Monthly Archives: July 2013

Macroprudential Tools for Economic Flow Control

Posted on by
Reply

Central banks, including the Fed, are trying to narrowly target their manipulation of national economies by using new tools to manipulate economic incentives in particular sectors.

The point of the new tools is to protect the entire financial system and economy, so economists refer to them as macroprudential.  That distinguishes them from microprudential, which describes traditional oversight to assure safety and soundness of individual banks.

However,

The whole idea makes some economists uneasy.
…
The techniques have ignited a debate among central bankers, bank regulators and academics over whether they can do what proponents promise.

Some see “macroprudential” as a euphemism for the largely discredited practice of governments deciding where capital should flow.

They should be uneasy; that’s exactly the effect, whether it’s intentional or not.  Too expensive to put money into this industry, investors and businesses say.  We’ll put our money in that industry, instead.

And create a bubble there instead of here.  Or we’ll put our money into that country instead of this one, they say.

And the net result is to drive inflation in that country instead of this one.  Or, more likely and more insidiously, strengthen an existing tendency toward a bubble or toward inflation, possibly pushing that tendency past a threshold.

But the US government, at least, more broadly than the Fed had already been engaged in macroprudential tools for economic flow control: the Community Reinvestment Act, which was used to pressure banks into making more home loans to poorer credit rated borrowers than the banks thought prudent; tax policy for social engineering, which among other things gives preferential treatment to loans for this purpose but not for that purpose; and so on.  This has gotten even more so since the Panic of 2008: stimulus spending, special loans for particular industries, selective law enforcement where this impacts the economy, etc.

We already know, from all that empirically derived evidence, that targeting this or that sector of the economy not only does not work positively, it exacerbates the economy’s corrections (recessions) when those do (inevitably) occur.

The Fed had at one time a mandate to control price level (inflation) while pushing toward full employment.  It needs to stick to its knitting.  Sure, those are broad-brush goals, but our economy is too complex for any force other than the invisible hand of a free market to control.

Union Favoritism

Posted on by
Reply

The Wall Street Journal tells the tale.

Washington, DC has an 8.5% unemployment rate, and it has come up with an ingenious plan to keep it high: the city council voted 8-5 late last month to require a $12.50 an hour “living wage” for certain big retailers, well above the current national minimum of $7.25.

The wage floor applies to stores with 75,000 square feet of space and $1 billion in parent-company revenues….

[T]he proposed law exempts companies operating under collective-bargaining agreements.  …supermarket chains like Safeway and Giant get a pass because they have union workforces.  So paying a non-living wage is fine as long as it also finances union dues.

Meanwhile, the unions keep jobs scarce and available only to union members.  And union power intact.

Hmm….

What’s Up

Posted on by
Reply

…with this?

SPIEGEL ONLINE: Ms. Salecl, at the fast food chain Subway we have to make half a dozen decisions before we can finally enjoy our sandwich.  Is that what you mean when you speak in your lectures about the “tyranny of choice?”

Salecl: I try to avoid places like Subway, and if I end up there I always order the same thing.  When I speak about the “tyranny of choice,” I mean an ideology that originates in the era of post-industrial capitalism.  It began with the American Dream—the idea of the self-made man, who works his way up from rags to riches.  By and by, this career concept developed into a universal life philosophy.  Today we believe we should be able to choose everything: the way we live, the way we look, even when it comes to the coffee we buy, we constantly need to weigh our decision.  That is extremely unhealthy.

SPIEGEL ONLINE: Why?

Salecl: Because we constantly feel stressed, overwhelmed and guilty.  Because, according to this ideology, it’s our own fault if we’re unhappy.  It means we made a bad decision.

Say, what?  Whose fault is it, then?  Who made the bad decision for us sheep?  Government?  A neighbor, sticking a gun in our ear?

She went on in this interview:

Salecl: …I don’t criticize political or electoral freedom, but capitalism’s perversion of the concept: the illusion that I hold the power over my own life.

