Free Markets, Free People

Economics

What was Einstein’s definition of “insanity”?

Oh yeah, “doing the same thing over and over again and expecting different results”.

Today’s example, via the usual suspects, just boggles the mind:

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

This is just, frankly, incredible in its stupidity.  We’ve been here, done this and suffered the consequences in terms of a financial meltdown and an economy that seems to be in permanent “recession”.  We’d have the T-shirt too, but they took it off our backs.

Consider the administration’s solution to the perception that we’re “leaving too many people behind:  Let’s do again what was a major contributor to the last melt down.  No prob.  They’ll just blame the banks and the “market”.  The result: more people “left behind”.

I mean, it hasn’t even been a decade yet.  We’re not even doing this with a new administration.  These are, for the most part, the same people who crashed it last time.

Why is it that “leaving too many people behind” is the priority, when in the past those who were supposedly left behind, found some way in the future to catch up?  Why is it government’s job to “insure” risky loans because of that feel-good claptrap?

Because we’re freakin nuts, that’s why.  We’re bound and determined to ruin this country based on an ideology that plays to “feelings” and “emotions” rather than good common sense, the laws of economics and freedom and libery.  That’s why.

This is tar and feathers worthy, yet we’ll sit around like lumps while a majority claims it’s a “good idea” because it is “only fair”.

“Fair”.  The word that will – is – ruining this country.

~McQ

Regulation tends to cost lower income people more

I know that’ll come as an absolute stunner, huh? Not really. Regulation costs money. It costs money for compliance enforcement, which comes from taxes, and it costs companies money for compliance in the form of higher costs – costs that are passed on to consumers.

So? So – from the Mercatus Center at George Mason University, find out:

Low-income households benefit the most when they act to reduce their exposure to the greatest risks they face, such as relatively common events and activities that cause illness, injury, and death, many of which can be traced to living in unsafe neighborhoods. In contrast, high-income households generally focus more on small risks—for example, tiny environmental risks that are far less likely to occur and generally affect fewer people at the expo- sure levels regulations address.

LOWER INCOME HOUSEHOLDS BEAR MORE OF THE COSTS OF REGULATION

Regulation focused on small risks delivers benefits to a limited group but spreads the costs across everyone. As a result, regulation effectively transfers money from low income households, who need to prevent larger risks, to high income households, who are concerned about small risks. Low income households are, in a sense, paying for the lifestyle preferences of the wealthy.

Such regulation increases consumer prices and lowers worker wages.

• Regulations act like a regressive sales tax, with middle and lower income households bearing much of the cost of rules that focus on the risk preferences of wealthier households, since they all pay the same, higher prices.

• Cost of regulation as a share of income is estimated to be as much as six to eight times higher for low-income households than for high-income households.

• [Diana] Thomas estimates that households can mitigate the same level of mortality risks privately for about one fifth of the cost of public risk-reduction strategies.

Well, imagine that, the laws of economics at work in a very predictable way.  And, of course, completely opposite of the professed claim of the left to be on the side of the poor. Because it is that very group that continually push more and more regulation because, one assumes, they believe if some regulation is good, more has to be better. But, as a group, being mostly economically illiterate combined with unaccountable faith in government power, they end up with these sorts of ‘unintended consequences’ all of the time.

~McQ

Were American’s misled about the cost of ObamaCare?

Does a duck quack? Of course they were. Were politicians pushing an agenda involved? That’s a rhetorical question:

And yes, we told you so.

As Thomas Sowell pointed out, and I’m paraphrasing, how anyone thought that adding a layer of bureaucracy and regulation to the current system was going to drive costs down was beyond him.

And it was beyond most people who have even a modicum of common sense.

Medical claims costs — the biggest driver of health insurance premiums — will jump an average 32 percent for Americans’ individual policies under President Obama’s overhaul, according to a study by the nation’s leading group of financial risk analysts.

The report could turn into a big headache for the Obama administration at a time when many parts of the country remain skeptical about the Affordable Care Act. The estimates were recently released by the Society of Actuaries to its members.

While some states will see medical claims costs per person decline, the report concluded the overwhelming majority will see double-digit increases in their individual health insurance markets, where people purchase coverage directly from insurers.

