Coyote Blog

I wasn't planning on watching the debates, but my wife made me watch the first 20 minutes.  Is this really what passes for political discourse in this country?  I was particularly struck by the appeals to unnamed authorities -- both candidates said something like "I saw a study the other day [unnamed] that said my plan was great" or "your plan was bad."  Seriously pathetic.

And, after the corporatism and cronyism of the last 8+ years, the fact that Romney could not explain why it made sense to cut tax rates but eliminate deductions just convinced me he deserves to lose.  He was losing to class warfare rhetoric on tax cuts, when he should have been taking the high ground, even with the occupy wall street folks, saying that it was time to stop tilting the tax code towards special interests and populist fads at least one of which -- the tilting of the tax code to home ownership -- helped drive the recent economic downturn.

I blog and don't tend to debate in real time, because I always think of great quips hours later, but even I had the perfect rejoinder for Obama in real time when he said, "I think we should return to Clinton era tax rates, when the economy was great and growing."  Romney should have said, "If I am President, I will happily work with Democrats to do just that, as long as they agree to return to Clinton era spending levels.   After all, if government policy during that era was really so perfect for the economy, then spending levels must have been appropriate as well."

I don't plan to watch any more of this garbage until and unless they include someone other than the Coke and Pepsi candidates.   I'd like to see Gary Johnson but heck, even adding a Marxist would probably help.

These two articles were back to back in my feed reader this morning.  First, Joe Biden argues that medical procedures should be free if you feel you need one

“Everyone knows, everyone in this room knows that President Obama has increased the benefits available to people on Medicare by the action he took,” Biden said. “You are now able to go get a wellness exam, and guys, if you conclude you need a colonoscopy because of the feeling you had or you need a breast health examination, you don’t have to pay a co-pay for that.”

And then I got this from China

As part of its 8 day Golden Week celebration, China's central planners decided to do a good thing for the people and remove all tolls from expressways. That was the populist explanation. The fundamental one was that this act would somehow spur the economy. Alas, while the same people may have saved some transit money in the process, what they did not save was on transit times. As South China Morning Post reports, millions were promptly stuck in traffic jams as a result of the politburo's generosity. From SCMP: "A bid by authorities tostimulate the economy by suspending road tolls for the "golden week" holiday brought huge tailbacks across the mainland yesterday as almost 86 million travelers took to the roads. That's 13.3 per cent more than on the first day of the National Day holiday last year." And then the fun began.

"One traveller blogged that he could only move 200 metres in an hour on the Zhengzhou to Shijiazhuang expressway in Henan province. Others said the queue of cars on the Guangzhou to Shenzhen expressway was 40 kilometres long. All roads leading out of Guangdong were jammed, with cars moving at about a kilometre an hour in front of some toll gates. Provincial traffic-management authorities estimated traffic on expressways would increase by 40 to 80 per cent compared with the same period last year, the Shenzhen Special Zone Daily reported. The People's Daily reported dozens of accidents on 24 highways across the mainland, further aggravating the congestion."

Since the government still keeps hammering down doctor supply, through enforcement of tough licensing procedures and through price caps (that keep getting cut) on doctor visits, we should soon be seeing the equivalent of this highway traffic jam in medicine.  Which is why every socialized medicine country in the world has queues and why their citizens keep flying to the US for treatment.

I have been a stock market bear for some months now.  I don't really think the US economy is going to double dip on its own, but I felt like Europe and Asia would bring us down.  Well, I simply underestimated both the Fed's and the ECB's willingness to goose financial assets.  If the Fed and ECB are going to inflate our way out of, uh, whatever it is we are in, then I certainly don't want to be holding bonds, particularly at these absurdly low interest rates.  Stocks are not as good of an inflation hedge as some hard assets, but they are a hell of a lot better than most bonds.  I'm  certainly not going to buy back in the current euphoric highs, but I am giving up on trying to predict that market based on fundamentals.  It seems that fundamentals are a suckers game, and you better not be timing the market unless you have an inside line to government policy, because that seems to be what drives the train.

PS-  I wish Milton Friedman were still around.  QE was as much his idea as anyone else's.   I wonder what he would have thought of the results, or of this particular implementation.

There is no free lunch.

As I have written before, the problem with Social Security is not a mismatch of taxes and benefits - it's simply that 40 years of Congresses have spent the premiums, and now they no longer exist to pay benefits.

