I’m Sorry, This is Halarious…

July 9, 2009

Obama look

I’m Glad This Constitutes Progress…

July 8, 2009

G8This is how a article begins about the G8 global warming conference (emphasis mine):

“The Group of Eight industrialized nations joined with developing countries in agreeing Wednesday that average global temperatures shouldn’t increase by more than 2 degrees Celsius in a significant new acknowledgment in the fight against global warming.”

So, all it takes for “significant” progress is to restate the goal, again, in a different way?  That’s great news!  It means no greater push that would damage the economy and people’s lives is going to take place in the near future, and the politicians get to go home all puffy about the amazing progress that amounts to agreeing to flip on the earth’s imaginary air conditioner if the temperature gets too high.

Of course, there’s no real way to do that, so it’s just another political, impossible, empty promise… and that makes me very happy.  The inability for the biggest economies in the world to agree on anything truly significant comes in handy sometimes.

Q2 GDP Forcast

July 6, 2009

I said in an earlier post that I was wishing for Q2 GDP to be between -1.0% and 0.0%.  Unfortunately, accounting nuance will likely cause a lower number.  Brian Wesbury is now forecasting -2.5% GDP for the second quarter (April – June).  The consensus forecast back in May was -1.5%, it is likely more negative now.  This is still a huge improvement from the -5.61% in Q1 of this year and -6.50% in Q4 of last year.  The accounting nuance I mentioned is due to inventories, which is the amount of “widgets” businesses have on hand. I believe inventories are included in GDP because of the economic activity of having those widgets produced.

Businesses hold more inventories in the good times because they are selling widgets faster, and they deplete them in the bad times since too much inventory (supply) forces them to drop prices.  It looks like in Q2 this year businesses were cautious and held their inventories down. This is bad news for Q2, but good for the future. Everything other than inventories should cancel to zero, so inventories themselves should account for all of the drop in GDP for this quarter. Inventories tend to be more volatile than the other parts of GDP, and as the economy ramps up this quarter, businesses will have to replenish their warehouses, compounding the increase from the other sectors. This should lead to large GDP growth numbers in the third and forth quarters of the year, and set the stage for an extremely strong 2010.

Here’s hopin’.

Update: The May trade deficit shrank more than expected!  That should add enough to Q2 GDP to keep it between -1.5% and -2.0%.  Small victories are what it’s all about!

My Healthcare Solution

July 1, 2009

Health SymbolHere are a list of things I believe would help healthcare greatly.  This is by no means an exhaustive list, but I believe this would help us get a lot closer to universal and more affordable coverage than would the proposed (or any) government run system.

1.) Give those who legitimately cannot afford healthcare vouchers (my guess is on the order of $5000) to buy the private insurance of their choice. This would cost $250 billion over 10 years, compared to $1 trillion – $1.6 trillion for the Obama plan, and I guarantee you that theirs would end up costing more than this estimate and deny people care (rationing) over time.

2.) Eliminate Medicade, and give those people vouchers as well. In net, I believe this would save money, and at worse, if would cost far less and be better care than giving Medicade or Medicare to everyone.

3.) Don’t allow insurance companies to deny coverage (remember we’re giving a lot of people vouchers that they can only use to buy their product), but allow them to price the coverage at a suitable risk. This may price people out of the market anyway, but at least it would give them a chance to buy coverage for the things they know they need.

4.) Eliminate required coverage. This one is ridiculous as is.  States mandate certain things be covered when you buy insurance, which means they are making the barrier of entry higher for those who would by insurance.  If people were able to pick and choose the things they wanted covered, the cost would drop tremendously and more people would buy it.

5.) Allow competition among states. Right now you can only buy an insurance plan that’s offered in the state you live.  Meaning if Indiana has a better and cheaper plan than the ones in Ohio, the Ohioans are barred from buying it. Competition lowers prices, we need more of it.

6.) Make the cost of care more obvious at point-of-purchase. If it cost $50 or $100 to go to the doctor, you would only go if it was worth that chunk of change.  This would ration healthcare based on each persons perceived need rather than by government dictation. Currently, it costs so little out of pocket to cause a large invisible cost to the insurance pool, thereby increasing the cost for everyone and giving the individual incentive to overuse.

7.) Create incentives for less expensive types of care. Maybe all you need is to ask a doctor a quick question, but instead you have to make an appointment because the doctor does not make any money for over-the-phone help. If the doctor was given incentive for this more efficient type of care it would reduce the need for the aforementioned more expensive doctor visit.

So, this is what I came up with on the spot, I’m sure there is more that could be done, but the above would be a great step in the right direction. Any thoughts?

By the way, I know I didn’t include enough reasoning or figures to defend a lot of this, but I wanted to keep it short and just give a taste of where I am in this debate.

Better late than never?

