April 30, 2010

Prolonged Recessions and the Business Cycle

There are some who have stated that the recession is over, while still others claim that the recession is not over- or at least that its effects will be prolonged. In an article entitled “Extending the Recession Indefinitely, ” the author discusses the various ways in which the current recession is being prolonged. He makes references to Rothbard’s works and discusses a number of his points which serve to provide valuable insight on economic recovery.

In his essay, “Economic Depressions: Their Cause and Cure,” Rothbard takes an in depth look at recessions and recovery from the so called “business cycle.” Rothbard disputes the traditional claim that depressions occur due to decreased consumer spending and instead argues that depressions occur because of excess capacity. Specifically, he states that the boom and bust business cycle affects the capital industries the most. These industries would include the production of machines/equipment, raw materials, and construction. In arguing this point, Rothbard uncovers the fact that recessions stem from the producer side rather than the consumer side of the economy. This claim is a bold one as it goes against the traditional view of the business cycle. However, by making this point, Rothbard can justify his stance in his argument the use of many of the traditional tools used within fiscal and monetary policy during recessions. Mainly, he states that, the governing body’s artificial lowering of interest rates give a false signal to entrepreneurs and they invest in capital goods. As workers’ wages increase, workers change their spending habits and purchase consumers goods rather than saving and investing in producer goods. The distortion in pricing causes a correction, or a depression to occur, during which the mal-investments from the booming period are liquidated.

Seeing that this is the main cause of recessions, it would not be surprising to see that Rothbard sees the following as delaying recovery. The government bailouts, pushes for increased lending, an increase in the money supply, artificial price and wage setting, pushes for increased consumer spending, and the offering of unemployment benefits all contribute to the prolonging of the recession. It is interesting to see most of these same exact policies being used under the current administration. In fact, the kind of policies being implemented under the current administration are the exact opposite of the Austrian recommendation for economic recovery. Specifically, the traditional Keynesian view on recovery is that consumer spending needs to increase, the government needs to inflate its way out, and that businesses that are “too big to fail” need to be saved or bailed out. According to the Austrian economist, nothing could be further from the truth. Simply put, the Austrian would advocate a strict laissez-faire policy under which the government should stay out of the market and allow for a faster adjustment to occur. In their view, the sooner the depression-readjustment is gotten over with, the better. It is sad to see that politicians would rather embrace economic policies that result in a short-term artificially crafted booming economy than to settle for the Austrian approach- which proves to be the more realistic and feasible, long-term approach in which everybody is better off.

Extending the Recession Indefinitely http://mises.org/daily/3764
Economic Depressions: Their Cause and Cure http://mises.org/tradcycl/econdepr.asp

Oil Slick Economics

The recent BP failure in the Gulf of Mexico is sure to inflict an exorbitant cost on the Gulf Coast region. Some speculate that the damage to Louisiana and the outlying area will be worse than both Exxon-Valdez and Katrina. Recovery efforts are doing their part to contain and clean what they can, but the slow federal response is ensuring that this is a losing battle. 5,000 barrels of crude oil are spilling out each day.

The immediate economic cost is high but relatively measurable by most counts. What happens next, however, is a different story. Accordingly, Louisiana is the number one producer of oil domestically, and the number 2 producer of natural gas. The impact there will be drastic for sure, but worse yet is that Louisiana is the 2nd highest exporter of seafood in the country. The shrimp season has essentially been ended before it even began. The economic impact locally and nationally will be huge, no doubt.

The lack of a shrimp and fishing season for the bulk of the region means thousands and thousands of lost jobs, and less food for the country. Further, it could be analyzed through the contextual lens of hurting the re-opening of gulf oil exploration that was just allowed by President Obama only a month ago. The allowance of such resource utilization would no doubt yield positive economic change for the country, but with the onset of this BP oil slick the further exploration of the region will likely come to a halt... Further increasing the dependence foreign fuels.

