Goin' Bananas with Statistics

I'm playing around with IMF statistics because I was more or less inspired by a Washington Post article I read today about domestic sugar producers, protectionism, and sweeteners. Anyway, this chart displays the average price of Chiquita, Del Monte, and Dole bananas traded via the US Gulf (I'm not too familiar with the specifics of the trade contracts) on a monthly basis over the past year. In July of this year, one metric ton of bananas (2,205 lbs) traded for $828.73. That's $.38 per lb of bananas, and I believe the final retail price of bananas at Wal-Mart in Jacksonville, Florida is around $.55 per lb.

In other news, I have an elementary understanding of Microsoft Excel.

A Word on "Multipliers"

Every Principles of Macro student will undoubtedly come across the Keynesian multiplier. This doctrine claims that an initial dollar spent, for investment purposes or by the government, is followed by a domino-effect of spending of ever-smaller portions of that same dollar. For example, if I buy a box of Mike and Ikes for $1, Raul the candy man will turn around and spend $.90 of that on a McBurger, and Ronald McDonald will turn around and spend, say, $.81 on a donut, and then Krispy Kreme turns around and buys a milk dudd for $.73, etc., etc. You see, my dollar goes a long way in "stimulating the economy," right? Wrong.

For the agog and masochistic reader, I refer you to Reisman, Capitalism, 690-691. But it's pretty simple without the intellectual explanation, and I think I can handle it:

Consider that Ronald McDonald received $.90 for a McBurger, and instantly spent $.81 on a donut. Ronald is left with $.09 to do something with. It is likely, and let us assume, that he pays his workers and repairs some equipment and whatnot with that $.09. So Ronald has a donut and paid some wages. Great, eh?

The problem with the Keynesian Multiplier Doctrine, however, is that it is so bold as to say that if we spent a greater portion of every dollar we receive on consumable items, instead of saving and investing that money, this would somehow stimulate growth and prosperity in the economy. So let us assume that Ronald spent $.81 on a donut, and $.07 on a gumball. That leaves him with only $.02 to pay wages to his workers, and repair equipment and expand. And Krispy Kreme will do the same, and on, and on, and on. Tell me, how on earth are we better off in this situation? If we spend greater amounts of our dollar on consumer goods, as opposed to productively spending it on workers and equipment, and saving and investing, who is materially better off? All that has happened here is that profits have increased, the end. As for business expansion, which leads to higher real wages for everybody in the economy, this doesn't happen.

And it is this simple. Mainstream economists extol consumer spending because it makes GDP look good, but in reality, high amounts of consumer spending means low amounts of productive spending. If, over time, businessmen spend all they make on consumer goods and neglect to repair their equipment and just maintain their existences, they will ultimately eat themselves out of house and home. It doesn't do me any good if nobody will hire me, either!

Let's walk away with two lessons here:

(1) That which is consumed must first be produced. If we spent 99% of every dollar on consumer goods, there would be no money left for productive expenditures on capital- and time-intensive goods; we would reduce ourselves to barbarism. Yea, GDP would look spectacular for a very few years, but that's the extent of it.

(2) Saving and investing in productive resources is the only route to material wealth and higher real wages. Consumer spending merely implies the purchase of what has been produced; only productive spending, through investment and non-consumer good purchases, will lead to business expansion and a greater amount of "stuff" for everybody.

Arguing Against Absurdity

Don Boudreaux, over at Cafe Hayek, argues that those

"who argue that, because only a small percentage of the stimulus funds have actually been spent so far, the stimulus plan cannot be credited with whatever economic buoyancy we’ve seen lately,"

do so invalidly. He goes on,

"I believe that this argument is incorrect. A good Keynesian can (and should) point out that the very expectation that such massive government expenditures will happen goes a long way toward relieving the economically depressing anxiety of consumers, employers, and investors. That the spending hasn’t actually happened yet is less significant than the expectation that it will happen."

I argued in this same blog,

"... this presuppose[s] that consumers, employers, and investors are a) knowledgable about where the stimulus money will go and how deeply it will affect their own interests, and b) confident that it will be spent effectively[.]

Considering how fast the $787 billion, 1588-page 'stimulus' bill was rushed through congress, I think (a) is impossible. I doubt the authors of the bill have such knowledge.

