Quote Of The Day

It reminds me of people who see monopoly everywhere. High prices? Clearly monopolistic exploitation. Low prices? Ah, that’s predatory pricing. The same price as your competitor? Obviously price fixing.

via TheMoneyIllusion » Heads I win, tails you lose.

How Unions Work

The unhappy corollary of this is that the metrics will not only tend towards simplicity and ease of measurement; they will also tend to reward mediocrity. Again, this is not an accident of history. A collective bargaining unit run by a “majority rules” system is always going to look for a system that rewards the median or modal worker, not the best.

via How Unions Work – Megan McArdle.

Megan does an excellent job of describing the incentives driving unions. The structure of unions, not the individual members, pretty much determines how unions have to behave. It doesn’t take a rocket science to see why public education can’t improve much as long as teachers belong to unions.

Unsustainable

We need deep and fundamental cuts in federal spending, which means, above all, Medicare and Social Security, because that’s where the money is. The whole concept of an “entitlement” was a mistake–really, a disaster–that must be repudiated. But for the foreseeable future, there will be no political will to make such changes. So we’re going to see a race between political will and economic collapse. It’s hard to be optimistic about the outcome unless a drastic change in our political culture takes place, soon.

via Power Line – Unsustainable.

It’s hard to disagree with this assessment, but don’t panic. While we may see economic collapse, it will happen in fits and starts – government bankruptcies, bank closures, tight credit. And there are self-healing factors to consider: Medicare spending will stop growing as more doctors and hospitals stop or limit accepting Medicare patients. It’s already happening. It’s happening even faster with Medicaid. The slide into true reform and renewal will be gradual, not cataclysmic. It will nevertheless be painful, especially for those who put their faith in fanciful promises from politicians.

Union Advice

Thus in 2009 10.1% of private union jobs were eliminated, which was more than twice the 4.4% rate of overall private job losses. On the other hand, government unions offer what is close to lifetime job security and benefits, subject only to gross dereliction of duty. Once a city or state’s workers are organized by a union, the jobs almost never go away.

via The Public-Union Ascendancy – WSJ.com.

That really makes you want to rush out and join a union … if it’s in the public sector. Big economic and political forces are in play here. You and I can’t do anything about them. But we can try to steer our lives so that we’re not standing in the debris field. Belonging to a private sector union seems like a poor strategy unless you expect to die soon. Belonging to a public sector union sounds pretty good – until you think about how this must inevitably play out.

The cost of public sector unions are largely back-loaded: nice pensions. But what happens when the governmental units can’t meet their pension obligations? The answer seems clear: governments will issue IOUs or simply default. Think it can’t happen? Then you need to get out more. So if you want a nice safe government job, you must weigh that against a possible future where, in your declining years, you will be the lucky recipient of worthless government paper or nothing at all. It’s happened before and it will happen again.

The bottom line is this: no one is certain to take care of you. Not your union, not your pension plan, and not your government. All of these institutions can give you a false sense of security. You need to plan and act independently. It’s never too late to wise up.

Counterfeiters and Train Wrecks

Stripped of its fancy terminology and confusing mechanics, modern central banking boils down to a legalized counterfeiting operation. If there were suddenly a widespread public outcry to “punt the press,” we can bet our hypothetical monarch would mobilize all his allies in the media to discredit the people threatening his source of revenue. In that light, we can understand the reaction today to people calling to “end the Fed.”

via The Fed as Giant Counterfeiter – Robert P. Murphy – Mises Institute.

This is a lucid, correct, and easy to follow explanation. Of course, supporters of the system can argue that while the description is correct, it is not the bad thing it sounds to be – there are social benefits to this operation. Besides, every nation does the same thing, so you’re better off using the counterfeiter who shows some strength and temperance. In other words, keep your money in dollars. That’s probably good advice if you insist on holding currency instead of hard assets. But the core of the problem is that the “benign inflation” strategy for national economies acts as a drag on prosperity and wealth creation. And, should the central bankers get it wrong, the economic drag becomes a train wreck.

Don’t Throw Me Into that Briar Patch!

While at the Davos World Economic Forum, David Ignatius was apparently surprised that “When Sarkozy had finished his anti-capitalist rant, he got a standing ovation from an audience made up mostly of wealthy capitalists” (“Populism popular at the World Economic Forum in Davos,” Jan. 31).

Nothing is surprising about this fact. To the extent that trade – both national and international – is restricted, incumbent capitalists are shielded from what Joseph Schumpeter called the “gale of creative destruction.” Subsidies and tariffs always protect established capitalists from having to compete with new rivals, new products, and new ways of doing business. Such “anti-capitalist” protection harms not only upstart entrepreneurs; most importantly, it hurts the countless unseen and unrepresented consumers who are denied the gains they would have enjoyed from the innovation and competition that are squelched by the “anti-capitalist” restrictive policies that seem so in vogue today at Davos.

Show me an “anti-capitalist” policy and I’ll show you wealthy capitalists who applaud it loudly.

via Don’t Throw Me Into that Briar Patch!.

This shows exactly how and why the public is manipulated.

GDP – Worst Year Since 1946

I wish to remind you that not all is doomsday. As I’ve discussed before, economies heal themselves without government intervention. The above example of inventory re-supply is an example. What is harming the recovery are the government’s attempts to thwart the liquidation of debt held by banks and other financial institutions. But things are not “robust” as they say and you should not put much hope in Q4 results. We have a long way to go.

via 2009 GDP Declines 2.4%, Worst Year Since 1946 | The Daily Capitalist.

The news about GDP growth sounds pretty good – until you look under the hood. By all means, read the details!

Dude, Where’s My Job?

In the old economy, aggregate demand collapsed for some reason, and workers got laid off, then called back to work when orders recovered. These days, it is more likely that your job and industry has gone away entirely. That has particular implications for a skilled economy. In 1930s, when FDR was trying to combat mass long-term unemployment, all he needed to do was create a construction project; most of the men in the country did some sort of hard physical labor. It was relatively easy to create jobs that they could fill. But what kind of public works projects would absorb mortgage brokers or mid-level managers? As jobs have gotten more skilled, more human capital is specific to firms, industry, and job classifications.

via Dude, Where’s My Job? – Megan McArdle.

The quoted article and comments contain a lot of good information and a variety of interpretations. It’s all about three levels deeper than what you’ll encounter in the popular media.

Fiscal Responsibility

The tragedy is that Mr. Obama’s fiscal conversion is coming a year too late, assuming it is now real. If the President and his party really are serious, they can do more than promise a spending freeze after 2012. They can stop spending more now: Drop the health-care bill, cancel the unspent stimulus spending from last year, kill the $150 billion new stimulus that has already passed the House, and bar all repaid bailout cash from being re-spent. Everything else is marketing.

via Deficit and Spending Increase Under Obama – WSJ.com.

Fat chance.

Scope of State

When a state has a large scope its activities are complex: many different functions with many interactions and hard-to-determine consequences. This makes it difficult for voters to know exactly what is going on and therefore opens them to “manipulation” by special interests. These interests can more effectively obscure the costs of their proposed policies and make them appear as if they are in the general interest when they are not.

via The Price of the Mega-State « ThinkMarkets.

The quoted article is great. The only way to reduce the influence of “special interests” (even though all interests are “special”) is to reduce the scope of government. Unfortunately, Obama & Co want to expand the scope of government, all the while railing against “special interests”. If there was ever a case of politicians saying one thing and doing the opposite, this is it.