Detailed Abstractions

President Obama is planning to sign an executive order to review business regulations (via LA Times here):

WASHINGTON (AP) — Taking another step toward mending his relationship with the business community, President Barack Obama will order a review of federal regulations with an eye toward getting rid of those that stifle job creation and hurt economic growth.

Upon hearing this news, I was immediately reminded of the Simpsons’ episode.  The episode is about NASA, who having problems with funding, decides to put an average man in space for marketing purposes.  The press conference (here):

Scientist: Ladies and gentlemen and members of the press.  I’d like to
           present the new generation of NASA astronauts: the average
           American.
            [Curtain rises to show Homer wearing a "Hail to the Chef"
           apron and Barney dressed as a golfer]
Reporter: Jim Wallace, Associated Press.  [clears throat] Is this a
           joke?
Scientist: [cheery] Far from it, Jim.  One of these men will prove space
           travel is within the reach of the common man.
Reporter: Toby Hunter, Minneapolis Star.  No really, is this a joke?
Scientist: No, Toby, and no more questions about whether this is a joke.
            [Everyone lowers their hand, dejected]

Please don’t misunderstand – I’m hoping, like a lot of people, that the President is serious about this.  However, almost every single action taken by this administration shows an absolute love of controlling by regulations, even when no obvious reason for doing so exists.

This is after all the same President who gave us an executive order which prevented anyone from drilling for oil offshore due to one oil spill on a platform owned by BP (DA post here). 

This was all prior to the government report released late last year, which held BP accountable, but even after blaming BP for the entirety of the incident, they announced a month later continued blanket regulations against an all of the industry.

Even the President’s own fact finding commission is wondering what many others questioned before – what is this continued ban is supposed to fix?  They plan to press the administration on the issue soon.

And that’s just regulations for a small part of the energy industry.  This is also the same administration who pushed for financial reform.  Financial reform which as pushed before they had anyone had any idea what took place.  The reform which included controls on market segments which are known to have little to no impact on the financial crisis like hedge funds, derivatives, executive compensation and more (here & here).  (more…)

Writing in the NY Times, an MIT Professor for the Sloan School of Management, Simon Johnson explains how bad budget deficits will be if we allow the Bush tax cuts to continue.  Basically he tells us, if we fail, it will only be due to the fact that taxes aren’t high enough and we’re not spending enough money on the right things. (here):

According to the Congressional Budget Office, extending all the Bush tax cuts would add $2.3 trillion to the total 2018 debt. The single biggest step our government could take this year to address the structural deficit would be to let the tax cuts expire. Such a credible commitment to long-term fiscal sustainability should reduce interest rates today, helping to stimulate the economy….

According to Mr. Johnson, even though critics say letting the tax cuts expire would retard growth, that money could be used more effectively (he continues):

…If the goal is to boost growth and employment immediately, it would be better to let the tax cuts expire and dedicate some of the increased revenue to real stimulus programs…

You mean, stimulus programs like “Cash for Clunkers” (NBER working paper here)?

…Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended….

Or how about the stimulus plan we were told would keep unemployment rates to 8% (DA Post here), while they currently hover around 10% (here):

…in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today.

Or…maybe the government takeover/purchase of GM (post here):

…in reality, the US Treasury through pressure by the Obama administration spent $50 billion dollars to own 61% of the shares.  With roughly 500 million shares available, this means the US government current owns 305 million shares.  At the current stock price today of .375 dollars, their 50 billion dollar investment is worth roughly 115 million dollars….

Or maybe controlling healthcare costs by passing a bill no one understands…. which has already started failing as insurers have already started raising rates more than goverment predictions (post here):

…The economics and logic of these required rate increases are undeniable.  If someone, in this case the government through force of law, tells a private business that they must increase their spending, under force of law, some, if not all, of those new expenditures will be passed on to consumers…

So to sum up Mr. Johnson, even though evidence, extremely recent evidence, demonstrates what economic thinkers have told us for centuries:  government can not create jobs – the problem doesn’t lie with government spending, but instead in allowing people to keep their own money.