I would say that (b) is a stretch, too, even if consumers, employers, and investors aren't well-versed in political economy, and don't realize the utter inefficiences that pervade bureaucratic management. That is, unless they KNOW that they will be directly subsidized in some way, (b) doesn't hold much water. Consider that the Cash-for-Clunkers could have had no effect whatsoever on purchases. I'm not saying that particular program was effective in the long run, but it undeniably bolstered sales while it was in effect, thus exacting the supposed end it was supposed to. Notice Democrats are calling it a 'success.'

The "expectations" argument gives too much credence to the power of government spending. I don't see that it is there, and thus I would be willing to say that you could use the argument that the stimulus plan has been ineffective, unless (a) and (b) could be proved."

Just because the premise (the stimulus plan) is Keynesian, doesn't mean the burden of proof is put on dissenters. Rather, the opposite. If Keynesians claim truth, they must be able to explain the ins-and-outs of their policy prescriptions and how they work.

The Results Are In

But calling Cash for Clunkers "dumb" is a severe understatement. Cato's litany of items just scrapes the surface, too.

Mises on Mandatory Schooling; Kind of.

The emphasis laid by sociologists upon mass phenomena and their idolization of the common man are an offshoot of the myth that all men are biologically equal. Whatever differences exist between individuals are caused, it is maintained, by postnatal circumstances. If all people equally enjoyed the benefits of a good education, such differences would never appear. The supporters of this doctrine are at a loss to explain the differences among graduates of the same school and the fact that many who are self-taught far excel the doctors, masters, and bachelors of the most renowned universities. They fail to see that education cannot convey to pupils more than the knowledge of their teachers. Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement but conservatories of tradition and unvarying modes of thought. The mark of the creative mind is that it defies a part of what it has learned or, at least, adds something new to it. One utterly misconstrues the feats of the pioneer in reducing them to the instruction he got from his teachers. No matter how efficient school training may be, it would only produce stagnation, orthodoxy, and rigid pedantry if there were no uncommon men pushing forward beyond the wisdom of their tutors.

-Mises, Theory and History

Truth Asunder

Amazing how the Associated Press is the end-all, be-all for facts and palpable reality. Without the AP, I probably would never have learned algebra or how to open a beer. Calvin Woodward, an AP writer, magnate and merchant in certitude and verifiable truths, claims that many of the fears that Americans have over a public option or outright single-payer system in healthcare are "harsh, but not based on facts." Calvin explains that "Washington is not working on "death panels" or nationalization of health care," and that most respondents in a particular survey fret over taxpayer-funded abortions and the government having the power to decide when treatment should stop for old people, among other fears.

Without exploding the story line-by-line, I'm sure Calvin has it all wrong from the get go. His premise is severely flawed. He merely substitutes Washington's intent for actual circumstance. That is, if it ain't outlined in the bill, it ain't gonna happen, and all fears to the contrary are superfluous and moronic. I know this because of the nature of what a "public option" is, whether it is an outright takeover of the industry or just a single "competitor." What we have now is a price system that rations service according to how consumers value their dollars relative to health service. There are competing ends for dollars, like luxury and food, and thus consumers allocate their dollars accordingly. This is how the rationing goes, as any price system in any good operates.

Now, some consumers have more dollars than others, but this inequality is inherent in the very nature of man and is ineluctable. Trying to escape reality with a "public option" only shifts the burden, but does not eliminate it. Instead of a price system that rations the limited supply of medical services, allocation will be left to whoever is in charge of making the rules at the time. When there is no monetary constraint on medical demand, and with the supply of medical services relatively fixed, the only possible way to give service is to pick people, and this choosing will likely be based on age, lifestyle, productivity in society, etc. If Calvin can name some other way to hand out the doc's time, then that's fine, too. It won't change the fact that it is another way of rationing service, whichever way you look at it.

