Mark Byron

Life Imitating Art: Pirate Party Infosocialism

One aspect of the Transhuman Space sci-fi universe is a political movement called Infosocialism-

Infosocialism posits that information and ideas are the primary means of production. It holds that copyright laws are immoral and that all intellectual property rights should be owned by one entity, usually a government or a private organisation (such as the Free Software Foundation).

In TS's future of 2100, a good hunk of the developing world in Southeast Asia and Latin America have elected or installed infosocialist governments that ignore intellectual property rights and develop new IP by directly commissioning work from scientists, authors and other creators. That does not endear them to the rest of the world; China and the Transpacific Alliance of infosocialists fought a nasty war in the 2080s over the issue.

That mythical infosocialism doesn't see to far away from the Pirate Party's MO. We've seen the PP make strides in German state elections, making its way into two state legislatures this spring. PP affiliates in the Netherlands and the UK are creating headaches for officials in those countries who are trying to shut down the Pirate Bay site sponsored by the Swedish PP. Their North Sea brethren are setting up alternative routes to circumvent blocking Pirate Bay URLs, creating a cyber game of whack-a-mole, where new alternatives get created as old ones get blocked.

File sharing sites where you can get illicit access to movies, music, or (ironically) PDF copies of Transhuman Space game books are the current love of the Pirate Parties, but that could well morph into something resembling infosocialism, if that extends to ignoring patents as well as copyrights.

[Update 5:15PM-I Googled around and found that the Swedish PP leader is a Transhuman Space fan and one German blogger was three years ahead of me on the TS-PP link. Interesting.]

Mitigating Creative Destruction

Here's an interesting but troubling David Goldman piece on president Obama's childhood as the indirect object of the dog-eating story. To me, the wok-the-dog story is 2012's version of 2008's Hussein, using his full name to punctuate the alienness of the immigrant's son who spend a good chunk of his formative years in the Third World.

Obama's mom was an anthropologist who would document how foreign cultures were on the sharp end of globalization's creative destruction; Goldman even trots out the Shumpeterian phrase more than once and posits that Obama's worldview is that of an anthropologist who (if I can rip off Bill Buckley) stands athwart progress yelling "Stop!"-here's Goldman's close

The president isn’t really one of us. He’s a dog-eater. He tells the story in his memoir to emphasize that viscerally, Obama identifies with the Third World of his upbringing more than with the America of his adulthood. It is our great misfortune to have a president who dislikes our country at this juncture in our history.

It's not so much America that he dislikes but market-and-profit-centered globalization that he seems to dislike. Modern liberal/socialist policy is designed to mitigate the destructive nature of the market economy, but by mitigating the destruction, they also constrain creativity.

One nit to pick here is that Obama becomes not-one-of-us only if we take a narrow view of who "we" are. From a Christian perspective, we're all children of God, and the one time Indonesian schoolkid is as much one of us as your writer here who's not left North America in his lifetime.

We just got done holding a conference at church looking to reach out to Tibetans; one aspect of that ministry was to look after poor children, giving them an education and a future that their Tibetan-Nepali culture (the area in question was a ethnically Tibetan area in Nepal) wasn't otherwise providing. Such largess takes money out of the US economy and plunks it halfway around the world.

That puts both mission-oriented Christians and more secular anthropologists and their political allies focused on the least-of-these around the world. Both are trying to help folks ill-served by their society, but with different agenda; the anthropologist tries to keep the old ways intact (including native religions that the missionary would rather convert people from), often siding against progress in keeping their research subjects out of progress' way, while the missionary brings the gospel, aid and help in adapting to the evolving interaction with the rest of the world.

The church often can side with the Third World preservationists as critics of some of the seamier sides of globalization; it's not always a natural ally of the marketplace, especially when the market is selling things that shouldn't be sold and loses sight of human worth outside of their bottom line. For instance, we see fans of the Dalai Lama and those of Chinese house churches joining forces to try and get China to reform.

The other day, I was thinking of how the continuous improvement meme rampant in modern business management applies in a church setting. The Gospel isn't something that can be reformulated and improved; it's a constant. How we present it and how we create disciples can change, especially if old habits aren't helpful, but some old ways aren't subject to change; taking Sundays off cuts into potential revenue by 14%, but profit-maximization isn't our goal, Kingdom-of-God maximization is.

With Friends Like These, Who Needs Enimas?

The EU finally agreed to another tranche of bailout money for Greece, but the terms reminded me of the post-WWI Versailles Treaty (after living in Lexington for 2.5 years, it's hard to go back to thinking Ver-sigh rather than Ver-Sales, as the KY namesake is pronounced) where the victors trashed the German economy with reparations, leading to our old buddy Adolph taking over a decade-plus later as a reaction of Germany getting economically pillaged by the rest of the world.

The irony is that this is being done by the allies of the Greeks, not their enemies.

Greece's economic management will be subjected to permanent monitoring by eurozone experts on the ground

If that happened here.... imagine Pat Buchanan's head spinning so fast we could attach it to a dynamo and light up most of the eastern seaboard. Sovereignty got tossed over the bus, although entering into a common currency had ol' Sov junked a decade ago.

Greece will amend its constitution to give priority to debt repayments over the funding of government services

That reminds me of an acronym one of my Sullivan students would use, BOHICA, bend over, here it comes again. That's shades of Versailles, not to mention various third-world debt crises of the past.

It's a walking advertisement for populist of either side of the political spectrum to give the foreign bankers the middle-digit sal-oot. That might even happen now rather than a decade from now, as folks are already in the streets in protest.

Greece will undertake to reduce its debt to 120.5% of GDP by 2020

It's currently at 160%, so 40% of a year's worth of income, say 5 months worth, is being diverted to foreign bankers over the next eight years. Two weeks of every Greek's pay goes to pay back principle on their debt, not to mention interest. Your tax dollars at work... someplace other than Greece.

Yes, the Greeks did bring it on themselves by financing a big welfare state; [insert fratboy with new credit card metaphor]. However, this is going to leave a mark, and the protests that it will generate will make our Occupiers look like a Sunday School potluck.

The HEAV Act- Part I - A Modest Proposal

Here's a little political thought experiment that will likely make me lose any conservative street cred that I have, if my last post didn't do it already.

The next Republican president puts forward a proposal to give every K-12 student a $2000 voucher to go to whatever school the student wants to go to on the condition that the school district that the student is in matches the voucher. If the kid goes to public schools, the system gets two grand from Uncle Sam, no strings attached. As part of the deal, No Child Left Behind and most other federal school regulations are scrapped. Special Ed and other high-degree-of-difficulty students will get higher voucher amounts to account for the lower teacher-student ratios in such programs.

