Wednesday, April 29, 2015

More of the Same from Big Government

This morning the Commerce Department reported that the US economy grew at 0.2 percent in the first quarter of 2015.  Given the way this data is collected, it is a reasonable possibility that the US economy actually contracted.

Wall Street focuses on the reaction of the Fed, as if that matters. What matters is that government policy is strangling the economy with excessive regulation and taxation. Until bad government policy is ended and reversed, don't expect the mighty American economic engine of the past to re-emerge.

Meanwhile, the SEC is putting forward more "kill the Golden Goose" rules that will strangle the public stock market as well. Too bad for the little guy.  Stocks have, historically, been great for the little guy.  But, policy makers can't be happy about that and, egged on by Elizabeth Warren and Barrack Obama, are determined to snuff out the prospects of the average American.

The inequality debate is nothing more than the first salvo in a drive to turn the average American into a modern day serf, as the liberal elite fly around in their private jets and move from one gathering of the faithful to the next in their chauffered limousines. It's no wonder they have no knowledge or interest in the average American -- when do they ever encounter an average American (unless it's through encounters with their pilots, chauffeurs, cooks, or gardeners)?

What's Wrong in Baltimore

What's wrong in Baltimore is the same thing that is wrong with almost every large American city -- an overbearing government.  The poor need education and economic opportunity and less regulation and less government.

Most young people in Baltimore could begin to get a leg up economically if minimum wage laws were abolished and if racial discrimination laws (and drug laws) were eliminated.  Businesses could then provide the training that schools can't do without fear of frivolous lawsuits. 

Working for less than the minimum wage in order to learn a skill was once the leg up in America, but no longer.  Since the advent of minimum wage legislation, poor people, unable to get training in the school system, no longer have a pathway to skills through employment.  They effectively have no hope and no upside.  This doesn't bother the affluent left who push minimum wages ever higher, since the affluent left is financially able to attend elite schools that provide them with a ticket to prosperity.

The public schools in Baltimore and throughout most of America are run mainly for the benefit of the employees.  Short shrift is given to the needs of the young people who find themselves in these, mostly dysfunctional institutions.  Free market solutions are available for fixing the problem of low income education, but monopolies (labor unions and politicians) oppose anything that could help the poor achieve the educational attainment necessary for a reasonable chance to pull themselves out of the economic lowlands.

So as long as "government knows all,"  the poor have no real future in Baltimore or any other major American city.  Sooner or later explosions such as happened in Baltimore this week are a predictable outcome.

Tuesday, April 28, 2015

The Problem of Higher Education Financing

Higher education in the United States faces a crisis of its own making.  Historically, higher education was mostly financed by taxpayers because such education was considered a "public good." The idea is similar to that behind public elementary education-- we are all better off if everyone is literate. We receive "externalities," benefits conferred upon us through no effort of our own.  But, this seems completely ridiculous in the context of modern higher education in the US.

How does the average citizen benefit from fancy swimming pools, absurdly elaborate dormitory rooms and incredibly modern and comfortable classrooms, that they can never use.  Aren't students themselves, as opposed to the community at large, the main beneficiaries of the modern Club-Med form of higher education?

The huge influx of money into the elite colleges in the last two decades was more than these schools could reasonably find ways to spend -- so the schools invented new needs.  The proliferation of centers, mostly political in nature, and the almost unbelievable expansion of administration bureaucracy, unrelated to the education mission has ballooned costs.  Education, as normally defined, actually costs less, much less, in real terms today than it did two decades ago.  In fact, with the expansion of the internet, much of real education is today completely free.

Meanwhile, as a perusal of any college newspaper will show, many students have turned away from education in the pursuit of various political agendae.  Many students portray themselves as "victims" of a system that provides them all of these luxuries at a subsidized cost.  Indeed, they think the average taxpayer, whose children don't attend these luxurious campuses, should foot the bill for the mostly one-percenters who, today, make up the bulk of the student body at most elite colleges.

This is the ultimate in "reverse Robin Hood" as wealthy college students demand that average taxpayers foot the bill for their luxurious lifestyle.

There is absolutely no reason for higher education to be a Club-Med experience.  Higher education should be about education.  If that were the case, it would cost next to nothing.

Wednesday, April 22, 2015

Return of the Luddites

Today's article in the business section of the NY Times by economist Eduardo Porter shows that some bad ideas never really fade away.

Porter notices that workers at the bottom end of the market are not sharing in the gains of prosperity.  Instead of noting that the plight of low income workers is mainly the result of government interference in the labor market, Porter wanders back to the absurd idea that we are becoming too mechanized -- robots replacing humans.

