Mankiw On the GSF's Response to Gas Prices

As always, great stuff.

Point #1 was something I was going to post on yesterday but blew it off. Mankiw is right, at least as far as Donny Baseball is concerned. Higher gas prices are making me drive less. I am walking or biking into town or substituting activities that require driving with activities that don't. If I get a $100 check from the government to offset high gas prices, I'd probably buy my wife some shoes or something.

Devil in the Gas Price Details

Here are the little details that trip you up when you screw with a highly complex supply chain, as the Great Sausage Factory did with its recent energy bill and the MTBE phase out/ethanol mandate. Result: higher gas prices.

Snatching Defeat From the Jaws of Victory...in Slow Motion No Less

OK, so the economy grew at 4.8% in Q1. This Bloomberg story has all the details, which are quite amazing actually (business capex was en fuego). So, all the Republicans in the Great Sausage Factory had to do was shut their mouths and wave this report in the air and tell America, "See. 4.8% GDP growth. We know what we're doing." Their majority would have been in the bag. Instead they have unleashed a torrent of the most assinine claptrap and economic gobbledygook over gas prices that the public can only assume that the great GDP numbers are a result of pure luck, a case of the blind squirrel that is the GOP majority fortuitously finding a nut. This is political strategy and execution at its absolute worst.

Ask Ourselves: "Does Iran Make Anything Worth Buying?"

Edward Luttwak has written an engaging piece on strategy for dealing with Iran. At the risk over simplifying Luttwak's analysis, he urges restraint at this point because Iran is essentially incompetent and mismanaged. This argument has specific resonance, beyond Luttwak's detailed account of just what it takes to build a nuke, given what we have since discovered about our dreaded Cold War foe, the Soviet Union. Critics of Cold War hawkishness love to point out that the Soviets couldn't build a reliable toaster oven, yet we were deathly afraid of their war machine. But wasn't that the point? We inately knew this and decided to wage a war of economic attrition, ultimately forcing the Bear to gorge itself to death on military spending. Much preferable to a real war with large numbers of deaths if you ask me. And this is essentially Luttwak's point, that there is strong reason to believe that the Iranians are another gang that can't shoot straight, economically speaking. I find this argument compelling given Iran's inability to even get oil refining right, or it's fumbling of basic projects like its methanol plants. Sure their ideology is something to be highly concerned about, but how scared should we be about their engineering? Luttwak argues that we have time on our side, time to gather more intelligence, foment revolution, whatever.

After reading Luttwak and pondering a bit, I was less afraid that we are behind the eight ball on Iran. We've played some pretty damn good chess before, and there is every reason to believe that we can checkmate the mullahs without bunkerbusters.

This Deserves a "Heh."

OK, I said to be wary of Latin American stock markets the other day, but Dr. Ed Yardeni has another way to play it...

"Then again, there are more and more wealthy Latin Americans, who might want to buy a second home in Miami just in case a leftist takes over in their country."

Bernanke Not Making Friends in Europe

Ben Bernanke is giving the stock market what it wants and simultaneously giving Jacques Chirac and Silvio Ber...scratch that...Romano Prodi a headache. In comments today, Bernanke let it be known that he is indeed cognizant of all the gnashing of teeth that he may "go too far" and plunge us into a monetary policy-induced recession. The stock market has been desperate to get precisely this type of clue from Bernanke as to when rate increases might slow or stop. Meanwhile across the pond in some of the lesser competitive nations of old Europe, it looked like competitive devaluation had a chance to help economies limp along for awhile. No longer. The USD has tanked close to 6% against the EUR since March and 7.5% since November. That means that European goods are that much more expensive for USD buyers. As ravenous as US equipment buyers are these days, I doubt that they are willing to absorb that kind of hit. This should hurt Euro production. Look for the political heat to be turned up again on Jean-Claude Trichet to proclaim his undying dovishness on inflation.

Stocks Say "Show Me"

So, Larry Kudlow is reporting that the extension of dividend and cap gain tax cuts is a done deal. Fantastic, but the markets don't believe it. The stock market is in a Missouri mood given that this important tax policy legislation was supposedly a done deal back in January, but the Republicans in the Senate botched it. The market has no faith in this Congress's ability to get pro-growth policy passed. Any boost in markets from this policy achievement will have to wait until after the votes are counted.

Stack 'Em High, for Senator GrassLIE

So now the eminent toilers in the upper chamber of the Great Sausage Factory want to inspect the tax returns of the major oil companies. This intrusive manuever is as deeply cynical and base as politics gets, but I say hand 'em over.

You know why? I bet some of these Senators have never even seen a major corporation's tax return. So, if I were Rex Tillerson, I'd enlighten them. In his 2004 shareholder letter, Warren Buffett mentioned that Berkshire Hathaway's tax return consisted of documents that stood four feet high when stacked up. And the Senators want 15 company's tax returns, so let's dump 60 feet of paper on their doorstep. It couldn't hurt the oil companies' case given that the poor bastard staffer who has to read the damn things won't understand anything in them anyway, and it might even give a Senator the notion that the tax code is a mess. Hope springs eternal.

Bring Back the 'Paradigm Shift' !

It is entirely foreseeable that in the not too distant future, true small government conservatives running for office will be competitive simply by stating, "I'm going to be exactly like Sen. Tom Coburn." As I have stated before, I think the winning paradigm for Democrats is the "Moynihan Democrat," which is now a relic. Conversely the winning paradigm for Republicans is the "Coburn Republican," which is but a faint whisper of potential today. Neither party will get the results they want in '06 and '08 without embracing one of these paradigms.

UPDATE: In the course of Senator Coburn's blessed anti-pork maneuverings today on the floor of the Great Sausage Factory, Senator McCain actually invoked my favorite pork embarrassment, the Salmon-Thirty-Salmon!!!

