Assorted Links (11/17/2010)

Here’s a list of articles that I have been reading lately:

The Costly Freedom to Sue – Room for Debate

“The issue of litigation costs is made worse because many cases rest on dubious legal theories.”

A Significant Letter

“The Wall Street Journal has an article this morning about an open letter sent to Federal Reserve Chairman Ben Bernanke, a letter signed by leading economists and investors.”

Robert Frank on Inequality

“The latest EconTalk is Robert Frank talking about inequality. There’s lots of back and forth–even more of a conversation than usual. There’s lots of disagreement but it’s very civilized.”

Working It Out, iTunes to Sell Beatles Titles

“Apple is expected to announce that it has struck a deal with the Beatles and their record company, EMI, to sell the band’s music on iTunes.”

From ‘Free to Choose’ to ‘Choose to Obey’

“Hoping to revive the ‘Progressive’ agenda, Katrina vanden Heuvel calls on surviving Democrats in Congress to “sharply define choices for the American people” (“Amid losses, some ways for House Democrats to gain,” Nov. 17).”

Left, Right and Wrong on Taxes

“The deficit commission’s critics are shortsighted.”

Inmates in New York’s county jails collecting unemployment benefits illegally

“The state Labor Department is teaming up with law enforcement agencies across New York to fight a crime more common than previously realized: the fraudulent collection of unemployment benefits by inmates at county jails.”

On the Burgeoning Industry of Lending for Litigation

“Back in June, we wrote about the increasingly prevalent trend of private investors providing the funding for lawsuits. On Monday, the NYT and Center for Public Integrity offered up a deep dive into the topic.”

Our Brains Signal Love of Fairness, Not Higher Taxes

“The arguments are valid only when people believe wealth is undeserved and that opportunities to accumulate wealth are unfairly distributed.”

Pretty in Pink? Obama’s Dark Night of the Soul

“Interesting essay by Walter Russell Mead, who 1) “…is the Henry A. Kissinger senior fellow for U.S. foreign policy at the Council on Foreign Relations and is recognized as one of the country’s leading students of American foreign policy” (cf. and 2) voted for President Obama in 2008…”

Why I Do Not Like QE2

“Other governments, and their central banks, have reacted vocally and negatively to the Federal Reserve’s plan for another round of quantitative easing-which means that the Fed purchases long-term bonds.”

U.S. Government: Too Big To Succeed?

“The futile efforts for budget reform.”

Celebrating the Music of Paul McCartney, In Performance at The White House, PBS Video

“Watch Paul McCartney: The Library of Congress Gershwin Prize for Popular Song.”

Bret Stephens: Obama’s Air Guitar

“In The Wall Street Journal’s Global View column, Bret Stephens writes about the danger of America’s will to weakness.”

George Gilder: California’s Destructive Green Jobs Lobby –

“George Gilder writes in The Wall Street Journal that Silicon Valley, once synonymous with productivity-enhancing innovation, is now looking to make money on feel-good government handouts.”

Experts weigh in: Can the economy be saved?

“It has been more than two years since the financial and economic crash of 2008. Since then, many things have improved, and the U.S. economy is officially out of recession. But many Americans are still hurting. Unemployment remains high, and the housing market is far from settled.”

Pigs Fly as Washington Faces Up to Deficit Peril: Kevin Hassett

“Last week in Washington, beneath a flock of pigs flying south in a majestic V formation, the co- chairmen of President Barack Obama ‘s deficit commission released a plan that actually could solve the nation’s pending fiscal crisis.”

Why the Fed Cannot Regulate ‘Systemic Risk’ — The American, A Magazine of Ideas

“A systemic risk advisor might help ameliorate bubbles and busts, though not avoid financial cycles.”

What Lessons Should We Learn from Japan’s Lost Decade?

“It’s hard to remember now that in the 1980s Japan had the world’s most-admired economy. It would, people widely believed, achieve the highest living standards and pioneer the niftiest technologies. Nowadays, all we hear are warnings not to repeat Japan’s mistakes that resulted in a “lost decade.””

Democrats: The Party of No on Deficit Reduction

“The deficit reduction commission’s ideas were met with knee-jerk opposition from Democrats.”

