In a great piece over @ The Christian Science Monitor, Arnold Kling & Nick Schultz argue well that Markets fail. That’s why we need markets:

…This seemingly paradoxical view is based on several overlapping strands of research in economics as it pertains to development, history, technology, business expansion, and new-firm formation. According to this view, entrepreneurs at work in the economy – in finance, high tech, manufacturing, services, and beyond – are constantly experimenting, creating new business models, techniques, and technologies that upend the established order of things.

Some new technologies and innovations are genuine improvements and are long-lasting welfare enhancers. But others are the basketball equivalent of pump fakes – they look like the real deal and prompt market actors to leap hastily into action, only to realize later that their bets were wrong.

Given this dynamic, markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight.  But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation.

Not as eloquently as they did, I wrote about this earlier in the year (here):

…the dynamic system of the United States might have felt more pain that other countries during this crisis, but due to the mostly decentralized economic model, we will recover more quickly than most…

It then seems for most people to become a question of risk adversity.  Do we allow for individual freedom and understand that sometimes failure is a part of the process?  Or do we constantly attempt to control individual behavior for fear of potential negative consequences?

Only if we first believe in the premise that by trading freedom for stability, we actually get stability.  The CSMonitor article continues:

…When governments attempt to impose order on this chaotic and inherently risky process, they immediately run up against two serious dangers.

The first is that they strangle new innovations before they can emerge. Thus proposals for a Consumer Financial Protection Agency, a systemic risk regulator, a public health insurance plan, a green jobs policy, or any attempt at top-down planning may do more harm than good.

The second danger has to do with the nature of political economy. Politics creates its own kind of innovators who can be as destabilizing to markets as market actors themselves – but in far more pernicious ways.

Economists call these political entrepreneurs “rent-seekers.”…

…This gets to the key difference between markets and governments. When innovation-driven excesses and imbalances are recognized in the marketplace, the system can correct itself quickly. This is less the case when government policy failure occurs.

Because political failure is less publicly tolerable than market failure, the temptation becomes for policymakers to avoid acknowledging their role in creating or perpetuating problems.  Or they double down on bad bets. So rather than recognize the government’s central role in the housing boom and bust and quickly changing its ways, we see the federal policy apparatus continuing to throw good money after bad in the mortgage market and on Wall Street….

I wrote about this “doubling down”  (here):

…For those playing the home game, this means we are taking a problem caused by excessive credit and government incentives and trying to fix it by:

1. Preventing the normal contraction that needs to happen by artificially propping up failed business and bad home purchasing decisions.
2. Keep money cheap by keeping interest rates very low.
3. Then, repeat the same process that got you to the recession in the first place by incentivizing the market to buy a commodity (housing) which is still overvalued in some places….

& made the perplexed statement (here):

…I’m not really into prediction making as it’s obviously fraught with so many problems, but I’ll never understand how the solution to cheap money and an over investment of housing, is to keep money cheap and incentivize home buying…

As historically known, the vast majority of centralized government intrusions into free markets and free people has led to disastrous consequences.  NBER research suggests that two of the reasons for the current global economic crisis are due to unfree markets:

…The inability of emerging economies to absorb savings through domestic investment and consumption due to inadequate national financial markets and difficulties in enforcing financial contracts; the currency controls motivated by immediate national objectives;…

Everywhere we look objectively, freedom gives us more of everything.  Do you want to fix healthcare?  Using the government will likely lead to higher rates and more control, using individual freedom however doesn’t cost much as has been proven in other avenues such as food.  Something I think is just as important as healthcare, but been left to the market unlike health care.

& the market has responded.  Food costs as a percentage of disposable income has decreased from 23.4% in 1929, to just 9.6% in 2009 (here).

Meanwhile health care costs continue to increase with government regulation.  In just the past 5 years spending on health care as a percentage of GDP has continue to go up and is projected on that trend still.  In 2005 spending was 15.9% of GDP whereas in 2009 is it 16.9% and projected to be 19.5% in 2017  (here).

It seems that the overwhelming majority of evidence suggests to honestly help the most needy, freedom is not only a moral good, but a requirement for anything approaching success…. yet what seems to be an irrational fear of “economic crisis” many people can’t see the forest for the trees.

This year is really a banner year for the unions.  Recently, they begin early pushing the Obama administration to pass the double-speak entitled bill, the Employee Free Choice Act (which actually removes individual free choice - here @DA).

Not content with simply removing your right to vote anonymously and thereby reduce your freedom of association, they went to the state level.  There they decided that individual business owners can now be forced by law into the union (here @ WSJ):

…A year ago in December, Ms. Berry and more than 40,000 other home-based day care providers statewide were suddenly informed they were members of Child Care Providers Together Michigan—a union created in 2006 by the United Auto Workers and the American Federation of State, County and Municipal Employees….

