Army Post Road

     Megan McArdle had another spot on post today. She’s even more libertarian than I am (the majority of people with post-secondary degrees in economics usually are) and aside from what she’s implicating about getting the government out of our bedrooms and ending the war on drugs, she put my feelings into words perfectly.

Professor Greg Mankiw related the following quote from the Adam Smith Institute on his blog:

“Need” now means wanting someone else’s money. “Greed” means wanting to keep your own. “Compassion” is when a politician arranges the transfer.

Joseph Sorboran

     Barry Ritholtz points out for us that the margin-of-error in the Department of Commerce’s New Home Sales numbers survey released in the last few days is so large that it renders the survey meaningless.

     Barry explains for us why the headline numbers the media hypes mean nothing:

In reality, the mathematical change was statistically no different than zero.

Why? Margin of error. It was ±12.2% — much higher than the reported gains. This means the actual increase or decrease in new home sales (according to the commerce department itself) was in a range ging from as low as -7.4% to as high as +17%.

Same with the year over year decline: December 2006 was 11.0% percent below December 2005 numbers — but it was ±11.7% . This represents a range of -22.7%, to plus +0.7%. And that’s before we even get to the now well documented cancellation issue, which according to the major builders themselves, excessively high cancellation rates may be overstating new sales by as much as 30%.

     Via The Drudge Report, I found an article in The Independent from Great Britain outlining an upcoming proposed measure in the Iraqi parliament modernizing their oil and gas industry.
     The measure, which the Independent reports will be introduced this week, would award several 30-year drilling contracts to Western energy companies to update, modernize, and, in essence, privatize the practices and infrastructure of the Iraqi oil industry. For the first few years of the contracts, the oil companies would reap a 75% portion of the profits and return the 25% remainder to the Iraqi government and people.
     This seemingly disproportionate share going towards the oil companies is being done because of the immense capital investment that will be required on the part of the Western companies to bring the infrastructure up to par. Once that investment has been recouped, the Western companies share will plummet to approximately 20% and then the true riches will be returned to the Iraqi people.
     A lot is made in the Independent article about this being the American companies robbing Iraq of their birth-right riches and that the Iraq War truly was only fought over oil. That is all rubbish; plain and simple. This is a HUGE win for global capitalism and a major victory for the Iraqi people. If the Iraqi Oil Ministry had been charged with all this modernization on it’s own the costs to the Iraqi people would be exponentially higher. Without this arrangement the Iraqi government would be forced to borrow the capital necessary to pay for the improvements, capital which they do not presently have in their own reserves, a process that would undoubtedly delay the process and in-turn delay profit-generation to the Iraqi people. Not only would the Iraqis be paying the material and construction costs of modernization, since they have, at best, only nascent native knowledge of modern drilling and transportation practices and systems, they would be paying enormous fees to outsiders as architects, consultants, planners, organizers, and the rest of the litany of people needed to complete their project. Under the proposed agreements with the Western oil companies, the oil companies will pay the upgrade costs, through investment funds they already have available, and will be able to immediately begin updating the Iraqi industry. All the expertise needed to begin upgrades they have immediately available either in-house or in pre-existing business arrangements. With that arrangement, almost as soon as oil begins to flow, the Iraqis will begin to see positive revenues without having any additional debt to service.
     All of that upside for the Iraqi government and people alone is enough to make this deal a wonderful thing. But not only that, the deal is, like I said before, a huge win for capitalism. Rather than leave the process in government hands and perpetuate more government-owned industries and the inefficiencies and corruption inherent in it, this deal makes global private industry the driving force in this instance. In the given situation, the global economies of scale available to companies like ExxonMobile, BP, and Royal Dutch-Shell make the deal so much cheaper and ready for profitability than the Iraqis could have possibly ever done on their own. Say what you want about the nefarious and greedy nature of Western oil companies, which I will say nothing of the like and agree with none of it, but the likelihood for corruption with their involvement in the deal is next to zero compared with if the whole thing had been left to the Iraqi government alone.
     This deal, and any others like it, are some of the few true examples of win-wins for the entire globe.