The problem with Medicare is actually more difficult.  By these numbers, Medicare taxes are not even a third of what they need to be to pay for actual benefits.  There are only two solutions that don't involve running up Federal debt:  1)  Triple Medicare taxes.  or 2) Cut back benefits and/or eligibility by 2/3.

Interestingly, neither party is suggesting either of these solutions, which makes all the light and noise from the Conventions totally meaningless on this issue.  The Left's notion that cost control will close the gap is sheer fantasy -- already Medicare is getting an effective cross-subsidy from non-Medicare customers and price controls have gone about as far as they can.  In fact, the cost mismatch above is understated as many Medicare costs (e.g. buildings, revenue collection) are actually not charged to the program but to other agencies.  The Right's pitch that small cuts around the edges that Grandma won't notice at all will balance the budget are equally a fantasy.

Believe it or not, I have come around to the solution that we need to raise the Medicare tax.  I would like to privatize the whole thing, and in particular see a reintroduction of individual shopping and out-of-pocket expenditure to the system.  But in the interim we have to acknowledge that there is no way substantial changes to Medicare benefits or delivery is going to happen.  The program remains incredibly popular, though one reason for this is that it is priced wrong.  I am sure Aston-Martin sports cars would be staggeringly popular if sold for a third of their true cost.  In my mind, there is nothing more dangerous to an economy than an artificially incorrect price, and Medicare prices are WAY off.  We need to raise taxes to match the current benefits package, and THEN let's talk about reforming the program.

OK, to go along with the bad study in the last chart, I will offer up a terrible chart.  From Kevin Drum:

Drum uses this chart to hammer home the point that the current deficit is Bush's, rather than Obama's fault.  I have absolutely no problem with blaming Bush for all variety of stupid spending and handing him a share of the blame for the Federal debt.   Even using this bad chart (more in a moment), I think Obama gets a lot of the blame, though.  The highlighted bars don't really substantially move the debt until 2009 and after, on Obama's watch.   His complete lack of any effort to take on the rising debt, to pare back past spending programs (or wars, or whatever) has been unparalleled.  In fact, I think it is his absolute indifference to deficit spending and the debt levels that saddles him with a lot of the blame.

Anyway, back to the chart.  Notice that these are just a few of the many components of Federal spending, all of which are increasing in this period.  Picking out which ones "caused the debt" is not a neutral procedure.  Money is fungible.  One could just as easily substitute rising Medicare and Social Security costs (or education funding or transportation funding or government employee salaries) for any of the bars above and be just as correct.  Even if one wanted to just look at Bush actions, one would reasonably need to include the debt associated with the costs of Medicare part D, something left off this chart presumably because Drum supports that particular spending.    All this chart does is demonstrate the biases or preferences of the author, showing us which categories of spending the author most opposes (or which the author feels Obama can't be blamed for, like the down economy).

By the way, the chart's construction actually worse than this, because the chart is only "public debt" rather than total debt (for example debt bought in QE is no longer public debt).  If one looks at public debt, the total number should have crossed 100% some time in the last year, rather than the 70% or so in the chart.   So there are a lot of other things, presumably that the author likes, that are also causing total debt to rise.  But these are hidden, because presumably the Fed only buys debt created by the good spending, and the public buys all the debt created by the bad spending.

Finally, my suspicion is that some of these numbers are just plain wrong.  The chart implies Fannie, Freddie, and Tarp are only going to cause a total of 1% of GDP in debt, or about $160 billion.  That is WAY below the loss numbers that Fannie and Freddie have already acknowledged, with more to come.

I found this chart interesting, but am not entirely sure what conclusion to draw (via Zero Hedge)

In 2009, I think most everyone understood that the economy would have to reduce debt and that this process would be painful in terms of creating years of slow growth.  The good news from this chart is that the financial and consumer deleveraging has indeed been occurring, so at least our pain is not for naught.  The debate that will likely go on for years after this recession is whether the rapidly increasing Federal debt helped or hurt:  did it help offset the cost of the private deleveraging, or did it drag out the recession by keeping total debt levels from dropping?  Is it private debt that matters, or total debt?  Of course this makes the analysis more complicated.

Only a mostly-statist world would consider Paul Ryan a libertarian.