& obviously they are doing this for a reason:

…Today the Department of Human Services siphons about $3.7 million in annual dues to the union—from the child-care subsidies….

But not to worry, the union is doing something with all that money.  More lobbying:

…Ms. Berry now sees money once paid to her go to a union that does little for her. She says she is “self employed and wants nothing to do with the union.”

The union claims it is working for Ms. Berry and others like her by pressing the legislature to increase child-care payments….

For the score keepers at home – the government through union lobbying has forced (by law) private citizens running their own commercial enterprise to pay dues, which they graciously will remove from their state reimbursed child-care subsidy checks…. all in order to lobby the government to raise the child-care subsidy.

For the union organization itself though – lobbying dollars spent pays off.  Also from earlier this year, during bankruptcy of large companies involving unions, they got paid first (here @ DA):

…Now we have POTUS playing politics with the rule of law.  Ensuring money goes to unions before secured creditors, the same unions who are using that money to buy up assets of the companies they helped to bankrupt….

The unions and their elected representatives of course are playing the game as designed and currently played by the voters.   The unions know based upon their membership and war chest they can affect the outcome of an election.  The leaders they help get elected know this and therefore craft union friendly legislation.

Effectively the unions moved away from an organization championing workers’ rights, into another corporation using the government to ensure their continued existence.  & by doing so, they will ultimately raise the cost of doing business for everyone, including the working families they claim to support.

As always in a representative government, the voters are ultimately to blame.  Whether their failure is due to an inability to care, critically think, understand basic economic incentives, or lack of equilibrium between the moons of Venus & Neptune…

Irregardless of why, given the current state of incentives and voters unwillingness to punish their legislators, unions will continue to rent-seek at the expense of the average  citizen.

Yesterday,  the Federal Reserve, through the Federal Open Market Committee (FOMC) released an updated statement about their views on the economy, the prior one having been released on November 4th.

You can read the full text @ the Blog Calculated risk (here).  Among other things in the statement, the main changes in thinking since November are encapsulated in the opening paragraph:

Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months….

Of course it has!  With the FHA pushing home loans like Fannie & Freddie have (here @ DetailedAbstractions) & continuing to pay people to buy houses (8K dollar tax credit extended @ LA Times) and property prices declining as the market corrects prior bad incentives (here @ DetailedAbstractions), the result is obvious .  Given non-market, but economic incentives to purchase property, property prices in real terms decrease, therefore demand increases.

What this does not say however is whether this is sustained.  Lots of individuals for instance took advantage of the Cash for Clunkers program (here @ DetailedAbstractions) mainly resulted in a short-term boost in car sales, but at the expense of lower future sales.

This of course doesn’t mean the housing market isn’t on the rebound, but I see no evidence that really allows this conclusion at this time.

It continues:

…Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.  Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales. Financial market conditions have become more supportive of economic growth.

Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

& there’s the rub…  The Federal Reserve is supposed to be an independent branch of the government outside of any specific administration, but when publishing statements which disagree with basic economic thought one might start to wonder.

In fairness, it could also be just simple self-interest in that they need to justify spending billions on bailing out bad companies., but to use the words, “policy actions stabilized the market” makes this seem unlikely, but I digress.

The main issue with this portion of the statement is that’s its simply untrue.  New policies such as “too big to fail” which the Federal Reserve admitted can’t continue (here @ Business & Media),  have seemingly become official  government policy (here @ Reason Foundation).

Additionally, there is widespread agreement that the new financial regulations the administration is pursuing will result in higher costs of doing business (here @ The Economist, here @ Cato, here @ Reason Foundation, among others).   These new barriers to entry will stifle new business creation, creating less incentive for economic activity.  Additionally, just as “too big to fail” was supposed to fix large interconnected companies, but instead ended up cementing that status for certain corporations, the new regulations are highly unlikely to prevent a  recession for similar reasons from happening again (here @ DetailedAbstractions).

All in all, it seems the Federal Reserve has taken a very short-sighted approach and produced a political paper, not an economic one.

Over @ The Economist, they have recently begun a new debate in which two primary debaters are taking pro and con positions for the premise (here):

This house believes that governments should play a stronger role in guiding food and nutrition choices.

Which is certainly a question fraught with with many intertwined issues dealing with not only personal individual responsibility, but also questions about governmental responsibility in these areas as well as government-provided health care benefits.

Kelly Brownell is Professor in the Department of Psychology at Yale University, arguing for the pro side of the premise, discusses each of these areas, though ends up asserting problems which aren’t there and using faulty assumptions to do so.  In his opening remarks, he starts by identifying “problems” which he believes supports the premise  (here):

Problem 1: Imagine the day when obesity rivals hunger as the world’s chief nutrition concern. That day has arrived….Approximately 1 billion people worldwide are overweight or obese.  Human biology was simply not designed to cope with an environment that promotes a diet high in sugar, fat, calories and salt….

