Archive for July, 2009

Constitutionality of the removal of the Presidente of Honduras

Tuesday, July 7th, 2009

Because the president of Honduras proposed to change the constitution to allow him further terms of office, he was accused of violating article 239 of the Honduran Constitution:

No citizen who has already served as head of the Executive Branch can be President or Vice-President.

Whoever violates this law or proposes its reform, as well as those that support such violation directly or indirectly, will immediately cease in their functions and will be unable to hold any public office for a period of 10 years.

So the Honduran constitution says that if the presidente proposes to extend his term, he shall be immediately fired.

ARTICULO 239.- El ciudadano que haya desempeñado la titularidad del Poder Ejecutivo no podrá ser Presidente o Vicepresidente de la República.

El que quebrante esta disposición o proponga su reforma, así como aquellos que lo apoyen directa o indirectamente, cesarán de inmediato en el desempeño de sus respectivos cargos y quedarán inhabilitados por diez (10) años para el ejercicio de toda función pública.

OK. He shall be fired. And the Supreme Court and Legislature proceeded to fire him.

What is wrong with the Bush/Obama economic stimulus

Sunday, July 5th, 2009

Tim Kane tells us:

Ironically, the harshest critics of Obama are also overly optimistic. The White House wants to believe the stimulus is working. The critics want to believe the stimulus wasn’t necessary because the economy is getting better already.

No, that is not what the harshest critics believe.  The harshest critics, such as myself, believe that the Keynesian description of the crisis only addressed a small and unimportant part of the truth, thus stimulus could only have a small and unimportant benefit.  The economy is not “starting to get better already”, rather it is only beginning to go bad.

The crisis was originally well described by the Austrian model of recessions – we discovered that we were erroneously over investing in the finance and housing sectors, that the value supposedly created by financiers and real estate agents was largely phony, and that many of the customers for housing were unable or unwilling to pay, and that as a result of CAFE and other restrictions on new cars, new cars were less useful than old cars.  As a result, we got a diminution not in aggregate demand but in demand in particular sectors, which cannot be remedied by aggregate stimulus, but only by labor and capital mobility.

The continuing crisis is well described by the “Atlas Shrugged” model, rather than the Austrian or Keynesian model: the government smashes capitalism causing the economy goes to hell.  Thus, for example, a substantial part of the stimulus package was to impose burdens on employers who lay off workers, which of course increases, rather than decreases layoffs.

Our new permanently high level of unemployment will resemble the permanently high unemployment of many European countries.

Rising natural rate of unemployment

Saturday, July 4th, 2009

The nairu is the natural rate of unemployment, the level of unemployment that arises from people changing jobs, minimum wage laws and trade unions.

Felix Salmon cheerfully tells us

As for the possibility of a higher Nairu, we’re so far away from there right now that for the time being such discussions are probably academic.

On the contrary, the nairu has risen right now – the US is not in a Keynesian recession where aggregate demand is less than aggregate supply, we are in an Atlas Shrugged recession where employers are punished for employing. If the current crisis in the USA was well described by Keynes, then core inflation would have fallen as unemployment rose. Instead core inflation has remained pretty much constant, indicating that any increase in employment that reduces the unemployment rate to below present high levels will result in accelerating inflation.

A substantial part of the Obama “stimulus” package was to make it more expensive for employers to lay off employees. Since employers, unlike politicians, regulators, and voters, tend to take a long term view, this of course makes them more apt to lay people off, and less apt to hire people.  If you increase the cost to employers of people changing jobs, the nairu resulting from people changing jobs will increase.

Another part of the “stimulus” package was to privilege unions in various ways.  Unionization directly raises the Nairu.

A large part of the “stimulus” package was to privilege big companies over small companies, the extreme case being “too big to fail”  Market concentration increases the nairu.

Rapidly rising unemployment without falling inflation indicates that this rising unemployment is directly caused by the “stimulus” and is likely to be permanent.  Moving to a European style political and economic order means moving, permanently, to European levels of unemployment.