That will put school districts $2K ahead for the kids they currently have and $2K in the hole for kids in private schools. $4k won't get you into BlueNose Academy, but it will get you into the local Catholic or evangelical school with a bit out of pocket.

Using my local schools as a guide, Blessed Sacrament charges $5000 for non-parisioners and Calvary Baptist charges $4600 for kids of non-members. The $4K voucher will cover the lion share of that, and many schools charging more than that might wind up "eating the co-pay" if they can make up the difference in donations.

After the NEA is done throwing a conniption fit, Senate Democrats make a counter-offer. We'll go with your voucher plan for K-12 if you make the Ryan-Wyden plan open to all citizens rather than just those on Medicare. Here's a write-up on the plan from last month

Democratic Sen. Ron Wyden and House Budget Committee Chairman Paul Ryan on Thursday [12/15/11] plan to introduce a new Medicare reform plan that would allow seniors to choose between traditional Medicare and new private insurance programs.

The plan has some key differences from the Ryan blueprint that Republicans had rallied around earlier this year — and which Democrats had been united in pummelling in Congress and on the campaign trail as the beginning of the end of Medicare.

Dirty Harry and friends will push Obamacare under the bus if we make everyone eligible for Medicare and give them the option of taking a voucher for the average cost of coverage to an insurance company. If they already have a labor contract with qualifying coverage at work, they can cash in the voucher and keep their coverage. New labor contracts will see the voucher go to the employer if the employee wants the company health insurance.

The downside is that will cost money; the reason they needed the individual mandate is that didn't require shelling out cash for most folks and stuck the tab with businesses and the self-employed. We'll have the Cain Memorial VAT tax, a 9% tax on all purchases, with credit for VAT tax paid for supplies. The CBO has yet to score this bill, but they estimate that 9% should cover the cost of providing health care to all pre-seniors.

After Rand Paul gets done with some colorful verbiage and a 13-hour one-man filibuster, the Senate takes up consideration of the Health and Education Voucher Act

Assuming there isn't any killer details in the HEAV Act, would that be something that would make sense?

Rome Versus Vienna in Des Moines

The two guys who resonate with me in the current presidential race are the two Catholics running, Rick Santorum and Newt Gingrich. Catholic thought on the economy is rather centrist, pointing out that neither free markets nor big government is the answer and that a healthy blend of the two best helps the commonweal and the Kingdom of God (that's a loose paraphrase; the Catholic members of the Peanut Gallery are encouraged to chime in and correct and clarify).

That Catholic though covers a lot of political territory, going from third-way moderate socialists like Tony Blair to free-market friendly Michael Novak.

What does evangelical though on the economy cover? .....................

....sleet softly falls to ground in background.......

Not a heck of a lot. Most American evangelical politicians are taking the cues from secular thinkers, like classic Austrian liberals Hayak and von Mieses and American Milton Friedman; Rand gets some following for her libertarian fiction but her militant atheism makes her a harder sell. They were poor fits in the modern political paradigm, for the God-and-country conservatism of continental Europe held little appeal to Hayak.

Thus, modern conservative orthodoxy in the US is a melding of theological conservatism, American exceptionalism and classic liberal/libertarian economics. Freedom, rather than commonweal, is the economic order of the day.

Modern conservative economics is rather godless. The liberal Christian can quote scripture on needing to help the poor, while conservative politicians who are quick to quote the Bible on social issues are relatively mute beyond a few basics like the parable of the talents.

Does perferring the Catholic school of thought to the libertarian school make me a pro-life statist? That may be preferable to being a pro-life minarchist, as many modern rightists seem to be, if letting the needy fend for themselves is the rule of the day on the right.

No, I'm not becoming a Democrat anytime soon, not as it is presently constituted. I'm still on board with the idea of limited government, but not like one of those bad calculus class frameworks where the limit of the function where government approaches zero.

 

Failing to Plan is Planning to Succeed... as a Country

When I learned economics in the Carter years, there were three classic inputs; land, labor and capital. When I started teaching economics in the Dubya years, they had added a fourth- entrepreneurship. That's the ability to put the other three sets together in creative and productive ways.

Entrepreneurship is generally lacking in governments, for there is little reward for creativity as a government staffer. Private businesses have rewards for creativity in profit for the business and better wages for the workers if the creativity helps the firm.

This Andy Stern (Service Union boss) piece praising the Chinese political economy got folks on the right rather hot and bothered this morning. Let's drop back ten yards and look at how we got here.

What China has seen in the last 30 years is taking that fourth input and letting it work after having wrung it out of the system for the preceeding half-century. Also, capital was in short supply when no private capital was allowed. When you have a shortage of inputs, the value of adding them is very high at first; adding both foreign capital and foreign and domestic Chinese enterprise has allowed China to have 8-10% growth rates, since they were starting from a very low point.

Is China's secret central planning or just letting loose a healthy dose of capital and enterprise? Stern argued for the former, setting things up with this quote from Intel founder Andy Grove-

As Andy Grove so presciently articulated in the July 1, 2010, issue of Businessweek, the economies of China, Singapore, Germany, Brazil and India have demonstrated "that a plan for job creation must be the number-one objective of state economic policy; and that the government must play a strategic role in setting the priorities and arraying the forces of organization necessary to achieve this goal."

After an Occupier-flavored rant at the flaws of modern capitalism, Stern gives us this-

For those of us who love this country and believe America has every asset it needs to remain the No. 1 economic engine of the world, it is troubling that we have no plan—and substitute a demonization of government and worship of the free market at a historical moment that requires a rethinking of both those beliefs.

We're looking at a point in history where our system hit a nasty financial outlier in the mortgage market crunch of the late 00s; free markets don't handle outliers well, for bankrupt firms are worth zero regardless of how deep in the hole they are. A combination of a lack of smart regulation (reigning in the use of ARMs and acid-testing credit default swap formulas before relying on them) and too much bad regulation (encouraging sub-prime loans in minority areas, letting Fannie and Freddie have too much of the mortgage market) coupled with a spike in short-term interest rates created a perfect financial storm that we're recovering from still.

On that level, being a bit skeptical about the markets isn't a bad thing. However, being skeptical about the size of government isn't a bad thing, either. Stern has a point that government gets unfairly bashed by the right; it does have a place in looking after the little guy and keeping folks honest. How big of a place is a fair point of debate, something that Europe is having to deal with in spades right now.

Central planning rarely works well, unless the planners get lucky. Japan in the 60s-80s got lucky, not so much since then. Singapore has had a decent run with a strong central government; Beijing may well be looking at Lee Kwan Yew as a role model for a free-market authoritarian.

We're trying a bit of that in the Obama years. The takeovers of GM and Chrysler helped save some jobs that might have disintegrated had a messier bankruptcy been allowed to occur; you can make the case that the money the US lost on their investment is less than the carnage that would have happened had the markets been left to take their course.