Just Kidding About the Whole "White Devils" Thing

Now that his "land reform" program, which was nothing more than unleashing armed criminal gangs to confiscate land from, and often kill, white farmers, has utterly devastated Zimbabwe's economy and deprived it of its best source of foreign exchange, Robert Mugabe is changing his tune about all those "white devil" farmers. He says they can come back and farm. I doubt he has happened upon racial enlightenment, but rather wants to revive his country's major export, tobacco, which this year saw the lowest harvest level since 1972. I doubt many of those farmers, who are happily working the land elsewhere, will take him up on his offer.

Related post here.

Filling In the Gaps

Tony Snow has been stealing all the headlines but another guy, well-versed in Washington DC, was recently brought in to fill a gaping hole on another team that has failed to live up to its potential.

Bush to Hu Jintao: "Our Oil Weapon Is Sleepin in the Corner"

Check out this national gas price map. What state has some of the lowest gas prices? Wyoming. Yeah, that's right, Dick Cheney's state. C'mon, you know he can pull it off.

Newsweek Slanders Entirely Rational Duke Co-eds?

Newsweek does a typical national media piece on the Duke lacrosse scandal ( I use this term only for clarity's sake, it could very well turn out to be the 'Race Baiting Durham District Attorney' scandal in time).

This little tidbit caught my eye: "Players frequently walk around with girls—sometimes called 'lacrosstitutes' by their peers—in tow,"

Got that. Females that attend Duke who date lacrosse players are akin to prostitutes. What slander. I would say that such females are quite normal and responding in line with what we know through our study of biology and economics. Presumably lacrosse players are quite athletic and in good physical condition, right? Precisely the sort of males that females would prefer to mate with, knowing what we know about biology and the female preference for strong offspring that have better chances at suvival. Do not females seek out and compete for the healthiest males to produce offspring with? Of course. Humans however have more advanced processes (or so we think) and we weigh other factors in such matters. Beyond the raw makeup of genes and chromosomes, we have a survival instinct for our offspring and we seek mates who can ensure the health and protection for our offspring so that they can mature and in turn produce offspring, thereby extending our genetic survival. Among species that structure themselves into family units, females look for males who have the skills to keep that structure intact. In human behavior it is mostly manifested in females seeking out males who can garner enough resources to apply to the family's ongoing survival. Newsweek makes much ado about how lacrosse is a sport played generally by the white and the wealthy. Given what we know about high rates of intact families among the population of whites, the wealthy, and combinatorially, wealthy whites, it would seem that playing lacrosse is a highly valuable signaling mechanism that aids in the problem of asymetric information. While there are surely other signals that might also convey the same information to females looking for potential male mates (i.e. studying computer science in our increasingly information-centric economy), if the demographics of lacrosse are as cut and dried as Newsweek makes them out to be, it is entirely rational for females to be attracted to lacrosse playing males. Such is why I deem Newsweek's characterization slanderous. It would seem that these females are acting entirely according to their biological and economic self-interest, yet they are demeaned as akin to prostitutes? Shame on Newsweek.

UPDATE: Here's a little bit more on signaling and asymetric information from an actual economist.

A Critical Distinction

Instapundit links to this Mark Steyn piece, which references a key distinction made by Christopher Hitchens. The distinction is "dislike" versus "have contempt for," and is an all important piece of political analysis that is largely missing from the MSM, because they are in full-scale euphoria over Bush's approval ratings. They think this spells guaranteed doom for Reps and success for Dems. Well, my personal approval rating for Bush is probably somewhere in line with the rest of the nation's (if you make the assume that all these polls accurately reflect the nation's mood), but does that translate into a vote for Hillary? "No, nay, never" as the old Irish ditty goes. Dissatisfaction is an opportunity for one's competitors, but not a guaranteed sale. You have to bring a viable alternative to the table to capitalize on the dissatisfaction, albeit a less viable one than if the satisfaction level were higher. I don't think the current crop of Dems is up to closing the sale and I have said before on this blog that the complete absence of what I would call a 'Moynihan Democrat' is a huge problem for the party, a problem to which the MSM is blind. In the blogosphere the understanding is more acute, and most understand that '06 and '08 is basically all about the extent to which conservative or Republican voters want to smack around their current crop - do they want to throw the bums out wholesale and turn over the reins or do they want to take away a little power and punish select bozos but otherwise keep the picture intact? That is the question.

Solar and Wind to the Rescue? Yes, but Not How You Think

This article describes an extremely important development in the energy business - the deployment of wind and solar to technologies to extract hydrocarbon based fuels, natural gas in this case. This will come as no surprise to those who have read Peter Huber and Mark Mills's excellent book. One of the illuminating points that the book reveals is that we, as a society, use a great deal of energy looking for and extracting more energy, and that by lowering the cost of finding energy over time we have been successful at finding ever more energy. Huber/Mills also decimate the argument in favor of using solar and wind power for fuel, "yes, wind and sun are free, but solar panels and wind turbines are expensive." So, while it makes no sense economically to convert sunlight and wind into energy to heat or light our homes, that doesn't mean that it is wasteful to use these technologies to look for and extract more fossil fuels. The economic cost of wind turbines to tap into a nat gas field is an entirely different animal than the economic cost of the same turbines to replace nat gas in powering the grid. Ultimately, the replacement of fossil fuel energy with solar or wind energy as the "finding and extracting" energy holds the potential to lower the overall cost of energy in our society, both in terms of resouces and environmental impact. Just further evidence that governments should not be picking winner and losers in the energy markets, but should be letting human ingenuity tackle our energy challenges.

P.S. Huber and Mills's book is a must read for anybody who wants to talk intelligently about energy, regardless of what policy side you want to advocate.

Immigration Then and Now...What's Changed?

Excellent reminder from Prof Mankiw to those of us who may have forgotten or never learned their history. For my part, knowing how my Irish immigrant forebears were viewed upon coming to this country, I find it very hard to countenance the anti-Mexican tinge in much of today's immigration debate. That said, I am not sure the Irish were so presumptous in their demands. Either way, what evidence is there to suggest that amnesty or continued immigration is economically detrimental?