The disparities are striking. By 2017, the estimated increase would be 62 percent for California, about 80 percent for Ohio, more than 20 percent for Florida and 67 percent for Maryland. Much of the reason for the higher claims costs is that sicker people are expected to join the pool, the report said.

Well done, Democrats — well done.

~McQ

Study: Government policy primarily the reason for sub-prime mortgage meltdown

Despite the attempt by government and particularly Democrats, to blame the financial meltdown we’ve endured on banks and unscrupulous investment companies, the buck stops with them according to a new study just released:

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, “Yes, it did. We find that adherence to that act led to riskier lending by banks.”

Added NBER: “There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts,” or predominantly low-income and minority areas.

As we’ve mentioned previously any number of times, government policies can set and enforce preverse incentives.  And that has nothing to do with a free market.  That’s at best a mixed market.  So no, the problem wasn’t a “market failure”, it was the usual result of government intruding and setting preverse incentives that are contrary to good business practices and would likely not survive or succeed in an actual free market.

Here’d the bottom line:

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.

CRA regulations are at the core of Fannie’s and Freddie’s so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

It passed a law requiring the government-backed agencies to “assist insured depository institutions to meet their obligations under the (CRA).” The goal was to help banks meet lending quotas by buying their CRA loans.

But they had to loosen underwriting standards to do it. And that’s what they did.

Not only that, they guaranteed the bad loans with your money.  Why do you think so much money has had to be pumped into those two institutions?

You see the market had determined that certain standards protected their investments.  The government decided to ignore reality and push a social agenda using “race” as the basis for throwing out those standards and using their coercive power to implement the social agenda they preferred.

The result was predictable.

And the coverup as well.

~McQ

Why it is so hard for government to quit spending

It’s hard, in a nutshell, because no one wants to see their favorite programs defunded.  The system encourages politicians to pander to these constituencies for votes.  The result is ever increasing spending while both the public and the politicians claim to be for spending cuts.

A perfect example of the process can be found in microcosm in Chicago, where, to save money in the wake of intemperate government spending, the school system plans on closing 54 schools.  The constituency affected are not going to let this go quietly.  Even though the plan would save the city $600 million over 10 years and certainly help close the 1 billion dollar shortfall it suffers, the people (voters and teacher’s unions) who don’t want those schools closed are taking their protest to the politicians (aldermen) who depend on their votes.

The problem now being realized with the process described above is there’s a thing called “reality” that intrudes on this system of ever increasing spending to satisfy the demands of ad hoc constituencies.  It’s called economics.  And it has laws that resist being broken.  Laws such as you can only spend more than you have for so long before you can’t get anymore to spend.  And at a local level, where a city government can’t print money, that reality has come to bear on the process that the city of Chicago has indulged in for so long.

It can’t afford the process any longer.  And that means the process and its cycle will, of necessity, have to be broken if the city isn’t to become another Detroit.  In the case of the school closings in Chicago, the only question that remains is whether or not the politicians, in the face of opposition by a coalition of voters/unions/politicians, will do what is necessary or  – as we see on a national level time after time – endeavor to find a way to satisfy the coalition and kick the can down the road?

To the story:

Chicago Public Schools officials ended months of speculation when they released the list of 54 schools the city plans to close, but the pushback against Mayor Rahm Emanuel and his schools chief is likely just starting to ramp up.

As word of the schools on the long-awaited closings list trickled out Thursday, parents, teachers and community members — some furious, some in tears — vowed to fight the closings. One group took a bus of people to protest in front of the homes of school board members, and some parents spoke of a lawsuit. The Chicago Teachers Union already had scheduled a mass protest march through downtown for next week.

"We are the City of Big Shoulders and so we intend to put up a fight," union President Karen Lewis said. "We don’t know if we can win, but if you don’t fight, you will never win at all."

Emanuel and schools CEO Barbara Byrd-Bennett say the closures are necessary because too many Chicago Public School buildings are half-empty, with 403,000 students in a system that has seats for more than 500,000. But opponents say the closures will further erode troubled neighborhoods and endanger students who may have to cross gang boundaries to attend school. The schools slated for closure are all elementary schools and are overwhelmingly black and in low-income neighborhoods.

