Wednesday's interesting reads

Since I was home working on the house Wednesday, this will be abbreviated.

"McCain-omics" WSJ editorial:

"To win in November, Mr. McCain is going to have to do more than mimic the Democrats by blaming the housing bust on greedy lenders and rich Wall Street CEOs. If voters believe that narrative, they'll elect a President Obama. He needs to be the tribune of the middle-class family that pays its bills and didn't gamble on property.

He'll also need to say more than that Democrats will raise taxes while he will cut them. He needs to explain to voters why low tax rates are vital in an increasingly competitive world; why they can help revive growth at home; and why growth and economic security go hand in hand with national security."

It hate the idea that politicians need to reflect the will of those who will elect them. They need to put their policies out there and then defend them by educating the people. He can't be lulled into the Democrats briar patch of blaming greedy corporations and executives. Doing so will create even more unease with the Republican base that believes corporations investing are necessary for growth and prosperity. He needs to explain how high taxes choke off investment and how when we're competitive, we give another reason for foreign companies to invest here and for local companies to expand here.

"The Forgetten Financial Sector" WSJ op-ed by Ed Royce:

"Because of a Supreme Court decision nearly 140 years ago, the states have sole regulatory authority of insurance. What has resulted since is a bureaucratic cluster of 51 different regulators (every state, plus the District of Columbia) overseeing their individual jurisdictions, punishing American consumers and insurance providers alike.

Take, for instance, product development. A company looking to introduce a new product throughout the country has to get approval from every regulator. All have their own approval process, so the national rollout of a new product often takes months, if not years. It should come as no surprise that the last major personal line, property/casualty product to be introduced nationwide was homeowners' insurance in 1959."

Over-regulation, plain and simple. Regulation has costs as well as benefits. When we decide to support any degree of regulation, we need to weight the costs against the benefits. I think too often whenever some new regulation proposal emerges, we overestimate the benefits and underestimate the costs. The reason the benefits are overestimated is because we think that the government in its position to "oversee", implying an ability to see the forest despite the trees, is better able and incentivized to prevent and fix problems than private individuals. The reason the costs are underestimated is because often they aren't know beforehand. In other words, it's hard to predict an individual's reaction to a particular policy, so a group of individuals would be impossible.

The article goes on to suggest a consolidation of insurance regulators into a federal body. This brings mixed feelings for me. On the one hand, it takes control over the regulatory process one more level away from the people. It also would increase the payoff to those who lobby for coverage mandates by broadening the base of those who pay. The Washington bureaucracy that would oversee insurance would be massive and incredibly unwieldy. On the other hand, the only real benefit for such a consolidation would be an easier process for insurance providers to introduce new products, which would lower premiums to consumers. On the whole, I don't support something like this because I think the costs would outweigh the benefits.

"A Quarter Century of 'Free Markets and Free People'" WSJ editorial:

"The philosophy of this page is clear. We are for the individual and stand against infringements on freedom. We put our trust in the industriousness and ingenuity of people left to do their own thing, unencumbered by overreaching regulations or other government interventions into the free economy. -- "The Editorial Page," editorial, Jan. 31, 1983"

This is why I read the WSJ editorial page.

"Foreign Trade Angst" Walter Williams Washington Post:

"Wal-Mart has become the whipping boy for political demagogues, unions and anti-traders. I suggest they have the wrong target. The correct target is revealed by answering the question: "Why does Wal-Mart exist and prosper?"

Wal-Mart exists and prospers because tens of millions of Americans find Wal-Mart a suitable source of goods and services. Mrs. Clinton, Mr. Obama, unions and anti-traders should direct their outrage and condemnation at the tens of millions of Americans who shop at Wal-Mart and keep it in business."

This article had a lot of good stuff in it. I liked this part because it places the "blame" of Wal-Mart's place in the world on the shoulders of those who deserve it: consumers. Again, this assumes you believe blame is deserved in the first place. It reminds me of a letter I sent to Dan Shanoff. I was talking about how I think the only way we'll ever have a playoff in D1 college football is if we, the consumers, those ultimately with the money in theirs pockets (it's the advertisers who are chasing us, right?), decided to boycott football until it was fixed. But, I argued, we never will because the championship isn't the reason we watch football, it's the chance to see our own teams, and no one will be willing not to watch his own team to make sure the best team gets to play for the title (because odds are it won't be their own team playing). I likened it to people asking cigarette companies to voluntarily make healthier smokes. I won't happen because there is no incentive for them to do so. Anyway, I bring this up because of my post script to the email:

"I was thinking about it because there is an article in the Atlanta Journal Constitution today about people fighting to keep Walmart from building another store in the area. It kind of annoys me because if enough people really thought the new Walmart was a bad idea, then people wouldn't shop there and Walmart would shut it down. But we all know that won't happen so these people try to legislate/city council the temptation away from others, which assumes their own morals are superior to those of the general populace."

"Rebate Folly" Jagadeesh Gokhale at Cato:

"We are about to receive a rebate in May this year as part of the economic stimulus that Congress passed in February. I suppose the folks at the CBO would have pointed out that although a rebate may stimulate consumer spending, it is also likely to reduce labor supply. The net impact, therefore, would not necessarily involve any increase in national output but it would certainly induce stronger inflationary pressures—adding fuel to the inflationary fire the Fed’s apparently stoking by cutting interest rates so rapidly. So it’s perhaps not surprising that the dollar’s value took a nosedive during February this year.

Higher rebate-induced debt and higher inflation implies higher future interest rates and, therefore, increased cost of financing consumer and investment spending. Rebate recipients will benefit today, but everyone will lose in the long-term as the economy becomes more sluggish.

Bottom line: Politicians gain by appearing to be doing something – and most of us lose!"

This is an insight I hadn't considered. For someone who is married with three kids, they will receive a rebate of $2400. That's equivalent to the monthly salary of someone making $28,800 per year. It's actually more than that, because someone who takes home $28,800 after taxes would earn about $33,900 pre-tax at a tax rate of 15%. If someone just got a windfall equal to one month's salary, don't you think they'll have an incentive not to work that month? Granted, just because an incentive to behave in a certain way is there doesn't mean automatically behave in that way. However, incentives are powerful things.

It reminds me of this podcast talking about scalping and opportunity costs. They imagine a scenario where someone has waited all night for $100 concert tickets only to find out the tickets sell out before he get to the front of the line. As he walks away, he's offered to buy a ticket from a scalper (assuming it's legal to scalp) for $1000. Thinking it's too much to pay, he declines. As he keeps walking, he finds a ticket on the ground (assuming he tries to find the owner and can't). What does he do? What should he do? Usually, he'll use the ticket and go to the concert. But this raises a question. By not paying $1000 for the ticket from the scalper, he decides he'd rather have the $1000 than the ticket. However, when he gets a ticket for free, he decides he'd rather have the ticket than the $1000 (assuming he also could have legally sold the ticket for $1000).

The correlation is that under normal circumstances (ie no rebate check), the worker who will receive the rebate check would rather have the money than the time, so he goes to work. However, when he gets a rebate check, he sees an opportunity to have the money without giving up the time, so he's able to enjoy the same things without giving up the time and going to work. So essentially, instead of finding a ticket on the ground that costs nothing but the opportunity cost of selling the ticket and enjoying the money, the government, through the rebate checks, will give these people time because they don't have to work to enjoy the same standard of living. They now have to choose how they want to spend the time. They can either spend it working and earning more money or they can spend it pursuing leisure.