Rove is a douche

Posted in response to this op-ed in the WSJ

Is Rove serious? Since when was putting more troops in Afganistan considered an anti-terror policy borrowed from George Bush? It is, in fact the opposite of Bush policy. Bush took troops *out* of Afghanistan to put the *in* to Iraq. Calling it a "surge" is semantic. Any troop deployment could be called a "surge" by that standard. His quote from the Washington Post is totally out of context. The full quote: ". It is difficult to imagine a truly level playing field that would simultaneously produce benefits from a government-run system. " the article goes on to say "Medicare keeps costs under control in part because of its 800-pound-gorilla capacity to dictate prices -- in effect, to force the private sector to subsidize it. Such power, if exercised in a public health option, eventually would produce a single-payer system; if that's where the country wants to go, it should do so explicitly, not by default. " I wouldn't call Medicare's negotiating power a "subsidy", since the private sector has the power to reject it's offers, but it is clear that the article does not dismiss public health care. I am not surprised that Rove is completely misleading in this article and I encourage others reading his editorials to challenge the "facts" he presents to support his case. I'm very disappointed in WSJ to continually have Rove editorials without sufficient editorials from an alternative viewpoint. Perhaps an editorial from John Stewart is in order.

Hoover and the Great Depression

Excellent reading on the anti-market intervention promoted by Hoover to keep wages artificially high and its effect on the Great Depression.  It contains a great argument against wage floors and other government intervention that artificially prevents markets from clearing.  

Finally!

I was relieved to discover this post on the Capitalism Blog.  It's reassuring to discover that other people have like-minded sensibilities.  

To paraphrase Gordon Gecko: Greed, in a word, is what makes capitalism work.  If we take "Greed" to mean "Self interest", it is also what makes evolution work in a Darwinian sense.  The fittest survive, while the weaker wilt.  As illustrated in many socialist societies, e.g. USSR, Venezuela, Cuba, Iran, etc. extreme socialism does not work as it works against the all too human psychology of incentive for work and requires military force to enforce its ideals.  Therefore, to condemn the recent financial crisis as an excess of greed is to condemn human nature, and the very process that made us humans.  

People who work for banks are employed specifically for their ability to make creative deals that are profitable to their shareholders.  In this instance, the internal controls to ensure deals made were consistent with long-term profitability were faulty -- most likely due to a misunderstanding of the risks involved due to a common mistake in interpreting statistics.  This will surely lead to private firms correcting such controls and tying reward to shareholder value.  We don't need more government regulation to tell banks what they already know: there is a fissure in the system that can cost them (and taxpayers) billions.  

Sucker's rally

Andy Kessler, a former hedge fund manager turned writer, says in the WSJ that the recent stock market run was a "Sucker's rally".  Of course, with 20/20 hindsight over the past couple of days this appears to be a correct assessment.  

Stock markets do not always reflect the fundamentals of the economy.  Just because the Dow goes from 6500 to 8000 doesn't mean the economy is all better now.  Jobs are still being lost in the hundreds of thousands every month.  Fundamentals haven't shifted, perceptions have.  Instead of proselytizing doomsday, investors have jumped on the bandwagon of rising stocks expecting to ride the wave back to 14,000.  Such expectations are misguided.  An handy rule of thumb is to watch the forecast Price to Earings (P/E) ratio.  Although forecast earnings may be an inaccurate gauge of performance, historical earnings may be even less accurate.  Many forcast P/E ratios were recently trading around 15, which indicates that investors are willing to pay 15 times what they expect shares a firm to earn in the next year in order to own its stock.  For many "value" companies, that is an aggressively high price.  A more reasonable level would be something like 10 or 12, or even less if earnings are uncertain (like they are now).  

Another important consideration not mentioned in the article is the newly enacted regulation restricting short selling.  After the rampant "naked" short selling that constributed to the collapse of banks like Bear and Lehman, regulators have sought more ways to prevent pessimists from betting against the stock market.  Surely many investors would happily short sell shares but are unable to do so.  This will keep prices at an inflated level for longer.  This recession has a long way to go before it's over, and cautious investors should be aware of the risks ahead.  

Cash for Clunkers, eh?

The upcoming program "Cash for clunkers", a US government sponsored program to replace old gas-guzzling cars with newer fuel-efficient ones, is another example of good intentions fouling up free-markets.  By creating a program that overpays for cars that otherwise would fetch a trivial market price (or would not be bought at all), the government is creating an incentive for people to buy cheap cars and sell them for higher than market value.   This incentive will "crowd out" buyers of cheap vehicles in the private market (read: young people looking for their first car, hobbyists, the unemployed, etc).  

I predict that at some point when this program becomes publicly acclaimed (my guess is many don't yet know about it) a portion of the used car market will get absorbed into the government's bloated budget.  While this may not impact everyone negatively, it may affect less affluent car buyers by reducing the inventory of used cars they might be able to afford.  Surely, it is politically popular with environmentalists.  However, it is unwise to interfere with supply and demand without properly investigating secondary effects on market participants.  Considering that the government is also spending lots of taxpayer money to assist the unemployed, this program seems potentially at odds with its programs to encourage employment (cars get people to work).  

Four Billion dollars is a drop in the bucket of approved government bailouts, but every dollar of taxpayer money should be thought out before it is spent.  This is one item in the federal budget that could be better spent.

Loss of an American Hero

Jack Kemp died this past weekend, but his ideas continue to resonate today.  His legacy reminds us that capitalism does not exclusively benefit the rich, nor is it at odds with populism.  As a "bleeding-heart conservative" he believed that America was built on the idea that every citizen can benefit from the freedom to work, earn, and save as they see fit without overbearing intrusion from government.  Rather than naming regulation as a savior of the people, he recognized it as a scourge of the small business owner.  

By giving people access to capital and allowing them to take ownership of assets, entrepreneurship will be encouraged and the cycle of poverty can begin to be broken 

--Jack Kemp

These are words by which we shall build our nation.  

Chrysler "deal"

The Chrysler bankruptcy is morally bankrupt government middling in the auto industry.  How on earth the employees of Chrysler can OWN their company by being so overpaid and incompetant that the firm is forced into BANKRUPTCY is the question of the century.   I am sorely disappointed in the Obama administration, and the lack of justice in the American government.  Saving jobs at any cost to the investors of capital in this country (real American heroes) is a travesty that undermines the primary freedoms outlined in our Declaration of Independence.  

As justice Stephen Johnson Field said in the case of the Butcher's Union vs. Crescent City:

Among these inalienable rights, as proclaimed in that great document, is the right of men to pursue their happiness, by which is meant the right to pursue any lawful business or vocation, in any manner not inconsistent with the equal rights of others, which may increase their prosperity or develop their faculties, so as to give to them their highest enjoyment

Depriving bondholders, penion funds, hedge funds, and other investors of their right to pursue their business interests is injust and unAmerican.  Taking their legal claims to the assets of Chrysler and giving them to those most responsible for the failure of the company is disappointing and deplorable.  I hope that this is not a sign of what we will see in future government interventions.