However, we're also seeing some blooper-reel material as well, like the Solyndra debacle, where some well-connected investors made money while Uncle Sam lost his shirt. Creativity is not government's strong suit, nor is predicting what will sell and won't sell in a market economy. A corollary to that is that predicting what industries will deliver the best bang for the investment bunk with regards to job-creation isn't a strong suit of government either.

The US don't plan well, but that's as much a bug as a feature. Stern praises the "technological miracles of Andy Grove, Steve Jobs and Bill Gates." All good liberals (Gates and Jobs surely are/were and Grove seems pointed that way with his quote above) but all private-sector billionaires. It is unlikely that a Carter Administration functionary would have bankrolled Jobs and Woz's garage creations, nor would a Dubya team member look to plow billions into creating a MP3 Walkman or a cell-phone computer. Would Google have been green-lighted by a government staffer?

Government's job in job creation is giving a system where good ideas can thrive; there will be some infrastructure involved, some worker retraining where needed, some pure science R&D and a proper amount of regulation for safety and fairness, but the main driver will be new ideas and new products and services that people need and want (or will want in the future-part of Jobs' genius is thinking a step ahead of the present offerings out to what you would want if it were available). That's largely a private-sector job that government can referee but best not try being a coach or a player.

Most of that innovation happens in new goods, rather than in new services. That's where Stern's SEIU is a bit out of the loop; innovation in services hurts unions more than it helps (think how many cashiers have heen cashiered by the new self-check-out lanes at grocery stores). Government intervention on behalf of workers is one way to mitigatge those changes.

Prime Minster Greenspan?

Greece has a new PM, a banker named Lucas Papademos. He had been the #2 guy at the European Central Bank and was the head of the Greek central bank when it joined the Euro and put itself out of business as a monetary policy-making body. Critics have noted that the numbers used to get Greece into the Euro were... less than accurate and that Papademos should have known better.

However, he's largely apolitical and in a time where no one wants to be blamed for the political Superfund site that is Greece, bringing in a guy who is both a financial insider and political outsider with ECB experience to calm the rest of the Eurozone and the world financial community might be a smart move.

The Inverse of Envy

Schadenfreude is the inverse of envy. Envy is being sad at other people's good fortune, while schadenfreude is being happy at other people's bad fortune. Envy is covered in the Ten Commandments, but schadenfreude isn't as well spelled out.

I found this piece on TrueHoop on Dwayne Wade's shopping habits-

"So how does Wade put his looks together? With the help of his stylist, Calyann Barnett. Barnett's star client loves getting dressed but hates shopping—he can't exactly roll up to the Miami Bloomingdale's—so she sends photos to his iPad and fills up his new 800-square-foot closet."

I've had apartments not much bigger than that closet. Yet, it's his money. Envy isn't healthy, you know.

___________________

Eugene Robinson raised my blood pressure a few points just now for a nice case of bearing false witness against the political right-

The hard-right conservatives who dominate the Republican Party claim to despise the redistribution of wealth, but secretly they love it -- as long as the process involves depriving the poor and middle class to benefit the rich, not the other way around.

Few people want to see poor people suffer. There is no joy in other people's poverty or suffering. Mind you, there are likely a few that don't have much compassion for the poor, but they don't look to change government policy in order to deliberately screw with the poor.

We have a mix of government helping the needy and a market economy providing the lion share of the jobs and productivity. If the economy is working properly, there is a smaller amount of help needed from government; folks on the right argue for a bit less safety net and more room for private-sector productivity to meet people's needs without needing a handout or handup from Uncle Sam.

Yes, we've seen income inequality rise. Part of that rise is the growth of information technology that has allowed intellectual human capital to be leveraged more than it has leveraged physical human capital; thinkers are making more than stuff-makers. Another part is a flattened tax code that lets people keep more of their money than in years past.

What needs to be done is to not deal with income inequality but the struggles of the people at the bottom of the ladder. It doesn't help the poor to bash the rich. Taking away D-Wade's drive-in closet doesn't make me any better off. Greasing the upper rungs of the ladder doesn't help the people on the lower rungs to climb; in fact, it makes it harder, since the people falling off from the top can take others down with them.

We can help the needy by bribing companies to employ them with subsidies, or send them to school to try and upgrade their skills. We can also try to do so by letting business have a lower cost of capital, so they can hire the workers to run expanding businesses. A blend of government help that doesn't slow the private sector to a crawl isn't designed to be sadistic to the poor; it's designed to make everyone less poor on the whole.

We do need a good hunk of government help to the needy. I've been on the receiving end of subsidized COBRA health coverage and unemployment insurance checks after getting let go from my teaching job almost two years ago, so I'm far from the 1% the Occupiers rail against. That being said, I'd be better off in a thriving economy where I wouldn't need the help, and bigger government, while doing some good with the money, tends to slow up the private sector with higher taxes and regulations.

 

Three-line Whips With a Wet Noodle

So much for three-line whips. The British Tories made voting against a referendum on the EU a party-line vote, but 80 members voted for it anyway. Often times, people bucking the party leadership can be kicked out of caucus or at least not asked to run again next time; however, when you have that large of a block giving the party leader the middle-digit salute, you might not be in position to kick everyone out at once.

The Conservatives would not have a majority were the Euroskeptic block to bolt; the Conservatives need the Liberal Democrats to prop up the government, and the 80-seat faction is bigger than the LDs. Thus, that three-line whip might be something of an empty threat, unless PM Cameron wants a new election over the issue.

The most interesting thing is that the powers that be are ignoring public sentiment against the EU. They don't want a vote on the issue because they would lose. Rarely has the public signed off on creating a stronger Europe in any country where it went to a direct vote; however, most of the votes have been legislative, where the moneyed interests can lobby more effectively.

Capital Reform?

I wound up watching a bit of a PBS documentary on the Mexican Revolution of the 1910s. One of the underlying themes at play was a stark split between the rich landed folks and the poor landless peasants. "Land reform" was the theme of the latter and their backers, trying to give the little guy access to land of his own rather than having the patrons have all the land and power.

Fast forward to the 2010s and a nascent leftist movement (or rebranding of an ongoing one) in the OWS crowd. Giving the little guy 40 acres and a John Deere tractor is unlikely to appease this crowd, for not everyone's looking to get back to the farm.

That makes taking power from the rich and giving it to the little guy problematic. We've gone from a largely agrarian economy to a goods-and-services economy. The land reform that would work in pre-industrial societies in the early 1900s doesn't fit the modern US. We've moved on to something... different.

