RedStateEclectic

Savings and Consumption

Following up on Angela's Stimulating the Economy With Food Stamps, here's a neat little video on what really matters:

 

Stimulating the Economy With Food Stamps

Today, the Washington Post ran a story about a woman who gets paid to sign up people for food stamps. Surprisingly enough, it isn't a federal job - the state of Florida pays her, the logic being that the money taken from the federal government and spent in Florida stimulates the Florida economy.

Dean L over at Left Coast Rebel said almost everything I was thinking. And he's got a cool chart too. 

The only thing I would add is this: Can you imagine the liberal outcry if WalMart hired people to do just that? Seriously, what if the greeters started asking if customers would be interested in signing up for government assistance, and even passing out a couple of free things to stimulate interest? 

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Meanwhile, Over In Cyprus.....

Liberty's Dawn

Writes Emma Griffin, the author of Liberty's Dawn: A People's History of the Industrial Revolution:

Writers and academics often show an interesting ambivalence about industrialization. Today, they regard it as a blessing, the single-most-effective way to lift people out of poverty. But in thinking about Britain’s Industrial Revolution, they have tended to reach the opposite conclusion: The rise of the factory, they argue, caused the end of more “natural” working hours, introduced more exploitative employment patterns and dehumanized the experience of labor. It robbed workers of their autonomy and dignity.

Yet if we turn to the writing of laborers themselves, we find that they didn’t share the historians’ gloomy assessment. Starting in the early 19th century, working people in Britain began to write autobiographies and memoirs in ever greater numbers. Men (and occasionally women) who worked in factories and mines, as shoemakers and carpenters, and on the land, penned their stories, and inevitably touched on the large part of their life devoted to labor. In the process, they produced a remarkable account of the Industrial Revolution from the perspective of those who felt its effects firsthand -- one that looks very different from the standard historical narrative.

Make sure to read the rest.

See also this excellent lecture by Ralph Raico:

 

Another Bailout 'Success Story' - Caterpillar Flounders

Remember when the government was passing out our money to private businesses to keep them alive?  If not, here's a quick recap from December 2010:

The financial crisis stretched even farther across the economy than many had realized, as new disclosures show the Federal Reserve rushed trillions of dollars in emergency aid not just to Wall Street but also to motorcycle makers, telecom firms and foreign-owned banks in 2008 and 2009.

The Fed's efforts to prop up the financial sector reached across a broad spectrum of the economy, benefiting stalwarts of American industry including General Electric and Caterpillar and household-name companies such as Verizon, Harley-Davidson and Toyota. The central bank's aid programs also supported U.S. subsidiaries of banks based in East Asia, Europe and Canada while rescuing money-market mutual funds held by millions of Americans.

 

Here we go again. The news this morning:

Caterpillar laying off 460 workers, cites weakness in mining.

I think it should be obvious that we were clearly remiss in not propping up the mining industry. While the day isn't over yet, though, the election is.  Good luck, Caterpillar.  Don't let the union hit you on the way out.

Concerning GDP

The term "GDP" (Gross Domestic Product) is no less ubiquitously used and generally taken for granted than a phrase like "good morning". Yet do we truly comprehend what is involved? "Mish" Shedlock has a thoughtful comment on the matter:

By definition, government spending contributes to GDP. No products have to be produced. Economic benefits are unnecessary.

Pettis used an example of governments building worthless bridges. Previously I have noted that if the government hired people to spit at the moon it would add to GDP. And that is an inherent problem with the definition.

In France, government spending accounts to 56% of GDP. How much of that spending is wasteful? How much government spending in the US is wasted?

Consider how Davis-Bacon and prevailing wage laws affect the answer. In the case of roads repairs, if the private market could do as good a repair job for 1/3 less, then the answer is 33.3%. But what about projects that should not be done at all?

Spending can even be net-negative as is the case in bombing countries for no reason. What did the US accomplish in Vietnam or Iraq? Even bridges to nowhere have more economic benefit.

While everyone is ready and willing to consider that China overstates its GDP, too few point the same finger at the US for the same reason.

The entire post.

The Great Deformation

In the below podcast, the always insightful David Stockman talks about some of the topics dealt with in his new book The Great Deformation.

 

See also here.