Budget Puzzle: You Fix the Budget – Interactive Feature –

“It only takes a minute or so to “fix” our nation’s finances. Hat tip to Harvard’s Greg Mankiw (cf.”

Four Experts Take Aim at Deficit Commission Proposal

“Four budget and business experts take aim at the new deficit reduction plan released this week by Erskine Bowles and Alan Simpson. If they don’t like it, who will?”

Assorted Links (11/13/2010)

Here’s a list of articles that I have been reading lately:

2010 Redistricting: To the Mapmaker Go Limited Political Spoils – The Numbers Guy

“Why Republicans’ edge in the control of Congressional redistricting after the 2010 election may not translate into massive House seat pickups.”

Whose Corporate Social Responsibility? – Jagdish Bhagwati’s Blog

“Increasingly, corporations are under pressure, often from activist non-governmental organizations, to take on specific “corporate social responsibility” (CSR) obligations. But the fact that CSR is being demanded, and occasionally conceded, does not ensure clarity about either its rationale or the ways in which it should be undertaken.”

Fairly Understanding the Simpson-Bowles Social Security Proposal

“Co-chairs Alan Simpson and Erskine Bowles of President Obama’s Fiscal Responsibility Commission surprised the political world Wednesday when they publicly released their own (as opposed to a full commission) five-part plan for repairing the federal government’s dire fiscal outlook.”

Beware Commissions Bearing Gifts

“Fiscal Solutions: Though timid, some of the ideas floated by the co-chairmen of President Obama’s “deficit commission” are praiseworthy. But is this a bait-and-switch – to be followed by destructive new taxes?”

The 77% of Income Fallacy

“When Congress returns next week for a “lame-duck,” post-election session, Senate Majority Leader, Harry Reid (D-Nev) will try to muster the 60 votes he needs to block a filibuster of a vote on the misnamed Paycheck Fairness Act. It would be better titled the Paycheck Rareness Act, because it would make paychecks rare by driving small firms out of business and sending larger corporations overseas.”

America’s Employment and Growth Challenges by Michael Spence

“Elevated savings and reduced consumption relative to pre-crisis levels are likely to be permanent in the US, even after households reduce leverage and restore retirement savings. To make up the difference, Americans must focus on competing effectively for a portion of global demand.”

80 to 100 Million Could Lose Current Coverage

“An analyst from McKinsey & Company knocked the socks off insurance company executives yesterday when she told them the new health law will bring “fundamental disruption to the health care economy” — so much so that “something in the range of 80 to 100 million individuals are going to change coverage categories in the two years post-2014.”

A President At Bay – Walter Russell Mead’s Blog

“No president in my lifetime has fallen from heaven to earth as rapidly as President Obama. Others have lost popularity and lost control of Congress, but none fell from such a height. Who can forget the rapturous cries of joy when he was elected in 2008? Who can forget all those predictions of a ‘transformational presidency,’ hailing the one term Senator from Illinois as a new Lincoln, a new FDR, and (my personal favorite) the ‘Democratic Reagan’?”

Federal Eye – Postal Service posts $8.5 billion loss

“The cash-strapped U.S. Postal Service delivered more bad news Friday, announcing it lost $8.5 billion in the fiscal year that ended in September. Without congressional action to change its obligations, officials said, the Postal Service likely will go broke at the end of fiscal 2011.”

Kimberley Strassel: The GOP’s Earmark No-Brainer

“In The Wall Street Journal, Potomac Watch columnist Kimberley Strassel writes that Sen. Jim DeMint is offering Republicans a chance to prove they meant what they said on spending.”

Peggy Noonan: Obama’s Gifts to the GOP –

“In The Wall Street Journal, Peggy Noonan writes that Republicans own the political center for now, but not because they deserve it.”

Arthur Laffer: A Growth Agenda for the New Congress

“What Congress should do now and in 2012 to spur growth in the economy.”

Daniel Henninger: The 1099 Democrats

“Daniel Henninger writes in The Wall Street Journal that the Democrats decoupled from business—and lost the election.”

