Under current USA nuclear regulations, you cannot launch any new nuclear projects unless the waste is going to go to a federally approved repository, and Obama has announced there is not going to be a federally approved repository. Hence no new nuclear projects. Obama has also announced that carbon emissions are going to be reduced sometime soon, though not yet. If less carbon, then less coal and oil. If no new nukes, and less coal and oil, then less energy usage. Less energy usage, lower standard of living.
Archive for the ‘economics’ Category
Obama plans massive permanent reduction in US standard of living
Thursday, March 5th, 2009The Stimulus bill
Tuesday, March 3rd, 2009Bryan Caplan wonders why Brad Delong cannot comprehend those who doubt the effectiveness of the stimulus bill.
Assume that creating value is easy, any brainless fool can do it, even the brainless fools at Washington Mutual. It is then immediately obvious that the government can make everything lovely by printing money and giving it to the morally worthy. Are car production lines shut down while unemployed workers idle? Just print money and give it to bureaucrats in government schools, or other similarly wise and worthy people, and lo and behold, those car production lines will start up again, and all will be well.
If, on the other hand, producing value is hard, then falling nominal GDP may well reflect the discovery that we were producing less value than we thought – that we were providing houses to people who were not in fact willing to pay for them, and building cars that were not in fact the cars that people wanted, in which case issuing enough money to stimulate the economy may well stimulate inflation, rather than the production of real wealth.
This brings us to Japan: Did Japan lose a decade because it refused to allow the free market to remove the power over assets held by incompetent people, or because it failed to borrow enough and spend enough?
Those who believe Japan failed to run a big enough deficit may well now get the chance to put their theory to the test in the US. If spending enough borrowed money to keep the incompetent running businesses stimulates the economy, then they will have proven themselves right.
Warren Buffet explains how to lose a trillion
Monday, March 2nd, 2009Warren Buffet explained how to lose a few trillion, here and there.
Well managed companies, like Warren Buffet’s, don’t get government guarantees. Badly managed companies with good political connections get government guarantees. So naturally all the capital floods to companies with a track record of losing it.This is capitalism in reverse. For capitalism to work, the people who are good at managing stuff have to wind up in charge of stuff, and the people who are bad at managing stuff have to wind up out in the street.
In the nature of things, every bailout tends to be very quickly followed by an even bigger bailout – AIG has been bailed out more times than I am able to keep track of, each bailout bigger than the last – the next AIG bailout looks to be a hundred billion or so. General motors, having recently got a ten billion dollar bailout, tells us it can only last a few months unless it gets a twenty five billion dollar bailout.
People are calling this socialism, but perhaps a more informative description is reverse capitalism.
Reverse capitalism can make us all poor even faster than socialism. The budgeted deficit is 1750 trillion dollars, sufficient to do seventeen Iraq wars simultaneously, but this purported deficit is based on the rosy scenario that all the people who have been bailed out henceforth are productive and efficient and make lots of money, when reality is that each bailout digs the hole deeper. The bailouts inject more money into circulation, but they also reduce the production of goods.
Money is a medium of exchange, a measure of value, and a store of value. The problem is that when functioning as a store of value, it is in large part a claim against values that have not yet been produced. For it to work in this way, it must either represent things of value stuffed in warehouses, or treasure buried in the ground, such as gold, or represent investments in things that produce value – such as houses occupied by creditworthy people with adequate income to pay the mortgage, or profitable businesses. If, however, savings merely represent claims against taxpayers, taxpayers that have “invested” in all sorts of massive money losing boondoggles, big trouble will ensue, for we are close to the Laffer maximum. When people attempt to draw down their savings, perhaps frightened by disturbing levels of inflation, their stored value will not be there.
There is a lot of ruin in a nation. The US government can smash the capitalist economy and draw on debt for a while. At present it is doing so at near two trillion a year, which may well rise quite a lot. If, however, it runs up debt at two trillion a year or so, then in eight years or so, the debt to GDP ratio will increase by a hundred percent or so, which is a lot of ruin.
If things continue as they are going, expect the US to collapse around 2017 or so.
Obama promises to fix the deficit by taxing the rich (though past experience is that the more you tax the rich, the less money you get – taxes on the rich are already beyond the Laffer maximum) and by a carbon tax. A carbon tax could raise a lot of money – mostly from the working class, the one part of the population that is at present taxed well below the Laffer maximum. That will work – provided that the bailouts stop sucking up ever bigger quantities of money.
