Monday's interesting reads

"New Limits to Growth Revive Malthusian Fears" in WSJ by Justin Lahart, Patrick Barta, and Andrew Batson:

As a background, Malthusian refers to ideas proposed by Thomas Malthus that the earth's population could only grow for so long using the earth's resources and will eventually be forced to revert back substantially.

"As the world grows more populous -- the United Nations projects eight billion people by 2025, up from 6.6 billion today -- it also is growing more prosperous. The average person is consuming more food, water, metal and power. Growing numbers of China's 1.3 billion people and India's 1.1 billion are stepping up to the middle class, adopting the high-protein diets, gasoline-fueled transport and electric gadgets that developed nations enjoy.

"The result is that demand for resources has soared. If supplies don't keep pace, prices are likely to climb further, economic growth in rich and poor nations alike could suffer, and some fear violent conflicts could ensue...

"The world cannot sustain that level of growth, he contends, without new technologies...

Today's dire predictions could prove just as misguided as yesteryear's.

"Clearly we'll have more and more problems, as more and more [people] are going to be richer and richer, using more and more stuff," says Bjorn Lomborg, a Danish statistician who argues that the global-warming problem is overblown. "But smartness will outweigh the extra resource use."

Maybe I'm just an optimist, but I think that we will in fact be smart enough to find away to use our resources more efficiently. We'll come up with the technologies we need to live. Like I mentioned/quoted here, $100 is the answer, not the problem.

"Home Resales Rose 2.9% Last Month As Median Price Dropped 8.2%" story from the WSJ by Jeff Bater:

"Existing-home sales climbed for the first time in seven months during February as buyers took advantage of sharply falling prices...

"Falling prices improve affordability and encourages people to purchase. At the same time, falling prices can keep would-be buyers from signing off on property as they wait for still-lower price tags.

"NAR economist Lawrence Yun was encouraged by the 2.9% sales gain. "We're not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing," Mr. Yun said."

I don't think we should be surprised by this. The news tells us a couple of things. 1) The government should get out of the way and let the home prices fall where they will. They should avoid passing legislation that will artificially inflate demand in an attempt to keep prices from reaching their own natural level (like the one from my own Johnny Isakson I mentioned here). 2) When people feel the prices are at a low-enough level, they will buy. For now, they seem to be putting it off. Eventually, though, they will buy homes and the prices of those homes will likely resume a historically normal appreciation closer to inflation or population growth.

"Political Pendulum Swings Toward Stricter Regulation" story from the WSJ by Elizabeth Williamson. The key quote is from Glenn Hubbard, dean of Columbia's business school and former economic counselor to Bush 2: "The hope is we won't overreact." Don't count on it.

"'Huge Food Shortage In North Korea'" (HT: Club for Growth): Andrew Roth wasn't surprised and neither am I.

"Only citizens who show absolute loyalty to leader Kim Jong Il and his regime are allowed to live in Pyongyang and are considered better off than their fellow countrymen.

But the food situation, which has mostly been felt in rural areas where rations have been suspended since November, has now spread to the city, according to the South Korean aid agency.

"Even ranking officials have run out of their (rationed) food supply, while a ban on (private) trade is strictly maintained," said an unidentified city official quoted by Good Friends.

"It is nothing but a death sentence.""

"Averting a Crisis" NRO editorial:

"We understand that politicians feel the need to “do something.” But what they most need to do is get out of the way of a market adjustment. Housing prices need to fall far enough for people to start buying again. People who cannot afford to own homes should go back to renting."

I couldn't resist. Sound familiar?

"Bogotá Eyes the Irish Model" WSJ commentary by Mary Anastasia O'Grady:

"Before Mr. Plata became trade minister last year, he headed a government export agency. "We starting going to Ireland several years ago, he says, "because we were looking at countries around the world that had been successful in attracting foreign direct investment. What we found was that Ireland had lowered its corporate tax rate from 40% to 12.5%," and as a result "was attracting investment, had lowered tax evasion and had increased tax collection. We went back to Colombia and said, 'why don't we just bring [our corporate rate] from 38% to 12.5%.'"