Chavez Making Final Push

Page 1 of today's WSJ has an article about Hugo Chavez's final push to take full control of Venezuela's oil industry. No doubt he will succeed, but you can mark it as the beginning of the end of Venezuela's decline. The foreign oil companies will leave, and their money, technology and know-how will go along with them. Venezuela's oil infrastructure will decay and not be replaced or upgrade with the latest, more efficient gear. Production will fall off and the only sector of the Venezuelan economy that isn't already dead will itself decline rapidly. This will spread economic misery as Chavez will have less money to spread around to buy poor folks loyalty. This will put a strain on his power and he will have to be more ruthless and authoritarian to maintain power.

While I have been reluctant to blame average Venezuelans because they have shown a degree of courage in the face of Chavez's depredations, they know where this is going and they seem to want it to get worse before it gets better so as to increase the chances of Chavez's eventual demise. I'm not ready to claim that Venezuelans are getting the government they deserve but I am not sure they are doing enough to save themselves. We'll see.

Draw Your Own Conclusions

The lead, page one article in some pink, foreign newspaper discusses the new, freshly minted role of the International Monetary Fund. Last week I read coverage of the negotiations and the coverage put it well, (paraphrasing) "with fewer global deadbeats to lend to, the bureaucracy at the IMF is looking for a new mandate to keep it busy." The likeliest mandate was surely to be the economic hobgoblin du jour, 'global imbalances.' So, now the vast bureaucracy of "C students", as Joseph Stiglitz refered to the IMF, that has racked up a stunning record of failure in dealing with crises, will devote its energies to the non-problem of trade imbalances. This is would be funny if it weren't so sad, because taking the globe as a unit, there are no trade imbalances, unless unbeknownst to me we have started trading with Mars. Clearly the target is the US trade imbalance with China. Europeans love to lecture us about this and wantt to help us address it, probably because the only way to address it is to reduce US prosperity, which is their true ultimate goal.

So, should we be scared when the guys in suits knock on our door and say "we're from a multi-lateral, government-sponsored agency and we're here to help"? Maybe not. It seems that the IMF is relatively toothless and is going to try to drown us in reports and analysis. And the Chinese are making no bones about how they feel (what's Chinese for "lick me"?). So given that the IMF has 1) a record of imcompetence 2) no actual enforcement powers, and 3) little support from a key economic power at the source of 'the problem', maybe this isn't really front page news after all.

Be Wary of Latin American Stock Markets

Democracy, freedom and prosperity are on the wane in Bolivia. Peru is next. Despite this, Latin American stock markets have been on a tear - Peru +45% ytd, Venezuela +51%, Argentina +24%, Brazil +19%.

It won't last. Chavismo is on the march and it will ultimately destroy the economies where it takes root. Massive social unrest and violence will ensue, which isn't good for stocks.

Markets Not Channelling Max Baucus

I have posted numerous times on how failing to extend the tax cuts of dividends and capital gains will tank the stock market. Well, Don Luskin highlights a disturbing trend. Someone tell Senator Baucus.

Stripper/Embezzler "Wonders About Their Character"

Aside from 1) having their reputations ruined in front of the entire nation, 2) being suspended from school, and 3) pinnned with the lifelong stigma of a felony indictment, now Reade Seligmann and Collin Finnerty have to suffer the indignity of having their character called into question by a former embezzler/current stripper.

Reade Seligmann ought to warm up an old question once posed by another New Jerseyan, "where do I go to get my reputation back?" Would that be Richard Brodhead's office or DA Nifong's?

Something Is Amiss, A Scribbler Goes Unvalidated

I love this one. A scribbler for Fortune is ticked off that impressive economic minds haven't publicly validated his opinion about the economy. It's palpable, Fox just knows that the economy is a disaster and these economists would gladly admit to it, if there weren't something deeply sinister going on.

Here's a thought exercise. What could be some of the reasons that Lindsey, Hubbard, Mankiw and Friedman are "infuriatingly judicious":
- These economists actually don't share Fox's view of economic disaster? Nah.
- Bush has compromising pictures of these men that could wreck their lives? Must be.

HT: one of those infuriatingly judicious fellows.

Bill's Boycott of Exxon Is Misinformed and Illogical

So Bill O'Reilly has called for a mini boycott of gas (Thursday's Talking Points Memo), and has noted that he is personally boycotting ExxonMobil in light of Lee Raymond's compensation. First, the gas boycott is hardly worth a stir, most people rationally follow their economic self-interest and react to price signals by consuming less, they don't need a humble news correspondent to instruct them in such affairs.

While all have a right to our opinions, the boycott of ExxonMobil is less justified and Bill's underhanded call for it, by mentioning his personal boycott, is misguided. First, I think he has his facts wrong. He mentioned a $700 million payout to Raymond. I don't know where he got that number. The number widely reported in the press was around $400 million, but even that number is irrelevant, as this analysis by an expert compensation analyst points out. As Crystal points out, much of this figure relates to compensation that was earned over a long period of time, some over 43 years of Raymond's tenure at Exxon and some over his 12 year run as CEO. As I mentioned here, modest numbers can get pretty darn big when you compound them over many years. Bill seems not to understand the power of compounding, nor appreciate that by effectively putting his money back into the company Raymond was aligning his interests with that of shareholders. Shareholders LOVE this. This is what shareholders want to see, as opposed to the egregious, no risk pay packages that many lesser executives manage to extract from their Boards of Directors. Additionally, Bill fails to understand that Raymond's compensation is a tiny fraction of the overall wealth he has created for shareholders, and they are happy to give it to him given the performance of the company.

Finally, I hope that Bill pauses to think one of these days about what he wants for America. In the area of global business competitiveness, does he want America to be a leader? Does he want American business run like Exxon or does he want it run like General Motors? Does he want management that builds a perennial leader or one that hemorrhages jobs and foists billions of pension liabilities off on the government for taxpayers to pay for? It is a pretty clear choice and I might humbly suggest to Bill that you have to pay well to get one over the other, and what you do pay is meaningless compared to the price of corporate mismanagement, ala General Motors. This is the economic equivalent of the saying "if you think education is expensive, try ignorance." Do we really want to punish companies for their ability to unleash the skill of a Lee Raymond and then simply hope that we don't get hundreds more disasters like General Motors? Not a chance in my opinion, I'll gladly pay for excellence. Lee Raymond and Exxon are examples of the system working. And that's the memo.

