Free Markets, Free People

Daily Archives: August 10, 2010


Dale’s Observations For 2010-08-10

.@dmataconis Did someone say, "Captain Obvious"? http://twitpic.com/2dh7gp #

MV Agusta really DID screw Harley-Davidson! H-D had to pay the Italians $20 million to take it back. http://bit.ly/axjvRS #

After 9 years of pay and benefit increases, Federal workers are now earning double their private counterparts. http://usat.me?39636276 #

FOMC statement says no change in interest rates are in the offing, as economic growth remains slow. http://usat.me?39645182 #

Note to @DerSPIEGEL: Its not really appropriate for Germans to make moral pronouncements about WWII actions. http://bit.ly/brpxDF #

Is America heading for a "lost decade" similar to Japan's? http://bit.ly/9jmAHT #

These people have the power to put you in jail for years. But don't dare think that you can hold them accountable. http://bit.ly/bkk3a3 #

The National Federation of Independent Business said its optimism index fell 0.9 to 88.1 in July. http://bit.ly/b0hO8f #RecoverySummer #

The productivity of U.S. workers unexpectedly fell last quarter, increasing cost-cutting pressures. http://bit.ly/cOCkDJ #RecoverySummer #


So how is November looking for the two parties?

Well, the POLITICO is reporting that, against all odds, the Democrat’s Senate majority may be in jeopardy. Apparently,a Republican polling firm, looking at 13 of the races, found them all to be within the margin of error (however the poll was so small that margin of error is huge). Another – American Crossroads – came up with similar results in a larger poll. As POLITICO points out, both together do suggest there’s an opening for Republican Senate candidates that wasn’t really visible previously. All 13 hot races seem to be very, very competitive.

Then there’s the House. Gallup has the generic Republican up by 6, 49% to 43%. In terms of the "generic" polling, that’s a huge gap. And watching the Democrats thrash around for something to run on beside their record tells you pretty much all you need to know about how the House should go.

Also in play are 37 governor’s races.  Scott Walker, a Republican candidate for governor in WI, makes the point that has elected other governors like Chris Christie of NJ – “austerity is ‘in’”.

And the focus of the people – almost all the people – is the economy.  Most are in no mood, given the shape of the economy, to hear about grand new spending programs or the cost of more government.   What they are interested in hearing about is how government is going to get its books balanced without again reaching into their wallets.

That naturally plays much better for Republicans than most Democrats.  Consequently you could see a good majority of those governor’s races going to the GOP.

So to answer my question in the title – not so hot for the Dems, looking pretty darn good for the Reps.  Of course, winning is step one for the GOP – if they don’t step up and do whatever is necessary to rein in this government, cut spending and work toward reducing the debt, they’ll be looking at a bloodbath as well, two year’s hence.

There’s very little patience among the populous these days.  For the GOP, be careful of what you wish for.

~McQ

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Taxes Matter and Can Destroy Incentive

Let me tell you how it will be
There’s one for you, nineteen for me
Cos I’m the taxman, yeah,
I’m the taxman
Should five per cent appear too small
Be thankful I don’t take it all
Cos I’m the taxman, yeah,
I’m the taxman

- Beatles, 1966

One of the common laments from fiscal conservatives is that static tax analysis assumes no adjustments by taxpayers to avoid paying at the highest rates. Generally speaking, the higher any activity is taxed, the less of that activity we will get. Even when the activity is just fun and games, such as competing in the Ryder Cup matches in Europe this Fall:

Players competing in the match between Europe and the United States at Celtic Manor, Wales, could be seriously affected by new rules issued by the customs and revenue agency, which can now tax foreign sportsmen and women not just on prize money earned but on sponsorship and endorsements.

Why would that matter? Because the prize money is a pittance compared to what endorsements bring in. Tiger Woods, for example, when he was playing well could win a tournament and take home as much as $1.5 Million in prize money. At the same time, his endorsements earn him in excess of $90 Million per year, which is down from a staggering $128M/yr just two years ago. By comparison, Phil Mickelson, who actually has played well this season, brings in an estimated $61 Million. That’s a lot of money to subject to taxation in the UK just for playing one (albeit prestigious) tournament.