     I don’t remember really weighing in on the raging immigration debate very heavily before but if I have then I’m going to either restate what I’ve said or modify it.
     There are two key things in my mind regarding immigration: 1)immigration of unskilled and semi-skilled workers is good for both the workers and our economy, and 2) we have to know who is coming into our country; every last person who steps onto our shores.
     On my first point: the types of immigrants most commonly thought of in this debate, unskilled workers and semi-skilled workers, are extremely valuable to our economy. Their presence is anti-inflationary for one. They keep down wage pressures and keep the labor market a hire-er’s market. When labor costs grow at slower rates, the flame underneath the inflation kettle is minimized. If immigrant workers will do a job for less than native-born workers or will do one natives turn their noses from, all the better. I don’t have any sympathy for workers who price themselves out of the market or feel superior to a task. They’ve chosen their own course.
     On my second point: we can’t let a single person into the country without, at a minimum, knowing who they are and where they’re going. We have to secure our borders and create immigration bottlenecks that permit us to do this. Along with that, we have to have a comprehensive database of wanted criminals and persona not grata who need to be apprehended at or be prevented from crossing the border. We don’t need any other reasons than that to prevent people from entering this country. If they want to be here and aren’t a public safety or national security risk, let’em come. Nothing should stop them.
     When the discussion comes to those people already here illegally, if their only crime is entering illegally or overstaying their visas, then it’s the old bar-closing cliche: you don’t have to go home but you can’t stay here. If they want to come back, that’s fine but they have to leave and come back through the proper channels. Let a waiting period abroad be the punishment for their crime. Don’t clog our jails and prisons with people whose only crime was trespassing.
     It’s a simple idea for the problem but in this case, the simple plan is the best.

     My world is complete. Someone has found a way to combine beer and market trading. I found this bit of Nirvana in the making on the Freakonoics Blog. A bar in Berlin, the Broker’s Bier Borse, changes the price of beer as the night goes along according to demand.
     Also, read the comments. The very last one is quite funny.

     Fed Chairman Ben Bernanke wants China to do more to help strengthen our economy. They need to save less and consume more. SPEND SPEND SPEND! MORE MORE MORE! Below is Professor, and former Chairman of the Council of Economic Advisors, Greg Mankiw’s take on the situation:

Bernanke to China: Stop Saving
Ben Bernanke says the Chinese should stop saving so much:

Today, about half of China’s GDP is devoted to investment and to producing net exports for the rest of the world, and thus only the remaining half is available for consumption, including government consumption. In particular, household consumption in China last year was only 38 percent of GDP, down from 45 percent in 2001. In comparison, household consumption was about 60 percent of GDP in India in 2004, according to the most recent available data. China’s low share of consumption in GDP is, of course, the counterpart of its high national saving rate.

Policies aimed at increasing household consumption would clearly benefit the Chinese people, notably by improving standards of living and allowing the fruits of economic development to be shared more widely. Such policies, by reducing saving and increasing imports, would also serve to reduce China’s current account and trade surpluses.

The positive economics here is impeccable, but the normative economics is open to debate.

If a friend of yours is saving a high fraction of his income, how can you tell him he is saving too much without knowing his personal rate of time preference and his desire for precautionary savings? Judging another person’s saving rate is difficult. Judging another nation’s saving rate cannot be any easier.

     Yes, it’s true that China lessening it’s savings rate and strengthening it’s currency would help us. A lot possibly. But is it really reasonable for us to expect the Chinese to weaken these advantages they have for us? Especially on the savings rate. If you had become determined to save fully a quarter of your income and keep it in a savings account at the bank down the street, would you find it very reasonable if the hardware store owner whose store was between your house and the bank cajoled you as you walked by about buying more tools and saving less just to help prop up his business?

     What we do need to do is make consumption of American goods by the Chines more appealing than whatever investment vehicles they’re choosing. Open more American store fronts in China. Build Wal-Marts and McDonalds and KFCs and Home Depots in every size market we’d build one here. But even that is a double-edged sword for us. One of the favorite savings tools the Chinese have is American Treasury bills, notes, and bonds. If the Chinese did decide to start spending more and saving less, there is no doubt at all our interest rates would rise. Probably a lot. There’s also a certain lack of coherence to the “buy more of our stuff but strengthen the yuan” argument. If Chinese demand for American goods goes up, in turn Chinese demand for American dollars will go up and the yuan will likewise weaken. There is no way we can manipulate the situation 100% to our advantage. It’s the classic problem with economists: there’s always something on the other hand. We want them to buy more of our goods but on the other hand that will likely lessen their demand for our bonds and drive up our interest rates. We want them to strengthen their currency but on the other hand we want them to buy more of our goods and thus drive up the demand for our currency and thus, weaken theirs.

     We aren’t going about financial, commercial, and economic relations with China in a very coherent manner. We need to come up with a better plan.

     Did the NY Times forget itself? Doesn’t it know it’s not supposed to publish articles showing the economy is in a good place? Did they forget they can’t publish articles showing Bush Administration policy has worked out for the better? What happened that they let an article about rising tax revenues and shrinking budget deficits get published?
     Let me share a few choice, tasty morsels from the article with you:

An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

     Hold on, is that right? The times is telling us that even though taxes were cut, and according to them cut the deepest for the rich, tax revenues are rising? Not only that, but much of the increase is coming from big business and the wealthy? I think I need to see that again to be sure.