Chinese Fail to Repeal Laws of Economics

Here's the story. Despite having lots of crude to refine and plenty of demand for its refined products, Chinese refiners are withholding capacity additions because the government has imposed price caps (that is what 'refusing to raise the price' means). How many times do we have to see this in action, that price caps create shortages, before we abandon all talk of price caps here in the US? Sadly, no amount of times will be sufficient given our political system and given that economics isn't taught at the high school level.

More Thoughts on Lee Raymond's Compensation

Here's more on Exxon Chairman Lee Raymond's compensation. A typical grouse over executive compensation is that the person at the top earns far too much relative to the grunt. Well OK, if a grunt at Exxon earns $25,000 (that's probably low except if you work in the mail room) Raymond's $52 million 2005 pay package was 2080 times that of those on the bottom of the totem pole. It certainly is a matter of opinion whether this is egregiously high. However, Tom Cruise earned $70 million for Mission Impossible and I bet a production assistant, the movie industry's grunt equivalent, earned about $25,000. So Cruise was paid 2800 times better than the grunts. I don't see alot of stories decrying the injustice of the movie industry or labelling Tom Cruise some rapacious fat cat. Intellectual honesty folks, take on Cruise too or leave Raymond alone.

Another thought. If you earn a $1 every year for 13 years and you can compound that dollar, say by deferring payment and taking stock instead, at 12% (the rate that Exxon shares have increased each year for the 13 years Raymond has led the company) you will wind up with $28.02. When you factor in dividends that the stock paid, you are looking at something like $29 and change. Well, this is what Raymond did, so the $98 million lump some payment has to be broken down into actual pay and compounded earnings on that pay. Turns out this element Raymond's compensation was roughly $3.4 million per annum. This is on top of his salary and perqs of course, but that is hardly an egregious amount of money to run the world's largest company and run it well. My point is the numbers seem large to people and can definitely be off-putting but you have to be cognizant of the power of compounding. Over time, modest amounts compounded at healthy rates of return become large numbers. Little wonder then that Albert Einstein said that compound interest was man's greatest invention.

Food for Thought on Social Security

Great stuff over at Greg Mankiw's blog today (every day really). I want to highlight this post where he highlights new work on the risk inherent in the defined benefit nature of the Social Security System. It is a great point indeed, but it seems rather obvious, that the security of benefits is subject to or akin to "political risk." It is no different from investing in assets in, say, Venezuela several years ago. There is always the risk that the country's politcal system will move away from democracy toward authoritarianism and property rights will erode. Naturally, we face less risk of that here in the US, but we do face a high risk that fiscal pressures will change the political calculus that supports the status quo on Social Security. The debate over SS reform was really about substituting market risk for political risk, although that is not the way the rhetoric framed it. It is had to tell what type of risk Americans really want. We are much more broadly and deeply exposed to the markets than we have ever been, so we appear to be quite comfortable with market risk, yet it seems politically we are desirous to keep the status quo, I assume because we are comfortable with the political risk too. Advocates of personal accounts (of which I am one) seemed to feel that Americans' obvious comfort level with market risk signified their desire to shift all there risk to market risk. This could be a misreading of the collective psyche, as it appears we are more interested in a deversified portfolio of risks. This poses an interesting question - is the expansion of the philosophically capitalist 'investor class' a phenomenon that is actually making the status quo of the collectivist social security program more secure? Food for thought, definitely.

Economic Illiteracy Award Part 2

Goes to Chuck Schumer (depressingly my Senator). Refiners are operating at 85% capacity Chuck because, 1) they ALWAYS slow down in April and May to do maintenance and upgrades prior to the driving season, and 2) because you royally f*&ked with the gasoline supply chain with the energy bill and now they have to figure out how to get all this ethanol into their gas when it can't travel via pipeline like the MTBE that they have been using for 20+ years.

As I have said, "the only thing more damaging to the economy than one of Chuck Schumer's ideas is one of Chuck Schumer's ideas that gains bipartisan support."

O'Reilly: STILL Stuck On Stupid on Oil

Well, I know that Alan Greenspan reads my blog, and Mark Steyn reads my blog, and even Rudy Guiliani reads my blog, but alas, Bill O'Reilly does not. And it is a shame because if he did, watching him talk about gasoline prices wouldn't be like stabbing yourself in the ear with a bamboo skewer. Here I lay out, in clear and simple terms what is sending gasoline prices skyward and yet he comes on and bitches and moans about some putative backroom deals that cigar-chomping oil execs have struck that keep all of America in economic bondage. Guys like O'Reilly are a mixed blessing; he is a welcome alternative voice to the ridiculousness that passes for acceptable media, but sometimes I wonder if his ignorance on economic issues is worth that gain.

Stock Market Getting the Clues It Needs

Wow, an excellent day for the US stock markets today. Earnings continued to come out generally positively, there were a few blips in earnings but revenues did well across the board which means that there is demand out there, a good sign indeed. Also, the release of the minutes from the last Fed meeting showed that Bernanke & Co. see an end to rate hikes. Of course this could change because forthcoming data will continue to inform the governors' thinking. So today we got 2 of 3 Big Clues that the market was looking for. Since January the market has been seeking the answer to three questions in my opinion:
1) Will the economy/earnings growth slow (wot with rising rates and energy costs and all)?
2) Will the Fed overdo it and plunge us into a monetary-induced recession?
3) Will investors get a continuation of the current tax policy regarding dividends and cap gains?