Also, here is my growing Romney fear -- that this guy shares many of the same assumptions as President Obama about the government's role in top-down management of the economy.  So far, his rhetoric has the feel not of seeking freedom from state authority but instead that, in the context of top-down state authority, he will be the better, smarter manager.  In other words, we are doomed.  Which is about the way I sum up every Presidential election.

...when they ban short-selling.  As a response to economic problems, banning short selling is roughly equivalent to banning criticism of the government during a political crisis.  Or perhaps more accurately, its like trying to improve poll results by not polling people with negative opinions.   Short-selling has utility for the actual traders involved because it helps them achieve whatever financial or risk-management goals they might have.  Short-selling has utility for the rest of us because it allows the full range of opinions to be expressed about the value of a particular company or asset.  Nothing in a market economy is worse than having prices that have no meaning.

Kevin Drum is back on his "because Republicans won't agree to more massive deficit spending, they must be purposefully trying to destroy the economy."   Literally.  He translates Republican opposition to Obama's proposed stimulus packages as being explained by this strategy:

Basically, the Republican strategy for the past three years has been this:

1. Do everything humanly possible to prevent the economy from recovering.
2. Wait for 2012.
3. Run a campaign focused on the fact that the economy is lousy.

This is such a shabby bit of false logic it is amazing anyone even attempts this any more, or more accurately, it's amazing that folks continue to buy it.  Is it really so impossible to believe that there are actually people of goodwill who wish to see the economy improve but disagree with Drum and Obama as to the correct course to achieve that?  Apparently not  (I suppose the last stimulus was so wildly succesful that it is impossible to doubt the success of another trillion or so of deficit spending?)

The irony is that for some reason I simply cannot fathom, from a political tactics point of view, he points to this chart when talking about Truman and his "do-nothing" Congress:

He's is trying to make some political tactical point, but he is so blinded by his own assumptions that he misses the real point -- that the American economy grew at records rates through a "do-nothing" Congress.  Now, I suppose Drum might argue that this was an accident of timing, but in fact Truman inherited what should have been, by Drum's Keynesian thinking, the worst economic situation ever since an enormous amount of government spending was going away after the war and new workers were simultaneously flooding back into the job market.  If any time in recent history should have demanded Keynesian stimulus, this was it, and yet a do-nothing Congress led to a massive expansion.  Hmmmm.

Swiss government bonds are trading at rates that imply a negative interest rate.  The German government is issuing bonds with interest rates of zero that are actually trading above face value.

This is really bad news.  Investing in these securities is effectively the equivalent of putting money in one's mattress -- it means that investors don't perceive any money-making uses for their money better than paying paying financially strong governments to keep it safe for a while.   I am far from an expert on banking regulations, but my first guess on this is that this is at least in part a function of bank capital requirements that effectively require banks to put a lot of cash into government securities no matter how bad the return.

Germany and Switzerland certainly are providing some value in creating a safe haven for capital, but I wonder if in the long-run this is anything but destructive, shifting wealth and investment out of the private economy and into investments with no return.

I have been reading of late some histories of Germany in the 1930's, with a particular emphasis on racial laws and policy.   Over time the expanding bans on Jewish participation in the economy and society as well as preferences given to non-Jews for government jobs led to some practical problems, including:

• What percentage of Jewish blood made one Jewish?  The Nazis messed around with this problem a long time, in part because of Hitler's absolute reluctance to get involved in such details.  Was it one grandparent?  Three grandparents?
• How does one test for such things?  In the thirties, there was an boom in geneology research in Germany, as everyone raced around trying to figure out what evidence was sufficient to establish someone's race

It would be nice to think we put this kind of thing to bed, but here we are in the 21st century running around trying to answer the exact same questions

• Does 1/32 Cherokee blood make Elizabeth Warren the member of a protected group?  Does 1/8 black blood mean George Zimmerman is not a racist?
• We are building infrastructures to make rulings on race.  I found this story amazing

This story reminded me of the 1980s case of the twin red-haired Boston firefighters who claimed to be black, based on a photo of a great-grandmother and alleged oral history. While I remembered that they had gotten fired for their alleged fraud, I didn’t remember this detail:

Under current rules, said [general counsel to the state personnel office] Ms. Dale, candidates who say they are members of minority groups are judged by appearance, documented personal history and identification with a minority community. Disputes over claims of minority status are resolved by the Department of Personnel Administration.

