Saturday, November 29, 2008

Capping executive pays

Does it piss you off that some individuals - the very individuals who're now being held responsible for the financial mess - are getting paid an awful lot of money? One of the few things I've learned during my studies is that in an ideal market economy the bosses, just as their subordinates, are paid according to their marginal productivity. According to theory, this is an inevitable result of competition. But we often do not live in an ideal market economy; there just is not enough competition and this argument is often used to refute the idea that markets should be allowed to allocate wages/pays. This, of course, is stupid. Even if markets are not always fully efficient (or "perfect") two things still count:
1) Even if markets are not "perfect" in market economies, they're still quite perfect enough.
2) Attempts by the government to increase competition by means other than laissez-faire often fail and not only because bureaucrats lack relevant information but also because of rent seeking. Some producers seek ways to influence politicians in a way that'd result in a better market position but less free market capitalism. As has often been said, the so called capitalists are often the worst enemies of capitalism. Excessive government interference is not an uncommon result which is not exactly a wonder considering the fact that the public is driven by populist misconceptions ("ending agricultural subsidies will leave you starving", "speculators are responsible for price increases" etc.) about economics.

So how would limiting executive pay help anyone? If governments feel uncomfortable using taxpayer money on bailing out rich people then maybe they should not be doing so in the first place. Is there any logic behind the idea that less money attracts better people?

And then there's the moral side of the story: envy. Spiteful, petty individuals are for capping executive pay simply because they can't stand having a neighbour who's got a bigger house.

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Sunday, November 23, 2008

Are we all Keynesians now?

It's the return of the shortsighted "In the long run we're all dead" (Keynes in Monetary Reform) kind of thinking that dominated political thinking ever since the Great Depression but ended in the stagflationary seventies and eighties. Apparently Obama has a plan to create 2.5 million new jobs by investing in infrastructure and green technology. Wow, another grand plan by a statist to help the ailing private sector! What next, tax hikes and more union power? It seems that Obama is learning all the wrong lessons from the disastrous New Deal.

As several economist, in a letter to the British Telegraph, warned: "It is misguided for the Government to believe that it knows how much specific sectors of the economy need to shrink and which will shrink 'too rapidly' in a recession... Thus the Government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources."

And what to do once the current crisis is over? How long is it going to take to bring down all the regulations, debts and obstacles to sound economic growth initiated during this phase of shortsightedness?

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Wednesday, November 12, 2008

And so it begins

This concerns Obama's Transition Economic Advisory Board, a board no doubt set to destroy the United States economy as soon as possible. As a Financial Times blogger notes, these guys are mostly labor union meanies, business people, protectionists and lawyers:

Except for a depressingly small minority among them, lawyers know nothing. They are incapable of logic. They don’t know the difference between necessary and sufficient conditions or between type I and type II errors. Indeed, any concept of probability is alien to them. They don’t understand the concepts of opportunity cost and trade off. They cannot distinguish between normative and positive statements.

In the Obama world this must be a part of that grand Change, a true bipartisan effort to save the US economy.

But worse, I'm sure, is on the way. No doubt Obama will take action by following in the footsteps of Hoover and FDR, presidents with experience in making matters worse, such as turning recessions into depressions. So, will there be a tax hike?

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Tuesday, November 11, 2008

Paul Krugman

Krugman is by no means a bad economist, but he should just stick to his strengths instead of spewing out crap like this:

Last night wasn’t just a victory for tolerance; it wasn’t just a mandate for progressive change; it was also, I hope, the end of the monster years.

What I mean by that is that for the past 14 years America’s political life has been largely dominated by, well, monsters.

And in our national discourse, we pretended that these monsters were reasonable, respectable people.
As anyone who's been reading this blog knows, I'm no fan of the past eight years but expecting some kind of a major change for the better is naive and not grounded on facts. The problem with Krugman is that he's using his professional reputation to get people to listen to his political views that are not supported by the science he practices. This leads some people to use Krugman as some kind of an argumentum ad auctoritatem to push their views on issues like the minimum wage.

But it's really no wonder that a Democrat partisan like Krugman is so anxious to see another Democrat partisan in the White House:, a website that tracks partisanship among American political columnists, rates Mr Krugman second in the overall partisan slant of his columns, behind only Ann Coulter, a fiercely (and often incoherently) conservative polemicist.