When I was thumbing through the coverage of the Kentucky governor's race (despite the troubles of the Democrats nationally, Gov. Beshear is cruising to reelection) the platform of independent candidate Gatewood Galbraith proved interesting.

In his writings and speeches Galbraith goes into detail on what he calls “Synthetic Subversion”. This theory seeks to explain when, how and why America, specifically Kentucky, moved from an agricultural agrarian society into an industrial synthetic society. ... Up until the early 1930's, America and Kentucky relied solely on agriculture to fuel the economy. Galbraith explains that, out of necessity, Roosevelt's shifted America towards a more industrial (synthetic) society fueled by alliances with “Greedy Corporations.”

It's easy to run an agrarian culture without too many big companies, especially if you have the government do some of the larger-scale things like banking and railroads. However, it's hard to do a manufacturing economy without having corporations of some sort. For instance, Apple has been used as a counterpoint to the OWS crowd; you need the economies of size that a big company brings to get those wonderful toys to market at a price that the average person has a shot of affording.

If we can't do land reform, what can we do to help the little guy? The US stock market has about 16 trillion in market capitalization. If we took half of that and gave it to the population at large, each person would get $27,000 worth of stock. A nice sum, but not enough to make people set for life. Also, such a operation would not make corporations less greedy; stockholders are still primarily looking to make money off of their investments.

The answer isn't giving the wealth to the "99%." If corporate greed is your bugaboo, you need to ditch the corporation altogether. That will mean government control of industry if something needs a larger scope than mom-and-pop proprietorships can handle.

Losing Jobs... to the Hearafter

The media is playing the death of Steve Jobs in a way I haven't seen since John Lennon, treating him as a sort of secular saint and calling him the modern Edison.

Not that groundbreaking, as this nice Rick Newman obit notes. He's not quite Edison, more like Tesla with a second and third act. The first act, inventing the Apple and the Mac, was a bit like Tesla, who did a lot of innovating but lost out on the really big bucks to IBM and Microsoft. Apple perfected the modern PC, but IBM put it on office desks and Microsoft's DOS running on IBM clones brought the price point down to consumer levels.

Jobs then had a decade hiatus from Apple, in which time he gave us Pixar; not bad for a second act, but the third act was a doozy, turning Apple into a mobile electronics giant. There was a bit of a role reversal for Apple; now,they were popularizing gizmos rather than inventing them.

There were smart phones before the iPhone, MP3 players before the iPod and notepad computers before the iPad. However,they popularized all three, giving a cache that was both trendy and mature at the same time. Even then, Apple wasn't able to expand its desktop and laptop sales too much, as Jobs wanted to keep Apple's OS proprietary, scrapping a plan to have Apple clones available.

I've yet to enter that universe as a user. My laptop has my MP3 stash, and I have yet to get a smartphone or a pad-computer; however, that will probably change the next time I replace my cell-phone, for the entry-level iPhones or their Android rivals are now the freebie-with-a-renewal phones these days.

Before we knew of Jobs' passing, I saw this piece on the Corner about the Wall Street protesters and their allies-

I might have told him that if he really wanted to “protest capitalism,” he could start by ditching his $2,000 MacBook Pro, which is produced by one of the largest corporations on the planet — Apple (AAPL) — currently trading at more than $370 a share, on Wall Street.

Apple has something of a near-cult following that leans a bit left but doesn't exclude the right, other than occasionally getting PC over some more pointed anti-gay aps and podcasts. The new high priest of the cult presided over a new iPhone earlier in the week, but he likely won't have Jobs' iconic status.

 

Twist and Shout

I'm not a big fan of this Operation Twist 2.0 that the Fed is trying. They have shot their monetary policy wad a while back when they drove short term interest rates down to zero (or at least under 0.25%), putting themselves in a classic liquidity trap, where the economy fails to respond to any additional money pumped into the system.

Usually, the Fed has short-term debt, mostly from the US Treasury, in the mix. Here, they're redoing their portfolio, selling off some of their short-term stuff and buying long-term debt in its place. In theory, this should lower long-term interest rates, as a reduced supply of longer-term T-notes and T-bonds will raise their price and (since price and yield go teeter-tottering in opposite directions) lower interest rates. That would then lower the cost of raising money for both individuals and businesses, making mortgages more affordable and making marginal projects that might not pass present-value muster at higher costs of capital doable at a lower cost of raising funds.

There are two main problems with that premise. The first is that it leaves the Fed vulnerable to a hike in interest rates. Since the value of a dollar is largely backed up by the Fed's stash of investments, getting a portfolio with a longer duration leaves it more sensitive to changes in interest rates; the longer a bond has to go, the more you have to suffer the lower rate you're now stuck with and the bigger the hit its price takes if you sell it early. Much as banks suffered in 2008-9 when their mortgage portfolios took it in the neck, the Fed might suffer if their twisted portfolio goes down in value.

Secondly, the problem is not as much with interest rates but with confidence in the future. The feeble European economy coming to grips with too much government debt in the Eurozone has markets queasy, and the increased scope of government, with business and their owners getting hit with more regulation (including a looming mandate to cover health insurance for employees) and possibly higher taxes, has expansion plans for businesses frozen in many cases.

That uncertainty will be on the table through November of next year, when markets will see if they have to deal with the Obama team through 2016 or not. The president kept saying that we can't afford to wait 14 months, but unless he and VP Biden are willing to resign now and cut to the chase, we're likely to have things stay sluggish until then.

The Fed is in "do something!" mode. The Twist 2.0 is like giving a dead man an enema; it can't hurt. It could hurt if interest rates rise and the Fed takes a hit, but for now, it's doing something.

 

 

In Uncle Sam We Trust

Baylor U might be the ugly stepsister when it comes to college sports' game of musical conference chairs, but they seem to live up to their goal of blending faith and serious research here. Their 2011 Baylor Religious Survey's third volume was just released, and had an interesting set of findings on faith and economics.

Economic conservatives tend to think God helps guide the economy, while economic liberals tend not to see such a hands-on God and trust more in government to help them out. Here's a few key passages from a USA Today piece on the report-

About one in five Americans combine a view of God as actively engaged in daily workings of the world with an economic conservative view that opposes government regulation and champions the free market as a matter of faith.

"They say the invisible hand of the free market is really God at work," says sociologist Paul Froese, co-author of the Baylor Religion Survey, released today by Baylor University in Waco, Texas.

...

At the opposite pole, another one in five Americans don't see God stepping in to their daily lives and favor reducing wealth and inequality through taxation.

"So they're less likely to see God controlling the economy. Liberal economic perspectives are synonymous with the belief that there is no one 'ultimate truth,'" Froese says.

One wag has the first group down as "worshiping Milton Friedman and calling him Jesus." At least he used Friedman, who at least was a secular Jew, rather than the athiest Ayn Rand, as the faux-Messiah. Rand has been the whipping girl for the religious left as they try and counter the nexus of economic and religous conservatism in modern political thought.

