Category: Politics

Paul Krugman’s Endless Ego

A small challenge to a Nobel prize winner in Economics!

In a recent New York Times op-ed, Paul Krugman continues his boundless quest to become the “it” guy in the world of economics.  I have taken issue with his command of basic economic facts in the past — a gutsy, if not insane thing to do given the man was awarded a Nobel Prize in Economics.

Krugman accepting the Nobel Prize

This post is more about ego than economics, however.

In this op-ed, Mr. Krugman says (and I kid you not),

…But after the debacle of the past two years, there’s broad agreement — I’m tempted to say, agreement on the part of almost everyone not on the financial industry’s payroll — with Mr. Turner’s assertion that a lot of what Wall Street and the City do is “socially useless.” And a transactions tax could generate substantial revenue, helping alleviate fears about government deficits. What’s not to like?

Well, I disagree with the idea that what Wall Street does is socially useless.  And I am not on the financial industry’s payroll.

Nope, I’m just a simple economist, using my head, training, and experience to consider this idea, map out the pros and cons, and analyze the logical end-game of such a tax.  I conclude that it is a really bad idea.

Why?  There are lots of reasons, but I will mention only two.

  • One, raising taxes reduces private economic activity, which will curtail growth, reduce tax revenues and increase the deficit.
  • Two, taxes distort the price signal between suppliers and demanders of goods and services, including financial capital, reducing economic efficiency.

His reasons?  Other than citing one academic study (while ignoring the many others that reach a different conclusion), he gives no economic reasons for his views.  Instead, he make claims. He claims, for example, that “socially damaging behavior … caused our current crisis.”  He says that the financial services industry is “bloated” and needs to be cut down to size.   He says that the new tax is okay because it raises revenues for the government which, he claims, should make us all feel better about the deficit and, apparently, the size and nature of government spending under Obama. And, the lamest of all, for no other reason than to hide behind their skirt, he claims the existence of some phantom majority, apparently to create the impression that anyone with a different view is clearly in the minority.   A tactic that should be beneath a Noble Prize winner, but one that runs through his work with increasing frequency over time.

But, Mr. Krugman, I so disagree with you.  And even in an op-ed piece — perhaps especially in an op-ed piece – I believe that one needs to reign in an ego that would parade claims as facts, especially when each of those claims is disputed by your fellow economists, none of whom stooped so low as to imply that you were paid for your views.

By Sherry Jarrell

Aerial photography

Some chilling reminders of the reality of war!

Britain has a National Collection of Aerial Photography.  It is held within the offices of the Royal Commission on the Ancient and Historical Monuments of Scotland – perfectly logical!

A summary of the different collections is listed here, many of them wartime photographs that bring a multitude of emotions to the surface: incredible bravery of the pilots; photographic standards of 70 years ago, man’s inhumanity to man; and so on.

I pondered a bit about writing this Post because, well ….. well…, see what you make of it!

Author's Mum

Being born in England in the early part of November, 1944, World War 2 still resonates within me.

Early home in an industrial part of West London meant that my mother and father had a ring-side view of the German V1 and V2 rockets that were being visited on London at that time.

My mother, 90, still recounts her enormous sense of relief when VE Day was announced (May 8th, 1945) because she then thought that her son’s future life was more or less assured.

So back to these aerial photographs held in those collections.

Here’s a picture of the visitation of war on the beautiful French town of Caen.

Linger a while and look at the damage, mostly to private homes.  The photograph was taken just slightly more than a month before I was born.

So where’s this Post leading to….?

Read more of this Post

Clarkson on Mandelson … and more!

“Get me a rope before Mandelson wipes us all out”

Whether you live in the UK or not is an issue, because it might well affect somewhat your reaction to a recent diatribe which is characteristic of a journalist who is well known in the UK, but probably not outside. (That sentence was too long; I was trying to emulate his style!)

Jeremy Clarkson

That journalist is Jeremy Clarkson, who is known as an arrogant, irresponsible motoring journalist.

Over the years, he has done only a moderately good job of using that persona to hide his intelligence, his common sense, his sentimentality and, even, his wit!