 And indeed, there eventually was a two-day administrative hearing, in which the hearing officer determined that the twins failed all three criteria, and thus were not black. A judge upheld the ruling, finding that the twins had claimed minority status in bad faith.I have to admit being under the impression until now that as a legal matter, minority status was an in issue of self-reporting. But at least in the Massachusetts Civil Service system, one can get fired for “racial fraud.”

• Every year, in the name of some sort of racial harmony, I have to sit down and report to the government on the race of each of my employees.  For 364 days a year I can ignore the race of my employees, but one day a year the government makes me wallow in it.  Here are part of the instructions:

Self-identification is the preferred method of identifying the race and ethnic information necessary for the EEO-1 report. Employers are required to attempt to allow employees to use self-identification to complete the EEO-1 report. If an employee declines to self-identify, employment records or observer identification may be used.

Where records are maintained, it is recommended that they be kept separately from the employees basic personnel file or other records available to those responsible for personnel decisions.

Race and ethnic designations as used by the Equal Employment Opportunity Commission do not denote scientific definitions of anthropological origins.

I am told we are trying to create a society free of racism, but the results sure look a lot like racism to me.

I will fight when my liberty is truly threatened.  But I have absolutely no trust in politicians to determine when this is the case.

Which is why my reaction to this is, Oh Crap!

I am sure it is a total coincidence that, after 35 years of butting heads with Iran, this is occurring during a sputtering economy and within months of a Presidential election.

PS-  I watched Wag the Dog the other night.  Every time Dustin Hoffman said "he f*cked a Firefly girl" all I could think of was Gina Torres, Morena Baccarin, Jewel Staite, and Summer Glau.  Well worth losing the Presidency for.

Do you ever wonder exactly what problem this Administration is trying to fix, beyond their bureaucrats' concerns that there is some corner of the economy over which they don't have authority?

A proposal from the Obama administration to prevent children from doing farm chores has drawn plenty of criticism from rural-district members of Congress. But now it’s attracting barbs from farm kids themselves.

The Department of Labor is poised to put the finishing touches on a rule that would apply child-labor laws to children working on family farms, prohibiting them from performing a list of jobs on their own families’ land. ...

The new regulations, first proposed August 31 by Labor Secretary Hilda Solis, would also revoke the government’s approval of safety training and certification taught by independent groups like 4-H and FFA, replacing them instead with a 90-hour federal government training course.

Change:  We won't satisfied until every single American reaches voting age without a bit of work experience.

I wrote on the day of Obama's inauguration:

I will be suitably thrilled if the Obama administration renounces some of the creeping executive power grabs of the last 16 years, but he has been oddly silent about this.  It seems that creeping executive power is a lot more worrisome when someone else is in power.

From Charlie Savage in the New York Times:

As a senator and presidential candidate, he had criticized George W. Bush for flouting the role of Congress. And during his first two years in the White House, when Democrats controlled Congress, Mr. Obama largely worked through the legislative process to achieve his domestic policy goals.

But increasingly in recent months, the administration has been seeking ways to act without Congress. Branding its unilateral efforts “We Can’t Wait,” a slogan that aides said Mr. Obama coined at that strategy meeting, the White House has rolled out dozens of new policies — on creating jobs for veterans, preventing drug shortages, raising fuel economy standards, curbing domestic violence and more.

Each time, Mr. Obama has emphasized the fact that he is bypassing lawmakers. When he announced a cut in refinancing fees for federally insured mortgages last month, for example, he said: “If Congress refuses to act, I’ve said that I’ll continue to do everything in my power to act without them.”

My Forbes article is up for this week, and discusses 10 reasons why legislation frequently fails.  A buffet of Austrian economics, Bastiat, and public choice theory that I wrote for the high school economics class I teach each year.

Here is an example:

3.  Overriding Price Signals

The importance of prices is frequently underestimated.  Prices are the primary means by which literally billions of people (most of whom will never meet or even know of each others' existence) coordinate their actions, without any top-down planning.  With rising oil prices, for example, consumers around the world are telling oil companies:  "Go find more!"

