A game of Keep Away (maybe for keeps)

Do you remember the game of Keep Away? Where two kids stand 10-20 ft apart, and throw the ball to each other at the exclusion of everyone else? Depending on the relative skills, it is possible that the kids in the middle will never get their hands on the ball. Such games should end quickly, because it's no fun for the people who can't get the ball.

In an article today in the Wall Street Journal, Laffer and Scudder raise the point that the target revenue the government is aiming for by jumping the fiscal cliff is about 500 billion dollars. That is a static figure, which amounts to a 3% increase in tax. But as Jack Kemp said "When you tax something, you get less of it". That means lower income overall, and a reduction in growth of the economy. This magic 500 bil looks like a big deal. But it is out of reach. The 500 billion that the taxocrats want to abscond with is unlikely to materialize.

The people (or corporations if you don't mind) with that kind of income are going to transfer it out of the country before it is even made; effectively playing Keep Away with the money. This is money that will benefit other citizens, other governments. Not ours.

This is a game of Keep Away that is being played too close to the cliff.

Fighting the Liberty Fighters

"Underlying most arguments against the free market is a lack of belief in freedom itself." — Milton Friedman

To be against the free market requires several huge leaps of non-faith.

To be against the free market one has to believe that people are not the best shepherds of their own fate, that some anointed individual in a distant piece of earth has a better idea, or even the first thought of a more constructive use for another person's resources.

To be against the free market means to oppose a person's freedom to pursue and to benefit from the fruits of his labor. The opposers are not freedom fighters. They are bondage fighters who want to see everyone shackled by a yoke of declining productivity.

To be against the free market is to deny human nature.  It is to adopt a shallow understanding of economics (hello Keynesians) and to ignore the obvious truths in it.

Those against the free market have little or no understanding of the nature of human dignity, drive, and desire.  People with no incentive to produce anything of value produce nothing of value.

The defining principle of the contra-free-market crowd is to disincentivise production. They do this by attempting to convince enough people that they have a right to someone else's lunch. And that it is somehow morally acceptable for people to think this way. It is a dibilitating lie.

And, like clockwork, every four years, we gather in the precinct rooms to prove that at least half the populace believe this lie.

Any surviving ethic will have to be consistent with human nature. So, from here, I believe the best personal strategy is to invest in the things that are in line with basic human nature. We want to be free to pursue happiness. We want everybody to have the same opportunity, to share and celebrate that freedom.


Ultimately, there can be no personal freedom without economic freedom. Economic freedom is not something government can give you. it is something you have to protect for yourself.


To my readers: Invest in freedom. Embrace those things that both harness and nurture the human spirit. Do not invest in any person, place, or thing that denies the human spirit. Protect the free market and protect freedom.

Simple Economics

..either immediately or ultimately every dollar of government spending must be raised through a dollar of taxation. Once we look at the matter. In this way, the supposed miracles of government spending will appear in another light. -- Henry Hazlitt

Economics as a field of study is often misunderstood. So much misunderstood that it is often blamed for our sad economic condition.  This is a little like blaming the scale for the failure of a diet. The core of economics describes with brutal precision the nature of an economy. People trade labor for goods, just as they did at the beginning of history. It is happening on an ever increasing scale, and the more people interacting with an economy, the more complexity we have.

People tend to dismiss economics as being abstract, almost a philosophy rather than a science. It's not surprising that many would reach that conclusion. You can hear the words "if economics was a real science, our economy would be steadily improving, like medical science". If economic science and medical science were practiced equally well, we would still be in the blood-letting phase.

The other difference that occurs to me is that bacteria behave rationally.  My argument here is not to advocate for economics as science, but for economics as a fundamental aspect of human nature. And every time we ignore core human nature, there is bad trouble.

"I think almost every economist would agree that government gets itself in trouble when it tries to interfere with voluntary behavior." — Milton Friedman 

Economics is misunderstood. Consider that government sometimes creates false impressions of economic conditions, for the purpose of manipulating public sentiment. for example, Austerity and Stimulus. Austerity we understand as low government spending, and Stimulus has come to mean high government spending. In Europe right now, there is discussion about reversing the course of austerity, and going to stimulus instead.

The fallacy in this argument is that real austerity, and austerity as it is practiced in, say, Greece are not the same thing. Further, real stimulus, and stimulus as practiced in, say,  shovel ready form, are also not the same thing. In fact, the two "economic" approaches are probably not much different in execution. The political party in charge makes sure it's friends are taken care of whatever the new scheme is called.

