Biblical Economics

I confess, it would never occur to me that biblical economics might be a subject of interest. But I found this article very interesting. I was drawn in by the promise of an explanation of how so many modern economic blunders are grounded in the “just price” theory. But, the best I can tell, “just price” theory originated from poor interpretations of Thomas Acquinas’ writings. There seems to be no single historical event or writing that put us on a bad path: just a general pattern of sloppy thinking. Much as today.

But the author goes much farther in exploring biblical thought on economics. That’s interesting, but I prefer my economic understanding to come from actual thinking rather than received wisdom. Still, it’s a good read, and I especially appreciated this:

There is no such thing as market failure. Why do people think it ludicrous to say that the market has failed to provide everyone in the United States with a new Cadillac every year, but not that it is just as absurd to say that the market has failed to provide everyone with adequate health insurance?

Medicare Panic

Everyone knows that Medicare will soon go into the red. You might have missed the fact that it’s starting now. Expect the blogosphere to heat up with more hand wringing and finger pointing.

How bad is the problem? It sounds terrible, but as is usually the case, it pays to understand the issue in a larger context.

What matters, for the economy overall, is the total debt compared to total income. Back when banks knew how to deal in sound loans, this was the way all debt was treated. There are “rules of thumb”, developed by experience over time, which classify debt levels as manageable or unmanageable, safe or risky.

We need to consider the total debt, which means both public and private debt. We also need to consider our total assets and our total income (no, taxes don’t count as income - taxes just rearrange the national income). GDP is a good proxy for national income (or at least the best we have). If we compare our total debt to GDP, we see that debt levels are on the high side, but not out of historical range. Debt levels will have to come down, but there’s no need to panic. It doesn’t matter which component of debt comes down - it could be private borrowing (such as home mortgages) or public spending such as Medicare, education, transportation, the military, etc. Markets will push debt levels toward equilibrium. If the government borrows “too much”, then the private sector will be forced to borrow less or liquidate assets by selling them to foreigners.

The issue isn’t that we have too much debt. The issue is whether we’ve used our credit wisely.

Not Vacationing In Bosnia

Ah - a little vacation is a wonderful thing. But I missed a lot of news. It seems that the strangest news concerned Hillary dodging bullets in Bosnia. What? Here’s the best commentary on this bizarre turn of events.

Baked In The Mix

People will always try to better their condition, even though they have many different ideas about what “better” means. This opinion piece on the current mess in financial markets reminded me. We got into this mess because people tried to better their condition within a regulatory framework that had unforseen and unintended consequences. Regulators in years past didn’t anticipate the power of human creativity.

Now there are calls for more regulation, which probably means more complex regulations. No one can foresee all the consequences, but a betting man would guess that some future disaster is baked in the mix.

Would it be better to have no regulation at all? Would it be better to have a quota for regulation? Would it be better to have all regulation expire unless revisited?

We’ll never know.

Learning From Mistakes

Don Boudreaux says it well: political power doesn’t cure it’s holders of bad judgment. But there is a difference between political power and market power. When market participants make mistakes, the mistakes are punished. Markets “fail”, but they correct themselves. Political power holders also make mistakes, but those mistakes often go unpunished and can perpetuate themselves for a long long time. People (sometimes) learn from their mistakes; so do market institutions. Political institutions, if they learn at all, learn very slowly.

And My Opinion Is …

This is funny. Where did we get the attitude that people’s opinions matter in questions of fact? We won’t be in a recession until we meet the definition of recession. This somehow reminds me of the Tennessee legislature passing a law that the value of pi was 3. No wonder so much of the world is suspicious of democracy.

Investment Advice

Between trying to trade in this hyperkinetic market and trying to get a grip on my taxes (don’t ask), I’ve not been keeping up with my digital life.  I just caught up on my RSS feeds and  found some excellent investment advice. It’s not new. It concerns eggs and baskets. But when I read that so many genius types at Bear Stearns had ignored the obvious, I thought it was worth passing along. Sometimes just paying attention to the obvious is good enough!

Politics In A Nutshell

I enjoy reading blog comments almost as much as the blog entries themselves. This entry was both rewarding and disappointing; disappointing because the comments display profound ignorance and rewarding because of Megan’s key idea:

Government powers come only at enormous cost: to liberty, to community, to the economy, and of course, the financial burden of paying for them.

Indeed, it seems to me that there are only two political issues:

1. The proper balance between government powers and their costs - what’s the right trade-off?
2. Which behaviors do we want government to punish or reward?

All of the political labels we use are just code words for pre-packaged collections of opinions. Saying that someone is conservative, libertarian, liberal, or progressive tells you very little.

Killing the Bear

The blogosphere is filled with noise, largely complaints about the bailout of Bear Stearns. The left calls it corporate welfare, the right calls it moral hazard. But to me, it sure doesn’t look like much of a bailout. It’s more like a mercy killing.

Why would the Fed engineer such a thing? It all has to do with counterparty risk. Technically, it’s quite complex, but think of it as a bunch of mountain climbers roped together. The rope mitigates risk; should one climber lose his grip and fall, the rest will hold him up. But The Bear is like a sumo wrestler climbing the mountain: if The Bear falls, a lot of others would go with it. And the others are tied to still others, and they would fall too. It is easy to imagine a cascade of collapsing financial institutions.

Of course, when financial institutions fail, their customers often fail was well. Many businesses run on credit and, lacking credit, they might have to shutter their factories, warehouses, and stores. This could lead to something like the Great Depression - or even worse.

Fortunately, Bernanke is a great student of the Depression, and he’s doing his best. Unfortunately, the wrong actions by politicians could overwhelm whatever actions the Fed can take. And two Presidential candidates are already promising to do so. This could get very very ugly.

Zero Sum

Sometimes the best parts of a blog are the comments. When reading this interesting post on evolutionary biology, I found the following comment:
At any rate, IMO zero-sum has a much simpler explanation at hand:

1. It is easier for a rich man to steal his way to wealth than to create wealth.
2. It is easier for a poor man to envy those riches than to admire the one who acquired them.

Combine prejudice (2) against wealth acretion with reinforcing evidence from cases where the rich man actually did (1), and very soon, any one richer than me can be assumed to have gotten it by taking it from me, which then becomes a convenient justification for finding means of “taking it back”.

Thus, zero-sum allows me to minimize any flaws in my own state that prevent me from being richer, and simultaneously minimizing any virtue in the rich man, and then justify remedies that allow me to become richer without doing any actual work for it. This mode of thinking is popular for obvious reasons.

Why is this important?
This may explain the great concern over income inequality in two different ways. First, the social justice activists may subscribe to this kind of thinking themselves. But, even if they know better, they might think that if enough other people think this way, social cohesion is at risk. And they might have a point.

Throughout most human history, society has been a zero sum game or nearly so. It’s only with the advent of modern institutions (titles, credit, and juristic persons) that the game has changed. It’s hard to imagine that zero-sum attitudes haven’t been culturally transmitted down to our age. Yes, we can overcome our cultural folklore with education, but where do you see that happening?