Nouriel Roubini is a better forecaster than most. His latest forecast is gloomy indeed. I don’t agree with his recommended policy response (more government stimulus), but that doesn’t change my respect for his forecasting.

Employment won’t improve until businesses believe they can invest more now to be profitable in the future. The outlook for business is especially murky since Washington’s agenda is full of items (health care reform, cap and trade, financial reform, etc.) which will dramatically change the rules. A business would be crazy to invest in such an uncertain environment, especially when the result of so many proposed changes would make profits harder to come by.

Roubini is right: people need to hunker down. And they may need to stay hunkered down until the job killing agenda of Washington changes.

Everything I’ve read by Thomas Sowell has been excellent – but I’ve never read The Vision of the Anointed. Fortunately, Katherine Kersten has. She outlines the concepts and explains how this applies to health care reform. Scary scary scary.

There’s been a whole lot written about the sins of the banks that are “too big to fail”. Pundits are wailing away with remedies. Politicians, sensing populist outrage, are thumping their chests. But I’m always suspicious of populist outrage. Why did the banks get so big in the first place? Are there societal benefits? If we “fix” the problem of big banks, what new problems do we create? Maybe everyone should slow down, take a deep breath, and learn why we need big banks.

Wow! This is a great explanation of the problem with Keynesian economics! Keynesian thinking, of course, is the justification for stimulus packages and is very popular with politicians because it allows them to reward their cronies while appearing benevolent. The problems with this are well known by many economists, but Erik Voorhees offers an explanation which is easily understandable by average people. This belongs in my Hall Of Fame.

I think it was Thomas Sowell who first said that, in economics, there are no solutions – only trade-offs. Indeed. The current trade-off of interest concerns health care reform. Conventional wisdom has it that the trade-off is between expanded access to health care and higher taxes. That much is true, but that’s not the only trade-off. As this article points out, it is inevitable that health reform (as currently passed by the House) will almost certainly increase unemployment and increase the price of everything we consume. Lower skilled and lower paid workers will be hurt the most. Ironically, the people who will benefit the most from health reform will also be harmed the most. Perhaps our Representatives have considered this and believe that, on balance, this is for the better. I might disagree, but in the end, it’s a judgement call and their call to make. What I fear is that they haven’t fully considered it and are blissfully ignorant of the consequences. I’d feel better about this if some reform supporter would acknowledge both the benefit and harm when stating his support.

UPDATE: The consequences are going to be even more bizarre than I realized. Arnold Kling predicts that some strange things will happen if the contemplated changes become law.

Most of what is being written about healthcare is rather shallow and uninformed. I recommend an exception here, courtesy of Arnold Kling. One commenter on this post made an exceptionally insightful observation: the issues of healthcare costs involve far more than economic efficiency. There are deep ethical issues as well. The commenter said it well:

Nothing short of brutal, heavy-handed rationing can control health care costs. The problem with Kling’s voucher plan is that it makes this explicit. It would make each of us ration our own care (maybe half of us could cope with that). But it would also force people to ration care for their family members. I think most people know, deep down, that this must be done, but, come hell or high water,they will not do this individually. Just as people hate to take responsibility for their choices in the mate market, people desperately need a way to ration care while pretending they aren’t.

Governments fill this role. In Britain, NICE is the whipping boy. People rage at the bureaucrats so they don’t have to feel guilty for not dialyzing their demented octogenarian grandparents.

Maybe private insurance companies could ration care if they had the backing of the government (e.g. approved guidelines and procedures which make it virtually impossible to win a lawsuit against a compliant insurer).

Maybe doctors could enforce the rationing. They can pretend nothing more can be done. . . . I think the Swiss system may be something like this, though I’m not sure.

It takes two executioners simultaneously turning two keys to start a lethal injection machine. That way no one person can be held directly responsible for killing another. We get to pretend the “state” did it.

Controlling costs means denying care. Denying care means killing, even if we do it softly.

It’s worth noting that Public Choice theory says that politicians would never ever make rules for rationing. They will, of necessity, pawn it off on a bureaucracy. Maybe all those lunatics talking about “death panels” aren’t so lunatic after all.

UPDATE: Kling explains, with perfect clarity, what can and cannot happen, when, and why. Most informative!

This debate about the future of higher education is interesting. What surprised me is the dog that didn’t bark. No one mentioned that a big reason for employers requiring a B.A. is that employment tests have become problematic due to court rulings. It’s too easy to argue that a test is racially or culturally biased. Fearing lawsuits, employers have increasingly relied on colleges and universities as a screening mechanism. Caplan is right – a degree is a signaling mechanism that shows the graduate can work hard, show up on time, read, and write. While there are notable exceptions, the subjects studied and learned have little bearing on future employment.

Recently, the U.S. House of Representatives took time out from fending off the world and exempted large cattle-, dairy- and hog-producing operations from an Environmental Protection Agency requirement for reporting greenhouse gas emissions. And 13 Great Lakes cargo ships were exempted from a proposed mandate requiring the use of low-sulfur fuel. When constituents’ interests conflict with global grandstanding, Congress’s rule is “act locally, think globally tomorrow, maybe.”

via George F. Will – George F. Will on the changing climate for a global warming treaty – washingtonpost.com.

No student of Public Choice theory would be the least bit surprised. Elected politicians will act to increase their chances of re-election or post-career economic well being. Politicians from farm states know not to aggravate their farmers. That’s why the government pays farmers to grow tobacco. Politicians from industrialized states know not to aggravate the unions. That’s why public education has almost no chance of improving. Politicians who receive huge campaign funding from lawyers know not to aggravate the lawyers. That’s why there’s no interest in reforming malpractice insurance.

I’m not a big believer in taking urgent action on climate change, but even if I did think something was required, it’s apparent that there’s not enough campaign cash flowing through the political system to make a difference. We might get a “cap and trade” law to supposedly help the climate, but it’s main effect will be to reward campaign contributors and punish non-contributors.

That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place.

via Newspapers and Thinking the Unthinkable « Clay Shirky.

Newspapers are obviously in trouble and a tons of ink electrons are being spilled writing about it. I view this with only mild interest. However, the article referenced above has some interesting insights about the nature of technological disruption and some interesting observations about a previous revolution – the one that Gutenberg started.

The unemployment numbers are awful and, at the same time, wildly understate the depth of the employment problem. So where do we go from here? John Mauldin lays out the options. Note that all the options are grim and painful. Note also that several options are highly improbable due to the lack of political will in both parties. It looks like we’re in for years of pain, higher taxes, and reduced standards of living. Under the rosiest scenario, the Republicans will gain political control and ultimately get it fixed in 5 to 10 years. Under the worst scenario, the Democrats will maintain control and our condition will be perpetual, if not actually worsening. Reality is somewhere in between, so I think counting on a “lost decade” similar to Japan’s is the most likely outcome.