Assorted Links (11/10/2010)

Here’s a list of articles that I have been reading lately:

A rock-paper-scissors game in poker – Mind Your Decisions

“In Texas Holdem, the best starting hand is pocket aces. This hand is favored against any other starting hand, and it’s almost always a simple decision to play this hand pre-flop and play it aggressively.”

Letting the Estate Tax Die

“The federal estate tax is extreme in the size of its exemptions and its marginal tax rates and could be replaced by a tiny increase in payroll or income taxes, an economist writes.”

RealClearMarkets – The World Revolts Against Bernanke’s QEII

“The great Bernanke QE2 debate continues to heat up. In the run-up to the G-20 meetings, China, Russia, Germany, and others are all coming out against the Federal Reserve’s quantitative-easing agenda. They don’t want hot-money excess dollars to flow into their higher-yielding currencies.”

The “Gridlock” Bogeyman by Thomas Sowell

“Whenever the party that controls the White House does not also control Capitol Hill, political pundits worry that there will be “gridlock” in Washington, so that the government cannot solve the nation’s problems. Almost never is that fear based on what actually happens when there is divided government, compared to what happens when one party has a monopoly of both legislative and executive branches.””

“What Happens When a State Goes Bankrupt?

“Richard Epstein writes on NRO: David Guaspari asks: It seems clear that the political classes of New York and California will continue to misgovern their states into ruin, confident that the states are too big to fail and will be bailed out by the rest of the country. Leaving aside prudential questi”

Government Employees: Still Overpaid

“Several studies from left-leaning research groups claim that state and local government employees are underpaid. All of the studies are seriously flawed.”

Confessions of a Price Controller

“The government price controls in America’s healthcare system always push prices up. Here’s why.”

A Con Job on Jobs

“I was no fan of President Bush’s economic policies. But President Obama’s take on Bush-era job creation compared to his own is wide of the mark.”

Did Physics Kill God?

“Stephen Hawking declared that our understanding of physics proves God did not create the universe. Is he right?”

Is Economics a Science?

“It would be, if it weren’t for the people.”

Book Review: Decision Points

“Daniel Henninger reviews George W. Bush’s Decision Points.”

Stephens: Obama’s Best Speech

“In The Wall Street Journal’s Global View column, Bret Stephens writes that in India, the president defended free markets, free trade and free societies.”

Alan Reynolds: Ben Bernanke’s Impossible Dream

“In The Wall Street Journal, Alan Reynolds of the Cato Institute writes that the Fed’s reckless notion that it can simultaneously raise inflation and lower interest rates presumes bond buyers are fools. They aren’t.

Review & Outlook: A Better G-20 Agenda –

“The Wall Street Journal writes about the real source of global ‘imbalances’ and how freer trade can help.”

Kim Strassel: Bush Agonistes? Not Quite

“In The Wall Street Journal, Potomac Watch columnist Kim Strassel interviews President George W. Bush as his memoir, Decision Points, hits the stands. The former president makes the case for his ‘freedom agenda’ and defends his record on the economy and spending.”

California Is the Lindsay Lohan of States and Sacramento Shouldn’t Expect a Bailout.

“In The Wall Street Journal, lapsed Californian Allysia Finley writes that Sacramento is headed for trouble again, and it shouldn’t expect a bailout. ”

Unemployment and the Minimum Wage

“Public policies are to governments as habits are to individuals: patterns of conduct that are adopted deliberately but often retained merely out of inertia. While it is in some sense irrational to continue a behavior simply because it has become customary, it would be inconvenient, even impossible, ”

Kevin W. Warsh: The New Malaise and How to End It

“Kevin W. Marsh, a member of the Board of Governors of the Federal Reserve, writes in The Wall Street Journal that given what ails the economy, additional monetary policy measures are poor substitutes for more powerful pro-growth policies.

End, Don’t Extend, Bush Tax Cuts to Start New: Kevin Hassett

“To predictable cheers for bipartisanship, President Barack Obama said he will work with Republicans to extend at least a portion of George W. Bush ‘s tax cuts before they expire at the end of this year.”

Financial Advisors: New Rules Protect Consumers

“With more than 100 professional designations for financial-services providers, it can be hard to figure out who you can trust with your with your money. New government regulations may change that.”