Well, it looks like 1 & 2 are coming into focus and the answers are edifying. We will have to wait for the answer to #3, the political calculus is a toss up to slightly pessimistic given the way that the Republican Senate majority goes all milquetoasty when the Dems turn up the heat regarding the deficit. If the members come back from their Easter breaks having heard a mouthful about the importance of these tax cuts, then maybe we will get some traction on the extensions of those tax rates. Clearing up the uncertainty of investment capital tax policy will be that third leg that bolsters more solid advances in stocks.

Fannie Mae - A Case History of Good Intentions Gone...well, you know

If you can't see the obvious folly that Hillary Clinton's National Investment Authority would be, here is a glimpse of how such an entity will end up one day - just like Fannie Mae, ostensibly a government agency that promotes worthy outcomes in the economy but that ends up 1) distorting markets, 2) exposing taxpayers to gigantic liabilities, and 3) devolves into an insider's feeding trough that resorts to corrupt lobbying and influence peddling in order to keep its artificial advantage and privileges.

Oh No, Here We Go Again

There are clear and demonstrable reasons why the price of gasoline is moving sharply higher:
- significantly reduced output from Nigeria due to political unrest
- fear of a supply disruption due to the growing Iranian crisis is bidding up prices
- the gasoline supply chain is having to make severe adjustments due to the horrible new energy bill
- increased demand the world over, but notably China and India.

So, with these very simple and very obvious explanations, what is the big talking point as we go into driving season? Yes, price gouging. Forget supply and demand, let's be on guard for "price gouging." GWB had a stern warning for price gougers today. First switchgrass and now this.

Repeat after me, "we have high gas prices, because we want high gas prices."

UPDATE: Prof. Mankiw is on the same wavelength, here's his post on price-gouging, and there is also this one from some other smart guy.

Winning Strategy: More Coburn, Less Lott

I firmly believe that one measure of a man is who his enemies are. Given that standard, Sen. Tom Coburn (R-OK) continues to climb up the ranks in my book. Of course, Coburn previously pissed off Sen. Ted Stevens, and now he has added Trent Lott to the list. These are just the enemies who have had a public tussle with Coburn. I suspect that 80% of the Republicans in the Senate hate him. Kudos to the Good Doctor Senator.

Global Warming Is Five Questions

In discussing with folks the issue of global warming, particularly the Kyoto treaty, I have always tried to frame the issue of global warming as a series of questions:

1. Is the planet's surface warming?
2. Is this demonstrably a bad thing (or, should we desire to do something about it)?
3. Are we even able to do something about it?
4. What are the costs of doing something, relative to the benefits?
5. How should we do it, and who should do it?

I have always been amazed at how too many people quit thinking through the issue after they answer the first question. Maybe that is because the answer to question #1 is about the only answer that science can give us something affirmative, and perhaps then the only thing that global warming absolutists can cling to in order to impose their vision of society on us. Nonetheless, that is not my point. You can decimate the argument for a Kyoto at any point past #1 really. Don Boudreaux at Cafe Hayek seems to have thought through the questions and decimates the argument for a regime like Kyoto somewhere around #5.

Who Is Distancing From Whom?

The conventional wisdom of political analysis goes something like this - GWB's approval ratings are so low that he is a liability, so his allies in Congress are abandoning him, thus he cannot get any traction on his agenda like tax cuts or any of the various reforms he has talked about through the years, etc.

Well, Congress' approval ratings get tracked too. Even at 35%, it seems to me that GWB is smoking the distinguished membership of the Great Sausage Factory. Could it be that GWB is distancing himself from a political liability?

We're Too Busy Being Green

BP has been so busy trying to convince people, who feel guilty as they enjoy mobility and climate-controlled homes, that they are a "green" company, that they forgot to do basic maintenance and let some employees get killed. Whoops, we're homocidally negligent but at least we have unaided recall as "environmentally friendly" of 37% in 18-35s!!

The infuriating thing about this is that the energy industry has drastically increased the safety of energy use and reduced the environmental impact of energy exploration over the years. And then some doofus company like BP sets the industry back 10 years in the eyes of the public because they can't keep their refineries from exploding, which largely is, and ought to be in the absence of the BPs of the world, a phenonmenon of the 1950s and 1960s.

ExxonMobil Chairman Compensation in Perspective

Drudge had as its headline all weekend a report about outgoing ExxonMobil Chairman Lee Raymond's retirement package, with the clear implication that the $400 million dollar figure was atrocious. It may be in many people's eye's, and this is going to be one more lovely item picked up by the MSM to skewer "Big Oil." Alas, there is more to it that is certainly going to go unanalyzed and unreported. Bloomberg's excellent compensation columnist (and no executive pay apologist let me tell you) Graef Crystal breaks it down and gives us the all-important perspective.

This Week's Government Report Card

1. Dead terrorists - check
2. Tax cuts - nope
3. Shrinking the size and scope of the federal government - are you kidding?

1 out of 3 today. You need 2 of 3 to pass. Let's get with it.

The Maestro Adds His 2 Bits...SARBOX Stinks

I am glad to know that Alan Greenspan has been reading my many blog posts on Sarbanes-Oxley and agrees with me.

Also, the less distinuished former SEC Commish, Harvey Pitt, makes the case for amendment of SARBOX today in the WSJ.

Not a single person is saying that this is a good law, except for its namesake Sausage Factory worker Michael Oxley. This law is hurting our economy, it is what economists call a dead-weight loss. Unfortunately the usual time frame that it takes Congress to realize that it passed a bad law and amend it is something like 80 years.

Higher Prices at the Pump

It's all over the news, we are going to pay more for gasoline this summer. You probably won't here about the Nigerian rebels that have shut down 25% of that country's oil production, and you definitely won't here about the hash of an energy bill that the Great Sausage Factory gave us. The May switchover to ethanol from MTBE as an oxygenate additive is going to mess with the highly complex gasoline supply chain and higher prices will result. All this for some perceived environment benefit. Alas, the vastly more environmentally fervent Europeans haven't banned MTBE and retain the flexibility to blend it in their fuel, which they are doing when the price of ethanol make substitution of MTBE economical. There is a deeper debate here, but my main point is that retaining flexibility for the supply chain to react and adjust is a key factor in keeping prices stable, and even to reducing them. Somehow though our putatively very smart elected leaders think that mandating and hamstringing industry to react and adjust is the way to go. Yet more evidence of what I have said before "we have high gas prices in the US because we want high gas prices." No, we don't consciously desire and demand high prices, but we consistently enact policies (or refuse to oppose policies) that ensure, due to the laws of economics, higher fuel prices.

