January 2012

In Offense of Ben Bernanke, Part I: The Fed is Competent?

by Alex Schibuola on December 14, 2010

in Economy

Professor Blinder writes: “To create the fearsome inflation rates envisioned by the more hysterical critics, the Fed would have to be incredibly incompetent, which it is not.”

First off, I’ll admit that critics of Dr. Bernanke may use bad logic. Nevertheless, a good economist will tell you that people are rationally ignorant: The opportunity costs of becoming an expert at everything, such as nuclear physics, foreign policy, and macroeconomic policy are very high. Consequently, people take many mental shortcuts. Politics is no exception.

Politicians fill this void usually by concluding an argument such as, “that so and so is a Nazi.” Translation: “so and so” or “such and such” policy is bad. In econ-speak: the costs exceed the benefits to society. While the applied logic of politicians and pundits may be (probably) wrong, it doesn’t mean that Dr. Bernanke and the Federal Reserve don’t warrant criticism.

Now, truth be said, I believe Dr. Bernanke to be a first-rate academic and a very well-intentioned person. However, I doubt his ability (or anyone’s for that matter) as Federal Reserve chair. After all, they’ve been tasked with a fool’s errand: maintain full employment and a stable price level — and if there’s time, to maintain stable long-term interest rates. Underlying this is the premise that they can find the market-clearing interest rates better than the market itself.

You should give the Fed more credit, Professor Blinder. They failed in the early ’20s, they created and exacerbated the Great Depression, they let inflation get out of hand between the ’50s and ’80s, and there are strong theoretical propositions pinning the stock-market bubble of the 1990s and the housing bubble of the 2000s to the Federal Reserve.

If you were to read former Federal Reserve Governor Frederic Mishkin’s textbook on money and banking, one chapter documents how every decade since its inception, the Fed always found a new way to mess up. The Fed is just not that great.

Professor Blinder writes: “All in all, it looks like the nation and the world need an Economics 101 refresher. So let’s start with the basics.”

Let me conclude Part I by stating: All in all, it looks like Professor Blinder needs an Economics 101 refresher too. So let’s start with the basics.

See also:
Part II: The Natural Rate of Unemployment
Part III: Bernanke, Blinder, and Underpants Gnomes

Unemployment Benefits Keep People from Working

by Hans Bader on December 14, 2010 · 1 comment

in Economy, Employment, Stimulus to Nowhere

Wintery Knight has an interesting discussion of how unemployment benefits keep people from working, drawing on coverage from The New York Times and academic studies. As he notes, this undermines the methodology used by the Congressional Budget Office (CBO) in concluding that the stimulus package would increase the size of the economy in the short run. (Even the CBO admitted that the stimulus would shrink the economy in the long run.)

We recently discussed other ways that the stimulus package discourages work and cuts the size of the economy. The recent deal between Obama and Congressional leaders will extend these harmful provisions, as well as the unemployment benefits that discourage work. (The job-destroying $800 billion stimulus package also gutted welfare reform.)

Earlier, we discussed how the stimulus wiped out American jobs, and Harvard economist Jeffrey Miron’s conclusion that the stimulus was not only a failure at creating jobs, but also was intended to push left-wing ideological goals, rather than to revive the economy.

Afternoon Links: December 14, 2010

by Nicole Ciandella on December 14, 2010

in Zeitgeist

1. Cuba is launching its own Wikipedia-like website that seeks to present a skewed alternative version of world history.

2. Is a video game about the Holocaust crossing a line?

3. A drunk man was shot to death by police after he pointed a water nozzle at them.

4. YouTube will now allow users to flag content that “promotes terrorism.”

5. Even Santa Claus is upset about TSA screenings.

Photo Credit: Aaron Escobar’s Flickr Photostream

Reactions to Court Ruling Striking Down Part of Obamacare in Virginia v. Sebelius

by Hans Bader on December 14, 2010

in Healthcare, Legal, Nanny State, Personal Liberty, Regulation

Yesterday, a federal judge in Richmond struck down Obamacare’s requirement that individuals buy health insurance. Cato Institute’s Ilya Shapiro reacts to the decision here in an article at CNN. Ilya was the principal author of an amicus brief filed on behalf of the Cato Institute and others in support of Virginia Attorney General Kenneth Cuccinelli’s lawsuit against Obamacare.