Mr. Brownell notes with alarm that not only do we have 1 billion obese people, but also 1 billion hungry people:

Problem 2: Another 1 billion people are hungry….

Which oddly enough, he contributes this issue to the correct cause:

…But problems such as war, political oppression, genocide and global warming create great numbers of refugees, populations cut off from food and vast numbers of people who cannot feed themselves. There is now enough food to feed the world, but political and economic barriers prevent its distribution….

I say oddly enough here, because in the countries with lots of political and economic barriers to all kinds of industries, they have a problem with feeding people enough to survive.   Therefore, creating new regulations to make food production & distribution more costly seems a bad idea, but he continues:

Problem 3: Modern food production has grave environmental impact.

Which even if completely true, is completely irrelevant.   This “problem” is not a problem that is specific to the food industry, but to all energy intensive industries and therefore has nothing to do with potentially adding government control only to the food industry.

For scorekeepers – so far, Mr. Brownell has defined three problems, two which have contradictory solutions, and one irrelevant to the question at hand.  Like all those resting on beliefs however, he uses these as a jumping off point and goes forward to discuss “responsibility”:

Ascribing responsibility
These problems are conceptualised in two primary ways.  One is to focus on individual misbehaviour as the cause and increased personal responsibility as the solution. The second emphasises the social, political and economic drivers of the problem and underscores public policies that make healthy behaviour a more likely default….

Which reworded reads, it’s either the individual’s responsibility for purchasing the food they purchase and eating it, or it’s a societal problem which requires government intervention.

To prove personal responsibility isn’t the way to go, Mr. Brownell explains:

…The personal irresponsibility approach is wrong, and is contradicted by a wealth of scientific evidence. Obesity rates around the world have been rising each year, suggesting a worldwide decline in responsibility. Precisely the opposite is true. Data show people behaving more responsibly in many areas of health….

Which certainly seems like an argument, but in reality is not.  He infers that obesity isn’t due to declining responsibility, since studies show an increased responsibility in other areas of health concerns, but the information he gives us does not support his assertion.

It’s completely possible for instance to have an individual say, start working out, thereby being more responsible for their health, but at the same time being ok with their known choice of bad food.  Another individual might quit smoking, but still eat fast food every day for lunch… & knowingly do  so.

His assertion includes an  assumption that there is a one-size fits all answer.  As if certain foods shouldn’t be allowed in certain portions or that by doing so, the company selling the value priced food is some how responsible for the end users’ gluttony.

Quick score check – our esteemed professor has given us three problems, only one of which discusses the actual problem, uses faulty assumptions to gloss over personal responsibility, then moves into what I believe the true crux of his problem is:

Changing defaults to correct market failures
It is generally agreed that government intervention is justified when market failures cause sub-optimal production and consumption patterns.

& here we are, with assumptions galore.

First, he’s assuming it’s a market failure.  For those humans still on the planet going hungry, I think hearing about cheap high caloric food would be seen as a feature of rich countries, not a bug.

Second, even if it’s generally agreed that government intervention is justified, that doesn’t mean that it should be.  Appeals to the majority doesn’t invalidate a premise, but it certainly isn’t proof.  Majorities throughout history have generally agreed to all kinds of things, like slavery or the world being flat.

Third, even if I agree with the first two assumptions, there is yet one more there – the idea that even if someone can identify this as a market failure and we assume that government intervention is justified, we should then only seek government intervention if we believe that centralized control would ultimately return better results than the current market process.

I think a brief reading of controlled societies throughout history would let Mr. Brownell see the folly that is Philosopher Kings, but no such luck.  Without fear and without proof, our esteemed professor let’s us know the costs we’re incurring:

…Another example of externalities is the health-care costs of obesity. Obesity costs $147 billion per year in the United States today (9% of total health-care expenditures). Half comes from public funds through Medicare and Medicaid….

& herein lies his final and most dangerous assumption – that taxpayers should be forced to pay for societal solutions whose costs were borne from individual choices.

So long as that assumption is allowed to go unchallenged the “debate” hasn’t really begun.

In what has to be good news in the world & especially Russian citizens, Russia appears to be moving forward towards free market reforms with help from former President Putin.

For Russia, the last 30 years has been marked by instability.  Russia in the 80’s was in a descent from crumbling Communism which limited real individual freedoms.  They moved from that, to a poorly implemented and corrupt form of cronyism, which also limited real individual freedoms.

