees to imagine that they know better than the poor and uneducated. But, as someone once said, "A fool can put on his coat better than a wise man can put it on for him."

A great explainer he is.

Texas -- We're number 14

On Wednesday the Mercatus Center at George Mason University announced the publication of an interactive map which gives each state a personal and economic freedom ranking as of 2011. The #1 ranking puts a state at the top as the most free, and that spot was earned by North Dakota. Not surprisingly, the states with the highest numbers, i.e. least free, are California at #49 and New York at #50.

Texas ranked #14 this time. That's worse than than the #8 spot it held in 2009 but better than the #17 spot it earned in 2007. High local debt was an impediment. Here are the first two paragraphs of their Texas analysis.

Texas prides itself on being a freedom-loving state, and at 14th in rank its citizens have something to be proud of. However, its policies are sometimes not as consistent with individual liberty as the rhetoric of its officials and citizens would suggest. Like many southern states, Texas performs better on economic freedom than personal freedom. Yet despite its reputation as a low-regulation state, it is only average for regulatory policy—while it is above average for fiscal policy.

exas enjoys one of the lowest tax burdens in the country. It also does better than average on state spending, fiscal decentralization, and government employment relative to the private sector. However, state and local debt is high (with most of the problem arising at the local level).

Emphasis added. Texas residents have certainly seen the local debts rising. Good economic times cause a fever that induces amnesia about the bad times.

Gold and inflation

Many people watch the price of gold as an indicator of inflation. And I believe Alan Greenspan did too when he was FED chairman. At any rate, gold is thought to be an inflation hedge, and TV ads have been peddling it for years on that basis.

Currently, the price per ounce is $1,695.10, according to Kitco.com , after a choppy election month. And it's down from an all time high back in September, 2011, of around $1,900.

The last big spike in gold prices was in1980 with a peak at around $850. Applying the BLS inflation calculator, that would put an ounce of gold at $2,386 in today's dollars.

So that tells us that if gold really is an inflation indicator, inflation isn't as bad as it was back in the 80s when Paul Volker tightened the FED screws so much to crank down inflation that it sent bank CD rates to around 16%. And going to the BLS again we learn that the CPI in October of this year increased at an annual rate of a mere 2.2 percent.

Ben Berneke is less interested in inflation than the unemployment rate, and he's been priming the fiscal pump for years with little to show for it, because he can't offset the burdens Obama has placed on the economy. Rising wages would precede inflation, but as long as unemployment is high, wages won't rise. So the effect is that inflation is held in check by low levels of employment.

As for the price of gold, when market participants think the price will go up, they buy. When they think the price will go down, they sell. But something else was happening back in the late 70s and early 80s when the gold price peaked that time. There had been a revolution in Iran, and American hostages were being held by the Islamic radicals who took control. The nation was focused intently on developments, and a TV show, Nightline, was even created to cover it. It would be ironic if some situation developed with Iran or Islamic radicals elsewhere that drove the price of gold up again.

How did the CBO conclude that paying people not to work would create jobs?

Answer: They didn't. They pulled numbers out of the air.

The other day the morning paper contained a short unsigned Associated Press filler piece titled, "Report: Extending jobless benefits creates jobs" in which AP says the following:

Washington -- Extending the current level of long-term unemployment benefits for another year would add 300,000 jobs to the economy, according to a report from the Congressional Budget Office.

The Washington Post elaborates:

The report notes that extending unemployment insurance is a particularly effective form of stimulus when the economy is still struggling. That’s because jobless workers who receive benefits are extremely likely to spend the money right away. So, the CBO estimates, if Congress extends all the programs, GDP will likely be 0.2 points higher and employment will be 300,000 higher at the end of 2013 than if Congress does nothing at all.

[They are referring to the CBO report of 11/28/2012. Click Unemployment Insurance in the Wake of the Recent Recession to get the CBO summary, and download the full PDF here.]

One not so minor problem: The economy is much too complex to make predictions like that and expect them to come true. And another contributing factor that can't be measured is the rampant fear present today that things will only get worse.

The report says that the CBO estimates that if unemployment benefits are extended the payoff to the GDP will $1.10 for every $1.00 of budgetary cost in 2013. And they don't admit it, but that's just a wild guess. Researchers are all over the map on whether or how much government stimuli influences the GDP.

Valarie Ramey has analyzed the research on the effects of stimuli on GDP, and she reported in a podcast interview by Russ Roberts with her last year that the effect varied from about $0.80 to $1.20 increase in GDP for every $1.00 the government spent. Download or listen to that interview at econtalk.org.