With that said, fears about "death panels" and pulling the plug on Grandma are not unwarranted. If I as the bureaucrat in charge only have (X) number of prescriptions available and I have (X +1) number of people demanding such prescriptions, I have no choice but to choose who doesn't get a prescription. I as the head bureaucrat can make my choice based on political favor, patient productivity (young people vs. old people), moral judgments, etc., etc. This is exactly what Sarah Palin meant by "death panels," specifically, a board of bureaucrats will have to decide which group of peoples or particular individuals do not get a share of the limited supply of medical services. The truth is harsh, but reality usually is. This is not a lie, but instead a logical deduction based on the fact that in reality, needs are unlimited, but means are not. If I sat upon a panel, it would only make sense for me to exclude the least productive members of society from healthcare if it meant that otherwise children and healthy taxpayers were to be sacrificed.

As for the government being simply a "competitor" in the healthcare field, Thomas Sowell said it best: "When there is a partnership between an ant and an elephant, who do you suppose makes the decisions?" Because competing firms must cooperate even in the dog-eat-dog world of business, this statement completely applies. Saying that the government option is a form of competition is like giving steroids and flippers to Michael Phelps and calling it "fair" as far as French, German, and English swimmers are concerned.

Their Modus Operandi

Headline: AP reported late Wednesday morning that

"... Chase Card Services, a unit JPMorgan Chase $ Co., said Wednesday it will now offer a rewards card designed for wealthy customers.

The new card, called Chase Sapphire, is designed for the top-earning 15 percent of U.S. households. It offers travel services, access to round-the-clock customer service and a rewards program."

The entire story, which can be found here, is a stunning 72 words. I found it on the front page of Yahoo. You might ask why I find this relevant; I ask why the Associated Press finds this relevant. This is not directly related to any contemporary event, nor can the majority of folks in America be concerned with it because most people are not relatively wealthy.

But we know why AP headlines such a story. It is how the news media operates, how they get a rise out of "the proletariat." This story is a paragon of the wealth envy that pervades the general public. There is no doubt in my mind that this story serves to piss people off. Consider that SafeLink Wireless, a program that was created by the government to provide discounted or free telephone service to income-eligible consumers, has been available for tens of months now and has yet to receive front page coverage, though such press would undoubtedly make indignant tax-paying citizens. But because SafeLink is for poorer individuals, there's no fun in making a ruckus out of it, lest ye be known as uncompassionate and a capitalist pig.

Wealth envy is painstakingly obvious when it comes to America's democratic processes. It is why the 'rich' are soaked with most of the public debt in this country, year over year. Our founders knew of wealth envy, hence why originally states were allowed to discriminate voters based on property holdings; it was a system that sought guidance by the most productive of citizens, contrary to what your history teacher might have told you back in the eighth grade. But today, wealth is taboo, in a country where the poor are exalted and the word 'rich' is a pejorative.

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasure. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship."

-Alexander Tyler

Brazen Bureaucracy

I just got home from NYC, glad to be here. It was a productive trip, though. The public subway system was incredibly entertaining, because not only did this government-owned entity advertise itself on its cars more than private entities, its own advertisements sought to convince riders to be thankful for the subway system.

One advertisement proclaimed the long, overdue need for line additions due to overcrowding on a particular line. That same advertisement lauded the city's efforts to complete a new line by 2015, and even stated that 'yes, it's overdue, but still excellent news.' Talk about tooting your own horn! May I ask, excellent news to whom? Personally, I think more excellent news would be to turn the entire operation over to private entrepreneurs. Maybe the guy sitting next to me thought there isn't any need for another line; but who's to know, when the government runs the show? This is a prime example of what happens when the government is in charge: Instead of letting a price system most efficiently ration a good, we have overcrowding and shortages of service. And when the government does decide to do something, it's extolled as 'excellent news.' It doesn't matter if the new line is economically efficient, because the government doesn't have to earn its own resources, outside of taking it from the taxpayers of Manhattan.