Then to stabilize and reassert themselves to the international community, former President Putin worked towards a stronger central government.  In doing so, he too worked towards the removal of individual freedoms.  For example, having the government buy the the main press outlets, using the judicial system to attack  corporate heads who were against Mr. Putin’s reforms, changing election laws to reduce citizen say, and many other things.  All of which seemed a sure march back to Communism and the stage for a new global dynamic with Russia trying to be the main international opposition to the US.

However, in recent months Stratfor and other publications have been noticing changes inside the Russian government.  Many reformers have been pushing the new President and Mr. Putin to begin to make real free market reforms through privatization and it looks like they’ve won some ground (Stratfor Video below):

Since I have a strong belief in the morality and pragmatism of individual freedom, this is a good sign.  Let’s hope it continues.

Odd thing is – those without freedoms or with lesser freedoms around the world have been pushing for market reforms, including Germany, France, China, Russia… while the US is pushing centralized control over banking and health care (to name two things).

Proving once again, that the price of freedom really is eternal vigilance.

For months since the reelection of Iranian President Dictator, protests against the Islamic regime have ebbed and flowed.  DA (Detailed Abstractions) covered the reelection farse  here & here.  While the news was dismal, massive protests started in June and continue to this day.  The most recent protests staged on December 7th (via CNN):

Now I’m not a big fan of protests in most of the free world, but these students deserve the world’s attention.  Unlike protests in America, their heroic protests are done in the face of threats of violence against not only the protestors, but their families as well  (@Stratfor):

…Iranian Prosecutor General Gholam Hossein Mohseni-Ejei announced Dec. 8 that “intelligence and security … forces have been ordered not to give any leeway to those who break the law, act against national security and disturb public order.”  He added that “families are responsible too if their children are arrested. They will have no right to complain.”…

Lest we forget though, every totalitarian terrorist regime in the world, is only beating  people for their own good:

“Our people can no longer take this… it is our duty to defend the rights of the people.”

That’s right – the regime is taking that stance that by actively preventing free speech through threats of violence tothe  protestors and their families they are in some way preserving the rights of others.

As Plato said:

This and no other is the root from which a tyrant springs; when he first appears he is a protector.

Late last week, an Oklahoma resident, was put in the unenviable position of having to defend her life and property with deadly force.  From the transcripts of the 911 operator (here):

RESIDENT – “Oh crap he’s coming around the front…”

911 -  “Is your front door locked?”

RESIDENT – “Yes ma’am but it’s only got a lock on the handle.”

911 – “Okay, do you have a place inside your house and lock yourself in a room?”

RESIDENT -  “Uh, not really.”

911 – “He’s trying to come through the front door.”

RESIDENT – “i’ve got a big shotgun. I’m not going into a tiny bathroom…”

RESIDENT – “He’s walking around the house trying to find a way in…”

RESIDENT – “Oh crap, he’s at the back…”

911 – “Okay , (unintelligible) is advising that you can defend your property if you need to.”

RESIDENT – “Alright he’s at the garage.”

911 – “He’s at the garage? Is it attached to your house?”

RESIDENT – “Nope, he’s at the patio door again.”

911 – “I can hear him banging again.”

RESIDENT – “I don’t want to have to kill this man, but i’ll kill him graveyard dead ma’am.”

911 – “I understand.”

RESIDENT – “Alright.”

RESIDENT – Oh crap he’s breaking in. he’s breaking in now, he’s breaking in now. He’s breaking the window, i’m going to kill him. He’s walking back and forth on the porch. He looks to be an older man, I don’t want to kill him. He’s kicking the door please hurry. He’s going to make it in please hurry ma’am. I think he’s drunk . He doesn’t know where his pickup’s at. God I don’t want to kill this man.”

And the entire horrible ordeal can be listened to here (careful):

While I’m sure nothing I could say would give this women any consolation at all and I do indeed believe that even the justified taking of a life is something we should naturally avoid, I hope that one day she can reach the conclusion that she acted upon her rights as a human being to defend herself.

& just maybe, rabid gun control advocates can use this as well.  Maybe they can use it to question cease the belief  that laws like carry concealed will result in wild west shootouts on the freeway or that gun control can actually saves lives.  Unlike the straw men built by those against concealed carry of the crazy gun totting neighbor,  this woman was sincere and morally torn.

Indeed, unlike many myths about our neighbors, humans simply aren’t as flippant of other human life as some believe.

So for those who tend to fear allowing concealed carry, please take this as an opportunity to understand the real grief law abiding gun owners go through when forced to the ultimate defense.

With that, a quote from Thomas Jefferson on the right to bear arms:

Laws that forbid the carrying of arms, disarm only those who are neither inclined, nor determined to commit crimes. Such laws make things worse for the assaulted and better for the assailants. They serve rather to encourage than to prevent homicides, for an unarmed man may be attacked with greater confidence than an armed man.