Thursday's interesting reads

"Italy posts salary details on web " BBC News (HT: Club for Growth):

"There has been outrage in Italy after the outgoing government published every Italian's declared earnings and tax contributions on the internet.

The tax authority's website was inundated by people curious to know how much their neighbours, celebrities or sports stars were making. "

Yikes. I can't imagine what would happen if they did that here.

"Can Congress Manage the Health Care Sector?" by Michael Cannon at Cato:

"Former U.S. Senate Majority/Minority Leader Tom Daschle (D-SD) says no way, Jose.

In a recent interview about his new book, Daschle stressed:

'Congress is just not capable of being the manager of a health care system and yet it’s largely Congress today that has that responsibility. It hasn’t worked for the last 50 years. It’ll work even less in the next 50.'

Thus Daschle advocates creating a Federal Health Board to manage this $2 trillion chunk of the U.S. economy."

I don't understand how Congress can have such a low approval rating (20%-ish) and people still think that it is best suited to fix health care, financial regulation, etc. It doesn't surprise me that Daschle thinks some other government bureaucracy can do it, but I think that they would be only slightly more qualified than politicians. Well, one thing they both have going for them is that at least they aren't greedy or power-hungry. Yeah.

"The 998th Cut - and the 999th?" by Jim Harper at Cato:

"Here’s a new bill in Congress that strikes me as a peculiar encroachment on freedom. H.R. 5912 would amend the U.S. code to make cigarettes and certain other tobacco products nonmailable. Undoubtedly, this would make it a teensy bit harder for some people to smoke and chew tobacco...

Does this bill affect you directly? Chances are it doesn’t, as few people send or receive cigarettes in the mail. But what happens tomorrow when you’re part of a disfavored group?" [Italics added.]

There really is no way to know when the majority tide will turn against you. Just ask Robespierre.

"Wishful Thinking on Cellulosic Ethanol" by Indur Goklany at Cato:

"Supporters of ethanol, stung by the backlash over its unintended but foreseeable consequences (see, e.g., here and here), namely, increasing hunger due to a run-up in global food prices and increased threats to biodiversity, now tell us that cellulosic ethanol will come to the rescue. The theory is that cellulosic ethanol, which is still in the research and development phase, would be produced from non-edible plant material, e.g., switchgrasses, crop residue and other biomass that is not currently grown or used as edible crops. Thus, it is implied, it would have no effect on food prices.

But this is wishful thinking.

If cellulosic ethanol is indeed proven to be viable (with or without subsidies), what do people think farmers will do?


Farmers will do what they’ve always done: they’ll produce the necessary biomass that would be converted to ethanol more efficiently. In fact, they’ll start cultivating the cellulose as a crop (or crops)...Food will once again be competing with fuel. And land and water will be diverted from the rest of nature to meet the human demand for fuel."

If it's more profitable to create the fuel than the food, they will create the fuel. Things have a crazy way of working that way, don't they?

"Exxon Profit Rises Less Than Estimated on Output Drop" by Joe Carroll at Bloomberg:

"Exxon Mobil's 17 percent profit increase lagged behind the gains of 25 percent and 63 percent by Royal Dutch Shell Plc and BP Plc. Oil and gas production fell 5.6 percent, leaving Chief Executive Officer Rex Tillerson unable to take full advantage of record prices. U.S. refining profit at Exxon Mobil, the world's largest company by market value, plunged by more than half.

'They've got one big tailwind and that's higher oil prices, but that's also a headwind because it means lower margins in their chemicals and refining businesses,'' said Stephen Leeb, who manages $175 million as president of Leeb Capital Management in New York. 'Exxon is also having trouble raising production, and that's not a good sign.' ''

This tells me two things. First, it tells me that these oil companies can't just raise the price to whatever they want. Exxon had a market cap of around $498 billion. The article says the stock price fell around 3.3% (as of now its around 3.5%), which means the company has lost almost $20 billion of value. If they could raise their prices at will to avoid wiping out so much value, don't you think they would?

Second, it tells me we have a supply problem. If they are having a problem increasing production, that means the supply could have been higher. With higher supply comes lower prices at the pump. But because there are so many limits on expanding supply (by severely limiting the investment in new refineries), we're stuck.

"Yes Tim Morgan, we have abandoned the feckless squishes..." by Erick at Redstate (HT: Club for Growth):

Speaking to the Republican Party: "You find me a slate of candidates who actually believe in smaller government and I'll find you a check."

I was talking to a colleague at work yesterday about how I think the evangelicals have taken control of the Republican Party. Democrats nowadays seem to prefer big government for economic issues (trade, welfare, etc) and small government for social issues (abortion, gay rights, etc) while Republicans seems to prefer the opposite. It might not be too long before the evangelicals begin to spread that big government preference into even more areas of public policy (I think No Child Left Behind is a great example of where it already has).

"Airlines in Charge" by John Stossel for the New York Sun (HT: Club for Growth):

"And Lou Dobbs of CNN wondered "whether airlines are putting profit ahead of passenger safety." Let me get this straight. The only reason airlines care about safety is because of the FAA? So without government, multibillion-dollar companies would jeopardize millions of passengers by unsafely flying $50-million airplanes?

The press and politicians suggest that airlines would cut corners to make money, but how would that work exactly? Crashing airliners is a route to bankruptcy, not profits...

What about alarmist claims that the FAA has been lax in enforcing its own procedures? If the claims are true, then where are the bodies? The best evidence that FAA enforcement is unnecessary is to assume it's been lax — and then to note that airline travel, though busier than ever, has never been safer.

We need to rethink the premise that government inspections keep us safe."