For a business person, prices (of raw materials, labor, their products, and competitive products) are his or her primary navigation system, like the compass of an explorer or the GPS of a ship.  And just as disaster could well result from corrupting the readings of the explorer's compass while he is trekking across the Amazon, so too economic damage can result from government overriding price signals in the market.   Messing with the pricing mechanisms of markets turns the economy into a hall of mirrors that is almost impossible to navigate.  For example:

• In the best case, corrupting market prices tends to result in gluts or shortages of individual products.  For example, price floors on labor (minimum wages) have created a huge glut of young and unskilled workers unable to find work.  On the other side, in the 1970s, caps on oil prices resulted in huge shortages in the US and those famous lines at gas stations.  These shortages and gas lines were repeated several times in the 1970's, but never have returned since the price caps were phased out.
• In the worst case, overriding market price mechanisms can create enormous problems for the entire economy.   For example, it is quite likely that the artificially low interest rates promoted by the Federal Reserve over the last decade and higher housing prices driven by a myriad of US laws, organizations, and tax subsidies helped to drive the recent housing and financial bubble and subsequent crash.  Many will counter that it was the exuberance of private bankers that drove the bubble, but many bankers were like ship captains who drove their ships onto the rocks because their GPS signal had been altered

This seems to represent the general MSM reaction to Peter Gleick's fraud in obtaining Heartland documents:

Peter Gleick violated a principle rule of the global-warming debate: Climate scientists must be better than their opponents....

It’s very tempting for scientists and their allies to employ to tactics of their over-aggressive critics. Yet the global warming camp must make an affirmative case for ambitious action on carbon emissions. Critics need only poke holes in the scientists’ arguments, or, as is so often the case in global warming debates, merely insist they’ve done so. Manipulation and perfidy work much better for the deniers.

Whatever the misdeeds of those who attack climate research, however braindead the opposition to climate scientists appears to be, advocates degrade themselves when they allow their frustrations to get the better of their ethical responsibilities. They lend credence to the (wrong) impression that both sides of the debate are equally worthy of criticism, that global warming is another ideological war that both sides fight deceitfully. In that context, those who want to spend lots of money to green the economy lose, and those who want to do nothing win. As Rick Santorum tours the country accusing climate activists of treachery and conspiracy, this should be only more obvious.

In other words, shame on Gleick for stooping to the level of those corrupt and evil skeptics.  A sentence or two of denunciation of Gleick for an actual crime, accompanied by 500 words of unsubstantiated ad hominem attacks on skeptics.  Nice.  I try to have a "let's play nice" response and this is what comes back in return?  Very frustrating.

It is an open question how long this bailout will plug the dam.  I continue to maintain the position that Greece is going to have to be let out of the Euro. Pulling this Band-Aid off a millimeter at a time is delaying any possible recovery of the Greek economy, and really the European economy, indefinitely.  All to protect the solvency of a number of private banks (or perhaps more accurately, to protect the solvency of the counter-parties who wrote the CDO's on all that debt).

Anyway, the interesting part for me is that with this bailout, the total cumulative charity sent the Greek's way by other European countries now exceeds Greek GDP, by a lot.

Back when he was blogging, TJIC had a nice little animated gif with people running around yelling "Oh Noz."

 [update:  sent to me by by the folks at finem respice]

I wish I had it for this chart and the accompanying text  (via Kevin Drum)

Many young adults have felt the impact of the recession and sluggish recovery in tangible ways. Fully half (49%) of those ages 18 to 34 say that because of economic conditions over the past few years, they have taken a job they didn’t really want just to pay the bills. More than a third (35%) say they have gone back to school because of the bad economy. And one-in-four (24%) say they have taken an unpaid job to gain work experience.

First, this study is great evidence of my "what is normal" fail.  There is no baseline.  OK, 24% moved back in with their parents.  How many did this in good times?  How much worse is this?

But the real eye-catcher to me is that somehow I am supposed to be shocked that people have to find a job to pay the bills.  Even a job that, gasp, they really didn't want.  I have a clue for you.  A lot of jobs 22-year-olds have to take are not that compelling.  Mine were not.  Despite what colleges seem to be telling them, the world does not offer up a lot of really cool jobs to inexperienced young adults.  Long before you are closing deals with CEO's, you are probably writing sales literature in some cubicle.