Liberal Economist: "Freedom of Movement Stymies Collectivism"

Did I mention that Greg Mankiw's blog is wonderful? Anywho, in this post Prof. Mankiw quotes this astonishing statement by Cornell economist Robert Frank regarding healthcare reform at the state level:

"Yet, despite this advantage, a health system operated at the local level could never work. Because people are free to move, such a plan would attract uninsured people with chronic conditions from surrounding cities, substantially raising the program's cost. In turn, the need to raise income tax rates would induce many of the community's more affluent taxpayers to flee to neighboring cities. The resulting death spiral would quickly doom the program."

Got that? We have to work around this whole freedom of movement thing. Add this to Nick Kristoff's Soda Tax and you get the sense that these people think we are children who need to be corralled told how to behave. (OK, I got that sense ages ago.)

On a separate point, do you see how Frank states that increased government benefits attract people who want to free ride on the government and how higher taxes repel tax-paying people? I remember the debate over welfare reform and the left refused to admit that lush welfare benefits attracted free-riders. And the left generally refuses to admit that higher taxes on business drives business out certain jurisdictions. It is good to see a leftist economist admit that incentives matter.

Great New Blog

Greg Mankiw has a blog now, and if you are interested in economics, it is a great daily read. Here is a great post on sin taxes. Naturally Mankiw, because he wants to educate his students on the economics, refrains from dismissing Kristoff's sugar tax as the lightweight nannying obnoxiousness that it is. As I stated in a previous post somewhere, "maybe liberty means the freedom to be a fat, artery-clogged slob...if one so chooses." The discussions of externalities are all very interesting but such "liberal" policy proscriptions cut deeper. They impinge on the very founding ideals of this country, individual rights. Who cares about the subtle externalities when the Nick Kristoffs of the world are running your life, telling you what you can and cannot do? (cue the Hillary quote here: "we are going to take things away from you...") Who is Nick Kristoff to say that I can't enjoy a Snapple? Does he understand my particular molecular biology and my ability to absorb with/without health effects the ingredients contained in that Cherry Coke? Doubtless. Who is anybody for that matter? Again, here we have the fundamental divide in our country today, faith in rules versus faith in people.

Finally, I have always believed in the 'offset' of the negative externalities of smoking that Mankiw mentions, namely that cigarettes, by killing off people earlier than they normally would live, save society money. I am sure that there are similar 'offsetting' effects of the negative externalities of drinking sugary drinks. Maybe the existence and popularity of sugary drinks causes busybody elitists to tip their hand as to what they really think of us all and how they would govern us, causing us to be ever vigilant and protective of our liberty. That is worth having a few extra fat kids in my book.

A Lesson In Appeasement

Jacques Chirac and Dominique de Villepin haven't even stood up out of their cowering position yet and the French unions are upping the ante. After having crushed the CPE ("First Job Law") which would have been a modest and sensible labor reform, they now want to attack the CNE, which is much the same law but geared for smaller companies. So the unions would like to import the conditions in the stultified corporate sector, where workers attain new heights in goofing off and contempt for their employers, to the entrepreneurial sector such as it is. This is an object lesson in appeasing your opponents. If you give in, it only increases their bloodlust and they come at you harder looking for more. Or maybe I'm wrong and Chirac and de Villepin should just try to figure out "why they hate us."

UPDATE: Contrast the way that public sector unions are holding France hostage, to this.

The Rule of Men

Regardless of the merits and/or demerits of any forthcoming immigration legislation, San Francisco mayor Gavin Newsome has vowed to ignore the legislation if it is not to his liking. I believe he previously, while holding office, ignored other laws not to his liking. Hmm. Elected officials actively undermining the law tha tlegitimately comes to us via our constitutionally proscribed legislative process. I think there is a word for such behavior or such a person.

A Blogloat

Guess what? The inverted yield curve was a false signal for recession.

I think someone predicted that it would be thus.

Death by a Thousand Cuts Is Still a Death

Wow, I just threw up my last post on French rioters and began to partake of bloggy richness elsewhere only to find Barbara Ehrenreich defending the French rioters. I will destroy her argument later on, but I just had to laugh at the last sentence of the opening paragraph:

"Throughout the month of March and beyond, they were demonstrating, rioting, and burning up cars to preserve a right Americans can only dream of: the right not to be fired at an employer’s whim."

Ah yes, those cruelly whimsical American employers, of which there seem to be, as of today, enough of to employ 95.3% of us. First I think that Ehrenreich completely whiffs on sizing up the dreams and desires of Americans. I think most Americans want a better job - be it better paying, more challenging, offering more flexibility, less physically demanding, whatever - rather than a guarantee to their current one. That is a characteristically American trait, not least of all simply because it's achievable (see here), but also because Americans inherently know that there are no guarantees in life and thus pursuing them is a pointless endeavor. Americans understand risk and reward, that less of former means less of the later.

The truth is that while close to 25% of French youth can't find a job, American employers can't find enough qualified workers (see here). Putatively evil corporations are throwing money, perqs and policy/environment changes at employees like mad in desperate attempts to keep people from leaving. That is the natural state of things if the economy is allowed to grow unhindered by the shackles of restrictive and punative policy. Ehrenreich and her ilk are not simply risk averse, presenting to Americans merely a different spot on the risk/reward continuum. They are irredeemably collectivist. They are the heirs of Karl Marx and Upton Sinclair and we know where their ideas lead. They lead to declining life expectancies. It is just a matter of degree and rate. We aren't at risk for a Mugabe-style descent into human despair, but a thousand little Ehrenreichian policy proscriptions over time would not be too far afield in its effect upon the direction of our social welfare. Whereas it is inexorably climbing, it would stop and then begin declining.