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Tuesday, November 04, 2008

The end is nigh - or maybe not

With Obama winning the elections (Ohio just went for Obama), a fraction of us are asking ourselves how low will the US go? It's not so much Obama that you should be worried about. He's reasonably smart and has taken steps toward the center after winning the primaries. But the real worry is that the Democrats could get sixty Senators elected. This would strip the Republicans of their ability to use filibuster. The US federal budget could get out of hands. (In all fairness, it already is out of hands.) Keynesian economic policies with emphasis on short-term results (Keynes himself stated that "In the long run we're all dead.") could once again dominate. Obama is known for not going against his party so I don't think we will be seeing many vetoes. (Again, in all fairness, not that we have seen many vetoes during the Bush years.) Also, Obama has already surrounded himself with questionable individuals who may end up in powerful positions. However, despite Obama's will to tax & spend it may be reality, according to a Nobel laureate economist, that will prescribe Obama with a dose of moderation. Taxing capital gains and dividens won't help the "Main Street", particularly not now when incentives to invest and produce have suffered so much. Worth noting is that Obama's advisors don't even seem to agree on one of Obama's central campaign issues, moving health insurance toward universal coverage.

Funny how those left-wingies who complained about money and media coverage during the last presidential elections are now silent because it's their candidate who's loaded and portrayed in a positive light by the media, unlike John McCain. Compared to MSNCB, FoxNews is fair & balanced. But dominating television and the print media is not enough. Left-wingies in American Congress want to bring the traditionally conservative talk radio closer to the political center via legislation. With Obama in the White House and the Democrats heavily present in Congress the so called Fairness Doctrine may very well pass. (Obama has stated that he opposes it, but since when has Obama had the guts to go against his party?) And if Americans have it bad then Europeans are in a much worse situation. No one endorses McCain. Hell, even The Economist went for Obama after initially supporting McCain. (Not that this was a surprise: you could clearly see The Economist turning toward Obama as a result of McCain's moves toward the religious right.)

Some will wrongfully praise Obama for bringing the troops home, but they're already coming home. It was Bush and McCain who went against public opinion (and that of the Iraq Study Group) and increased the amount of troops in Iraq. This move has brought violence down by more than 90%. Obama says he wants to send more troops after bin Laden, which is not a bad idea (Al Qaeda has seen its repuation fade and killing bin Laden would only increase their peril) but even this has been made possible by the success of the troop surge in Iraq. I have no idea how Obama is going to respond to a nuclear-ambitious Iran.

McCain could have won. He was trailing his fellow Republicans in the primaries and was running out of money. But he managed to attract moderates and independents by being a maverick and a tough SOB in general. Some years back he blasted the religious right by calling them "Agents of Intolerance" and has fought against his own party on many issues such as torture, immigration and climate change. He has staunchly advocated free trade, even slashing farm subsidies in front of a crowd consisting of farmers (though he has also advocated silly ideas such as gas tax holidays). But then he picked Sarah Palin, an inexperienced religious nut, as his vice presidential candidate to attract the Evangelical vote. This naturally contributed to alienating many independents and moderates by turning culture wars into an issue, although not a highly visible issue. Also, McCain didn't fare too well in the debates. Obama sounded smart, like he had a plan to every problem, but he was wrong on the issues. McCain had every opportunity to prove Obama wrong, but it wasn't until the second debate that McCain managed to link Fannie Mae & Freddie Mac to the Democratic establishment and the current credit crisis. McCain's best hope has been his experience on foreign policy issues, a strenght clearly visible in the debates. But that never was enough.

Had Obama lost, the defeat certainly would have been blamed on rednecks and racists, but by now it should be obvious that Obama's race has been a major advantage. At least Europeans are enthusiastic to have a black man in the White House, but this may reflect their own sense of failure concerning Europe's failed immigration policies. It's been a running joke everywhere for years that Republican voters are stupid, but just hear why people support Obama and it's all about some vague change. Many will be voting for Obama strictly because of his skin color, not even knowing what he stands for, as Howard Stern here so vividly demonstrates.

Hopefully the Republicans are able to stage a comeback but only after distancing themselves from the big-government compassionate conservatism of the past eight years. The credit crisis will pose a problem but also an opportunity, so hopefully the Republicans are back in the next midterm elections with plenty of small-government candidates. A new Clintonite era is possible.

Edit: McCain's concession speech made my eyes tear up. I'd like to see a Finnish politican hold a speech like that.

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