The Economics of Lushness

In a strand of his argument, Matt Ridley seems to imply that man-made global warming is of a significant magnitude. Which puzzles me, as the evidence available to me seems to suggest that anthropogenic contributions are minute compared to non-human drivers of CO2 emissions. Be that as it may, I like the gist of the presentation:

 

The source is the excellent PERC - Property and Environment Research Center.

Meanwhile, Over In Cyprus.....

In case you haven't been watching, the newly elected right wing President of Cyprus signed off on a deal that includes a one-time tax on all savings accounts in the country -  6.75% on accounts worth less than €100,000, 9.9% on bigger accounts. (Considering that the IMF and Germany originally wanted 40%, this probably sounded like a pretty good deal.)

The ripples through the financial world have been significant, and the banks in Cyprus closed to avoid the entirely predictable bank runs while ATMs stopped working, giving only messages about "technical difficulty."

The vote was supposed to happen today, but has been pushed back by a day while President Anastasiades tries to gather support in Parliment.  (Good luck with that!)  

The CEO and founder of a bank in Denmark has written a post about the topic that should send chills down the spine of every liberty lover.  

This is a breach of fundamental property rights, dictated to a small country by foreign powers and it must make every bank depositor in Europe shiver. Although the representatives at the bailout press conference tried to present this as a one-off, they were not willing to rule out similar measures elsewhere - not that it would have mattered much as the trust is gone anyway. It is now difficult to expect any kind of limitation to what measures the Troika and EU might take when the crisis really starts to bite.

While he applies the fright to all of Europe, it isn't hard to imagine this type of action coming to America, too - especially with the endless chatter from the left about rich people not paying their fair share. (I digress rhetorically, but why is it that their fair share is quite a bit more than my fair share? Oh, because they have it.  And because government said so.)

Of course the IMF is on board: "We believe the proposal is sustainable for the Cyprus economy."  "The IMF is considering proposing a contribution to the financing of the package ... The exact amount is not yet specified." - International Monetary Fund Person Who Should Be Beat With Her Briefcase  Managing Director Christine Lagarde, who managed to slither out of her former position in France just ahead of a potentially career-ending scandal.

This is worse than socialism - this is banksterism.  Nobody in Cyprus voted to have the IMF swoop in and manage their funds, and almost none of them are responsible for the current mess that the Cypriotic banks are facing. They are largely ex-pats, who retired to the island and brought their retirement funds with them, and Russian businessmen, probably looking for a haven safe from the eyes of the Russian government. Asserting that any of these people have some fiscal duty to ensure that the banks are alright at all costs is just Pelosi-esque absurdity. 

(Too bad In-Trade is shuttered up:  I'd like to take 3 months in the bet about how long it will take the media to discover that lots of high ranking government officials pulled their money out of the Cypriotic banks Friday.)

And get this: the main reason the Cyprus banks are in trouble is that many of them had invested in Greece, in an attempt to keep that country afloat.  So,  they do the wrong thing for the right reason. Happens.  But check this out:: the Greek units of Cypriot banks are excluded from the deposit levy.

If you think it can't happen here, remember that right wing economist Greg Mankiw has already suggested using negative interest rates as a method of stimulating the economy. That would entail, say, being able to borrow $100 and only paying back $97.  It would, however, also entail withdrawing a lesser amount than originally deposited into deposit accounts.   (Gee, what could possibly go wrong there?)

Also remember that nationalizing our 401(k) plans is an idea that occasionally floats back up to the top of the D.C. cesspool.  And while current political dialogue usually calls it an Obama scheme, it not only predates his administration, it has also been considered on both sides of the aisle.

From Karl Denninger's blog: 

$100 bills in your hand have just been declared to be worth somewhere between 7-10% more than those "deposited" and "stored" in a bank.  May I ask the following pertinent and rather timely question: Where are yours?

 

 

 

Vernon Smith on Ludwig von Mises

Freedom is about adapting to the evolutionary condition whereby orientation in the world cannot be solely accomplished by relying on human reasoning but depends substantially on a process that unfolds in a vast network of means operating outside of and by interaction with the human body and brain.

Writes Vernon L. Smith - apologies for the poor formatting:

Here Mises has been overtaken by recent trends in neuroscience, for he states, ‘‘Conscious or purposeful behavior is in sharp contrast to unconscious behavior, i.e. the reflexes and the involuntary responses of the body’s cells and nerves to stimuli’’ (M, p. 10).