Republicans Throw the Gauntlet on Health Care Reform –

“After a seismic win in the midterm elections, Republicans are flexing their muscles and talking about repealing the President’s health care reform law. Everyone knows a veto would prevent repeal, but the bill could be dismantled, piece by piece.”

Book Review: Reading Obama

“Peter Berkowitz reviews James T. Kloppenberg’s Reading Obama: Dreams, Hope, and the American Political Tradition.”

The Intelligent Investor: Melchior Palyi, the Man Who Called the Financial Crisis—70 Years Early

“Jason Zweig on economist Melchior Palyi, who predicted key causes of the 2008-2009 financial crisis with precision that makes a modern reader’s hair stand on end.”

A Historian’s Perspective on Obama

“Morton Keller writes on NRO: What can be said, at this midterm point, of the Obama administration’s place in the larger context of American political history? The first thing to note is how much of it is familiar. Like his predecessors, Obama is subject to the constraints of Congress, the parties, a”

John Steele Gordon: A Short History of Midterm Elections

“In The Wall Street Journal, John Steele Gordon writes that if the past is indeed prologue, then Republicans shouldn’t get too cocky about their midterm wins.”

The U.S. Postwar Miracle | Mercatus

“We often hear that big cuts in government spending over a short time are a bad idea. The case against big cuts, typically made by Keynesian economists, is twofold. First, large cuts in government spending, with no offsetting tax cuts, would lead to a large drop in aggregate demand for goods and serv”

If You Can Bet on the Rain, Watch out for Rainmakers

“A few days ago, the Chicago Mercantile Exchange began selling futures contracts on rain. As this Marketplace report points out, the Merc – best known for selling agricultural commodities and futures.”

Political economy and the (inflationary) future

A particularly important “political economy” topic these days is the unprecedented extent to which the US federal government is spending money it doesn’t have.  The federal government has historically collected about 18.4% of gross domestic product (GDP) in tax revenues and spent roughly 21% of GDP on average.  Currently, tax receipts are lower than the long run historical average, thanks to the “Great Recession” (probably around 15-16% of GDP), and federal spending is much higher than the long run historical average (upwards of 25% of GDP).  The gap between what the government takes in and what it pays out is commonly referred to as the “deficit”; for the fiscal year just ended (on August 31, 2010), the total deficit was nearly $1.6 trillion.  The annual fiscal deficit gets added to the total “national” debt, which as of October 31, 2010 stands at $13.6 trillion (cf. 

The national debt of the United States (as of 10/31/2010) is split into two categories:

  1. Public Debt ($9 trillion)
  2. Intragovernmental Holdings ($4.6 trillion)

Public debt is any money that is owed to investors, foreign governments, mutual funds, hedge funds, pension funds, foreign investors, etc.; i.e., in the form of US treasury securities.  “Intragovernmental holdings”, on the other hand, is money that the government borrowed from itself.  The major “source” for this is the so-called Social Security trust fund, as well as  other government-administered programs which happen to run “surpluses” in an accounting sense.  Of course, this money will have to be repaid in the future, and demographics ensure that the Social Security trust fund surplus will soon turn into a growing deficit in the absence of any meaningful reforms (e.g., the imposition of a higher age for eligibility, allowing for private accounts, etc.). 

I’ll finish by focusing attention on the public debt.  Nearly half of the $9 trillion in public debt (actually, $4.2 trillion) is held by foreign investors (cf.  China is the biggest holder of U.S. public debt – 21% of all public debt held by foreigners, in fact.  One can only wonder how this fact influences US foreign policy (since we “need” China’s dollars very badly), but I digress.  Lately, the US has been putting huge political pressure on China to allow its currency (the yuan) to appreciate substantially (cf. “China Currency Bill Advances”, 9/25/2010 WSJ).  If this happens, US products will become more competitive vis-à-vis Chinese products in global markets, but it will do so at the cost of leaving the Chinese with less dollars for buying our bonds.  Since we are in the process of exhausting China’s appetite and ability to fund our deficits, we now turn our attention to the Federal Reserve.  By buying public debt from the US Treasury, the Fed is effectively expanding the money supply while also providing the US Treasury with the dollars that it needs to finance the deficit; indeed, last Wednesday the Fed announced that it would purchase up to $600 billion in US Treasury securities as part of its so-called Quantitative Easing (QE II) program.  However, this Faustian bargain will most likely come at the cost of a return of inflation at some point in the future.  The good news right now is that there is hardly any inflation at all in the economy, so the Fed is betting that the future inflation related to its large scale purchases of Treasury debt won’t be “bad”.  I hope they’re right, but history and Milton Friedman tell me that this kind of movie has been played before and that it usually turns out rather badly (in the form of inflation; see “Milton Friedman vs. the Fed”).

