The bailouts and inflation

You have no idea how happy it makes me to hear people ask, “Where are we getting the money for all of these bailouts?” The government has several options when it wants to pay for something. In an ideal world, they would pay for things as they came up. You know, stay within their budget… In that world, if they wanted to spend more, they would have to raise taxes in order to pay for it.

As we all know, that has no relationship to our reality. Our government uses deficit spending in order to pay for damn near everything, and these bailouts are no exception. So how are we going to pay for them? Well, they could simply raise taxes and pay off the debt. Not only is that not politically viable, I believe that every man, woman, and child in this country would have to pay upwards of $400,000 each in order to erase the current debt. Not very realistic… So the government simply pays over time. In other words, they pass the payments onto future generations.

There are two other possibilities. They could simply default on the debt. Congress could decide to declare the debt null and void and that would be that, a new start! Of course there would be some really serious consequences to that action. Among other things, they would have trouble borrowing again with bad credit…

The last thing is probably the most likely. Seignorage is a time honored technique with national accounts. What is that? That is paying for things by printing money. Great! Problem solved, right? Just print more money! Well, there are some big problems in doing that. In fact, it is essentially the definition of inflation. As the government prints more and more money, the more it devalues it. In other words, it takes more money to buy the same things. The things themselves have the same value, it just takes more monetary units (dollars, riyals, etc.) to buy them.

How does this work to pay off debts? Imagine that you take out a loan for $50,000. Now imagine that hyperinflation sets in and price levels rise very quickly. Before long, you’re making $7000 an hour. Why? The price of labor is just another price. It will rise along with the inflation rate or lag just behind it. It will take no time at all for you to pay off that loan.

All of this is totally opaque to the guy on the street. Rising prices are a mystery, they have no idea that the central bank is the culprit. Because of this, it isn’t as easy to pin it on someone. People get upset, and they think something should be done about it, but they don’t know who is to blame… Because of all of this, it is the most likely avenue the government will take to pay off this incredible debt. It may be the only way to pay it off…

Precious metals have long been considered a haven for people who want to avoid their savings dropping in value (think of it as the opposite of the loan scenario above). It isn’t that gold, silver, platinum, palladium, etc. are actually worth more, but the value of the currency is dropping with inflation. Traditionally, the metals maintain their value while the currency devalues. So if the bailout continue, look into the metals!

Vanity Fair econ… ugh.

A friend asked me what I though of this article in Vanity Fair. My basic thought is that you find what you look for. Everything he mentioned reminded me how much the government had screwed up. He enumerated all of the things that the government did or had power to do (Alan Greenspan, various legislation, etc.) and how disastrous they were and then concludes that “anti-regulation fanatics” were to blame for the current mess. Huh?

I think a more reasonable way to look at it is that the government either shouldn’t have the power it does (via the fed) or should stop trying to compensate for its market distorting reactions to other market distorting legislation (like Sarbanes Oxely etc.). Instead of picking out one fed chair and (rightfully) complain that he screwed some things up, why not ask why a person or board has that kind of power in the first place? Instead of complaining about the repeal of Sarbanes et. al, why not ask what the markets were reacting to that made that legislation first attractive and then unattractive? I’m willing to bet that it was a reaction to some sort of legislation that caused that law to be “needed” in the first place. I’m also willing to bet that both in the enactment and the repeal of that law, they got it wrong…

His sneering at self-correcting markets is especially galling, how would he know how well they work? First off, they don’t exist in the financial world. On top of that, they are never allowed to correct. No one ever claimed that perfection would result from totally deregulated markets, but they do indeed “correct” themselves. I’m ignoring the strawman that people have been chomping at the bit for totally deregulated markets. As far as I can tell, people have wanted less regulated markets, or at least minimally regulated ones.That’s not the same thing at all… Anyway, it is the attempt to mitigate these corrections that causes so much widespread trouble. Trying to “fix” the result of markets only leads to other consequences. Markets only work well if the negative things are allowed to happen. Stupidity and excessive risk taking should be their own punishment….

How people can propose more regulation to fix problems that have government’s fingerprints all over them really confounds me. Why does he think it is possible for effective legislation for such a complicated issue to come out of the political process? Why does he not think that even if we did get the most brilliant economists (even by his standards) running things via regulation that they would be replaced by other people eventually? If you give power to people to regulate things, the political process will make a hash out of the best intentions.

So I’m not going to attack his econ cred. I’d look pretty silly with my several semesters worth of econ vs. his nobel prize… I have no reason to disbelieve his analysis of cause and effect. I am attacking his myopic view of what regulation is capable of and of the process that creates that legislation. There isn’t any reason to think that different regulations wouldn’t cause other problems. This is, in a nutshell, why the vast majority of professional economists drive me crazy. They know their models well, but they confuse those things with economics.

The main point that I got out of it was “The party I don’t like made some decisions that had bad consequences, so they’re all stupid.” His juvenile worship of the philosopher/economist technocrat getting things right blinds him to the reality of the political process. Unfortunetly, this idea of “If only we had the right people administering the right laws, everything would be fine,” is probably the most widespread view out there. Sigh…. Freer markets are by no means perfect, but they are a hell of a lot more democratic. In a totally free market of exchange, the damage caused by bad decisions are mostly limited to the people involved in that exchange. In his world, if all of the politicians involved in his regulating efforts aren’t blessed with perfect foreknowledge of all consequences for years to come from their regulations, we all feel the effects of their decisions.