Fortunately, for the rest of us, his failures to hide them completely have been known to result in some valuable contributions; whether this is one of them, you will have to judge for yourself.

If you are live in the UK, or are from the UK and living elsewhere, you will probably “get” his recently written article in the Times Online.  Here’s a flavour of the article:

He [Peter Mandelson] announced last week that middle-class children will simply not be allowed into the country’s top universities even if they have 4,000 A-levels, because all the places will be taken by Albanians and guillemots and whatever other stupid bandwagon the conniving idiot has leapt onto in the meantime.

I hate Peter Mandelson. I hate his fondness for extremely pale blue jeans and I hate that preposterous moustache he used to sport in the days when he didn’t bother trying to cover up his left-wing fanaticism. I hate the way he quite literally lords it over us even though he’s resigned in disgrace twice, and now holds an important decision-making job for which he was not elected. Mostly, though, I hate him because his one-man war on the bright and the witty and the successful means that half my friends now seem to be taking leave of their senses.

My guess is that you will either sympathise with it, or not; there is unlikely to be any middle position!

If you have no UK connections, then the whole thing might appear to be complete nonsense. In that case, you might be interested, at least, to know that more and more people in the UK feel like this!

My hand is up, “include me in”, as they say! … and my guess is that Chris Snuggs, of this blog, has both hands up!

Read it here!

By John Lewis

[P.S. more of Clarkson’s superb writing here.  P.P.S. Mandelson background for non Brits. Ed.]

Save the planet – eat a carrot!

Another political masterpiece!

British Health Minister Andy Burnham is urging us to give up meat; this will apparently help to save the planet.

Andy Burnham! (Seriously)

Now, it is very noble of the Minister to try to help save the planet. However, his efforts do raise some questions.

  • The thing is, if it is essential to stop eating meat then shouldn’t the government put its money where its mouth is and DO something about it? Such as tax it? (usually the first instinct!) Or do they only do things that are electorally favourable? (this is a rhetorical question, by the way – feel free not to answer it …)
  • Or is this perhaps a long process of “educating the electorate”? Well, there are plenty who leave school hardly literate already, so he’s being a bit optimistic, isn’t he? And why start with poor, little Britain? There are tens if not hundreds of millions of our American buddies to convince ….

And at the same time as we are being sermonised about our meat-eating the the USA is edging towards the opening-up to oil-exploration of previously off-limit areas.

In our quaint British lingo this is known as “not singing from the same song-sheet”.  And as for oil, I wish they would make up their minds once and for all; either we have to reduce its use or we don’t.

At the moment, all they seem to be doing is organising conferences (at vast carbon footprint) where they promise to reduce emissions. This is schizophrenia, isn’t it?

Re the British sermon, one wonders whether the noble minister is himself a vegetarian, and of course whether he is among the vast government contingent attending the international climate conference. And does he drive the car 50 metres to the baker’s on Sunday mornings?

Personally, I’d be prepared to give up meat if: A) I were convinced it would do any good and B) I thought that the great and good (and rich) would make a similar sacrifice.

These are two VERY big “ifs” ………

Must go – got some burgers in the pan …..

By Chris Snuggs

Why the Anger over U.S. Executive Compensation?

Pay and the Free Market

It came up again in conversation today:  someone was offended and upset over the level of compensation of some senior executives in the U.S. economy.   I have to admit I just do not understand the anger. And I have a fundamental lack of respect for the arguments that have been served up thus far in support of the position.

I have tried to resist drawing the conclusion that the anger is born of envy, but I am very close to throwing in the towel on that one.  Why should we begrudge anyone who earns a healthy salary, especially in an economy that provides each of us the opportunity to aspire to the same?

Even if there were reasonable ways around the practical issues and costs associated with legislative caps on salaries — how to set them, who sets them, using what measures, what value judgements — it simply makes no sense.  It is the antithesis of a competitive market economy where individuals have the incentive to learn, grow, work hard, and succeed.  It ignores the role played by capitalism in creating a strong and vibrant private economy that provides endless opportunities for all who want to put in the hours and the effort to succeed.