The Competitive Enterprise Institute and law professor Randy Barnett joined that brief, which you can find here. I am listed on the brief since I made a few suggestions that were incorporated into the brief based on my past experience in handling federalism cases (such as the Supreme Court’s Morrison decision).  The brief was submitted to the court by the distinguished Richmond lawyer Patrick McSweeney, who has won landmark cases (such as a no-taxation-without-representation case in the Virginia Supreme Court called Marshall v. Northern Virginia Regional Transportation Authority, a case that I earlier discussed at this link).

At Volokh Conspiracy, there are reactions to the decision from law professors Jonathan Adler and Ilya Somin.  I earlier discussed the constitutional issue in the case here, and more recently discussed the harm Obamacare inflicts on medical innovation, employers, the public and access to quality health insurance. The U.S. Attorney General and HHS Secretary responded to the ruling as well, as you can see here.

Morning Media Summary

by Lee Doren on December 14, 2010

in Economy, Energy, Environment, International, Legal, Personal Liberty, Regulation, Trade

Tech:

Gawker Media Hacked, Warns Users to Change Passwords:
“E-mail addresses and password details for 200,000 registered users of Gawker Media websites are now circulating on peer-to-peer networks after a weekend hack attack. The company warned users to change their passwords — including on other sites, if they use the same passwords elsewhere.”

Global Warming / Environment / Energy:

Ukraine to open Chernobyl area to tourists in 2011:
“Want a better understanding of the world’s worst nuclear disaster? Come tour the Chernobyl nuclear power plant. Beginning next year, Ukraine plans to open up the sealed zone around the Chernobyl reactor to visitors who wish to learn more about the tragedy that occurred nearly a quarter of a century ago, the Emergency Situations Ministry said Monday.”

Wik-Bee Leaks: EPA Document Shows It Knowingly Allowed Pesticide That Kills Honey Bees:
“The world honey bee population has plunged in recent years, worrying beekeepers and farmers who know how critical bee pollination is for many crops. A number of theories have popped up as to why the North American honey bee population has declined–electromagnetic radiation, malnutrition, and climate change have all been pinpointed. Now a leaked EPA document reveals that the agency allowed the widespread use of a bee-toxic pesticide, despite warnings from EPA scientists.”

Insurance / Gambling:

Casino group backs Reid bill on Net poker:
“The commercial casino industry’s top trade group said it supports efforts by U.S. Senate Majority Leader Harry Reid to fully legalize Internet poker.”

Health / Safety:

Michelle Obama has new warning on obesity:
“First lady Michelle Obama plans to warn in remarks Monday that the nation is seeing “a groundswell of support” for curbing childhood obesity, and she is unveiling new ammunition from current and retired military leaders.”

McDonald’s chief attacks children’s meal ‘food police’:

Economics:

Romney announces opposition to tax deal, in major blow to GOP’s united front:
“Republican presidential hopeful Mitt Romney on Tuesday came out against the tax deal reached between President Obama and congressional Republicans, saying the temporary nature of the tax rate extension would limit the positive economic impact and correspondingly make the deficit worse.”

Moody’s May Cut US Rating on Tax Package:
“Moody’s warned Monday that it could move a step closer to cutting the U.S. Aaa rating if President Obama’s tax and unemployment benefit package becomes law.”

Legal:

U.S. Health-Care Law’s Insurance Requirement Struck Down in Virginia Suit:
“The Obama administration’s health- care overhaul unconstitutionally requires Americans to maintain a minimum level of health insurance, a federal judge ruled, striking down the linchpin of the plan.”

Long legal fight ahead for health law:
“The scorecard on the legal fight over President Barack Obama’s health care overhaul is two judges in favor and one against.”

States spending just 2% of tobacco settlement funds on smoking prevention:
“Despite receiving billions through a 1998 tobacco settlement, states are slashing budgets for tobacco prevention programs, dropping funding to its lowest level in more than a decade, a new study shows.”

Labor:

SEIU, American Crossroads look back at 2010 spending:
“The Service Employees International Union made a mistake in targeting Sen. Blanche Lincoln (D-Ark.) during her Democratic primary in September, but won’t rule out backing 2012 primary challengers to White House-backed lawmakers, according to an official at the powerful union.”

Transportation/ Land Use:

Eminent domain, tax break proposed in 2012 for Missouri:
“Missouri groups that want to limit the use of eminent domain and expand tax breaks for charitable donations have been cleared to try to get their proposals on a statewide ballot.”