The second group seems to need something to have hope in, and in the absense of a hand-on God, government becomes the benefactor to turn to. If the folks on the right are doing a Gospel of Milton Friedman, the left comes close to having a Gospel of Thomas Friedman along side their shrine to FDR.

The scary part is that the two factions almost add up to a majority. The right 20% is essentially the religious part of the Tea Party; a large secular-libertarian faction is in play there as well. When you have 1/5th of the population wanting smaller government and letting God handle the details and 1/5 wanting government to handle those details, we're close to an impass.

Looking at the Real Clear Politics page this week, you saw a slew of conservative commentators raining scorn on the Obama tax increase proposals, as well as an equal slew of liberal commentators calling upon Obama to hang tough and get that extra revenue from the rich. There's a 60% or so middle ground or so, but that is hard to get together when both sides are getting pulled to the poles.

Eating the Seed Corn

The idea of a tax increase on the well-off is in play courtesy of the president. He's looking to get about $150 billion a year out of the pockets of folks making more than $250K a year.

I've been asking the question "what size of government do we want and how do we pay for it." Obama answered the first question "about what we have on the books now." The plan has very few 'real' cuts save counting the money not spent on Iraq/Afghanistan as a credit to the plan; most of that would happen regardless of any deficit fighting.

He answered the second part largely with "tax the rich", the near-immortal battle cry of the left. Can you be pro-little-guy and be against diverting money from the comfortable and putting it to better use in more meaningful ways than another summer home or an extra ski trip to Vail?

If you put it that way, it's hard to say so. But one of the places the excess money will go is into starting and expanding businesses. This does a double-whammy on investment; the first is that of that $150 billion, a good $30 billion would likely come out of decreased investments. That will, all else being equal, slow the economy, as there will be less money available for borrowing or stock investment.

On top of that, the higher tax rates will discourage some projects from getting started in the first place. Business finance looks at the present value of expected cash flows from a project and compares it to how much it costs today. When tax rates go up, that decreases the cash flows since Uncle Sam gets a bigger cut; that makes the project less worth doing. Thus, marginal projects that would be worth doing otherwise might not get done.

We need to factor in the loss of those businesses and jobs that are discouraged from a tax increase along with any pain the rich guy feels from having his wallet lighted by the government and add that to the scale of "is the government spending worth doing?"

Easier said than done, and far easier to talk about in theory. Conservatives tend to undervalue the good government does and liberals tend to undervalue the effects of taxes on the economy.

Sailing on the QE3

It's worth taking a look at what the Fed's up to and what the Fed's balance sheet looks like (go to page 6 for it on the PDF). This will help counter some of Ron Paul's more outre rhetoric and give a whoa-mule two-by-four to some of the more desperate moves of the Fed.

Our US currency is largely backed up by... US debt. The Fed owns about $2 trillion in US debt on its balance sheet of $2.427 billion in assets. The liability side has $941 billion in currency, $1.3 trillion in deposits from banks and Uncle Sam, about $200 billion in other stuff and $53 billion in equity.

Here's Ron Paul from the last presidential debate

We owe the Fed $1.6 trillion in treasury bills.  Where'd they get the money to buy it?  They created it out of thin air.  So we pay them interest.  Now that's on our books.  So we literally, with legislation, could wipe $1.6 trillion off that is not a solution to the monetary problem or our spending problems, but it would give you a year to work this out.

The figure is closer to $1.0 trillion in pure Treasuries and another trillion in government-sponsored debt (Fannie Mae and Freddie Mac most likely), but the concept is still in play. The balance sheet I referenced was from Jan 1, so we might be a bit higher now.

Were we to take the advice of Paul and just repudiate that debt, the dollar would be worth about 20 cents of what it is worth today, since the Fed would have about $400 billion of assets to cover $2.37 billion of liabilities. That's about 16 cents on the dollar.

What it would create is hyperinflation, as we would see prices rise roughly 600% overnight given the decreased value of the remaining Fed balance sheet. If Ben Bernanke's safety in Texas was questioned by Gov Perry after doing QE3, a President Paul would be need bullet-proof undies 24/7 if he tried to pull that, for the resulting chaos would... at least make for a very interesting poli-fi novel.

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Meanwhile, back to reality as we know it. Washington and the Fed have very little tools in the arsenal for stimulus. Fiscal policy is largely moot given the huge deficits; there is little room for any big tax cuts or spending programs when the lean is towards reining in deficit spending. Standard monetary policy is largely moot as well, as short term interest rates border on zero; we've hit what economists call a liquidity trap, where any extra money pumped into the banking system just sits there.

Normally, the Fed buys short-term Treasury bills as part of its balance sheet, buying them to add to the money supply and selling them to take money out. However, since short-term interest rates are at zero, the Fed has been playing with buying longer-term Treasuries and other long-term debt in order to try and bring long-term rates down as well; higher bond prices mean lower interest rates, as the two go in opposite directions. In theory, the lower rates will lower corporate cost of capital and make marginal projects worth doing at a lower CoC.

"Quantitative easing" is the new buzzword for that strategy. The Fed has done two rounds of that, with the second tranche getting the shorthand QE2, likely as a nod to the luxury liner and/or her royal namesake. A proposed third batch thus gets the shorthand QE3; that's the policy that has Rick Perry hot and bothered.

Why is QE3 dangerous? If we do have a return of inflation, it may do to the Fed's balance sheet by accident what Paul would do on purpose. High inflation leads to higher interest rates and... lower values of existing bonds, since as I mentioned earlier, interest rates and bond prices are on a teeter-totter. Short-term securities don't lose much in value, but the longer the term, the more sensitive it is to interest rates.

The Fed could easily find itself where a lot of banks were back in 2008, with negative equity due to a drop in value of its portfolio.

Bernanke and company want to do something. However, we're at a point where the Fed can't do much without compromising its core function of maintaining a stable dollar and a stable financial system. Washington can't do much, either.

The economy is going to need to get out of this largely on its own; lowering the regulatory burden on businesses, especially including ditching "Obamacare", would be a net plus, but fiscal and monetary policy have emptied their barrels at present and have no good ammo left.

Weekend at Bernanke's.... Neck

During the pre-straw-poll debate, both Newt and Ron Paul went after the Fed, rather ill-advisidely in my view. Newt was a bit more measured, but Paul acted like if he had a spare nuke to use, it would go at the Fed rather than Iran.

Rick Perry has joined the Fed-as-piñata game in a nasty way.

“If this guy prints more money between now and the election, I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas,” Perry said. “Printing more money to play politics at this particular time in American history is almost treacherous or treasonous in my opinion.”