SPIEGEL ONLINE: But I do have that power.  I can decide for myself what I want, even if the thought stresses me out.

Salecl: Not at all.  A friend, who’s a psychologist, told me about a patient once: a woman who was well educated, had a good job, a house, and a loving husband.  “I did everything right in my life,” said the woman.  “But I’m still not happy.”  She never did what she herself wanted, but what she believed society expected from her.

And whose fault was that?  Oh, wait….

She repeated her theme in a TED presentation:

In our post-industrial capitalist age, says Salecl, choice, freedom and self have been elevated into an ideal—the ideal.  But the flip side are increased feelings of anxiety, guilt, and inadequacy at facing the possibility of not “making it”—that is, not reaching the ideal.  What’s strange, says Salecl, is that increasingly people turn this anxiety inward, indulging in self-critique, rather than social critique.  Ultimately this has made us unable to move toward social change; our abundance of choices has made us politically passive.

Leave it to a Liberal, politically passive and entirely dependent on a Know Better Government to tell him what to do, to be so confused by the choices available to him that he’s uncomfortable with them.  And then to project that weakness onto everyone around him.

Obamacare Fail. Again.

Posted on by
Reply

President Barack Obama has admitted that another critical aspect of his Obamacare is a dismal failure.  This time he’s

delaying a requirement that verifies the income levels of those seeking taxpayer subsidies until after the 2014 midterm elections.

Instead, the new insurance marketplaces operated by states and the District of Columbia will take the consumer’s word that they qualify for the subsidies[.]

And

Timothy Jost, a law professor at Washington and Lee University in Lexington, VA, and a consumer advocate, said it’s not unprecedented for the government to use the honor system, and compared it to reporting cash tips to the Internal Revenue Service.

It’s also like the 21%-25% of Earned Income Tax Credits that go to people who aren’t eligible (according to Treasury’s Inspector General) because their eligibility is self-verified, too.

Or rather than an admission of failure, is this just another administration excuse for lax pay outs of monies that aren’t deserved, even under the law?  As the Wall Street Journal puts it,

[A]nyone can receive subsidies tied to income without judging the income they declare against the income data the Internal Revenue Service collects.

Of course, a third alternative also includes none of this as abject failure.  These cynical (say I) delays simply are for building the dependency of Americans on government largesse, trapping us into voting for the Progressive party.

Silent No More

Posted on by
Reply

Rafael Cruz had some thoughts.  You know Mr Cruz: Senator Ted Cruz’ (R, TX) Cuban-born father.  Here’s some of what he had to say, via The Daily Caller.

[A]s a teenager I found myself involved in a revolution.  I remember during that time, a young charismatic leader rose up talking about “hope and change.”  His name was Fidel Castro.

That same man who had been talking before about hope and change, now was talking about how the rich are evil, about how they oppress the people, and about the need to redistribute the wealth.  He began attacking the press, curtail freedom of the press, attacking religion, confiscating property.  Then he began instituting socialized medicine, and imposing wage-and-price controls.  Basically reducing everybody’s salary to a least common denominator.
…
I think the most ominous words I’ve ever heard was in the last two State of the Union addresses, when our president said, “If Congress does not act, I will act unilaterally.”  Not much different than that old bearded friend that I left behind in Cuba.  Government by decree, by executive order, just like a dictator—like Fidel Castro.
…
When I faced oppression in Cuba, I had a place to come to.  If we lose our freedoms here, where are we going to go?  There is no place to go.
…
I feel so offended when our president goes around the world apologizing for America and negating our American exceptionalism.  But the truth is, this country is exceptional and unique in the world….  And you know, when we see the intrusion on our liberties; when we see—whether it is looking at our emails, or listening to our telephone calls—or we see the IRS targeting tea party groups—freedom-loving groups—for their political ideology, I say we can remain silent no more.  Silent no more.

What he said.