What we are seeing here is the negative costs associated with environmental destruction caused by the BP oil spill. The effects of which will be greatly harmful to not just the environment but the economy. A huge market for seafood has essentially been wiped out for now, and the damage to the oil/natural gas will take years to assess.

For many it may already be too late as the oil has begun reaching Louisiana... but urging a rapid response, as was expected of former president George W. Bush after Katrina, could at the least minimize the scale of the potential impact. The LA National Guard has been mobilized, the Air Force deployed, and BP has already begun hiring paid positions to help in the cleanup process. Perhaps we are only seeing the result of years of textbook planning for such emergencies. Maybe it's just me, but maybe this feels a little under-appreciated.

The federal government, while in a sort responding, needs to do so with a much greater sense of urgency. There are more than just votes to be lost because of this (though there are plenty of those to be lost as well). The cleanup crewe has already amassed 20,000 gallons of oil... but at the current rate of spillage it just isn't enough. This is an emergency... Just because it does not LOOK like Katrina did does not make it any less severe. The results could very well be much worse than that of Katrina, and perhaps much longer lasting and further reaching. More people are needed in the cleanup, and the federal government needs to assist in the clean up in much more than simply political jargon.

The devastation to nature should but serve as a precursor to the impact this oil slick will have on the U.S. currency.

SOURCES: CNBC: Oil Spill Impact Could Be Worse Than Valdez and Katrina,
AP: Choppy seas frustrate effort to contain oil spill,
Wall Street Journal: Oil Slick Threatens U.S. Gulf Coast

Equality Trumps Liberty

First off I would like to say that this is not a post about labor. This is a post about how equality is dominating over liberty these days. I believe that today in America I have the right to live in a city that is safe for my kids to play in. I want to not have to worry about the increasing gang and drug problems. With the rampant increase of violence due drug trafficking and gang violence in the states south of us comes many innocent people getting in the crossfire. If there were stricter border controls and laws the violence wouldn't be so widespread and there may be a chance to have a safe home again.

Recently the Governor of Arizona passed a new law that lets the police check the papers of suspected illegal immigrants and arrest the ones that cannot prove their citizenship. The majority of the violence is mainly the result of how many Mexicans crossed the border illegally. The governor of Arizona is tired of the violence that comes with 500,000 illegal immigrants. I think that as the local government you should be worried about keeping your communities safe. By imposing this new law it gives the local authorities the right to do their job and keep people safe.

Now many democrats across the country are speaking out against Arizona. Many congressmen (elected officials) are telling professional baseball players to not go to the all-star game held in Arizona. Even protesters in Chicago are giving the Diamondbacks problems as they play at Wrigley Field. Many celebrities and activist are also on charge threatening massive protest in Arizona.

Last time I checked, the definition of illegal is still the same. I'm having a hard time looking at all of the hardship that results from the massive amounts of illegal immigration. The people of Arizona have the RIGHT to protect themselves against harm. Equality now seems to be more important than safety and Liberty.

And we all know that there is no clear definition of equality. This is the myth that the elected officials are striving for, even though it gets in the way of Liberty.

I hope that America remains the Land of Liberty and not Land of Equality.

Recession is Over?

A very rash statement for an administration, Federal Reserve and a neoclassical model that does not recognize the entrepreneur. Over the last 200 years America experienced the largest accumulation of wealth, technological advance and freedom to choose because of the granting of property rights to the public. From this foundation the past generations experienced the opportunity to create, take risk, and accumulate wealth. Unfortunetly that entreprenural spirit is quickly evaporating from our economy causing job losses, and the consumption of capital with no return on that capital. Obviously this administration views larger government as the solution to our worsening econmy vs.the entreprenural spirit, history has shown that this approach leads to disasterous consequences. The recession is not over, job losses, foreclosures and the ignorance of economic freedom remains evident.

The individuals claiming that the recession is over are the ones that have been supported by this and past administrations, through the bailouts and backroom dealings that the common man could never grasp. These connected banks, wall street cronies and government representatives live in a world were there is no risk. They continue to print money and benefit themselves. That is not the entreprenural spirit.