U.S. corporate governance rules provide the framework for determining the compensation for senior executives, and it works remarkably well.  Each shareholder, or owner of the company, gets one vote on material issues such as reorganization. The Board of Directors is responsible for hiring and firing senior management on behalf of the shareholders.  If the shareholders do not like the decisions of the board, including those that set the level and form of compensation for senior management, they have at least two, very effective choices. They can either sell their shares in the company or they can vote to replace the board members.  The board can take several steps if, after negotiating the compensation package for senior management, the executive fails to perform. The board can withhold the bonus, renegotiate the terms of the contract, or fire the executive.  Then the long, mostly objective arm of the competitive labor market will determine the market-clearing value for the skills and experience of the recently fired executive.

One thing I’ve never quite understood is why the market doesn’t seem to exact more punishment on senior executives who run their companies into the ground.  Maybe there is an old boys network that looks out for ex-executives; maybe my observations are biased; maybe I notice only those cases where failed executives rise again.  But it’s an empirical question, in any case; we can gather data on the issue and study it objectively.

Regardless of the conclusions of such an analysis, however, decisions about executive compensation must remain in the labor market where your ability to produce economic value still reigns supreme over your ability to curry votes and political favor.

By Sherry Jarrell

Consequences and probabilities

How Peter L Bernstein’s work helps us make the safest decision with regard to global warming.

Probably like me you hadn’t heard of Peter Bernstein. He was instrumental in understanding risk and that alone makes him worth knowing about.  Here’s the entry from Wikipedia:

Peter Lewyn Bernstein (January 22, 1919 – June 5, 2009) was a financial historian, economist and educator whose development and refinement of the efficient market theory made him one of the country’s [USA] best known authorities in popularizing and presenting investment economics to the general public.

Watch the YouTube video before reading on:

You could not have missed a fundamental message in the interview – if the consequence of something is critically harmful then don’t take ANY risks. Bernstein’s book on risk is Against the Gods.

Continue reading “Consequences and probabilities” →

Government Spending and jobs! Uh? What jobs?

Government spending isn’t what it is made out to be.

The headlines are full of claims about the number of jobs created or saved by the stimulus package, the impact of the Cash for Clunkers program on U.S. output and, the latest, the reduction in the deficit from the proposed U.S. health care reform legislation.

What total rubbish!

Government spending is just that — SPENDING.  It does not, can not, never has, and never will CREATE any output, economic wealth, or job.  The only way — and I mean the ONLY way — that profits or wealth or a new job is created is through a business.  Businesses are the only entity that can hire labor and capital and combine them in such a way as to create a product or a service that society may decide is worth more than it costs.

And that spread between the cost of production and what society is willing to pay is economic value; it is the generation of profits that then enables the taxes that the government collects to spend on the goods and services it thinks America ought to consume.

Private industry is the job creator.  Not the government.   And this is not wishful thinking, or a political point of view, or a theoretical model.  It is an unmitigated, irrefutable fact.

By Sherry Jarrell

Economics and Semantics

Governments borrow – why?

This post is a plea for help from someone clever …. what I would like to understand concerns “the borrowing requirement”. All my adult life I have listened year after year to the British Chancellor’s presentation of his budget and each time there is reference to “the borrowing requirement”.

What I would like to know is WHY there is a borrowing “requirement” in the first place. Exactly WHY do governments spend more than they “earn”? And more to the point, why do – and can – they keep doing this year after year, decade after decade? Layman that I am, it seems to me that continually borrowing, living beyond one’s means, spending more than one receives is BOUND to lead to problems in the long run. Is it simply that in most western democracies the “long run” is not foremost in the minds of our leaders? Or does this continual borrowing not matter?

I was interested in the last French presidential election to see that  centrist candidate François Bayrou proposed making it illegal for the government to spend more than it received. I found this courageous and innovative. Naturally,

Bayrou

he came nowhere in the election! Silly chap! He should have promised to spend, spend, spend like the rest of them! Then he may have had a chance.

No, we are paying vast amounts of interest every year merely to service our debt. The basic questions are: Why can and do states do this? Is it necessary and is it wise? And if the answer to the last two questions is “No”, then why do we let them get away with it?

It seems to me that the “borrowing requirement” is simply a fairly crude means that governments use to bribe us with our own money. Please correct me if I am wrong!

