Monday, May 30, 2011

Dependency and Votes

The ever insightful and well researched Thomas Sowell.

Those who regard government "entitlement" programs as sacrosanct, and regard those who want to cut them back as calloused or cruel, picture a world very different from the world of reality.

To listen to some of the defenders of entitlement programs, which are at the heart of the present financial crisis, you might think that anything the government fails to provide is something that people will be deprived of.

In other words, if you cut spending on school lunches, children will go hungry. If you fail to subsidize housing, people will be homeless. If you fail to subsidize prescription drugs, old people will have to eat dog food in order to be able to afford their meds.

This is the vision promoted by many politicians and much of the media. But, in the world of reality, it is not even true for most people who are living below the official poverty line.

Most Americans living below the official poverty line own a car or truck— and government entitlement programs seldom provide cars and trucks. Most people living below the official poverty line also have air conditioning, color television and a microwave oven—and these too are not usually handed out by government entitlement programs.

Cell phones and other electronic devices are by no means unheard of in low-income neighborhoods, where children would supposedly go hungry if there were no school lunch programs. In reality, low-income people are overweight even more often than other Americans.

As for housing and homelessness, housing prices are higher and homelessness a bigger problem in places where there has been massive government intervention, such as liberal bastions like New York City and San Francisco. As for the elderly, 80 percent are homeowners. whose monthly housing costs are less than $400, including property taxes, utilities, and maintenance.

The desperately poor elderly conjured up in political and media rhetoric are— in the world of reality— the wealthiest segment of the American population.

The average wealth of older households is nearly three times the wealth of households headed by people in the 35 to 44-year-old bracket, and more than 15 times the wealth of households headed by someone under 35 years of age.

If the wealthiest segment of the population cannot pay their own medical bills, who can? The country as a whole is not any richer because the government pays our medical bills— with money that it takes from us.

What about the truly poor, in whatever age brackets? First of all, even in low-income and high-crime neighborhoods, people are not stealing bread to feed their children. The fraction of the people in such neighborhoods who commit most of the crimes are far more likely to steal luxury products that they can either use or sell to get money to support their parasitic lifestyle.

As for the rest of the poor, Professor Walter Williams of George Mason University long ago showed that you could give the poor enough money to lift them all above the official poverty line for a fraction of what it costs to support a massive welfare state bureaucracy.

We don't need to send the country into bankruptcy, in the name of the poor, by spending trillions of dollars on people who are not poor, and who could take care of themselves. The poor have been used as human shields behind which the expanding welfare state can advance.

The goal is not to keep the poor from starving but to create dependency, because dependency translates into votes for politicians who play Santa Claus.

We have all heard the old saying about how giving a man a fish feeds him for a day, while teaching him to fish feeds him for a lifetime. Independence makes for a healthier society, but dependency is what gets votes for politicians.

For politicians, giving a man a fish every day of his life is the way to keep getting his vote. "Entitlement" is just a fancy word for dependency.

As for the scary stories politicians tell, in order to keep the entitlement programs going, as long as we keep buying it, they will keep selling it.

To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate web page at Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His Web site is



Wednesday, May 25, 2011

Another Tech Bubble ????? LinkedIn

BWG has a discussion on this running at Finance 3.0 . Below is a bit more evidence from the ever humorous Dr Goose.
In the IPO pricing of LinkedIn,
Which doubled before one had blinked in,
Either banks ripped off clients,
Or it's more art than science;
It's a point which the truth's indistinct in.
The IPO of the professionally oriented social networking site LinkedIn created a sensation last week when the offering price of $45 was quickly more than doubled in the first day of trading. The IPO "pop" became the object of furious debate between those who saw a successful issue creating investor excitement and those who objected that the deal was underpriced and the company thereby deprived of potential capital. Underwriters Morgan Stanley, Bank of America and JPMorgan may indeed have delivered a windfall to their favored investors, who could have flipped the shares and doubled their money immediately; however, since the original $4.3 billion valuation (at $45/share) seemed bubblicious for a company that earned $15 million last year, all the complaints about ripping off the company may amount to 20/20 hindsight.
From Dr. Goose at  The limericks meets economics  style blog.


Saturday, May 21, 2011

Rules for fools

Occupational regulation is the scourge of the unemployed as well as the consumer. Even the Economist doesn’t like it (Economist May 14). It’s increase shows the vulnerability of democracy to rent seeking.