America does need change, not in the radical direction this administration has taken. The entreprenuer must be recognized as the main driver of the economy, not the government. As proven in the Austrian view of economics. The less government the better. The neoclassical model that has been studied and is the basis of our economic policies must recognize the importance of the entreprenuer in that model. Until this takes affect we as Americans will continue to struggle financially and experience the boom and bust cycles that represents our neoclassical model.

April 29, 2010

Evolving Principles?

I recently came across an article on businessweek.com concerning the health care debate. This has been a very controversial subject but this writer, Ralph de la Torre, is not focusing on the health care bill exclusively. He is using the topic of universal healthcare in the context of a larger assertion. He believes that our founding principles as a nation are “evolving”. The idea of a universal health care system is only an example of the change that is taking place in American ideals. He argues that the founding father’s principle of individual rights first, is going to become a thing of the past. This is a sign of “national maturity” he argues. He writes:

“But our founding principles are evolving. As nations mature and develop a common identity, they become more cohesive. People begin seeing themselves not as a society of individuals, but as individual members of a society. The trend is anthropological, not partisan, and it's gaining momentum. When our sense of group identity is fully entrenched, health-care reform will become widely popular.”

The idea that humans will suddenly start caring about the benefit of society first and neglect their own personal benefit seems like a radical idea. To act in order to benefit ourselves is part of our human nature. I, unlike Ralph, do not believe that human nature is something that can be changed so easily. I would guess that those in favor of the health care reform are those who expect to benefit from it personally. They are not concerned with benefiting society but more concerned with benefiting themselves, even if it is at the cost of society.

Equality in the American Revolution and the French Revolution

In “Egalitarianism as a Revolt Against Nature” Rothbard points out the fallacy of equality in ways that shock the reader. In the political sphere equality is viewed as a dream, a goal we could reach if only we were all willing to get along. Rothbard points out that the conservative argument against equality will lead to the destruction of the conservative movement by saying, “what the Conservatives failed to see is that while short-run gains can indeed be made by appealing to the impracticality of radical departures from the status quo, that by conceding the ethical and the “ideal” to the Left they were doomed to long-run defeat” (1). Conservatives are wrong to concede to the proposition that equality is an ideal. By granting that equality is an ideal, conservatives ensure a gradual movement towards equality. Step by step America will move closer to the ideal, because step by step parts of the population can be made equal.

The president of the National Organization of Women, Patricia Ireland, is currently arguing for an amendment to the United States Constitution. The purpose of the amendment is to proclaim that men and women are equal. This is only one example of the current craze for equality in America. But will the triumph of equality bring happiness to Americans?

Rothbard contradicts modern thought when he presents the idea that equality is more of a nightmare than a dream. Rothbard quotes Kurt Vonnegut, “They were equal every which way. Nobody was smarter than anybody else. Nobody was better looking than anybody else. Nobody was stronger or quicker than anybody else. All this equality was due to the 211th, 212th, and 213th Amendments to the Constitution, and to the unceasing vigilance of agents of the United States Handicapper General” (7). For example, a person with a higher than average intelligence would need to be handicapped in order to prevent him or her from tampering with the equality of the society. Few high school students enjoy wearing uniforms, so imagine if everyone in the United States was forced to comply with uniformity regulations. Not only would we all wear the same clothes, we would all have the same height and facial structure. A line cannot be drawn between what is the right amount of equality and what is too much equality.

Examples of the terrors of equality do not only exist in literature. What seems to me to be a prime place to look is the American Revolution and the French Revolution.

At the Constitutional Convention Alexander Hamilton said, “inequality will exist as long as liberty exists. It unavoidably results from that very liberty itself.” The men and women who fought to create America did not desire equality, they wanted freedom. A desire for equality cannot be found in the Constitution or the Bill of Rights. Proponents of equality are forced to use the phrase “all men are created equal” in the Declaration of Independence to justify their views. However this phrase was based on the writings of George Mason who proposed that “all men are born equally free and independent.” The idea that men are equal in the sight of God and under the law is related to the idea that all men “are born equally free.” The Founders of America believed in equal protection under the law but not in equality.