The run begins on Europe
Monday, February 23rd, 2009Moody’ issued a warning on European banks, which implies that the smart money is moving out of the worst affected banks: Eastern European banks, and Western European banks with a lot of exposure to Eastern Europe.This, in turn, is putting pressure on European government bonds, as speculators doubt that European governments will be able to bail out their banks, or will go broke attempting to do so – the most fragile European regimes are facing increasing reluctance to buy their bonds, resulting in higher interest rates. A couple of days ago, the leaders of Europe met to solve the crisis, and issued a communique full of good intentions. I interpret this communique as saying that they intend to keep on doing all the disastrous bad things that led to this crisis, only even more so:
Leaders from eight European countries called for regulating financial markets and hedge funds, investment funds that typically lead to aggressive financial strategies.
German Chancellor Angela Merkel, who hosted the summit, said all financial markets, products and participants that pose a major risk must be regulated.
Ms. Merkel also called for world economies to coordinate in establishing sanctions for tax shelters and regions where financial deals are opaque.
And calling for someone else to clean up the resulting mess:
“We decided that the international institutions should have at least $500 billion to enable them not just to deal with crises, but to enable them to be able to prevent crises,” said Gordon Brown. “We have also decided we want to see a greater role for the World Bank in helping the poorest countries of the world.”
Bond markets are still giving rather low probability for the chance of a governmental financial collapse. I find these low rates surprising. At present you can buy insurance that a European government will pay its bills over the next five years at about one fortieth the face value of the bill, which seems mighty cheap – unless of course one suspects that if governments are not paying, neither will the insurer, in which case it is mighty expensive.
Chinese becoming wealthy, Americans ceasing to be
Sunday, February 22nd, 2009Captain Capitalism explains why Chinese are becoming wealthy, and Americans ceasing to be.
The lesson of Japan’s failure
Thursday, February 12th, 2009Ten years ago, Japan had a banking crisis very like the one we just had. It was discovered that financiers and big businessmen had blown staggering sums of money, whereupon the government massively intervened to keep those that had screwed up from losing their jobs.
The Japanese economy has been stagnant ever since, even though, or perhaps because, the government has poured huge amounts of “stimulus” over the economy, so much “stimulus” that the Japanese government is now approaching bankruptcy.
President Barack Obama correctly observed:
There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what’s called “The Lost Decade”. They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn’t see any growth whatsoever.
Obama then proceeds to explain why we are going to do what failed for Japan:
we want to retain a strong sense of that private capital fulfilling the core — core investment needs of this country.
No we don’t. We want to retain a strong sense that businessmen who succeed, win, and businessmen that foul up, lose their shirts. It is not capitalism when the capitalists are kept in power by the state.
To work, capitalism has to be run by people who are smart. The entrepreneur unites other people’s money and other people’s labor, to create value. The Wall Streeters revealed themselves to be idiots who massively subtracted value.
Similarly General motors, who managed to destroy the amazing sum of about four hundred billion dollars of value over the last decade.
The big factor in downturns is that people attempt to continue saving, while holding back from investing, whereupon the economy bogs down, thus the big factor is distrust of financial intermediaries. In this sense, recessions are largely supply side problems rather than demand side problems. In the last three years, vast numbers of financial intermediaries have been revealed as untrustworthy and incompetent.
In Japan, in a similar crisis thirteen years ago the insiders were revealed to be incompetent and corrupt. In a similar response, the Japanese government intervened to protect insiders from the consequences of exposure, keeping them in charge of other people’s wealth.
This in Japan as here led to massive decline in investment and demand, to which the Japanese government responded with “stimulus” – building bridges to nowhere, paving rivers, and so on and so forth.
This led to a massive increase in Japanese government debt, now the highest in the world, but failed to cure the recession. The government could manufacture demand, but not supply.
Japanese government debt is the highest in the world not because no other government was prepared to borrow so much, but because all other governments that attempted to borrow as much, have gone bust.
Bridges to nowhere will not fix the supply side problem, and tax cuts can have only limited effectiveness. Rather, a new crop of productive entrepreneurs must arise, the creation side of capitalism’s creative destruction. But in a world of bailouts, the way to success is connections, political correctness, and getting on with the rest of the elite, which gives us the sort of capitalist establishment that got us into this mess.
The banks that were run by bankers of the Ebenezer Scrooge type, who accepted CRA with the same enthusiasm as they turned up at their dentist for a root canal, tended to be taken over by banks of the Washington Mutual type, who were rewarded for their political correctness in embracing CRA with genuine enthusiasm, by regulatory favor in their takeovers. And that crowd, the Washington Mutual sort, is the crowd that is still in charge, government guaranteed to be in charge. We need a finance sector run by the likes of Ebenezer Scrooge, and an automobile industry run by the likes of Hank Rearden. To get that, badly run businesses have to go bankrupt, and their assets need to be auctioned off at the block.
