Resurrect Capitalism!

March 8, 2009

Obama is Killing the Economy With Uncertainty

Filed under: Obama, capitalism, psychology, turmoil, uncertainty — Tags: — admin @ 7:25 pm

One of the reasons recessions turn into depressions is that people hesitate to commit their capital to new investments due to uncertainty.  Right now credit is tightening up because people do not know the true extent of bad loan losses.  It is unknown who is suffering losses and to what extent.  The zeitgeist is one of panic and confusion.

One of the absolute worst things our government can do right now is to create more uncertainty.  And yet that’s exactly what Obama is doing on multiple fronts.  The problem is in trying to figure out how Obama’s bailouts, tax increases, changes in regulations, and modifications to social programs will affect businesses.

Many health care stocks are down because of fears of new government restrictions and mandates as part a health care overhaul. Private student loan providers were pounded because of the increased government lending role proposed by Obama. Industries that use oil and other carbon-based fuels are being shunned, apparently in part because of Obama’s proposal for fees on greenhouse-gas polluters [NOTE: greenhouse gases are not pollution!].

The obvious expectation is that Obama’s actions will harm all of these industries.  But nobody can have a firm estimate of how badly Obama’s programs will damage the industries in question because nobody knows what legislation will pass. Why commit your precious funds to a particular investment that could be wiped out with a new law or a bureaucrat’s whim?

I see an economic stalemate forming, just like during the Great Depression when people with capital hesitated to invest it due to massive uncertainty.

Obama’s endless bailouts are also creating massive uncertainty.  Investors are staggered by the sums being alloted and are wondering where the money will come from.  Inflation seems to be the most likely way to finance them.  Of course inflation devalues a currency and the plausible specter of it creates additional uncertainty.

Many deficit hawks also worry that the trillions of federal dollars being doled out by the administration, Congress and the Federal Reserve could sow the seeds of inflation down the road, whether the measures succeed in taming the recession or not. The money includes Obama’s $3.6 trillion budget and the $837 billion stimulus package he signed last month.

So in addition to creating uncertainty with tax increases and new programs and regulations that threaten to strangle entire industries the “stimulus efforts” are creating uncertainty in our currency.

The best thing for our government to do would be to get out of the way and let the market sort out the winners and losers.  Let the insolvent entities go bankrupt and separate the healthy parts of banks from the cancerous divisions.  Of course this is not a painless process and the bailout recipients are heavily invested in lobbyists.

At least some Republicans are recognizing that eternal life support is short-circuiting the market feedback.  Republicans will be back in power but they first need to rediscover their free market roots.  A fantastic quote from Senator John McCain:

“The best thing that could probably happen to General Motors, in my view, is they go into Chapter 11,” Senator John McCain said on the “Fox News Sunday” program today.

The automaker could reorganize and renegotiate its labor contracts to come out “stronger, better, leaner,” McCain, from Arizona, said.

Why couldn’t McCain have said this during his campaign?  [In my opinion one of the worst things McCain did during his presidential run was to "suspend" his campaign and throw his full support behind the TARP bailout].  Bankruptcy was created for a reason.  What Obama doesn’t seem to understand is that bankruptcy is not synonymous with liquidation.  Just because a company goes bankrupt does not mean that it will no longer exist.

At this point everyone who is paying attention knows that Obama is a socialist.  He is a very dangerous man-  he’s an idealist with an immense amount of power who has never tempered his plans against the constraints of reality.  The question (and source of uncertainty) is, how far will he be able to enact his agenda?  That is the fundamental unknown.

February 15, 2009

Global Warming Panic- Turning It Up a Notch

Filed under: global warming, psychology — Tags: , — admin @ 10:59 am

Politicians and socialist CEOs are busy pressing the economic panic button.  Anthropogenic global warming (AGW) alarmists are getting concerned that their cause is getting washed out by the deafening financial panic screams.  As a result AGW folks are cranking up the volume on their own noise machine.

It seems the dire warnings about the oncoming devastation wrought by global warming were not dire enough, a top climate scientist warned Saturday.