"Blame Congress for Inflation" WSJ op-ed by Paul Ryan:

"But if we really want to do something about inflation, Congress should repeal the Humphrey-Hawkins Full Employment Act of 1978, which dangerously diverted the Fed from its most important job: price stability. When the Fed was created in 1913, its principal role was to maintain a sound currency with stable prices. But Humphrey-Hawkins changed the Fed's mandate, directing it to focus on long-term price stability and short-term economic growth.

Unfortunately, in its efforts to accomplish both, the Fed could end up satisfying neither. This would make the next 18 to 24 months even more painful, as the Fed reverses course and sharply raises rates to wring inflation out of the economy. These Fed-induced boom and bust cycles are detrimental to our long-term economic growth and living standards."

I'm becoming less and less confident in the ability of the Federal Reserve to manage the money supply.

"Judging the Judges" WSJ book review by Amity Shlaes:

"[Ellen] Anderson is the Minnesota state senator who is pushing legislation to freeze foreclosures on homes with subprime mortgages in the name of "protecting the American dream." The economic chill from such a move – and from other attempts to protect "the American dream" from mortgage meltdown – would likely be felt around the world by pension plans, banks and municipalities that have invested in mortgage-backed securities...

Minnesota's governor, Tim Pawlenty, is threatening to veto the bill that Ms. Anderson is pushing, officially called the Minnesota Subprime Foreclosure Deferment Act. But the smart money says that it is Ms. Anderson who will prevail. Those on the side of mortgage relief usually do. Those on the side of mortgage enforcement tend to lose out. Homeownership is compelling; the property rights of lenders are not. That, at any rate, appears to be the current American consensus...

American law had, until [the Supreme Court's decision on Home Building & Loan Association v. Blaisdell in 1934], protected lenders' rights – as James Madison said, "laws impairing the obligation of contracts are contrary to the first principles of the social compact." But when Home Building took its appeal to the Supreme Court, Chief Justice Charles Evans Hughes, backing the Blaisdells, presented the social compact and the private contract as an either/or proposition and chose the compact: "The question is no longer one party to a contract as against another but of the useful means to safeguard the economic structure upon which the good of all depends."

"Trading toward inequality?" on Free exchange at economist.com:

"The resulting wage divergence should serve as a signal to the labour force that more professionals are needed. As such, current and future workers should respond by earning the necessary qualifications to move from worker to professional. In that way, the economy's demand for specific skill levels is met and wage divergences are limited.

The problem in America is that movement between Mr Bivens' groups is limited. This is the Goldin-Katz result--that educational attainment has slowed in America, leading to a shortage of high-skilled workers and a glut of unskilled workers. Mr Bivens seems to see growing inequality as the trouble with trade; I see it as a failure of American economic mobility. Given that trade does produce net benefits for the nation, it seems to proper course of action is to liberalise trade and focus on fixing immobility produced by slowing educational attainment."

"The Jubilee Act for "Responsible" Lending -- A Bad Bill" by David Keating at Club for Growth:

Apparently the "Jubilee Act for Responsible Lending and Expanded Debt Cancellation of 2007" gives the Secretary of the Treasury the authority to "collaborate with appropriate government agencies to prevent private investors from profiting from buying low-income country debts at market value and attempting to recover their original value or more (commonly known as 'vulture funds')" through a variety of legal means. From what I can tell, this is what has happened. Several governments have decided that, through the Heavily Indebted Poor Countries Initiative (HIPC) provide debt relief to poor countries. Concurrently, investors who own a country's distressed debt try to collect on the private debt owed. Some folks don't like this. The post on the Club for Growth blog referred to this post by Felix Salmon, where he says:

"If Gordon Brown [acting on behalf of the government] gives Zambia debt relief and Michael Sheehan [acting on behalf of his investment fund] doesn't, that doesn't mean that Michael Sheehan is "profiteering" from Gordon Brown's work. It just means that Zambia doesn't need to repay Gordon Brown on top of what it needs to pay Michael Sheehan."

One creditor forgiving a debtor has the effect of making it easier for the forgiven to pays its other debts. Those who invest in distressed debt do so because they feel that something might happen in the future, either through their own efforts or other factors, that increases the ability of the debt to be repaid. It's a gamble because they don't know whether or how much they'll be able to collect. Interfering with the contract creates big problems with proerty rights and legal certainty. Salmon's post is pretty good in explaining the whole situation.

It reminds me of what happened to IOU's issued to soldiers during and after the Revolutionary War. Because few had faith the new country would make good on its debts, many of the soldiers sold the IOU's for as low as $.25 on the dollar. Later, when Alexander Hamilton was Secretary of the Treasury, he realized that for the country to be strong economically, it needed to repay all of its debts for their full face value (as opposed to just paying market prices). Many of his enemies, such as Jefferson and Madison, thought that the holders of those debts (those who bought them from the soldiers, for example) shouldn't be able to get their full value, but instead return the full face value to the original holders. Hamilton was aware that doing that would set a precedent of not allowing those who take risks, such as investing in distressed foreign debt, from realizing the upside of their bets, taking away the incentive to take the risk in the first place.

"I Have a Dream..." by Jerry Taylor at Cato:

"That having been said, Senator, we answer to our stockholders, not to you. Our investment strategy is our business, not yours. While we are happy to discuss our perspective on the energy market and the merits of existing and proposed public policy, we are not interested in encouraging the idea that our investment strategy is a legitimate matter of interest to the United States Senate."

An imaginary letter sent by an oil company executive to Senator Domenici in response to his request to "promptly send reports to his office “explaining” their individual corporate investment strategies with particular attention to their work in the 'clean energy' sector." If only. I can only imagine what would happen if this actually happened. It would be another example of someone wielding power to destroy just cuz.