On the other hand the cry of the French Revolution was “liberty, equality, fraternity.” In the quest for equality the French abandoned regime after regime, sending the losers to the guillotine. The problem with the French Revolution according to Lord Acton was “its theory of equality...with this theory of equality, liberty was quenched in blood.” The French tried to achieve the perfect amount of equality, but they could not. The optimal amount of equality cannot be measured or attained. Like in the French Revolution, someone always wants more equality and someone always wants less. Not everyone can be satisfied.

The French thought that if they made everyone equal, then everyone would be a king. If everyone is a king then everyone is also a pauper. Equality cannot be achieved without limiting the freedom of individuals. Equality and freedom cannot coexist. Amendments to the Constitution are not needed to promote equality and conservatives should not be afraid to stand up and say that in reality equality is not an ideal.

Pittman, R. Carter. “Equality Versus Liberty: The Eternal Debate.”
Rothbard, Murray. “Egalitarianism as a Revolt Against Nature.”

Rent seeking airlines?

Going into effect today is the new airline regulation going into effect for airlines. The purpose of the airline is to prevent the long periods of waiting that have caused passengers numerous inconveniences over the years due to delays. In order to prevent this outrage to its consumers, the federal government has passed into law a 3 hour limitation to enclosure on the plane to be enforced by a 27,500 dollar fine per passenger for violation. Also, the airlines are now required to provide their passengers with certain accomodations such as food, water, and bathrooms after 2 hours.
I have a couple of issues with this regulations. The first that I take issue with is the fact that if these passengers are truly being harmed, it is already illegal without these regulations. This would mean that there is already a recourse through the courts for damages and recourse for this harm, so why does there need to be an additional law for something that is already illegal. Setting that aside, why are the fines being paid to the government? They are not being harmed. In fact, I am fairly certain that if all those people were paid 27,500 for their inconvenience, there would be many who would purposely purchase flights that have frequent delays. I know I would...one fine would pay off most of my student loans. I wonder what the government will use the fines for...maybe healthcare.
I believe this may actually be a case of rent seeking. Certain larger airlines will be better able to handle the cancellations that will be caused by these new regulations. They run more flights, larger aircraft, and charge higher prices. Smaller airlines that keep their prices low by keeping their costs low will be less able to compete. They can't afford the fines and they already keep their flights at the most economical level that they are able. Their only option will be to raise prices, which will likely price them out of niche that airlines such as JetBlue and Southwest airlines have carved out in the domestic airline market. Seems like a pretty unjust balance.

April 27, 2010

The New Arizona Colossus

This past Friday, the 23rd of April, Arizona governor Jan Brewer signed into statue an immigration bill, making undocumented immigration a crime in the state of AZ. The bill gives the authority to police officers of that state to stop, and question, any person as to the status of their citizenship, if deemed suspicious (NY Times) Something about this does not make sense. Putting aside moral judgment, ethical opinion, or normative economic points of view, this bill is still costly, harmful, and otherwise poorly reasoned legislation, in purely positive economic terms. The reason why lies in free-market theories on the nature of labor. To utilize such theories (contextually provided here by Walter Block, to whom I will reference momentarily), one must examine 2 points of interest. Why would immigrants want to be here in the first place, and why employers would want to hire them?