It has been just over a year since the Nobel-winning Intergovernmental Panel on Climate Change (IPCC) published a landmark report warning of rising sea levels, expanding deserts, more intense storms and the extinction of up to 30 percent of plant and animal species.

But recent climate studies suggest that report significantly underestimates the potential severity of global warming over the next 100 years, a senior member of the panel warned.

“We now have data showing that from 2000 to 2007, greenhouse gas emissions increased far more rapidly than we expected,” said Chris Field, who was a coordinating lead author of the report.

This is “primarily because developing countries like China and India saw a huge upsurge in electric power generation, almost all of it based on coal,” Field said in a statement ahead of a presentation to the American Association for the Advancement of Science.

Without decisive action to slow global warming, higher temperatures could ignite tropical forests and thaw the Arctic tundra, potentially releasing billions of tons of carbon dioxide that has been stored for thousands of years.

That could raise temperatures even more and create “a vicious cycle that could spiral out of control by the end of the century.”

“We don’t want to cross a critical threshold where this massive release of carbon starts to run on autopilot,” said Field, a professor of biology and of environmental Earth system science at Stanford University.

This warning of catastrophe sounds strange to me as everything else I have read suggests stable global temperatures since the el nino heated year of 1998.  A quick plot from UAH (University of Alabama Huntsville) satellite temperature data: the dark blue line is the global mean lower troposphere temperature and the light blue trace is the atmospheric CO2 concentration.

uahmsuglobetemp

So CO2 emissions have been increasingly steadily for the past few decades but warming has stalled / declined.  This does NOT prove that anthropogenic CO2 emissions are not making the earth hotter than it otherwise would be.  But it shows that with increasing CO2 emissions the temperature isn’t going haywire.  It’s not even getting hotter. There is no cause for panic.

This suggests an obvious problem with AGW climate models which have predicted unceasing warming with increased CO2 concentrations.  AGW alarmists know there is a problem and they are trying to preclude scientific debate with emotion.

AGW alarmists often label anyone skeptical of their theories as people who get funding from “Big Oil”, “Big Coal”, etc.  In other words, people who don’t agree with AGW models have a financial incentive in having the public believe that AGW isn’t real or isn’t a problem if it is real.

But one must keep in mind the financial incentives for AGW alarmists.  Many climate scientists and modellers will be out of work if you don’t think that AGW is a problem.  Many scientists have staked their reputations on AGW and will defend it no matter what.  People like Al Gore have become extremely wealthy ( > $100M!) by promoting AGW and have every incentive in the world to try to have you believe that we need their wisdom.

With our economy reeling the worst action our government could take would be to impose draconian global warming taxes on industry.

February 14, 2009

Panic

Filed under: economics, politics, psychology — Tags: — admin @ 12:02 pm

It’s interesting to be living through a financial panic.  Mind-blowing stuff is happening on a daily basis (trillion dollar bailouts are disgustingly routine these days).  Financial institutions that have lasted untold calamities have collapsed in the past 6 months.  And we’re going to see increasingly dramatic events.  It seems like everything is falling apart.  In times like these you need to keep your head screwed on more tightly than ever before.

panic_attack

I strongly disagree with the premise that our economy is going to collapse without government intervention.  Uncertainty is in the air and some people cannot handle it.  Think of all the turmoil our economy has survived in the past: numerous financial panics, the Revolutionary War, the Civil War, World Wars I & II, the Great Depression, stagflation in the 1970’s, and many other times of massive uncertainty.

And this downturn is going to sink us and send us back to the dark ages without government assistance?  I am skeptical to the extreme.

The main flaw with the “total collapse” theory is that not all financial institutions are unsound.  Many banks actually maintained rational lending standards in the past 5 years.  New banks untainted by the excesses of the near-past are seeing a wide array of opportunities open.