For Mr. Roberts' own 2010 evisceration of CBO estimates, see CBO estimates. And for the Heritage blog take, see Unemployment Benefits: No Free Lunch.

In any event, here's some good news for the unemployed. The CBO currently has four job openings. Go for it. Their standards really can't be very high.

A new use for pennies -- floor covering

Most people who see a penny in the parking lot won't bother benging over to pick it up. But a creative tattoo artist in Garfield, Pennsylvania, had an idea -- use them for floor covering.

There was plenty of bending over for that project, but with a lot of help -- 300 man hours worth -- she covered the 800 square feet of her store floor with around 250,000 pennies.

Watch a video here.

Apparently, it is cheaper to pave the floor with money than to buy tile. Ben Bernanke must be proud.

Entrepreneurial spirit still lives -- teen builds mobile shower for ND oil field workers

The spark: "The recent high school graduate [Evan Jensen] got a whiff of himself and his 21-year-old brother, Justin. The two had been sleeping in a pickup while looking for work in the oil fields of western North Dakota. 'We smelled,' he said. 'Bad.' "

The idea: A mobile shower where oil field workers can take a shower and clean up for a small price thus saving them a long drive to a motel or truck stop.

The seed money: He used $15,000 he earned from trapping muskrats over the past two years plus money invested by relatives.

The product: They built a 53-foot semitrailer with a five-stall shower, an office, and laundry facilities. A 6,000-gallon tanker provides fresh water and collects the discharge.

The price: They charge $10 for a shower and $1 for a towel and washcloth. Soap is free.

He built that.

Via Carpe Diem.

Low hemlines and a cool economy

A few weeks ago I saw a woman wearing a dress with a hem rubbing the floor. At first I thought she might be a member of a religious cult that discouraged exposed legs, but over the weeks I've noticed a couple of others. Is the hemline trying to tell us something?

The hypothesis is that high hemlines are coincident indicators of a hot economy, and low hemlines a cold economy. Here's a 2010 paper that sets forth the theory. Notice the last sentence in the abstract: "Hence, the current economic crisis predicts ankle length shirts around 2011 and 2012."

[Dress on the right is Christian Dior from the collections at Vogue.com.]

Side note #1: The sightings were in Midland, Texas, in which the economy is decidedly uncool at the moment. However, it's an industry town, and said industry goes through periods of boom and bust. Could the hemlines be predicting an end of the boom? Nah. Three sightings don't represent a trend.

Side note #2: On the other hand, a quasi government entity wanting to invest in an apartment complex could easily be a contrary indicator.

Who builds business? Not the government.

President Barack Hussein Obama:

If you’ve got a business -- you didn’t build that. Somebody else made that happen.

The best economies are ones that developed in spite of rather than because of the government. The old Soviet Union provided ample evidence that central planning commissions don't do a very good job. And President Obama was rightly excoriated for pandering to people who want something for nothing with his irrational claim that a successful business wasn't built by the entrepreneur who actually built it.

But it's extremely difficult to get the government to keep its hands off of business. An example of this is going on right now in Midland, Texas, where the local government wants tight control over development of a short stretch of highway between Odessa and Midland. It has a connector road to the airport, and that's what has the government exited. The F-Troop insecurity that affects many people out here in the boonies makes them want to put on their freshest face when the out-of-town bosses arrive by air and get chauffeured to town along that stretch of highway. Better that they see raw desert than a business that doesn't meet the highest standard of governmental aesthetics.

To some of us, a thriving business is a thing of beauty, and the best government is one that stays out of the way rather than meddle. (See the results of the eminent domain case the Supreme Court handed down in Kelo vs. City of New London. That land taken from the citizens for government approved economic development eventually became a dump.)

So is it possible to have it all? Great beauty and thriving businesses?

The government is only concerned with the surface. So here's a compromise. In a previous post about this I suggested tall fences between the roadway and the businesses painted with murals to look like the solemn desert that drivers see now. But here's another alternative.

Go ahead and let the landowners build whatever buildings they want, then take voluntary donations from those who are dissatisfied with the aesthetics and use the money to build a facade and hire the artists to paint murals. The artists at at Dashart.com.ua could put up some very interesting images.

Their work has a fairy tale look to it. So maybe for Texas a theme focusing on the legends of the wild west might be appropriate. Pecos Bill meets Yosemite Sam. Throw in caricatures of Elfego Baca for good measure.

Or better yet, who better to do the art work than Midland's own Rubi Sosa?

Having it all, a thriving economy behind a thing of beauty. Everybody's happy.