Another advertisement commended and affirmed its services by comparing the price of the subway 20 years ago to now (one-ride 20 years ago cost $1.86 in 2008 dollars). The only problem with the comparison was that the 1986 fare was standard, that is, nobody had to buy an unlimited fare for a period of time, like a 7-day unlimited ride card or 30-day unlimited ride card, so nobody had to oblige themselves to more expensive cards. Today in NYC, you have several choices. If you compare apples to apples, and buy a one-ride fare, it's going to cost you $2.00. Of course, you can buy unlimited ride cards at higher prices, and depending on how often you ride the subway, the per fare price will likely fall below $1.86. But you see, in the city government's upside-down world, they can arbitrarily average rides anyway they want. Hell, they could feasibly say that, per ride, fares for 30 day cards are close to $.05, if they decide that New Yorkers ride the subway that much. Also, they forget to point out that the difference between then and now is that you have less frequent riders subsidizing more frequent riders. That's exactly what this is. Indeed, the NYC subway system seeks to compare apples to oranges, and add numbers with unlike denominators. Their comparisons are crap, and yet, because they have a monopoly privilege over the entire underground transportation system, they get away with it and all the other spewed propaganda.

And they actually had the chutzpah to play a recording thanking us for riding the metro system on the way out.

I don't have to try to make this sound stupid.

I decided that things couldn't possibly be as absurd as they sounded, and decided to hop on over to www.cars.gov and try out some trade-ins. Boy, was I surprised!

Turns out, I could turn in a '96 Ford F-150 (13 mpg) for a brand new Cadillac SRX all-wheel drive (19 mpg) along with a $4500 rebate. That's right, Uncle Sam has decided to subsidize its wealthy at the expense of... all of us as taxpayers! Lets not forget that the SRX isn't even "environmentally friendly." (As if that really mattered)

Perhaps luxury vehicles aren't your fancy and you're in the mood for a real gas-guzzlin' war hog! Fret not, I was eligible for a sterling Ford F-150 Pickup 4-wheel drive (15 mpg) along with a $4500 rebate! Well, hot damn! Screw the environment, ya know? Trees only get in the way of muddin' and huntin' with my new pickup truck, and polar bears eat people!

I really can't say I know of a coherent reason why this subsidy program exists. It's not for the environment, because many of the eligible cars are not "green." It's not for the poor/middle class because the government is subsidizing vehicles as expensive as Mercedes (Benz GL350, diesel fuel, 19mpg). This is certainly not for the economy, because as I stated in my last post, this program is basically creating a 'boom' that will eventually find its 'bust' once it goes off federal funding. I can't even make the argument that this is for American auto labor unions because foreign manufactured vehicles are receiving the subsidies, too.

I can say that a horrible consequence of this is the destruction that the traded vehicles will go through. No, really, the government is mandating that all trade-ins are to be scrapped. What the hell will that do to the used car market over the next few years? Ultimately, less used cars will be available on the market, driving the price of those remaining vehicles up more than they would have been. Now, who buys used vehicles? That's right, the poor/middle class, and small businessmen. These groups will be hardest hit by such erroneous policies. Let us not even begin to discuss the greater proportion of loan defaults that are going to occur under this brainless scheme, and thus putting even more pressure on demand in the used car market.

Decisions, decisions

Man, the 'Cash-for-Clunkers' program is really a hit! In fact, it caused such a buying frenzy that today our President increased its budget by 200% and gave it more time! With all of these 'green' cars on the road, I can practically hear the ice caps reforming at the poles and the polar bears gettin' it on to replenish their population. All hail the Democrats!

Back to reality, this program is a sterling example of how political incentives are increasingly crowding out any sort of economic incentives when it comes to this country. Instead of our President or Senators realizing that perhaps they provided for too generous of a voucher and that they should cut back on the voucher amount, they triple the budget for it. Eerily similar to the push for universal health insurance, where the government already can't handle its obligations to Medicaid and Medicare.

Of course, I think the entire shabang is ridiculous. These vouchers are kind of like those stimulus checks we received last summer, you know, the ones that would 'prevent the economy from free falling into a recession.' These vouchers in large part managed to impel people to either 1) fore go purchasing a vehicle until the rebate was available or 2) buy a vehicle NOW instead of later. I'm sure some people who wouldn't have bought otherwise did because of this program, but still, this is probably negligible considering the unemployment rate is 9.7% and I doubt many folks seek to get involved in extraneous contracts and obligations. This is not a long term solution to anything remotely having to do with the economy.

The democrats got what they wanted, that is, more green cars and happy constituents. But what about the GoodYears and the PepBoys, who won't be repairing as many vehicles this summer and fall? What about the industries that would had benefited from the money that was taxed and used to support the voucher program? What's going to happen to the American auto industry when sales do finally slump? Vouchers and bailouts can only go so far until the people become indignant.