A good example is Discover, the credit card issuer.  Discover Financial Services has been derided as a low-tier credit card company but they maintained more prudent lending practices during the Great Credit Bubble.

while other issuers were still courting customers with multiple mortgages, Discover flagged borrowers with two home loans, keeping their credit limits low. As a result, say analysts, Discover has less exposure to the riskiest markets

Now they can reap the benefits as their rivals wobble:

Discover, the sixth-largest credit card issuer, is the one laughing now. Earnings jumped 57% in the past fiscal year, compared with a 34% decline at AmEx and a $46 million loss at Capital One Financial (COF). The company is trying to capitalize on others’ pain to gain market share and boost its international presence. “This is the classic tale of slow but steady winning the race,” says Dennis Moroney, a research director at TowerGroup.

The business landscape is changing dramatically.  But it’s not going to dissolve without socialistic “stimulus” plans like the panic mongers say it will.  Understand something crucial here: many panic mongers have a vested interest in having you believe the system is at risk of going under without bailouts.  Socialists in our government (and there are many, including our president) are using this panic as an opportunity to increase the size and scope of government.  Socialist CEOs want you to believe that allowing them to collapse due to their own bad decisions will ruin our entire economy.

In a nutshell A LOT of people have A LOT to gain by getting you to believe that your well-being is dependent on government stimulus efforts.

February 8, 2009

Not All Is Gloom & Doom

Filed under: business, capitalism, economic growth, psychology — Tags: — admin @ 10:28 am

In lieu of reasoned arguments and historical examples of success our President is busy trying to scare up support for his pork and magical-thinking infested stimulus plan.  “Hope and Change” has made an abrupt transition to “Gloom & Doom”.

Despite what Obama is saying there are bright spots in our economy.  To me one of the best indicators is that many local and regional banks actually refused TARP bailout funds.  Our politicians would have us believe that the banking system is insolvent through and through and that we need their brilliant master-planning to keep civilization intact.  But there are actually many banks in America that maintained reality-based lending standards and do not need corporate welfare to survive.

Indeed, many smaller banks are increasing lending to small businesses during this downturn.  Where goliath banks are struggling to survive smaller banks are expanding:

Early on, Cross River Bank, which opened last November, saw the slowing economy as an opportunity to get into the community-banking business and to build lending relationships with small businesses. “It was very opportunistic for us to be in this environment,” says Gilles Gade, Cross River’s chairman and CFO. “Many small businesses are being declined by other banks that are having issues, and we stepped in.”

This shows the absolute resilience and dynamism of capitalism.  Cross River Bank sees opportunity in the crippled state of big banks.  Cross River is free of the toxic assets ruining Bank of America, Citibank, and other giants.  Instead of scrambling for bailout bucks Cross River Bank is LENDING.  It has a huge competitive advantage in this regard.  This is EXACTLY as it should be.  In capitalism you lay in the bed you make, and if you have tucked subprime loans under your sheets you are going to have a pretty rough night’s sleep.

From the same article, the most succinct description I have read as to why our economy will make it through this morass:

“borrowers still need loans, and there is demand on Main Street for financing. It will not go away. The small commercial market is thriving despite economics…We feel that smaller banks that weren’t buying risky securities will have adequate capital to continue to lend.“

If we were capitalists the big banks that made catastrophic lending decisions would be out of business.  The dead wood would have been felled and harvested sooner.  Instead we rewarded big banks for their failure.  Our politicians have shunted the natural feedback mechanism that makes capitalism the best system for allocating resources.  Instead of punishment for failure we now reward it.

The smaller banks that maintained prudent lending standards would gradually expand to fill the void left by the liquidation of the big players.  Of course the big banks didn’t want that to happen and had a life-and-death incentive to try to plant the notion of a complete economic meltdown into the minds of Americans.  [This is why I claim that CEOs of publicly traded companies are the biggest socialists in America].

I’m not trying to paint the picture that all is rosey- far from it!  We are living through extremely tumultuous times.  Uncertainty is sky-high.  It’s impossible to predict in detail what the fallout will be, when, how it will happen, or how it will affect us individually.  I’m just pointing out that our economy will survive without any bailouts or stimulus packages.  Demand for many things is in free-fall right now but it will never go away.