According to the AP article, Usain Bolt (possibly the fastest man alive) and other athletes have already skipped British competitions because of the imposing tax rules, much like how the British Invaders of the 1960′s started spending more and more time in the Carribean, Monaco, and even New Jersey in order to avoid punitive tax rates. Because, in the end, incentives matter, and taxes can create a huge incentive to forgo certain activity.


We should pay less attention to "results" produced by computer models

That’s the basic message our friend Warren Meyers (of Coyote Blog and now Forbes) makes in an article. His points are not only good, but valid. And if one thinks about how inaccurate the models we’ve seen drive debate and spending are, we’d insist on better data before those decisions are made.

Meyer points out that there are few, if any CEOs in non-financial firms who would invest  a penny based solely on computer models. Yet we have this propensity to place much more confidence in models that have done nothing to earn that confidence than they deserve.

For instance:

Last week the Council of Economic Advisors (CEA) released its congressionally commissioned study on the effects of the 2009 stimulus. The panel concluded that the stimulus had created as many as 3.6 million jobs, an odd result given the economy as a whole actually lost something like 1.5 million jobs in the same period. To reach its conclusions, the panel ran a series of complex macroeconomic models to estimate economic growth assuming the stimulus had not been passed. Their results showed employment falling by over 5 million jobs in this hypothetical scenario, an eyebrow-raising result that is impossible to verify with actual observations.

Not only is it impossible to verify, it was issued as a defacto “truth” and the “stimulus” was declared a “success”.  And don’t forget the inclusion, now, of one of the world’s best weasle words to pad the results – jobs “saved”.  However the administration goes to great lengths to ignore its previous claim that if the “stimulus” was passed, unemployment wouldn’t rise above 8%. One has to guess, given the results, that the computer model was wrong about that.

Meyer goes on to point out how the modeling which can’t predict the complex world of economics, is somehow considered the “gold-standard” of predictability when it comes to the exponentially more complex climate.  So much so that governments everywhere are basing trillions of dollars of taxes (cap-and-trade) on the results of such models in an supposed effort to “save the planet”.

While we have been bombarded with hockey sticks and forlorn polar bears, our focus in climate should really be on the computer models. The primary scientific case for man-made CO2 as the main driver of global temperatures is made in exactly the same way that the stimulus was determined to have created 3.6 million jobs: computer modeling. No one yet has been clever enough to structure a controlled experiment to isolate the effect of rising CO2 levels from other changing variables in the complex global climate. So, just like the CEA did in scoring the stimulus, climate scientists use computer models to run virtual experiments, running the models backward over the last century with varying assumptions for CO2 levels.

This modeling approach yields amazingly circular logic. Like macroeconomic models built by devoted Keynesians, climate models are constructed by academics who passionately believe that a single variable, CO2 concentration, is the dominant driver of the whole complex climate system. When run retrospectively, the models they create unsurprisingly give the result that past temperature increases are mainly attributable to CO2. The problem with these models is that when run forward, as in the case of the Washington Redskins election model, they do a terrible job of predicting the future. None of them, for example, predicted the flattening of global temperatures over the last decade.

Yet policy has been proposed and written based on results that are nonverifiable and questionable at best.  That’s insanity.  But the purported case for using the results is if we wait for real data it may be too late.  But when the real data appears (such as the flattening of global temps for this past decade) the modelers and proponents of the government action want to ignore it and deny its importance.

This all goes back to two themes I’ve been hammering for quite some time – common sense and scientific skepticism.  Both are necessary tools of a rational person.  And Meyers nails the point:

Our common sense about government stimulus tells us that the government is highly unlikely to invest money more productively than the private entities from whom the government took the money. Unfortunately, we have allowed this common sense to be trumped by computer models. Once our imperfect understanding the economy was laundered through computer models and presented with two-decimal precision, smart people somehow lost their skepticism.

We are now facing what is potentially an even more expensive decision: to regulate CO2 based mainly on computer models that claim to be able to separate the effects of trace concentrations of CO2 from a hundred other major climate variables. If your common sense is whispering to you that this seems crazy, listen to it. Otherwise all we get is garbage in, money out.

The “garbage in” should be obvious. Unfortunately, the “money out” is money coming out of your wallet to pay for unproven science and unfounded economic models. 

~McQ

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