If that's Perry's working level of treason, I might be heading east on I-69 to Sarnia for safety come 2013. Not that QE3 would be a great idea, but the idea of executing a central bank boss for bad policy sounds like something out of a banana republic (or a bananas one). Threatening bodily harm via lynch mob doesn't look great either; Jewish bankers might not want to be around this new strongman from Texas.

There is a long history of anti-big-city-bank populism; that's one of the reasons we didn't allow national-scope banks until the last few decades. However, I don't recall seeing a serious politician want to put a Fed chairman up on treason charges.

 

Mellon-collie Mattresses

Here's an interesting story; one of the big money center banks, Bank of New York-Mellon, is charging corporate clients for putting money in checking accounts. We're used to seeing that for small-fry individuals, but this is being applied to the big, multi-million dollar accounts.

The reason is that with short-term interest rates at near zero, banks are losing money on checking deposits. They have to pay the FDIC a tenth of a percent a year as deposit insurance and T-bills are making less than that; at the peak of l'affair debt-ceiling, it had gotten up to 0.09%, but has crashed back down to 0.01% at last check.

When savings accounts are earning squat, there is little reason not to keep spare cash in cash. Banks are used to making their money on the difference between what they pay to get money and what they lend it out for. Normally, checking accounts are cheap money, with a zero interest rate less any transactions costs. However, when they get next-to-nothing on their investments, that interest spread starts to become effectively negative.

Interesting times, indeed.

Moody's Off-key Blues

One of the bullet points in the coverage of the debt ceiling "crisis" is that the credit agencies are warning of a rating drop, potentially taking the US out of its standard position as the benchmark "risk free rate." However, the big ratings agencies like Moody's and Standard and Poors generally make changes after the market has moved an issuer's interest rates up, being more the Master of the Obvious rather than a prophet.

That isn't happening yet. Looking at the bond page at Bloomberg (the dude has bad policies but good financial info; that's why he can self finance a NYC campaign), the three-month T-bill is at 0.06%. Not 6%, 0.06%. Not a lot of room to include much if any default risk; at that interest rate, you'd be better off putting it in a mattress if things were nearly as dire as the headlines read.

The "smart money" isn't getting out of Dodge yet. That's not to say that things might not get messy in the next few weeks, but there seems to be more talk about a financial meltdown than any evidence of fear of one. If Wall Street were as jittery as the talking heads make them out to be, we'd at least see a 0.6% T-bill rather than a 0.06% one.

 

What's Good for [Fill in my Company] is Good for America

Here's an interesting Politico piece on the politics behind a natural-gas-as-vehicle-fuel bill; oil man turned natural gas advocate T Boone Pickens is backing the bill and the libertarian Kochs, also oil men themselves, are against it. The bill would subsidize natural gas engines and putting NG pumps at gas stations.

Both sides have merit. The pro-NG side can point to the energy-independence side of the argument, for the more home-grown natural gas we use, the less we give to OPEC and their assortment of freedom-hostile governments. That argument has been used by the drill-baby-drill chorus for making more domestic oil, albeit without its hand out for big-ticket subsidies.

The Koch's free-market oriented allies are generally against subsides; government subsidies are often rather inefficient and should especially be avoided when we're in the middle of trying to rein in a nasty deficit. However, the insinuation is that the Koch's interest is self-serving in that an increase in the use of natural gas cuts into the use of oil; thus, oil barons without a natural gas component to their energy business will be against helping out natural gas; making a substitute good cheaper or subsidizing the complements to that substitute hurt your product.

There is a bit of glee in that Politico piece, as the left-leaning denizens there want to cast doubts on both sides' intentions, especially the folks that vote against the bill that get Koch donations. There is a solid free-market argument against such subsidies, and the deficit hawk side of things argue for caution in pulling out Uncle Sam's credit card when it's squeezing up against its credit limit. Dynamist principle is more likely at play, rather than than a few bucks from a conservative benefacto.

One of the ongoing fights within the GOP is a right-populist faction that wants to weed out influence-buying and an establishment faction who wants to keep that influence. However, you can have those Tea Party populists swayed by folks who have a vested influence in shooting down a bill. One of the more noxious parts of the Abramoff era was their sending money from existing casino-owners to theocon groups campaigning against more casinos; the groups getting the money were working on a moral compulsion to rein in gamble while the givers were amorally maximizing future profits.

The Economically Over the Hill Gang

I was just reading this Detroit Free Press piece on the fallout of Tom Gores' purchase of the Pistons means for downtown Detroit. The first suitor was Tigers and Red Wings (and Little Caesars) owner Mike Ilitch, who would have been inclined to possibly move the Pistons out of their current Auburn Hills digs to a new stadium downtown.

It doesn't seem like it was 30 years ago when Joe Louis Arena was the new stadium downtown. I can remember helping at Eastern Michigan U's cafeteria in the summer of 1980 serving a bunch of Young Republicans bunking down at the EMU dorms during that summer's GOP national convention at "the Joe." A year later, I was visiting the Joe myself, as a delegate to the state Democratic convention (everyone has a few things they did as a college kid that they'd like a mulligan on;-) at neighboring Cobo Hall and checking out the new arena during the lunch break with my dad, watching a bit of a youth hockey game that was taking place.

However, that was 30 years ago, and the Joe doesn't have the luxury box bells and whistles of more recent stadia. Financing a replacement will be a challenge, especially when you can expect little help from state and local governments, even when the new Detroit mayor is an ex-Pistons great. Former ace point guard and Sacramento mayor Kevin Johnson hasn't been able to translate that NBA background into money for a new arena there; Dave Bing will likely be up against a similar 8-ball.

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Another story of premature obsolescence is that of Blockbuster Video. The fairly new Blockbuster in Midland just east of the tennis center got closed a few months ago, leaving a gaping hole in a nice strip mall complex with a corner view of Wackerly and Jefferson, the latter being one of the main roads out to our mall quadrant. Great location, but the market for post-theater movies has changed since it got built circa 2006. Blockbuster went Chapter 11 last fall, and that closure was likely part of the restructuring of the company.

You have Netflix taking a high-tech niche of quick mail-order movies if you can wait a day or two, or download them right now; cable and satellite providers have gotten into movies-on-demand in a larger way in the last year or two as well. For the pick-up-a-movie side of things, automated kiosks like Red Box have turned movie rentals into a commodity. What's left is an increasingly niche market for folks who aren't tech savvy and want a broader selection of movies than a Red Box machine has; for now, it isn't feeding the bulldog.

Ghosts of Weimar

The European Central Bank, the Eurozone's analogue to the Fed, is raising interest rates, trying to tighten things up to get ahead of inflation. This Reuters piece tries to make hay out of the Europeans turning their backs on Fed leadership, but this is nothing new.