Immigrants must either be here for better quality of living, better employment opportunity, or some combination of the two. More than likely, they are here for the greater opportunity of higher wages as compared to opportunity available domestically; if such opportunities existed in their home country, they would be more likely to work domestically, rather than make the extreme (and often dangerous) effort of migrating to the United States (1). However, the opportunity is here only because of US employers’ willingness to employ them. This willingness on the part of US employers stems from the value of the marginal benefit of the labor provided by the migrant workers. Walter Block, professor of economics at Loyola College in New Orleans, points out the economic behavior in this very case:

Not only do employers from southern California travel hundreds of miles to find them [Mexican workers], but they also furnish trucks or travel money to transport them northward. In fact, employers from as far away as Wisconsin travel to Mexico for ‘cheap labor’ (workers receiving less than their marginal product)

Block, pg. 227

So what happens if these workers are here illegally, and are working in a place where illegal immigration is punishable by immediate deportation? The immediate consequence is that employers lose the least expensive section o f their labor costs. The workers to whom they need only paid a wage equal to the marginal benefit of that labor (or possibly less, depending on the initial domestic wages of the immigrant workers), are now gone. When that happens, costs of production generally increase. To replace that labor lost (if the employer chooses to do so), a higher wage must be offered to attract non-migrant workers. Assuming that a non-migrant worker provides the same benefit to the employer, in terms of productive labor, as does a migrant worker (Which, in such jobs as custodial positions, may be entirely plausible), this higher wage must then be automatically greater than the marginal product of that worker.

Now wait a minute; an employer would never hire an additional worker if the wage he must pay to that worker was greater than the marginal product of his labor! Therefore, the employer will take one of two courses of action. Either the employer will simply not re-hire new workers to fill the space left by the migrant workers, or he must raise his prices to maintain profitability. Which of these options appears to be more viable to the competitive producer?

The logic having been laid out, I have some questions: What were the motivations behind the passing of this bill, and what were the expected results? I would be willing to wager a new copy of Human Action to say the list of expected results did not include “Inflationary pressure”. In fact, I would also expect that one motivation may have been the goal of allowing more employment opportunities for our own domestic workers. As demonstrated above, this result is unlikely as well. What motivations and expected results are left? Unfortunately, there are none that can be discussed under restrictions of excluding moral judgment, ethical opinion, or normative economic points of view. However, I will briefly stand upon my soapbox and claim that the words of Emma Lazarus no longer seem as beautiful to many Americans as they used to be:

Give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse from your teeming shore. Send these, the homeless, tempest-tost to me, I lift my lamp beside the Golden Door (2)

Block, Walter. Defending the Undefendable. Ludwing von Mises Institute, Auburn, AL. 2008
(1) Block, pg. 227
(2) Lazarus, Emma. The New Colossus

April 25, 2010

Dear government, fix your broken policies.

There’s been a lot of talk recently concerning the immigration law that was put into place in Arizona. It is repeatedly referred to as an “Anti-Immigrant” law. The frustrating thing concerning this title is that the law is not opposed to immigration. Immigration actually lowers the cost of production. It is beneficial for producers as well as consumers. Immigration has an overall net benefit to society.

What this law opposes is illegal immigration. The laws for immigration are put into place for various reasons. I understand why individuals would want to immigrate to the United States, but do it legally. If someone goes to another country, it is expected that they abide by the laws of that land. Should they choose not to, they should pay some consequence. If I speed 10 miles over the speed limit, I expect to get pulled over, and deal with the consequences of my actions. That being said, if the mere existence of someone in this country is illegal, they should pay the consequence, if caught.

This law provides a way for law enforcement to exercise their authority in ensuring that those who reside in this country have properly obtained privilege to do so. If you don’t like it, go through the process to become a citizen, and pay taxes just like every other citizen in this country. Don’t be mad because your free ticket to live in the United States has expired. Feel fortunate enough that you have had the opportunity to live the quality of life the U.S. offers, and let that be the motivation to do what it takes to become a citizen.

That being said, I do understand the drive for these individuals to take advantage of the opportunity that has previously been presented to them. I am fortunate enough to have been born in this wonderful nation. I also understand it has many flaws. One flaw being the ridiculous process of obtaining citizenship. The process takes entirely too long. In my opinion, it shouldn’t take longer than six months. In many cases, it takes well over ten years. I do not believe it is right to expect someone to wait 10 years to obtain citizenship, when someone else can just walk across a border.