And by the way, I am struck by how wealthy our society is when I look at this chart.  Look at answers two and three.   In both cases, people are saying that in tough times, they chose to forego income and build their skills, even perhaps paying for the privilege.  What other time in history would people have this luxury?  How many countries today would have so many people with this luxury in hard times?  Even in the Great Depression in this country I don't think we saw the same phenomenon.  Obviously the economy sucks and it would be great for everyone for it to improve, but in most other times and even in many other countries in the world today, a significant bar in bad times would have been "I starved to death."

Kevin Drum apparently believes the reason Republicans are not passing further stimulus spending is because such a stimulus would be too likely to have immediate results improving the economy and thus will help Democrats in the next election.

This is the kind of politcal bullshit that drives me right out of the system.  I am perfectly capable of believing Drum honestly thinks that further deficit spending will improve the economy this year.  I think he's nuts, and working against all historic evidence, but never-the-less I believe he is sincere, and not merely pushing the idea as part of some dark donkey-team conspiracy.  Why is it that he and his ilk, from both sides of the aisle, find it impossible to believe that their opponents have similarly honest intentions?

I mean, is it really so hard to believe -- after spending a trillion dollars to no visible effect, after seeing Europe bankrupt itself, and after seeing the American economy begin to recover only after crazy stimulus programs have mostly stopped -- that some folks have an honest desire to see economic improvement and think further stimulus programs are a bad idea?

A reader sends me this editorial from Jerry Jordan at IBD.  It discusses a topic that is one of my favorites - government mal-investment.  By a thousand different mechanisms, from direct investment (Solyndra) to artificial interest rates to monkeying with price signals to economic rule-making (e.g. community banking, ethanol mandates) the government is shifting capital and resources from the allocations a well-funcitoning market would make to optimize returns and productivity to allocations based on political calculation.  We rightly worry about deficits and taxes, but in the long run this redistribution of investment from the productive to the sexy or politically expedient may have the largest long-term negative implications -- just look at what the management of the Japanese economy by MITI (touted at the time as fabulous by statists everywhere) did to that country, with the lost decade becoming the the lost two decades.

It is hard to excerpt but here is how it begins

It usually surfaces with an entrepreneurial adolescent deciding it would be a good idea to sell lemonade at the curbside to passersby

Parents, wanting to encourage the idea that working and making money is a good idea, drive around to buy the lemon, sugar, designer bottled water, cups, spoons, napkins, a sign or two, and probably a paper table cloth.

Aside from time and gas, the outing adds up to something north of $10. At the opening of business the next day, the kids find business is slow to nonexistent at $1 per cup. So, they start to learn about market demand and find that business becomes so brisk at only 10 cents per cup that they are sold out by noon, having served 70 cups of lemonade and hauled in $7.

The excited lunch-time conversation is about expanding the business. A stand across the street to catch traffic going the opposite direction; maybe one around the corner for the cross-street traffic. The kids see growing revenue; the "investors" see mounting losses.

There is a strand of economics, we'll call it the K-brand, that sees all this as worthwhile. They add together the $10 spent by the parents to back the venture and the $7 spent by the customers and conclude that an additional $17 of spending is clearly a good thing. Surely, the neighborhood economy has been stimulated.

To the family it is a loss, chalked up as a form of consumption. If this were a business enterprise it would be a write-off. In classical economics it is a "mal-investment."

(update: link is fixed)  My new Forbes column is up, and it attempts to strip away the window dressing around the Keystone pipeline decision to get at the core issue -- "a quasi-irrational ('I'm blogging against the modern economy from my iPhone'), almost aesthetic distaste for energy production, the modern industrial economy, and capitalism itself. "  Read it all here.

PS-  the contrast between the Administrations support of the egregious HSR project in CA and its rejection of the takes-no-tax-dollars Keystone XL infrastructure project reminds me of my earlier piece on the Timeless Appeal of Triumphalism.   Politicians love to shift capital from private, boring, productive things like pipelines to sexy taxpayer-funded things that they can put their names on.

The 5-year old transcripts of Federal Reserve Board meetings .  Bernanke & Geithner basically yawn at concerns raised about housing prices and mortgages.

Let's be clear.  Unlike most of those who are likely commenting on this, I do NOT blame these folks for being wrong about the direction of the incredibly complex economy, and how one or two factors might influence the whole.   My sense has always been that it is impossible to be consistently right.