The mess in Gaza

Wow, the Israel/Palistine conflict never ceases to amaze me. I like to think that most Americans think the say way I do about this, namely that both sides are a bit crazy. The Palestinian authority, Hamas, Arabs, and Muslims in general seem to react with shock and dismay when Israel attacks Gaza after rockets launched from Gaza had been raining down on Israel. Israelis and their supporters don’t understand what all of the anger is about after they kill far more civilians than combatants… The cycle never seems to end, part of me wonders if they want it to end…

I was reading through some of the reactions from official spokesperson types and feeling even more angst about the situation. Predictably, there was a lot of empty talk about how Hamas needs to stop attacking Israel and how Israel needs to stop being so heavy handed. Of course, there was also the blanket condemnation of Israel (without acknowledging any of the mitigating circumstances) from the usual suspects.

The best reaction, IMO, was from the Vatican. “Hamas is a prisoner to a logic of hate, Israel to a logic of faith in force as the best response to hate.
“One must continue to search for a different way out, even if that may seem impossible.”

It does indeed seem impossible…

Total.. Geek… Out…

Christmas was great! I saw a bunch of people I don’t usually get to see, ate really well, and generally had a great time. As usual, people were way too good to me. Not that I’m complaining about gifts, but wow! Luckily, everyone seemed to like the gifts I got them… My gift giving was a wee bit sparse this year, I really hate not having a job!

I have spent the last couple of days geeking out with my computer. I got the latest version of the operating system for Mac. Yes, I know the new one is going to be released in the not too distant future, but I really wanted to take advantage of the automatic back-up feature. I also got a hard drive with one terabyte of storage! It’s amazing, I was able to consolidate all of my drives onto one. Believe me, that makes a huge difference. Last night, I went out and bought another terabyte drive so that I could back all of that stuff up.

I also went through the various gift cards I got. There were some books, Amy Winehouse songs (shut up, I like her!), the last Wilco album, and underwear. Funnily enough, I actually asked for underwear but didn’t get any for Christmas! LOL… I’ll be getting my Bastiat collection (yes, I’m an econ geek) thanks to a gift card…

Anyway, a great Christmas, it’s good to be back!:-)

Happy Holidays!

And by that I mean Merry Christmas to my Christian friends, Happy Chanukah to my Jewish friends, and a belated Eid Mubarak for my Muslim friends. If you don’t fall into any of those categories, then enjoy the time off!:-) My facebook friend list has gotten too big to be useful for these sorts of things, so this is as good as I can get for a mass email… LOL. Enjoy!

Isaac

Geek alert…

Sorry, a lot of you won’t get this at all… Is John Pertwee the best Doctor? I can take or leave the first two, and Baker is certainly a classic, but I am really warming up to the third one. He’s the only one that didn’t mind doing a little hand to hand combat. Plus, he wore a cape, how great is that? I’ve only encountered one truly dreadful episode from him so far (Ambassadors of Death) and he has always entertained me…

I know, in the end I can’t really say I have a single favorite. There’s going to be a group… The third, fourth, and tenth are probably the best ones but I haven’t seen a lot of the others (other than the first). I guess all I can do is keep watching so I can find out.

Out of work

This is the first time I have ever been out of a job when I wanted one. Not only that, this is the first time I have ever had to go on a job search. I have always figured out which job I wanted, then I went and got it. I have never applied for more than one job at a time before. So I’m in new territory for me.

Yeah, I could have gone back to Penn, but I’m trying to make a clean break. And I really believe that I would have gotten the job at Apple (and I still may) but for that hiring freeze of theirs. I’m seriously thinking about going back to school, perhaps getting my masters in econ. I’m still technically in the program at GMU (I think), and that with my experience in Yemen could lead to some rewarding jobs, rewarding in all ways….

Anyway, I’m looking at options. The beginning of the year is when I get serious about job searching. Honestly, I’ve been too out of it physically to really feel comfortable doing a job. I think that’s mostly behind me now, so after the first of the year, I’ll hit the ground running Insha’alla…

Hockey as you’ve never heard it before…

Quick! Can you name the third and fourth most commonly spoken languages in Canada? The first two are easy enough, English and French. The language in third is Chinese (including all sorts of dialects) and the fourth is… Punjabi! That’s pretty amazing really… But being Canadiens, the generations of Punjabis born in Canada are hockey freaks. So the CBC is now broadcasting Hockey Night in Canada (HNC) in Punjabi!

Listening to the few clips I can find, it reminds me a bit of listening to other sports in Spanish. The broadcasters don’t seem to be as reserved. They defiantly add a level of excitement that the English ones seem to lack.

Anyway, it’s great to see more cultures embrace Hockey. It’s a great sport and this shows it can have universal appeal…

Baseball and outrage

People are twittering over the Yankees signing C.C. Sabathia to a $160 million dollar contract over 7 years. “How could they be so caviler when the economy is so bad? How can they spend that kind of money when there are people out of jobs and losing their houses?” It’s pretty simple, signing him will make them money. If a company purchased a piece of machinery for that much money, who would complain? The Yankees aren’t “showing off” or spending money for the hell of it. They aren’t some spoiled rich kid spending like an idiot, they are a business and they think they are going to make money by spending this money. What’s so hard to understand?