Category: A Rationale
Posted by: Admin
The most general and the most pervasive way I make sense of the world is through economics. Concepts inspired by the great economic thinkers and philosophers applied to business and life. Here are their stories and my stories......
Donald J. Boudreaux
Business & Media Institute
12/29/2008 2:54:09 PM
Editor, The New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Like many people, Ben Stein was assured that Bernard Madoff "never lost money" ("They Told Me That Madoff Never Lost Money," Dec. 28). Unlike many people, Ben Stein wisely understood this assurance to be nonsense.
Americans should apply Mr. Stein's wisdom to the greatest Ponzi scheme going: Social Security. Many pols and pundits assure us that this program is a great financial deal for ordinary Americans. But in principle Social Security is identical to Mr. Madoff's fraudulent scheme: rather than generate wealth through productive investments, both schemes transfer wealth from newer 'investors' to older 'investors.' As long as a sufficient number of newer 'investors' keep coming aboard – either by being duped a la Mr. Madoff or by being coerced a la Social Security – such schemes appear brilliant. This appearance, however, is a dangerous apparition.
Sincerely,
Donald J. Boudreaux
Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.
Business & Media Institute
12/29/2008 2:54:09 PM
Editor, The New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Like many people, Ben Stein was assured that Bernard Madoff "never lost money" ("They Told Me That Madoff Never Lost Money," Dec. 28). Unlike many people, Ben Stein wisely understood this assurance to be nonsense.
Americans should apply Mr. Stein's wisdom to the greatest Ponzi scheme going: Social Security. Many pols and pundits assure us that this program is a great financial deal for ordinary Americans. But in principle Social Security is identical to Mr. Madoff's fraudulent scheme: rather than generate wealth through productive investments, both schemes transfer wealth from newer 'investors' to older 'investors.' As long as a sufficient number of newer 'investors' keep coming aboard – either by being duped a la Mr. Madoff or by being coerced a la Social Security – such schemes appear brilliant. This appearance, however, is a dangerous apparition.
Sincerely,
Donald J. Boudreaux
Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.
Some time ago I traced the so called "housing bubble" in N.Z. to screwy tax structures and their resulting incentives. This line of reasoning is now being advanced in respect of the U.S. housing capital.....
Good tax policy (by Russell Roberts)
from Cafe Hayek by Russell Roberts
Commenter j williams writes in response to my post arguing that the reduction in capital gains on housing in 1997 may have been the decisive event that started the rocketing upward of housing prices that created the mortgage mess and subsequent financial collapse:
What conclusions do you draw from this interpretation?
That the government should not have reduced taxes on home capital gains? That the taxes should have been decreased more gradually? That all capital gains taxes should be equal to avoid favoring one investment over the other?
The latter. You don't want to tax-advantage one investment over another or you induce a disproportionate flow of capital into that asset. That's the tragedy of the last ten years that's hidden. Tax policy and what came afterward caused trillions of dollars (not millions, not billions, but trillions) from China and here and elsewhere to go into building new and bigger houses rather than into more productive assets. It was a colossal mistake approved by a Republican Congress and signed by a Democratic president.
The defenders of such policies usually argue that you want more capital to flow into homes because home ownership creates a good society of responsible individuals. Maybe. Maybe not. But such talk is accepted most readily by those who benefit from the policies.
Ever-increasing home ownership is not the American dream. It's the dream of the National Association of Home Builders.
Good tax policy (by Russell Roberts)
from Cafe Hayek by Russell Roberts
Commenter j williams writes in response to my post arguing that the reduction in capital gains on housing in 1997 may have been the decisive event that started the rocketing upward of housing prices that created the mortgage mess and subsequent financial collapse:
What conclusions do you draw from this interpretation?
That the government should not have reduced taxes on home capital gains? That the taxes should have been decreased more gradually? That all capital gains taxes should be equal to avoid favoring one investment over the other?
The latter. You don't want to tax-advantage one investment over another or you induce a disproportionate flow of capital into that asset. That's the tragedy of the last ten years that's hidden. Tax policy and what came afterward caused trillions of dollars (not millions, not billions, but trillions) from China and here and elsewhere to go into building new and bigger houses rather than into more productive assets. It was a colossal mistake approved by a Republican Congress and signed by a Democratic president.
The defenders of such policies usually argue that you want more capital to flow into homes because home ownership creates a good society of responsible individuals. Maybe. Maybe not. But such talk is accepted most readily by those who benefit from the policies.
Ever-increasing home ownership is not the American dream. It's the dream of the National Association of Home Builders.
The guts of my advice regarding Kiwi Saver has always been that for most people the idea rests on the notion that governments can be trusted not to fiddle and alter the ground rules over several decades. That, I argued has no precedent in history and the probability of politicians "doing nothing" was so close to zero as to make no difference.
Here we are then, less than 12 months out and change is well underway. Even less surprising, with the threat of their fees no longer being subsidised (remind me why I want to prop up the fund management industry again) up to two thirds of the rent seeking providers may pull out.
Keynes said in the long run we are all dead. Cute. But as Friedman noted, the long run is simply a whole lot of short runs added up. We have just moved through the first of the short runs. Expect more change. Don't expect to retire well off under goivernment sponsored investment schemes. They require a patience and fortuitude no government has or can have.
Here we are then, less than 12 months out and change is well underway. Even less surprising, with the threat of their fees no longer being subsidised (remind me why I want to prop up the fund management industry again) up to two thirds of the rent seeking providers may pull out.