The cause of the crisis
Monday, February 2nd, 2009In numerous posts, I have argued that CRA affirmative action caused the economic crisis that is happening now. Vdare provides a far better post than any of mine, giving us case histories and numerous horror stories of bank?s proudly pissing away stupendous amounts of money, and boasting of their wonderful CRA compliance in so doing.
The bank?s boasts of trillions of dollars gives the lie to the much repeated claim that CRA was tiny, supposedly much too small to cause a world economic crisis.
affirmative action, bad loans, bailout, crisis
Sunday, December 28th, 2008creditors came to believe that their loans to unsound financial institutions would be made good by the Fed — as long as the collapse of those institutions would threaten the global credit system. Bolstered by this sense of security, bad loans mushroomed.
Of course any crisis is multicausal. I have been blaming affirmative action loans. But instead of pushing back against government pressure to make bad loans to protected minorities, lenders eagerly embraced bad loans – because of an entirely correct expectation that they would be bailed out
.
The cause of the crisis
Wednesday, December 10th, 2008Capitalism and free markets are prone to bubbles, and a great deal more prone to bubbles when speculators can expect that the government will print as much money as needed to keep the bubble going, but bubbles do not in themselves lead to massive financial defaults, because normally lenders only lend to people who are in a position to repay, even if the bubble pops.
If one reads what purport to be analyzes of the crisis, they usually use windy evasive language such as “financial conditions deteriorated” – which tells us nothing about what was happening except that it is something that cannot be spoken, for fear of getting in trouble.
“Financial conditions deteriorated” in that people were not making payments on their loans, but if one was to say such a thing, this would immediately imply the question: Which people are not making payments on their loans? And that is a question that no one dares ask, for fear of the answer.
The answer, of course, as everyone knows, but no one dares say, is that members of protected minorities, the beneficiaries of government mandated affirmative action lending, are not making payments on their loans.
Foreclosures in Palo Alto west of the freeway (white and some chinese, chinese being an unprotected minority):
One foreclosure at the time I post.
Foreclosures in Palo Alto east of the freeway (black and hispanic, all protected minority):
ninety eight foreclosures at the time I post.
Foreclosures in Gilroy (wholly hispanic, all protected minority)
two hundred and sixty three foreclosures at the time I post.
If no money down loans had been available to white people with no income, no job or assets, there would have been a lot more defaults in Palo Alto west of the freeway.
The distribution of foreclosures by suburb implies that ninety nine percent of the defaulters are blacks and Hispanics, the beneficiaries of affirmative action lending.
All house purchase loans are governed by affirmative action, for since 1999 CRA requires that race must be reported on all house purchase loans, and regulators are required to take the racial distribution all loans into account when making all regulatory decisions – which implies that if a banker does not make enough loans to members of protected minorities he will be punished, but to preserve deniability, nominally punished for something completely unrelated to race.
The financial crisis is wholly caused by affirmative action lending enforced by HUD and CRA.
Therefore, if the same standards had been applied to people in Palo Alto West of the freeway, as in Palo Alto east of the freeway, if CRA and HUD had not imposed racist lending policies in favor of protected minorities, there would be no financial crisis, therefore no need for financial bailouts.
The defaulters are not normal middle class people like you and me. Most of the people that I saw buying houses in Sunnyvale in 2006 were no hablos English, and I could tell in two heartbeats at twenty paces that there was no way in hell they were going to make the payments – I conjectured that they were functioning as straw men for a purchaser more literate than themselves, and perhaps of a race less eligible for a loan with no money down, no credit record, and no evidence of income or assets. In Malaysia they call these “Ali Baba loans” when a member of the favored religion (Islam) fronts for a member of a disfavored religion.
The crisis
Wednesday, December 3rd, 2008Fred Thompson argues the solution is thrift – which exactly what the government is trying to prevent.
Obviously he is right – and yet wrong, for one person’s savings have to be another person’s obligations.
What we need is a financial system that mobilizes savings for sound investments – such as mortgages on reasonably priced houses secured by twenty percent down payments, mortgages on farmlands, mortgages on mines and oilfield with secure property rights, mortgages on commerical facilities such as gravel pits that generate secure and reliable income, mortgages on semi government enterprises such as toll roads, harbors, and airports that generate secure and reliable income, mortgages that are subject to proper scrutiny to ensure that the underlying enterprise supports the mortgage payments and valuation.
Without such a financial system, everyone attempting to save will merely throw more and more people out of jobs, and if on the other hand the government enables everyone to spend irresponsibly, it will set us up for bigger catastrophe down the road
.