In the second screen of the piece, they get around to this paragraph-

Historically the Fed, which does not have a formal, explicit inflation target, has been somewhat happier to accept higher inflation than the 12-year-old ECB and Germany's Bundesbank before it.

Although the euro zone and the United States face similar external inflation pressures, their central banks take a different view of their economies. The Fed's mandate requires it to promote full employment in addition to keeping inflation in check; the ECB's focus is delivering price stability -- a reflection of its mandate, but also the legacy of the hawkish Bundesbank, which the ECB carries in its DNA.

The German bankers make up the spiritual core of the ECB, and German economic history is tragically marked by hyperinflation. Between the World Wars, Germany had a nasty bout of inflation, where the mark's value went down a million-fold and more. The financial chaos that that 1920s hyperinflation caused helped bring the Nazis to power in the early 30s; the harsh financial reparations that the WWI victors placed on Germany helped cause the problem, as paying back the tab in hard foreign currency put inflationary pressure on the mark. That helped give the Nazis a boogieman in foreign bankers with a large Jewish presence to play into their mythology.

Post WWII, German central bankers have been inflation hawks, making sure that doesn't happen again. The Eurozone has kept a lot of that attitude, so being quick to bail out of an expansionary cycle is within their character.

In the US, it's the Great Depression and deflation that is the bugbear; we've had bad inflation in the late 70s-early 80s, but a stalled-out economy is a bigger fear to US bankers. Thus, we have a Fed-ECB mild disconnect, as the Fed worries about a double-dip recession and the ECB worries about runaway inflation.

Coming Soon, the Triad Sterling?

A North Carolina state rep is looking to create a gold-and-silver based state currency to operate along side the US dollar. That has a retro feel, more retro that the dismissive take on Austrian econ presented in the article. What it reminds me of is the various bank currencies that circulated in the 1800s, but this would have the backing of a state and backed (in theory) in actual hard metal like US currency was until the early 1970s.

Since then, the dollar-gold ratio has increased about 40 fold, from the $35/ounce that was the official rate back in the Bretton Woods era to $1427 an ounce as we go to press. Given the Fed's gung-ho expansionist policies as of late, a bout of bad inflation is likely to be around the corner. You don't have to be a libertarian gold bug to see that coming or see the allure of a gold-backed regional currency.

It doesn't sound like a ringing endorsement of US fiscal and monetary policy, so more mainstream heads in NC will shy away from that move in fear of looking too radical.

Such a move is a bit.... out there... for a fairly mainstream state like NC to make, but I wouldn't be surprised if one of the more conservative western states might buy into such a plan. I'm still waiting for the South African Nightmare on Elm Street gold coins, the Freddie Krugerrands.

Dam Yankees

Normally, you'd think of a dam-created lake as a public good. However, if the dam is owned by a private power company, you have a public good financed via a private entity, which is an awkward combination, especially as the dams built decades ago start to age and need repairs that might not be worth doing from a business perspective.

Roads are generally a public good, but are financed mostly via taxes, generally gas taxes. When the Detroit Free Press was plugging for a gas tax increase to help shore up some rough pavement state-wide last week, they did a cartoon with a Tea Partier's car finding a Yugo-eating pothole; playing off of the Taxed Enough Already bumper-sticker, the liberal wag on the sidewalk hollered "Thumped enough already?"

Sometimes, public goods are useful and taxes are called for... sometimes. The Free Press leans well to the left (but I like reading them more than the libertarian-leaning Detroit News, go figure) but they have a point to argue on gas taxes, as they come close to being a Coasian-friendly user fee, as gas usage and wear and tear on the roads are closely correlated.

Meanwhile, back to the dam question. The dam in question here is just north of Midland in Sanford; Eileen lived with an older lady on Sanford Lake before she married me. A small power company owns the dam, and they are having to make repairs to the dam that the company claims aren't cost-effective for them to make. They lowered the lake by three feet in order to make repairs, which through off all the docks and beaches along the lake; more damage will require even more repairs, and the company is trying to pass the buck to the folks on the lake.

Of course, the lakeshore owners don't like paying a private company to keep up the dam. The interesting thing is that Midland has quickly become a major power broker in state and national politics. The new Ways and Means chairman, Dave Camp, is a Midland resident, as is new state AG Bill Schuette.

[Don] Fortier, a retired City of Saginaw firefighter, said he’d like to see Congressman Dave Camp, Attorney General Bill Schuette and other politicians, including local elected officials, weigh in on the issue.

“Schuette owns a place on the lake,” he said. “I’d like to hear his opinion.”

Schuette would thus have a conflict of interest, so he is in no position to do much. Likewise, Camp is unlikely to do any earmarking to help things along, given the anti-earmarking ethos in the modern GOP.

However, other regulators, like the state DNR or the Federal Energy Regulatory Commission, might have to weigh in, either forcing the owner to make the needed repairs or have them take down the dam. If it is the latter, you could see a government (Midland County or Jerome Township, perhaps) takeover of the dam, with the cost being passed on to the lakefront owners; the government could offset the cost by selling electricity, lowering the overall cost of the project.

That will be an interesting economics story to watch in the months to come.

Cold Turkey Budgeting

One of the upcoming fights on Capital Hill is raising the federal debt ceiling. The Obama team is running scared, warning of the dire problems that would result if the debt ceiling isn't raised.

Many conservatives have argued for a balance-budget requirement in the Constitution but have never gotten the super-majority needed to get it done. Failing to raise the debt ceiling would effectively create a balanced budget, since if you can't borrow any more money, the budgets have to be either balanced or running a surplus.

If the government doesn't want to default on its debts, a combination of budget cuts and tax increases are the most likely option. If painted into a corner, the current administration would be faced with slashing spending to the marrow, since they can't unilaterally raise taxes. They might opt to go with a default in a game of budgetary Chicken rather than cut spending.

What is likely is some combination of budget cuts and increased debt ceiling. Another option would be to borrow from Jerry Brown's proposed CA budget and zero out the deficit with a 50-50 mix of tax increases and spending cuts; that will see to some budget hawks on the right but not with the Tea Party crowd.

Golng cold turkey on debt would not be pretty. It might be a good thing for the long term, but it would be ugly for the near-term, not unlike the Fed's actions in the stagflation era, jacking up interest rates in order to wring inflation out of the system; the result was uglier than what we've just went through in the last 2+ years.

 

Assume a Ladder

That's what an economist does when he falls into a hole. Sadly, the President isn't an economist-

Obama noted that there have now been 12 months of private-sector job growth for the first time since 2006.

"We've got a big hole that we're digging ourselves out of," he said.