"That wasn't a popular view with Colombia's treasury department. "It got me kicked out of their offices," Mr. Plata recalls.

"No surprise there. Bean counters in every treasury in Latin America have tax-cut phobia in their DNA. It explains why they often get jobs at the International Monetary Fund in Washington after the collapse of the governments they've served back home. At the fund they can put into practice their deeply held convictions that the only responsible fiscal policy is one built on a static analysis to discover the "right" tax rate. Embracing the notion that production creates its own demand, and that government revenues expand under a low-tax regime, is considered high-risk behavior."

"A Wal-Mart 'Expedition'" New York Sun Editorial (HT: Club for Growth):

"The same City Council that is preventing Wal-Mart from opening a store in New York City is using taxpayer money to pay a non-profit group in the Bronx to drive senior citizens an hour outside New York to shop at Wal-Mart. The city isn't saying that's what it is paying for, but money is fungible, and the group is 60% government funded. So the politicians get to claim credit with the unions for keeping Wal-Mart out of the city while also claiming credit with the seniors for providing them access to every day low prices. Ordinary New Yorkers, who work and pay taxes, are the ones who pay the price. Their city is deprived of the sales tax revenue that Wal-Mart would bring. If they don't have two hours to spend traveling or a non-profit to subsidize their shopping trips, they can't shop at Wal-Mart. Why not just let Wal-Mart open in New York City and eliminate the need for the van rides?"

"We Don't Need a Mortgage Guild" WSJ op-ed by Charles Wheelan and Morris Kleiner:

"Treasury Secretary Henry Paulson Jr. has announced plans to establish stringent national licensing standards for mortgage brokers. This is not a good idea.

The relationship between licensure in various professions and the quality of service is ambiguous at best...

Licensure has three basic problems. First, any kind of regulation makes it harder to enter a profession; that's the point of it. But restricting entry raises the cost of service, which means that some people will either skip the service or try to do it themselves...

Second, licensing requirements don't always have much to do with being good at the profession. Teachers are an unfortunate example. The current licensing requirements in most states have little connection to success in the classroom...Quality matters; licensure doesn't guarantee quality...

Finally, licensure may make consumers worse off by deterring talented people from entering a profession...

The politics of [licensure] make perfect sense, even if the economics don't. Most professions don't have licensure thrust upon them; they seek it."

Milton Friedman's Capitalism and Freedom is what first got me thinking about licensure. I come from a profession that requires licensure, public accounting, and I still think it's a bad idea. I think certified public accountants should be more like chartered financial analysts -- merely an information point that shows your knowledge, not a requirement for practice.

A company is required to have its books audited: who does it ask to perform the audit? The law requires a CPA. Most public companies, however, don't hire just any CPA, they hire one of the Big 4 firms of E&Y, Deloitte, PwC, or KPMG. They don't hire the small firms that also hires CPAs, but the big firms because those who use those audited reports trust the Big 4 firms more than they do the smaller firms to do the job right. If they all of a sudden weren't required to hire CPAs to perform their audits, instead being able to hire anyone they chose, I'd guess they'd still choose to hire the Big 4 firms. Why? They could save audit expenses by using a less prestigious firm. They do because the premium they pay for the services these firms provide brings with it greater trust of the audited results by the capital markets, resulting in a lower cost of capital and higher valuations. In other words, they are willing to pay more for the reputation of the firm.

I don't think companies should be required to pay to have their books audited by a CPA. If they chose not to have them audited by a CPA, the banks who lend them money could simply charge a higher interest rate to compensate for the perceived, real or not, higher risk. If the company borrowing the money wants a lower rate, they pay for a CPA. A CPA would therefore cost more than a non-CPA. So if someone wants a bargain audit, they should be able to buy it.