Keynes said in the long run we are all dead. Cute. But as Friedman noted, the long run is simply a whole lot of short runs added up. We have just moved through the first of the short runs. Expect more change. Don't expect to retire well off under goivernment sponsored investment schemes. They require a patience and fortuitude no government has or can have.
09/12: The economics of choping
A practice - indeed a controversial practice - I noticed recently is that of choping.
This is a practice, possibly unique to Singapore, whereby patrons of busy public eating areas place a tissue on a chair to "reserve" it while they get their food. The entire page debate I read in the Straits Times over the impropriety or otherwise of the practice suggests it is controversial. The fact that it is widespread suggests acceptability.
How does it compare as an allocation mechanism with obtaining food first then competing for a table? Presumably on efficiency grounds it beats the alternative of having a human "chope" the table since turnover of patrons must be greater.... and yet the debate suggests that there are those who feel some form of inequitable allocation is at work. Still, choped seats remain to be seen.
The web offers various a variety of scattered comment about broadly similar practices - since it is related to holding places in queues and like behaviour, and I have seen references to police warnings about not choping with valuable items such as cell phones.
Meanwhile on the supply side I also noticed strong offerings of tissues being sold by walking vendors.
This is a practice, possibly unique to Singapore, whereby patrons of busy public eating areas place a tissue on a chair to "reserve" it while they get their food. The entire page debate I read in the Straits Times over the impropriety or otherwise of the practice suggests it is controversial. The fact that it is widespread suggests acceptability.
How does it compare as an allocation mechanism with obtaining food first then competing for a table? Presumably on efficiency grounds it beats the alternative of having a human "chope" the table since turnover of patrons must be greater.... and yet the debate suggests that there are those who feel some form of inequitable allocation is at work. Still, choped seats remain to be seen.
The web offers various a variety of scattered comment about broadly similar practices - since it is related to holding places in queues and like behaviour, and I have seen references to police warnings about not choping with valuable items such as cell phones.
Meanwhile on the supply side I also noticed strong offerings of tissues being sold by walking vendors.
05/12: BWL Christmas Letter
For those not getting the email version.... is posted HERE.
30/11: Quite a difference....
There are many reasons for defending CE compensation, even large compensation packages. For those involved even peripherally in business these are obvious enough not to need spelling out. Perhaps the one point worth making however is that receipt of top compensation implies at least a modicum of good judgment.
It was an utter and absolute lack of any semblance of such judgment.......
It was an utter and absolute lack of any semblance of such judgment.......
It would be difficult to develop anything involving an invitation to "do as much or as little as you like so long as it isn't actually specific, in your own time, suiting your own political paranoia and tastes while passing what buck there is left to a few ineffectual intellectual agencies", than the communiques released by the G20 World Leaders.
Happily expectations of this sort of bunfight involving these types are so low amongst the seriously concerned as to mean that the posturing does little other than confirm their analytical weakness and joint interest in politics - domestic politics at that - before anything much else.
Here are the action points:
-Continue "vigorous efforts and take whatever further actions are necessary to stabilize the financial system.
-"Recognise the importance of monetary policy support, as deemed appropriate to domestic conditions.
-"Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate...
-Help "emerging and developing economies gain access to finance in current difficult financial conditions... .We stress the International Monetary Fund's important role in crisis response...
-"Encourage the World Bank and other multilateral development banks to use their full capacity" in support of developing nations.
-"Ensure that the IMF, World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the crisis."
Luckily it is close to impossible to work out what this tripe means let alone what to do about it (except that it is an international mandate to do your own thing. I can't see how any country would feel moved to change any policy on this basis)... so we have to use our own brains. This is never a bad thing.
Oh and see you in Europe in April for another productive meeting....
Happily expectations of this sort of bunfight involving these types are so low amongst the seriously concerned as to mean that the posturing does little other than confirm their analytical weakness and joint interest in politics - domestic politics at that - before anything much else.
Here are the action points:
-Continue "vigorous efforts and take whatever further actions are necessary to stabilize the financial system.
-"Recognise the importance of monetary policy support, as deemed appropriate to domestic conditions.
-"Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate...
-Help "emerging and developing economies gain access to finance in current difficult financial conditions... .We stress the International Monetary Fund's important role in crisis response...
-"Encourage the World Bank and other multilateral development banks to use their full capacity" in support of developing nations.
-"Ensure that the IMF, World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the crisis."
Luckily it is close to impossible to work out what this tripe means let alone what to do about it (except that it is an international mandate to do your own thing. I can't see how any country would feel moved to change any policy on this basis)... so we have to use our own brains. This is never a bad thing.
Oh and see you in Europe in April for another productive meeting....
I note Barack Obama's historic win elsewhere. I noticed two things of signifcance:
- how much more gracious, elegant and civilised the Americans are in defeat and victory than we crude types who would scorn them.
- to the extent that the win vindicates a "failed policies of the past" myth... be very, very scared.
Helen beat many in adopting this inaccurate and poisonous slogan - and she has built much long term welfare destruction off the back of it... albeit with good intention.
Is it now thw worlds turn????
- how much more gracious, elegant and civilised the Americans are in defeat and victory than we crude types who would scorn them.
- to the extent that the win vindicates a "failed policies of the past" myth... be very, very scared.
Helen beat many in adopting this inaccurate and poisonous slogan - and she has built much long term welfare destruction off the back of it... albeit with good intention.
Is it now thw worlds turn????