June 29, 2009

Obama goofyNope, don’t think so.

Although I don’t think the stimulus package is overly harmful, it would have been better to not pass it than to give the government the opportunity to take credit for the recovery it has less than nothing to do with.  This is what they’re saying now:

“We always knew we were not going to get all that much fiscal impact during the first five to six months. The big impact starts to hit from about now onwards,” Romer said.

How utterly convenient!  The big impact of the stimulus coincides with the consensus economic recovery.  I hope we don’t let them get away with that.  So, they passed this stimulus super fast so it could help when the economy is already ramping up?  This is always the problem with stimulus: the argument for it is to be counter-cyclical by having the government spend money in the troughs of the economy.  What ends up happening is by the time any of it kicks in, the economy is already in an upswing, so the stimulus becomes pro-cyclical, making the peaks and troughs more extreme.  It is political genius to continually change what the original intent was, thereby making you right in the end.  I’m afraid there are many people out there who are ready to except this outcome at face value and there are so few who are willing and able to call the administration on it. We can’t let them fool us!

Iran, We Are With You

June 18, 2009

Iranian FlagWhatever it means coming from some guy in Columbus, Ohio, I wanted to put my two cents in.  I want to tell those in Iran that I and countless other Americans are with them in solodarity in their quest for freedom.  You may not be successful this time around, but this is an extreamly important step.  I am optimistic. I can see a time on the horizon with an Iran free of tyranny and close friends with the US. I don’t think most of us can really understand what you are going through since we have lived our entire life in a country with strong liberty. Good luck.

Obama is About to Become Even More Popular

June 15, 2009

ObamaObama is a likable guy, even if his approval ratings are nothing to write home about for a new president. According to Rasmussen, Obama enjoys a 55% approval rating today, which is a jump off of his low of 53%.  His all time high is 65% on inauguration day.   He’s about to become a really popular president, whether I or anyone else agree with what he’s doing.  I haven’t payed close attention to previous presidents, but I’m pretty sure when the economy improves, so does the president’s poll numbers. It takes skill to screw up a gift like that.

I am among those who predict the economy will jump significantly at the end of this year, and I predict Obama will feel the benefits.   Some think that Obama is creating a huge inflation problem in the near future with his spending, I don’t agree with this.  There might be inflation in the future, and Obama could be held responsible, but it won’t really be his fault, inflation is primarily caused by Fed policy.  When the economy recovers, I see his approval ratings jumping, even though I don’t think he’s done much to help the economy.

Those who are trying to crush him are trying too hard, and they are too negative on the future of the United States, and they are going to be disapointed about how well we come out of this recent slump.  In my opinion, no one should be upset about economic recovery, even if it comes at political costs.  Obama’s tactics will eventually cause some problems.  We will be growing below potential. This will be hard to measure, and hard to argue, but those who are against him should not delude themselves into thinking his acts will instantly be his downfall.  There is incredible lag in the economy, which makes it a hard task to find cause and effect.  The reality is it’s easier to make up false, politically favorable economic arguments, on either side, than actually finding a more convincing true narrative.  A reason, I believe, economics should be required learning.

Quantifying the Economy

June 8, 2009

I mentioned last month that it’s likely the economy bottomed.  I still think that’s true, though we won’t see blinding evidence of this for quite some time, but there are strong indicators that it’s already happened.  My biggest concern is economic growth, because the faster the economy grows, the faster our lives get easier and more stable. How do we measure economic growth?  One of the most widely used indicators is GDP or Gross Domestic Product.  It’s the value of everything we produce in the country.  Another way to look at it is the sum of all of our incomes.  So GDP is basically the nation’s yearly salary.  Currently, it is about $13.86 trillion. A year ago, it was well over $14 trillion if I remember correctly.  So, GDP is a good piece of data to look at, but unfortunately, it doesn’t tell us what’s happening up to the minute.  Lets take a look at how GDP is reported.

GDP growth is calculated for a three month period, or quarter, and released at the end of every month on an annualized basis.  The first month after each quarter (Q1: Jan.-Mar., Q2: Apr.-Jun., Q3: Jul.-Sep., Q4: Oct.-Dec.) we get an advanced reading, which has a lot of estimates since the data isn’t all out that soon after the end of the quarter.  A month later, we get a revision called “preliminary GDP” and then in the 3rd month we get “final GDP.”  We end with the best estimate for economic growth for the previous quarter at the end of the following quarter, but these are still subject to revisions in the months (and years) ahead.  Still, it is a useful measurement for how much our economy improved.