IN 1941 Franklin Roosevelt added two new items to America’s ancestral freedoms of speech and worship: freedom from fear and freedom from want. Today’s politicians offer a far more generous menu: freedom from unlicensed hair-cutters, freedom from cowboy flower-arrangers and, most important of all, freedom from rogue interior designers. What is the point of enjoying freedom from fear or want, after all, if you cannot enjoy freedom from poorly co-ordinated colour schemes?

In the 1950s, when organisation man ruled, fewer than 5% of American workers needed licences. Today, after three decades of deregulation, the figure is almost 30%. Add to that people who are preparing to obtain a licence or whose jobs involve some form of certification and the share is 38%. Other rich countries impose far fewer fetters than the land of the free. In Britain only 13% of workers need licences (though that has doubled in 12 years).

Some occupations clearly need to be licensed. Nobody wants to unleash amateur doctors and dentists on the public, or untrained tattoo artists for that matter. But, as the Wall Street Journal has doggedly pointed out, America’s Licence Raj has extended its tentacles into occupations that pose no plausible threat to health or safety—occupations, moreover, that are governed by considerations of taste rather than anything that can be objectively measured by licensing authorities. The list of jobs that require licences in some states already sounds like something from Monty Python—florists, handymen, wrestlers, tour guides, frozen-dessert sellers, firework operatives, second-hand booksellers and, of course, interior designers—but it will become sillier still if ambitious cat-groomers and dog-walkers get their way.

Getting a licence can be time-consuming. Want to become a barber in California? That will require studying the art of cutting and blow-drying for almost a year. Want to work in the wig trade in Texas? You will need to take 300 hours of classes and pass both written and practical exams. Alabama obliges manicurists to sit through 750 hours of instruction before taking a practical exam. Florida will not let you work as an interior designer unless you complete a four-year university degree and a two-year apprenticeship and pass a two-day examination.

America’s Licence Raj crushes would-be entrepreneurs. Consider three people who come from very different states and occupations. Jestina Clayton is an African hair-braider with 23 years of experience. But the Utah Barber, Cosmetologist/Barber, Esthetician, Electrologist and Nail Technician Licensing Board told her that she cannot practise her craft unless she first obtains a licence—which means spending up to $18,000 on 2,000 hours of study, none of it devoted to African hair-braiding.

Justin Brown is an abbot at a Benedictine abbey that supplements its meagre income by making and selling simple wooden coffins. But the Louisiana Board of Embalmers and Funeral Directors has ordered him to “cease and desist”. Heaven knows what harm a corpse might suffer from an unlicensed coffin. Barbara Vanderkolk Gardner runs a flourishing interior-design business in New Jersey. But when she tried to expand into Florida, the state’s Board of Architecture and Interior Design ordered her to delete all references to “interior design” from her website and stop offering “interior design services” in the Sunshine State.

The cost of all this pettifoggery is huge—unless, that is, you are a member of one of the cartels that pushes for pettifogging rules or an employee of one of the bureaucratic bodies charged with enforcing them. Morris Kleiner of the University of Minnesota calculates that licensing boosts the income of licensees by about 15%. In other words, it has about the same impact on wages as membership of a trade union does. (Trade unionists who are also protected by licences enjoy a 24% boost to their hourly wages.) Mr Kleiner also argues that licensing slows job-creation: by comparing occupations that are regulated in some states but not in others he found that job growth between 1990 and 2000 was 20% higher in unregulated occupations than in regulated ones.

The Institute for Justice, a free-market pressure group, argues that this is only the beginning of the Raj’s sins. The patchwork of regulations makes it hard for people to move from state to state. The burden of regulations falls most heavily on ethnic minorities (who are less likely to have educational qualifications) and on women (who might want to return to work after raising their children). States that demand that funeral directors must also qualify as embalmers, for example, have 24% fewer female funeral directors than those that don’t.

Uncle Sam will save you from bad feng shui

You might imagine that Americans would be up in arms about all this. After all, the Licence Raj embodies the two things that Americans are supposed to be furious about: the rise of big government and the stalling of America’s job-creating machine. You would be wrong. Florida’s legislature recently debated a bill to remove licensing requirements from 20 occupations, including hair-braiding, interior design and teaching ballroom-dancing. For a while it looked as if the bill would sail through: Florida has been a centre of tea-party agitation and both chambers have Republican majorities. But the people who care most about this issue—the cartels of incumbents—lobbied the loudest. One predicted that unlicensed designers would use fabrics that might spread disease and cause 88,000 deaths a year. Another suggested, even more alarmingly, that clashing colour schemes might adversely affect “salivation”. In the early hours of May 7th the bill was defeated. If Republican majorities cannot pluck up the courage to challenge a cartel of interior designers when Florida’s unemployment rate is more than 10%, what hope has America? The Licence Raj may be here to stay.