About 30,000 students will be affected by the plan, with about half that number moving into new schools.

So 30k out of 403k will be effected in a school system that appears to have a declining population.  Any sensible person would understand that even if money wasn’t a problem, at some point adjustments would need to be made. 

But we’re a schizo population who somehow believes – even as our reality  reminds us in our own lives daily that we’re delusional – that we can have our cake and eat it too. 

This problem and the reality aren’t unique to Chicago:

Chicago is among several major cities, including Philadelphia, Washington and Detroit, to use mass school closures to reduce costs and offset declining enrollment. Detroit has closed more than 130 schools since 2005, including more than 40 in 2010 alone.

The problem is, however, pretty unique to cities who’ve followed that process I described above and, for the most part, have been “blue” strongholds for decades.  Reality is weighing in on their misguided governance with a vengeance.

What’s interesting is it is pitting blue against blue (blue city government against teacher’s unions, etc.).  And, it also has a coterie of politicians who refuse to accept reality because, well because it could cost them their jobs and the perks that come with it:

The issue has again pitted Emanuel against the Chicago Teachers Union, whose 26,000 members went on strike early in the school year, idling students for seven days. Chicago aldermen and other lawmakers also have blasted the plan.

Of course they have.  Common sense and reality say the plan is the way to go. 

But we all know, in the world of politics, common sense was killed off decades ago and reality is ignored as long as possible.

And look at the result.

~McQ

Why won’t this administration look at this revenue source?

Because of their false agenda, that’s why.   They’re still convinced that, despite 17 years of no warming (as recently admitted by the head of the IPCC), oil is bad and “green” is good and that they’re doing something to save the world.  Disregard the fact that green is still unviable.  Disregard the fact that everywhere it has or is being pushed, energy costs are skyrocketing.  Nevermind the fact that we are sitting on a sea of fossile fuel products that we only need to access.  Screw the fact that science can find no discernable warming.  Their minds are made up.

That said, there’s also the fiscal side of the house.  The debt.  The deficit.  And the demand by Democrats to raise more revenue.

Unfortunately, because of their agenda, they’re likely to completely screw up a golden opportunity to bring in much more revenue and drive energy prices down, because their agenda is against fossile fuel.  And we all know the party agenda comes before what is best for the country.

Enter the administration with a renewed plan to tax oil companies instead of opening access to the vast natural riches we enjoy.  The result?  Well this chart will help you comprehend the vast differences in the two policy choices (full size here):

So the either/or is “tax ’em or open access”.  The difference:

According to a 2011 study by Wood Mackenzie, increased oil and natural gas activity underpro-access policies would generate an additional $800 billion in cumulative revenue for government by 2030. The chart puts into perspective the size of these accumulating revenues – enough to fund entire federal departments at various points along the timeline. By contrast, Wood Mackenize also found that hiking taxes on oil and natural gas companies would, by 2030, result in $223 billion in cumulative lost revenue to government.

It only proves the old saw -“If you want more of it, reward it and if you want less, tax it”.  Think about it – money to help run government and pay down the debt (not to mention the thousands, if not millions of jobs created) being passed up in the name of false science and agenda politics.

Meanwhile, we’ll be left in the cold and the dark, thanks to agenda driven policies with no foundation in reality.

~McQ

Damned “Southernomics”

In light of Michal Lind’s fantasy about the South, another indicator of how wrong he is:

State Farm, the nationally-known insurance chain headquartered in Bloomington, Illinois, has apparently had its fill of “The Land of Lincoln’s” confiscatory taxes.  The 800 million dollar company is reported to have purchased “substantial workspace” in the Dallas, Texas area. The giant insurance firm’s workers are being kept in the dark reportedly to avoid “alarming them”; but is it their workers or the State of Illinois they would like to keep in the dark about this move? If this doesn’t signal State Farm’s coming dash out of Illinois’s clutches, what could it mean?

A knowledgeable Dallas real estate insider has called this impending move “a major business relocation” of record-breaking proportions. The numbers involved are approximately 2.5 million square feet of workspace and thousands of workers. No company in Dallas’ history has made a move this large.