But real economics offers real solutions. Real austerity takes the size of government down to the point where the economy can sustain itself without borrowing. Simple, right? Easy to define. Easy to visualize. Easy to achieve. Mountains of data show that the amount of federal revenue that can be created is no more than about 19% of GDP. It is an immutable law. So, we should tune our government to exist on that number. If we want to grow the government we should accomplish it by growing the economy.

So, rather than trying to parse what everybody means by austerity, stimulus, and voodoo economics, we should start looking at simple, real economics.

Estonia and Finland

Recently I was taken by the juxtaposition of two news stories, One, chronicling a dustup between Paul Krugman and the president of Estonia. I have no love for Krugman, of course; and I follow his antics only to see how far afield from real economics a Nobel -Laureate in economics can publicly travel.

The news wasn't that Krugman picked a fight with Estonia. The news was that Estonia and the other Baltic countries are doing very well as a result of their austerity. As a laboratory of economics, it presents a pretty good example of what is possible with a healthy dose of government austerity.

Estonia is growing at 7.6% per year. Yes, Growth AND austerity. Not too bad. Co-balticites Lithuania and Latvia are also reporting positive results from similar economic policies.

Of course, in our own country, this worked for the Harding and Coolidge administrations.Sometimes we need more contemporay examples. I had to look at a map to find Estonia. Then I was struck by the proximity to Finland. A short boatride across the Gulf of Finland is all that separates Estonia and Finland.

Finland is one of the few growing economies left in the EU and is fighting to preserve what little they can of the existing recovery. This is prompting the Prime Minister of Finland to argue against Eurobonds (i.e., printing of excess euros). They think that the Spanish banks are not too big to fail, and that austerity and growth are not mutually exclusive.

Good for them.

If they have to exit the Eurozone, it will be for very good reasons. They understand economics better than Paul Krugman, and maybe even better than the rest of us. I cheer them all on. It appears that the Baltic region will be poised to recover quickly from the double dip. Hopefully, the US won't be too far behind them.

Chart of the Day #10

History, in general, only informs us what bad government is.

-- Thomas Jefferson

There are no constraints on the human mind, no walls around the human spirit, no barriers to our progress except those we ourselves erect.

-- Ronald Reagan

From The Enterprise Blog, American Enterprise Institute, James Pethokoukis, 5/16/12

Chart of the Day #9

My problem lies in reconciling my gross habits with my net income. -- Errol Flynn

Link o' the Day

http://www.bobkrumm.com/blog/?p=2354

Hmm, is it ethical to apply this much calculus to a napkin sketch?

Chart of the Day #8

From the Washington Post Blog

A government big enough to give you all you want

It's not Republican, it's not Democrat. Honestly, it's not liberal, it's not conservative ... It's economics," says Economist Art Laffer. "If you tax people who work and you pay people who don't work, don't be surprised when you get a lot of people not working. -- Art Laffer

Previously, with the help of Hauser's law, we looked at the revenue available to government through taxation.

Hauser's law neatly shows that the amount of money available to the government is nearly constant, irrespective of tax rates. If the relationship holds, the amount of revenue is always going to be about 19% of GDP. When faced with this information, wouldn't it seem appropriate to focus on increasing GDP as a way to increase revenue?

The hidden time bomb in this relationship is the realization that there is only 19% of blood that can be squeezed out of the income of the people. However, the government has ways to spend more than they take in.

But, you can also chart government spending as a function of GDP.

The spending has blown past 19 %, and may never look back. Does everyone see where this is going?

Edgar the Entrepeneur

A man who gives his children habits of industry provides for them better than by giving them fortune. -- Richard Whateley





Edgar the Entrepeneur is a video cited by the Ludwig Von Mises Institute, which beautifully describes the consequences of minimum wage policies. I recommend you see it.

I have long advocated that minimum wage laws should be abolished. They are the cruelest hoax currently being perpetrated by the elected ones. I have two teenage boys neither of which, apparently, is worth $7.35/ hr. Both are good workers with many skills, but neither is employed despite many applications.

I would quickly send them both to work for a combined $7.35 an hour just to get them some experience. Each of them would be better off, as would the lucky company that could use their talents. But sadly, because of misguided public policy, the three bottom rungs on the ladder are missing.

Qui Bono? Who is this benefitting? China I suppose. China and the other growing countries that have an unlimited supply of 3 dollar labor. Unfortunately, we would rather export the jobs than allow the companies that produce the products succeed in manufacturing those goods here.