In fact, markets work.  If you tack on numerous costs to employers for having employees, employees will make much less.  You don't improve the productivity of workers by mandating additional costs to employers.   You can expect workers at the bottom to continue to lose ground as the left comes up daily with additional employer mandates.

It's too bad that workers can't receive the fruits of their own labor.  If that were permitted, low income workers would have become higher income workers and all the fuss about inequality would be absent.  But, instead, government mandates, functioning exactly in the same manner as a tax on workers, rob workers of the income that would otherwise accrue to them.

Meanwhile, extremely wealthy folks like Elizabeth Warren, Hillary Clinton, Barrack Obama and others are completely unaffected by the damaging policies that they inflict on other people.  Instead they cite the damaging outcomes of their policies as an argument to impose even more damaging policies.  Low income workers deserve better.

Monday, April 20, 2015

Global "Policy Makers" Concerned About Low Growth

Ian Talley of the Wall Street Journal has penned an article today with the concerns of "policy makers"  about low global economic growth.

Almost daily, in one publication or another, we get opinions from "global policy makers" about our economic future.  These policy makers have the stage and they use it. Virtually none of their comments have much, if anything, to do with economics.  Instead, they mostly opine about political matters.  The few references to economics -- such as the reasons for very low interest rates on US treasuries and German public debt -- are almost invariably complete nonsense.

The reason for low economic growth is that these very same policy makers have managed to get policies in place that stifle economic growth.

These bad policies come from two directions: (i) one is the Elizabeth Warren approach:  despite the fact that there are virtually no losers in the stock market, assuming investors bought a diversified set of stocks at any date in the past and still own them, and that stocks have earned the average American over 10 percent annually, Ms. Warren and her ilk have decided that stocks are rigged and that Wall Street is unfair.  So, Ms. Warren is on a path to extend regulation to the point that only the one-percenters like Ms. Warren, Ms. Clinton, Warren Buffett, and the Barrack Obama crowd can make money in equities.  The returns to the average guy are being regulated out of existence, as we shall see over the next few years.  No doubt, the one-percenters will follow Al Gore's lead and make their fortunes through influence peddling and "political" private equity funds feeding off the largesse of government.

The Dodd-Frank legislation, inspired by Ms. Warren and her colleagues, have made it virtually impossible for small businesses and middle income Americans to access the commercial bank lending market.  The one-percenters have unfettered access, but small businesses, who historically drive employment and economic growth are shut out by over-zealous regulators.  This doesn't trouble wealthy folks like Ms. Warren, who don't need economic growth to maintain their  own personal status as one-percenters.

(ii) is the destruction of opportunity for low and middle income families brought about by concerns for "fairness."  The essence of these "policies" is to destroy the ladder up that has traditionally been available to folks who work hard and follow the rules.  Minimum wage legislation typifies the type of arrogant policies that cut poor people off at the knees, denying them any avenue to learn the skill sets necessary to compete in the modern world.  And, of course, these destructive policies are promoted on the grounds of "fairness."  Similarly, laws designed to promote fairness in the work place, serve mainly to reduce opportunities for minorities and others who struggle to gain access to the fruits of prosperity.  But, results don't matter to those arguing for "fairness," because invariably such advocates are never personally affected by these destructive laws.  Quite the contrary.  Their careers are only advanced, when the welfare of disadvantaged groups are trashed by these policies.  The advocates then argue that the damage done by their advocacy has other causes, as they retire to their mansions.

As these global policy makers and their fellow one-percenters like Ms. Warren and Ms. Clinton fly about the world in their private jets and chauffered limousines, extolling their personal concern for the poor and the middle class, the poor and the middle class are left to languish in the destructive path of their policies.

Saturday, April 11, 2015

No Way Out for Greece

Either the current Greek government will capitulate to the demands of the Troika (IMF, the ECB and the EU) or the Troika will capitulate to the Greek government.  Neither is likely.

If the Troika capitulates, then Spain, Italy and Ireland will expect and demand similar treatment.  If Greece capitulates, there could be a Greek civil war.

Greece will begin printing its own currency within the next three weeks and the unraveling of the Eurozone will begin.

None of this had to happen.  Simply letting Greece default in 2010, when the default would have had a relatively minor impact, and keeping Greece in the Eurozone was the simple and obvious answer.  But, this was not an answer that appeals to bureaucrats, who think they can "fix" everything while maintaining absurd policies.  They can "fix" things for awhile, but ultimately reality (and disaster) sets in.