By Chris Snuggs

Straight Talking and Realpolitik

“To say nothing, especially when speaking, is half the art of diplomacy.” Quote by Will Durant.

During his China visit Obama said that “the US accepted that Tibet was part of China, but went on to push for the early resumption of talks between China and the Dalai Lama.”

This is the usual fatuous “appeal” issued by Western worthies to the Chinese Communist Dictatorship to act honourably towards people it dislikes. As ever, it is a waste of breath, but a diplomatic ritual that has to be endured.

Obama knows it is pointless, the Chinese pretend to listen but also know it is pointless as nothing will change. We all know – or should – that it is pointless. Why then do they do it? You can’t call it self-delusion since nobody is deluded. Frankly, I am not sure what to call it.

Of course, the Chinese claim to Tibet varies from ludicrous through spurious to extremely questionable at best …..

… and Taiwan is a free and independent state, and more to the point democratic. It is a disgrace that free, democratic countries have never recognized it.

The truth (that’s what we want, isn’t it?) is that the CCP is a murderous and illegitimate dictatorship, never having submitted itself to a vote. This may of course be very wise on their part, but it isn’t honest, is it?

In the way of dictatorships, it is quite prepared to massacre its own citizens to protect its power, as happened in the seemingly long-forgotten Tiananmen Square. It is a pity that the free world seems compelled to overlook all this in grovelling to China. We have to deal with them, but issuing fatuous appeals, come on ….

I wonder what the parents of those killed by the CCP thought as doves of freedom were released over Beijing during the last Olympic Games?

By Chris Snuggs

[Footnote from the Editor. This is a hard-hitting Post about the reality of relations between the USA and China. It is a reminder of the truth about such relationships. Readers may want to view this to understand also the reality of trade with China. Some of the images are deeply disturbing.]

Update on the “British Solution”

The Credit Crisis in Britain

Following yesterday’s Post on this Blog about Goldman Sachs, here’s Britain in action.

Ministers yesterday (17th November) launched a £50 billion ($84 billion) bailout of Britain’s crippled banks – and warned there could be worse to come. State-controlled lenders Royal Bank of Scotland and Lloyds Banking Group will receive fresh injections of taxpayers’ money totalling £39 billion ($65.5 billion).

RBS – which has now received the biggest state rescue anywhere in the world – was also handed £11 billion ($18.5 billion) in tax breaks to help keep it afloat.

Source: The Daily Mail

Thanks for the Greed. Are the directors responsible still in place? Are the Great and Good who removed controls and oversaw the decade of binge-spending and easy credit still in place?

Britain's Global Giant!

Oh, I remember now. The very same person in Britain who was Chancellor throughout the 90s and is now Prime Minister is – according to John Prescott (former Labour Deputy-Leader and the person whose office sign was changed at a cost of £700 ($1,200)  when his job name was rebadged weeks before he left it anyway)  – a “Global Giant” who saved the world.

Oh, and let’s not forget, this is the same person who said that: “Britain is better placed than other countries in Europe to weather the crisis …..etc blah, blah, blah …”

The reality (which is in fairly short supply among Global Giants) is different:

Within hours of the Chancellor’s announcement, the European Commission issued a stark warning about the frayed state of Britain’s national finances, warning of an ‘extraordinary deterioration’ because of the cost of City rescues.

It estimates public debt will double as a share of the economy between 2007 and 2011, reaching 88 per cent of gross domestic product – the biggest rise of any leading EU economy.

The latest £50billion bank bailout is roughly equivalent to the annual schools budget and far exceeds the annual defence budget of £35billion. The new moves bring the total of public money lavished on Britain’s financial rescue to £1.2trillion – almost £20,000 for every man, woman and child living in the country.

… and the £ has sunk drastically against the euro ….

Still, let’s have a bit of positive spin …. the National Debt isn’t quite (yet) what is was just after WWII. A great achievement. Well done  Gordon Brown …. but you can do it …. just one more little push.

We could do with fewer spin-ridden “Global Giants” and more people with vision, courage and competence.

And rather than “saving the world” it might be nicer if Gordon Brown started with saving Britain.

By Chris Snuggs