I don’t know when we start understanding what Albert Einstein expressed so eloquently so many years ago, “The definition of insanity is doing the same thing over and over again and expecting different results.” but let’s hope it’s soon.

For more, excellent Cato article The Stimulus: The Government Job Creation Myth

Unless you were lucky enough to be traveling or otherwise unavailable on Sunday, you were likely deluged with Mr. Obama’s media storm to sell not only health care, but apparently many other items as well.

First, it should be noted that this WH is above all, extremely insecure.  The President could be seen on 5 Sunday news shows: NBC, ABC, CBS, CNN and Univision.   But he didn’t have time for Fox, the number one rated Sunday news show…

Regardless of the WH being extremely petty and worrying more about perceived injustices than an honest discussion with those who might disagree, what he actually said is far more serious.

When asked if a health care mandate was a tax increase on ABC’s this week, the President responded:

…”I absolutely reject that notion,” the president said….

“What it’s saying is, is that we’re not going to have other people carrying your burdens for you anymore,” said Obama. “Right now everybody in America, just about, has to get auto insurance . Nobody considers that a tax increase.”…

Using flawed logic is nothing new for Presidents, but this one isn’t even close.  Hhe’s analogizing the privilege of driving with the “privilege” of being a citizen.

The difference of course as that by my very birth, I have a “right” to be a citizen, whereas driving has always remained a privilege with constraints.  You see, I can forgo auto insurance, so long as I don’t drive.  There are many ways around without a car in this day and age, but if I “choose” to drive, then constraints can be placed on me.

Health care on the other hand would be required simply because I existed and no other reason.  & If the government says, “You have to buy this” – it is a tax increase as not paying it can land you in very serious legal troubles.

On CBS’s Face the Nation, with an omnipotent sense of when health care, our fearless leader goes further:

…Obama put his support behind the idea of taxing employers that offer high-cost insurance plans.

“I do think that giving a disincentive to insurance companies to offer Cadillac plans that don’t make people healthier is part of the way that we’re going to bring down health care costs for everybody over the long term,” Obama said on NBC’s “Meet the Press.”…

Even ignoring the fact that this goes against his basic premise that more people need more health care, one wonders if there is anything our President doesn’t know.  So far, he’s taken over banks, car companies, told car companies with whom to merge, who to hire, who to fire, what to build… and now we find out he knows how much health care is too much.

But let’s not stop there.  Not only is our community organizer one of the smartest men in America when it comes to economics and health care, he’s also a brilliant strategist with respects to Afghanistan:

…”What I’m not also gonna do, though, is put the resource question before the strategy question,” Obama told NBC’s David Gregory on “Meet the Press.” “Until I’m satisfied that we’ve got the right strategy I’m not gonna be sending some young man or woman over there- beyond what we already have.”…

I’m not sure exactly what happens to man to think he has the answers to every single last question. Maybe it’s just arrogance and ignorance, as Hayek stated:

If most people are not willing to see the difficulty, this is mainly because, consciously or unconsciously, they assume that it will be they who will settle these questions for the others, and because they are convinced of their own capacity to do this.

Whatever the reason he believes so strongly in his ability to decide what’s best for our own good, history shows us without question where this inevitably leads.  Hayek again:

To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.

Let’s hope we begin to understand the value of humility before we do too much damage.

Well, we’ve moved from Cash for Clunkers onto Cash for Appliances and politicians everywhere have patted themselves on the back for what a fine job the original program did.

According to most news reports, sales were up a tremendous amount due to this program.  ABC News reports Auto Sales Up in August Thanks to Cash for Clunkers, Bloomberg reports U.S. Consumer Spending Climbs on ‘Cash for Clunkers, and CNN reports 4th UPDATE: Auto Industry Posts Best US Sales Of Year.