Thursday, May 19, 2011

Bit of a laugh…

Q: What does an economist do?
A: A lot in the short run, which amounts to nothing in the long run.

Q: How many economists does it take to change a lightbulb?
A: Eight. One to screw it in and seven to hold everything else constant.

Q: How has French revolution affected world economic growth?
A: Too early to say.


Sunday, May 15, 2011

A wee clue on law and order–imitation is the most common form of learning

There is perhaps nothing new in this article insofar as it merely chronicles yet again the nature of tax gathering processes and shows that much of what Oliver Cromwell thought he achieved in fact turns out to be simple substitution of one form of tyranny for another.

More worrying though is the advice proffered at the end of the article which seems to me to be thoroughly sound and prudent. It offers as the first rule of engagement to remember when dealing with the IRD:

The IRD’s job is to collect tax, not to be fair.

To the extent that this is the case – and the evidence suggests that it is an unexceptionable conclusion - is it any wonder that a good proportion of the community therefore concludes that:

The citizens job is avoid tax, not to be fair.

Where redistribution is at issue “fairness” is a vacuous concept. Where sound process is at issue “fairness” is fundamental.

For a modern society the above job descriptions are less than flattering.

Saturday, May 14, 2011

Emerging markets–Central Bank Rate Changes

These changes:

The past week saw monetary policy decisions announced by 12 different central banks around the world.

Those that increased interest rates were:

  • Azerbaijan +25bps to 5.25%
  • Poland +25bps to 4.25%
  • Norway +25bps to 2.25% Peru +25bps to 4.25% and
  • Chile +50bps to 5.00%.

Ghana was the only country that eased policy, cutting rates 50bps to 13.00%.

Those that held rates unchanged were:

  • Indonesia 6.75%
  • South Africa 5.50%
  • Latvia 3.50% and
  • South Korea 3.00%.

Other changes saw two economies lift reserve requirements:

  • Uruguay lifted its required reserve ratios 300bps to 15%,
  • China increased its RRR by 50 basis points to an average 21% for large banks.

Central Bank News Info reports….

The theme of emerging market monetary policy tightening continued, as did the theme of the gradual start of developed market monetary policy tightening; or more appropriately, monetary policy normalization. The rate hikes in Norway and Poland show that policy tightening or normalization is becoming a Euro region-wide phenomenon, as inflation pressures begin to rise due to rising inflation expectations and improving economic conditions. Meanwhile the outlier of Ghana shows that when commodity prices start to ease it will give central banks the luxury of being able to ease policy somewhat, which will be helpful for economic growth, but of course it depends on how much of an impact the short-medium term commodity price spike will have on broader inflation conditions.

Full list of current central bank rates on the Brent Wheeler Group website here.


Tuesday, May 3, 2011

More xenophobic delusions

A number of people, thinking they are “bright sparks” circulate the following on the grounds that it provides “insight” into why jobs are tough to get in New Zealand. It in fact provides insight into:

1. a long list of things other people are able to do better than New Zealanders can at present;

2. a long list of things which cost less or are of higher quality or both or provide a better mix of money and quality than their N.Z. equivalent – if that exists at all; and,

3. proof positive that the level of economic education here remains dismal – which is probably why the subject of this story – should he decide to read an economics book – would find it was written elsewhere.

“John Smith started the day early having set his alarm clock

(MADE IN JAPAN ) for 6 am.

While his

coffeepot (MADE IN CHINA ) was perking, he shaved with his electric razor (MADE IN HONG KONG ). He put on a dress shirt  (MADE IN SRI LANKA ), designer jeans (MADE IN SINGAPORE ) and tennis shoes (MADE IN KOREA )

After cooking his breakfast in his new electric skillet (MADE IN INDIA ) he sat down with his calculator (MADE IN MEXICO ) to see how much he could spend today.

After setting his watch (MADE IN TAIWAN ) to the radio (MADE IN INDIA ) he got in his car (MADE IN GERMANY ) filled it with fuel (from Saudi Arabia ) and continued his search for a good paying  JOB.

At the end of yet another discouraging and fruitless day checking his Computer (Made In Malaysia ), John decided to relax for a while.

He put on his sandals (MADE IN BRAZIL ) poured himself a glass of wine (MADE IN FRANCE ) and turned on his TV (MADE IN INDONESIA ), and then wondered why he can't find a good paying job in  New Zealand.

Employment is more likely for John Smith than the promoter of this delusional pap.