You climb out of holes. If you are digging, you are going further down, unless your plan is to go all the way to China and save on shipping time for new exports.

Just Justice

Here's an interesting piece of verbiage in a trucking dispute. A number of ports are starting to bar old, more polluting, from the docks in order to clear the air in the area. The Teamsters are generally in favor of such rules, not primarily because of any environment benefits, but that the older trucks tend to belong to independent truckers who aren't part of a union; they don't like the competition and the downward pressure on wages that such owner-operators represent.

The Coalition for Healthy Ports, a labor-environmental group, told the FMCSA that if the New York-New Jersey sticker plan is declared invalid, port programs to ban older trucks in Southern California and elsewhere "will be in jeopardy."

The coalition urged the FMCSA "not to succumb to the pressure of the NJMTA and (American Trucking Associations) to undermine any and all efforts to clean the air and promote economic justice in the port trucking industry."

"Economic justice." Justice often depends on vantage point. There are a variety of definitions, but the one that seems to come close to what the CHP folks are after is "being what is merited: deserved."

Do truckers deserve $X/hour? If you're a Teamster used to that going rate, having OOs come in and do the job for $X-3/hour, yes. Blocking the cheap labor to preserve your wage would seem just.

However, the guy being told he can't bring his truck onto the docks because he isn't part of the union doesn't think that's just. One of the proposed regulation would ban OOs from working in the ports; non-unionized corporations could do business, but the chance of them being unionized is higher than the zero percent of OOs.

Justice as used above often means "seeing it my way." Relative merit is not what people are after when they use that phrase.

Name's Bond... Yuan Bond

Here's an interesting sign of China's being a part of the adult table of world finance; the World Bank is starting to issue yuan-denominated bonds. The World Bank does development projects in developing countries, and China has grown to the point where they are now donors to the Bank rather than getting aid.

Given the large stash of T-bills and other investments Beijing is sitting on, lenders can be fairly sure that they can get other hard currencies for the yuan. This development isn't bad for the US, but is a good sign for China's financial status.

Iron Rice Bowls are Nice... if You Like Rice

Here's the final paragraph from a Harold Meyerson WaPo op-edder on downward mobility in the modern US-

Our economic woes, then, are not simply cyclical or structural. They are also - chiefly - institutional, the consequence of U.S. corporate behavior that has plunged us into a downward cycle of underinvestment, underemployment and under-consumption. Our solutions must be similarly institutional, requiring, for starters, the seating of public and worker representatives on corporate boards. Short of that, there will be no real prospects for reversing America's downward mobility.

One of the problems of avoiding downward mobility is that it tends to restrict upward mobility as well. If your wages and benefits are guaranteed indefinitely, few new opportunities for people will open up, for jobs become fixed costs that can't be easily shed; firms will tend to use mechanization rather than human labor since you don't have to pay a robot benefits or severance pay. The people with jobs might like such a set up, but the people on the outside looking in will be stuck looking.

I was reminded of the old Chinese term of the iron rice bowl-"an occupation with guaranteed job security, as well as steady income and benefits." When China modernized in the 1980s and moved away from the old Maoist collectivization, Deng and his reformist bloc scrapped the iron rice bowl.

Iron rice bowls are nice, but most of us would want a more varied diet. That requires some upward mobility to earn a living that gets more than rice on the menu.

It also requires the prospect of some downward mobility if a business needs to retool; one of the downsides of the iron rice bowl of the Mao era was that money-losing operations sucked money from the government to stay open. Market economies saw such money-losers scrapped and their workers moved to more fruitful spots.

The solution to downward mobility is a combination of good education, a thriving economy and enough of a safety net to catch people on the wrong end of Shumpeter's creative destruction. A European-style worker-owner condominium is an institutional response, but one that institutionalizes the economy, sapping upward mobility in the process.

He's Called a Representative

One of the internal scuffles on the right this week was Hal Rogers winning the House Appropriations chairmanship. He represents the Appalachian area of southeastern Kentucky, an area that is rather poor and undeveloped; since the Lexington paper was also the regional paper for a good hunk of eastern and central Kentucky, I got to see Rogers in the news a bit when I taught down their in the late 00s.

One of Rogers' pet projects was getting a federal transport subsidy to have regular air service to Somerset, roughly halfway between Lexington and Knoxville; it's about two hours or so between those nearest airports, and economic development would be aided in theory with better ways of getting to the area. Getting development into rural areas is hard, since businesses and people tend to cluster where the economic action is; getting them into a rural area is hard and getting them into a rural area that resembles some of the hillbilly stereotype is even harder.

If rural development is a net plus, then the Somerset move would make sense; if some businesses would be more likely to set up shop in the area with better air transport, it would help bring some non-mining jobs to the area that is rather devoid of opportunity. However, such spending on rural development can tend to be prone to boondoggles, where the projects that look good on paper don't deliver their promised effects.

Thus, such spending get the "pork" label from budget hawks; 21st-century wonkese has it down as an earmark.

This makes an interesting split between movement conservatives and folks like Rogers. The Somerset airport might not make sense from a maximizing-GDP standpoint or a minimizing-spending standpoint, but trying to represent a conservative-but-poor rural district has Rogers doing some un-libertarian things in order to try and jump-start their local economy. Rand Paul struggled a bit in that area of the state when he criticized federal anti-drug campaign money flowing into those rural areas; libertarian fend-for-yourself and do-it-locally meme don't always translate well where the least-of-these could use the help.

These districts are more socially conservative than they are economic conservative; these are areas that Blue Dogs could win if the minarchist wing of the party ran off the folks who earn the title of "Representative." Earmarks aren't good on balance, but there are folks who get sent to Congress in order to help their neighbors; current rhetoric on earmarks starts to have a disconnect between political economy theory and practice.

Cash for Junckers

It appears that Ireland and Portugal are financially a bit edgy, as Irish government debt has a 5.37% default risk premium over German debt; I would assume that the Bloomberg writers were using the Germans as the near-risk-free baseline. Portugese debt has a 4.14% premium.

So far, the Irish and Portugeese haven't asked for help, but those high default risk premia make a lot of observers nervous.

Luxembourg Prime Minister Jean- Claude Juncker, who chairs the group of euro-area finance ministers, said he doesn’t expect imminent agreement on a bailout for Ireland because Dublin hasn’t asked for support.

“I don’t think we’re nearing an agreement because Ireland didn’t put forward a request,” Juncker told Bloomberg Television in an interview in Frankfurt today. “The Irish think that they can keep the problems they’re facing under their control. They are not near the point where they would ask for external help.”

The Irish needed to extend FDIC-like insurance on the large Irish banking industry when we had the financial meltodown of late 2008; those gaurentees are becoming more expensive than origionally planned and have caused those Irish interest rates to rise.