Tragic Distinction

Bloomberg reports today that Zimbabwe has achieved a tragic distinction, it has the world's lowest life expectancy. An average Zimbabwean can hope to live to the ripe ole' age of...sit down...36. Of course, Bloomberg throws in AIDS statistics to make you think that it is that simple, just AIDS. What it doesn't tell you is that Robert Mugabe's brand of murderous, racist, totalitarian nationalism has quite literally destroyed what was once a relatively thriving economy. No one would have ever mistaken Zimbabwe's economy for a tiger, but it was at one time the world's largest exporter of leaf tobacco and had a robust agricultural sector. Obviously, one robust sector means others too, profitable farmers need fertilizer and tractors and financing, etc and so forth. But all that is gone now and Zimbabwe's people are ponderously impoverished and dying at an age that for some in free societies is an age to begin having children.

Also on Bloomberg this morning I read about all these numb-nut French 18-yr olds running around in cahots with the unions and communists trying to destroy capitalism in France, and I just shake my head. It is amazing the blindness of the young. Free societies, specifically politically free societies that allow citizens to pursue free enterprise, have delivered the promise of living an astonishing 70+ years. Repressed socieities that crush capitalism and free enterprise, like Zimbabwe, offer much less. Do French 18-yr. olds really look to the future and want their lives to be shorter (and more likely less pleasant) or do they want them to be longer? Do they really devalue the human experience that much as to want less of it?

Today It Was a Good Day

First there is this.
Then there is this.

Dead terrorists and tax cuts. Two of the top three things I want from my government right now.

UPDATE: Hold the excitement. Republicans could not agree on the tax cut extensions. The most successful policy they have actually achieved in 5 years, but they're not sure they want to continue it. Truly mind-boggling.

Good Advice

Note to Self: when accepting the complimentary use of an automobile, make sure that the make and model is not a favorite among gangbangers.

Mo' Better Mogas

I am ashamed that I have not been all over this, but Larry Kudlow weighs in and he's right. The Great Sausage Factory seriously f*^ked with the gasoline supply chain with this last energy bill for no good reason. Predictably, we all will pay the bill for their stupidity. Industry PR efforts are claiming that the disruptions will be minimal as MTBE gets phased out, but privately people aren't as optimistic over the short term. Medium term higher corn prices will work their way into the supply chain as Larry notes, and unfortunately farmers have taken a pass on planting more corn lately because of fertilizer prices. Corn is a fertilizer-intensive crop and skyrocketing fertilizer prices have made farmers reluctant to plant, so are a while away from relief on the supply side. Longer term, who knows, but I have my eye on a hot Mercedes Blu-Tec C class or whatever BMW comes out with in diesel. If the rest of America agrees with me, then ethanol-blended gasoline will be a technology on the decline. It wouldn't be the first time that the Sausage Factory whiffed this bad and bet on a losing horse.

FX Traders Get 'Tricheted' Again

Big swing in the Euro today after Jean-Claude Trichet, as Bloomberg put it, "dashed investors expectations for an increase in interest rates next month." Here is where I outlined the basic tension between the desires of the political class and the folks in charge of monetary policy. And then this is what I said on Jan. 24:

"Today, the currency market bought the European line of rising rates hook line and sinker. Color me skeptical. The currency yahoos trade on the day's news b/c they need to have cash in pocket for the weekend and if the Italian Finance Beaurocrat says that the ECB will raise rates, well, they'll go along. I find it hard to believe that the ful ECB will continue raising rates when the most excited that the likes of Germany can get is projections of GDP growth moving from 0.7% to 1.0%."

All the analysts are pointing to fundamentals and predicting a few more rate increases. Maybe I'm nuts, but with nary a sign of inflation and only a glimmer of economic optimism, it is really hard to see this, but in truth currencies are above my pay grade. Still, I see the European economy only revving up ever so slightly and there is no way that J-CT is gonna be the guy to strangle the infant in the crib. Thus he whacked the market's expectations of aggressive tightening today. If they had only read Dony Baseball, as I outlined how how J-CT is "hemmed in" to a more accomodative stance than the fundamentals warrant. If the ECB doesn't raise next month and the Fed does raise in May, then we could see the Euro back down in the $1.17-$1.19 range.

Out of Nowhere...Momentum Building on SARBOX Reform

Late breaking SARBOX reform news in an update to this post. I know this is not earth-shattering stuff, but I am not blogging to generate excitement among the general public...this is an important issue for US economic competitiveness and our capital markets.

Cue the 'Jeopardy" Theme

"Alex, I'll take Republican Embarrassments for $400, please"

Answer: Trent Lott

"What is the latest example why small government conservatives are stark raving irate at their traditional establishment political party and remain only barely nose-holding Republican voters?"

Correct. Next selection.

A Little Light Break From Weighty Economic Issues

A frivolous nod to the peculiarties of the denizens of the great native state of the lovely, ever-ravishing, and in every respect wonderful Mrs. Donny Baseball (I have personal experience with #17!)...

I might humbly add one of my own...
28. If something is advisable to do, it is not something that you "might do" or "oughta do" but that you "might oughta do."