The government is truly picking the winners and losers nowadays.

Sounding Silly

This is an audio segment from 2006 featuring Walter Block, scholar at the Mises Institute, and Jared Bernstein, a director at the Economic Policy Institute, debating the minimum wage and its effects on the employment of 'the poor.'

(8/13/2006, Marty Nemko radio show; Direct Link)

The federal minimum wage was recently raised to $7.25 an hour. I find it funny that those who support the minimum wage in general do it not on the grounds that it doesn't actually increase unemployment (some actually support that notion), but instead that the increase in poor-person purchasing power outweighs any loss in employment. Then they go on about empircal studies this and consumer spending that, blaze blaze. They never try to refute the fact that making it more expensive to hire somebody means employment necessarily decreases. I wish it was more complex than this, to make it somehow worth intellectual debate, but it isn't. If i'm a burger flipper, and I churn out $7/hour worth of value to the company, and if my employer is forced to pay me $7.25/hour, it really doesn't pay to keep me on the payroll anymore. Simple as that. We can quibble all day long about purchasing power effects and what's better or worse, but a priori minimum wage laws will cause the unemployment of marginal workers, that is, workers who barely pay for themselves.

The minimum wage hurts most those individuals who are unskilled, or handicapped. Whereas a restaurant could hire a blind man to roll silverware set-ups for $4/hour and it would add value to the output of the company, whereas hiring a young, unskilled floor sweeper for $3.50/hour would not only pay for itself in terms of restaurant cleanliness but also would teach that young man valuable work-ethic skills and discipline so useful for later in life, the minimum wage guarantees these things won't happen. These are marginal workers, who cannot pay for themselves in terms of employment after the minimum wage has been exacted. These are part of the unseen effects of intervention, and in unemployment statistics are often not counted, so as to make the picture seem a bit more rosy than it actually is.

That's not innovation, that's a liability!

If Uncle Sam does manage to choke the remaining 'free' part of what is the U.S. health industry, say goodbye to Bill Nye and anybody else who thinks innovation is a good idea. Inventions and advances in any field tend to be costly when they're first introduced, but since the government isn't a profit seeking enterprise, and since they won't be employing a pricing scheme to ration service, there will be no way to cover the really costly stuff that would eventually make us all better off. And I was really looking forward to cybernetic limbs!

Sleeping with the Devil(s)

The cover of the July 27 edition of Newsweek offers a gallant photograph of senator Ted Kennedy, and underneath it the words, "'We're Almost There,' The Long Struggle for Universal Health Care." Putting my general disgust for this man and what he stands for aside, I couldn't help but think of a phenomenon that seems to characterize so many people, and that is, that they are all about giving the utmost trust and prerogative to complete strangers.

The beauty about advanced trade is, even if I'm a total xenophobe anti-Semite bigot, I can still come to acquire my eggs and tuna fish at the end of the day, without unleashing doom on my producer. I have no idea who made my clothes, or who transported them to the distribution center, or who even thought stone-washed jeans were a good idea in the first place. In fact, I don't even have to know the name of the guy who works the cash register in order to buy them. They are concerned with producing and marketing a product that I want and am willing to pay them for, nothing less, nothing more.

But for whatever reasons, the voters in the robust American democracy seem to place so much faith into people that have a nice face and a smooth talk. Yes, I trade with complete strangers, but that's the beauty of it: I don't have to like them in order to get what I want. And, if they mistreat me, there's always another producer to fill the gap. With politicians, there is nobody else to fill the gap until the next election cycle, and if I'm not on the right side of the political spectrum, there's a good chance my interests are nil and none as far as they're concerned. Indeed, the people are usually assigned one and only one head political jockey, along with a team of bureaucrats and various functionaries whose only objective is, quite like the jeans maker on the market, to keep his job. However, keeping their jobs doesn't have to involve actually serving anybody well, but instead making an attractive appeal for more funding and greater controls to exact some purported noble purpose.

Bottom line: Politicians and their cronies face the same incentives that you do in life. If you're no saint, why are they any better? I'll stick with the market, where you are as successful as you are good at serving your fellow man.