Over a Dozen States Get Wisconsin and Ohio’s High-Speed Rail Money:
“As everyone is probably aware by now, the incoming governors of Ohio and Wisconsin, John Kasich and Scott Walker (respectively), have stated loudly and clearly that they don’t want high-speed rail (HSR) projects in their states. Even though these projects would create thousands of jobs, would help to modernize these states’ transportation systems, and federal funds would cover the majority of the capital expenses, Kasich and Walker have said that they don’t want the federal funds awarded to them for their major HSR projects.”

The Day Four Loko Died

by Nicole Ciandella on December 13, 2010 · 4 comments

in Nanny State, Personal Liberty, Regulation

Last month, when Phusion Projects announced they were removing caffeine from their popular alcoholic-energy drink Four Loko, they told the FDA that “original recipe” Four Loko would be off store shelves by December 13th.

Alas: today is December 13th.

College students are mourning the passing of the maligned beverage with candlelight vigils and Facebook message boards. (“R.I.P Four Loko we miss you and I want more,” one fan writes.) Philadelphia chef Matt Levin is memorializing Four Loko tonight with a three-course Four Loko dinner at Adsum restaurant. Simone Wilson at LA Weekly recommends that you remember your favorite drink by making this Christmas “a Four Loko Christmas.” (Nothing says I love you, Mom like Four Loko earrings from eBay!)

Today’s a sad day for Four Loko fans—but a happy day for anyone smart enough to stock up on original recipe Four Loko before store shelves were cleaned out. Today is the last day of $2.50 Four Loko purchases; tomorrow the black market bidding begins in earnest.

After all, if there’s one lesson we should have learned from the Four Loko saga, it’s this: nothing makes a product more popular with America’s youth than being the target of a federal witch-hunt.

Photo Credit: Flickr Photostream.

Alcohol Regulation Roundup

by Michelle Minton on December 13, 2010 · 5 comments

in Nanny State, Personal Liberty

As alcohol regulations vary state-by-state and constantly shifting here is a quick roundup of booze news from around the states:

In federal news, following the FDA crackdown on alcoholic energy drinks, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued a statement clarifying its role in the regulation of such products.

In Pennsylvania, a state Supreme Court ruling upheld the right of Wegmans grocery store to sell beer at several of its locations throughout Pennsylvania, a notoriously strict alcohol-control state. The ruling found that the state liquor control board was in the right when it issues licenses to the grocery chain to sell beer so long as the store has a restaurant with seating for 30 or more, a food menu, and a minimum of 400 square feet. The Malt Beverage Distributors in the state are, predictably, unhappy with the ruling.

In other “dumb Pennsylvania liquor news” (I weep for my home state), the wine kiosk program gets some undesirable, but well-deserved derision from Wired magazine. Rather than allowing adults to purchase wine in grocery stores, the state has devised a “technological workaround” by placing kiosks in select stores that carry a limited variety of wines for purchase… if you can make past the “kafka-esque security measures”:

Each machine is connected to a state employee in Harrisburg, via video-camera. A customer chooses their wine, swipes their ID, puffs into a breathalyzer and faces the camera. The state employee checks that the ID matches the person and, if they’re not already intoxicated, the person is allowed to buy the wine.

Or you can just do your shopping in Delaware, New Jersey, Maryland, New York, West Virginia, or Ohio (whichever border state is closest).

In Texas, there’s talk of raising the excise taxes on beer: 19 cents to 35 cents per gallon of beer. Charles Hodges, CEO of Stop DWI, Inc., is pushing for the tax increase as he believes the additional $4 million a month from beer taxes would plug the holes in the state’s budget.

In Colorado, the newly elected governor, John Hickenlooper, gives those pushing for full-strength beer in grocery stores little hope. Despite the fact that Colorado’s zany liquor laws have resulted in bars and restaurants being banned from selling low-alcohol beer, Hickenlooper indicated he likes the status quo and doesn’t want to legislate “something that the small breweries think will put them at a disadvantage.” But grocery and convenience stores plan on trying again anyway, for a fourth time, to amend the state’s outdated laws and get full-strength beer on their shelves.

Ari and Lin Armstrong have a great piece in the Grand Junction Free Press on why it is finally time for a free beer market in Colorado.

In Illinois, Crain’s Chicago Business released their investigative report that shows big distributors of beer are employing illegal pay-to-play tactics and shutting out craft brews from the Chicago beverage market. In Chicago, like most cities in the U.S., brewers and bar/restaurant owners can’t deal with one another directly; they are forced by law to operate through a middleman called a distributor or wholesaler. The distributor takes on a portfolio of beers and then sells them to bars and restaurants. The revealing study shows why we should abolish the mandatory three-tier system, which requires the use of a distributor and establish the right for breweries, vineyards, and distilleries to directly ship their products.