The government knows the economic and political advantages of legalizing illegal immigrants. That is why there has been recent talk of offering amnesty, which would just be a band-aid approach to solving the issue. I don’t believe this is the right answer. In another ten years, we are going to have the same problem. I do think that the current process is broken. Hopefully, the enacting of this law in Arizona will prompt the Federal government to take steps in the right direction, targeting employers of illegal immigrants and not profile individuals, and fix the process that they are responsible for creating.

April 15, 2010

Wal Mart bends to the consumer's wishes

I frequently have heard people speak disparagingly of Wal-Mart as a greedy conglomerate that drives small stores out of business and takes advantage of their workers. I know people who won't shop there because they think it is gauche or low class. Recently, though, I read an article that makes me think that regardless of wages, size, or lobbying power, Wal-Mart is still subject to the will of the consumers.
Last year, Wal-Mart decided to eliminate many national brands from their shelves and increase the quantity and supposed quality of their own "Great Value" brand. Some of the brands eliminated included Arm and Hammer, many Kraft products and Kellogs. The idea was to attempt to make the Great Value brand a national brand and in so doing beat out the competition.
It didn't work. After numerous consecutive climbing quarters in profits, Wal Mart suffered profit declines between 1.5% and 2.0 % each quarter and many consumers deserted Wal Mart altogether. As a result, Wal Mart has decided to put back Chips Ahoy cookies, Arm and Hammer laundry detergent, and about 300 other name brands that had disappeared from shelves. I guess that even massive giants can't crush the voices of the little consumers.

April 10, 2010

The Baptists

I find the Baptists in this country to be a considerable nuisance. When I think of Baptists, I am not referring to the church denomination (though as with any group thinkers, they can be annoying too), but rather to all the people in this country who think that it is acceptable to restrict and limit the liberty of others. There seems to be a growing sentiment that all the "ills of society" should be officiated over by the government. What I find entertaining about this is that I believe these problems are actually caused by the government, rather than solved by them. My particular bone to pick right now is obesity.

The Baptists think that there are too many fat people in this country cluttering up the landscape and sucking on our healthcare system. Obesity comes with its own set of punishments though...a lack of energy, constant health problems, and shortened life expectancy to name a few. Add to this the fact that most employers (equal opportunity or otherwise) are not going to hire a fat man or woman wheezing during an interview over a fit man or woman who is active and energetic. So, why would anyone want to be fat with all of these drawbacks?
Let's start with unemployment...If you are too fat to get a job, the government will pay you monthly to sit at home. If that isn't good enough, let's go for healthcare. Obamacare aside for the moment, it is free to go to the hospital emergency room when your heart gives out or your thyroid goes completely off the grid. Now with Obamacare, you can not only go to the hospital for free, but to any doctor as well, and if the doctor prescribes such care, you can get surgeries, such as gastric bypass to make you skinnier, compliments of the American taxpayer dollar. Maybe if people couldn't extend their lives for free, they might stop to consider before buying 3 double cheeseburgers and skipping the gym. Perhaps there is also something to be questioned about what qualifies as obese? Who determines what falls under this label? At one point in history, plump indicated wealthy because you could afford to eat well, while skinny was an indication of poverty and lack of sustenance.
Now, if a person is outside a specific weight bracket, determined by nutritionists hired by the government to say so, then you are obese. These numbers are then taken and applied to test groups of people and an aggregate number is thrown out that says people in America are too fat.
I don't think that people are hungrier now than they used to be, so perhaps the culprit really is the food that is being sold. So, what changed to make food so unhealthy? Perhaps it is the government regulations that favor some food markets over others. For instance, purchasing organic food which has not been subjected to the pesticides and antibiotics that are required by government in most food markets, is unbelievably more expensive than buying antibiotic and hormone filled foods. Why? The answer is fairly simple. In order for a farm to be able to produce "organic" food, the USDA has imposed a number of regulations that make its production cost much higher than the cost of the average pound of meat. For example, in order to call itself "organic" and thereby be able to sell in that market, a farm must be pesticide free for 7 years. In combination with the other regulations that raise the cost of producing organically, this is a severe limitation as these organic producers are not able to place the organic label that assures it's consumers of the growth processes. Without this assurance many consumers will not buy the product, particularly at the higher price, thus protecting the normal food market and those already producing organically. This severely limits the amount that can be produced and therefore the amount that can be purchased and also the ease of accessibility to many products as most traditional supermarkets carry a very limited amount of organic food.
It is true that some food, such as corn syrup, is more difficult for our bodies to process, but corn, in general is more difficult for the digestive tract to process, so that may be the source of that problem rather than the innovation that has allowed the corn market to diversify. Or perhaps the reason that corn syrup and other products like it that are being touted as fat people producers is because they are cheaper than things like sugar due to tariffs and other government regulations that protect them from price competition. This enables the foods to enter the market that are supposedly responsible for making everyone fat. How, though, does this account for people making the choice to consume? And if people are making the choice to consume, why should they be stopped from purchasing, or forced by the Baptists to look at the calorie count on the menu?
I would theorize that if enough people keel over from heart disease or diabetes, and others can't afford healthcare because they are too fat and unhealthy to work, the problem would likely work itself out at some point. After all, people are generally self interested and act for their own gain in one way or another. I would be interested to know what the Baptists hope to gain from a skinnier society. Perhaps just a little more space to walk on the sidewalk or through the supermarket aisles.... maybe it just makes them feel good to point and say "you're too fat! Eat a carrot". Perhaps this increasingly government sanctified discrimination is actually perpetuating the problem as obese people are criticized by their skinny counterparts. Who can say for sure? But the answers to these and other questions will never have an undisputed answer because it will never be a matter of fat vs. thin as the government has appointed itself the nanny of both sides and will keep these two kids from battling it out by telling them what to do instead. One thing I would bet, menu calorie counts aside, Mcdonald's isn't going out of business, and healthier food isn't going to get cheaper. Sorry, Baptist people, I believe you have once again been outsmarted by the bootleggers.