If one just reads the headlines and do the normal drive-bys on the news, this is yet another government program which is a rousing success.

This assumes of course you only look on the surface.  Looking further, there were many consequences of this program that probably wasn’t helpful.  Listing the potential and real negatives is a worthwhile endeavor if we truly wish to analyze the situation.  Since I can’t sum up the problems with this program any better than Cato has, Chris Edwards posted on their blog:

* A few billion dollars worth of wealth was destroyed. About 750,000 cars, many of which could have provided consumer value for many years, were thrown in the trash. Suppose each clunker was worth $3,000 at a guess, that would mean that the government destroyed $2.25 billion of value.

* Low-income families, who tend to buy used cars, were harmed because the clunkers program will push up used car prices.

* Taxpayers were ripped off $3 billion. The government took my money to give to people who will buy new cars that are much nicer than mine!

* The federal bureaucracy has added 1,100 people to handle all the clunker administration. Again, taxpayers are the losers….

* The auto industry received a short-term “sugar high” at the expense of lower future sales when the program is over. The program apparently boosted sales by about 750,000 cars this year, but that probably means that sales over the next few years will be about 750,000 lower. The program probably further damaged the longer-term prospects of auto dealers and automakers by diverting their attention from market fundamentals in the scramble for federal cash.

This isn’t to say they’re weren’t positives.  This only mean that using a vision which includes more than the past couple of months to analyze the situation will objectively result in either seeing this as a smaller success than currently marketed, or more likely, seeing this as an actual failure.

This is a continuous issue with basic human thinking.  All humans due to brain wiring and evolution have certain built in biases that cause us to make ineffective decisions.  By better understanding those biases, we can seek to minimize them.  Without minimization though, this thinking results in quick based resolutions that are overreaching and often end with a result much different from intended.

A few easy recent examples come to mind.  Sarbanes-Oxely, the Patriot Act, and McCain-Feingold.

Using SOX, lots of new regulations were added to company finance reports due to Enron, MCI, and other companies.  However the regulations can’t possibly prevent what took place nor can they do any better than what happened.  In Enron’s case, corrupt management ruined a business and they went to jail.  SOX will not prevent another Enron and I think the incentives against doing it again already exist when CEOs, CFOs, and others lose their business and their freedoms.

The true result of SOX?  A new industry of people and millions and millions spent by companies to ensure compliance, which is passed on to consumers that will not prevent future fraud (Bernie Madoff?).

Another example – even small decisions made too fast can turn out to be completely wrong.  Here in St. Louis, MO, they renamed a part of I70 after Mark McGwire due to his home run record.  It was a travesty to begin with as the road used to be named after Mark Twain, but after the steroid scandal included Mr. McGwire the idiocy and quickness of the decision was easy to see.

Additionally, the economy; lots of us still wish for the 90s when jobs were extremely plentiful, pay was high, and the economy was moving forward with lots of momentum.  Long term view?  It turned out to be a ponzi scheme that was mostly paper profits which resulted in a bubble that, as with all bubbles, burst.   Indeed, there was no new business cycle or new business rules that changed the economy in such a way as to guarantee no more downturns.  Several very large companies declared bankruptcy, CEOs went to jail, and millions of individuals lost a lot of their retirement money as their 401Ks nosedived.

In some ways though, making quick decisions makes complete sense.  In our very quick world, we are forced to make decisions quickly and lots of times, make those decisions based upon partial information.  In business, product innovation, management decisions, battlefield tactics, and in many other places this is necessary and having the skill to do this well is a requirement in most aspects of today’s professional life.

However, even though quick decisions on partial information are required in today’s world, we must still be cognizant of potential long term ramifications if we truly intend to leave a world for our children and grandchildren that is better than we found it.

Otherwise, we can continue to only contemplate things in small slices of time and we will certainly continue down the road of bad decisions.

Of course that’s just my two synapses rubbing together… I could be wrong.