So, at the end of July, we will have the preliminary GDP reading on the 2nd quarter (Apr. – Jun.).  I expect 2nd quarter GDP to end up between -1.0% and 0.0%, and I’m hoping for as close to flat as possible.  The consensus forecast is -1.5%, but luckily(?), they are often pessimistic.  Since Q2 contains the end of the recession and the very early start of the recovery, the average of the two will determine how positive or negative the quarter is.  What this means though, is that all of Q3 will be positive, and it could be hugely so, in the 3% region.  The down side being we won’t actually get the first real positive number until late October.

You’ll be hearing for many months to come that the economy is doing poorly, but just keep in mind that it’s already hit bottom and doing better.  The media thrives on bad news and isn’t brave enough to admit the recovery until it is completely obvious.

On a related note:  I believe the economy would have rebounded now whether or not the “Stimulous Package” was made law.  The stimulus will do something (good or bad no one can really know), but it hasn’t had a chance to do much of anything yet.  This won’t stop the government from taking credit for every good data point though, so when they do, try to take it with a grain of salt.

Higher or Lower Gas Prices. Which Is It?

May 22, 2009

The government just passed a law requiring a huge increase in the fuel economy of cars.  Sounds great on the surface, but it gets complicated fast and opens the doors to a Catch 22.  The arguments for more efficient cars include: 1.) even though cars will cost more, we’ll make it up with savings at the gas pump. 2.) we’ll save the (always soon to be doomed) planet by burning less fuel.  These two arguments contradict themselves and the first contradicts another proposed government program, “cap-and-trade.”

A small majority of people are all for more efficient cars, at least when the question is posed where the only trade off is a more expensive car. Turns out there are other costs, like loss of human life. The main way car companies meet fuel standards is by making cars lighter, but this graph shows lower car weight means more people die.

car weight deathsI wonder if just as many people would be for more fuel efficient cars if they knew thousands more would needlessly die each year. I like small cars, but after learning this, if cars are made too light and less safe, I might start buying Volvo’s and just paying whatever extra tax they impose.
So, even though more people will die, at least we’ll be saving money, oil,  and CO2 emissions, right? Well, that’s another problem. If cars get better mileage, gas prices will go down.  When gas prices drop, people drive more, offsetting the increase in mileage. That’s why, despite ever increasing standards, we have continued to use more oil. That’s the “awful” thing about Economics, it causes people to change their behavior in response to the current situation. Thus, the second reason for increasing fuel economy, global warming, will not be helped. Not only will we drive more, offsetting any gains, but driving only accounts for 1.5% of CO2 emissions. So any savings would be negligible anyway.

Now that I have refuted the arguments themselves, I will explain how the lower cost argument contradicts the “cap-and-trade” system. Cap-and-trade is also supposed to save the planet, and it is really just a fancy and complicated way to tax carbon (to make fossil fuels cost more). It is more politically favorable than a tax because it is so opaque, and because it gives the government another way to play political favorites by controlling another facet of the economy. People can’t easily see the tax being levied because it’s buried in the cost, so it’s harder to notice it, except by the fact that it costs more. The same way you know you’re paying income taxes, but you just see what ends up in your bank account, you don’t really feel how much money was taken out before hand.

So, to sell the current fuel efficiency regulations, they told us we are going to save money by using less and driving down the cost, allowing us to use more. But someday soon they are going to say they need to greatly increase the cost of gas and other forms of energy so that we use less. So which is it? Do they want gas to cost less or more? Do they want us to drive less or more? Politicians make these over simplified arguments all the time. They know most people won’t stop to think of the second and third consequences of government action. They know most citizens aren’t versed in economics and thus don’t always remember that people respond to incentives! I believe most politicians know this truism, but they only invoke it when it is favorable to their goals.

A Victory for Capitalism

May 18, 2009

Indian PMGreat news just happened right under my nose. India had an election that was supposed to be close. It wasn’t. The centrist alliance won 262 seats while the right-of-center parties won 158, as opposed to the leftist bloc, which only won 76. The result? India’s stock exchange had to be stopped because it was increasing too fast. It had to be shut down for the rest of the day! I wouldn’t be surprised if it happened again tomorrow. The Indians have been enjoying an incredible rise in wealth thanks to free market policies, and today they asked for more. This happened in the middle of a huge recession that likely hit India even harder than it hit us. That’s the most fastening and exciting part of this. Recessions, especially large recessions, traditionally cause a knee-jerk leftward reaction of protectionism and government intervention. That’s what happening elsewhere, but not in India. This is a great boost to my optimism.

India is interesting to me, because I think it’s a lot like America, but closer to our original idea. They have states, but they vary from each other far more than our own. They have true communist parties, and you can see the economic effect in the states that favor these parties. In India’s parliamentary system, there is a lot more incentive to vote for the party you most agree with. I prefer the stability of our two party system, but I would like to see more experimentation in our own states.  By the way, nationally, the communist parties lost over half their seats.  Good news all around for those of us who believe in the far-reaching wealth creation and extended freedoms of capitalism.