You are 100% Oklahoman if:
1. You can properly pronounce Eufaula, Gotebo, Okemah, and Chickasha.
2. You think that people who complain about the wind in their states are sissies.
3. A tornado warning siren is your signal to go out in the yard and look for a funnel.
4. Your idea of a traffic jam is ten cars waiting to pass a tractor on the highway.
5. You've ever had to switch from "heat" to "A/C" in the same day.
6. You know that the true value of a parking space is not determined by the distance to the door, but by the availability of shade.
7. Stores don't have bags, they have sacks.
8. You see people wear bib overalls at funerals.
9. You think everyone from a bigger city has an accent.
10. You measure distance in minutes. ("I'm about 5 minutes away.")
11. You refer to the capital of Oklahoma as "The City."
12. It doesn't bother you to use an airport named for a man who died in an airplane crash.
13. Little smokies are something you serve only for special occasions.
14. You go to the lake because you think it is like going to the ocean.
15. You listen to the weather forecast before picking out an outfit.
16. You know cowpies are not made of beef.
17. Someone you know has used a football schedule to plan their wedding date.
18. You have known someone who has had one belt buckle bigger than your fist.
19. A bad traffic jam involves two cars staring each other down at a four- way stop, each determined to be the most polite and let the other go first.
20. You know in which state "Miam-uh" is and ! in which state "Miam-ee" is.
21. You aren't surprised to find movie rental, ammunition, and bait all in the same store.
22. Your "place at the lake" has wheels under it.
23. A Mercedes Benz is not a status symbol. A Ford F350 4x4 is.
24. You know everything goes better with Ranch.
25. You learned how to shoot a gun before you learned how to multiply.
26. You actually get these jokes and are "fixin" to send them to your friends..
27. Finally, you are 100% Oklahoman if you have ever heard this
conversation:
"You wanna Coke?"
"Yeah."
"What kind?"
"Dr. Pepper."

SARBOX Leadership Is Up for Grabs

Bob Pozen takes to the op-ed pages of the WSJ to denounce, in his understated way, Sarbanes-Oxley and propose a sensible solution, much the same way he did with social security reform. However, unlike social security reform, there is a good chance that Democrats in the Great Sausage Factory will listen to him this time. As I have noted previously, SARBOX reform is politically costless and would attract strong support from business interests. It's a great issue for which leadership is up for grabs. At this point, the Democrats seem to be out in front, not because they are running particularly well, but rather because the Repubicans seem to be standing still at the starting gate.

UPDATE: I can't find the link but Bloomberg has a TOP function story about how SARBOX critics in the Great Sausage Factory have started conducting hearings to address the horrendous compliance burden imposed by the law. It seems Candice Miller (R-MI), chairwoman of the House Government Reform subcommittee, is leading the charge. The article mentions Republicans Tom Feeney (FL) and Mark Kirk (IL) and Democrat Gregory Meeks (NY). That would seem to make my earlier assessment a bit off the mark. Count me as agnostic over which party take the lead though, good policy is good policy, so this is encouraging.

Business Must Be Slow at Civil Rights Inc.

Good to see that the civil rights movement is still tackling society's most wrenching racial issues.

Bloomberg Presents Enigma On Economy

After weeks of attempting to bash the Bush Administration's handling of the economy (i.e. here, here, and here) Bloomberg has this story today:

"Snow, Presiding Over Best U.S. Economy in Years, Finds His Future in Doubt"

So have Al Hunt & Co. had a change of heart? Did internal controls break down at Bloomberg News? Or are they admitting to a good economy in a twisted attempt to say that, by virtue of Snow's uncertain future, Bush can't even see what is going well in his administration? Puzzling.


UPDATE: Don Luskin points out how Treas. Sec. Snow is dealing with the uncertainty, although he is wrong to imply that Snow has not done this before. He predicted the total number of new jobs that would be created in 2004 (2.5 million if I recall, too lazy right now to check) in the runup to the election in order to counter the "jobless recovery" line of the MSM.

Not Looking Good

From a WSJ editorial today:

"We hear that the House-Senate conference to extend the 15% capital gains and dividend rates isn't even meeting."

Failure to achieve this would be a failure of monstrous proportions. Here's why.

Thank Heavens for Small Favors

Since I've been on hiatus for a bit, I missed blogging some important follow-up items. We dodged a serious bullet lately when Senators Graham and Schumer decided to stifle their protectionist urges for the time being. I think the only thing that is more destructive to economic prosperity than one of Chuck Schumer's ideas is one of Chuck Schumer's ideas that garners 'bipartisan support'.

Original post here.

Hollywood's Basic Instinct, Whine

Veering away from economics, policy and markets for a moment...I gotta take on these doofuses:

Paul Verhoeven, director of the first "Basic Instinct" (which scored $353 million worldwide) as well as the widely ridiculed "Showgirls" (now regarded as something of a camp classic), attributes the genre's demise to the current American political climate.
"Anything that is erotic has been banned in the United States," said the Dutch native. "Look at the people at the top (of the government). We are living under a government that is constantly hammering out Christian values. And Christianity and sex have never been good friends."
Scribe Nicholas Meyer, who was an uncredited writer on 1987's seminal sex-fueled cautionary tale "Fatal Attraction," agrees, noting that the genre's downfall coincides with the ascent of the conservative political movement.
"We're in a big puritanical mode," he said. "Now, it's like the McCarthy era, except it's not 'Are you a communist?' but 'Have you ever put sex in a movie?'"

First, they need to get off their high horse. Movies just ain't that important. Also, there is more competition for Americans' leisure time and dollars. And maybe, just maybe Basic Instinct was a one-hit wonder, and recycling it with its sultry star 14 years older and precisely that less sultry (despite the miracles worked by the southern California cosmetic surgery industry) was not appealling to audiences. And maybe, just maybe in 1992 there were alot of us who were stupid and voyeuristic enough to pay $6 to see Sharon Stone's bush for .4 of a nanosecond. Maybe young men have gotten smarter and wouldn't pay $10 to see a 48 year old's bush for anything less than 2.5 full seconds or something. Finally, maybe Basic Instinct's appeal wasn't even sex, maybe it was the thriller aspect and the fact that this genre was relatively fresh at the time, and now it is stale.

I am sick of Hollywood doofuses blaming conservativism for their shitty numbers. Body Heat and 9 1/2 Weeks did OK even though Reagan was in office, because they were not crappy movies. Give us a fresh exciting plot, good acting, and sub-30 year old boobs, and we will come.

More SARBOX Stuff

I previously posted about a survey of institutional investors that NASDAQ was conducting regarding Sarbanes-Oxley. I seems that CFO magazine has done their own survey too. Check it out here.

I also highlighted the WSJ column by Mallory Factor awhile back. Bloomberg has more on this today.