Tuesday's interesting reads

"We Eagerly Await Your Orders, Ma'am" from Cato@Liberty:

Quoting Hillary Clinton: "We need a president who is ready on Day 1 to be commander in chief of our economy."

Only a few countries have successfully had a commander in chief of the economy. Germany in 193...wait, not that one. USSR starting in the 192...sorry, wrong one again. Cuba under Castr...Well, maybe I'm wrong. I'm not sure there has ever been a commander in chief that worked. FDR tried a little, but after eight years, it took a war to pull us out of the Depression.

"The "Too Simple to Write a Book About It" Diet" by Bryan Caplan at EconLog:

He basically lost a little over 20 pounds over nine months by doing two things: 1) stop eating when he wasn't hungry and 2) ease up on the soft drinks. As my wife knows, I have a hard time leaving food on my plate. I feel like I'm wasting food, and by extension money, when I do. In some cases, I can save money by not finishing the plate (because I can save it for leftovers, again, something she knows I have a particular fondness for). However, for the most part, there is no money saved by continuing to eat.

"The Return on Malthus" Free Exchange at Economist.com:

He's talking about the article in the WSJ yesterday (I commented on this article here). He seems to be a little more pessimistic than I am. I have a lot of confidence in our ability to develop technologically as well as our ability to adapt. The prescient passage from his post:

"Whether or not these difficulties lead to disaster depends on two key questions. To what extent will policymakers allow consumers to feel higher prices, thereby incentivising demand reduction? And, how quickly can we come up with new technological workarounds? Much will depend on the answers."

Essentially what needs to happen is for government to get out of the way and let innovation occur.

"Whither the Derivative?" also from Free Exchange at Economist.com (I actually missed this yesterday):

"The perception has become that this makes them opaque and difficult, if not impossible, to regulate. Whenever anything comes along that is unfamiliar, but not yet fully understood, there exists a temptation to label it as uncategorically dangerous. But limiting innovation because of uncertainty constrains growth. The market for derivatives has allowed investors to take positions they never could before. But that is not necessarily a bad thing.

Allowing investors to take the risky position they desire makes more than just Wall Street traders better off...

The growth of the market out-paced the infrastructure to properly understand the implications and how to best regulate it. Things have recently gone badly, but that is not justification for excessive regulation. This will only make the problem worse. The market exists for these products. Regulation may only give people an incentive to come up with even more opaque products, which will lead to even greater uncertainty."

I really think we need to make sure we don't let the pendulum swing too far as people call for increased regulation of financial derivatives.

"Of Markets and Mortgages" WSJ op-ed by Ethan Penner:

"I also learned that there is mortgage money available for borrowers willing to put up cash, and that there is still in place a very efficient lending and closing system to service these borrowers. The U.S. home-finance system is still the best in the world. The problem is price discovery.

And for price discovery to happen, the government needs to get out of the way, encourage transparency, and let the market resolve this crisis. Lenders, financiers and their regulators need to let the market determine the value of these assets. Let us not forget that the only value of an asset is what someone will pay for it, not some theoretical value derived from a complex computer model."

I'm a big fan of letting market participants figure out for themselves what things are worth. The more government intervenes, preventing investors from discovering market-clearing prices, the longer the pain will last. I do disagree with one thing he said later in the article:

"[N]o test is required for investment managers who make investment decisions on behalf of investors [unlike the Series 7 for those who sell securities]. This doesn't make too much sense, especially with regards to those who are charged with making investment decisions on behalf of municipalities and pension funds. Perhaps the SEC should mandate that these individuals be tested, and perhaps retested regularly, and licensed to represent the investor -- particularly the more vulnerable among us."

I don't think this would accomplish anything. A test would do (or would have done, if required beforehand) nothing to keep things like this from happening. So many investment are behavior-driven, reflecting the investors given aversion to risk. A test isn't going to change that. Besides, one of the biggest causes of the current crisis was that so few investors, if any, really understood all of the risks of these securities. They knew how they worked and the agreements the governed their structure, which is probably all an exam would cover. If no one understands the risks, who would administer the test?

"Trade and National Defense" by Don Boudreaux at Cafe Hayek in response to a letter in the WSJ crying foul in the Boeing/EADS fuel tanker story:

"Adm. Rohrer gripes that "EADS has received tens of billions of dollars in illegal subsidies from the French and other European governments." Translation: European taxpayers now foot part of the bill for Uncle Sam's weaponry, giving Americans more resources to spend (if they wish) on national defense and European governments fewer such resources."

I don't think many people understand how a country giving subsidies helps consumers of other nations. In this case, we're the consumers who don't have to pay for the subsidies, just enjoy the benefits.

I posted this comment:

"The same argument is/was made to support farm subsidies: our national security depends on our ability to feed ourselves. I don't buy it. Like so many things, the US will never be defense, food, energy, etc independent. Nor should we ever make that the goal."

"Argentine Farmers Lash Out at Government Restrictions" from Yahoo:

Apparently the government down there has introduced export taxes on farmers. They, understandingly, don't like it. Here's why the taxes were put there in the first place:

"Government officials counter that farmers have earned record profits as international commodity prices have soared over the past two years and can afford to pay the higher taxes. The new system raises taxes when prices rise and reduces them when prices fall."

Sounds really similar to the proposed windfall profits taxes for oil companies. What the government down there presumably doesn't realize is that if you tax something, the less of that thing you get. In this case, the more you tax exports, the less you export. On the other hand, may that's the idea. If they export less food, that keeps more food in domestic markets, driving down prices. The consequence of that will be that some farmers will be driven out of the farming business and will have to turn to another means of subsistence.