Texas isn’t the only state State Farm is running to. There has also been a report that it has leased office space in Atlanta. The combined amount of both new locations roughly equals the 3.5 million square feet it has in Bloomington.

Why?

These moves should come as no surprise to anyone.  In spite of (or maybe because of) raising its corporate and personal income tax rate by 67% in 2010, Illinois has seen its credit rating fall and its deficit raise.  A review of the tax structure in Georgia shows the personal and corporate income tax is 4% as compared to Illinois’ 6.25%.

Texas has no personal or corporate income tax.

But, you know, the South has just replaced physical slavery with economic slavery – and all those Texans and Georgians who will benefit from employment with State Farm after the move know that only too well, don’t they? /sarc

I’m sure the taxes are just part of the reason.  Most likely the complete business atmosphere in the South is more likely the draw.  A welcome mat instead of a outstretched hand have to be appealing.  The same thing is happening in a number of northern states – the difference being the fiscal mess of today coupled with the difference in Blue state remedies vs. Red state remedies has started to turn a trickle exiting Blue states into a flood.

~McQ

Texas terrifies the left

If ever there was a load of crap on toast, it can be found today in Michael Lind’s atrocious piece in Salon.

He calls it “Southern Poverty Pimps”.  I see a more apt name to be “Southern Cliches R Us”.

It is probably one of the more absurd attempts to make the economic success in Texas look bad that I’ve seen in quite some time.  You would almost feel it was something Paul Krugman would hack out.  One of my bets, concerning all the negative stereotypes Lind uses, is he’s rarely if ever been in the South.

For instance:

Needless to say, private sector unions that pool worker bargaining power are anathema to today’s suave metropolitan successors to the slave-owning plantocracy.  The whole point of the Southern model of economic development is to create a non-union region from Virginia to Texas, to which companies can be induced to move from states with unionized workforces.  Besides, unions engage in collective bargaining, in violation of the Southern ideal of employer-worker relations, in which the master gives orders and the fearful worker obeys without question.

Of course the fact that in the great North unions are losing members like water through a sieve would never see the light of day in a Lind expose, one assumes.  That would run contradictory to his whole premise that the South has just shifted from racial slavery to economic slavery.  No mention of the thousands upon thousands fleeing the horrible economic conditions of Blue states, no mention of Detroit, no mention of the rust belt.  No mention of the urban blight found in Blue states or their failing economies.

You see, if the “Southern model”, aka the Red State Model” is allowed to exist, if it isn’t demonized and condemned, if all stops aren’t pulled out to include the usual racial and ethnic accusations the left loves to fling around, well, it might make people think that the Red States are on to something.

Of course, we already know they are, don’t we?

And so does Texas.  You see, Texas’ success terrifies them.

Thus Lind’s pitiful attempt to use the divisive language of which the left is so fond.  It couldn’t be that people actually are fine with their wages and tired of unions who take their money and really don’t produce much of anything but fat-cat union officials could it?

Heavens no.

It’s all about “economic slavery”.

~McQ

Krugman: was he lying then or is he lying now?

My bet would be on “then”, because in a moment of exquisite candidness, Paul Krugman – the man who has said “What? Me worry?” about the deficit and the debt, who claimed ObamaCare would do what Obama promised, – has apparently been drugged and finally told the truth:

Eventually we do have a problem. That the population is getting older, health care costs are rising…there is this question of how we’re going to pay for the programs. The year 2025, the year 2030, something is going to have to give…. …. We’re going to need more revenue…Surely it will require some sort of middle class taxes as well.. We won’t be able to pay for the kind of government the society will want without some increase in taxes… on the middle class, maybe a value added tax…And we’re also going to have to make decisions about health care, doc pay for health care that has no demonstrated medical benefits . So the snarky version…which I shouldn’t even say because it will get me in trouble is death panels and sales taxes is how we do this.

Gee … everything everyone who has paid attention has been saying all along.  Middle class taxes (you have to shake your head at his “oh well” approach to a middle class tax.  A sales tax.  Perhaps the most regressive tax going).  Death panels. Etc.

But it’s safe now … selling his credibility and being a hack has landed Obama another 4 years.

Apparently he’s on a “resurrect Paul Krugman’s professional reputation” tour.

Not that it’s working.

~McQ