He wants to claim that human action is consciously purposeful.

But this is not a necessary condition for his system. Markets are out there doing their thing whether or not the mainspring of human action involves self-aware deliberative choice.

He vastly understates the operation of unconscious mental processes. Most of what we know we do not remember learning, nor is the learning process accessible to our conscious experience—the mind.

A normally developing child has learned a syntactically correct natural language by the age of four, without having been taught. As noted by Pinker, ‘‘Children deserve most of the credit for the language they acquire. In fact we can show that they know things they could not have been taught’’ (Pinker 1994: 40).

Even important decision problems we face are processed by the brain below conscious accessibility. This is apparent when you are struggling with a decision, or trying to solve a problem, then go to bed, and wake up having made significant progress or found the solution.

As the neuroscientist, Michael Gazzaniga, has noted with characteristically plain prose:

By the time we think we know something—(namely that) it is part of our conscious experience—the brain has already done its work. It is old news to the brain, but fresh to ‘‘us’’ (the aware mind). Systems built into the brain do their work automatically and largely outside of our conscious awareness. The brain finishes the work half a second before the information it processes reaches ourconsciousness. We (that is, our minds) are clueless about how all this works and gets effected. We don’t plan or articulate these

actions. We simply observe the output.

The brain begins to cover for this ‘‘done deal’’ aspect of its functioning by creating in us the illusion that the events we are experiencing are happening in real time—not before our conscious experience of deciding to do something. [Gazzaniga 1998: 63–64]

Indeed, one of the puzzles of neuroscience is why the brain fools

the mind into believing it is in command of mental activity.But none of this changes the import of Mises’ argument. Markets are one ofthe social brain’s means of extending its capacity for information processing to other brains, and to leverage the creation of wealth beyond anything that can be comprehended by the mind. Just as most of what the brain does is inaccessible to the mind, so also is there a widespread failure of people to understand markets as self-organizing systems, coordinated by prices for cooperative achievement of gains from exchange, without anyone being in charge. The workings of the economy are as inaccessible to the awareness of its agents, business persons included, as is an agent’s awareness of his own brain functioning.

The workings of the economy are not the product, nor can they be the product of conscious reason, which must recognize its own limitations and face, in the words of Hayek,‘‘the implications of the astonishing fact, revealed by economics and biology, that order generated without design can far outstrip plans men consciously contrive’’ (Hayek 1988: 8)

The source.

Are Bling Gold Parties a Sign of a Bubble?

Over cards last night someone mentioned they knew a friend who had hosted a gold party. Having never heard of such a thing I asked for more information.

Turns out this friend ended up making $400 on just hosting fees alone where the host gets a cut of what is generated. There was $4,000 worth of gold that changed hands at the party.

Doing a simple Google search shows there is lots of activity on the Internet for these parties. Reading some of the news sites that talk about gold parties it is mainly a female party similar to the basket, Tupperware, chef, Mary Kay parties of the past. In this case, there is a buyer from a company that brings their checkbook who first tests the gold to find out how pure it is and then makes an offer with a check for the gold.

Here in Nebraska there are a couple of bills in the state legislature (LB 109 and LB 226) that try to put more restrictions on the sale and purchase of gold. These laws would certainly make it harder to conduct a gold party. Scrap metal dealers and pawnbrokers are already restricted on how they must perform a transaction with gold. The new legislation attempts to add anyone else doing the same to these restrictions. You can read more here.

As someone who saw the stock clubs spring up during the .dot com bomb which then lead into friends buying rental or fixer-upper homes before the real estate crash one has to wonder if this gold party is the sign that we've reached the top of the gold bubble?

There's a general rule I use that if it plays in Nebraska you're near the top. It might be time to move on. Reason I say that is that due to our slowness to "get it" and also the lack of population, by the time something popular comes here (a newish restaurant chain, popular musical artist in concert, clothing craze, etc.) that something has hit its peak with no growth left, i.e. no more suckers to find.

Time will tell if this is the peak of the gold bubble (chart). The money printing will never go away, but bubbles do go bust. If gold is in a bubble, then what's next?

(Note: If you get financial recommendations from blogs, please stop now and just give me your money. Also, I happen to like the fact that we don't "get it" as fast as the rest of the country. That's why we're more conservative in this state then in others. And that's fine by me.)

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