An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

     Yep, it looks like I read that right. Let’s see what else is says:

Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year.

     There’s going to be much wallowing and gnashing of teeth and tearing of clothes after this coming from liberals. Deficits might actually go down this year when all the government is doing is giving gilded swimming pools to the rich and handing out price gouging licenses to Big Oil?

     Let’s look a little further into the article:

Corporate tax payments are expected to exceed $300 billion, up from $131 billion three years ago. The other big increase is an extraordinary jump in individual taxes that were not withheld from paychecks, usually a reflection of taxes on investment income and executive bonuses.

     Hang on a tick, let’s stop and catch our breath here. Is the New York Times really reporting that three and five years after tax cuts were passed, tax cuts that they helped to tell the whole country and world would cause the lower half of society to live in our 21st Century-version of the Irish Potato Famine and the upper half of society to be perpetually stuck in the 1999 party, that revenues from corporate taxes and dividend and capital gains taxes has gone up? The tax cuts that were supposed to finance Bill Gates’ aquisition of Lichtenstein has actually caused the rich in America to pay a net increase in taxes? Be still my beating conservative heart, I’m not sure I can handle this. All of this almost makes me want to go out and shoot a gun and kick a hippie or something.

     It saddens me that it’s come to this but Congressman Barney Frank (D-NY) took Congressional Republicans to task and he was right and they deserved every bit he handed to them. Via the Club For Growth Blog, here is what he had to say concerning agriculture subsidies:

Mr. Chairman, I am here to confess my reading incomprehension. I have listened to many of my conservative friends talk about the wonders of the free market, of the importance of letting the consumers make their best choices, of keeping government out of economic activity, of the virtues of free trade, but then I look at various agricultural programs like this one. Now, it violates every principle of free market economics known to man and two or three not yet discovered.

So I have been forced to conclude that in all of those great free market texts by Ludwig von Mises, Friedrich Hayek and all the others that there is a footnote that says, by the way, none of this applies to agriculture. Now, it may be written in high German, and that may be why I have not been able to discern it, but there is no greater contrast in America today than between the free enterprise rhetoric of so many conservatives and the statist, subsidized, inflationary, protectionist, anti-consumer agricultural policies, and this is one of them.

In particular, I have listened to people, and some of us have said let us protect workers and the environment in trade; let us not have unrestricted free trade; but let us have trade that respects worker rights and environmental rights. And we have been excoriated for our lack of concern for poor countries.

There is no greater obstacle, as it is now clear in the Doha round, to the completion of a comprehensive trade policy than the American agricultural policy, with one exception, European agricultural policy, which is much worse and just as phony.

Sugar is an example. This program is an interference with the legitimate efforts at economic self-help in many foreign nations. So I appreciate the leadership of the gentleman from Arizona [Jeff Flake] and the gentleman from Oregon [Roy Blumenauer]. Here is a chance for some of my free-enterprise-professing friends to get honest with themselves, and now maybe we will see some born-again free enterprisers in the agricultural field.

Huzzah for the gentleman from New York.

     Professor Greg Mankiw, Chairman of the President’s Council of Economic Advisors, deftly defeats the diminuative former Secretary of Labor Robert Reich’s specious claim that President Bush’s tax cuts have been disproportionately and unfairly tilted towards the rich.

     Was there actually an opinion piece published in the Iowa City Press-Citizen with some sensibility and intellectual honesty?  Does someone in Iowa City actually realize that Big Oil isn’t to blame for the gasoline prices of late?  Kudos to Beth Cody and in turn the PC for standing up agains the socialist arguments for price controls and windfall taxes. 

     It was something that was really written on the wall two years ago and then etched onto the wall this past spring when the purchase was completed:  Whirpool intends to close their Maytag facilities in Newton, IA.  The productivity and cost-effectiveness of the washer/dryer plant there had been slipping in comparison to sister factories around the country and the world and so the justification to keep alive the most expensive horse in the stable was gone.  This will be one of the first and greatest tests of the next governor of Iowa (hopefully Jim Nussle) as they try to keep as many of the 1,800 jobs being cut from Whirlpool/Maytag’s rolls in Newton.  It’s not a good situation because Newton is one of those company towns that over the past 100 years built itself around the assumption that Maytag would always employ the largest chunk of able-bodied adults in town.  I remember going to play at Maytag Park and touring one of the Maytag factories in Newton when I’d go and visit my cousins there. 
      Like I discussed earlier about the tornados in Iowa City,  I wrote about how communities rebound from tragedy and hey they can grow their economies despite destruction and devastation.  They’ve already got one of the campi of Des Moines Area Community College (DMACC) and Newton is only about 30-40 minutes from Des Moines so it’s got things in its favor to be resilient, now the proof will all be in the execution.