April 6, 2010

What to Do with All This Darned Corn

Expanding on the previous blog about corn...

For all of those who don't know, corn is synonymous with the USA. Due to an accident of geography, culture, and history, the entire middle 50% of our nation is essentially one giant food factory.

In fact, they really should merge everything from South Dakota to Oklahoma together into one big super-state called "The Federal Food Factory." (I exclude the State of the Godforsaken Heckhole of North Dakota since, as we all know, vegetation is impossible in this place).

But as a result of this, we have way too much corn, and have had way too much for at least 60 years. If we let the market have its way and took away all of the Ag Bills and regulation and aid and subsidies, corn would essentially have no value because there's so much of it and agriculture without market regulation is almost perfectly competitive, or at least about as close as we can get. We literally couldn't shovel it out of our country fast enough; we already give away tons and tons and tons of it and still have too much.

So instead of letting the market work, the US has engaged in some of the most blatant abuses of the free market ever seen. We tried paying farmers to not grow anything in the '50's. The more they did not grow, the more money they got. That worked for a while.

Then in the '70's we slapped barely-legal tariffs on sugar that border on criminal (and certainly violate the WTO). We did this because Big Ag started inventing new uses for the corn and discovered that through a complex process it can be distilled into concentrated fructose, which is supposedly "chemically the same as sugar!" But to make it economically viable, we had to make sugar more expensive by a significant margin. So we did.

Then in the 90's all the rage was corn-based ethanol. Why not use our huge surpluses to help save the environment!

Except that all these things have caused more harm than good. There's a mountain of evidence that links America's unique obesity problem is due primarily to the fact that we're the only nation in the world to use HFCS to sweeten everything instead of sucrose. You see, the body can't process fructose exactly the same way it can sucrose, and the result is that it wreaks havoc in the long term on the body's ability to regulate and produce insulin.

This is why people of similar racial and ethnic makeup in Europe consume literally just as much or more calories, fat, cholesterol, sweets, etc. on average as Americans, and yet aren't obese and don't have diabetes.