What I do criticize is the hubris of making major top-down Federal policy decisions that require that these folks be consistently right.  It's simply madness, and I am exhausted with the continuing reaction of both the media and most politicians that if we only had the right folks making these decisions, all would be well.  The reality is that these decisions are impossible to make, and will virtually always lead to gross mis-allocations of capital and resources in the economy that lead to recessions.

Update:  Here is one example

JUNE 28-29: In summarizing Fed officials’ views, Bernanke notes how it’s getting more and more difficult to make forecasts, describing the economic situation as “exceptionally complicated.” Since housing is particularly hard to project, Bernanke calls it “an important risk and one that should lead us to be cautious in our policy decisions.”

So, this seems like an admirable statement of humility.  Given these remarks, the group did nothing, right?  Of course not ... they raised interest rates a quarter of a point.

Neither Medicare nor Social Security should be government programs.  The government essentially takes on two roles in these two insurance programs:  1) To subsidize the premiums of low income Americans; and 2) To use its power of coercion to force everyone to participate.  I have no stomach for the latter role and the former could be much more cheaply achieved with some sort of voucher or credit program.

But these programs are not going away.  While both need reform, it may turn out to be politically impossible to even reform them.

But if we take off the table for a moment their existence and their basic structure, there is still an enormous problem we might fix:  pricing.  There is absolutely nothing more deadly to an economy than a false or corrupted pricing signal.  But that is clearly what we have with these two programs.  The Medicare "premium" (tax) taken out of every paycheck is clearly way too small to cover true actuarial costs of this program.  And while Social Security rates may have been set right if the premiums were really being kept in escrow for the future, the fact is that the so-called trust fund has been raided into oblivion by past government spending programs  -- Social Security taxes need to be reset to reflect that fact.

The result, of course, will be a substantial increase in both payroll taxes.  I am not a big fan of tax increases, and find taxes on labor to be among the worst.  But as long as we hold on to the collective notion that these are insurance programs and the taxes we pay are premiums, its time to stop fooling Americans into thinking that the premiums they are paying are truly sufficient to fund their benefits.  Maybe after we reprice the "premiums" to their true actuarial value, we can then have a real debate about the structure and existence of these programs.

I have zero desire to be  a farmer.  But that would seem to be the logical end result if we take Obama's recent statement to its logical conclusion.  He said in his Kansas "OK, I really am a socialist after all" speech:

Factories where people thought they would retire suddenly picked up and went overseas, where workers were cheaper. Steel mills that needed 100—or 1,000 employees are now able to do the same work with 100 employees, so layoffs too often became permanent, not just a temporary part of the business cycle. And these changes didn’t just affect blue-collar workers. If you were a bank teller or a phone operator or a travel agent, you saw many in your profession replaced by ATMs and the Internet.

As has been pointed out by economists everywhere since the speech, Obama is fighting against the very roots of wealth creation and growth and our economy.  Productivity improvement has always been the main engine of a better life for Americans, but here Obama is decrying it.

This reduction in employment in major industries due to productivity is not new.  It began with the agriculture.  Check this out from the always awesome Mark Perry

This is exactly what Obama is criticizing.  Without productivity improvements of the type Obama seems to hate, nine out of ten of you would be laboring in a field rather than reading this on the Internet.   Are you poorer because you don't have to grow your own food?  Of course not.   Every time we increase productivity in a major industry, we fee up labor for the next big thing.  We couldn't have had the steel or auto or oil industries if agricultural productivity improvements had not feed up labor for them.  The computer revolution would be impossible if we all were working in steel mills.

PS- of course this does not work if the next big thing, say domestic gas productions through fracking, is blocked by the government and private investment capital is diverted by the government to cronies with a solar panel factory.

Arnold Kling has one of the best statements on modern political incentives I have seen lately

Salmon complains that as far as the latest [European debt] plan is concerned, "the commitment is still vague." What I want to suggest is that for the politicians, vagueness is a feature rather than a bug. This reflects a fundamental misalignment between political incentives and economic requirements.

What markets and the economy need are policies that resolve uncertainty. That way, people know who is going to take a hit. Most important, they know where they can invest with confidence going forward.

What politicians need are vagueness and opacity. Having a clear, well-defined policy exposes the politician to the people who are hurt by that policy. Thus, instead of producing a balanced budget today, you produce a plan to produce a plan to balance the budget down the road. Instead of restructuring sovereign debt, you make a commitment that everyone will be made whole, without explaining how that commitment will be honored.