February 7, 2009

Stimulus Packages == Magical Thinking

Filed under: Obama, capitalism, economic growth, politics, psychology, socialism — Tags: , , , , , — admin @ 10:01 am

I’m very skeptical of government sponsored “stimulus packages”.  There are a number of inconsistencies underlying them, and they have a miserable track record at achieving their desired results.  But right now we’re in a financial panic.  In our politicians’ minds critical thinking and examination of the results of previous stimulus efforts are subordinate to the need to DO SOMETHING, NOW.

We’ll set aside the fact that for Obama’s stimulus package (which he tells us needs to be passed NOW) the vast majority of spending will not even happen this year. We shall also set aside the fact that hundreds of billions of dollars of the proposed package are going to welfare of some sort and cannot by any stretch of the imagination cause lasting economic growth.

I’m really puzzled by the assumptions lurking beneath a stimulus package proposal.  The idea is that our government can print money and  through deficit spending  allocate it to a variety of programs, with lasting economic growth somehow resulting.  This is classic Keynesian economics and it has been tried in a variety of nations and circumstances, never with the desired result ensuing.  Keynesian economics does however have the appeal of “something for nothing” and politicians who want to be seen as proactive cannot resist the promises of stimulus packages.

Economic growth is caused by solving / improving problems.  The industrial revolution caused economic growth by freeing up labor.  The horse and carriage, railroads, automobiles, and airplanes all caused economic growth by improving transportation options.  The computer automated countless tasks and freed up considerable mental effort.  The internet caused economic growth by improving the transfer of information.  The theme is that to get economic growth, to improve the standard of living, things need to improve. The catch of course is that it is difficult to improve things.

Government stimulus packages do not improve things.  People who advocate stimulus plans suffer from “magical thinking“:

According to psychologist James Alcock, “‘Magical thinking’ is the interpreting of two closely occurring events as though one caused the other, without any concern for the causal link.

Having more wealth is a consequence of economic growth.  Stimulus advocates take the consequence of growth to be the cause of growth. In essence they confuse cause and effect.  In their minds more money spent implies more wealth.  As a result any amount of money spent on anything should cause economic growth.   Money for artists that no one likes, money for STD prevention, money for bridges to nowhere-  it doesn’t matter to them as funding is equivalent to growth.  Quoting our President:

Ratcheting up the sarcasm, the president said: “So then you get the argument, ‘well, this is not a stimulus bill, this is a spending bill.’ What do you think a stimulus is?”

“That’s the whole point,” he said, as the audience hooted and applauded.

Our President suffers from an acute case of magical thinking.  In his book any government spending will cause net economic growth.  I’ll accept that in a package ~ $1T in magnitude SOME lasting economic growth will be stimulated.  But the question is not will SOME economic growth be stimulated but will the NET effect be economic growth? All of this spending has to be financed somehow, and the funds will be taken from people who given the choice would allocate their capital differently.

turning lead into gold

stimulus packages: just another attempt at turning lead into gold

The basic premise underlying all government stimulus packages is that government is somehow more efficient at allocating resources (i.e. capital) than individuals.  Stimulus packages are the distilled quintessence of SOCIALISM.  Socialism everywhere it has been tried has had miserable results at stimulating growth (academics don’t even debate this, but some say the economic stagnation was a worthwhile trade-off for other more ephemeral benefits).  But somehow this time socialism is going to work and it is allegedly going to save us all.

I’m not the only one skeptical of stimulus attempts.  The Congressional Budget Office concludes that Obama’s stimulus plan will hurt the economy more than doing nothing.

The beauty of capitalism is that as a politician you don’t have to do anything.  You just remove constraints and let people solve their own problems.  Grant people the freedom to allocate their resources as they see fit.  The downside to this is that voters who want to have their cake and eat it too will hold you as a politician responsible for solving their economic problems.  Capitalism is not perfect (nothing is) but just like the laws of thermodynamics you will not do any better.

Our Congress is on the verge of making a grave mistake, one that our children and grandchildren will be paying for.

February 5, 2009

Arrogance Is NOT An Argument

Filed under: economics, politics, psychology — Tags: , , — admin @ 7:37 pm

obama_smug

President Obama says that we need to act FAST and implement his stimulus plan or the results could be catastrophic.  We should be seeing the real Obama more and more now that he must take off the mask of the idealistic agent of change and be a real politician.