Assorted Links (11/5/2010)

Here’s a list of articles that I have been reading lately:

Tuesday’s story

“Two words: Narrative, schmarrative.”

RealClearMarkets – Why QE2 Won’t — and Can’t — Work

“QE2, to put it simply, does not address the fundamental problems the U.S. economy faces. It is preposterous to think that reducing medium-term interest rates by 25 to 50 basis points is going to lead to a significant increase in gross domestic product and a reduction in unemployment.”

Bastiat’s Petition

“…the special pleading of businessmen to be protected from the forces of competition is nothing new.”

Americans Vote for Maturity

“Obama gets a rebuke, but so do Republicans who seem unqualified, writes Peggy Noonan.”

Next Year’s Gerrymandering Free-For-All

John Fund writes in The Wall Street Journal that after the midterm elections, GOP legislators are in charge of redistricting in 17 states. Democrats won’t stand by passively.

What the Next Speaker Must Do

“In The Wall Street Journal, House Republican leader John Boehner writes that secrecy, arrogance, and the abuse of power have shattered the bonds of trust between the people and their elected leaders. Repairing that trust requires sweeping change, beginning with an end to earmarks.”

Money | FiveBooks 

Princeton’s Burton Malkiel, the author of the famous (an in my opinion, indispensable) book entitled “A Random Walk Down Wall Street” (cf. suggests five books on investing…

Freakonomics Radio: How Much Does the President Really Matter?

“After a throw-out-the-Dems mid-term election on Tuesday, with Republican promises to unwind Democratic legislation like healthcare reform and an economy that refuses to break into anything more than a cautious jog, we use the Freakonomics Radio podcast to pose a tough question: How much does the President really matter?”

George F. Will – A recoil against liberalism

“Voters rejected the expansion of government’s command and controls.”

Why We Can’t Help But Legislate Morality

“You can’t legislate morality” has become a common turn of phrase. The truth, however, is that every law and regulation that is proposed, passed, and enforced has inherent in it some idea of the good that it seeks to promote or preserve. Indeed, no governing authority can in any way be understood to

Meet the Suits

GMU economics professor Arnold Kling gives a glowing review of the forthcoming book (available November 16 on entitled “All the Devils are Here”. I am definitely going to read this book when it comes out. One of the book’s authors, Joe Nocera, published a compelling essay in the New York Times Magazine in… January 2009 entitled “Risk Mismanagement” (located at which I think is one of the best accounts of the financial crisis that I have read.

Milton Friedman vs. the Fed

“In The Wall Street Journal, Carnegie Mellon economist Allan H. Meltzer says that the Nobel laureate would never have endorsed increasing inflation to stimulate the economy, as the current Federal Reserve is going to do.”

Review & Outlook: More Monetary Cowbell

“The Wall Street Journal on another round of Federal Reserve quantitative easing.”

Review & Outlook: The Boehner Evolution

“House Republicans and the challenge of divided government.”

Estate tax, other taxes will rise if Congress doesn’t act

“The Bush tax cuts are due to expire at the year’s end. But count on Congress to do something about taxes after the November election. Here’s what’s likely to happen.”

Freddie Mac Reports $2.5 Billion Loss

“Freddie Mac reported a third-quarter net loss of $2.5 billion and asked the U.S. Treasury to provide a $100 million infusion, raising the government’s tab for its rescue of the mortgage-finance company to $63.2 billion.”