In Tennessee, regulators are getting wise to the unintended consequence of their out-dated laws that limit the alcohol by volume of beer sold in grocery store to brew under 6.3 percent abv when border-state Georgia allows beer up to 14 percent abv.

In Maryland, wine and beer “enthusiasts” are set to introduce a proposal in several Maryland counties that would overturn a law that prevents patrons of restaurants with liquor licenses from bringing in their own wine. “Corkage,” as it is called, is the fee a customer pays to the restaurant for each bottle consumed by the diners that was not purchased at the restaurant. Corkage proponents want to make it so that even at non-BYOB establishments they can bring their own bottles to the table. The proposal may be considered by the Maryland General Assembly after January 12.

In West Virginia, legislators affirm that increasing alcohol taxes is not on their agenda. According to Delegate-elect Eric Householder, a Republican out of Jefferson County:

We’re back to the point of government taking care of everything for everybody … I have a litmus test … I’ve taken the Taxpayer Protection Pledge, I’ve put myself out there that I would not raise taxes. So I’m going to have a litmus test. Does this increase taxes? Does this increase government intervention? Is this an expansion of government? If I can answer yes to any one of those, obviously it’s legislation that I would not pass.

In Michigan, despite the un-banning of Sunday sales in the state (kind of), several counties intend to continue disallowing Sunday sales until noon or for the entire day.

Afternoon Links: December 13, 2010

by Nicole Ciandella on December 13, 2010

in Zeitgeist

1. Julian Assange–the complicated champion of transparency in the internet age–is now being taunted with his own digital footprint: a 2006 OKCupid profile.

2. Jack Shafer prefers the term “government option” to “public option” and recommends we rename Social Security “Government Ponzi Scheme.”

3. The DEA and the Thai police are going after a Thai drug lord with ads on beer coolers.

4. A French artist has fun with Facebook’s new profile.

5. After a San Francisco transgendered woman visited the DMV, a DMV worker tracked her down and harassed her about her sex change.

There are No Victors in Trade Wars

by Brian McGraw on December 13, 2010

in Trade

Today the World Trade Organization issued a decision confirming that the United States did not break any of its obligations with China over the tariffs imposed on Chinese tire imports earlier last year.

Ambassador Ron Kirk of the United States Mercantilist Trade Representative, commented:

This is a major victory for the United States and particularly for American workers and businesses. We have said all along that our imposition of duties on Chinese tires was fully consistent with our WTO obligations.

This might be a victory in that it is one of the few times that the United States was not laughed out of the WTO, but that’s where the victory ends. Imposing tariffs that lead to trade wars, re-organization of supply-chains,  business uncertainty, and rising consumer prices is a victory for no one.

What happened as a result of the tire tariffs?

Tire prices rose, imports from other Asian countries increased, China retaliated by slapping tariffs on steel, chemicals, and poultry. Was one specific industry maintain higher employment? Quite likely, at the expense of taxpayers and jobs in other industries with less political clout — while doing much to delay real progress on liberalizing trade in the United States.

Another quote from Kirk, one year ago:

“These remedies are a necessary response to the harm done to U.S. workers and businesses, designed to achieve the objective of curbing what the ITC determined was a harmful surge of Chinese tires into the U.S. market,” said Kirk. “China is America’s second largest trading partner, and the health and strength of our relationship are very important to both countries. We consulted with China as allowed for under the WTO. This decision has been based carefully on America’s rights under WTO rules, namely China’s accession agreement, and on sound economic calculations.”

These are the people who are running our government. Making sound economic calculations to determine the proper amount of tires to be imported into the United States by China, that are in absolutely no way based upon a interest group’s political influence.

V.A. Judge Rules Against Obama’s Health Care Law

by Nicole Ciandella on December 13, 2010 · 1 comment

in Health and Illness, Healthcare

A Virginia federal judge has declared federal health care legislation unconstitutional. In response to the decision, which was handed down earlier today, CEI General Counsel Sam Kazman said:

Judge Hudson’s ruling is a welcome reaffirmation of the Constitution’s limits on the federal government.  Those limits are totally at odds with the Obama Administration’s attempt, in its individual mandate provision, to transform a person’s decision not to buy health insurance into an activity subject to Congress’s power over interstate commerce.  Because this ruling comes only days before the anniversary of the Senate’s rushed Christmas Eve vote on Obamacare, it is, quite frankly, a great way to start off the New Year.

Photo Credit: Waldo Jaquith’s Flickr Photostream

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