Monday's interesting reads

"Credit-Card Wars" Saturday WSJ editorial:

"At the behest of a coalition of U.S. retailers, House Democrat John Conyers of Michigan and Republican Chris Cannon of Utah have introduced the Credit Card Fair Fee Act that would regulate fees that the credit-card industry charges to retail stores...

Typically, a retailer gets about 98 cents on the dollar for a credit-card transaction; the bank that issued the card gets most of the remaining 2% in what's called an "interchange" fee...Much of the complaint about fees comes from small retailers, who say that because they operate on thin margins, they pay more in fees than they earn in profits...

It's not at all clear why Messrs. Conyers and Cannon need to belly-slam into the middle of whether the benefits of accepting credit cards are worth this 2% fee. Retailers have options to avoid the fees. They can offer customers a discount on cash purchases. Larger retailers can even issue their own cards offering discounts as an alternative to Visa. Some big chains exploit their own market power by negotiating lower fees...

As consumers we'd like to see interchange fees come down too, but through market innovation and competition, not Congressional fiat."

Like they say in the article, it "sounds like a price control. When the retailers have options, I see no reason the government should get involved. In time, someone will come up with a way to do something else.

"Hillary's Bad History" WSJ op-ed:

"The Beltway class also now wants to indulge in the same Keynesian "stimulus" that failed in Japan. Mrs. Clinton's "Rebuild America Plan" would invest $10 billion over 10 years in an "Emergency Repair Fund" -- a plan she claims would create 48,000 jobs for every billion dollars spent, or close to half a million jobs. She would build ports, railroads, airports, public transit, tunnels and roads. Senate Democrats are proposing more than $35 billion in new spending -- on top of their $168 billion in tax rebates. These may also lead to false recoveries, but they won't ignite a new round of risk-taking and investment."

I think the last line is the takeaway. The article is talking about how Hillary Clinton is comparing what we're going through now to what Japan went through in the late 80's and early 90's. I think it's easy to see that won't be the case. What I want to point out is why massive public-works spending isn't a good thing, especially when unemployment is low. The economy grows when the private sector invests and employs people. If the government is "investing", it's simply borrowing money from future taxpayers. Not only that, but the people they employ are taken out of the population of available employees. One thing I learned from a class at BYU was that as unemployment goes down, so does productivity. If the government starts to compete with employers in a low unemployment environment, as it is right now, they will hire some of the more productive workers, forcing the private sector to employ and use less efficient workers, meaning that there will be less profits, leading to less investment, leading to less growth. Is less growth a bad thing? You bet it is. Long-term economic growth is the only way to pull people out of poverty, and when government is competing with the private economy, the real source of economic growth, for resources, lasting growth will be longer coming.

"Nationalism, Crony Capitalism May Thwart Mexico in Boosting Oil Production" by David Luhnow at WSJ:

"But those efforts [to strike a deal to allow private oil companies to work with state monopoly Petróleos Mexicanos in finding and exploiting new oil deposits] look unlikely to succeed thanks to two immovable forces on the Mexican landscape: nationalism and crony capitalism."

Apparently, Mexicans don't trust business, and I can see why. But they have no one to blame but their government.

"Much of Mexico's economy is dominated by family-run companies that have long ruled over their respective industries, squashing competition and charging consumers high prices. They rely on friends in the government to ensure favorable regulation or sweetheart contracts, don't give much back in philanthropy, and have a reputation for evading taxes...

Corporations' behavior has reinforced their negative image among ordinary Mexicans. The country's two leading broadcasters frequently use their news broadcasts to advance their owner's interests, often attacking personal or political rivals. Both networks have bullied the Calderón government to block the creation of a third television network. Just before national elections in 2006, the TV companies pressured lawmakers from all three main parties to pass regulations favorable to them."

A podcast I heard once (I think it's here) said the only true monopolies are state-sponsored monopolies. So when the people are opposed to business, it's usually the fault of government.

"Fed's 'Supercop' Role May Give It Headaches" by Greg Ip with the WSJ:

"Mr. Paulson's plan to make the Fed a supercop in charge of keeping the financial system stable is also problematic for the Fed and its chairman, Ben Bernanke. The Fed is being asked to do a job that may be beyond anyone's ability: Identify and avoid a crisis in advance.

"Supervising the very complex derivative products of the banks and of the rest of the financial system would be an enormous technical challenge," said Harvard University economist Martin Feldstein, a prominent Republican adviser who has criticized the Fed's supervision of banks leading up to the current crisis. "The institutions themselves -- paying very high salaries and having their own survival at risk -- got it wrong. Would the Fed get it right?""

I couldn't say it better (but I'll say it again). Why would one person or a group small group of people with very little incentive be better able to get it right than a much larger group of people with tremendous incentives? Why is the judgment of the one (or small group) better or the cognition errors less pronounced than that of the group?

"With Washington in Gridlock, Voters May Determine Oversight" by Gerald Seib in the WSJ's Capital Journal:

"Probably the only factor that could overcome these barriers is fear: a fear in both parties that the mess in the credit markets is so dire that they risk being blamed by the public for inaction.

"Members of Congress from both parties want to show that they are reforming the nation's financial system, which is why there is some chance for congressional action," says Stuart Rothenberg, a non-partisan political analyst. "But Congress isn't built to act quickly, especially on a matter of this complexity, and that makes a far-reaching legislative response something of a long shot in the middle of a presidential race.""

As I said before, I'm afraid of a belief on the part of politicians that they need to "do something." The more is done, the more is likely to be fouled up.

"Speaking in the same hall where Sen. Clinton appeared two weeks earlier, Sen. Casey said Sen. Obama best understands Pennsylvania's economic issues. "He started out working in the shadows of the steel mills of Illinois," Mr. Casey said. "He will fight for us here in Pennsylvania."...

"The Clinton strategy seems to be to use the same economic message that seemed to work in Ohio," says William Green, a political analyst based in Pittsburgh."

This is why I've come to believe a "national primary" would be in our best interest. Instead of giving one message to the people of Pennsylvania and another to those in Ohio and still another to those in Texas, they give one message to the people of the country. They are then forced to get their message out in a clear way that lets everyone know where they stand. It doesn't need to be in early January, like Iowa, but it should be early enough to give the candidates enough time to prepare for November and late enough to give them time to get their message across.

"Tensions rise as world faces short rations" from Reuters:

"Drought, a declining dollar, a shift of investment money into commodities and use of farm land to grow fuel have all contributed to food woes. But population growth and the growing wealth of China and other emerging countries are likely to be more enduring factors."

There is an article in this week's Barrons that talks about how much speculators are impacting the price of food commodities. I'd like to know how much government intervention, in the US and elsewhere, and these speculators have helped drive up prices. We've been talking about the fast growth of China, India, and other devloping nations for years, but it's only been in the last year or so that we've really seen the run up in food costs. I don't think that world demand has all of a sudden increased to the degree that it's had this kind of impact.