Democratic Coalition Crumbles, Exit Polls Say

“Preliminary exit polls showed that the Democratic party lost ground in Tuesday’s midterm elections among women, middle-income workers, whites, seniors and independent voters.”

Net neutrality is a broken concept

“Tiered services work, and work well. They allow providers to better tailor services to customer needs, and bring the price of services in line with the cost of supplying them…Tiers are an encouragement — not a hurdle — to innovation, and will better allow end-use consumers to decide, through the free market, what they want their internet experience to be.”

Midterm Elections Aftermath: 5 Economic Battles Obama Will Face

“Big Republican wins on Tuesday would set up key showdowns between the party and the president on the Bush tax cuts, financial regulation, and health care. Charlie Gasparino on what to expect. Plus, check out The Daily Beast’s guide to the 2010 election.”

As Bush Tax Cuts End, Some Options for Congress

“Five compromises worth considering as Congress debates the Bush tax cuts, which expire on Dec. 31.”

It’s Time To Regulate The State

“The REINS Act would ensure regulation only with representation.”

The GOP Can Outsmart ObamaCare

“In The Wall Street Journal, Business World columnist Holman Jenkins, Jr. says that Republicans should create a national insurance charter, deregulate health insurance and save ObamaCare from itself.”

Welcome, Senate Conservatives

“Republican Sen. Jim DeMint writes in The Wall Street Journal that incoming tea party movement senators should remember what the voters back home want—less government and more freedom.”

Seven Major Post-Election Themes

Greg Valliere’s “third theme” which he considers to be a “the safest bet” is that “…the (Bush) tax cuts will get extended for everyone in the lame duck session”. I hope he’s right, because if he is wrong, the net, after-tax income of virtually every taxpayer in the USA will drop by an average of 2.26% as of January 1, 2011, according to a study by the non-partisan US Joint Committee on Taxation (cf. The vote (on extending the Bush era tax code) will have to happen very quickly after the election so that corporate payroll departments will have the time that they need in order to re-program their payroll deduction software in time for the new year!

The “big picture” about the election…

For the “big picture” about the election (at least the House aspect), I think the vast sea of red on the map of the US below (sourced from says it all.  CNN is projecting a final total of 243 Republican house members, and 192 Democrat house members.  The preliminary total on election night was 239-186; the 10 remaining contested House seats were all held by Democrats, so CNN apparently projects that 4 of these seats will go to the Republicans, whereas 6 of them will stay with the Democrats.  I think this means that the total net gain for Republicans is 64 seats; apparently this large of a reversal of fortunes is historically unprecedented, as is the brevity (4 years) of Nancy Pelosi’s term as Speaker of the House.  In just one election, we have gone from the House having the second largest Democrat majority ever to having the largest Republican House majority of all time.  (Apparently the largest Democratic House majority occurred during the FDR midterm election blowout in 1938.)


Quoting from an article entitled “Post Mid-Term Election Recap: Tea Party Reflects Americans’ Changing Attitudes”, “The office of the President and the majority in the Senate are controlled by Democrats.  The number of Governors and state legislatures has now flipped to Republican majorities.  The country, split between two major parties and a growing number of registered independents, chose a broader sharing of political power.”  In other words, gridlock is back with a vengeance!




Hayek vs. Keynes Sequel "Sneak Peak"

‘Fear the Boom and Bust’ Hayek vs. Keynes rap video“, I reference and link to the very clever (and popular –  more than 2 million views on video production by filmmaker John Papola and economist Russ Roberts which compares and contrasts the ideas of two “famous” dead economists, John Maynard Keynes and Friedrich von Hayek.  Here’s a “sneak peak” of the “sequel” (hat tip to Russ Roberts): ]]>

Hayek vs. Keynes Sequel “Sneak Peak”

In an earlier (January 27, 2010) blog posting entitled “‘Fear the Boom and Bust’ Hayek vs. Keynes rap video“, I reference and link to the very clever (and popular –  more than 2 million views on video production by filmmaker John Papola and economist Russ Roberts which compares and contrasts the ideas of two “famous” dead economists, John Maynard Keynes and Friedrich von Hayek.  Here’s a “sneak peak” of the “sequel” (hat tip to Russ Roberts):