And corn-based ethanol is stupid. It requires huge amounts of petroleum to actually process the stuff, and it takes like 10 times more of the stuff to yield the same amount of energy as a gallon of gas (or an equivalent amount of sugar-based ethanol, which actually is efficient).

Luckily the government backed away from its huge initiative for corn-based ethanol. But still, everything we eat is loaded with HFCS. And if it's not HFCS, it's xanthia gum, sorbitol, and all sorts of funny-sounding chemicals that we throw in our food that come from corn in some way.

So.... I was thinking.


Here's my proposal:

1) Ban HFCS and many other corn-derived food ingredients. And remove all tariffs on sugar.

2) Abandon corn-based ethanol for any applications in New Energy due to its gross inefficiency.

3) When the farmers all come to Washington to burn down and take over the government, have a mild-mannered spokesman come meet them and inform them that not only can they keep growing corn, but that they should grow more corn. They should go and repopulate North Dakota and use that for corn too (perhaps by first constructing a giant dome over the state to make it habitable). And they can even keep many of the price controls and regulations that help keep them in business!

Every day Americans discard thousands of tons of non-biodegradable plastic bags and soft packaging plastics. In the process of touching these bags they have exposed themselves to estradiol, a chemical that binds to the same receptors as estrogen and has thus resulted in a measurable and significant feminization of men in first-world nations.

These plastics blow around and pollute rivers, streams, and landfills, and will over the course of thousands of years leak toxic chemicals into the environment as they slowly break down (unless we recycle them, which is a separate note).

But..... recently scientists actually stumbled onto a use for corn that makes a lot of sense: plastics. It is possible to create plastics out of corn.... that biodegrade in about 14 weeks and don't (at least as far as I know) use estradiol as an additive. I'm not sure how efficient the process is, but I have to imagine that the net benefit to the environment would far outweigh the negatives of even a very inefficient process of corn-based plastics creation.

4) Start regulating and phasing out most uses of soft plastics and replace them with corn-based alternatives, just like we did with CFC's. Eventually, make many of these plastics illegal.

It seems Pareto-optimal to me. American farmers can keep growing corn until it's coming out of their ears. We can curtail significantly exposure to chemicals that have feminized men. And we can save the environment. And countries could sell sugar to us again at profitable rates, thus improving the economies of many sugar-producing, poor nations.

And best of all, it seems like Hayek et. al. would approve as well.

April 1, 2010

Small Banks Say They Can't Win in Small Lending

There was an article in USA Today yesterday about banks being unable to freely lend to small businesses because of increased pressure from government examiners. These examiners come from the FDIC and are deployed to make sure that banks are following newer, stricter guidelines in their lending practices in an effort to avoid another lending crisis. While these regulators don't deny or approve loans, they will downgrade the rating of performing loans, including when collateral, mainly commercial real estate, has fallen in value. I believe this is misguided policy because oftentimes, collateral value has no effect on a company's ability to repay a loan. Granted, the loan must be secured by a reasonably valued asset, but it would be wholly impractical to constantly revalue loans based on the current market value of the collateral, especially when the fundamental financials of the business who took out the loan hasn't changed. In trying to keep banks from overextending themselves, regulators in this situation are requiring banks to hold higher minimum capital reserves to make up for the loss in collateral value. In turn, this decreases the money banks have to lend.
It is well established that small businesses fuel growth in this country and are responsible for two thirds of new job growth by some estimates. Since small businesses are not able to utilize capital markets to get funding, the banks are a critical part in this process, and therefore, the recovery of the economy. This government intervention with the intent of making lending practices more sound in order to help bolster the economy has the effect of stifiling small businesses, the very thing that fuels growth. In light of this unexpected result, regulators have issued more guidance (3 times in the past 15 months) encouraging banks to lend to creditworthy borrowers, as well as now not to lower ratings simply because collateral value has fallen. However, the more "guidance" lenders have to wade through, the more cumbersome and restrictive the process will become. So maybe the answer is less, not more.