Thursday, September 25, 2008

Pres. Bush on Economic Crisis

The current economic issues in America are so complicated and intertwined, that I won’t even pretend to have an analysis. But, as I’m sure most readers did, I listened to Bush speak last night. After all it is Bush and his administration that has to deal with this issue now, as McCain and Obama are merely senators in the short term.

Two quotes jumped out at me, and hopefully someone can post a comment to help me understand the rational behind them.

“Eventually, the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell, and this created a problem.”

Nice that he attempted to throw a bit to the economists, but the last part is where I have an issue. Why is this a problem? The market will go back to equilibrium. Yes, people will suffer, but that is because they either overpaid for a house or signed a mortgage that was above their means. Why should taxpayers have to pay? The government getting involved will merely add to more distortions.

“The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal.
And when that happens, money will flow back to the Treasury as these assets are sold, and we expect that much, if not all, of the tax dollars we invest will be paid back.”

Now this made me wonder, why would the American Government be the only place with the patience and resources to buy this? I know the Chinese Sovereign Wealth Fund has some cash, as well as some other Oil producing nations. Certainly other countries have a more balanced budget, supplying them with resources.

This does not even consider the private sector, which is willing to purchase assets that will “return to normal”. The fact is that the private market does not see these as investment worthy, so please do not try to convince us that the Treasury is doing this to break even.
Secondly, if we are buying at “current low prices” and the market for them will “return to normal” why not just say that the Treasury will make a profit, instead of just being “paid back”? Does Bush consider that to much of a stretch to pull off?

This plan that Bush is supporting comes from Paulson who declared in April 2007 that
"All the signs I look at" show "the housing market is at or near the bottom," Paulson said. The U.S. economy is "very healthy" and "robust,"

Not sure I would take his word to predict that these securities will be worth holding for a long period of time. If he truly believe this I'm all for him using his savings to make a fortune, but please don't use the Taxpayers.

Friday, September 12, 2008

America's Economic Myths

Suffolk University Master in Economic Policy student David Saied debunks some commonly-held economic myths over at the Ludwig von Mises's web site.

My personal favorite is a put-down of the unfortunately popular catchphrase: "energy independence." Both McCain and Obama would do well to have a quick look at this paper, as it seems one of the few things they both agree on is false.
The high price of oil has nothing to do with its origin; the price of oil is determined in international markets. Even if the United States were to produce 100% of the oil it consumes, the price would be the same if the worldwide supply and demand of oil were to remain the same.
Read the whole article.

EOT Cost Report

The Executive Office of Transportation and Public Works (EOT) has released its Road Flagger & Police Detail Cost Report & Analysis. The EOT findings include projected cost savings of between $5.7 million and $7.2 million in the first year. This is the money that the police union is working to preserve with the rent-seeking activity exclusive to the Commonwealth of Massachusetts.

The report leaves out any positive effects private flagging firms would bring as a result of competition. By letting the market set the rate, the Commonwealth could reap the benefits of lower wages.

The EOT Report concludes:
Under the draft road flagger and police detail regulations and the revised traffic management plans, the Commonwealth will realize cost savings through lower hourly rates for road flaggers, efficient use of road flaggers and police details on public works projects, and through greater control over the administration of the traffic management plan.

Wednesday, September 10, 2008

Government is not an efficient entrepreneur

Barack Obama thinks that government can pick a winner and his industrial policy suggests that green jobs will help grow the U.S. economy.

At last month's DNC, Obama claimed that he will “invest $150 billion over the next decade in affordable, renewable sources of energy” creating “five million new jobs that pay well and can't ever be outsourced.”

Not so fast with those job numbers says John Stossel who takes on Obama's major premise that government directed "investment" to create Green Jobs is something that he should be proud of. Obama's claim misses the larger point: government is a lousy investor subject to the push and pull of politics.

1.) Stossel reminds us "Alaska Rep. Don Young claimed the infamous "bridge to nowhere" would create jobs." Digging a hole then filling it is also creates jobs, but people would not consider that a benefit.

As BHI research economist Ben Powell has noted numerous times, “Jobs themselves are not a benefit; if they were, workers would be paying their employers for the privilege of working, rather than vice versa! It is the value created by performing those jobs that is the benefit, while doing the job is the cost an individual must pay to obtain a benefit.”

2.) Stossel also questions the idea “that Obama knows how best to 'invest' the $150 billion.” I have always held a firm belief that entrepreneurs invest much better then any politician. The entrepreneur risks their own money, and therefore will suffer any costs of a poor investment, encouraging them to measure the risk very carefully. The government risks my, and your, money so the costs are merely passed onto taxpayers. McCain suffers from the same issue, saying he “will support projects to advance technologies that capture and store carbon emissions,” funded via federal revenue. He is careful to say he is for “support,” as he is against “subsidies." Six one way, half a dozen the other.

Green jobs are touted as a welcome byproduct of climate change legislation. In truth it is taking money out of the private sector and putting it into a government that take a cut. When an indepth look is taken and the hand waving and populist rhetoric has been pushed aside, current climate change strategies that consist of a mixing of heavy handed government regulation often fail to meet the basic criteria of cost-benefit analysis.

More of this line of critique can be found here at BHI:

The Faulty Economics of Colorado's Climate Change Action Plan: A Peer Review

The Economics of Climate Change Legislation in North Carolina

Peer Review: Minnesota Climate Mitigation Action Plan Cost-Benefit Analysis

Thursday, September 4, 2008

Boston's economy still strong

According to the latest Beige Book, the Boston economy is strong. A little good news in a cascade of gloom should always be welcomed.
The Boston-area economy is still getting banged up, especially the manufacturing, housing and commercial real estate sectors.

But the local economy overall appears to be weathering the nation’s economic storm somewhat well, with the high-tech sector still growing and adding jobs, according to a new survey released yesterday.

The Federal Reserve’s “Beige Book” - a compilation of interviews with local businesses - says the Boston and New York economies are showing “signs of stabilization,” while other areas of the country are experiencing “weak” and “soft” economic conditions.

The Boston area’s retail sectors, earlier hit by a cutback in consumer spending, reported “mixed or little change” in activity since the last Beige Book report in late July, the latest report said.

Tourism is doing “surprisingly good,” despite high gas prices that have discouraged travel around the country, the survey said.
Boston's diverse economy is an asset.

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