Well, he should be acting like a guy who has to solve real problems with real constraints.  But he writes as if he is still in campaign mode, with more of the same fluffy rhetoric that was old as soon as he got elected:

So we have a choice to make. We can once again let Washington’s bad habits stand in the way of progress. Or we can pull together and say that in America, our destiny isn’t written for us but by us. We can place good ideas ahead of old ideological battles, and a sense of purpose above the same narrow partisanship. We can act boldly to turn crisis into opportunity and, together, write the next great chapter in our history and meet the test of our time.

His stimulus bill is stalled in the senate due to massive amounts of pork that have nothing whatsoever to do with economic stimulus.  You’d think he would take the opportunity to address these criticisms and explain why this spending is not wasteful.  Instead he just spouts off platitudes as if to brush aside those who stand in the way of his vision.

In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis — the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive.  I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long.

He really doesn’t present ANY argument for his stimulus plan.  He soothingly describes the general symptoms of what ails us but he does not say HOW his plan will stimulate growth.  He just flatly states that his plan will stimulate the economy.

The economy is bad-  OK, agreed.  So explain to me how spending $1T or so on programs that are at best remotely connected to economic growth is going to revive our economy.  Don’t just try to make me panic:

Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.

The last line really gets my goat.  The notion that we will descend into an irreversible decline unless we implement his stimulus plan smacks of astounding arrogance.  In fact this entire op-ed piece reeks of smug arrogance.  I’m getting the impression that Obama has always pretty much had things go his way and doesn’t feel the need to justify any of his actions or decisions. If you don’t agree with him, why, you are a bitter husk of a person holding up progress and you need to step aside.

I’m skeptical of any stimulus measure that involves politicians allocating taxpayer dollars.  We need real economic growth (that is, we need to SOLVE PROBLEMS and improve things) and that is something that we do, not the government.  I think that our government can and should try to indirectly stimulate the economy by relaxing (perhaps only temporarily) regulations that add considerable costs to business.

Normally I would favor tax cuts but with our deficit at cringe-inducing levels already I’m not so sure that is the best course of action.  But if our government were to spend $1T on stimulus I would rather have $1T in tax cuts.  The deficit would increase by the same amount but at least we would be able to keep more of our cash and stimulate real growth in the process.

January 26, 2009

Mass Psychology Shift

Filed under: economics, psychology — Tags: , — admin @ 12:08 pm

We’re in the midst of a profound shift in mass psychology.  For the past 5 years overconsumption has been the norm.  Think about the cultural symbols of excess: MTV Cribs, “bling bling”, the McMansion, $5 coffee, luxury cars as common as Toyotas on the highways…

All of this proved to be too much and now consumers are scaling back attitudes and expectations.  Contrary to the claims of socialist pig CEOs and cash-strapped state and local governments this recession is not the end of the world.  Consumers are still consuming, they’re just changing how much and what they consume.  People are looking for value much more than they have in recent history.  As a barometer of this psychology shift it is useful to focus on two companies: one that focuses on value, the other on luxury.

McDonalds did quite well in 2008 despite the economic meltdown- an 80% net profit rise from 2007!  The dollar menu draws ‘em in (it sure draws me in). 

IN

IN

Contrast this with Starbucks, which caters (catered?) to conspicuous consumption.  In 2008 they closed 616 stores in America and layed off 2000 jobs.  It looks like the cuts were insufficient, as they are now going to eliminate an additional 1000 jobs. 

OUT

OUT

I’ll give Starbucks (and anyone else that catered to conspicuous consumption) free advice: make cheaper , better value drinks.  The good old days are not coming back in your lifetime.  Your core customers are drowning in debt and coffee is at the bottom of the priority list.  Getting coffee out is an indulgence- $5 ”socially responsible” venti soy chai teas are just not in the budget for the masses.  Change your brand to pursue the value-conscious middle of the roader. 

People are resilient- they are adjusting to the realities of this recession in an orderly manner.  Businesses are adjusting as well.  When will governments reduce their expectations and cut spending?

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