Category Archives: markets

Another Misunderstanding

Posted on by
Reply

Paul De Grauwe, John Paulson Professor in European Political Economy at the London School of Economics and Political Science, was quoted in Thursday’s Wall Street Journal as saying

They in fact triggered the banking crisis. They’ve failed in their duty to ensure financial stability.

De Grauwe was asserting that the ECB’s decision to not increase the amount the central bank already had loaned to Greek banks for liquidity purposes was a mistake.

This criticism is nonsense. The ECB triggered no crisis; the Greek crisis already was in full swing, and had been for a number of years and two bailouts wasted by Greek profligacy. The ECB simply said, rightly, that enough was enough. Far from “ensuring financial stability,” the ECB protected their constituent members by ceasing to pour more of their money into a bottomless dry well. Financial stability was, and is, solely in Greek hands to achieve.

OPM is not methadone for the addicted. It’s a hand up for those trying to recover from bad luck and those willing to learn from their mistakes and do better.

Regulatory Control and the Left

Posted on by
Reply

The Treasury Secretary’s Lawyer (who else?), Antonio Weiss, has a piece on The Wall Street Journal defending the Regulatory State’s control over our financial markets.

He opened it with a strawman.

Some say regulation has killed it, and the answer is to roll back financial reform.

A carefully unnamed “some” in his strawman. He’ll have to play with his dolly without this writer. There is, too, his false assumption in that claim: rolling back financial reform assumes there’s been reform to roll back. There certainly has been a potful of added regulation to our financial markets, all spurred by the Democrats’ Dodd-Frank bill. The bill that created a wholly unaccountable—not even through Congress’ control of purse strings—panel, the CFPB, that decides how financial institutions must behave, even to the point of deciding what business counts as a financial institution that must accept the panel’s decrees.

There’s no reform there. Only the deformation of our free market economy.

And there’s this bit:

The marketplace is rapidly evolving. We must address future challenges without rekindling crises of the past.

Because, gotta have a regulation. After all,

However, market participants report difficulty in executing large orders across various asset classes. And there are concerns over whether the growing ownership of corporate bonds by mutual funds could overwhelm market capacity if there were a sudden wave of redemptions. Moreover, the “flash rally” last Oct 15 in US Treasurys, our deepest and most liquid market, saw yields drop dramatically and snap back within minutes, with no clear catalyst.

Can’t let a free market, a market uncontrolled by Know Betters, find its own solutions to the market niche of asset-class-spanning orders, a niche that couldn’t exist before technology (with the Know Betters have demonstrated they have no capability of managing—see the IRS’ computer “upgrade,” or the security of American’s personal records in the not-so-safekeeping of the OPM) made such a thing possible, much less useful. Can’t let those evil mutual funds—Big Wall Street Business, don’t you know—manage their own finances. No, our Know Betters, who have shown they can’t manage a government budget have to do that. Can’t have an error in software go unpunished by Know Better Regulation rather than leaving it to actual experts and businessmen whose interests lie in prompt correction of such glitches.

The Left, the party of Hillary Clinton, Barack Obama, Woodrow Wilson, and Herb Croly, just can’t conceive of Americans getting by without a Federal Regulation to tell us what to do. No matter how foolish the Left’s Regulation.

A Misunderstanding

Posted on by
Reply

Or a non sequitur. A recent Wall Street Journal editorial was headlined thusly: Should There Be a Tax on Soda and Other Sugary Drinks? The subhead had this: Supporters say it is an effective way to cut obesity. Critics say the health benefits are far less than claimed.

The piece then proceeded to a debate between Kelly Brownell, Dean and Robert L Flowers Professor of Public Policy at Duke University’s Sanford School of Public Policy, and William Shughart II, J Fish Smith Professor in Public Choice at Utah State University’s Jon M Huntsman School of Business, among other titles.

Both entirely missed fundamental point. The answer to the headline question can only be a resounding “No.” The debate was a waste of bandwidth and of newsprint and ink because it doesn’t matter whether taxing sodas is an effective way of curbing obesity.

As James Madison once said in the Third Congress about a related subject,

Mr Madison wished to relieve the sufferers, but was afraid of establishing a dangerous precedent, which might hereafter be perverted to the countenance of purposes very different from those of charity. He acknowledged, for his own part, that he could not undertake to lay his finger on that article in the Federal Constitution which granted a right of Congress of expending, on objects of benevolence, the money of their constituents.

Charity of one sort, or charity of another sort, or simply the Federal government presuming to pressure us toward government’s definition of society, it’s all the same. And so it is with taxing as well as spending. Our tax code, in no way shape or form, should be used to conduct social engineering. Full stop.

Some Economics Numbers

Posted on by
Reply

…from the Tax Foundation, via AEIdeas. First this graph (right-click on it to get a bigger, more readable version):TaxMap_100-Map

The figures are regional price parities of $100 for each of the 50 states, where the national average price is taken as 100. In other words, whereas on average across the whole country, $100 would buy $100 worth of goods, in California those $100 would buy only $89 and change, in Arkansas those $100 would buy a bit over $114 worth of the same goods. The bulk of the differences across the US was driven by relative housing costs: California’s housing, for instance, costs one-third more than the national average while Arkansas’ housing is one-third cheaper.

Mark Perry expanded on these data in his article at the AEIdeas link above, and adjusted per-capita personal income for differences in personal taxes and those price levels. California, based solely on income, ranked 12th in the nation at $48.5k per person. After adjusting for California’s tax bite and pricing, though, the value of a California’s average citizen fell to just $34.8k, dropping California to 37th in the nation the value of that nominal income.

Arkansas, on the other hand, started out 43rd in unadjusted income, with a citizen getting $36.7k. After tax and price level adjustment, though, the state rose to 31st, with that income becoming $35.5k.

There’s something to be said for cost of living and taxes in determining where actual prosperity resides.

Disparate Impact

Posted on by
1

Disparate impact is the racist theory that if practices result in an imbalance (as defined by disparate impact aficionados) in racial representation in this or that arena (see housing, for instance), than the practices must stop until—based solely on race—sufficient races are brought into the arena to achieve an acceptable balance of races. Notice that none of disparate impact has anything to do with the wishes of members of this or that race, already present or absent from the arena. By design, it has nothing to do, also, with the intent of the managers of the arena.

Consider, now, a case brought by

64 organizations alleging that Harvard uses de facto quotas to limit Asian-Americans on campus.

The case was brought to the Civil Rights division of the Department of Education—who promptly dismissed the case, ostensibly because of “pending litigation.” There is a case pending, but as DoE knows full well it’s unlikely to be finally adjudicated for another two or three—or more—years.

Never mind that

Asian-Americans need to score 140 points higher on the SAT than white students to be considered equal applicants on paper, and 450 points higher than African-Americans

and that they’re still underrepresented in Harvard admissions.

Never mind, either, how insulting that 450 point handicap is for blacks–the very group Harvard pretends to be wanting to help.  Or the insult of those 140 points for whites.  But that’s OK, whites have too much privilege; they need to be insulted every now and then.

Apparently, disparate impact is applicable only to certain government-favored groups of Americans. But then, such special treatment is at the very hearts of racism and of bigotry in general.